Afghanistan’s Economy: constraining opportunities or excessive barriers

Afghanistan has thrived because of its great advantages and potential. Specifically, natural, geopolitical, financial, and human capital—despite the privileges highlighted, the country lacks everything. For decades, it has served as a buffer state against opposing ideologies, rival governmental structures, emperors, and, last but not least, ethnic groups. The majority of the western colonies or buffer nations, including Taiwan, Japan, India, and so on and so forth, have developed their economic and political systems with each incident, and as a result, each of them now embodies at least one aspect of world power. Conversely, after every episode, significant changes have been observed in Afghanistan, including the incarceration of youths, brain drain, adjustments to administrative structures, stalling of the financial system, dissolution of the military, shifts in cultural values, etc. The aforementioned phenomenon did not only occur in Afghanistan; history has revealed that most nations have suffered similar things, but they have kept their ground and changed the course of events, whereas in Afghanistan it is still the opposite way around.

In 2020, the GDP per capita in Afghanistan was estimated to be $529, which means that the average Afghan earns 46,000 AFN annually. In contrast, between 2020 and 2021, the annual income in Iran was estimated to be $2,756, followed by Pakistan’s income of 1,537, India’s income of 2,277, Tajikistan’s income of 1,983, and Uzbekistan’s income of 897. This is happening in Afghanistan, where there is the potential for the GDP per capita to increase and reach $2,800–$3,000.

How . . .?

1. Natural Resources

Natural resources are abundant in Afghanistan. 1) According to a recent analysis by the United States of America, Afghanistan’s natural resources, including copper, iron, and precious and semi-precious stones, are worth at least $3 trillion. 2) Only 10% of Afghanistan’s estimated 213.5 billion m3 of water, which has a depth of 327 mm, is thought to be used for agriculture and the generation of electricity. Afghanistan has the capacity to generate over 23,000 megawatts of hydroelectric power from its own resources, but the nation now produces just over 600 megawatts of electricity from its several hydroelectric plants, as well as using fossil fuels and solar panels. Currently, statistics state that 73% of Afghanistan’s power depends on its neighbors. In other words, 22% come from Iran, 4% from Tajikistan, 17% from Turkmenistan, and 57% from Uzbekistan, costing Afghanistan hundreds of millions of dollars per year. Its degree of free flow to neighbors like Iran and Pakistan is a different matter. For Afghanistan and its neighbors, using water sustainably for energy generation, drinking water supply, and as a resource for business and agriculture can be a wise investment. 3) Afghanistan is a country with enormous agricultural potential and has a long history of exporting dried fruit and fruit to India and the Middle East. Investment in agriculture can increase rural incomes from $1 to $4 per day, which is the economic threshold at which drug production becomes unprofitable—a realistic goal. The experience of the United States West in the 1950s through the 1970s and the experience of East Asia during the same period provide a wide range of options in Afghanistan.

 

1. location or Geopolitics

1) Afghanistan’s geographic position makes it possible to connect China, South Asia, the Gulf States, and Central Asia by land. An analysis of the geology reveals that pipelines can transport gas from Central Asia to South Asia via Afghanistan. 2) Water transfer might be just as important, as Iran is interested in establishing water and oil exchange systems with Afghanistan and Central Asia. 3) The potential for transit is also enormous; Uzbekistan produces 800,000 tons of cotton each year, which now travels via numerous nations and incurs high transportation costs. As opposed to this, Pakistan imports roughly 2.2 million bales of cotton annually for its developing textile sector. Investment in efficient supply chains may boost regional integration, boost tax income for Afghanistan and Uzbekistan, and lower Pakistani transportation costs. 4) Afghanistan may also serve as the focal point of collaborative border management. A line of cooperation can be drawn along the Tajikistan border, which was heavily fortified during the Soviet era. Aga Khan Foundation-built bridges have made it easier to conduct trade and other exchanges across the border, including the use of Tajik hospitals by Afghan patients.

 

1. Human Capitol

1) Many people have accumulated huge funds since 2001, and the wealth of Afghans in the diaspora reaches billions of US dollars. The main obstacle to the mobilization of this capital is the lack of financial and political architecture. According to the study conducted by the UNHCR and ILO, Afghans working in Iran annually send about 500 million dollars, equivalent to about 6% of Afghanistan’s GDP, back to Afghanistan. 2) Afghans living in the Gulf, Pakistan, Russia, Europe, and the United States of America have shown serious interest in investing in their country. Corruption, insecurity, and a lack of clear laws and policies have deprived the country of the opportunity, and instead, the flow of money has moved in the opposite direction; every year, billions of dollars escape from the Afghan economy to the Gulf and other safe havens.

 

Based on the actual notion of “supply and demand,” the aforementioned goods might connect Afghanistan with regional and international markets, such as: 1) It is projected that 2.95 billion US dollars will be invested directly by Indians in the United States in 2021. 2) In the year 2021, $38.25 billion is anticipated to be invested in American businesses by Chinese firms. Between 2015 and 2016, this amount of FDI significantly increased. Yet, in 2021, US direct investments in the global market will total US$6.49 trillion, with a value of about US$12.3 billion in Russia. As a result, the government’s gross receipts have increased, there are many more jobs now available, the country’s GDP is growing, and business activity has expanded. In contrast, with more than $3 trillion worth of natural resources, enormous financial and human capital, and a geography that connects Asia in terms of trade, energy, transit, etc., Afghanistan has a trade deficit of $4457.70 million in 2021, specifically $5109.28 million in imports vs. $850.10 million in exports as of December 2021. Above all, more than 70% of the population lives in poverty and is in critical need of humanitarian assistance; as well, millions have fled the country, and many are trying to flee.

WHY. . .?

The financial and political structure of Afghanistan is not founded on the idea of a direct economy and a market policy for the Afghan people; rather, it is centered around several axes, such as the economy of war, the economy of drugs, the economy of corruption, etc. 1) Afghanistan’s meager economy is heavily dependent on drugs. In 2008, opium, morphine, and heroin exports had a potential worth of $3.4 billion, compared to a GDP of $10.2 billion. According to the United Nations Office on Drugs and Crime, heroin costs an average of $2.50 per gram in Afghanistan, $3.50 in Pakistan and Iran, $8 in Turkey, $12 in Albania, and $18 in Slovakia at wholesale. In Russia, it costs 33 dollars, 30 dollars in Britain, and 22 dollars in Germany. According to the United Nations Office on Drugs and Crime (UNODC), opium production has generally increased in Afghanistan by 32% since last year. Additionally, it stated that from 425 million US dollars in 2017 to 1.4 billion dollars in 2021, farmers’ earnings from the sale of opium increased. In 2022, it is estimated that the value of opium in Afghanistan will be 6,200 tons, or roughly $1.55 billion USD, and that its export to the European market will be around $136.4 billion USD, with 15-20% of its contents going to farmers and internal smugglers within Afghanistan and the remaining going to regional smugglers and supplier commissions. 2) The reconstruction of Afghanistan’s security forces, civilian government institutions, economy, and civil society has cost the US government 145 billion dollars and 20 years. According to the Department of Defense (DOD), 837 billion dollars have been spent on the war in Afghanistan throughout the years, the majority of which has been stolen by contractors and large corporations. 3) A SIGAR estimate puts the total amount donated by the United States alone at $145 billion in development aid over the past 20 years. As noted by SIGAR, there are significant allegations of “waste, fraud, and abuse” against US reconstruction efforts in Afghanistan. Also, the internal corruption has poured millions of dollars into the pockets of commanders, generals cooperating with the government group, and political extortions, which at the same time have caused: almost 2 million people to flee from Afghanistan after the fall of the republic, and it is still going on; according to the UN, more than 500 thousand people have become unemployed; almost 70 percent to 80 percent of the country’s population depends on international aid; and the majority of the country’s population is registering to join the labor markets of Saudi Arabia, Qatar, the UAE, and so forth.

 

By: Elham Kabir

Former Director General of Markets Management at Kabul Municipality (2021) &, Investment Attraction Expert at the office of the Senior Advisor to the President (2019).

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