Afghanistan Business Overview

Business and Economic Overview

Although Afghanistan holds over $3 trillion worth of untapped mineral deposits,[22] it is one of the most deprived and least developed countries in the world, with over half of its population below the poverty line[23] and a $19.8 billion GDP.[24] 

This deprivation has been worsened by the Taliban takeover in August 2021 which caused Afghanistan to enter into a major liquidity crisis due to funding cuts to essential sectors such as healthcare and education.[25] 

Currently, billions of dollars are being frozen overseas in waiting for the Taliban to honour promises that are still to be met regarding security and human rights.[26] Despite some sanction exemptions being made with the US agreeing to release central bank funds for humanitarian purposes,[27] and the Food and Agriculture Organisation of the UN delivering wheat cultivation assistance packages,[28] the country is still profoundly suffering.

In fact, in June 2022, the UN Security Council reported that the economy in Afghanistan had contracted by roughly 30%-40% since the Taliban takeover.[29]

This suspension of international aid and the freezing of foreign exchange reserves has driven the Taliban to increasing tax revenue and coal exports to take advantage of higher global prices.[30] 

This lack of aid has ultimately had a huge impact for many Afghan citizens, a large proportion of whom are struggling to survive. There have been appalling reports of Afghans sedating hungry children to force them to sleep through the hunger as well as the sale of children and organs in an effort to avoid the widespread famine.[31] 

To make the situation worse, Afghanistan’s agriculture sector was devastated by drought and natural disasters in 2022.[32] This has also had a massive impact on Afghan citizens as around 80% of all livelihoods in the country depend directly or indirectly on this sector.

[33] With foreign aid financing around three-quarters of public service, infrastructure, and security needs prior to the takeover,[34] it is unclear how long the Taliban can resist urges to honour their promises and lift international sanctions in these dire conditions.

In addition to this, the Taliban’s ban of opium production has led to concerns that it will affect the most impoverished Afghan citizens who rely on the farming of the crop to survive.[35] There is currently no concrete data on how this ban is going, but reports have been made of farmers being forced by Taliban in the Helmand province to completely destroy their poppy fields.[36] 

That said, considering the difficulty that previous governments have had with eradicating the opium industry in Afghanistan, as well as the financial benefits to the Taliban of the illicit drug trade,[37] it is unclear how successful this ban will be.[38]

So how does the Taliban make its money?

According to a June 2021 UN report, the group generates around $1.6 billion in each year. This is through the Taliban controlling all major trade routes in Afghanistan, including border crossings, which create strong sources of revenue from imports and exports.[39] In the long run, it is also expected that the Taliban will take advantage of the country’s abundance of natural resources, minerals and precious stones,[40] and reap the benefits of the control now gained over the $84 billion worth of US military hardware and assets to help boost the economy.[41]

 Notably, in January 2023, China has been reported as reaching agreement with the Taliban for oil extraction.[42]

Given that prior to the Taliban takeover, the UK Government issued advice that Afghanistan is a challenging market best suited for companies used to managing risks,[43] it is assumed that this is truer than ever. Particularly due to the widespread corruption and unrest still within the country. This makes the threats to doing business in Afghanistan particularly unique.

Businesses may encounter problems in the form of inefficient bureaucracy, weak infrastructure, an underdeveloped legal system unable to deal with complex commercial issues, and a lack of experience in dealing with and managing western companies.[44] 

It is therefore no surprise that Afghanistan is ranked 173^rd on the World Bank’s Ease of Doing Business Index,[45] and it is unclear (and unlikely) whether this will improve in the near future given the unrest and suffering within the country.

References

[22] https://www.businesstoday.in/latest/world/story/despite-billions-of-dollars-frozen-heres-how-the-taliban-will-run-afghanistan-304674-2021-08-19

[23] https://tolonews.com/business-179626

[24] https://www.businesstoday.in/latest/world/story/despite-billions-of-dollars-frozen-heres-how-the-taliban-will-run-afghanistan-304674-2021-08-19

[25] https://www.bbc.co.uk/news/world-south-asia-11451718

[26] https://www.businesstoday.in/latest/world/story/despite-billions-of-dollars-frozen-heres-how-the-taliban-will-run-afghanistan-304674-2021-08-19

[27] Claire Mills, Philip Loft, Matt Ward and Philip Brien, ‘Afghanistan: One year under a Taliban government’ House of Commons Library (2022), 6.

[28] https://www.fao.org/newsroom/detail/afghanistan–agricultural-assistance-farmers-drought/en

[29] https://www.bbc.co.uk/news/62469204

[30] ibid.

[31] https://www.bbc.co.uk/news/world-asia-63733683

[32] https://www.fao.org/newsroom/detail/afghanistan–agricultural-assistance-farmers-drought/en

[33] ibid.

[34] International Monetary Fund, Country Report No. 2019/382, 20 December 2019.

[35] UN Office on Drugs and Crime, Afghanistan opium survey 2019, 21.

[36] https://www.bbc.co.uk/news/62469204

[37] https://www.bbc.co.uk/news/world-46554097

[38] Financial Times, The Taliban’s black gold: militants seize on coal to reboot economy, 4 August 2022.

[39] https://www.bbc.co.uk/news/world-46554097

[40] ibid.

[41] https://www.businesstoday.in/latest/world/story/despite-billions-of-dollars-frozen-heres-how-the-taliban-will-run-afghanistan-304674-2021-08-19

[42] https://www.bbc.co.uk/news/business-64183083

[43] https://www.gov.uk/government/publications/exporting-to-afghanistan/doing-business-in-afghanistan-afghanistan-trade-and-export-guide

[44] ibid.

[45] https://archive.doingbusiness.org/en/rankings