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Losing ground in Afghanistan

Updated October 23, 2017

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Pakistan is fast losing the market for its products in Afghanistan owing to frequent changes in federal government policies coupled with a greater focus on security instead of trade.

Resultantly, Pakistani items are being replaced with Indian and Iranian exports in the war-torn country.

Afghanistan was Pakistan’s second-biggest export destination after the United States until 2011. Presently, China has acquired this position, followed by the United Kingdom and Germany.

The fact that in the past two decades improving trade relations with Afghanistan has not been a priority for Islamabad is a major concern for the country’s exporters. Recent border closures have also increased problems for exporters.

“When it comes to Kabul, why are we so quick to close the border over every incident? Islamabad needs to shift from a security-centred policy to an economic one,” says a businessman affected due to decline in exports to Afghanistan.

There are several reasons, both internal and external, for the decline in exports to Afghanistan.

Internally, Afghanistan is not on a priority list of the federal government. The Ministry of Commerce has recently approved a package to promote exports to the African continent while ignoring issues that hinder exports to Afghanistan.

‘When it comes to Kabul, why are we are so quick to close the border over every incident? Islamabad needs to shift from a security-centred policy to an economic one,’ says a businessman affected due to fall in exports to the neighbouring country

Similarly, the government is unwilling to remove the restriction for exporters who want to avail schemes like DTRE and manufacturing bonds for exports to Afghanistan.

The recent restrictions on visa and travel have also affected the business community badly. There is a great potential for pharmaceutical exports to Afghan­istan, but ad hoc rules controlling drug prices are an impediment.

Poor infrastructure at borders also adds to the problem. The Ghulam Khan port in Waziristan has yet to be made functional for exports. While an Asian Development Bank-funded project to build modern land ports at Torkham, Chaman and Waga border points has been initiated, the pace of work on these projects is slow.

As part of this project, the government has yet to establish the land port authority which will oversee the project and its implementation.

Externally, international donor funding in Afghanistan dropped for development projects. It has also been reported that NGOs have likewise stopped development operations in Afghanistan.

KP Chamber of Commerce and Industry President Zahid Shinwari said that local investors in Afghanistan also hesitate to invest in real estate. “Not a single big factory has been established in the last couple of years in Afghanistan,” he said.

Mr Shinwari claimed that Indian and Iranian products have replaced Pakistani exports as Kabul has imposed high tariffs on Pakistan dominant products like juices, cement, pharmaceuticals and PVC pipes.

The frequent changes in federal policy have mostly impacted the provinces of Balochistan and Khyber Pakhtunkhwa. Senior vice president of Pakistan Afghanistan Joint Chamber of Commerce and Industry, Daroo Khan Achakzai, said the ill-advised changes in policy have led to falling exports to Afghanistan.

He said the imposition of regulatory duties, especially on fresh and dry fruits, granite and marble, would encourage transit of these products to other countries from Afghanistan. “We import these products from Afghanistan and re-export them after some value-addition,” Mr Achakzai said.

He said that on the import of these products no foreign exchange was involved as fresh and dry fruits are importable against the Pakistani rupee from Afghanistan.

While potential for trade exists, business with Afghanistan has suffered due to improper and changing policies

Earlier, he said that while Afghanistan was exempt from the ambit of regulatory duties, not a single cement container was exported to Afghanistan via the Chaman border last year because of cheaper Iranian cement available in Afghanistan.

After the switch from trading in the rupee to the dollar in January 2014, Mr Achakzai said exports from Balochistan dropped substantially. Claiming due to the high cost of the banking transactions traders opt to smuggle across the porous border.

In transit trade, Pakistan has lost its position of first choice to Iran. Tehran offers many facilities from handling to onward transportation. In Pakistan, the cost of handling and transportation increased substantially over the years.

Data shows that the number of cargo containers fell from 75,300 in 2009-10 to 49,500 in 2014-15. This decline was the outcome of the change in transit agreement with Kabul.

Mr Shinwari claims that high container detention charges, a monopoly of shipping lines and the absence of a shipping line regulatory authority in Pakistan make the process unfeasible.

Some changes in the transit treaty revived the flow of containers before it fell once again owing to closure of border in the year 2016-17. In 2015-16, the number of 20-foot containers travelling to Pakistan increased to 84,600. However, this fell to 70,300 in 2016-17 after repeated border closure.

Unless Pakistan and Afghanistan revive talks on transit and other bilateral issues the full potential of trade may not materialise.

“The KP businessmen have suffered due to these policies,” Mr Shinwari said, pointing out the province’s dependency on the Afghan market. “We have almost lost that market,” he said.

Owing to cultural and language similarities, potential for trade exists in the service sector in education, healthcare, and information technology.

Published in Dawn, The Business and Finance Weekly, October 23rd, 2017