Afghanistan’s new battle for economic development

Not for nothing is Afghanistan described as the “graveyard of empires”, having rebuffed the British and Soviet empires at the height of their powers. When Barack Obama announced the end of the US-led mission in Afghanistan in 2014, it closed the book on America’s longest ever war, one that claimed the lives of 3,300 Allied troops. Viewed from almost any angle, Afghan-istan appears an unqualified sovereign basket case. One-third of the population earns less than $2 a day according to the World Bank. Roads are old and broken or new but too unsafe to use. The energy grid is patchy and the extractives sector, while laden with potential, is either completely untapped or, notes Hameed Hakimi, a research associate at Chatham House’s Asia Programme, “riddled with corruption and criminality”.

Personal safety, whether you live in Kabul or in the provinces, is elusive as ever. The number of terror-related deaths slipped a little in 2016, but only to 4,500, according to intelligence portal Statista, making it one of the world’s most dangerous countries.

By some counts, Afghanistan is home to 20 terror outfits, including Islamic State, a relatively new arrival. In September, US secretary of defence Jim Mattis said he would send 3,000 new troops to Afghanistan to train local forces and stem a sharp rise in insurgent-led attacks.  

Yet despite the shadows that lie across the land there is cautious reason for hope. America’s decision to pull active troops out of the country came months after the election, in September 2014, of President Ashraf Ahmadzai.

An anthropologist by training, the former chancellor of Kabul University isn’t everyone’s cup of tea. Shoaib Rahim, a Kabul-based political and economic development analyst, says there is “a pre-2014 and a post-2014 era” in Afghanistan. “Before Ahmadzai, the economy was doing well. Since his arrival, international aid has diminished and capital flight has risen, with the well-connected taking their money to Turkey and Dubai.”

It’s a fair point. Active foreign troops did more than just suppress gunfire and train local militia: they also built bridges, schools, hospitals and roads. Their presence helped to keep the peace ensuring a steady if low flow of inward foreign direct investment.

Iraq’s bond: a glimpse of the future

But Ahmadzai’s vision of the future also makes sense. A natural technocrat who studied nation building at Johns Hopkins University before joining the World Bank in 1991, his presidential campaign included a pledge to wean Afghanistan off donor aid and to build a modern, stable, developed economy in which foreign corporates want to do business.

For proof that it’s possible to rebrand a troubled sovereign in the eyes of global investors you need only look at Tajikistan and Iraq, both of which printed heavily subscribed dollar bonds over the summer.

Ahmadzai’s record so far is mixed. An IMF country report published in June warned that the “challenging” security situation was undermining confidence and crimping growth. It tipped the economy to expand by 3% in 2017 against 2% in 2016 and 0.8% in 2015. But this, it added, was “far below” the growth rate needed to create enough jobs and raise living standards. (In stark contrast, the economy in the 10 years to the end of 2012, buoyed by heavy infrastructure investment, grew at an average annual rate of 9.4%.)

Getting Afghanistan on track

The saving grace for Afghanistan could, as has through history so often been the case, come from its place on the map. Much of the infrastructure built by Allied troops and multilaterals focused on local or regional highways. But a slew of new rail lines could transform the entire economy.

In September 2016, a rail line linking western China with the Afghan border town of Hairatan, via Tajikistan, opened for business. Another track connects Turkmenistan with Tajikistan via the northern Afghan towns of Kunduz and Sheberghan. Then there’s the Five Nations Railway Corridor, which aims to link China and Iran via Kyrgyzstan, Tajikistan and Afghanistan by 2022. President Ahmadzai is an outspoken fan of the $2bn project, which both he and the Chinese leadership view as an integral part of China’s Belt and Road Initiative.

These projects and a host of others are crucial to the country’s economic future. The Hairatan line cuts the time it takes to get Afghan goods to market in China’s main cities from six months to less than two weeks. It also means Afghanistan is less dependent on shipping most of its goods south through Pakistan.

And that, says Alice Mummery, an analyst in The Economist Intelligence Unit’s Asia team, should be a boon for the country’s agricultural sector. “Farming,” she notes, “drives the entire economy”. Indeed, Afghanistan has been growing the finest melons for nearly 5,000 years, while its grapes, apples, pomegranates, pistachios and strawberries are coveted across the Middle East.

That few beyond its borders know this is largely due to poor infrastructure, including a lack of cold storage facilities, ensuring fresh produce spoils before it hits the market. Good, working, pan-regional infrastructure, notes the political analyst Rahim, “should change that, giving a much needed lift to tax revenues”. (The IMF reckons that the government raised $2.6bn in revenues in 2016, benefiting from a new 10% fee on cellphone top-ups, against $2bn the previous year.)

And better infrastructure will help in other ways. Afghanistan, notes the EIU’s Mummery, is “rich in natural resources”, including lithium, iron ore and coal. A 2017 survey by the ministry of mines and petroleum put the nation’s mineral wealth at north of $3tr. It is also a potential future clean energy power, thanks to its wide, fast running rivers and deep lakes. If it invests well, Afghanistan could earn billions of dollars a year in revenues by exporting clean energy to the wider region.

Three options

From here the road forks. Afghanistan can pursue one of three options. One path leads nowhere, to a future in which the nation, in failing to develop, remains addicted to foreign aid and US-led military support. Down the second lie only the shadows of the past: a nation controlled by warlords, riven by crime and corruption and exporting little but terrorists.

But the third path is the charm. This one leads to a brighter future in which the landlocked nation becomes not a bridgehead between Central and South Asia but an integral part of both — a “great transit point”, in the words of EIU analyst Mummery, linking China with Iran and India with Central Asia. Much needs to go right to make this a reality. But the hope, for the first time in many years, is real.