By Musa Shafiq*
As a landlocked country, Afghanistan has not benefited from sea routes and has never had reliable roads or railroads. At the same time, the harsh policies of neighboring countries, combined with dysfunctional public organizations and inefficient bureaucratic procedures, have further hampered the trade and transit in the country.
To overcome these challenges, Afghanistan has taken several significant measures. These include regulatory reform, infrastructural improvement, and the restructuring of public organizations. Hence, it is expected that these initiatives will solve the problems of transit and trade in the long run.
Regulatory Reform and Process Simplification
Reforms in the regulatory framework and the simplification of business processes have reduced the overall costs of doing business in Afghanistan. These changes have made the country one of the top 10 improvers of business climates. As a result, Afghanistan has soared in the Doing Business Ranking, progressing from 183 in 2017 to 167 in 2018. Based on new initiatives by the Afghan government, it now takes less time to register a business, pay taxes, and receive services from the government.
Historically, Afghanistan has ranked poorly in the Doing Business rankings. This is the first time that the country stands on the edge of the top performers’ lists. These achievements are expected to enhance the economy and improve trade across borders. The World Bank research shows that countries that have abolished trade barriers perform better in terms of trade than those who do not. For example, experiences of other countries around the world show that a one-day delay in the shipment of goods caused by dysfunctional public organizations or lengthy bureaucratic procedures reduces the overall trade by 1%. Therefore, these improvements in the regulatory framework, including the reform of unnecessary administrative procedures, will enhance trade in Afghanistan.
Autonomy from Neighbors and Single Transit Routes
For consecutive years, Afghanistan’s trade and transit have been dependent on its borders with Pakistan and Iran. The country has had no alternative routes. At the same time, these borders, particularly the borders with Pakistan, have often been closed, especially when the relationship between the two countries had deteriorated. Pakistan has used its borders as a bargaining chip to influence the Afghan government in the political sphere.
The border closure by Pakistan has decreased Afghanistan’s exports and caused the wastage of export goods, such as fruits and vegetables. And this has led to the increase in the prices of basic items in Afghan markets.
For example, in 2008, Pakistan restricted the importation of wheat and flour into Afghanistan. The restriction caused a tremendous increase in the prices of wheat and flour because there was no major alternative. At that time, almost half the flour consumed in Afghanistan was imported from Pakistan. Worst of all, the Afghan merchants had difficulties with the quality control of the products that they bought from Pakistan. In several cases in 2007, Pakistani merchants sold Afghan partners low-quality flour at high prices, but the Afghan partners did not have control over the quality or price because they were totally dependent on imports from Pakistan.
However, the recent reforms and initiatives have changed the game. Afghanistan has opened several Commercial Air and Land Corridors as well as a Sea port that has given the country a much-improved position to trade. For example, in June 2017, Afghanistan launched its Commercial Air Corridor with India.
In November 2018 Afghanistan launched another Commercial Air corridor with China. The first shipment dispatched 20 tons of pine nuts to Shanghai. It is expected that Afghanistan, in addition to the pine nuts, will export to China other items, including as vegetables, rugs, minerals, handicrafts, and animal products.
Afghanistan launched its third Air Corridor to expand its trade with Europe. In January 2019, the first cargo flew from Mazar-I-Sharif carrying 5 tonnes of dried fruit to London. Though the initial amounts of transported goods are small, the strategic importance and long-run view are critically important for Afghanistan.
In addition to Air corridors, Afghanistan also established a Sea rout. In coordination with India and Iran, Afghanistan has established a sea route through the Chabahar Port. In the long run, this port enables Afghanistan to expand its trade to India and other parts of the world.
In another strategic move, Afghanistan celebrated the opening of the Lapis Lazuli corridor in December 2018. This corridor connects Afghanistan with Turkmenistan, Azerbaijan, and Georgia before crossing the Black Sea to Turkey and, eventually, to Europe.
These infrastructural initiatives have not only connected Afghanistan with the world’s markets but have also bestowed strategic advantages over the neighboring countries. For example, Pakistan, who once closed its border to Afghanistan, is now experiencing a reduction in its trade volume with Afghanistan. Based on a BBC report, the volume of trade between Afghanistan and Pakistan has decreased $3 billion from $500 million in 2017.
In opposite, Afghanistan has exported more than $100 million worth of goods since opening its air corridors in 2017. In the same vein, Iran benefits from Afghanistan now. In a recent sanction, the US exempted Chabahar port because of Afghanistan. As a result of these infrastructural initiatives, Afghanistan is no longer dependent on a single transit route, and none of its neighbors can threaten to close its borders for the sake of political influence.
Recently, the Afghan government restructured its transport sector. In a decree, President Ghani ordered the merging of five public organizations: the ministries of transport and public works, the civil aviation authority, the railway authority, and the interior ministry’s traffic department. This decree formed a single organization under the name of the “Ministry of Transport.” It is expected that merging these organizations will reduce government redundancies and costs of administration, as well as increase performance within each department.
Further, the structural reform in the transportation sectors is supposed to facilitate the easy coordination of activities across different entities and increase the efficiency of public services. After the fall of the Taliban from Kabul in 2001, the international community donated a large amount of funds to rebuild the country and enhance service delivery. However, the result was not satisfactory. And the causes were many. Among them were complex and lengthy bureaucratic procedures, undefined chains of command, hidden unemployment, dysfunctional organizational structures, and an overall inability of the government to serve the needs of the population.
In recent years, Afghanistan has performed well in reforming its trade and transit sector. The regulatory reforms, combined with structural changes and infrastructural connectivity, are expected to enhance trade still further in the future.
*About the author: Musa Shafiq, Associate Professor of Economics at Kabul University, currently pursuing Ph.D. in Economic at Strasbourg University, France. His research interest is political economy with focus on the institution. Shafiq believes that institutions are the fundamental agents of change in a society that drive sustainability and growth.