Analysis

Back to Southasia?

By Shanthie D'Souza

10 April 2017

Instead of an arena for a ‘zero-sum’ India-Pakistan game, post-2014 Afghanistan may actually provide a stimulus for increased regional cooperation.
Source: Wikimedia Commmons

Source: Wikimedia Commmons

(This is an interview from our March 2014 print quarterly, ‘Reclaiming Afghanistan?’. See more from the issue here.)

Despite pessimism and doom-mongering in the international community and media, this year’s drawdown of international military forces provides a unique opportunity for Afghanistan to reclaim its sovereign status and pursue the goal of achieving long-term economic stability through the mechanism of regional cooperation. If this is to materialise, the role and support of two countries – India and Pakistan – will be critical. While it is true that Afghanistan has been perceived as an arena of ‘zero-sum competition’ for India and Pakistan, given the tremendous potential dividends of increased trade and transit, the building of energy pipelines and regional connectivity, the uncertainties of post-2014 Afghanistan could, in fact, generate real and tangible opportunities for promoting cooperation between the two neighbours.

The international intervention of the last decade, the planting of thousands of boots on Afghan soil, and the flooding of the country and economy with untraceable money has created parallel structures and done little for the institution – building essential for providing better services and governance to the Afghan people. In addition, uncoordinated military and aid policies, hasty ‘exit’ announcements and waning international attention have heightened anxieties inside Afghanistan and the wider region as the withdrawal approaches. As a result, stability would appear to be an elusive goal. Afghanistan’s internal divisions have long been exploited by external powers, and post-2014, the danger of conflict by proxy throwing the country into yet another Great Game scenario remains very real.

Coordinated Southasian involvement in the reconstruction of the polity and society west of the Khyber has the potential to set in motion a two-way, mutually reinforcing process. If the economic benefits of regional cooperation are accompanied by incremental steps in confidence building on security issues, these will contribute to building long-term peace throughout the Southasian region. The promotion of inter-regional trade by capitalising on Afghanistan’s role as a ‘land bridge’, for one, could reap huge benefits.

Can the potential dividends of freer trade persuade India and Pakistan to move away from competition and towards cooperation in dealing with the security, political, social and economic uncertainties of post-2014 Afghanistan? Can the opportunities provided by cooperation on trade, transit and energy pipelines be harnessed to bind the three countries in a mutually beneficial framework?

The Afghan perception of regional cooperation
In the last decade, with the objective of balancing competing interests and priorities, President Hamid Karzai made regional cooperation the lynchpin of Afghanistan’s foreign and economic policy. Six countries – China, Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan – along with Afghanistan, signed the ‘Kabul Declaration on Good-Neighbourly Relations’ on 22 December 2002. The Declaration sought commitment from the neighbouring countries to “constructive and supportive bilateral relationships based on the principles of territorial integrity, mutual respect, friendly relations, cooperation and non-interference in each others’ internal affairs.”

Subsequently, in February 2003, Afghan Foreign Minister Abdullah Abdullah reiterated that regional cooperation was to be a major focus of Afghanistan’s foreign outlook. In an earlier interview, Abdullah had said, “Afghanistan can play a junction role, like a crossroads between east and west, north and south…Afghanistan has this potential that its geographical location is such that it can play a sort of interconnecting role between those two regions (South and Central Asia).”  At the London Conference (31 January-1 February 2006) President Karzai, along with then UN Secretary-General Kofi Annan and British Prime Minister Tony Blair, and about 60 states and international organisations, issued the Afghanistan Compact, reiterating the international community’s commitment to Afghanistan and support for the Afghan National Development Strategy (ANDS). The document unveiled a strategy for effective state building in Afghanistan, improvements in security, governance and development, the curbing of the narcotics economy and promotion of regional cooperation. The final ANDS, in which regional cooperation emerged as a focal point, was formally approved on 21 April 2008.

A number of international conferences since (the Kabul Process, the Regional Economic Cooperation Conferences on Afghanistan, and the Istanbul ‘Heart of Asia’ conference) have made numerous pledges and commitments to Afghanistan. The teeth for their implementation, however, are lacking, and while the second Bonn conference on ‘Afghanistan and the International Community: From Transition to the Transformation Decade,’ of December 2011 extended the period of international assistance until 2024, the contours of what this international assistance and engagement will be remain highly unclear. Quick fix solutions and the setting of arbitrary time lines for ‘exit’ have not met with the needs on the ground. This disjuncture runs the inherent danger of reversing the limited gains made as the international community hurriedly prepares to transfer authority to Afghans in the ongoing transition (inteqal) process.

Back to Southasia
The last of the foreign consultants will soon be jettisoning the lucrative contract that has been Kabul and Afghanistan; ‘lessons learned’ reports have already begun to emerge from the central offices of the INGOs. The long-term development and stability of Afghanistan however, requires a more permanent interest on the part of its ‘stakeholders’ than Western diplomats and advisers can ever claim to have. Afghanistan’s Southasian neighbours should step up to make this happen – it is through the restoration of its historic and commercial linkages with Southasia that the chances of a stable and secure Afghanistan are highest.

Greater integration into the SAARC economic zone is imperative if Afghanistan wants to avoid a disastrous contraction of its economy.

This restoration has begun, but is plodding. As the result of a move initiated by New Delhi and supported by the rest of the member states of the organisation, Afghanistan became the eighth member of the South Asian Association for Regional Cooperation (SAARC) in November 2005. Membership of SAARC provides Afghanistan with opportunities for working towards development and peace through a regional cooperative framework and has opened up new vistas for trade and commerce. Till its membership of SAARC, Afghanistan’s trade agreements with SAARC member states were limited to agreements with Pakistan and India. Given the nature of its economy and its limited access to markets and the sea, Afghanistan stands to gain immensely by economically integrating itself with the rest of Southasia and widening its contacts with the region.

Agriculture remains the predominant sector of the Afghan economy, accounting for a substantial proportion of GDP. Over 75 percent of Afghans reside in rural areas and make a living primarily through agricultural activities. The revitalisation of the production of leading crops like cereals, cotton, fruit and nuts, as well as livestock, milk and karakul wool, must be a top priority for the Afghan government if it is serious about reducing poverty, eradicating poppy production and providing alternate livelihoods. With Indian aid and assistance, Afghanistan’s first agricultural university was opened in February 2014 in the former Taliban stronghold of Kandahar, a town Indian Minister for External Affairs Salman Khurshid referred to (quoting historians of the era) as the “western gateway to the Mughal Empire” in his speech at the university’s opening ceremony.

In places like Kandahar farmers told me that they are seeking help in acquiring cold storage facilities and increased road connectivity to facilitate the distribution of their horticultural produce. In Baba Saheb Ghar in the Arghandab Valley, an area famous for its pomegranates, local people have been attempting to establish storage, processing and transit facilities as well as demanding the immediate provision of irrigation and power projects, road construction programmes and more cement factories.

The manager at Kandahar’s international airport, Ahmedullah Faizi, told me that he wants to increase the connectivity of Kandahar International airport with other countries and cities. Currently Kandahar is connected by air to Delhi, Teheran and Dubai, and Faizi says he is keen to expand connectivity, particularly for cargo flights that will allow the region to export its pomegranates and dry fruits in the absence of land transit facilities through Pakistan. There is a high demand for dried and fresh fruits from Afghanistan down in the plains of Southasia – Babur, the first of the Great Mughals, wrote famously of missing the watermelons of Kabul while at court in India – which is currently being met in only a handful of places like Delhi’s Azadpur Market.

Afghanistan has a rich resource base of unexplored minerals such as iron, copper, silver, gold, sulphur and rubies. There is also the potential for the exploitation of oil and natural gas reserves in many parts of the country. A 1970s estimate put Afghanistan’s natural gas reserves at about 150 billion cubic metres (bcm), and during the early 1980s, around 2.5-2.8 bcm of natural gas were being exported every year. However, decades of conflict impeded the development of this sector and according to rough estimates available at the Afghan Ministry of Mines, the country still has half a trillion cubic metres of liquid gas reserves, a figure which could rise as further explorations are conducted by geologists. The gas fields of Yatem Taq and Khuwaja Gogerdak in the northern province of Jowzjan, as well as other sites in Helmand, Kunduz and Herat provinces could fulfill Afghanistan’s future natural gas requirements. In December 2011, the Afghan government signed a $700 million, 25-year deal with China’s state-owned National Petroleum Corporation (CNPC) which allows it to explore oil reserves in the Amu Darya River Basin. The CNPC has also pledged to build Afghanistan’s first refinery once the volume of reserves has been verified.

In the late 1970s, the majority of Afghanistan’s manufacturing sector consisted of the state-owned processing of primary goods, including cotton textiles, fertiliser, construction materials, agro-processing and the small-scale production of handicrafts. However, two decades of conflict and the consequent destruction of infrastructure and the agricultural sector negatively affected outputs. Presently, manufacturing, power, oil, and mining constitute 75 percent of industrial production, with a construction boom fuelled by reconstruction activities accounting for 25 percent of this. Infrastructure development, particularly in transport and power supply, remains the primary driver for industrial growth. Afghanistan’s export products are limited. Carpets and dried fruits alone comprise three quarters of the country’s total export produce. While fresh fruits make up only five percent of exports, this sector has grown significantly. In 2013, 6000 tonnes of fresh fruit were exported. Most carpets and fresh and dried fruits are exported to Pakistan, while India’s grant of preferential access for Afghan dried fruit and nuts has resulted in an increase of exports in this sector.

Currently India and Pakistan are the main sources of clothes and food products; Pakistan supplies nearly 89 percent of Afghanistan’s imported flour, India accounts for 56 percent of garment imports and more than a fifth of medical imports. Afghanistan also imports black tea and some consumer items from Bangladesh and Sri Lanka, but together these countries account for only 0.3 percent of imports.

It was hoped that Afghanistan’s entry into SAARC would bring about a change in the country’s trade patterns and correct trade imbalances through institutional mechanisms. Afghanistan also signed the protocol to the South Asian Free Trade Agreement (SAFTA) in 2008. Being a landlocked country, Afghanistan requires low-cost transit routes and trade facilitation systems to help exporters take advantage of the market access arising from trade agreements such as SAFTA, and to be able to capitalise on its strategic position as a ‘land bridge’ between Central and South Asia. As a friendly overture, Islamabad has also permitted the transportation of Afghan exports across the India-Pakistan border, but remains unwilling to allow Indian goods the same luxury. This issue needs to be addressed if SAFTA is to come into fruition, and will be an indicator of whether India and Pakistan are serious about putting aside their differences for a prosperous and stable Afghanistan.

Greater integration into the SAARC economic zone is imperative if Afghanistan wants to avoid a disastrous contraction of its economy. As foreign-funded spending draws down in the next few years, the Afghan economy will face not just a shortage of ‘aggregate demand’ (leading to what is described as a Keynesian depression among economists) but also a more immediate shortage of foreign exchange. For a country that imports almost all of its manufactured goods, including petroleum products, this could be a huge challenge. It is critical for Afghanistan to immediately and significantly increase its actual export earnings. The country has a very limited basket of goods it can export – basically restricted to primary products (agricultural and horticultural produce in the short term, and minerals in the long term). Agricultural products are difficult to export to developed markets in America, Europe and the Middle-East due to a lack of transport connectivity and essential storage facilities. Therefore, the most viable export market is Southasia, and the SAARC market of 1.5 billion people.

The counter-narrative
There have been attempts to shift the narrative of pessimism to one of opportunity even as the anxiety surrounding the impending international drawdown grabs more headlines in the Western media. From a narrow, security-centric approach, New Delhi has tried to shift the focus to regional confidence building, the promotion of trade and investment, and the development of Afghanistan’s resource, trade and transit potential to achieve economic viability, sustainability and independence. An Afghanistan-focused investment summit was organised by the Confederation of Indian Industries (CII) on 28 June 2012 in New Delhi to attract investors to Afghanistan.

In order to extend its leverage beyond Southasia, India has pursued the revival of Afghanistan’s historic role of linking South and Central Asia. Both countries signed a preferential trade agreement in 2003 with bilateral trade increasing considerably as a result, reaching US$600 million in 2011. Indian markets now absorb the largest share of Afghan exports, and the country is poised to expand its investment in energy pipelines and mineral exploration.

The formalisation of the India-Afghanistan Strategic Partnership Agreement (ASP) in 2011 is a reiteration of India’s interest in a sustained relationship with Afghanistan. Memorandums of Understanding were signed in relation to mineral and natural gas extraction in Afghanistan. The country is believed to be in possession of mineral deposits worth US$1 trillion. The state-run Steel Authority of India is looking to invest in the Hajigak mines in Bamiyan province to the tune of US$6 billion.

Therefore, the most viable export market is South Asia, and the SAARC market of 1.5 billion people.

Pakistan too has been involved in some of the reconstruction activities in Afghanistan. Apart from the previously mentioned trade linkages between both countries, which make Pakistan the largest trading partner of Afghanistan, Islamabad has built schools, hospitals and provided facilities and aid to universities in Afghanistan. While it may not be comparable with New Delhi’s US$2 billion pledge, Islamabad’s contribution to the reconstruction efforts in Afghanistan (a reported US$330 million as of 2012) is an important one. Both countries have progressed well regarding the joint management of common rivers. Among the proposed projects is the construction of a 1,500MW hydropower project on Kunar River – a major tributary of the Kabul River, contributing almost 13 million acre feet (MAF) of water annually to Pakistan.  The prospect of joint India-Pakistan cooperation in Afghanistan, however, has remained bedeviled by deep suspicions in New Delhi and Islamabad. In spite of the rising bilateral trade between the two countries (increasing from $2.37 billion in 2010-11 to $2.6 billion in 2012-13), cooperation regarding mutual business and trade interests in Afghanistan remains sorely lacking and  their respective aid and development projects remain standalone and uncoordinated.

The international drawdown, however, provides an opportunity to change the status quo. At a trilateral meeting of representatives from the Afghan, Pakistani and Indian governments held in Herat in October 2012, Pakistani Senator Afrasiab Khattak said of future India-Afghanistan relations: “Afghanistan is an independent country and can have independent relations with any country that they want. These relations should not harm Pakistan… these three countries [Afghanistan, Pakistan and India] cannot stay rivals to each other. It is important to have cooperative political, economic and cultural relations amongst them.”

A statement made by Indian Prime Minister Manmohan Singh in 2007 reflects a similar vision for regional economic integration that would benefit Afghanistan, Pakistan and India alike. Singh told reporters in New Delhi: “I dream of a day, while retaining our respective national identities, one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. That is how my forefathers lived. That is how I want our grandchildren to live.”

While the idea that Afghanistan can positively influence India-Pakistan relations may sound preposterous to many, both Pakistan and India stand to gain from enhanced and cooperative counter-terrorism and counter-narcotics mechanisms. As a result of the rise in terrorist attacks in Pakistan, which are increasingly being perceived as consequences of the covert support extended

As the economy spirals downward in Pakistan, the economic benefits of regional trade and energy pipelines are propelling the business community to push for changes in the government’s Afghanistan policy.

to various extremist groups in Afghanistan, there appears to be a shift in the Pakistani government’s thinking. Most of Pakistan’s efforts of late have been aimed at securing a political outcome that avoids a Taliban victory in Afghanistan, but ensures its own proxies a share of power in an inclusive government. As the economy spirals downward in Pakistan, the economic benefits of regional trade and energy pipelines are propelling the business community to push for changes in the government’s Afghanistan policy, and for the opening up of the border and exploration of trade and transit possibilities. “Movement of people should be smooth in the SAARC region…the private sector can play a major role in enhancing regional integration,” Afghanistan Deputy Commerce and Industry Minister Mozammel Shinwari said at the 5th SAARC Business Leaders Conclave in Delhi in January 2014.

 

Neo-liberalism has increasingly become a sine qua non for India’s foreign policy towards Southeast Asia, Africa, as well as the neighbouring countries of the Southasian region. The economic vision of Prime Minister Manmohan Singh pursued a sustained engagement with Pakistan before the border flare-ups in late 2012 and early 2013 introduced fresh road blocks. Till then, Pakistan had appeared willing to reconsider granting most favoured nation (MFN) status to India. An influential section within the Pakistani business community desires greater relations with India, providing another counter-narrative to the protectionism espoused by radical organisations. Indeed, the onion shortage of 2010 in India showed just how viable and vital trade between the two countries is, when Pakistani onions crossed the border in truckloads and came to the rescue of northern Indian cooking.

Regionalism can address the limits of bilateralism and break free from the road blocks imposed by the recurrent tensions between India and Pakistan. It is in the reinvigoration of SAARC that an answer to Southasia’s economic woes can be found. Intra-regional trade in Southasia accounts for a mere four percent of the region’s total trade. In comparison, regional trade within the European Union stands at 67 percent, the North American Free Trade Agreement (NAFTA) at 62 percent, and the Association of Southeast Asian Nations (ASEAN) at 26 percent.

Afghanistan would gain tremendously from improved access to SAARC markets and the greater opening of Afghan markets to SAARC members. Tariff-free access to large markets in India and Pakistan would be one of the most appealing features of SAFTA for Afghanistan’s exporters, and easier access to markets in Pakistan would increase value-added processing and encourage carpet makers to return from Pakistan and set up shop again in Afghanistan. Afghanistan’s advantage regarding agro-based products like dried fruit and nuts, coupled with preferential access to large and growing markets in Bangladesh, Sri Lanka and Nepal could provide a significant opportunity for Afghan exporters.

Strategically located between countries with surplus energy resources and others with high energy demands, Afghanistan is presented with a unique opportunity to capitalise on its status as a ‘connector’ between Central and South Asia. Stability in Afghanistan will be essential for the Turkmenistan–Afghanistan–Pakistan–India (TAPI) natural gas pipeline project that envisages the construction of a 1,700 kilometre natural gas transmission pipeline to transport about 27 bcm of gas annually from the Daulatabad gas fields in southeast Turkmenistan to consumers in Afghanistan, Pakistan, and possibly India. The project is also predicted to create about 10,000 jobs inside Afghanistan and will also raise US$100–300 million annually from transit fees, nearly doubling Afghanistan’s current revenue from transit and taxes.

A reformed and robust SAARC provides the ideal platform for the economic integration of Afghanistan within the Southasian region, which would accrue huge economic benefits and contribute to long-term peace building initiatives as well as lead to incremental steps in the establishment of peace and stability in Afghanistan. This process is currently stalled: SAARC is virtually a lame duck, hobbled by India-Pakistan sniping. However, at the Fifth SAARC Business Leaders Conclave in New Delhi of January this year, industrialists and business leaders from across the region urged their respective governments to move beyond the “lack of political will” and to implement the SAARC Transit Agreement, reform customs tariffs and facilitate the easy transfer of goods across borders, as well as encourage the free movement of  business people through more flexible visa regimes and the “issuance of at least 500 SAARC Visa Exemption Stickers for businessmen from each country of South Asia.”

Restoring Afghanistan’s historical and economic linkages with Southasia through its inclusion in the SAARC community has been an important initial step. Landlocked Afghanistan would benefit greatly through access to Southasian markets and to the sea, and the greater regional economic integration of Afghanistan into SAARC will provide the necessary economic impetus to move away from an aid-dependent to a self sustaining economy. More importantly, mutual collaboration and joint mechanisms within SAARC have the potential to reduce India-Pakistan rivalry in Afghanistan and bind them into a mutually beneficial framework. India and Pakistan stand to gain from greater cooperation on security, trade, energy, water and infrastructure development in Afghanistan. The economic benefits from such cooperation could revive the workings of SAARC and encourage the countries of Southasia to trade and exchange goods, and not only when prompted by onion crises.

 

~Shanthie D’Souza is Research Fellow, Institute of South Asian Studies (ISAS), National University of Singapore.

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