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Political turmoil in Afghanistan risks reversing economic gains made in the already fragile country, which depends on foreign aid and international support.
The Taliban have seized control, 20 years after they were ousted in a US-led invasion.
“We have every reason to be extremely pessimistic about Afghanistan’s economy. I don’t see economic stability in the country for many years to come. For that, one must have law and order,” said Talmiz Ahmad, a former Indian ambassador to Saudi Arabia, Oman and the UAE.
Afghanistan’s economy has been primarily dependent on foreign aid with domestic revenue sufficient to finance only around half of budgeted expenditures, according to the World Bank.
The country's economy grew an average 9.4 per cent between 2003 and 2012, driven by a booming aid-supported services sector and farming output.
Economic activity slowed to about 2.5 per cent per annum between 2015 and 2020, according to the Washington-based lender.
As a result of Covid-19, the onset of a drought, lower remittances, declining trade and growing instability in the country, the International Monetary Fund revised its growth forecast in June downwards to 2.7 per cent this year from an earlier 4 per cent estimate.
Inflation in the country had increased and was forecast to reach 5.8 per cent by the end of this year. With the collapse of the government, food prices are set to rise as borders with neighbouring countries close and panic buying sets in leading to a further surge in inflation.
“Our business got drastically affected in the last one month and we had to shut down our operations temporarily,” said Abdul Momin, chief executive of Momin Group, a Dubai-based company that produces and markets edible oil in addition to distributing electronic products and sugar.
Political turmoil and security concerns are likely to dent economic activity further as foreign embassies, non-profit organisations active in the country and other entities involved in reconstruction relocate their staff.
“Legal and illicit capital flows out of Afghanistan [are] likely [to] accelerate amid the ongoing upheaval,” Hasnain Malik, emerging and frontier markets strategy analyst at Tellimer Research in Dubai, said.
“Non-government foreign investment into Afghanistan likely remains minimal until such time as a new government is in place and if it is dominated by the Taliban then the main sources of that investment are likely to be China and Russia.”
The fluidity of the situation could also lead to an exodus of workers, according to Nihar Ranjan Das, a specialist on South Asia and a former Indian Council of World Affairs official.
A complete takeover of the country by the Taliban could lead to half the country's workforce being driven out “especially because they will probably not allow women to work,” Mr Ranjan Das said.
“Foreign direct investment is now going to be very difficult to come by. No company will want to invest in a country with no assurance of any returns.”
“UAE companies with operations in Afghanistan may not suffer that much,” Mr Das said. "The Taliban may be slightly supportive of the investments made in Afghanistan by the UAE.”
Dubai could benefit “in terms of both bank deposits and real estate, [we] should see some inflows from Afghanistan”, said Mr Malik of Tellimer. “But this has likely been going on for some time and the change is not material,” he said.
China, Russia and Pakistan are likely to have a wider role to play due to their investment and security ties with the country.
Before the Taliban seized power, as a sign of support for Afghanistan’s development and reforms, international donors had pledged $12 billion in civilian grants over 2021–2024 at the Geneva conference in November 2020.
That support was 20 per cent lower than what was pledged at a 2016 conference and is unlikely to make its way to the country until confidence returns through the restoration of security, political and economic reforms, anti-corruption measures and adherence to international laws.
Any emerging government under the Taliban needs to “maintain better international relations” to help the economy grow and attract investment, said Haji Obaidullah Khail, chairman of Afghan Business Council in Dubai.
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Uefa Nations League A Group 4
England 2 (Lingard 78', Kane 85')
Croatia 1 (Kramaric 57')
Man of the match: Harry Kane (England)
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Liverpool 2 (Mane 50', 54')
Red card: Andreas Christensen (Chelsea)
Man of the match: Sadio Mane (Liverpool)
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1) Beware of cheques presented late on Thursday
2) Visit an RTA centre to change registration only after receiving payment
3) Be aware of people asking to test drive the car alone
4) Try not to close the sale at night
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6) Call 901 if you see any suspicious behaviour
COMPANY PROFILE
Name: Rain Management
Year started: 2017
Based: Bahrain
Employees: 100-120
Amount raised: $2.5m from BitMex Ventures and Blockwater. Another $6m raised from MEVP, Coinbase, Vision Ventures, CMT, Jimco and DIFC Fintech Fund
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Tips on buying property during a pandemic
Islay Robinson, group chief executive of mortgage broker Enness Global, offers his advice on buying property in today's market.
While many have been quick to call a market collapse, this simply isn’t what we’re seeing on the ground. Many pockets of the global property market, including London and the UAE, continue to be compelling locations to invest in real estate.
While an air of uncertainty remains, the outlook is far better than anyone could have predicted. However, it is still important to consider the wider threat posed by Covid-19 when buying bricks and mortar.
Anything with outside space, gardens and private entrances is a must and these property features will see your investment keep its value should the pandemic drag on. In contrast, flats and particularly high-rise developments are falling in popularity and investors should avoid them at all costs.
Attractive investment property can be hard to find amid strong demand and heightened buyer activity. When you do find one, be prepared to move hard and fast to secure it. If you have your finances in order, this shouldn’t be an issue.
Lenders continue to lend and rates remain at an all-time low, so utilise this. There is no point in tying up cash when you can keep this liquidity to maximise other opportunities.
Keep your head and, as always when investing, take the long-term view. External factors such as coronavirus or Brexit will present challenges in the short-term, but the long-term outlook remains strong.
Finally, keep an eye on your currency. Whenever currency fluctuations favour foreign buyers, you can bet that demand will increase, as they act to secure what is essentially a discounted property.
