How Afghanistan can build a strong economic future

Ashraf Ghani must seal a good deal for his country in talks with the US, says Asma-Khan Lone

Afghan president Ashraf Ghani. (Omar Sobhani / Reuters)

The focus on the effectiveness of the security forces is understandable given the challenges that confront Afghanistan.

However, in the long run, economic stability will have to be the key to sustainable peace in Afghanistan. While the previous government was largely security-driven, new president Ashraf Ghani is expected to underscore economic reconstruction as a key component of state-building.

Currently on a much anticipated visit to the US, Mr Ghani will need to work hard to convince the Obama administration to review its decision to withdraw most of its troops from Afghanistan by the end of 2016.

Targeted economic intervention could help bridge the governance gap and financial deficits, which contribute to a widening political and security vacuum. This vacuum in turn provides the leeway for extremists to move in.

For a decade after 2002, Afghanistan witnessed an encouraging 9.5 per cent growth rate and single-digit inflation, but this economic cycle was widely sustained by the inflow of donor funds and aid. With the ISAF drawdown edging nearer, the growth rate began to dip in 2013 and fell to 3.8 per cent by the beginning of this year. With little infrastructure, Afghanistan is set to face a downwards spiral especially as donor funding dries up.

While the 2012 Strategic Partnership Agreement with the US provides a temporary reprieve, including financial support for another decade, Kabul will ultimately have to devise plans to reboot its economy. In fact, at the core of its structural weakness lies Afghanistan’s overt reliance on foreign aid.

At present, Afghanistan is banking on two factors to resuscitate its economy: its strategic location and its natural resources. Situated at the intersection of the East-West trade corridor it hopes to leverage its strategic position and revive the ancient Silk Route.

The US has already drawn up plans for this in the form of its New Silk Road Initiative (NSRI). So has China, with its proposed Silk Route Economic Belt. Also on the horizon is the transportation of gas from the Caspian region to South Asia through the Tapi (Turkmenistan, Afghanistan, Pakistan, India) pipeline and the Turkmenistan-Afghanistan-China pipeline. Another energy project envisages the transmission of hydroelectric power to South Asia. Afghanistan and Pakistan have also signed a trade and transit agreement in 2010 allowing for the free movement of goods.

The other element of Afghanistan’s economic architecture is its natural resources. Afghanistan has traditionally been rich in resources such as coal, chromite and marble and has exported gas to Russia since 1967.

Though some studies were undertaken decades ago indicating the presence of vast mineral and hydrocarbon resources, it was not until 2010 that the US announced the discovery of nearly $1 trillion (Dh3.67 tn) in untapped mineral deposits. These reserves included huge veins of iron, copper, cobalt, gold and critical industrial metals such as lithium.

Afghanistan has already attracted considerable investment, with China pledging $2.8 billion for the development of copper mines, and a consortium of Indian companies in partnership with Canadian companies announcing an investment of $14.6 billion for the development of iron ore mines in Hajigak. However these projects are at a standstill due to the precarious security scenario.

The wealth of resources is, however, a double-edged sword that could usher in a vicious cycle of violence. So, while grand in design and exhibiting huge promise, the enterprises are wrought with uncertainties.

In the meantime, Afghanistan could focus on its other strengths such as agriculture and livestock.

With just 6 per cent of its land cultivated, it could increase yield and switch over from a predominantly opium-driven sector to alternative crops. This would address its food security issues too.

It could also enter into water-sharing agreements with neighbours, especially Pakistan. It could further build on its expanding service sector while undertaking measures to plug corruption – the third highest in the world – and try to bring order to its vast informal economy.

Episodes such as the Kabul Bank fraud, which was one of the worst in international banking history, should never be allowed to happen and earnest efforts should be made to reform the sector.

Only by developing a robust economy will Afghanistan become a bulwark against extremist ideology. if it does that it will not just be a win for this war-ravaged nation, but for the wider world.

Asma-Khan Lone is an assistant professor at Jindal Global University, India