Country Profile: Afghanistan

• Afghanistan gained prominence in the world history for centuries as an important port city on the Silk Road.
• According to the latest Doing Business Report by the World Bank, Afghanistan featured on the list of 10 top improvers for the first time in the report’s history. This is quite impressive given the background of fragility, conflict and violence in Afghanistan.
• The right combination of policies and continued international assistance can help Afghanistan achieve sustained high rates of growth. India can play an active role in Afghanistan’s reconstruction.
• Indian exporters have potential in commodities like wheat, animal/vegetable fat, green tea, vegetables, rice, biscuits, cane or beat sugar, chocolate & tobacco to Afghanistan.

Situated at the heart of Eurasia, Afghanistan is a land bridge between Central and South Asia, and the Middle East and the Far East. This landlocked multi-ethnic country houses some beautiful mosques and some of the most varied physiographic features – from mountains to deserts. In fact, it is in this landlocked country where the founder of the Mughal dynasty, Babur took his first steps. Afghanistan gained prominence in the world history for centuries as an important port city on the Silk Road.

Owing to its strategic position along important trade routes connecting southern and eastern Asia to Europe and the Middle East, Afghanistan has long been a prize sought by empire builders. This battle for power & control, therefore, has been at the center of gravity as far as shaping the country is concerned. While the late 19th century witnessed a complex game of thrones being played out between imperial Britain and tsarist Russia; in the 20^th century, Afghanistan was a pawn in the hands of militant groups that brought death and destruction. Today, however, with international aid and support, this war-torn country is trying to get back on the road to a stable democracy.

The country’s economy, with a GDP of US$ 19.3 billion (2018), continues to face major headwinds. Last year, Afghanistan’s growth slowed to 1.8% due to severe a drought and intensifying insecurity. This drought led to a significant loss of crops and brought a substantial chunk of population under the clutches of poverty. At the same time, the political instability and the inability to arrive at a political settlement with the belligerent Taliban has dampened investor confidence.

This, however, is not to undermine the fact that the country is working diligently towards economic advancement and development. According to the latest Doing Business Report by the World Bank, Afghanistan featured on the list of 10 top improvers for the first time in the report’s history. This is quite impressive given the presence of fragility, conflict and violence in Afghanistan. Some of the measures undertaken by the Afghani administration that have helped catapult Afghanistan’s performance were in the fields of:

1. Making it less costly to start a business by reducing the fees for business incorporation.
2. Enacting an insolvency law to facilitate access to credit.
3. Protecting minority investors by requiring greater disclosure of transactions with interested parties, easing shareholder suits by extending access to documents and evidence during trial, increasing shareholders’ rights and role in major corporate decisions, clarifying ownership and control structures and requiring greater corporate transparency.
4. Adopting a new tax administration – a manual with clear rules and guidelines on tax audit, and automating the submission of tax returns – to smoothening the process of paying taxes.
5. Easing the process of resolving insolvency by improving the continuation of the debtor’s business during insolvency proceedings, introducing the reorganization procedure and granting creditors greater participation in the proceedings.

Afghanistan has also managed to maintain decent commercial ties with the rest of the world. Some of the major commodities that it exported to the rest of the world in 2018 include: edible fruit and nuts; lac, gums, resins and other vegetable saps and extracts; mineral fuels, mineral oils and products of their distillation; coffee, tea, maté and spices; oil seeds; cotton; carpets and leather. Some of the major products that it imports include: mineral fuels; products of the milling industry; animal/vegetable fats; vehicles; iron & steel; textile fibers; cereals; electrical machinery & sugar.

List of top 10 export destinations for Afghanistan

List of top 10 sources of import for Afghanistan

Source: ITC Trade Map, figures for 2018

Afghanistan is expected to prosper according to the IMF’s World Economic Outlook (July’19), which projects its growth to be around 3% in 2020. World Bank, however, is slightly more optimistic about its growth & estimates the figure to be 3.5% during the same period. Its Afghanistan to 2030 Report states, “The right combination of policies and continued international assistance can help Afghanistan achieve sustained high rates of growth despite ongoing fragility”.

India – The big brother!

India-Afghanistan relations have been strengthened by the Strategic Partnership Agreement, which was signed in October 2011. The Agreement provides for assistance to help rebuild Afghanistan’s infrastructure and institutions, education and technical assistance, investment in Afghanistan’s natural resources, duty free access to the Indian market for Afghanistan’s exports, and advocacy of the need for a sustained and long-term commitment to Afghanistan by the international community.

 Political & diplomatic engagement also cemented this burgeoning bonhomie. In February’16 H.E. Dr. Abdullah Abdullah, Chief Executive of Islamic Republic of Afghanistan visited India to discuss regional & global issues of mutual interest; while in December’16, India’s PM Shri Narendra Modi inaugurated the newly constructed Afghan Parliament. Some of the other significant initiatives that have bolstered this amity include Motor Vehicles Agreement for the Regulation of Passenger, Personal & Cargo Vehicular Traffic; and development of the Chabahar Port. India has also showed a keen interest in some development programmes such as the Shahtoot Dam, road connectivity to Band-e-Amir to promote tourism and support for education, capacity building, skills and human resources. 

The ripple effects of this brewing friendship are also evident in their commercial ties. In 2018, India imported goods worth US$ 420.1 million from Afghanistan; with edible fruits and nuts, lac, coffee, tea, spices, edible vegetables, oilseeds & electrical machinery being the top items of import. India’s exports to Afghanistan in 2018 encompassed commodities like tobacco, apparel, pharmaceuticals, iron/steel, textiles, edible fruits and nuts & footwear and amounting to US$ 728.4 million.

Source: ITC Trade Map

Source: ITC Trade Map

One promising avenue for these countries to build on this strong association is the food & beverage segment. This is owing to the fact that Indian food basket has a lot to offer to the Afghani palate. Some such examples of the top agricultural and processed food products imported by Afghanistan from India in the last 3 years include: tobacco, groundnuts, milk, vegetable seeds, decaffeinated coffee, spices, cashew nuts, black fermented tea and sweet biscuits. In fact, in 2018, Afghanistan imported top agricultural and processed food products from India worth US$ 221.5 million.

India is a leading producer in the world of cereals, fruits & vegetables, milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper,  and coffee. In order to enrich this bond further, Indian exporters can enhance exports of commodities like wheat, animal/vegetable fat, green tea, vegetables, rice, biscuits, cane or beat sugar, chocolate & tobacco to Afghanistan since these are some of the top products that the latter imports from the world. Afghanistan, on the other hand, has significant potential for exports of figs, grapes, legumes, beans, apricots, juniper berries, pistachios, saffron and apples to India. 

Another area where the two countries can unlock their trade potential is through foreign direct investment in the F&B sector. This could be through investment in India’s food processing sector which is regarded as a sunrise industry as it is has tremendous potential for growth and contribution to the Indian economy. Given the growing preference among customers for packaged food, the scope for India’s food processing sector is quite bright in both the domestic and global markets. Hence, the Indian government has taken supportive measures like introducing 100% FDI in marketing processed food products made in India. Further, stakeholders from Afghanistan can also collaborate with Indian agri-tech startups. The Indian government has already enacted schemes like Startup Agri India scheme, the Digi Gaon (Digital Village) initiative, and Bharat Net Project are providing vital support to India’s emerging startups in this space.

The road that lies ahead is the one where India helps Afghanistan to attain political stability and development and helping it develop transportation, logistics, technology as well as human capital. Only then, will Afghanistan be able to come out of poverty and be an equal partner in this relationship. Moreover, having a peaceful Afghanistan is also vital for India’s own geostrategic interests. .