The Delhi Investment Summit On Afghanistan – Analysis

By Gulshan Sachdeva

On 28 June 2012, the Government of India, in co-operation with the Government of Afghanistan and Confederation of Indian Industry (CII), is organizing an investment summit on Afghanistan in Delhi. The main objective of the summit is to attract foreign investment in Afghanistan, particularly in the context of emerging opportunities in sectors like mining, hydrocarbons, infrastructure, telecommunications, agriculture, education, health services, etc. This is perhaps the first time that a major summit on Afghanistan is being organized by a neighbouring country mainly on its own initiative. The earlier major Afghanistan event organized by India was in November 2006 in Delhi—the second Regional Economic Cooperation Conference (RECC) on Afghanistan. It is hoped that all 14 countries that are part of the ‘Heart of Asia’ Istanbul process, viz., Afghanistan, Azerbaijan, China, India, Iran, Kazakhstan, the Kyrgyz Republic, Pakistan, Russia, Saudi Arabia, Tajikistan, Turkey, Turkmenistan, UAE and Uzbekistan, will be participating in the summit. In addition, government representatives and private companies from many Asian and European countries as well as from the USA may also participate. Over 15 international organizations including the World Bank and the Asian Development Bank may also send their representatives. Apart from showcasing success stories by many Afghan companies, the summit may also provide inputs for the forthcoming Tokyo summit scheduled on 8 July 2012.

This summit comes at a time when Afghanistan is facing two serious challenges—security and development. The future of Afghanistan looks more uncertain today than at any time in the last one decade. One important reason for this uncertainty is that almost everyone involved in the Afghanistan project believes that by 2014 a significant number of coalition forces would have left the country, even if some American forces continue to stay for a longer period mainly in non-combat missions. Despite doubts about its durability, the transition to Afghan leadership began, as planned, in July 2011, and is continuing. The security responsibility for many provinces and cities has already been handed over to Afghan authorities. Although this transition has already began, yet it is quite clear to all that due to the weak Afghan government as well as insurgent safe havens in Pakistan, the country will still need direct security assistance even after 2014. As a result, Afghan officials have concluded a few strategic partnerships including with India and the USA.

Last year, at the Bonn conference, both the international community as well as the regional players had re-affirmed their long-term commitment to the future of Afghanistan, which goes much beyond 2014. The conference was attended by 85 countries and 15 international organizations. At the conference, all participants dedicated themselves to “deepening and broadening their historic partnership from Transition to the Transformation Decade of 2015‐2024.” The final declaration talked about mutual commitments in the areas of governance, security, the peace process, economic and social development, and regional cooperation. At the recently concluded ‘Heart of Asia’ Ministerial summit in Kabul, participating countries agreed to “cooperate in a sincere and result oriented manner” for a stable Afghanistan and a peaceful region. To achieve that goal, countries agreed to initiate eight different Confidence Building Measures (CBMs) with identified lead members who are responsible for their implementation. These CBMs include Counter Terrorism CBM (Afghanistan, Turkey and UAE as lead members); Disaster Management CBM (Pakistan and Kazakhstan as lead members); Counter Narcotics CBM (Russia and Azerbaijan as lead members); Chambers of Commerce CBM (India as a lead member); Commercial Opportunities CBM (India as a lead member); Regional Infrastructure CBM (Turkmenistan and Azerbaijan as lead members); and Education CBM (Iran as lead member). The list clearly shows that regional countries have clearly identified India as the country that can take a lead in facilitating trade and commercial opportunities for Afghanistan and the region. The Delhi Summit would further strengthen this view.

Besides security, another major challenge faced by Afghanistan is on the economic front. With declining Western interest, the amount of resources available for development projects in Afghanistan in the next decade is likely to be significantly lower than the past one decade. Experience suggests that withdrawals of international troops in other parts of the world have reduced civilian aid, with implications for economic growth and fiscal sustainability. Therefore, potential financing gaps in the budget could threaten security and recent progress made in the developmental front. According to the World Bank, actual aid to Afghanistan in 2010-11 was about US $16 billion, about the size of its nominal GDP. Any rapid decline in aid will severely affect growth performance and employment scenario in the country. There is another view, however, that the actual impact of declining aid may be less drastic since most of the international aid in any way was leaving Afghanistan as imports, expatriated profits and salaries. According to the latest Asian Development Bank Outlook, the planned foreign troop pullout by 2014 may lower growth by at least 2-3 percentage points.

In order to offset these trends, Afghanistan has to showcase the success of its private companies which are doing very well despite difficult security conditions in many parts of the country. For long term sustainability, it ultimately also has to play its traditional role of facilitating trade and commerce through its territories. The Delhi Summit may provide an important opportunity to emphasize these points. The choice of India is also important, as many Indian companies have already decided on big investments in Afghanistan. A consortium of seven Indian companies led by the state-owned Steel Authority of India Limited (SAIL) has won a $10.3 billion deal to mine three iron ore blocks in central Afghanistan. These blocks have iron ore reserves of around 1.8 billion tonnes and are located in the Bamiyan province, 130 km west of Kabul. Some Indian companies are also planning to bid for copper and gold projects. There are also reports that India is planning to build a 900 km railway line between Iran’s Chabahar port and the mineral rich Bamiyan province of Afghanistan where Indian companies may be making large investments.

The post-2014 phase in Afghanistan will see a continuation of these projects with some significant changes. Under these circumstances, India will have to be pro-active in defending its own security and economic interests in Afghanistan and the region. During his recent visit to India, the US Defense Secretary Leon Penatta had urged Indian officials to take a “more active role” in Afghanistan. In the development and reconstruction sphere, India can certainly play a “more active role”. This is by no means less important than security responsibilities. So far, India has pledged assistance worth $2 billion. Indian projects cover areas like road construction (the 218 km Zaranj-Delaram road), power (transmission line from Pul-e-Khumri to Kabul), Salma dam, construction of parliament, and many projects in the areas of agriculture, telecommunication, education, health and capacity building throughout Afghanistan. More than one thousand young Afghans have also come to India every year on short and long term fellowships. These young Afghans will play a significant role in building Indo-Afghan relations in the years to come.

The strategic location of Afghanistan will always be important for India, particularly in the context of difficult India-Pakistan relations. However, the importance of Afghanistan for India is much bigger than normally perceived in this narrow context. Once Afghanistan becomes stable, trade through Pakistan and Afghanistan could also alter India’s continental trade. By 2015, India’s trade with Europe, CIS countries plus Iran, Afghanistan and Pakistan would be about $500 billion annually. Even if 20 per cent of this trade were to be conducted through road, $100 billion of Indian trade would be passing through Pakistan, Afghanistan and the Central Asian region. Given this possibility, most of the regional infrastructural projects will also become economically viable. Building up infrastructure will create further incentives for regional and sub-regional cooperation. For long term sustainability, American officials have also repeatedly talked about the New Silk Road Strategy. India has broadly supported this concept as it has coincided with Indian engagement in Afghanistan and its desire to play a larger role in Central Asia. Since 2005, the idea has been discussed at many academic and policy forums. This is a long term vision of an international trade, transit and energy network that links the Central and South Asian economies through Afghanistan. This was a good blueprint for Afghanistan but unfortunately has been mixed with regional geopolitics and exit strategies from Afghanistan. Still, Afghanistan has no other option but to continuously work towards this strategy.

Many analysts have pointed out the difficulties in implementing this strategy particularly in the context of difficult India-Pakistan relations as well as the situation in Afghanistan. It is true that it is difficult to imagine the implementation of this policy in the present tense political environment. However, despite the difficult political situation, some positive developments have indeed occurred. In 2010, Afghanistan and Pakistan signed an agreement called the Afghanistan-Pakistan Trade and Transit Agreement (APTTA). At the moment, it is a partial agreement designed to exclude India. Under the agreement, Afghan trucks are allowed to carry Afghan transit export cargo to Pakistani ports and also to the Indian border. If implemented properly, this has the potential to boost Afghanistan’s development and regional trade. Over time, it may also create insurmountable pressures within Pakistan and Afghanistan to open up trade across the border with India. There are also some positive developments in India-Pakistan trade matters and the TAPI gas pipeline.

Under these circumstances, the Delhi investment summit on Afghanistan will further strengthen Indian standing on the Afghanistan project, particularly on the economic front. This may also provide an important opportunity for Afghanistan to showcase its positive side to the outside world, which is mainly exposed to negative stories of terrorist bombings and suicide attacks.

(The author teaches at the School of International Studies, JNU and has headed the Asian Development Bank and The Asia Foundation projects at the Afghanistan Ministry of Foreign Affairs in Kabul)

Originally published by Institute for Defence Studies and Analyses (www.idsa.in) at http://www.idsa.in/idsacomments/TheDelhiInvestmentSummitonAfghanistan_gsachdeva_260612