Pakistan is believed to be the largest trading partner of Afghanistan with some sources suggesting that the war-ravaged country was importing pharmaceutical products, sugar and sugar confectionery, footwear, edible oils and cement.
On early signs of a possible cessation of hostilities in Afghanistan and the start of rebuilding the devastated nation after 20 years of warfare, investors hopes were raised who started to accumulate shares of the cement and steel sectors at the Pakistan Stock Exchange.
But the Federal Finance Minister, Mr Shaukat Tarin poured cold water on investors’ enthusiasm last week by suggesting in a meeting with the representatives of cement manufacturers to rationalise cement prices to boost the overall construction industry.
Dr Saqib Sharif, Associate Professor at the Institute of Business Administration affirms thata peaceful Afghanistan was critically important for Pakistan to tap the Central Asian States for advancement in trade and economic development. He reckons: “Pakistan can contribute towards the reconstruction of second-tier cities and towns in Afghanistan that were neglected/shattered by the 20-year war (post-9/11) by exporting cement, steel, and other construction products or signing construction contracts.”
‘Pakistan should have launched a major campaign to capture the Afghan market once the signs of US withdrawal were seen’
Sources in the industry said despite the assurances of Pakistan’s commerce minister in 2015, the banking links between the two countries remain underdeveloped. “Pakistani banks are unlikely to jump into setting up bank branches in Kabul until the safety of money and fair dealings is assured,” said a banker. It also does not offer much promise for the growth of banks and the sector on the Pakistan Stock Exchange (PSX).
The Afghanistan–Pakistan Transit Trade Agreement (also known as APTTA) is a bilateral trade agreement signed in 2010 by Pakistan and Afghanistan that calls for greater facilitation in the movement of goods between the two countries. But on Oct 23, 2017, the President of Afghanistan Ashraf Ghani announced that the APTTA had expired. An industrialist-businessman of repute believed that an agreement might be revived in December.
On the exports side, countries have set their sights set on the Afghan forte — the mining and minerals. Whether Pakistan would venture into the field is yet unknown but in either case, it would have no impact on PSX as no related industry is listed.
Tahir Abbas, head of research at Arif Habib Limited says: Pakistan’s trade with Afghanistan could substantially increase once things settle. “A shift in Afghanistan’s trade from India towards Pakistan might be witnessed for items like medicine, cement and food commodities”. He noted that historically Pakistan and Afghanistan shared significant economic linkages with trade substantially increasing over the years. “Pakistan served as the largest trade partner of Afghanistan till 2012-13. However, the share started tumbling owing to various factors such as political instability, war on terror and other issues”.
Pakistan’s total exports to Afghanistan stood at $983 million in 2020-21, which comprised about 3.8 per cent of our exports. It was still below the 10-year average of exports to Afghanistan as a percentage of total exports of 5.5pc. On the other hand, imports from Afghanistan saw an uptick in recent years (2019-20 excluded since lockdowns led to overall low trade). In the outgoing 2020-21, Pakistan imported $179m worth of goods from Afghanistan reckoned to be the highest in almost two decades.
Mr Abbas said: “As long as Afghanistan does not plunge into a civil war, we remain net positive about the Pak-Afghan overall economic outlook. In the short run, the level of uncertainty surrounding the situation in Afghanistan is likely to cloud Pakistan’s trade prospects for some time. In the longer term, stability in the war-torn country bodes well for the entire region in general and Pak-Afghan relations in particular. In terms of economic development that could be a game-changer for Pakistan as Afghanistan holds the potential to function as a link between Pakistan and Central Asia. Moreover, Afghanistan’s geopolitical location makes it rely on neighbouring countries for transit to its other trading partners. Therefore the opening of trade routes will benefit Afghanistan as well as aid China-Pakistan Economic Corridor’s expansion, a step that will help establish Pakistan as a regional trade corridor”.
But there would be gruelling competition from other regional countries. The Economic Times of India writes: “Since 2011 when India inked a strategic partnership agreement with Afghanistan, New Delhi had stepped up its investment in the conflict-ridden nation. Over the last 5 years, bilateral trade between India and Afghanistan rose exponentially reaching a landmark of $1.5 billion for the first time in 2019-20”.
Majyd Aziz, former president Employers’ Federation of Pakistan is sore over Pakistan’s delayed initiative. He says that the country should have launched a major campaign to capture the Afghan market, once the signs of US withdrawal were seen as a policy shift by the incumbent US President Joe Biden’s administration. He affirmed that it was not the first time that the country’s leaders had procrastinated. They refused to grab the opportunity in South Africa and countries around just as winds began to blow in favour of Nelson Mandela; Pakistan also did not put its fingers into the trade and business pie in Central Asian Republics.
Mr Aziz said that the Ministry of Commerce should be well-prepared to seize this opportunity of building business and trade ties with Afghanistan. “Special economic zones need to be created: one at Torkham and the other on the Chaman side.” He thought that that the flow of cement which was smuggled by a variety of people including truck drivers may get to be regulated and benefit the local industry to some extent.
Published in Dawn, The Business and Finance Weekly, August 30th, 2021