Reaching out to Central Asia
Most analysts and commentators predict that post-2014 Afghanistan is going to face three major challenges – security, political and economic. The security and political aspects (including the transfer of responsibilities to the Afghan security forces, the process of electing a new President, and peace talks with the Taliban) are enormous difficulties that will have to be overcome. Foreign aid and the engagement of international organisations is set to decrease along with the number of foreign troops in the country, and while the Chicago and Tokyo conferences in 2012 earmarked USD 14 billion and 16 billion respectively for the 'transformative decade' of 2015-2024, it is clear that Afghanistan will soon have to rely on a home grown economy to drive meaningful and long-term reconstruction efforts.
According to the Afghan government, more than 70 nations have pledged about USD 120 billion for the reconstruction project since the fall of Taliban, the majority of which has come from the US. Recently however, amidst reports of aid money failing to reach its targets, corruption and the shoddiness of the final products, the patience of Congress and the American public is showing signs of wearing thin. Already, aid has been reduced significantly, and there is now a ban on beginning new infrastructure projects in the country by the US military.
Foreign aid and its effectiveness in promoting growth and development have always been controversial. The issue has become even more acute in the context of Afghanistan, where aid is being used to build a state in the midst of an ongoing war. Despite this, significant gains have been made in education, health, infrastructure, communications and the empowerment of women. With a shortfall in the means to continue these programmes, however, their sustainability is under serious threat. Asian Development Bank Outlook 2014 shows that growth in GDP (excluding opium production) had already declined to 3.3 percent in 2013 (a far cry from the 12 percent growth achieved in 2012) – leaving the Afghan government with even fewer resources to cover both security maintenance, and the rebuilding of an economy.
Afghanistan has two options open to make up this shortfall. The first is inviting in foreign investment to develop Afghanistan's huge, and largely untapped, natural resources. Both the economic potential of the country as well as the security risks an unstable Afghanistan will pose for the immediate neighbourhood have grabbed the attention of New Delhi and Beijing. The Delhi Investment Summit on Afghanistan (2012) as well as the 'Doing Business with Afghanistan' meeting organized by the Federation of Indian Chambers of Commerce & Industry (FICCI) in November 2013 indicated that Indian businesses have already decided on big investments in the country. In a USD 10.3 billion deal finalised in 2011, the state-owned Steel Authority of India won the rights to mine iron ore in Hajigak province, home to an estimated 1.8 billion tonnes of iron ore. Largely untapped lithium, copper, gold, iron and earth deposit reserves could be worth a further USD 3 trillion according to the Afghan government.
Infrastructure and trade and transit agreements will be needed to facilitate the transportation of these raw materials and products out of Afghanistan, and this is where the country's second option comes in. The expansion and utilisation of Afghanistan's unique geo-strategic position and the revival of its role as a trade connector will undoubtedly bring economic benefits that will aid reconstruction efforts, particularly as interest in reviving the Silk Route grows among the international community.
So far the majority of Indian external trade is conducted by sea. Overland trade with China was stopped after India-China war in 1962, and only recently have tentative steps been taken to resume this, through the Nathu La Pass in Sikkim, which was reopened for trade in 2006. New Delhi is looking firmly towards Afghanistan and Central Asia. A stable Afghanistan has the potential to transform India's continental trade through Pakistan, Afghanistan and Central Asia, and increase opportunities for trade with Eurasia and the EU.
In Central Asia, India trades a great deal with the countries of the former USSR, Iran, and further beyond, with the European continent. Prior to the global economic crisis of 2008-09, India's trade with this region was growing fast, particularly with Afghanistan, Pakistan and Iran, and in 2012-13, India's total trade with these regions amounted to about USD 173 billion. Simple calculations on the basis of past trends show that India's trade with Europe, the ex-USSR, Iran, Afghanistan and Pakistan would reach between USD 400-500 billion annually within the next few years.
Even if 20 percent of this trade is conducted by road, USD 80-100 billion of Indian trade would be passing through Afghanistan and Central Asia. Were India-Pakistan relations to significantly improve (or at least become more trade-friendly), an important portion of Indian trade – particularly from the landlocked northern states like Jammu & Kashmir – would transit through Pakistan and Afghanistan, giving economic viability to the planned infrastructural projects in the region. These linkages will also transform small and medium industries and agriculture in Central Asia and Afghanistan.
A major impediment to realising this potential is the existing India-Pakistan relationship and lack of trust between Islamabad and New Delhi. However, the economic dynamics of the region show clearly that both India and Pakistan will ultimately suffer economically if they fail to cooperate meaningfully in Afghanistan – with Indian continental trade moving through the region, the Pakistani economy would also benefit in a major way. Pakistan fears that increasing Indian exports to the five Central Asian republics will erode the markets for Pakistani products; however, figures from the country's Trade Development Authority show that even without Indian competition, Pakistan's exports to the five Central Asian republics are very limited – less than USD 20 million in 2011-12. Afghanistan, however, is another matter. In the same year it was the third most popular destination for Pakistani exports, and India will have to tread carefully in an area Pakistan firmly believes is its own backyard. With major infrastructural development and an accompanying increase in the movement of goods and services though, the possibilities of both India and Pakistan becoming important economic players in the economy of Central Asia will hopefully trump traditional antagonisms.