Recently, Afghan President Mohammad Ashraf Ghani said Afghanistan’s exports would reach 8 billion dollars by 2024. According to Ghani, close cooperation, with help from the private sector, will help Afghanistan achieve the target, which has been set despite Afghanistan’s current exports being $0.83 billion now, up from $ 403 million in 2009. Based on data from Afghanistan’s Central Statistics Organization, Afghan exports have witnessed some improvement in the last 10 years, rising from $ 403 million to $570 million, more than 30 percent, during 2008-2014. Imports, however, jumped from $3.3 billion to $7.7 billion; a 133% percent increase over the same period.
Between 2014 and 2018, exports jumped from $570 million to $832 million while imports rose to $7.793 billion dollars. Importantly, during 2017-2018, the exports grew by 39.5 percent whereas imports increased by only 19.3 percent. Afghanistan’s export performance last year indicates that the country has the potential to export a billion dollars’ worth of goods if the government diversifies the current structure of exports and expands the number of export partners.
The major challenges for Afghanistan’s exports are the narrow market and the limited number of products for export.
A report by World Bank titled “Afghanistan to 2030: Priorities for economic development under fragility” shows that:
The top 10 export products account for more than 70 percent of total exports, compared with 13 percent for South Asia. The top five destinations – Pakistan, India, Iran, Turkmenistan and Germany –account for almost 90 percent of exports compared to 38 percent for South Asia. Similarly, top 20 imports and top 10 import partners account for 50 percent and 80 percent of all imports respectively. Pakistan and India are Afghanistan’s most important trade partners by a wide margin.
The report further mentions that only 6 per cent of firms in Afghanistan are engaged in trade with foreign countries. The proportion of companies manufacturing products in exports is even smaller.
Afghanistan as a landlocked country relies on its neighboring country for transit and trade, but the process is influenced by political tensions. Before 2016, Afghan goods transited via Pakistani ports, but the sudden closure of the borders and other economic and political tensions make it difficult for Afghanistan to transport goods via Pakistani ports.
The Afghan government has tried to develop alternative routes for trade and transit and is connected through a railway line with Uzbekistan. A new port called Aqina has been developed which facilitates trade with Turkmenistan and other Central Asian countries. The lapis lazuli corridor has been initiated, providing an opportunity for Afghanistan to trade with Turkmenistan, Turkey, and European countries. The joint Chabahar Port project of Iran, India and Afghanistan is developing, which allows Afghanistan to trade with its India and the West Asian countries. The air corridor with India, Saudi Arabia, and some other countries has been initiated which facilitates the export of fresh fruit and other seasonal products to be transported in less time. As a result of alternative transit routes, Afghanistan’s exports jumped from $414 million in 2012 to $832 million in 2018. The government now wants to increase exports to $8 billion by 2024. But if exports grow at the same rate as 2018 or any other past year, it won’t reach the target. To achieve the target, the Afghan government will have to maintain 58 percent export growth from 2019-2023, which is difficult.
Last year’s 39.5 percent increase in exports was largely supported by the air corridors, which is expensive for Afghanistan, because a large portion of the transportation cost is subsidized by the government.
According to the World Bank, although some aspects of the economy have improved since 2001, many aspects are in bad shape. Agriculture employs 56% percent of the total labour force while a low human development index and corruption in government institutions also trouble the economy. Almost 60 percent of the budget is dependent on foreign aid. Meanwhile, poverty was 54% in 2016, up from 38% in 2012. Given these parameters, how can the government support the air corridor for the next five years?
Afghanistan has very few products for export; all the exports are agricultural products which are not high-value products and can’t add value. The private sector suffers from lack of access to credit, lack of access to electricity, kidnapping, and many other difficulties. According to the World Bank report, only 3 percent of companies use bank loans to finance their purchases while 80 percent of the firms finance the purchases from their budget.
The volatile security and unstable political situation is a major problem facing the economy and the private sector, which has always raised its concerns about the insecure environment. Furthermore, poor infrastructure raises transportation costs for the firms, making them more uncompetitive in international markets.“Around 50 percent of firms in Afghanistan consider transportation a major or severe constraint. It costs $5,045 to ship a container from Afghanistan compared to $1,922 from an average South Asian country,” the report states.
Hence, the government should revise the export target to $4.5 billion, which can be achieved with 40 per cent annual export growth but will need hard work and close cooperation with private sector. Secondly, the manufacturing sector has to be supported. Currently, it contributes very little to the country’s GDP. An improved manufacturing sector will not only create jobs, but will also boost exports.
Thirdly, the mining sector has to be improved. Studies have shown Afghanistan has 1-3 trillion dollars’ worth of natural resources. The extraction of resources will not only provide enough funds to support the government budget, but can also increase exports by billions of dollars. According to the World Bank, “Development of agriculture and extractives combined show the largest potential and can boost exports by 14 percent”. Fourthly, infrastructure must be improved. The current poor infrastructure cannot support the private sector or exports.
Finally, the market for Afghanistan’s exports must be expanded, and exports have to be diversified. Change in weather, flood, and other seasonal factors can reduce agricultural produce. Therefore, there is need for diversification: exports shouldn’t be dependent only on 10 or 15 agricultural products.
(The author has a Masters in Economics from South Asian University, New Delhi. He can be contacted at Esmatkarimi1995@gmail.com)