Afghanistan’s Path to Transformation
In 1989, when the Soviet troops pulled out of Afghanistan, the country entered a decade-long civil war. By the end of 2014, foreign combat troops will depart, and international aid will gradually decline. Afghanistan is again at a crossroads.
Afghanistan’s economy is dependent on foreign aid. Some estimate that 97% of its GDP is driven by foreign aid. However, Afghanistan has real potential for prosperity and stability through developing its economic sectors and its regional role as a transit hub and resource corridor.
Mining is expected to become Afghanistan’s largest economic asset and its gate to prosperity and economic growth.
Afghanistan has a wealth of $1 trillion in proven mineral resources with a potential of reaching $3 trillion. Mining contributes less than 1% to Afghanistan’s GDP today, but by 2017 Afghanistan projects a net revenue of $1,230‐1,590 million a year from its extractive industry.
Agriculture is a major but unstable component of Afghanistan’s economy. Agriculture dropped in 2011, but in 2012 production was responsible for boosting GDP growth to 12%, and Afghanistan reached near food self-sufficiency due to the good harvest.
The development of Afghanistan’s agriculture will require large infrastructure developments. Afghanistan’s storage capacity is of the lowest in the world at 140 cm per capita.
Lack of infrastructure adds to the instability of the agricultural sector. Fluctuations in harvest, particularly because of droughts, highly impact the sector’s contribution to GDP.
The development of Afghanistan’s energy infrastructure and its cross-border transmission is essential to fulfill its potential as a resource corridor. Energy trade through Afghanistan is primordial for the establishment of the Central Asia – South Asia Regional Electricity Market (CASAREM).
Afghanistan’s strategic location is essential for boosting transit routes between South Asia and Central Asia. The development of regional trade and transit infrastructure will contribute to around 15% of GDP ($ 11 billion) by 2025.
More than 85% of Afghanistan’s transport networks are in poor conditions, and are thus a constraint to economic growth. The rehabilitation of Afghanistan’s transport networks will increase its production and contribute to improving its worsening trade balance.
2013-2014 are years of transition. As slow growth is expected in the short-term, Afghanistan’s future will mostly depend on the development of its national capacities.
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The presence of foreign troops in Afghanistan has been a leading driving force behind the productivity of Afghanistan’s services sector – the major contributor to the country’s GDP. By the end of 2014, military spending will decline as foreign troops withdraw, and the Afghan economy will face serious growth challenges. However, Afghanistan’s geographic position at the heart of Asia, and its natural resources, are great assets for developing its economy and its potential to become a regional Resource Corridor. This will require the development of Afghanistan’s energy cross-border transmission, trade and transit infrastructure, water management for a sustainable agricultural sector and hydropower generation, and developing its extractive industry to boost its mining sector and to attract foreign investment. Economic development in Afghanistan will boost the trade volume between Central and South Asia and connect regional trading routes. This will generate greater economic integration and prosperity in Afghanistan and its region.
Joëlle Rizk is an analyst and consultant. Her expertise includes development sustainability, natural resources consulting, regional cooperation and transnational security. She has experience in the Middle East since 2007, Afghanistan since 2009, Central Asia and Pakistan since 2011. Among other topics, Joëlle is currently preparing a research series on Afghanistan’s Resource Corridor – the developing mining sector will feature in the Fall 2013 issue of Revolve.