Building new economic partnership

If more border-crossing points are opened, Pak-Afghan trade can surpass $5b

Building new economic partnership
Building new economic partnership


With chances of peace returning to Afghanistan after four decades of civil war, there is optimism that bilateral relations with Pakistan may change for the better.

The new government of the Taliban seems to be making peaceful gestures and wants to connect with the rest of the world. Pakistan’s government has welcomed the change and has assured the new leadership of Afghanistan of its full cooperation in rebuilding the war-ravaged country.

With its fragile economy, Pakistan may not be able to extend much financial assistance. Still, there are alternative ways to engage with Afghanistan to the benefit of both countries.

This article explores some areas, particularly those that can yield dividends immediately and in the medium term.

Indeed, several stalled projects in Afghanistan could resume immediately as substantial work has already been done on them. These projects can be classified into three categories, ie, energy sector, bilateral and transit trade, and making Afghanistan part of the China-Pakistan Economic Corridor (CPEC) project.

As far as energy is concerned, both countries are particularly dependent on imported gas and oil. So far, they have been unable to acquire comparatively more economical and convenient energy resources of Central Asia.

Afghanistan’s own potential oil and gas reserves remain untapped. The strategic location of the two countries makes them ideal for serving as energy corridors for other regional countries.

To that end, several projects conceived decades ago had considerable work done on them.

The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is one such project. Feasibility studies for this 56-inch pipeline costing over $7.5 billion and capable of transporting up to 33 billion cubic metres (bcm) of natural gas per year over a commercial operation period of 30 years have already been completed.

Other technical issues such as how it will be financed and how the imported gas will be shared between the users have also been settled.

For example, it has been agreed that Pakistan would purchase 14 bcm or 42% of the total volume of produced gas while Afghanistan would purchase 5.11 bcm or 16%.

In addition, Afghanistan would also receive $400 million a year in transit fee for the pipeline.

The Asian Development Bank has been a key proponent of this project. Turkmenistan has already done construction work within its borders, and if the remaining work commences soon, the pipeline can be completed relatively quickly.

Besides securing gas, oil supplies can also be assured. Iran is keen to participate in the construction of oil pipelines to China through Afghanistan and Pakistan.

Both countries would also earn transit fee from this pipeline and would have access to cheaper oil. China and Iran are keen to see this project get started and completed as soon as possible.

Another major project on which substantial work has been done is the Central Asia-South Asia (CASA-1000) power project. The venture costing $1.16 billion will enable the transmission of 1,300 megawatts of surplus hydroelectricity from Kyrgyzstan and Tajikistan over 1,330 km to Afghanistan and Pakistan.

It is financially supported by the World Bank and the Islamic Development Bank. Russia is also keen to meet any additional financing needs.

Once completed, the system would transform the region and be an important step towards realising the planned Central Asia-South Asia Regional Electricity Market.

The second major factor, which can be of great benefit to both the countries, is an increase in their mutual trade.

Being a landlocked country, the most convenient route for imports and exports for Afghanistan is through Pakistani ports. Similarly, for Pakistan the most convenient land route to reach Central Asia is through Afghanistan.

The existing 10-year Afghanistan-Pakistan Transit Trade Agreement (APTTA), which lapsed recently, is now being renegotiated. It is time for both sides to show flexibility and agree on providing greater transit facilities to each other.

In the past, 70% of Afghanistan’s trade used to pass through Pakistan. Now, it is less than 30%. This can easily rise to the previous level, providing goods at a lower cost to Afghanistan and providing employment to people living on both sides of the border.

During the last 10 years, Pakistan’s bilateral trade with Afghanistan has decreased from around $3 billion in 2011 to about one-third or $1.3 billion. If both countries could open additional border-crossing points and ease restrictions, the trade volume could easily surpass $5 billion in the near future.

Pakistan needs to rationalise its existing customs tariff to reduce smuggling through any increase in transit and bilateral trade.

The third major contributing factor could be to make Afghanistan an integral part of CPEC project.

China is already the biggest foreign investor in both countries. It is building the Sino-Afghanistan Special Railway Transportation Project and the Five Nations Railway Project connecting China, Kyrgyzstan, Tajikistan, Iran and Afghanistan. Pakistan could also join this project.

China is also working on the $4.4 billion copper extraction project in Logar province and oil exploration in the Amu Darya Basin. The jewel in the crown will be the extraction of rare-earth metals estimated to be worth between $1-3 trillion.

Since the takeover of the Taliban, China is the first country to indicate its willingness to contribute to post-war reconstruction and development under the BRI.

These projects can give a further impetus to CPEC as the flagship project and highlight Pakistan’s role in Afghanistan’s reconstruction.

The writer has served as Pakistan’s ambassador to WTO and FAO’s representative to the United Nations at Geneva