Economic benefits of Afghan peace

The continuing spread of COVID-19 has taken the global attention off of, among other things, the high hopes attached with the Afghan peace process. As global equity markets witnessed an encore of Black Monday on March 9, the deadline to swap 5,000 Taliban prisoners for 1,000 Afghan inmates came and went. A week later, the so-called intra-Afghan dialogue has yet to start, amid mistrust on all sides.

With the US committed to withdrawing its troops by the middle of next year, it is expected that sanity will prevail among the factions and a dialogue will eventually take place, as the alternative will be default return to the civil-war that had ravaged Afghanistan for so long. There is indeed many a slip between the cup and the lip, but the broad regional consensus over a negotiated settlement is cause for hope.

Here at home, there is a sense of vindication that Pakistan’s Taliban policy was right all along. Surely, there can be strategic outcomes if the Taliban get to have a prominent and legitimate political role in future Afghanistan. But the real question is: can Pakistan reap “economic” benefits from a stable Afghanistan? The answer depends on waging a guess on the shape of things to come. But let’s try.

Being a landlocked country, Afghanistan is dependent on international and transit trade through the seaports down south in Pakistan and Iran. On paper, Pakistan will get more business if Afghan consumer demand and industrial capacity grows due to peace gaining a foothold there. The freedom of movement of goods, people and investment from one Afghan region to another will be a key ingredient to jumpstart economic activities. The return of Afghan expats in the West may also boost entrepreneurship.

If international players invest big in Afghan mining, agri-business, construction, water and transportation sectors, it can lead to greater demand for Pakistani manufacturing products like cement, steel, chemicals, POL products, trucks and buses. Higher job-creation will boost consumer demand, helping Pakistan’s exports in food products, consumer goods, textiles, etc. Exports of Afghan iron ore, copper and lithium deposits will provide government with development funds and the dollars to pay for imports.

The above-mentioned scenario, however, gains plausibility over a longer term amid sustained peace and with the private sector in the lead. In contrast, the Afghanistan of today is experiencing falling per capita income (weak GDP growth amid high population growth) amid government spending having a huge economic footprint. The quality of that spending is questionable, and even more alarming is its sustainability, as public spending is overwhelmingly dependent on foreign grants.

As per a recent World Bank study, Afghanistan will need about $8 billion in foreign grants every year if it is to harvest economic gains out of the emerging peace opportunity. However, the likelihood of foreign aid inflows materializing in a post-conflict Afghanistan is rather low, as US is looking to cut and run and development majors like EU and World Bank may develop donor fatigue. That leaves the private sector, but concessional loans may be hard to come by and international JVs may stick to a wait-and-see policy.

Therefore, it appears that economic gains for Pakistan may be incremental at best. And those gains may take a while to accrue as the Western neighbor takes its time to shed its donor dependency. Perhaps a good thing is that breaking the donor-dependency will force a future Afghan government to expedite forgotten regional projects like TAPI gas pipeline, CASA-1000 electricity project and CAREC regional connectivity projects. After all, transit revenues will provide a backstop to critical government spending.

With a benign regime in Kabul, there will also be scope for Pakistan and Afghanistan to engage constructively on issues like transit trade, trans-boundary water management and border fencing. Besides, it will help Afghanistan to have a neutral foreign policy so that development projects by one regional player are not viewed suspiciously by its rival. Peace cannot co-exist with regional proxy wars.