A new U.S. exemption to India to use the Chabahar Port in Iran could result in tremendous economic opportunities for Afghanistan.
During a joint news conference with U.S. Secretary of State Mike Pompeo, Foreign Minister of India Subrahmanyam Jaishankar and U.S. Secretary of Defense Mark Esper on Dec. 18, 2019, the Indian Foreign Minister said he was grateful to the U.S. for reiterating its support for the Chabahar project.
Though the port is in Iran, management of the Shaheed Beheshti Port at Chabahar was taken over by India Ports Global Ltd. in December 2018. More than 4.5 metric tons of cargo have moved through the port, including exports from Afghanistan that started in February 2019.
India and Afghanistan have good trade relations, but their physical detachment presents a logistical dilemma for exporters. India built the Zaranj-Delaram Highway that connects the Chabahar Port on the Gulf of Oman to Afghanistan Ring Road, which stretches through Herat, Mazar-i-Sharif, Kabul, Ghazni and Kandahar and to Tajikistan’s Gorno-Badakhshan province. The highway and proposed rail lines create North-South transport corridors connecting the Indian sub-continent and land-locked Central Asia and Afghanistan to access the Arabian Sea.
Economists project that Central and South Asia will become the new global center of economic growth and activity in the next decade. Given its location, Afghanistan can play a substantial role in these rising regional prospects. Recently, the Taliban’s ruling council has agreed to a temporary ceasefire in Afghanistan, providing a window in which a peace agreement with the U.S. can be signed. If U.S.-Taliban agreement is reached and possible improved stability on the horizon, Chabahar could put Afghanistan on a prosperous track.
The Chabahar port allows India to access energy resources in Central Asia, where Kazakhstan and Turkmenistan possess huge energy and uranium reserves. In addition, it will help India to maximize its trade potential with Central Asian countries, where India currently lags far behind major regional players like China, Russia and Turkey.
A practical approach to transit trade development in Afghanistan would be based on careful prioritization of infrastructure investment, as well as resolving existing bottlenecks at important trade points, meeting emerging needs in productive sectors, and partnering with the private sector.
According to a World Bank estimate, improved transport connectivity among Afghanistan and its neighboring countries could boost regional trade by at least $5.2 billion and increase Afghanistan’s revenues by at least $260 million per year.
As part of the bilateral agreement, India will extend grant assistance of nearly $85 million and a credit facility of $150 million for the Chabahar Port development. India also plans to connect the port via rail to the Afghan border, in addition to investing in the Special Economic Zone in the port, as India had earlier announced an investment to the tune of $500 million for the Chabahar port complex.
Multilateral agencies including the Asian Development Bank and the World Bank are supporting large energy trade projects such as the Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline (TAPI) and the Central Asia South Asia Electricity Transmission and Trade (CASA—1000). With major support from USAID, Afghanistan is also launching trade and export facilitation projects with the private sector to help boost the Afghan economy, create much-needed jobs, and build a foundation for self-reliance.
In addition, the establishment of air corridors, while not economically feasible in the long run, has successfully helped the Afghan businesses to export more than 6,300 tons of goods to various regional and European countries with a total value of over $130 million in early 2019. Moreover, they have created invaluable business linkages between Afghan firms and the region’s private sector.
International donor support remains vital to cover Afghanistan’s operating budget and development programs for the foreseeable future. Afghanistan’s fiscal gap ranges from 35 percent to 40 percent. Security expenditures continue to exceed 20 percent of GDP, absorbing investment that could go into generating economic growth in a more secure environment.
Afghanistan’s integration into the regional economy is critical to its economic survival. The Chabahar port, therefore, provides a pathway leading to growth for Afghanistan and towards independence from foreign aid as well as a means of addressing the ever-present concern of national and regional security as a whole.
Rohullah Osmani is a Senior Advisor for the Economic Growth Division at Creative Associates International. Prior to joining Creative, Rohullah worked with Asian Development Bank (ADB) based in North America. He has more than 18 years of international development experience in Afghanistan, Pakistan, India, the United States and 20 other countries in Asia and Africa.