The Afghan Economy: Limited Opportunities or Assorted Obstacles?
Afghanistan has many advantages due to its natural, geopolitical, financial, and human resources, yet despite these benefits, it is lacking in many areas. For decades, it has been a battleground for opposing ideologies, politicians, emperors, and ethnic groups. Other Western colonies such as Taiwan, Japan, and India have developed their economic and political systems and are now powerful regional and global powers. However, in Afghanistan, between the 1960s and 1970s, there were significant changes such as the imprisonment of young people, brain drain, the collapse of politics, suspension of the financial system, dissolution of the army, and changes in cultural values. These issues are not unique to Afghanistan, as many nations have faced similar problems and changed their paths. Afghans, however, have not changed their path and continue to fall into the same trap.
In 2020, Afghanistan‘s GDP per capita was estimated to be $529, which translates to an average annual income of 46,000 AFN. In comparison, Iran had an estimated annual income of $2,756 in 2020–2021, followed by Pakistan at $1,537, India at $2,277, Tajikistan at $1,983, and Uzbekistan at $897. There is potential for Afghanistan to increase its GDP per capita and reach an annual income of between $2,800 and $3,000.
a) Natural Resources
Afghanistan is a nation with abundant natural resources. According to a recent analysis conducted by the United States, the country‘s natural resources, including copper, iron, and precious and semi–precious stones, are estimated to be worth at least three trillion dollars. It is believed that only 10% of Afghanistan‘s 213.5 billion cubic meters of water is utilized for agriculture and electricity generation. Afghanistan has the potential to produce more than 23,000 megawatts of hydroelectricity from its resources, but it is only able to generate over 600 megawatts of electricity from its hydroelectric plants, as well as from the use of fossil fuels and solar panels. Statistics show that 73% of Afghanistan‘s electricity is imported from neighboring countries; 22% from Iran, 4% from Tajikistan, 17% from Turkmenistan, and 57% from Uzbekistan, costing the country hundreds of millions of dollars annually. Additionally, the amount of water that is sent to neighboring countries such as Iran and Pakistan is another issue. For Afghanistan and its neighbors, sustainable use of water for energy production, drinking water, and a resource for trade and agriculture can be a wise decision and an investment. Afghanistan is known for its massive agricultural potential and a long history of exporting dried fruits to India and other Middle Eastern countries. Investing in agriculture can increase the rural income of each family to up to four dollars a day, which would be more beneficial than opium cultivation.
b) Geopolitical Location
Afghanistan has many advantages due to its geographical location in the heart of Asia. It connects China, South Asia, the countries of the Persian Gulf, and Central Asia through land. Geological analysis has also revealed that gas pipelines running through Afghanistan transport gas from Central Asia to South Asia. Additionally, Iran is looking into establishing a water and oil exchange system with Afghanistan and Central Asia. Uzbekistan produces 800,000 tons of cotton each year that is transported through several countries, resulting in high transportation costs. Meanwhile, Pakistan imports 2.2 million bales of cotton annually for its developing textile sector. Investing in this region could strengthen regional integration, increase tax revenue for Afghanistan and Uzbekistan, and reduce Pakistan‘s transportation costs. Afghanistan could also serve as a point for joint border management with Tajikistan borders. The bridges built by the Aga Khan Foundation have also helped to facilitate trade across the border.
c) Human Capital
Since 2001, Afghan people have accumulated a large amount of money and the Afghan diaspora has billions of dollars in wealth. However, these funds have not been utilized due to a lack of financial and political infrastructure. According to a study conducted by the United Nations High Commissioner for Refugees and the International Labor Organization, Afghans working in Iran send about 500 million dollars, which is equivalent to about six percent of Afghanistan‘s GDP, to Afghanistan each year. Afghans living in the Gulf, Pakistan, Russia, Europe, and the United States of America have expressed an interest in investing in their country, but corruption, insecurity, and a lack of specific laws and policies have prevented them. Instead, money is flowing in the opposite direction, with billions of dollars of Afghanistan‘s economy being sent/spent in the Persian Gulf or other safe havens annually.
The supply and demand of the global market has connected Afghanistan to regional and international markets. In 2021, Indians invested 2.95 billion US dollars in the United States, while Chinese companies invested 38.25 billion dollars. Between 2015 and 2016, this amount of foreign direct investment increased significantly. In 2021, US direct investment in the global market totaled US$ 6.49 trillion, with a value of about US$12.3 billion in Russia. Afghanistan has a large amount of natural resources, financial capital, human capital, and geographical capital, which connects Asia in terms of trade, energy, and transit. In 2021, Afghanistan had a trade deficit of four billion and 457.70 million dollars, with imports totaling five billion and 109.28 million dollars and exports totaling $850.10 million by December 2021. Unfortunately, more than 70% of the population lives in poverty and requires humanitarian aid. Millions of people have fled the country, and many more are trying to escape.
The people of Afghanistan do not have an economy and market policy that is based on the concept of direct economy. Instead, it is based on several different aspects, such as the economy of war, the economy of drugs, and the economy of corruption. Afghanistan‘s economy is heavily reliant on drugs, with exports such as opium, morphine, and heroin having a potential value of $3.4 billion in 2008, compared to the GDP of $10.2 billion. According to the United Nations Office on Drugs and Crime (UNODC), the cost of heroin in Afghanistan is $2.50 per gram, while it is $8 in Turkey, $12 in Albania, and $18 in Slovakia. In Russia, the cost is 33 dollars, in Britain it is 30 dollars, and in Germany it is 22 dollars. The UNODC reported that opium production in Afghanistan has increased by 32% since last year, and the farmers‘ income has increased from $425 million in 2017 to $1.4 billion in 2021. It is estimated that in 2022, the value of opium in Afghanistan will be 6,200 tons, worth $1.55 billion, with its export to the European market estimated at $136.4 billion, of which 15 to 20 percent goes to domestic farmers and smugglers, while the rest goes to regional smugglers and supply commissions.
Over the past 20 years, the US government has spent $145 billion on the reconstruction of Afghanistan‘s security forces, civilian government institutions, economy, and civil society. Additionally, $837 billion has been spent on the war in Afghanistan, though much of it has been stolen by contractors and large companies. The Special Inspector General for Afghanistan Reconstruction (SIGAR) has reported that the US alone has donated $145 billion, and that there are significant allegations of “waste, fraud, and abuse“ against the US reconstruction effort.
Millions of dollars have been siphoned off by corrupt commanders, generals in cahoots with government groups, and political extortionists, leading to almost two million people fleeing Afghanistan after the fall of the Islamic Republic of Afghanistan, with the process of escaping still ongoing. According to a UN report, more than 500,000 people have become unemployed, and around 70–80% of the population is reliant on international aid. The majority of the population is even willing to register and join the labor market of Saudi Arabia, Qatar, etc. Despite this, Afghanistan remains poor, and billions of dollars from the indirect economy (war, drugs, and corruption) that are not accounted for in the gross national product are going into the pockets of those responsible for the collapse of Afghanistan.