16 May 2016
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. The more recent of these 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. Following the US troop withdrawal from Afghanistan in 2015, Islamic State militia have also emerged as a threat to Afghanistan, alongside the Taliban. Military combats and insurgency have become recurrent events and a a major security problem in the country.
- Following the presidential elections of 2014, security and political stability are the key factors needed for Afghanistan to develop its economy. Afghanistan’s services sector accounts for about half of its GDP. Agriculture represents about 25% of GDP, despite the country’s shortage of arable land and lack of modern irrigation systems. Transport and storage (about 20% 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.
- 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, metals and motor vehicles, which come mostly from Pakistan, Uzbekistan and Russia.
- 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, has started in December 2015. The project is expected to be completed in 2019. 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 December 2015, the WTO formally approved Afghanistan’s membership, with the country given six months to ratify the accession protocol and signal its acceptance of WTO membership. Afghanistan is also a member of the South Asian Free Trade Area (SAFTA) and signed trade agreements with India and Pakistan. During his trip to China in July 2015, Afghan President Ashraf Ghani recognised the vital importance of China’s Belt and Road Initiative to his country, and said Afghanistan was looking forward to participating in any relevant projects, while also welcoming Chinese investment in the country’s infrastructure.
- 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 was US$1,692 million as at end-2014, rising marginally from the previous year. According to statistics from China’s Ministry of Commerce, Chinese cumulative FDI in Afghanistan was valued at US$518.5 million as at end-2014.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.