January 28, 2023

IEA’s 1st year in power; a genuine struggle to revive a paralyzed economy

IEA’s 1st year in power; a genuine struggle to revive a paralyzed economy

The chaotic but unexpectedly swift fall of Kabul on 15th August 2021 surprised everyone. Ashraf Ghani, fearing that he may meet with the fate of the ex-communist president Dr. Najib, who was killed and hanged from a lamp post by the Taliban when they last took Kabul, fled Kabul with his coterie on the day of its fall. The situation’s uncertainty had thrown the Kabul, Afghanistan, and the wider world into disarray.

Much like the entire edifice of Afghanistan’s government apparatus, its economy, also hugely reliant on international aid, essentially collapsed with the withdrawal of foreign troops.

Rather than building the ground for a stable and durable economy, the hundreds of billions of dollars pumped into Afghanistan during its two-decade-long occupation, worked more as a temporary anesthetic. It glossed over the gaping hole of its economic abyss, rather than permanently healing Afghans’ decades-old economic wounds.

The aid was not merely ineffective but dishonest in the benevolence it exhibited; much of it ended up back in foreign capitals through the army of contractors and NGOs that sustained and profited from the war, or through the investments made by the US’ rentier class of Afghans who made fortunes from the occupation of their country.

The life support of the economy was the roughly $4 billion of aid the previous regime received annually. In the aftermath of Ghani’s flight and his regime’s collapse, this aid was cut off.

The new Afghan government was thus confronted immediately by an acute budgetary crisis. Not content, $9 billion of the Afghan Central Bank’s assets were frozen by the US, which President Biden later unilaterally decided to split: half would be earmarked for ‘aid’ to Afghanistan.

The other half to settle ongoing litigation in US courts launched by the families of the victims of the 9/11 attacks: attacks in which no Afghan was involved.

The assets, regardless, were not supposed to be spent as cash but instead to provide for liquidity and confidence in the banking sector.
As a result, Afghanistan was confronted with a banking and liquidity crisis. Finally, crippling sanctions that isolated the country from international banking and pushed the damaged economy over the cliff.

The irony was grim; Afghanistan was being actively impoverished and collectively punished by the very countries that had, for decades, declared their unending friendship with the Afghan people. As if a two decade occupation were not enough.

Reviving the economy of a country ravaged by war for four decades was already a daunting task, additional sanctions notwithstanding. All hurdles notwithstanding, the Afghan Deputy Prime Minister Mullah Abdul Ghani Beradar was appointed to spearhead economic affairs, and immediately resolved to focus economic development around a series of key projects and plans. Foremost amongst these is the Qushtipa Canal mega project.

The Qushtepa Canal

The Qushtepa canal is the largest canal dug in Afghanistan’s history.

Its source is the Amu (or Oxus) river in Kaldar district of Balkh province in the country’s north, and proceeds to run through the barren deserts of Hairatan and Aqcha district of Jawzjan and ends up in Andkhoy district of Faryab. Its length is 285km, its width is 150m and it had a depth of 8m.

The Canal, upon completion, is forecast to irrigate 550 thousand hectares of agricultural land.

This canal is aimed to not just make Afghanistan not only self-reliant in grain production, but to give it the capacity of becoming a net exporter of grain.

The Kamal Khan dam, completed under the previous regime, cost $12 per cubic meter.
This cost per unit would mean that the completion of the Qushtipa canal would cost $5.4 billion. Yet the state-owned National Development Corporation, in identifying corruption and other malpractice, managed to reduce the cost per cubed meter from $12 to 75 Afghani: less than a dollar.

Qushtipa is thus forecast to cost $33.75 billion Afghanis, roughly $383m. Around 1,400 pieces of machinery have been deployed from 120 local construction companies and thousands of jobs have been created for locals. Current forecasts predict that the use of machinery will triple by the project’s completion.

The project is, in spite of all hurdles placed by our supposed erstwhile allies, Afghan-designed, Afghan-funded and Afghan-implemented.

Qashqari oil wells

The Qashqari oil plant, located in Sar-e-pul province, northern Afghanistan, was officially inaugurated on 7 April, and currently produces 200 tons of crude oil daily. Negotiations are currently underway with Chinese companies.
In the instance that an agreement is struck, oil production could potentially surge to 1,500-2,000 tons per day.

Mines

Afghanistan sits on a trove of mines and precious stones. Its rare earth elements are indispensable to modern economy, technology and military.

Llithium, used as an essential component in rechargeable batteries and clean technology, is reported to be abundant in Afghanistan.
However, the government’s focus alongside other elements has mainly been on coal extraction. According to reports from the Ministry of Mines and Petroleum, sixteen thousand tons of coal is extracted countrywide on daily basis.

The royalty charged on its extraction and duties levied on exporting trucks are major contributors to the state’s coffers. Given the vast and increasing global demand as a global energy crisis worsens, coal can become a noteworthy source of revenue.

The government is currently working to explore ways in which exports can be increased and diversified beyond markets in neighbouring countries.

Cross-border trade

Having seven hugely crowded crossings, Afghanistan has benefited by burgeoning trade. Given the income generated by cross-border trade, the new government swiftly stepped up to regularise and centralise revenue collection, and eliminate all illegal payments previously being demanded at checkpoints across the country.

To effectively manage and transparently collect the revenues, the government deployed officials at BCPs and, unlike under the republic, implemented the Automated System for Customs Data uninterruptedly.

It channeled tax revenues to the Ministry of Finance, denying illegal payoffs to the employees now accustomed to bribery.
These measures enabled the government to announce its 232 billion Afghani (almost $2.5 billion) budget.

The budget was the first in decades, perhaps over a century, funded entirely by domestic revenue.

Quality control of imports in a war-torn and corruption-ravaged country was as crucial as it was challenging. Regulating the quality of fuel, largely manipulated by the mafia during the previous regime, was of utmost importance.

The Afghanistan National Standard Authority (ANSA) implemented strict rules of quality check and returned those below the standard.
To force the government to allow low quality fuel in case of oil shortage on the ground, the importers of fuel withheld hundreds of oil tankers near border crossings in neighboring countries, causing huge fuel crises and skyrocketing prices in the country.

In order to prevent any such crisis and keep market confidence in future, the government, via its oil and gas corporation, conducted its own purchases which exerted a profound positive impact on market.

By: Abdullah Azzam

 

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