What next for Afghanistan’s economy?
Afghanistan’s economy is “shaped by fragility and aid dependence”. That is the troubling overview set out by the World Bank several months before the Taliban takeover.
Economic prospects look even more precarious now, as future financial assistance is under a cloud of uncertainty. Afghanistan does have substantial mineral resources, but the political situation has impeded their exploitation.
The aid dependency is striking. In 2019, World Bank figures showed development aid was equivalent to 22% of gross national income (which is not the same as GDP, but close to it). That is a high figure, but it is down a long way from the 49% the World Bank reported 10 years earlier.
Now those aid flows are under a cloud of profound uncertainty. German Foreign Minister, Heike Maas told the broadcaster ZDF last week: “We will not give another cent if the Taliban takes over the country and introduces Sharia law.”
Other aid donors are sure to be watching developments closely. The fragility the World Bank refers to is illustrated by the very high levels of spending on security before the Taliban takeover: 29% of GDP, compared with an average of three percent for low-income countries.
Security and severe problems with corruption are behind another persistent problem in Afghanistan: very weak foreign business investment. According to United Nations data, there were no announcements in the last two years of new “greenfield” investments, which involve a foreign business setting up an operation from scratch. Since 2014, there have been a total of four.
To take two other countries from the South Asia region, both with somewhat smaller populations, Nepal has managed 10 times as many and Sri Lanka 50 times more over the same period. The World Bank describes Afghanistan’s private sector as narrow. Employment is concentrated in low-productivity agriculture: 60% of households get some income from farming. The country also has a large illicit economy. There is illegal mining and, of course, opium production and related activities such as smuggling. The drugs trade has been an important source of revenue for the Taliban.
All that said, the Afghan economy has grown since the US invasion in 2001. The figures for Afghanistan are not reliable, but what they show, according to the World Bank, is average annual growth of more than nine percent in the 10 years from 2003. After that, it slowed (which may well reflect the lower levels of aid) to an average rate of 2.5 percent between 2015 and 2020. The country does have significant natural resources, which would, in the context of better security and less corruption, be attractive to international business.
There are several types of mineral available in substantial quantities, including copper, cobalt, coal and iron ore. There is also oil and gas and precious stones. One with particularly striking potential is lithium, a metal that is used in batteries for mobile devices and electric cars. The latter application is going to be especially important as the motor industry makes the transition to zero-carbon forms of transport.
Back in 2010, a top US general told the New York Times that Afghanistan’s mineral potential was “stunning” - with “a lot of ifs, of course”. The paper also reported that an internal US Defence Department memo had said the country could become “the Saudi Arabia of lithium”.
Yet this undoubted potential is nowhere near being exploited - and the Afghan people have seen very little, if any, benefit from it. (BBC NEWS)