9 April 2018
Afghanistan: Market Profile
Major Economic Indicators
- Afghanistan is a landlocked country in Central Asia, bordered by Pakistan to the south, Iran to the west, and Turkmenistan, Uzbekistan and Tajikistan to the north. It connects to China through the Wakhan Corridor in the northeast. The country has endured many wars over the past century. More recent ones include conflicts with the former Soviet Union in the 1980s, the Taliban-Northern Alliance civil war in the 1990s, and the US-assisted removal of the Taliban in the early 2000s. Despite the presence of NATO troops, most of whom are from the US, the Afghan government controls about 56% of the country, with the Taliban holding large swaths of territory and increased Islamic State (IS) presence in eastern regions. In August 2017, US President Trump announced a more aggressive approach in Afghanistan, which include plans to increase US troops in Afghanistan and the call for greater regional support from Pakistan and India.
- The Afghan economy has made considerable improvement in the last decade, thanks to substantial international assistance and remittances from Afghan expatriates. Afghanistan’s services sector now accounts for about half of its GDP. Transport and storage (about 18% of GDP) has become a new economic driver in the post-Taliban years, especially in light of the increasing demand for refrigerated transportation and storage facilities. Agriculture represents about 23% of GDP, despite the country’s shortage of arable land and lack of modern irrigation systems.
- The development of manufacturing is limited in this war-torn country. Afghanistan’s main exports are fruit, medical herbs and carpets, which combined represent more than half of its total exports, with India and Pakistan being its major markets. Imports consist mainly of petroleum products, wheat and metals, which come mostly from Iran, Pakistan, and China.
- Afghanistan has a rich endowment of natural resources, notably natural gas, coal and copper. The construction of TAPI (Turkmenistan – Afghanistan – Pakistan – India) Pipeline for transportation of natural gas among the four countries, started in Turkmenistan in December 2015, while the construction of the part in Afghanistan only commenced in February 2018. Security issues notwithstanding, Chinese enterprises have already established a presence in the country’s resources sector. China’s National Petroleum Corporation, for instance, signed a 25-year contract with Afghanistan in 2011, following a copper mine deal worth US$3 billion secured by China Metallurgical Group Corporation and the Jiangxi Copper Company in 2008.
- In 2016, Afghanistan became the 164th WTO member after parliamentary ratification. It is also a member of the South Asian Free Trade Area (SAFTA) and signed trade agreements with India and Pakistan. Afghanistan has concluded bilateral investment treaties with Germany, Turkey and Iran. The Afghan government has long been pleading for foreign investment in order to grow and stabilise its economy. The Private Investment Law (PIL) was passed by the Afghan government in 2003 and amended in 2006, which stipulates that foreign investors are given national treatment and there is no limit on foreign ownership of the equity share of enterprises, except for investments in construction of pipelines, telecommunications infrastructure, oil and gas, mines and minerals, and heavy industries.
- Afghanistan Investment Support Agency (AISA) is the agency to promote FDI in Afghanistan. The Afghan government encourages FDI in infrastructural-related sectors such as telecommunication, construction materials, mining, public utilities, transport and logistics. More details on investment opportunities and regulations in Afghanistan can be found on the AISA website.
- Afghanistan’s cumulative FDI amounted to US$1,361 million as at end-2016, rising marginally from the previous year. According to statistics from China’s Ministry of Commerce, Chinese cumulative FDI in Afghanistan was valued at US$440.5 million as at end-2016.
- In May 2016, China and Afghanistan signed a Memorandum of Understanding (MOU) on the Belt and Road Initiative (BRI), which aims to foster cooperation in various areas including policy coordination, infrastructure development, trade and investment facilitation. There are several projects implemented under the BRI, including the cargo railway connecting China to a northern Afghan city and a direct flight between Kabul and Urumqi.