The US New Silk Road Strategy: Where Is It? Where Is It Headed? – Transcript

By Robert D. Hormats, US Under Secretary for Economic, Energy and Agricultural Affairs

Thank you, Fred, for that kind introduction.

I also want to thank Sham Bathija and Juan Miranda for joining me in today’s conversation on the “New Silk Road.” I am particularly grateful for Sham’s effort to join this conversation from India. I am delighted that today’s forum is co-hosted by the Central Asia-Caucasus Institute here at SAIS, as well as the Center for Strategic & International Studies. Thank you to both institutions and, in particular, Fred Starr and Andy Kuchins for organizing today’s event.

As I am sure you are all aware, Fred is one of our country’s leading experts on Central Asia, and along with Andy, he has championed for some time the idea of establishing Afghanistan as a regional trade and transit hub. Critically, this idea has also been voiced for years by many Afghans — most notably President Karzai, who has said that Afghanistan should aspire to be the “Asian Roundabout.”

The importance of improving connections between South and Central Asia – especially Afghanistan and Pakistan – is made all the more urgent as we and our allies begin the transition process in Afghanistan, which will ultimately result in the complete handover of security responsibility to the Afghans. Indeed, the transition process announced last November in Lisbon is well underway. Already, seven provinces and municipalities have been transitioned to Afghan security lead. Today nearly 25 percent of the Afghan people live in these areas.

But I want to be very clear: just because we are drawing down our military forces does not mean we are abandoning Afghanistan or the region. As President Obama said in June, our efforts are aimed at “[building] a partnership with the Afghan people that endures…”

This transition must be sustainable — and the political and security effort must be complemented by progress towards increasing economic opportunities for Afghanistan and the broader region. That’s why when Secretary Clinton announced a diplomatic effort aimed at bringing a political end to this decades long conflict, she included as a key component a vision to integrate Afghanistan into the regional economy.

The basis for the “New Silk Road” vision is that if Afghanistan is firmly embedded in the economic life of the region, it will be better able to attract new investment, benefit from its resource potential, and provide increasing economic opportunity and hope for its people. We also believe that the New Silk Road Initiative will be of particular importance to Pakistan, and can be an important way for Pakistan to further develop its economy and provide jobs for its people.

Indeed, we believe the New Silk Road Initiative can provide a critical economic boost for all of Afghanistan’s neighbors. That’s why Secretary Clinton co-chaired a Foreign Ministerial meeting with 30 of her counterparts, including all of Afghanistan’s neighbors, on the “New Silk Road” vision one week ago today in New York

The purpose of the meeting was to gather regional and international support behind the notion that, as she said, “lasting stability and security go hand in hand with economic opportunity.” Of course — as many of you well know — this vision for the region is deeply rooted in history. For millennia, a sprawling trading network crisscrossed Asia– connecting East to West, and North to South. It was a robust network — on land and on sea.

Goods and ideas traversed the region. Silk, teas, and porcelain came out of the East; ivory, textiles, and spices came from the South; and precious metals, wine, and carpets came from the West. Many religions were spread, including Islam and Buddhism. The places in between benefited from these connections in many ways. The once prosperous markets of Herat and Mazar-i-Sharif grew as waypoints in the continental trading network.

Over the years, the trade routes that once prospered went moribund as faster sea routes came into use, and regional divisions and rivalries made many land routes unpredictable. As a result, Afghanistan, and much of Central Asia, were increasingly cut off from the rest of the world. Though it is located right in the middle of a rapidly growing continent, Afghanistan became, in many ways, an economic dead-end from any direction.

Afghanistan’s isolation was deepened by the insurgency-driven economy that emerged after the Soviet invasion. This isolation was also a key factor in the Taliban’s rise. Without jobs or the opportunity to choose a different, more productive path, the Afghan people were left to the mercy of the extremists. The Afghanistan of today is beginning to emerge from its economic isolation. And though the infrastructure gap remains large— the answer is not only about building new roads and rail lines.

The region as a whole must focus on setting the broad context for sustainable growth, because they all have an economic as well as a security incentive in doing so. And the international community must continue to find ways to support and encourage that growth. As the Secretary said in Chennai last July, the “New Silk Road” vision “means upgrading the facilities at border crossings, such as India and Pakistan are now doing at Wagah.

And it means removing the bureaucratic barriers and other impediments to the free flow of goods and people. It means casting aside the outdated trade policies that we all still are living with and adopting new rules for the 21st century.” And I want underline again that the entire region stands to benefit from expanded economic connectivity. That’s why we are supportive of initiatives that harness the collective economic strength of the region.

For instance, just today the Indian and Pakistani Commerce Ministers—for the first time in 35 years — concluded meetings in New Delhi and announced a path to further normalize trade relations. They were joined by hundreds of Indian and Pakistani business leaders who joined the conference. And last year, Afghanistan and Pakistan took the brave step of agreeing to an updated transit trade agreement.

The agreement will adopt international best practices at border crossings and harmonize customs arrangements, reduce smuggling, and increase government revenues from legitimate trade. Both countries have discussed the potential for expanding the agreement to cover Central Asia. Eventually, I hope that the entire region, from Astana to Mumbai, will enjoy expanded trade and transit cooperation.

Other initiatives seek to match energy from Central Asia with Pakistan and India — two markets with significant electricity needs. The TAPI pipeline project would bring on-shore natural gas from Turkmenistan across Afghanistan to markets in Pakistan and India. Other efforts would facilitate the transmission of electricity from Central Asia to Afghanistan, Pakistan, and India.

Construction of new projects would create thousands of jobs across the entire panorama of Central Asia, and unlock private enterprises suppressed by the lack of reliable electricity. Critically, the New Silk Road vision also includes an emphasis on the role of women. The Chinese have a saying that women hold up half of the world. In today’s world you cannot build a modern economy when you exclude half of your human capital.

That’s just one reason among many that we push women’s empowerment in this region– and around the world. We also view it as important to include not just the immediate region, but also the wider Asian and international communities—and this is reflective of the fact that Central Asia has always been a part of the larger Asian economy.

For instance, throughout the region there are increasing linkages of energy, roads, trade, and communication with China—which has also played a historic role in the region. On the other end of Asia, Turkey also has played a historic role in the region, and wants to be supportive of this region now. Indeed, Turkey has a very impressive private sector, and their business association, TOBB, emphasized to me that they want to be more involved throughout Central Asia—as well as in other parts of the world. Of course, all these efforts will not become reality overnight.

But as the businessmen and women of the region find common cause across borders, economic connections can reinforce political efforts to promote regional stability. As Prime Minister Singh put it so beautifully, “I dream of a day, while retaining our respective identities, one can have breakfast in Amritsar, lunch in Lahore, and dinner in Kabul. That is how my forefathers lived. That is how I want our grandchildren to live.”

To get to that point, the Afghans must acknowledge that they have a lot of work to do in clarifying their own future. Some progress has been made in implementing the Afghan National Development Strategy. But progress has been slowed by policy, regulatory and legal challenges. And the private sector has not been sufficiently engaged. Indeed, in all our focus on the security transition, it is important to recognize the need for Afghanistan to undertake another transition– from an aid dependent economy to one based on sustainable private sector-led growth.

So while there is a clear need for international support now, our shared vision of Afghanistan’s economic future is based on the fact that Afghanistan– like its regional neighbors– has a lot to offer across a variety of sectors, and that private enterprises can play a major role in the right regulatory environment.

Agriculture, for instance, accounts for almost 80 percent of employment in Afghanistan, but the sector remains largely driven by subsistence farming. Significant opportunity exists here for private sector led growth. Modern systems and seeds have already been distributed in many places; cold storage networks can be built to support agricultural exports; and customs processing barriers can be reduced by implementing a regional transit trade cooperation framework.

Light manufacturing – especially value-added agriculture products like wool, textiles, and Afghanistan’s famed carpets – can serve as a second source of growth. Local production can be modernized, including at the SME level, by managing the regulatory burden on these firms and working with Afghanistan’s financial sector to make reliable financing available.

Infrastructure—even if it’s not elaborate—can play an important role in expanding trade and commerce and allowing new producers of goods and services, including SMEs, to be integrated into the economy and have a greater stake in the national system. Indeed, the construction of canals, railways, and roads, played a similar role in the development of the American economy. And starting immediately, Afghanistan must take the steps required to develop the extractive industries.

As I know all of you are aware, the U.S. Geological Survey has verified that Afghanistan sits on top of at least $1 trillion in mineral wealth – iron, copper, gold, rare earth elements, and others. Some of these deposits are already under development, and many more will be soon. The Aynak copper and Hajigak iron-ore mines could enter into production as early as 2016, and according to World Bank projections they could each create 90,000 jobs and up to $500 million in annual revenue for the Government when developed.

The Afghans have a lot of hard work to do to fully benefit this potential and I applaud Minister Shahrani’s focus on transparency and the need to establish systems to protect Afghanistan from the “resource curse”. However, corruption must be reduced through initiatives that increase transparency and predictability in business operations. Situations like the one that arose at Kabul Bank cannot be allowed to occur. Land rights need to be defined, and investor protections must be put in place.

And as we pursue this course, all of the plans that are being laid in and around Afghanistan must fit within a realistic assessment of the availability of government resources. With governments all around the world facing economic challenges, we have to focus on ways to make this work with limited government support. So, for the “New Silk Road” vision to realize its potential, it is critical that the Afghan Government and its neighbors take ownership of the effort. To get there, the region must ultimately be responsible for facilitating the web of connections that will create a “New Silk Road.”

It is also essential that the private sector play a leading role. And the region must be proactive in reaching out to the private sector and addressing those barriers that would scare off investors. Many industries can be involved. Opportunities for profit potential are plentiful. Export credit authorities and development finance institutions can help. But of course government resources will need to continue to play some kind of role.

This must start with a solid commitment to the transition plan agreed by Afghanistan and our NATO allies last November at Lisbon whereby Afghanistan will assume lead responsibility for its own security by the end of 2014. The International Conference on Afghanistan in Bonn, Germany this December will not be a donors’ conference. But we hope that the international community will be ready to make a political commitment to reinvest a portion of the savings from a declining security presence – the so-called transition dividend – back into Afghanistan, on top of existing commitments.

For our part, the U.S. is negotiating a Strategic Partnership framework that will signal our long-term commitment to the Afghan people through 2014 and beyond. NATO has already made an Enduring Partnership with Afghanistan that commits it to supporting Afghan security institutions after 2014. Other countries and organizations are considering similar gestures of enduring commitment to Afghanistan.

In closing, I just want to reiterate what is at stake— for America, for Afghanistan, for the region, and for the global community. We must not forget that this effort is about bringing lasting peace to a country that has spent much of the past three decades at war. For countries like America– that have lost many brave young men and women and spent billions and billions of dollars in Afghanistan over the past decade— it is important to know continued investments are putting Afghanistan on the path to sustainable self-sufficiency.

We cannot forget that, as history has shown us, simply abandoning Afghanistan could potentially have terrible consequences for American, regional, and global security. But I also want to remind this audience—and of course, I know that this audience hardly needs this reminder—of all the potential that exists in this region. Over the last several decades, many countries and many regions of the world have been able to build dynamic growth and opportunity for the peoples.

Not just China and India — but also South Korea, and Malaysia, and Brazil, and Turkey and so many more countries have emerged. Hundreds of millions of people have been lifted out of poverty. And this region can follow in their footsteps. The people of Afghanistan—and of the entire region— have enormous talent. The re-integration of Afghanistan into this region—and into the global economy—can be of tremendous benefit—not just to the Afghanis themselves, and not just to its neighbors, but to the global community.

Over the long-run, it will mean millions and millions of more men and women working n the next great product, or scientific advancement, or medical breakthrough. And it will mean increased hope and security for generations to come. That’s the vision we have been sacrificing for— and that’s a vision to which our commitment endures.

Thank you for your time.

Address to the SAIS Central Asia-Caucasus Institute and CSIS Forum