The Pulse

Afghanistan: Prospects and Challenges to Regional Connectivity

Afghanistan has a long and difficult road to transition from an aid dependent economy to a trade and transit economy.

By Mariam Safi and Bismellah Alizada for
Afghanistan: Prospects and Challenges to Regional Connectivity

Trucks carry goods on its way to neighboring Afghanistan through the Khyber Pass in Pakistani tribal area, Tuesday, March 21, 2017.

Credit: AP Photo/Muhammad Sajjad

Afghanistan’s strategic location has for a long time been touted as a competitive advantage for the country. The National Unity Government (NUG) has emphasized that Afghanistan’s economy will be transformed and economic growth achieved if the country can utilize this advantage and turn itself into a regional hub for trade and transit. To materialize that ambition, however, Afghanistan needs extensive infrastructure development internally and connectivity externally. To that end, Afghanistan can tap into the potential of regional connectivity projects like China’s Belt and Road Initiative (BRI) and Russia, India, and Iran’s International North-South Transport Corridor (INSTC) that have come onto the scene in recent years.

Nevertheless, the prospect of these initiatives in setting Afghanistan on the path to self-reliance remains unpromising, at least in the short run, as the country continues to face a multitude of interdependent challenges. This was confirmed by the findings of a recent study by the Organization for Policy Research and Development Studies (DROPS), a research think tank based in Kabul.

Afghanistan’s Path to Regional Connectivity

Afghan and Chinese policymakers see Afghanistan’s location as its greatest advantage under the BRI, mainly because it facilitates the movement of goods, data, and energy. The DROPS study reveals that although the BRI initially bypassed Afghanistan, Chinese officials announced concrete steps to integrate Afghanistan in 2017, a year after signing of a joint MOU. As it stands, China is linked to northern Afghanistan through the commencement of the Sino-Afghanistan Special Railway Transportation Project and the Five Nations Railway Project. China also wants to link itself to southern Afghanistan through the China-Pakistan Economic Corridor (CPEC) but this has been received with hesitation by Afghanistan as its caught in the middle of a dispute between Pakistan and India over CPEC traversing through disputed territory. China and Afghanistan have already initiated a fiber optic link through the Wakhan corridor and are looking to link the BRI to various energy projects and extractive sectors. Kabul-Urumqi flights resumed in 2016.

Many in Afghanistan feel these to be modest steps at best, not to mention most are still in the feasibility study stage. Critics are calling for more concrete steps and investment to accompany these big plans. Nevertheless, China’s ambassador to Afghanistan, Liu Jinsong, defined Afghanistan as a vital partner in the BRI.

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Another major regional connectivity project is the nascent International North-South Transport Corridor (INSTC) being advanced by Russia, Iran, and India as of 2017 to link the Indian Ocean to Europe. Afghanistan has the potential to link itself with INSTC through Chabahar port and the Lapis Lazuli Corridor. The first shipment from India reached Afghanistan through Chabahar port in November 2017, making the port a strategic alternative to Pakistan’s Karachi port on which Afghanistan has thus far been heavily dependent. Moreover, Afghanistan sent the first shipment of merchandise to Europe via the Lapis Lazuli Corridor in mid-December 2018. With both Chabahar port and the Lapis Lazuli Corridor now in operation, the INSTC could further opportunities for Afghanistan to access the Indian Ocean and Europe.

Challenges Facing Connectivity

Notwithstanding the prospects these initiatives hold for Afghanistan, we identify several challenges, as outlined in the DROPS study, that stand in Afghanistan’s way to becoming self-reliant through regional economic connectivity projects. Foremost, the study finds that as long as Afghanistan remains in a state of ongoing conflict and political instability, it will not be able to strengthen its position in the region to materialize its regional connectivity ambitions. Countries need to feel that Afghanistan is a safe trade and transit hub and that they can realize a return on their investments. Moreover, the infrastructure deficit remains a major hurdle and major reforms are needed in the financial and banking institutions — such as safe and competent standardized transactions– to make the environment investor friendly. These challenges, according to policymakers in Afghanistan, restrict the country’s role in regional and international economic initiatives to that of a “policy taker” rather than an “initiator.” This position weakens Afghanistan’s bargaining position as its interests in these policies always remain secondary to others.

Another downside is the lack of growth in Afghanistan’s domestic economy and export sector. Afghanistan’s economy remains largely a consuming one; thus, if the country links itself too hastily to regional projects, it compromises the growth of its local economy as it will face competition from stronger economies, such as China, Iran, India, and Pakistan, that its domestic industry currently cannot match.

Moreover, political frailty in relations between Afghanistan and its neighbors, particularly Pakistan, poses yet another bottleneck for its integration into regional initiatives such as the BRI. The threat of economic opportunities being undermined by politics is very relevant to Afghanistan’s case. For instance, the study finds that the Afghanistan-Pakistan Transit Trade Agreement (APPTA) signed in 2010 for five years was never renewed after it expired in 2015, due to disagreements between Afghanistan and Pakistan over including India. Disagreements between India and Pakistan have also prevented Afghanistan from planning steps to link itself to CPEC. Sanctions by the United States on Iran in 2015 have also left a negative impact on Afghanistan’s economy. Although partially relieved by a recent U.S. exemption on Chabahar port in November 2018, the sanctions continue to affect remittances, imports, and the illegal movement of U.S. currency from Afghanistan to Iran.  

The Way Forward

Afghanistan has a long and difficult road to transition from an aid dependent economy to a trade and transit economy. The Afghan government views initiatives such as the BRI and INSTC as vehicles that could enable it to transform its economy but for Afghanistan its journey to self-reliance is a race against time. The end of the Transformation Decade is closely approaching, and by 2024 there will be a significant decline in the aid it receives. It does not appear from this study that the BRI and INSTC will be able to alter Afghanistan’s economic trajectory in the near term as their implementation depends on infrastructure development, reforms, addressing regional trade rivalries, improving management, building local capacities, ensure better governance, and  tackling corruption — all of which are, in turn, dependent on much larger national and regional issues related to Afghanistan’s stability and security.

Without going into these larger issues, which is beyond the scope of this paper, below are a few key recommendations highlighted in the DROPS study by Afghan government officials, the private sector, and civil society organizations on how Afghanistan can transform its economy. First, Afghanistan should develop its own proactive policies and domestic capacities to entice others to connect with its initiatives rather then always connecting to initiatives of others in the region. This is crucial because, given the security an economic situation, there is less motive and interest for other countries to make an overture toward Afghanistan. Second, Afghanistan alone cannot address the obstacles to realizing its full potential as a regional hub and needs a regional approach to “turn these weaknesses into core competencies.” This regional approach may include regional cooperation, regional integration, and attraction of investment in Afghanistan’s infrastructure that will turn it into a regional hub for trade and transit. Third, the Afghan government should avoid adopting hostile economic policies with some countries, like Pakistan, while promoting favorable ones with others, like India. It is advisable that the Afghan government avoid intermingling economy and politics.  

Mariam Safi is the founding Director of the Organization for Policy Research and Development Studies (DROPS), a leading think-tank in Afghanistan. She is a member of the Afghanistan Policy Group, a Senior Fellow at the Institute of National Security Studies Sri Lanka, an alumni at the Near East South Asia Center for Strategic Studies, and a local peace-building expert for Peace Direct. Ms. Safi has an MA in International Peace Studies from the United Nations-mandated University for Peace in San José (Costa Rica).

Bismellah Alizada is the deputy director at DROPS. He holds a BA in political science from Kabul University and has been involved in civil society and human rights activism since 2012 when he co-founded Youth Development Association (YDA), a local CSO focused on youth and women empowerment through advocacy, training, and awareness raising. He has also co-translated the book China in the 21st Century: What Everyone Needs to Know.