Impact of Afghanistan’s current situation on Global Trade

Introduction

Afghanistan is a landlocked country between Central and South Asia. The country’s nominal GDP was around $21.7 billion in 2018 and it comes under the category of Least Developed Countries (LDC) given its rough physical geography and landlocked status. Since around 1994, given the influence of the Taliban, Afghanistan’s economy has been shaped up by fragility and aid dependence. The country has been operating with a weak institutional infrastructure and mass corruption. The private sector in the country displays low productivity and around 44% of the total workforce works in agriculture with the remaining 55-60% deriving some income from agriculture. Given the continuous receival of aid since after the year 2002, the country did see rapid economic development with an average growth of 9.4% between 2003 and 2012.

Post-2012, the security situation deteriorated given the Taliban insurgency and further the GDP growth in the economy was around 2.5% per annum. The aids were also reduced post-2015 and the gains from development started showing the reverse pattern. In August 2021, the Taliban took over the control of Afghanistan and pushed the country into facing some immediate repercussions across the economy. Further, with the current seize off of the country, the global governments have halted all the support. The country’s economic growth was as it is slow up to August 2021, which was further worsened by the severe drought conditions and the Taliban takeover of the country.

Trade in Afghanistan

Given the geographical location of the country, trade has been increasing with the development of international trade routes. One of the most extensive trade routes is the Lapis Lazuli Corridor which connects Afghanistan with Turkmenistan and further ends somewhere in Europe. Afghanistan is well connected with its neighbouring countries like Iran, Pakistan, Tajikistan and it also has a direct trade with India via the air corridor. The rail system in the country is well established and connects it well to Central Asia.

The country exports Gold and products like Grapes, insect resins, tropical fruits, etc. to its trading partners that including UAE, India, Pakistan, USA and China. It is well endowed with natural resources and a geological survey in 2006 stated that Afghanistan has as much as 1,000 million cubic meters of natural gas, 570 million cubic meters of oil and condensate reserves. Further, the country also holds a dominant position in the opium and heroin market, which further provides income to a lot of farming households in the country.

Assessment of the Taliban takeover of Afghanistan on Global trade

As per trade data, the country’s largest trading partners are China, India, Iran and Pakistan.

The economy of Afghanistan has been depending majorly on international aid and the private sector in the country has a limited establishment. The predictions suggest that the current situation of Afghanistan would impact international trade. Also, Afghanistan’s trade routes link Europe and the Middle Eastern countries that including China’s Belt and Road Initiative. China imports nuts, animal hair, dried fruits, etc. from Afghanistan and is the second-largest import partner and third-largest export partner of Afghanistan.

The control of the Taliban over the country could cause a surge in the export of Heroin and other drugs as it takes control over the trade routes. To add to the ongoing issues, Afghanistan is reliant on ports in other countries for import and export. India has invested in the Chabahar port in Iran which could be a dead investment because of the Taliban’s control over Afghanistan.

Based on this situation of political instability, the exports of the country are expected to reach around USD 691.70 million. The collapse of the Afghani government and the speed of the Taliban takeover has majorly left the trade partners in confusion. Further, the situation is a bit unclear on further how the country will be governed and how the trade partners will be affected by the same. The trade forecasts point out the obvious decline of exports from the country and this leaves the future of global trade in a confused state overall.