In the past ten years, the economy of Afghanistan has generally shown high growth, despite a very volatile world economic climate. This economic growth has been driven primarily by the massive presence of international development organisations and military units as well as by the return of the Afghan diaspora. In order to place the growth on a long-term, sustainable foundation, what is needed above all is an improved general economic framework and, as a result, stronger integration of Afghanistan into the world economy. In short, Afghan economic growth, which is currently stimulated primarily by military expenditures and donations, must in the future be driven by exports and in the long term become self-supporting.
Together with its international partners, the government of Afghanistan is working intensively to strengthen the private sector and to improve access to international markets. First of all, this involves overseas markets. Here the possibilities of improved market access can be realised through entry into the WTO, which is presently being prepared. In addition, as one of the least developed countries in the world (LDC), Afghanistan has already today duty-free access to the markets of the European Union. At least in the medium term, the already dynamically developing trade with partners and neighbours in the region has even greater potential.
Afghanistan’s economic potential is enormous in this area. The agricultural sector, in which at this time close to 70 per cent of the workforce is concentrated, today already belongs to the chief export sectors of the country. This sector also still has significant potential for increases in production, both through improved cultivation methods and, in particular, through intensive processing of agricultural raw materials within Afghanistan. In this area successes are also already apparent. For example, the sector of cultivating and processing dried fruits has in the past few years developed so well that it has become the most important product group in the formal export trade, an area that continues to have a very positive outlook. Afghan dried fruits – including raisins, but also various nuts – are known around the world for their tastiness and their high quality, but at this time marketing is carried out mainly through middlemen in neighbouring countries (in particular in Pakistan and Iran). By instituting improved direct marketing, but also with other measures, such as biocertification, Afghanistan hopes to enter new markets and at the same time revive old markets.
Afghanistan also has very good opportunities in cultivating and exporting various fruit products. In this area, Afghanistan benefits from favourable climatic conditions for the cultivation of apples, apricots, peaches, and pomegranates, but currently it still lags behind its potential for production and export. Significant opportunities for investors exist here as well.
Another traditional Afghan product whose potential is still not exhausted is that of carpets. Afghan carpets are known worldwide for their attractive traditional patterns. Unfortunately, the years of civil war have led to an emigration of many producers and traders to neighbouring countries and to the interruption of marketing routes, including those overseas, resulting in massive declines in exports. Substantial investments in logistics and transportation infrastructure and the reduction of bureaucratic limitations on trade are based on the hope that Afghanistan can once again be a world market leader in this sector. Here it is equally important to strive not only for further improvements in quality, but also for direct marketing, meaning circumventing middlemen in order to create more value within Afghanistan.
he sectors noted here cannot alone lead to the economic strength necessary to cover the increased state expenditures connected with the transfer of responsibility for security to the Afghan government, and to further reduce poverty in the provinces. Without substantial new sources of income, Afghanistan will not be in a position to continually provide the state services that the Afghan citizens expect. One sector that has very promising potential to contribute extensively to an improvement of state income is the mining sector. Even today, Afghanistan is active in the search for and processing of precious stones and semi-precious stones, and the entire mining sector still has immense growth potential. Afghanistan has natural resources with an estimated value of three trillion US dollars, including significant supplies of strategic raw materials such as copper, lithium, and other minerals, which are also of great significance for raw material supply to Europe.
Afghanistan itself is pursuing the goal of developing a dynamic raw materials sector, which should make a significant contribution to the stabilisation of the Afghan economy and to the improvement of state tax revenues. A precondition for developing this sector is making substantial investments in infrastructure, above all in railway traffic. For this reason investments in infrastructure were among the core criteria when it came to calling for tenders for the exploitation of raw material deposits. If the security situation remains stable in the medium term, it can be assumed that in a few years the mining sector will be able to make a substantial contribution to covering the financing gaps in the Afghan state budget.
For all the growth potential promised by the mining sector, one must also avoid those problems that other countries often suffer, including precisely the “least developed countries” with rich raw material deposits. Actually, an export policy oriented unilaterally to raw materials can quickly lead to the so-called “Dutch Disease”, meaning that income from the export of raw materials results in a significant upward revaluation of the national currency, as a result of which previous export products lose their international competitiveness and therefore can no longer be exported. Since exploiting and exporting raw materials is less labour-intensive than the production of traditional and current exports of Afghanistan (carpets, dried fruits, and other agricultural products), the result could be a decline in rural employment and a related increase in poverty. The Afghan government has recognised this problem and is therefore working towards a more diversified export structure, in which mining plays an important role, but is not the only export sector. The mining sector, which in the past year has experienced robust growth equalling 43 per cent, should be further expanded in the years to come. The export income that comes from this should not be used exclusively for security and other state services, but should be used in particular for strengthening the competitiveness of other economic sectors.
To assure a diversified export economy for Afghanistan, the identification and expansion of other sectors with export potential is absolutely essential. The sectors identified by the Ministry of Commerce & Industries as having great potential, and for which the ministry has worked out action plans for promotion include the cashmere industry, the manufacturing of building products, and the mining of marble. To be able to fully exploit these sectors and the potential of other sectors, further investment is necessary. We remain confident that the attractiveness of investment possibilities in Afghanistan will mobilise national and international businesspeople and investors to become economically engaged in Afghanistan to a greater extent than they are today.
The author was born in 1951. He earned his Bachelor and Master Degrees in Economics and Political Sciences from the American University of Beirut in Lebanon. He also obtained a Doctorate in Political Sciences from the Northwestern University, United States. From 2004 until 2009 he served as Minister of Finance. In 2009 Dr. Anwar-Ul-Haq Ahady became Minister of Commerce and Industries.