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19 Mar 2018 - 12:58
author avatar
19 Mar 2018 - 12:58

Protracted wars have devastated the infrastructure and financial wherewithal of Afghanistan by 2000. Since 2014, there has been considerable progress in social and financial indicators like life expectancy, per capita income and mortality rates. This change can be attributed to the perseverance, patience and hard work of the Afghan government, the central bank, multilateral institutions and its resilient citizens. After years, green shoots have started appearing in multiple fronts and hopes and aspirations about a new Afghanistan have emerged.

Some green shoots:

Firstly, Afghanistan was finally inducted to the World Trade Organization (WTO) on July29, 2016 after prolonged efforts by the government. This opens up a number of possibilities and advantages for Afghanistan. It opens up a plethora of opportunities to accelerate the trade, commerce and its allied areas like resolving trade disputes, to receive access to global markets and thus improving the image of the country by negotiations with other countries. This golden opportunity is likely to provide a bonus – ‘foreign direct investment.’

Secondly, the development of the Chabahar seaport, located in southeastern Iran on the Persian Gulf will open up a state-of-the-art and cost effective transit route for Afghanistan thereby boosting the country’s trade. The port will be an easy way of transporting goods from India to Afghanistan without touching the territory of Pakistan. 

Thirdly, DA Afghanistan Bank’s (DAB) Senior Management held a press conference on Successful Completion of the Second Assessment of Joint Economic Reforms Program between Afghanistan and IMF on December 10, 2017. DAB Governor Mr. Khalil Sidiq reiterated that the Central Bank, Ministry of Finance and the Government of Afghanistan have achieved all monetary policy objectives which include: curbing inflation, maintaining currency reserves, strengthening the banking system and incorporating regulatory and capital frameworks, etc. The above achievements were applauded by the IMF’s authorities.

Fourthly, according to the World Bank data, Afghanistan’s GDP has increased fivefold when compared to 2002. Asian Development Bank’s forecasting for GDP growth rate for Afghanistan from 2014-2018 clearly shows (from the table-1) that it has increased from 1.3 per cent in 2014 to 3.0 per cent in 2018.

Table-1

GDP growth rate for Afghanistan from 2014-2018. ( % per year)

Year

GDP growth rate

2014

1.3%

2015

0.8%

2016

2.0%

2017

2.5%*

2018

3.0%*

Source: Asian Development Bank

* Provisional

 

Fifthly, Afghanistan’s trade structure was highly concentrated around one trading partner-Pakistan in the last decade. The portfolio which was offered for export was agricultural and related products. This led to huge trade deficit.

 

The concentrated trade structure makes Afghanistan more vulnerable to external trade shocks. Research and empirical studies have shown that countries with small number of trade partners are susceptible to growth volatility leading to lower growth rates eventually culminating in inequality and poverty in the long run.

 

In 2016, the trade structure in Afghanistan became less concentrated than it was in the previous decade. There was a drastic increase in the share of trade with major trading partners thereby diversifying to countries like Pakistan, India, Iran, Islamic Rep., Turkey and United Arab Emirates for exports and for imports they were Iran, Islamic Rep., Pakistan, China, Kazakhstan and Uzbekistan.

 

An increase in the number of trade routes opened through Central Asia and Iran has provided a solid platform to diversify the exports and imports which is likely to improve the country’s capacity to recover quickly towards external shocks and to improve the Balance of Payments deficit.

 

To take advantage of the trade links with other countries, the Afghan government will have to enact Special Economic Zones (SEZ) and free trade zones (FTZ) laws and regulations with the partnership of countries like USA, India, and China. The Government of Afghanistan (GOA) should ensure that security is provided to the investors. SEZ should be established in different regions and should be allotted for different countries. It can be Invest, Build and Transfer model, whereby different countries invest in infrastructure and transfer the developed space to the GOA. FTZ will encourage other countries to establish their manufacturing and satellite business centres in these spaces and will create employment and growth for the country that has eluded till this moment.

 

If the political scenario change for the better and more secured environment is created, more green shoots will start appearing like investment injections from private sector and public –private collaborations will change the landscape of Afghanistan to a rich and prosperous country.

 

References:

https://www.adb.org/countries/afghanistan/economy

http://dab.gov.af/Content/files/SemiAnnual%20BulletinFY1396.pdf

http://dab.gov.af/en/news/425621

http://dab.gov.af/en/news/425621

https://www.usaid.gov/sites/default/files/documents/1871/FINAL-Economic-…

http://documents.worldbank.org/curated/en/471191495626000119/pdf/115229-…

https://economictimes.indiatimes.com/news/politics-and-nation/five-thing…

https://wits.worldbank.org/CountryProfile/en/Country/AFG/Year/2016/Trade…

https://www.export.gov/article?id=Afghanistan-foreign-trade-zones

 

View expressed in this article are of the author’s own and do not necessarily reflect Pajhwok’s editorial policy.

 

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The views expressed in this article do not necessarily reflect Pajhwok's editorial policy.

Author's brief introduction

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Rajesh.T.V. is a Business and Economic Journalist. He can be reached at [email protected]

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