The shift in Afghan transit trade

February 02, 2009

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THE opening up of a new road, linking Afghanistan with Iranian port of Chahbahar, poses a challenge to Pakistan's ambition to become the sole transit hub to the landlocked country and Central Asia, as traders believe a major portion of the transit business will be lost to Iran and India.

Afghan President Hamid Karzai and Indian Foreign Minister Pranab Mukherjee opened the 220-km road in the Nimroz province of Afghanistan, which is the major part of a $1.1 billion Indian reconstruction effort in Afghanistan.

Constructed at a cost of $150 million provided by India, the road runs from Delaram in Nimroz to Zaranj on the Iranian border, connecting Afghanistan to the Iranian port of Chahbahar. It opens up an alternative route into Afghanistan, which now relies mostly on Pakistan for its transit trade.

Iran is planning to use Chabahar for transshipment to Afghanistan and Central Asia while reserving the port of Bandar Abbas as a major hub for its trade with Russia and Europe.

The opening of this new route is the beginning of a partnership reached among India, Iran and Afghanistan in 2003 to give Indian goods, bound for Central Asia and Afghanistan, preferential treatment and tariff reductions at Chabahar.

Muhammad Ishaq, vice-president Sarhad Chamber of Commerce and Industry (SCCI), believes that the new route will hurt Pakistan's transit business significantly because authorities have failed to respond timely to the growing volume of transit business and build necessary infrastructure.

“We have been demanding upgrading of infrastructure to efficiently facilitate the transit trade taking place in the region, but to no avail,” says Mr Ishaq, adding “Impediments to the transit business had shattered the confidence of Afghan importers to use Pakistan's land route as a viable option.”

Afghanistan had signed its first transit trade agreement with Pakistan in 1965. Pakistan's two main ports, Karachi Port and Port Qasim, are currently clearing goods in transit to Afghanistan (GITA), which are transported to Afghanistan via land route from Chaman and Torkham.

Pakistan earns revenue worth billions of rupees through this transshipment and inland transportation, as according to official statistics, goods worth Rs85 billion were transported to Afghanistan last year. Pakistan railways alone generates one billion rupees annually through its freight business from Karachi port to Peshawar.

The opening of the new route by Iran, said Mr Ishaq, would greatly affect Pakistan's revenue in this potential business. Also, he believes, the tripartite partnership has given India a chance to use this transit route as Pakistan is not allowing India access to Afghan markets via its land route.

But many believe that the damage to Pakistan position as a potential hub will not be to the level as feared.

Manzoor Elahi, an exporter to Central Asian States, says the new route of Afghanistan will affect 30 to 40 per cent of transit business.

The Iranian port of Chahbahar has the advantage for the southern and eastern parts, whereas for rest of Afghanistan, Pakistan is still the only viable option for cost-effective transportation of goods, he argues.

Similarly, he claims the Chahbahar port is not viable for trade with Central Asia. The Iranian route covers a distance of more than 3,500 kilometres, whereas the Torkhum route involves 2,700 kilometres.

The distance of the two routes makes Torkhum a better route to Central Asia, but the concessions given at Chahbahar are enough to minimise its disadvantages.

Afghan exporters will use the port with a 90 per cent discount on port fees, a 50 per cent discount on warehousing charges, and Afghan vehicles will be allowed full transit rights on the Iranian road system. To be competitive, Pakistan nay have to reduce some of its customs duties at Karachi port, opines Mr Ishaq.

Mr Elahi is also not worried about the growing influence of Indian products in Afghanistan, with the opening of the new route. He says 70 per cent of the Indian products destined for Afghanistan are coming to Pakistan, which hurts local industry.

“I am in favour of curtailing Afghan transit trade because this facility is being greatly misused,” opines Mr Elahi.

Mr Elahi says “challenges bring opportunity and the opportunity now is to upgrade our logistics , which will make Pakistan as the viable transit hub for trade with Afghanistan and beyond.”

The impediments to the transit trade range from lack of capacity of the service providers to poor conditions of road network and security of the goods because of the unsurgency in the tribal belt.

Official estimates that the country's inadequate and inefficient transport system is causing a loss of 4-6 per cent of the GDP which retards the economic growth, reduces export competitiveness and hinders social uplift.

Problems in swift movement of transit goods begin from Karachi seaport, where high port costs and delays in unloading of goods and at the customs, are some of the contributing factors.

According to traders, the daily requirement of railway wagons ranges from 40-50 for transportation of goods from Karachi to Peshawar, whereas actual availability is far less. Consequently one has to opt for costly National Logistic Cell, among others, which charges many times higher than the railway freight.

The required level of services is not available because of poor highway conditions and its management. About 44 per cent of the roads on the main trade corridor are in poor conditions, making the journey as slow as around 25 km per hour.

The growing volume of this cross-border trade requires a dry port equipped with modern facilities at Peshawar, which is a gateway to Afghanistan and beyond.

“If we upgrade our infrastructure, we can still secure a major portion of the transit business with Afghanistan and beyond,” opines Mr Elahi, adding “the government should provide infrastructural facilities for the transit trade, if it wants the country to be a major transit hub.”