Afghanistan Reconnected: Cross-Border Cooperation at a Critical Juncture Acknowledgments

The EastWest Institute is immensely grateful for the sponsorship of the German Federal Foreign Office and the Government of the United Arab Emirates, which made possible the Abu Dhabi Process and the subsequent Afghanistan Reconnected Process.

EWI also wishes to acknowledge that these processes would have been impossible without the cooperation of its partners in the region, including, among others, the Federation of Indian Chambers of Commerce & Industry (FICCI), the German Embassies and Consulates throughout the region, the Institute for Political and International Studies (IPIS), the Ministry of Foreign Affairs of Afghanistan, the Observer Research Foundation (ORF), the Pakistan- Afghanistan Joint Chamber of Commerce and Industry (PAJCCI), Pathfinder Group, and the Union of Chambers and Commodity Exchanges of Turkey (TOBB).

EWI would like to recognize as contributors to and facilitators of this report:

Dr. Najam Abbas, Senior Fellow, EastWest Institute Mr. Muhammad Amin, CEO, TransLog Worldwide Logistics H.E. Mr. Hamidullah Farooqi, Chancellor of Kabul University and Adviser Minister to the President of Afghanistan Mr. D. N. Raina, President, Entecsol International Mr. Wahidullah Waissi, Director-General for Economic Cooperation of the Ministry of Foreign Affairs of Afghanistan Afghanistan Reconnected

Why Afghanistan Matters 4 Amb. Sabine Sparwasser, Chair of the International Contact Group on Afghanistan, Special Representative of the German Federal Government for Afghanistan and Pakistan

Afghanistan Reconnected: How EWI Can Make a Difference 6 Amb. Cameron Munter, President and CEO, EastWest Institute Program Overview 8 Lana Schmidt-Goertz, Program Assistant, EastWest Institute A Neighborhood at a Crossroads 14 Ettore Marchesoni, Program Coordinator, EastWest Institute Trade and Transit: Seizing Opportunity 22 James Creighton, Distinguished Fellow, EastWest Institute Annie Cowan, Program Coordinator, EastWest Institute Regional Energy Dynamics in Central and South Asia 34 Danila Bochkarev, Senior Fellow, EastWest Institute Looking Ahead 42 Amb. Martin Fleischer, Vice President Regional Security, EastWest Institute

3 Afghanistan Reconnected

Why Afghanistan Matters

Afghanistan lies at the center of a volatile region which is directly affected by the risks of irregular migration, organized crime and narcotics trade, and violent extremism. But Afghanistan also provides numerous opportunities for its neighbors and the wider region. I am convinced that investments in its future will eventually pay off.

or many members of the international community, Afghanistan has been and remains one of their largest foreign engagements. Germany’s annual official development assistance to Afghanistan Fstands at 430 million euros. Even after the full assumption of security responsibility by the Afghan security forces, our current contingent in the framework of NATO’s “Resolute Support” Mission consists of up to 980 soldiers, more than in any other place in the world. In October this year, international part- ners will come together at the Brussels Afghanistan Conference to sketch the course of our common endeavor in Afghanistan for the next few years. This will be an important opportunity to look back and remind ourselves why, at a time of multiplying crises, we still rightly focus so much attention on a small and distant land which counts among the poorest in the world.

The international community joined forces to combat global terrorism emanating from Afghan soil and to help restore a legitimate and functional state after the attacks of 11 September, 2001. The Afghan people had suffered a bloody civil war and subsequent human rights abuses under Taliban rule in the aftermath of the Soviet withdrawal. Systemic state failure led to simmering conflict, humanitarian trag- edy, and the unchecked proliferation of terrorist and extremist groups. Our stabilization efforts therefore aimed at helping the Afghan state get back on its feet and thus allow peace to return to a country that had known nothing but hardship and war for decades. Unfortunately after 15 years, despite significant gains in human development and infrastructure this key objective still remains elusive.

With its lasting engagement, the international community has shouldered a grave responsibility in front of its own as well as the Afghan populations. We must ensure that progress achieved is safeguarded and consolidated, but also that negative scenarios are prevented. Vigilance is also needed in the face of tensions along ethnic and religious fault-lines. It is clear that the current levels of international financial support are exceptional and will have to significantly decrease over the medium term. The time ahead must be used by the Afghan government to implement overdue political and economic reforms, to fully capacitate its security forces and to reach a peaceful settlement with those militant groups willing to forswear violence. Only an Afghan-led political process can bring about a sustainable resolution of the conflict.

4 This will be impossible without the backing of Afghanistan’s neighbors. Afghanistan lies at the center of a volatile region which is directly affected by the risks of irregular migration, organized crime and narcotics trade, and violent extremism. But Afghanistan also provides numerous opportunities for its neighbors and the wider region. I am convinced that investments in its future will eventually pay off. Afghanistan in turn must demonstrate that it is worth investing in. As a missing piece of the regional architecture at the crossroads of Europe and Asia, it holds enormous untapped potential for trade and infrastructure. Its greatest potential, however, lies in its people and especially its young generation, boys and girls who are heirs to a rich cultural tradition, but whose education and opportunities will take them far beyond what their parents could have dreamt of.

I am pleased about the partnership between the EastWest Institute and the German Federal Foreign Office which has made the program “Afghanistan Reconnected: Cross-Border Cooperation at a Critical Juncture” a success. It is my hope that the dialogue it has helped stimulate will contribute to bringing the people and countries of the region together in the shared interest of a peaceful, stable and prosperous Afghanistan.

Ambassador Sabine Sparwasser Chair of the International Contact Group on Afghanistan, Special Representative of the German Federal Government for Afghanistan and Pakistan

5 Afghanistan Reconnected

Afghanistan Reconnected: How EWI Can Make a Difference

Now is a time of opportunity, though it may seem to many in Kabul that times are unusually tough. It’s a time for leaders throughout the region, in politics, security, economics, and culture, to find new ways to look at one another and to articulate these new ways to their populations, getting away from previously held ideas that only perpetuated the kind of cynicism and ill-will that have dominated the region in recent years.

fghanistan’s fate will have an enormous impact on the region. That is why the EastWest Institute, working in close partnership with other concerned institutions, has engaged in reconnecting Af- Aghanistan to its neighbors. This is not a question just of states working with one another—though certainly such cooperation is needed. During my time as American ambassador in Islamabad, I and my diplomatic colleagues were acutely aware of the interconnected nature of government-to-government efforts to promote security, prosperity, and democratic norms. But more than that, we were commit- ted—as EWI and its partners are committed—to bringing in other stakeholders to ensure Afghanistan’s future.

Let’s consider just the question of prosperity, the long-term viability of business and economic affairs in the region. At the end of the day, this is what will sustain Afghanistan. A viable base of business, trade with neighbors, and attractiveness to investors from afar: this is what will stabilize the country and make it a vibrant and successful culture after years of challenges and trauma. This cannot be achieved simply through the efforts of leaders from the region. Of course, the support of governments from Delhi to Tehran, Moscow to Beijing, and the international community led by Washington will always be necessary. But it’s the ability for businesses to thrive and grow that matters. This will be, in turn, something to which business leaders from neighboring countries will need to contribute. From Chinese investment in infra- structure and extractive industries to a Pakistani commitment to openings in trade, from Indian efforts to build highways to Iranian ties in traditional trade relations—this is what will truly reconnect Afghanistan, and the courage and farsightedness of those business leaders, working with one another on these and other projects, will be the test of how committed Afghanistan’s neighbors are to longterm stability.

Pakistan plays a critical role in this process. The past fifteen years have underscored a deep lack of trust between Pakistan and Afghanistan, and yet reminded everyone of the deep links that hold the countries together. The great numbers of ethnic Pashtuns in Pakistan remind us of the intertwined fate of both countries, from the difficulties of longterm refugees to the changes in the ethnic makeup of megacities like Karachi. But it’s not enough to retreat to the long-held prejudices that parade themselves as analysis on both sides of the border. Afghanistan must find a way to contribute to the Pakistani effort to extend the writ of its government throughout its territory, including the knotty problems of the tribal areas on the western border. For Pakistan’s part, one hopes that civil and military authorities will see the great efforts the current leadership of Afghanistan has made (and the great political risks it has undertaken) in reaching out to Pakistan, and that these Pakistani leaders will contribute to the stability of the Afghan government in the knowledge that Afghanistan’s success must truly be their own. 6 Another pressing challenge facing Afghanistan is the drug trade, which impacts both the economic and security outlook in the country as well as its relations with its neighbors. EWI’s Strategic Trust-Building Initiative has, since 2011, convened its Joint U.S.-Russia Working Group on Afghan Narcotrafficking, which discusses ways to constructively and jointly enhance bilateral and multilateral efforts against the cultivation of poppy and trafficking of Afghan opiates and heroin.

Now is a time of opportunity, though it may seem to many in Kabul that times are unusually tough. It’s a time for leaders throughout the region, in politics, security, economics, and culture, to find new ways to look at one another and to articulate these new ways to their populations, getting away from previously held ideas that only perpetuated the kind of cynicism and ill-will that have dominated the region in recent years. There is room, in Afghanistan, for Pakistan and India to find common ground, especially in promis- ing areas so important to both countries as natural resources and energy—a whole dialogue should continue on electricity, water, pipelines, and food security. There is also room now, as Iran emerges from many years of sanctions, to see where it can contribute to Afghanistan’s prosperity. No doubt the impact of China’s ambitious plans that go under the rubric of One Belt One Road can make an enormous change in the way countries in the region see one another. And the international community, led by the United States, must get past its disinclination to focus on the region. Now is certainly not the time for Af- ghanistan fatigue, but quite the opposite: new ideas and new commitments are what is called for. t may be that new participants from outside government, from assistance leaders to other nongovernmental entities, will make the difference.

The efforts of the Afghanistan Reconnected process are valuable guides to lead us all in this direction. As we look at the achievements of this program, we must remind ourselves that all past, here, is prologue. The EastWest Institute, calling on all sides to provide clear and sober analysis of the issues, has brought this discussion forward: from trade and transit, to energy, to a clear assessment of the scenarios that Af- ghanistan faces, EWI has, with its partners, once again made the search for common ground in a difficult region its priority, and provided a real possibility of success.

Ambassador Cameron Munter President and CEO, EastWest Institute 7 Afghanistan Reconnected

Program Overview

It is not the EastWest Institute that tries to tell countries of the region how to tackle their problems; instead, EWI provides the platform for practitioners and experts from the region to jointly identify these recommendations and to build the political trust to jointly implement them.

8 Afghan Independence Day celebration in Kabul, August 2016.

9 EWI delegtion meets with President Ghani during the Advocacy and Outreach Mission to Afghanistan, November 2015 (Office of the President of Afghanistan)

Lana ith the end of the ISAF mandate in late Process”. The Institute aims to forge economic Schmidt-Goertz, 2014, Afghanistan entered the “Transfor- cooperation and political trust between neigh- Wmation Decade”, facing not only security bors in what can be considered one of the least Program challenges but also an increased need for eco- interconnected regions in the world. To achieve this Assistant, nomic independence and stability. The reduced goal, EWI has created a platform for businesses EastWest presence of international military forces left a and governments from Greater Central Asia to security vacuum, aggravated by the subsequent identify obstacles to regional trade and transit. It Institute loss of income and employment opportunities. In has established a network of high-level experts, the face of these challenges, the economic devel- representatives from parliaments, and the private opment of Afghanistan was a crucial prerequisite sector from Afghanistan, its immediate neighbors, for the peaceful stabilization of the country, and and countries with interests in the region, as well as remains to date key to securing the fragile region from regional and international organizations. from current and future threats. In 2013-2014, EWI convened high-level consul- tations in Istanbul, Islamabad and New Delhi Additionally, the need to shift the Afghan eco- to address priority regional economic security nomic landscape away from a security economy issues post-2014 such as infrastructure, energy and aid dependence towards harnessing the and investment. After a review meeting in Berlin in country’s potential in agriculture, mining and as April 2014, EWI published participants’ views in a a strategically located trade and transit hub was major report entitled “Afghanistan Reconnected: paramount. These assumptions proved accurate Regional Economic Security Beyond 2014”, which in the wake of the conclusion of the ISAF mission, was launched in Brussels, Washington, D.C. and and remain valid today as the Afghan National New York City. Security Forces (ANSF) are entrusted with the main responsibility for stabilizing the country, and A subsequent conference in Istanbul in Novem- the Afghan administration attempts to establish ber 2014 enabled participants to build upon the a sustainable governance system and eradicate report’s conclusions, and formulate actionable corruption. short- and long-term recommendations for policy reforms in the fields of energy, transport, trade, Foreseeing the region’s and Afghanistan’s upcom- and investment. Suggested measures included ing challenges, the EastWest Institute (EWI) has the development of a computerized customs- since 2012 refocused its ongoing Afghanistan clearance system to enhance the transport of program, originally called the “Abu Dhabi Process”, goods across borders; easing visa regimes to towards the concept of regional economic security, facilitate the movement of business persons hence the new title, “Afghanistan Reconnected in the region; addressing the slow progress of

10 “EWI is a pioneer in helping Afghanistan and the region to take responsibility for its own prosperity”

H. E. Ashraf Ghani President of Afghanistan the Turkmenistan–Afghanistan–Pakistan–India Brussels-based Ambassadors of Afghanistan, its Pipeline (TAPI) and of the Electricity Transmission neighboring states, and interested countries in or- and Trade Project for Central Asia and South Asia der to gather more official assessments of current (CASA-1000) projects as well as infrastructure developments, opportunities and challenges for needs to overcome the lack of regional transport the region from their countries’ perspectives. connectivity. EWI convened its most recent Istanbul conference In order to advocate for the implementation of as a Track II side event to the June 5, 2016 meeting these recommendations, in 2015 the EastWest of the International Contact Group on Afghanistan. Institute conducted advocacy missions to Paki- Engaging participants from Afghanistan, China, stan, India, Tajikistan, and Afghanistan in 2015 to India, Iran, Pakistan, Tajikistan, Turkey, Europe and discuss opportunities to unlock the region’s eco- the US, EWI took stock of the developments in the nomic potential with relevant stakeholders. The region since the beginning of the Process’ activi- visits allowed EWI’s delegations to engage with ties in 2013. The main findings of these events are local chambers of commerce as well as with the translated in the present report “Afghanistan Re- countries’ policymakers, including the presidents connected: Cross-Border Cooperation at a Critical of Afghanistan and Pakistan as well as ministers Juncture”, which aims to appeal to regional actors with portfolios in the fields of foreign affairs, and the international community to continue their trade, transport, and energy. The country-specific commitment to Afghanistan and the region, as recommendations put forward by EWI’s group of well as to stress the importance of a stable and private sector representatives, members of parlia- prosperous Afghanistan for the rest of the world. ment, and experts from the region received great attention and follow-up after each mission. The reader of this report will find a wealth of concrete policy recommendations, not least in In an effort to track and assess progress in the the chapter on Trade and Transit. While some of region and gather perspectives from different these recommendations are in various stages of audiences, in 2016 EWI convened two roundtables implementation, we believe that their full imple- in Brussels and a major conference in Istanbul. For mentation would make a difference. But it must be the first roundtable, EWI brought experts from its stressed that it is not the EastWest Institute that regional network together with Brussels-based tries to tell countries of the region how to tackle practitioners to discuss current challenges to their problems; instead, EWI provides the platform economic and political cooperation in the region, for practitioners and experts from the region to and continued needs for international involve- jointly identify these recommendations and to ment. The second roundtable was held with build the political trust to jointly implement them.

11 04/2013 11/2013 06/2014 10/2014 Istanbul New Delhi Brussels New York Afghanistan Reconnected: Afghanistan Reconnected: Roundtable discussion Recommendations An economic Land Bridge Unlocking Investment and recommendations report launch in Asia Potential in the Region report launch

09/2013 04/2014 10/2014 Islamabad Berlin Washington, D.C. Afghanistan Reconnected: Afghanistan Reconnected: Recommendations Linking Energy Suppliers Creating Momentum for report launch to Consumers in Asia Regional Economic Security

Afghanistan Reconnected: Program Timeline

12 10/2014 03/2015 10/2015 03/2016 06/2016 New York Islamabad Dushanbe Brussels Istanbul Recommendations Advocacy and Advocacy and Sustaining Regional Afghanistan Reconnected: report launch Outreach Mission Outreach Mission Cooperation in an Cross-Border Cooperation to Pakistan to Tajikistan Insecure Environment at a Critical Juncture

11/2014 06/2015 11/2015 05/2016 Istanbul New Delhi Kabul Brussels Afghanistan Reconnected: Advocacy and Advocacy and Ambassadorial Briefing: BusinessesTake Action Outreach Mission Outreach Mission Promoting Regional Conference to India to Afghanistan Stability and Prosperity

13 Afghanistan Reconnected

A family traveling on the outskirts of Kabul, August 2016.

14 A Neighborhood at a Crossroads

Both Afghanistan and its neighborhood are undergoing changes causing major shifts in the perspectives on cooperation between actors in the region and beyond. This chapter provides an overview of these regional dynamics, the changes in the most significant regional actors’ postures towards Afghanistan and their potential impact on the future of Greater Central Asia.

15 Ettore ecent years saw Afghanistan move from a The security transition resulting from the transfer Marchesoni, UN-led Transition Process (2001-2014) to of responsibility from international forces to the Rits Transformation Decade (2015-2024), Afghan National Security Forces (ANSF) was Program during which the Afghan administration is striving met by an expected increase in insurgent activi- Coordinator, to advance from UN-supported political and eco- ties. As a result, 2015 showed a record number EastWest nomic reconstruction and ISAF-managed security of civilian casualties, particularly among women to long-term stability and prosperity based on and children, and significant territorial gains by Institute economic self-reliance and good governance.1 The the Taliban.3 Efforts toward engaging the group in move from internationally-driven management of multi-party peace talks through the Quadrilateral an emergency situation towards taking responsi- Coordination Group provide a glimpse of hope, bility for its own progress and security engendered but progress has stalled, with participants casting major political, military and economic transitions blame on one another. Another weakness of the for Afghanistan. From a political angle, in 2014 a peace process is the exclusion of players who are peaceful transfer of power from the Karzai admin- or have been heavily involved in Afghanistan, such istration led to the establishment of a government as Russia, Iran and India, each of which have the led by President Ghani under a power-sharing potential to act as spoilers should the results of agreement with his main opponent, Chief Execu- future negotiations clash with their national inter- tive Officer Abdullah Abdullah. The National Unity ests. In addition, Islamic State and Al Qaeda activi- Government took a regional approach to bringing ties are growing, with reports describing clashes peace and stability to the country, and commit- both with government and between the com- ted to undertaking extensive reforms to enhance peting groups. Nevertheless, despite a reduced governance, tackle rampant corruption and bol- international military presence, the ANSF proved ster economic growth focusing on infrastructure capable of withstanding the 2015 Taliban offen- development and capacity building. Nevertheless, sive and resistant to one the most violent fighting a deadlock delayed the appointment of a defense seasons since 2001.4 In the wake of the increased minister and intelligence director until June 2016, violence, the international community’s reaction exposing the vulnerability of the National Unity has been twofold. First, the pace of the troops Government to political rivalry between power- drawdown has been decreased by a number of hungry factions. 2 allies, acknowledging the heightened challenge

1 Government of the Islamic Republic of Af- 3 United Nations Assistance Mission on Af- ghanistan. (December 2014) Realizing Self-Reliance: ghanistan. (2016). Afghanistan Annual Report 2015: Commitments to Reforms and Renewed Partnership. Protection of Civilians in Armed Conflict. 2 Radio Free Europe/ Radio Liberty. (20 June 4 Snow, Shawn. (15 February 2016) Afghani- 2016). Afghan parliament confirms new defense min- stan: Lessons learned for the 2016 fighting season. ister, intelligence chief. The Diplomat. 16 Blue Mosque in Mazar-e-Sharif, Afghanistan, March 2016. faced by the Afghan security structures.5 Second, on Afghanistan have the potential to determine ANSF’s taking further responsibility for Afghani- the country’s economic outlook for the coming stan’s security was encouraged and sustained at years, as they will demonstrate the level of donors’ the July 2016 Warsaw summit, during which NATO political and financial support to Afghanistan’s allies committed to support the forces until 2020 stability. with around USD 1 billion annually.6 Having put regional cooperation at the core of its The third transition faced by the Afghan admin- National Development Strategy, the Ghani admin- istration, which will be discussed in more detail istration has participated in- and brought new life in the following chapters, is taking place in the to- a number of initiatives, such as the Heart of Asia- economic dimension. The withdrawal of ISAF Istanbul Process, of which Afghanistan is a perma- forces and the reduction of international sup- nent co-chair, and the Regional Economic Coopera- port have left Afghanistan in a dire situation. The tion Conference on Afghanistan (RECCA). The latter Ghani administration has undertaken, with some forum was convened for the sixth time in Kabul in success, reforms to cope with the foreseeable September 2015, and with the appointment of Na- post-ISAF economic shock and start moving tional Focal Points is promising to become a forum away from aid dependence, and has focused on for regular exchange on economic cooperation in tackling endemic corruption, increasing the state’s the region. In fact, it has already taken a leading budgetary revenue and improving the business role in generating momentum for regional projects environment.7 Despite the country’s GDP growth such as the Turkmenistan–Afghanistan–Pakistan– plunge to 1.3 percent in 2014 (from an average of 9 India Pipeline (TAPI) and the Central Asia-South percent during previous years), modest growth is Asia-1000 (CASA-1000) power project. Additionally, expected in the short-term, although still strongly Afghanistan is set to become the 164th member dependent on donor support.8 In this respect, the of the World Trade Organization (WTO) following results of the October 2016 Brussels Conference the ratification of the accession protocol by the Na- tional Assembly. On the other hand, other regional 5 Landler, Mark. (6 July 2016) Obama says he initiatives, such as the Economic Cooperation Orga- will keep more troops in Afghanistan than planned. nization (ECO) and the South Asian Association for New York Times. Regional Cooperation (SAARC), are still daunted by 6 Torbati, Yeganeh and Emmott, Robin. (9 July combative and obtrusive regional dynamics which 2016) Despite fatigue, NATO commits to fund afghan limit their effectiveness. forces to 2020. Reuters. 7 Byrd, William A. and Payenda, M. Khalid (24 A growing regional trend, fueled by the conflicts in February 2016) Afghanistan’s revenue turnaround in Syria and Iraq, has been the increasingly shared 2015. United States Institute of Peace. 8 Asian Development Bank (2016) Afghanistan: perspective of common security risks stem- Economy. (Accessed: 31 August 2016). ming from Islamic extremism. The need for such 17 People shop at local bazaar ahead of Eid al-Fitr, the celebrations marking the end of the Muslims’ holy fasting month Ramadan in Kabul, July 2016.

a common view on regional common threats individuals, has continued to represent a major represent a major change from the traditional challenge not only for Afghanistan, but also for consideration that security concerns are solely a host countries in the region and the European matter of national interest. As EWI’s expert group Union. The movement of Afghan refugees, asylum noticed during their mission to Tajikistan, security seekers and economic migrants towards safer issues were considered to be essentially an Afghan locations and employment opportunities has problem, although such a mindset ignores the strongly affected Afghanistan in the first place, regional context that enables armed groups to which is suffering from brain-drain and loss of flourish and the impact the security situation in a skilled workforce. Secondly, Afghan migrants Afghanistan has on its immediate neighbors and represent a significant burden for countries in the the rest of the world. In other words, this vision region, particularly for Iran and Pakistan, which neglects the growing transnational dimension of are currently hosting, respectively, 950,000 and violent extremism, and the ability of armed non- 1.5 million registered refugees.10 In the face of state actors to capitalize on a lack of trust between the refugee crisis resulting from the conflicts in countries in the region, as in the case of Central Syria and Iraq, Afghans still constitute the second Asian citizens fighting alongside the Taliban in largest group of migrants arriving in the European Afghanistan.9 However, the rise of Islamic State Union.11 However, due to the protracted nature and the conflicts in Syria and Iraq have generated of the crisis in Afghanistan and variable security a flow of foreign fighters drawing the attention of throughout the country, acceptance rates of regional powers to the risks connected to their Afghan migrants and asylum seekers in Europe return. Regional bodies such as the Collective are declining, and western countries are adopt- Security Treaty Organization (CSTO), the Shanghai ing different strategies to ensure their return. The Cooperation Organization (SCO) and the Confer- resulting risks of marginalization and exploitation ence on Interaction and Confidence-Building Mea- in host countries, as well as the risk of increasing sures in Asia (CICA) are all engaged in discussions instability in Afghanistan through forcible return on how to address these risks. This perception of of large numbers of migrants, opens the door to a common threat could become a rallying point cooperation between the actors affected by the to further a joint security vision across the region, refugee outflow, in the context of the Solutions and to foster cooperation among concerned ac- Strategy for Afghan Refugees (SSAR), signed by tors from Central to South Asia. Pakistan, Iran, Afghanistan and the United Nations High Commissioner for Refugees, or under new Violence and economic stagnation in some areas frameworks for policy coordination.12 of Afghanistan have caused the displacement of an estimated 10 percent of the country’s popula- 10 Malikyar, Helena. (15 September 2015). Af- tion outside the country. The current Afghan ghanistan: The other refugee crisis. Al Jazeera. refugee population, approximately 2.6 million 11 The Economist, print edition. (2 April 2016). Living in limbo: The treatment of Afghans shows how Europe’s asylum system is collapsing. 9 Domínguez, Gabriel. (4 November 2015). Why 12 United Nations High Commissioner for Refu- Central Asia is increasingly worried about Afghanistan. gees (August 2015). Afghanistan Regional Portfolio: Deutsche Welle. Solutions Strategies for Afghan Refugees. 18 “Afghanistan “Chabahar and needs to have Gwadar are not proper solutions: competing economy, security and ports; they are politics all go together.” complementary ports.” Najlla Habibyar President, Howdah Consulting Group; Zubair Motiwala Former CEO, Export Promotion Founder Chairman of Agency of Afghanistan (EPAA) PAJCCI, Pakistan

Accompanied by bilateral bickering and shifting ally, has had limited success with conditioning its national priorities, the posture of the main coun- substantial aid, notably for the security sector, tries in the region underwent significant changes, on an active commitment towards Afghanistan’s drawing new connectivity lines across the neigh- security, stability and economic connectivity, and borhood. The relations between Pakistan and Af- is currently downsizing this aid. ghanistan lie at the core of the region’s future sta- bility and security due to the two countries’ central India strives for better access to markets in Iran, position and intertwined systems. Following a Afghanistan and Central Asia, looking for ways gradual improvement driven by President Ghani’s to bypass Pakistan as well as to counter China’s extensive outreach right after taking office, these growing influence in the Indian Ocean. In this vein, relations reached a new low point in late 2015- India has become strongly involved in the devel- early 2016, and continued to fluctuate through opment of the Iranian port of Chabahar. With the 2016. The worsening relations led to violent signing of the Chabahar Port Agreement in May clashes in the summer of 2016 in the proximity of 2016, India committed up to USD 500 million to the Torkham border crossing along the disputed the port’s development.14 This project is one exam- border between the two neighbors, and a more ple of continued Indian involvement in infrastruc- recent August 2016 closure of the Wesh-Chaman ture development in the region, a strategy that has border crossing.13 These rising tensions do not strongly characterized New Delhi’s contribution to only impact bilateral political relations and human Afghanistan’s prosperity in recent years. India is livelihood on both sides of the border; they are in fact one of the largest investors in Afghanistan, detrimental to regional trade as well. Due to grow- and has focused its commitments on tangible ing frustration on both sides regarding the failure contributions, such as the construction of Afghan- to deliver on promises made and also to repeated India Friendship Dam (formerly known as Salma mutual accusations, the Afghan administration Dam), inaugurated on June 4, 2016 after a decade- decided to diversify its priorities around regional long construction marked by delays caused by the connectivity. As a result, Pakistan is finding itself volatile security situation.15 New Delhi’s interests with few allies in the region, in a difficult position to in Afghanistan are greatly influenced by India’s trade and negotiate the necessary agreements to future economic growth prospects, which will re- ensure the country’s development. In this respect, quire better connectivity to reach foreign markets Chinese investment in the China-Pakistan Eco- for its exports. nomic Corridor and the development of Gwadar port is providing Pakistan with economic opportu- India’s commitment to the development of nities and leverage vis-a-vis other regional players, Chabahar port falls in line with Iran’s opening although Islamabad’s economic relationship with towards the region following the 2015 nuclear deal Beijing is somewhat one-sided and may raise con- and the progressive lifting of sanctions that had cerns about its long-term benefits for Pakistan. The U.S., presumably Pakistan’s most important 14 The Guardian. (23 May 2016). India to invest $500m in Iranian port of Chabahar. 15 Swami, Praveen. (5 June 2016). At Afghan 13 Al Jazeera. (14 June 2016). Afghanistan-Pak- dam inauguration, PM promises: India will not forget istan border clashes kill two soldiers. you. The Indian Express. 19 led to its isolation in recent years. Tehran’s return ghanistan’s Central Asian neighbors to develop to the global fold presents Afghanistan and the connectivity towards their south, and to overcome region with unprecedented opportunities in terms their traditional connection to (and dependence of connectivity, energy trade and diversification on) Moscow. Iran represents for Central Asian of markets. In particular, the Iranian market will Republics not only an additional outlet for their offer an additional outlet and transit corridor for energy exports, but also access to the Indian Central Asian energy exports, leaving room for Ocean. Such an opportunity is all the more valu- optimism for the region’s connectivity prospects. able in the face of the economic stagnation facing In relation to Afghanistan, Iran has a clear interest Afghanistan’s neighbors to the north due to the in the stability of its eastern neighbor, in order to decrease in revenues for energy-exporting states decrease the influx of refugees, as well as to limit and plummeting remittances from foreign work- the illicit drug trade and control its negative impact ers, caused by the depreciation of the rouble.17 In on the country’s population. As a newly engaged conjunction with fears of the region’s vulnerability actor on the regional scene, Iran has the potential to both indigenous and foreign violent extremism, to gain prominence in the promotion of regional economic stagnation risks leading to an increased connectivity, providing alternatives to deadlocks isolation of the traditionally introverted Central that have stalled developments in the fields of Asian States, rather than fostering cooperation. transport and trade in recent years. Additionally, Moreover, due to the centralization of power in Iran’s recent coordination with the Taliban to se- the hands of aging leaders, several Central Asian cure a buffer zone against IS along its own border Republics will face difficult political succession with Afghanistan could allow the country to act as processes in the coming years, which may desta- a valuable new partner in the ongoing peace pro- bilize Afghanistan’s northern neighborhood and cess.16 Coupled with the thaw in U.S.-Iran relations, should be closely monitored by the international this could present additional opportunities for the community. U.S. government in particular to engage Iran in the peace process in a manner similar to the joint U.S.- In contrast, China is also increasingly emerging in China patronage of the Quadrilateral Coordination the region as a political actor, stepping out of its Group. Recognizing Iran’s reemergence and its traditional economy-driven approach to foreign re- growing significance to the region, EWI’s Afghani- lations. Chinese investment in the China-Pakistan stan Reconnected Process has endeavored to Economic Corridor has game-changing potential include Iran since the program’s inception, and is for the prosperity of the region, affecting Pakistan at present working to engage it further in future and its neighbors. Moreover, the “One Belt One activities. Road” initiative, despite uncertainty around its timeline and route, stands to greatly contribute In particular, Iran’s renewed involvement in the not only to trade and investment, but also to the region presents a valuable opportunity for Af- regional energy market by revitalizing the ancient Silk Road. However, the most significant change 16 Dreazen, Yochi. (26 May 2016). Exclusive: Iran Teams With Taliban to Fight Islamic State in Af- 17 Zarzuela, Julia. (16 January 2016). From Rus- ghanistan. Foreign Policy. sia with love. The Economist, print edition. 20 A worker at a brick factory in Kabul, July 2016. in China’s posture towards Afghanistan and its to their own borders, and have also indicated the neighbors can be found in its growing involve- possibility of providing greater military aid to Af- ment as a political power broker, recognizing that ghanistan, though the sending of Russian combat instability in Afghanistan constitutes a risk for its troops to the country is highly unlikely. Russia also ambitions in the region. This attitude change has sends reinforcements to military bases in Tajiki- led to increased military cooperation with Pakistan stan, which sees fighting along its borders with and Afghanistan, resulting, for instance, in alleged northern Afghanistan. Despite Russia’s reluctance plans to establish military bases in Federally-Ad- to heavily engage officially, it does appear to main- ministered Tribal Areas (FATA), and in pledges of tain ties with influential personalities in Afghani- financial and needs-based support to the Afghan stan, preliminarily agreeing to a request by Afghan National Security Forces. Ultimately, the shift in Vice President Abdul Rashid Dostum to sell heli- China’s approach towards the region has led, since copter gunships and other weapons to Kabul, for late 2015, to Beijing’s engagement in Afghani- which negotiations are still underway.18 19 Moscow stan’s peace process through the Quadrilateral also maintains contact with de facto Balkh gov- Coordination Group in partnership with Afghani- ernor Atta Mohammad Noor, who in 2015 spoke stan, Pakistan, and the United States. Despite the at a celebration held by the Russian consulate in difficult progress of engaging the Taliban in peace Mazar-i-Sharif, criticizing the bilateral U.S.-Afghan- talks, this initiative marks a new dimension of Chi- istan security agreement as having proven useless nese engagement in the region, which is expected for Afghanistan’s security.20 Moscow’s apparent to increase in the coming years. desire to reassert itself geopolitically could drive its future involvement in Afghanistan; furthermore, its Russia, meanwhile, maintains a comparatively warming relationship with Iran (including limited low profile in Afghanistan, its military history in the military cooperation in regards to Syria), which is country causing it to seemingly prefer to remain recently pursuing SCO membership as are India in the background as Western powers— led by its and Pakistan, could one day present an alterna- traditional rival, the United States—take the lead. tive bloc to drive development and engagement in The Russian position has thus far been marked by Afghanistan, as could its historically close relation- indirect and largely passive involvement as Mos- ship with Central Asian states. With these factors cow allows NATO forces to take the helm militarily in mind, neglecting to engage Russia as an active while Western donors lead financially. However, part of the official peace process and in regional heightened tensions with NATO and increasing economic integration endeavors could prove to be anxiety over the security situation in Afghanistan short-sighted. could cause a change in this hands-off approach. Moscow has given some recent indications that it 18 Khaama Press. (16 October 2015). Gen. Dos- may expand its involvement in the future; cur- tum, Russian envoy discuss Moscow’s support to Af- rently, it provides some military and economic aid, ghan forces. which it has recently increased. Russian officials 19 Russian Aviation. (26 July 2016). Afghan Se- curity Adviser to Discuss Russia’s Mi-35 Deliveries. have repeatedly expressed concern regarding the 20 Adeel, Mirwais. (9 May 2015). US security security situation, in particular the threat of the pact proved useless for Afghanistan’s security: Noor. spread of violent extremism to Central Asia and Khaama Press. 21 Afghanistan Reconnected

Trade and Transit: Seizing Opportunity

Afghanistan represents tremendous potential in terms of geographic location. Its central position along the ancient Silk Road between South and Central Asia provides exceptional opportunities to take advantage of the country’s trade and transit potential. Indeed, significant progress has been made in the past three years in terms of internal growth as well as trans- national and regional cooperation toward this end. The involvement of new players — namely China and Iran — offers new opportunities to capitalize on Afghanistan’s potential, with new initiatives and developments seeking to foster increased trade and transit.

22 23 James ignificant opportunity for trade and transit in stability needed to achieve lasting security, and Creighton, the face of persistent and even rising difficul- there is a consensus that the substantial natural ties places Afghanistan at a critical juncture. resources and transit opportunities in Afghanistan Distinguished S Security forces continue to be pressed in northern represent untapped potential. Fellow, and southern Afghanistan, and still-complicated EastWest relations between countries in the region impede The improvements in Afghanistan’s basic infra- what would otherwise be a natural use of Afghani- structure over the last 10-15 years highlight the Institute stan’s location. Recent contention — including opportunities for long term growth as well. In 2001, exchange of fire — between Afghanistan and Paki- Afghanistan began the process of recovering from Annie Cowan, stan regarding the construction of border gates at 20 years of war and devastation. Society and in- Program the Torkham crossing threatens what progress has frastructure had been reduced to the point of sub- been made, and illustrates the continued necessity sistence and survival, and the prospect of regional Coordinator, of maintaining positive relations between neigh- economic cooperation seemed a far-off concept. EastWest bors in the region. The accessibility of other border Since then, the ISAF coalition’s contribution of over Institute crossings continues to be affected by tensions USD 100 billion in support of economic develop- between the two countries; the Wesh-Chaman ment and security improved conditions dramati- crossing point—a second major point of entry after cally, and significant gains were made in many Torkham — was closed by Pakistan for fourteen areas such as infrastructure, power, communica- days in August 2016 following anti-Pakistan tions, access to healthcare and standard of living. demonstrations by protestors in Spin Boldak on In 2002, only 6 percent of Afghans had electricity; the Afghan side, causing spoiled goods and loss by 2015, this was up to 30 percent, with certain of income for traders on both sides of the gate.21 urban areas having 90 percent access. Overall, the The lack of security, political stability, and posi- country’s GDP nearly tripled from USD 7 billion in tive cross-border relations necessary to benefit 2006 to USD 20 billion in 2014. Although the exact from available opportunities remains a hurdle that statistics are difficult to verify (due to challenges in must be overcome through enhanced cooperation gathering accurate information in rural and unsafe within the region and the international community areas) and the cost to achieve results is extremely as a whole. high, the magnitude of improvement in well-being, education, and infrastructure has been dramatic. The Afghanistan Reconnected Process is built These improvements have set the conditions for upon the conviction that regional economic growth Afghanistan to exploit its central position and is a cornerstone to long-term security and stability natural resources in order to grow its regional trade for both the country and its neighbors. The meet- and transit capacity. ings held with political, business and academic leaders in Afghanistan, India, Pakistan, Tajikistan, Given the improvement in capacity over the last Turkey, Europe and the U.S. have validated this 15 years, Afghanistan has ample opportunity to assumption. There exists a common understand- develop its trade and transit sector under the right ing that improvement in regional trade and transit circumstances. The human capacity improve- will drive more robust economies and provide the ments—as indicated by the number of children in school, the improving access to health care and 21 Associated Press. (31 August 2016). Paki- extended life expectancy—provide a more stable stan, Afghanistan agree to reopen border crossing. 24 “Let there be connectivity “Afghanistan has underdeveloped everywhere. infrastructure, a relatively small Let there be export base, and disruption options everywhere. of natural markets. Trade and Let goods go from India transit are of great importance to Iran, let them go through for the country. “ Pakistan. Set the ball rolling.”

K.L. Thapar Muhammad Amin Chairman, Asian Institute of CEO, TransLog Worldwide Logistics, Transport Development, India Pakistan

foundation for economic development. Residual the current security and economic challenges fac- coalition infrastructure and equipment—road ing Afghanistan and is taking measures to improve networks, airport facilities and unused construc- both the internal and external political situation. tion and trucking capacity—offer potential critical resources that could be used to maximize exports. Considering the improvement in the overall trade The government of Afghanistan has entered into and transit capacity, compounded by major im- large-scale regional agreements that are being provements in infrastructure, Afghanistan should implemented with the purpose of increasing com- be headed in a positive direction. Unfortunately, merce and economic cooperation in the coun- the withdrawal of coalition troops in 2014, and the try’s neighborhood. One such agreement is the resultant decrease in funds and international aid, Afghanistan-Pakistan Transit and Trade Agreement threatened to stall progress. The country is cur- (APTTA), which was accepted in 2011 and has been rently in a precarious position economically and in partially implemented, though problems remain, terms of security, with stability and progress being including Pakistan’s refusal to allow the transit of both interdependent and hanging in the balance. Indian goods through Afghanistan, which necessi- The deteriorating security situation continues to tates that India-Afghan trade go through Iran. Both jeopardize the vision of Afghanistan as a trade and sides are working through problematic issues and transit hub, with obstacles to maximizing trade and the agreement was revised in March 2016 with the transit potential stemming partially from security agreement that Tajikistan could be included. declines as well as from a failure to resolve internal and external political conflict. The resurgence of From an international perspective, President Ghani the Taliban and the emergence of the so-called has prioritized regional cooperation in his foreign Islamic State (IS) in certain provinces threaten policy. He has traveled extensively to Pakistan, to stall and reverse economic progress made in India, China and the Central Asian states. His the past 15 years, as the government struggles to outreach and dedication to enacting regional trade achieve a cessation of hostilities with the Taliban and transit agreements are indicative of his desire and a defeat of IS. On top of the security chal- to improve cooperation between Afghanistan lenges, there remain substantial internal gover- and its neighbors. Unfortunately, the anticipated nance and regional cooperation components that dramatic improvement in trade and transit has must be resolved before economic progress can not been realized, due in large part to historical continue at a pace that takes full advantage of the animosities that hinder efforts to implement these opportunities available to Afghanistan. agreements. EWI’s visit to Pakistan’s President Hussain in March 2015 highlighted the optimism Despite the pressing security situation and set- for enhanced bilateral trade and transit coopera- backs in political relations, however, certain facets tion created during President Ghani’s visit to Islam- of regional cooperation have improved over the abad in that same month. By the time of the Insti- past three years. These improvements in cross- tute’s meeting with President Ghani in November border trade and transit must be safeguarded and 2015, that optimism had all but vanished. President expanded upon in light of present circumstances. Ghani subsequently sought to diversify his out- Between Pakistan and Afghanistan, significant reach efforts, shifting his focus to Central Asia, Iran effort has been made to separate political and eco- and China. The Ghani government fully recognizes nomic relations, though this progress is precarious

25 and subject to backsliding during times of particu- opens the possibility of an increase in the import larly heightened tension. Increased cooperation of high-quality and less-expensive Indian goods; and intervention by chambers of commerce and likewise, it stands to provide better market access joint chambers of commerce, such as the Pakistan for Afghan exports, allowing Afghan goods to more Afghanistan Joint Chamber of Commerce and easily reach the lucrative Indian market and nearly Industry (PAJCCI), have resulted in a decrease in halving the transit time as compared to shipment delays at ports like Karachi and reductions in prob- through Pakistan. While the development of the lems with insurance, bank guarantees and goods Chabahar port is a newly-minted plan, the Chinese declarations (which are now transmitted electroni- “One Belt, One Road” (OBOR) initiative is more cally). According to Mr. Muhammad Amin, CEO of concrete, and is “perceived as a strategic reality global shipping company TransLog Worldwide Lo- throughout the region and the wider world,” says gistics, the speed of Afghan-Pakistani commercial Ambassador Franz-Michael Skjold Mellbin, EU connectivity has improved markedly over the past Special Representative and Head of Delegation three years, and “most holdups in terms of transit of the European Union to the Islamic Republic of delays now tend to be for individual issues, such as Afghanistan. It has also led to a new perception of incorrect paperwork or the legality of cargo.” China as a strong actor in the region, willing to in- vest in infrastructure projects and take on a greater Improvements in Afghanistan-Pakistan visa role. The USD 40 billion initiative, which seeks policies have also been noteworthy. In the past, to revitalize old Silk Road routes and ultimately worsening political relations with Pakistan had re- connect China to European and other interna- percussions on these policies, negatively affecting tional markets, currently heavily involves Pakistan businesses. When relations were particularly bad at through the China-Pakistan Economic Corridor. the start of 2016, Afghan businessmen could only OBOR has essentially created a new reality for be granted a 3-month single-entry visa to Pakistan. economic cooperation in the region and presents By May 2016, the situation had improved and busi- a unique opportunity for Afghanistan to connect nessmen were able to receive one year, multi-entry to its associated projects and, through them, take visas (facilitated by PAJCCI). In fact, over the past advantage of new and unprecedented access to three years the overall number of complaints made international markets. In fact, a Memorandum of to PAJCCI by businessmen conducting cross- Understanding between Afghanistan and China in border trade has decreased due to a normalization regards to participation in the OBOR initiative was of relations and procedures between authorities of signed in May 2016 and marks a growth in Chinese the two countries. As of this report’s publication, it investment in Afghanistan. remains to be seen how present tensions will affect visa requirements between the two neighbors. Despite the presence of new opportunities and broad-based support for improved cooperation These short- and medium-term increases in cross- and improvements in many areas, however, many border cooperation constitute a positive first step measures to reduce obstacles to trade and transit on a path toward greater regional economic inte- remain to be taken or implemented. The failure to gration for Afghanistan, and are not limited to prog- implement regional trade agreements, improve ress with Pakistan. According to Mr. Wahidullah trade processes and procedures, and develop Waissi, Director-General for Economic Cooperation a cooperative regional environment has limited of the Ministry of Foreign Affairs of Afghanistan, economic growth in Afghanistan’s neighborhood, the June 2016 inauguration of the Afghan-India while a deteriorating security situation in the coun- Friendship Dam is “a token of real partnership try threatens not only to stagnate what progress between Afghanistan and India”, and illustrates the exists but to reverse it considerably, impacting growing cooperation between the two countries both the country and the region as a whole. The in a number of fields, including economic integra- threat to regional security and Afghan wellbeing is tion. An increase in Indian corporations setting up significant; without concerted efforts to improve franchises in Afghanistan represents another posi- Afghan governance and create a more harmonious tive development in cross-border trade. A marked political environment in South and Central Asia, increase in delegations of Afghan businesspeople the opportunities for improved regional trade and looking for Indian buyers has been noted by the transit capacity that have been earned over the last Federation of Indian Chambers of Commerce & 15 years will slip away. Industry (FICCI), which has had growing success in facilitating cross-border business contacts, exposi- Certain regional, bilateral, and domestic factors tions, and ‘train-the-trainers’ programs between continue to challenge trade and transit between Indian and Afghan businesspeople. Afghanistan and its neighbors and hinder Afghani- stan’s domestic economic growth. The EastWest Long-term regional economic cooperation may de- Institute, over the course of the Afghanistan Recon- pend on large-scale transit infrastructure projects. nected Process and in consultation with experts, India is presently investing heavily in the develop- government officials, and business leaders from ment of the Chabahar port in Iran; the agreement the region, has highlighted some of these concerns pertaining to this was signed in early 2016. From and developed a series of recommendations to an Afghan perspective, this positive development address them.

26 A man rests under a truck before traveling to Afghanistan in Peshawar, northwestern Pakistan, August 2016.

27 Regional Issues Pakistan should allow the import, and enforce its commitment to Regionally, shifting visa policies between countries allow the direct export, of Indian remain a complicating factor in trade and transit. products through the Wagah border Tajikistan has maintained a complicated visa crossing point, and APTTA should regime towards Afghanistan, benefiting financially be expanded to include India as well from increasing visa costs. Likewise, obtaining an as Tajikistan. During the last Joint Indian visa is growing more problematic for Afghan Ministerial Economic Commission in businesspeople, due to increasingly cumbersome Islamabad in February 2016, Pakistan bureaucratic procedures involved in the process. reiterated its interest in including The fluctuating internal security situation causes Tajikistan. In March, the agreement visa policies and procedures between Afghani- was revised and Afghanistan agreed stan and its neighbors to shift frequently, which to drop its reciprocal bid to include impedes trade, in particular with the Central Asian India, allowing APTTA to be extended states to the country’s north. to formally include Tajikistan, for which preparations are underway. Pakistani To facilitate easier intra-regional authorities have thus far continued to trade, visa regimes and policies oppose the inclusion of India; however, should be improved and stream- Afghanistan already has its own bilat- lined. Countries in the region need eral trade agreement with Tajikistan. To to develop a simplified procedure for ensure that both countries profit from obtaining a visa to encourage trade the expansion of the APTTA agreement, across borders. Continued work on the inclusion of both Tajikistan and visa regimes throughout the region is India would be ideal. necessary, says Ms. Faiza, Executive Director/Secretary General of PAJCCI. The establishment of cross-border “Even if we talk about integration, if business networks and the participa- there is too much difficulty in obtaining tion of an organized private sec- a neighbor’s visa, regional integration tor could help drive domestic and fails.” The prospect of granting easier regional economic development and multi-entry visas for pre-screened busi- cooperation. According to H.E. Mr. nesspeople should be pursued. Hamidullah Farooqi, Chancellor of Kabul University and Adviser Minister to the Strained political relations and a lack of con- President of Afghanistan, “leadership nectivity between countries in the region impact does not only come from politicians, but Afghanistan’s trade capabilities and opportunities also from private sector institutions like for regional integration. Pakistan prevents Indian chambers of commerce and business products from reaching Afghan territory, limiting institutions.” An organized and mobilized Afghan access to Indian products and neces- private sector is well-equipped to create sitating that India-Afghan trade be transported connections and alleviate misunder- through Iran. Transit of Indian goods through Iran standings across borders, and is instru- has also posed some problems in the past, but mental in ensuring that political and not to the same level as with Pakistan. Likewise, economic matters are kept separate in Afghan goods face challenges getting to the Indian terms of regional relations. However, the market. Under the terms of the APTTA treaty, private sector in Afghanistan is largely Pakistan is supposed to provide direct access for disorganized, and serious cross-border Afghan trucks to the Wagah border with India; in interrelationships between business- reality, this does not always happen. The Pakistani people exist primarily with Pakistan and, trucking lobby is particularly powerful, and often to a lesser but growing extent, India. prevents Afghan trucks from carrying goods to Chambers of commerce can play a role India. This means that although Afghan goods do in organizing and mobilizing private sec- reach India, they are typically transshipped via tor actors in countries in the region to Pakistani trucks, constituting a loss to the Afghan create new business networks. Business trucking industry; furthermore, the delay caused advocacy councils with private sector by this transfer frequently causes perishable business leaders should be organized to goods to spoil. Afghan merchants are then paying provide valuable insights and guidance Pakistani truckers to transport 100% of the cargo, to political leadership. An engaged pri- but are able to sell only the unspoiled quantity vate sector and regional business net- upon the shipment’s arrival in India. This both di- works should be driving forces in both minishes the quality of perishable Afghan exports economic development and regional to India and provides an unnecessary barrier to integration, creating connections and Afghanistan’s potentially lucrative full participation guiding and incentivizing the reduction in a critical regional and international market. of impediments to cross-border trade and transit.

28 The influence of joint chambers much more easily through Pakistan; of commerce should be expanded Iran and India simply cannot compete. and improved, and the possibility Pakistan, then, is a logical and, indeed, of a regional chamber of commerce necessary commercial partner for its should be explored. The ability of joint neighbor; this will continue despite chambers of commerce to foster cross- the emergence of new opportunities. border cooperation has been well-dem- Furthermore, its connection to OBOR onstrated by PAJCCI’s work in easing projects will allow it to maintain and certain impediments to trade. Encour- even grow its significance to regional aging funding and foreign support for trade. joint chambers of commerce could ease and facilitate further cross-border Afghanistan should explore linkage cooperation. Furthermore, the creation with Pakistan’s Gwadar port and of a regional chamber of commerce, OBOR projects. A direct connection including India and Iran in addition to from the Afghan ring road to Pakistan’s Afghanistan and Pakistan, could prove Gwadar port would facilitate both beneficial in promoting private-sector- regional and international trade for to-private-sector problem-solving. Afghanistan. Gwadar also represents a natural inroad for Afghan linkage to Iran should be further engaged in projects related to the Chinese OBOR Afghanistan’s economic develop- initiative, which currently involves ment and regional integration Pakistan through the China-Pakistan process. The reemergence of Iran as Economic Corridor. The Gwadar port a regional player presents unique op- will be heavily used by, and possibly portunities given its close geographic even administered by, the Chinese; an location to Afghanistan, the new Afghan connection to this- in the form potential of the Chabahar port to open of a straight road connecting the Af- Afghan trade, and the renewed foreign ghan ring road to Gwadar- could allow investment following the removal easy access to the port, and potential of sanctions. According to Dr. Jafar Chinese administration could provide Haghpanah of the University of Tehran, some avenues to work around Afghan- “There are more opportunities [in Iran] Pakistani bureaucratic hangups. The because of investments of other coun- construction of such a road would be tries. This creates more opportunities of ample benefit to the Chinese, the for all matters related to Afghanistan Afghans, and the Pakistanis, who could directly and indirectly.” The potential for cement Gwadar’s position as the most the development of Chabahar, as well convenient port for Afghan transit. as further plans for railways and other However, at the moment the construc- regional projects including Afghanistan, tion of such a road is not considered bodes well for future Iranian-Afghan a priority, though it will likely emerge cooperation; however, higher volumes as one. The government of Afghani- of commerce and trade between the stan has signed a Memorandum of two countries will be necessary to Understanding with China regarding bring these projects to fruition. For future participation in OBOR projects; this, certain measures- such as the follow-up must be ensured to allow standardization of railway gauges and Afghanistan and its neighbors to take the regularization of shipping services, advantage of its natural position as a customs procedures, and insurance hub for regional transit. services- must first take place. Afghanistan’s network of rural roads The developing seaports of Gwadar need to be developed to facilitate and Chabahar should be viewed as both domestic and interstate trade complementary rather than com- and take advantage of existing and petitive. Pakistani fears of losing its emerging opportunities to connect prominence in the Afghan market to to its neighbors. In addition to a lack its competitors in light of the potential of direct road connection to Pakistan’s development of the Chabahar port are Gwadar, Afghanistan also suffers largely unfounded. Even if Afghanistan from a lack of development in terms increases trade with India and Iran, of rural road connectivity. “Rural road Pakistan’s location and position as a networks,” says Mr. K.L. Thapar, Chair- thoroughfare for China will mean that man of the Asian Institute of Transport trade will always flow in large volume Development, “are vital to a landlocked through it to Afghanistan, and vice country.” The poorly-developed rural versa. China can access Afghanistan road network impedes both domestic

29 A view of the Afghan-India Friendship Dam which was opened by the President of Afghanistan Ashraf Ghani and Indian Prime Minister Narendra Modi in Herat, Afghanistan on June 04, 2016

30 trade and international transit through to persist, and Pakistan cannot afford Afghanistan, and hampers access to to lose the Afghan market to competi- resources and humanitarian needs for tors. In recent years, a particular effort rural citizens, as well as affecting the has been made to separate political ability of security forces to operate in and economic issues between the two contested areas. countries, which has had a positive impact on cross-border business relations; however, the recent conflicts Bilateral Issues and disruptions at the Torkham and Wesh-Chaman crossings illustrate the Bilateral political tensions between Afghanistan necessity of continued work and the and Pakistan exacerbate existing obstacles to danger of backsliding in this area. trade. Inconsistencies and fluctuations in customs tariffs and transit delays for exports to Pakistan Corruption and a lack of trust and confidence diminish profits on the Afghan side. Afghanistan hamper trade and transit between countries, par- relies heavily on the export of agricultural prod- ticularly between Afghanistan and Pakistan. A sys- ucts, mainly fruits. During harvest season, when tem with laws that grant discretionary powers to Afghanistan is ready to export its fruits to and specific actors or individuals with little to no over- through Pakistan, Pakistani authorities increase sight by third parties allows corruption to flourish custom tariffs on these goods by 200-300%. and diminishes confidence in formal cross-border Furthermore, the export of perishable items from trade. The lack of accountability with international Afghanistan into Pakistan is often delayed at funds severely limits both the impact of funding border crossings, where vehicles are stopped for and the willingness of foreign and international trivial reasons for long periods of time, diminish- donors to invest. Furthermore, the endemic cor- ing the quality of the produce. Recent bilateral ruption and lack of formal oversight limits not only tensions resulted in the temporary closures of progress and cooperation on national and regional two main border crossings—at Torkham in June levels, but hampers confidence and trust between 2016 and Wesh-Chaman in August—for politi- individual traders on a smaller scale as well. cal reasons, with the Torkham incident involving exchange of fire. In both cases, trade was signifi- Serious efforts must be undertaken cantly disrupted and goods were spoiled, resulting to curb endemic corruption. Says Mr. in loss of income for traders on both sides of the Zubair Motiwala, Founder Chairman gates. In the case of the Wesh-Chaman closure, of PAJCCI, “Corruption erupts when the Afghan Chamber of Commerce and Industry there are laws which are designed to reported losses in the “millions” to Afghan traders, give discretionary powers to certain and Afghanistan resorted to airlifting fresh fruit to officers, certain groups of officers, India, which agreed to exempt the shipments from and certain agencies. Laws must be 22 taxes. amended by both the countries to allow businessmen to bypass this system, Afghanistan and Pakistan should as otherwise they have to pay a price, analyze transit processes and which adds to the cost of goods.” The procedures and continue to improve introduction of a system involving tiers border crossing point efficiency. of officers with third-party arbitration Obstacles to cross-border transit con- or oversight- such as from a chamber tinue to exist and, as evidenced by the of commerce- could limit the corrup- Torkham and Wesh-Chaman border tion that remains a problem in Afghani- closures, impede both political and stan, Pakistan, and the region. economic relations between the two neighbors. Border crossing procedures The creation of export houses should be refined and standardized to between Afghanistan and Pakistan prevent arbitrary or trivial delay of ship- could build trust and confidence ments in transit. in cross-border trade. As advocated by PAJCCI, an export house—run by Most critically, Afghanistan and professional management and with Pakistan must continue to work to support from both governments-- separate political and economic wherein goods are inspected and issues in order to maintain and regulated would allow, for example, an improve good relations. Bilateral Afghan trader who buys goods from political issues continue to have nega- Pakistan to approach a manufacturer tive repercussions on economic rela- or producer and agree to certain items tions. However, the countries are too and quantities. Instead of immedi- interdependent economically for this ately paying the full amount, the trader 22 Khaama Press. (31 August 2016). Afghani- would pay a small percentage up front; stan airlifts fresh fruits to India as Pakistan closes land the export house would then oversee route. 31 “We will need the cooperation “If the financial sector is put of Pakistan in the region; if in place, you will find Pakistan helps and assists the many Indian businesses going other countries, it will be not just into Afghanistan in the private for their own benefit but for the sector and in joint ventures.” benefit of the entire region.” Goutam Ghosh Ramazan Jumazada Director of the Federation of Member of Parliament, Indian Chambers of Commerce & Afghanistan Industry (FICCI)

the transit of the goods to their final able to businesses and individuals. destination, at which point the Afghan The Kabul Bank scandal of 2010-2011, trader would pay the remainder of the which revealed widespread corruption cost. This would place the goods in and resulted in a massive loss of funds trusted hands, providing confidence and the near-collapse of the bank, led to in trade and quality while protecting much needed reforms in bank oversight parties from unscrupulous traders and control. Unfortunately, these same who, though they represent a miniscule regulations and requirements for loans fraction of all transactions, contribute have now greatly inhibited the ability of overwhelmingly to a lack of trust in citizens to borrow money. Estimates cross-border trade. indicate that there is a USD 4 billion difference between the money held by the bank in savings and the money Domestic Challenges being loaned to citizens; in other words, there is capacity to issue more loans Domestically, the lack of an organized financial but people are either unwilling to take sector in Afghanistan impedes the ability of foreign them or unable to do so due to exces- businesses looking to operate in the country, and sive oversight. In terms of being granted hinders local business as well. The poor perfor- a loan, the most effective form of collat- mance of and lack of trust in local banks leaves eral is land ownership, but at present a companies unable to locate local sources of financ- lack of clarity regarding legal ownership ing. Lack of trust also discourages foreign business inhibits its use in this manner. Many investment, while the inability of local businesses of the land deeds in Afghanistan are to provide acceptable collateral inhibits their ability disputed as they originate from differ- to secure loans for business growth. Foreign direct ent governmental regimes. To facilitate investment is further discouraged by confusion more collateral, and thereby encourage regarding taxation, tariff and procedures as well and facilitate business growth, Af- as a need for more reliable banking infrastructure. ghanistan must hasten the review and Businesses are not confident that they will be able adjudication of land ownership. to achieve a return on their investment due to the lack of transparency in the banking system. A lack of awareness of regional trade opportuni- ties available to Afghan businesspeople, as well Afghanistan needs to continue to as lack of education and accessible information emphasize the enforcement of exist- regarding procedures, policies, and trade agree- ing laws and rules while striving to ments, hinders the ability of Afghans to conduct improve on the established frame- business within neighboring countries and limits work. Although positive steps have the knowledge of potential international partners. been made regarding tax laws, bank- For instance, Afghanistan is part of the South Asia ing regulations and procedures, and Free Trade Area (SAFTA), which grants reduced identification of specific steps required customs tariffs within eight South Asian countries, to invest in Afghanistan, the imple- including Afghanistan, India, Pakistan, Nepal, Sri mentation of these measures remains Lanka, Bangladesh, the Maldives and Bhutan. inconsistent. According to Mr. Goutam Ghosh, Director of the Federation of Indian Chambers of Commerce & Reforms in the financial sector must Industry (FICCI), however, “a majority of Afghan balance the need for oversight, businessmen do not know how to take advan- transparency, and trust with the tage of SAFTA. India has given unilateral access need to make effective loans avail- to least-developed countries of the South Asian

32 Association for Regional Cooperation (SAARC), to do business inside the country. An A policeman stands with the exception of 25 items, like drugs and arms. improved public outreach in order to guard at a police Afghans should take advantage of this.” Further- highlight the progress that has been checkpoint in more, the government of Afghanistan has not made in all sectors, likely with involve- Ghazni province, made consistent and reliable information available ment of both domestic and joint cham- eastern Afghanistan, to its neighbors, leaving them in the dark regarding bers of commerce as well as the media, July 2016. Afghan tax regimes and policies on trade, foreign could encourage foreign investment direct investment, and licensing; also lacking is and improve the international com- information for potential partners on whom to munity’s view of Afghanistan. Says Mr. approach for specific needs such as land alloca- Amin of Translog Worldwide Logistics, tion. Public and private perceptions need to be “The media should be used to show improved as well. ‘business as usual’ in Kabul; Afghan government efforts should try to show Consolidation and communica- the huge potential for business.” tion of information about business practices and trading arrangements is key. More effort must be made to 1) The Road Ahead educate the business community of Afghanistan on the trading arrange- Afghanistan is a country at a critical juncture. ments available to them throughout the Existing opportunities for improved regional and region, and 2) educate the international bilateral trade and transit as well as domestic eco- community regarding the opportunities nomic growth must be seized upon before they are available in Afghanistan. This should be lost to rising challenges, which threaten both future done through more support for and in- progress as well as the significant improvements creased efforts by the Afghan Chamber the country has achieved over the past years. of Commerce and Industry (ACCI) and At present, many potential actions to improve other chambers of commerce in the Afghanistan’s trade and transit systems have been region. Processes must be standardized enacted or agreed upon but not implemented, or across the country and communicated implemented inconsistently. This is due both to do- to ensure that the population and mestic and international inefficiency and historical government employees are adequately apprehension towards cooperation among states informed and understand the specific in the region. The myriad challenges facing Afghan- steps involved. This will enable and istan’s trade and transit sector have prevented encourage participation in the formal regional growth and limited national development economy and help enforce and further to a pace that is inconsistent with the country’s refine measures to improve trade and potential. No one single measure will resolve the transit. complex problems facing the expansion of Afghan trade and transit, though President Ghani’s positive In order to encourage interna- attitude combined with a disciplined approach to tional participation in Afghanistan’s solving one issue at a time provide a factor of hope economy, chambers of commerce and optimism. The challenge, now, is for Afghani- and media outreach should publicize stan and its neighbors to quickly enact necessary improvements in Afghanistan’s busi- reforms and policy changes before the rich op- ness climate. “The perception outside portunities for improved trade and transit integra- of Afghanistan is much worse than what tion and Afghan domestic growth are eclipsed by we are experiencing inside the country,” security challenges, a lack of trust, and a negative says H.E. Mr. Farooqi. This drastically international perception of Afghanistan. affects foreign investors’ willingness

33 Afghanistan Reconnected

34 Regional Energy Dynamics in Central and South Asia

EWI has identified energy trade as one of the most significant areas with the potential of enhancing cooperation between Afghanistan and its neighbors. Since the beginning of the Afghanistan Reconnected Process, the global energy landscape witnessed dramatic changes, which influenced the supply and demand of oil, gas and electricity in the region. Some of the resulting changes have the potential to negatively impact trans- Afghanistan energy transit projects, while others represent opportunities to boost the prospects of the Central Asia- South Asia power project (CASA-1000) and the Turkmenistan- Afghanistan-Pakistan-India (TAPI) gas pipeline.

35 TAPI gas pipeline construction site, May 2016

Danila t is therefore fundamental to analyze the com- Afghan Gas Enterprise, Pakistan’s Inter State Gas Bochkarev, plexity of regional and global factors and propose Systems Ltd and GAIL Ltd. (India) each hold a 5% Ia workable solution for regional energy trade that share. The total cost of the project is expected to Senior does not lead to exclusion from enhanced connec- be USD 10 billion. The Consortium Members have Fellow, tivity. In this framework, the CASA-1000 and TAPI approved USD 200 million to carry out the prelimi- EastWest projects cannot be excluded from the complex nary engineering design along with environmental energy web in the region, as their execution will and other studies. A groundbreaking ceremony Institute have pronounced impacts on the energy scenario was held on December 13, 2015 in the presence of for all of Central and South Asia. the leaders of Afghanistan, India and Pakistan, and construction started shortly thereafter.

Status of trans-Afghanistan TAPI’s ability to supply 33 billion cubic meters gas transmission: TAPI (bcm) per year of natural gas, as stipulated by the agreement, should not be a problem, considering The Turkmenistan–Afghanistan–Pakistan–India the cessation of Turkmen gas supplies to Russia. pipeline is a transmission project aimed at bring- On the other hand, financing the project might ing natural gas from the Galkynysh field in south- pose a challenge given current international mar- ern Turkmenistan to India through Afghanistan kets conditions, as consortium partners will have and Pakistan. TAPI has been in the making since to find USD 4 billion from their own funds, and the 1990s and suffered a number of halts due to secure USD 6 billion from the donors and interna- the security situation in the region and geopolitical tional financial markets. concerns of the stakeholders involved. In the early 2000s the project slowly started to come into Turkmenistan is facing an unpleasant reality being, and only recently the implementation of the of reduced income from energy exports and a project seems to have gained momentum. decrease in natural gas volumes exported under commercial, market-based conditions. The satura- In November 2014 the joint venture to implement tion of the gas market in Europe and Russia led the project was incorporated in Dubai, UAE, under to Gazprom’s loss of interest in Turkmenistan’s the name TAPI Pipeline Company Limited (TPCL). hydrocarbon resources. The loss of ability to ex- Initially, its stakeholders tried to secure the in- port to Russia is a huge loss for Turkmenistan, with volvement of the western international oil compa- Russian gas imports from Turkmenistan decreas- nies in the project, but these attempts failed. The ing from 40 bcm in 2012 to 4 bcm in 2015. Russian absence of interest from international oil com- gas conglomerates stopped purchasing natural panies may have led towards the designation of gas from Turkmenistan in January 2016, depriving Turkmenistan’s state gas company “Turkmengaz” it of a significant source of income. Natural gas as the Consortium Leader of TAPI in August 2015. exported to Iran (6 bcm in 2015) is paid in goods, Under the agreed setup, Turkmengaz is the main not in cash. Increased supply to China, estimated shareholder (85% of equity shares) of TPCL, while at 40 bcm in 2015, was only able to partly com- the rest of the Consortium members, namely pensate for the loss of the Gazprom contract. In 36 “Nothing is more important in generating “It’s time right now, it’s an confidence than initiative point. And this implementation.” forum is an ideal place.” Wahidullah Waissi Ms. Faiza Director-General for Economic Executive Director / Cooperation of the Ministry of Secretary General of PAJCCI Foreign Affairs of Afghanistan

fact, according to Chinese customs statistics, electricity to Afghanistan and Pakistan. The heads only 20.4 bcm were imported under commercial of state of Afghanistan, Kyrgyzstan, Pakistan and agreement. The rest was shipped in exchange for Tajikistan launched construction of the USD 1 bil- weapons supplied by China to Turkmenistan and lion CASA-1000 project on 12 May 2016, aiming at repayment of Chinese credits and investments. In its completion by the end of 2018. addition, the price paid by China for Turkmen gas decreased from around USD 180/1000 cubic me- A major challenge the project may face is the ters (m^3) in February 2015 to USD 140-150/1000 difference between the hydropower generation m^3 in February 2016. potential and actual generation capacity of Tajiki- stan and Kyrgyzstan. Water scarcity, aging energy As a result, Ashgabat is risking running out of cash infrastructure and a lack of investment in Kyrgyz- due to decreased exports and lower gas prices, stan and Tajikistan are likely to limit their ability to leading to a change in the attitude of the Turk- export electricity through CASA-1000. They have men leadership towards the TAPI pipeline. This failed to attract investment to revamp the aging trans-Afghan project is now even more crucial for national grids, which were built in 1970s-80s, and the landlocked Turkmenistan, which hitherto relied increase their electricity export potential. The heavily on gas exports (75 percent) to China, pro- bilateral agreements between Russian and Kyrgyz viding it with an excellent opportunity to diversify companies to build four hydropower plants were its gas exports market. canceled in 2016 due to the financial crisis in Rus- sia. In April 2016, the Kyrgyz government signed a MoU with China State Power Investment Corpora- Status of trans-Afghanistan tion (SPIC) to build four hydropower plants with a electricity transmission: total capacity 1160 MW. It remains to be seen how fast these projects will go through. CASA-1000 The winter power deficit in Tajikistan reaches The Central Asia-South Asia electricity trans- 2,000 gigawatt hours (GWh), or 20 percent of the mission (CASA-1000) project was initiated in country’s demand, and affects 70 percent of its 2007 with an aim to develop the electricity trade population. In December 2015, due to domestic between South and Central Asian countries and shortages, Tajikistan temporarily suspended the create a common trans-regional energy mar- delivery of electricity to Afghanistan and intro- ket. According to the project plan, the 1300 MW duced daily power consumption limits.23 For the (Megawatt) transmission line is supposed to link same reasons, Kyrgyzstan stopped exporting Kyrgyzstan and Tajikistan with Afghanistan and electricity and has been importing electricity from Pakistan. Kazakhstan and Tajikistan since 2014.

The CASA-1000 project is based on the prem- ise that Kyrgyzstan and Tajikistan can serve as 23 Azizmurod, Niginai. (8 December 2015). Ta- major sources of seasonal peak-load hydropower jikistan has stopped exporting electricity to Afghani- stan and Kyrgyzstan. Tajikistan Telegraph Agency. 37 “We in Afghanistan and in the region are at a very important juncture- if you look at human “Present difficulties can be history, critical junctures turned into initiatives that create great change.” can create opportunity in the region” Hamidullah Farooqi Chancellor of Kabul University; Dr. Najam Abbas Adviser Minister to the President Senior Fellow, EastWest Institute of Afghanistan

New Energy Dynamics exports limit the ability of sovereign funds in the Gulf countries to commit financial resources to and their Impact on long-term/low-yield infrastructure projects, such Regional Projects as TAPI or CASA-1000. Iran’s return to global energy markets following The crash of global energy prices, which fell by the lifting of sanctions has the potential to shift the nearly 50 percent in the second half of 2015/ global energy balance. Iran has the world’s second early 2016, acted as a double-edged sword. largest reserves of natural gas, mostly underdevel- While oil consumers paid less, the oil industry in oped due to sanctions, and has ambitions to ship oil producing and consuming countries suffered its hydrocarbons both east and west. According severely, impacting industry investment plans and to the BP Statistical Review of World Energy 2015, leading to cuts in spending and postponement of Iran’s gas reserves are estimated at 34 trillion cu- capital-intensive projects. The economic, social bic meters (tcm) or 1201.4 trillion cubic feet (tft).25 and political impacts of cheaper oil wreaked havoc In comparison, these volumes are good enough to on oil-rich monarchies in the Middle East, which keep the TAPI gas pipeline running for over 1000 are dependent on oil exports to finance their social years. programs and invest in expensive foreign policy initiatives. In particular, Saudi Arabia’s budget In particular, the lifting of economic sanctions deficit reached USD 97.9 billion in 2015 primar- on Iran has revived the 2,775 km Iran-Pakistan ily because of low prices. The country’s reserves Gas Pipeline from the South Pars gas field in Iran dropped from USD 732 billion in January 2015 to to Karachi in Pakistan and possibly further east USD 586.5 billion in March 2016. As a result, the to India. The pipeline is expected to be commis- Saudi government will cut its 2016 budget spend- sioned by the end of 2017, and can carry up to ing by at least USD 36 billion. 750 MMcfd/7.75 bcm per annum of natural gas, enough to support a 4,000 MW power plant in On the one hand, lower energy prices limit the Pakistan, which is facing an energy deficit of over interference of rich Gulf States in regional energy 60 percent. Iran and Pakistan have already signed politics and make politically-conditioned aid less a contract to this effect in June 2010. likely. Previously, aid conditionality had a strong impact on regional dynamics, as in the case of the Post-sanctions Iran is therefore emerging as Turk- Saudi government’s donation of USD 1.5 billion menistan’s key competitor in the gas market. This to Pakistan in 2014, allegedly linked to Pakistan’s competition has the potential to negatively impact 24 withdrawal from the Iran-Pakistan gas pipeline. natural gas transit via Afghanistan, as India and On the other hand, reduced cash flows from oil

24 Syed Fazl-e-Haider. (21 March 2014). Saudi 25 British Petroleum (June 2016). BP Statistical grant kills Iran-Pakistan pipeline. Asia Times. Review of World Energy, June 2016. 38 Pakistan will have an option to choose between Low crude prices provided significant relief to Iranian and Turkmen gas, and use their bargaining Pakistan and improved its balance of trade. Brent power to negotiate cheaper gas prices. crude prices went down from USD 107/barrel in July 2014 to USD ~48/barrel in May 2016.27 As per the report of the State Bank of Pakistan (SBP), The demand side: lower oil prices helped Pakistan reduce its oil/ South Asia and China petroleum products import bill by 43 percent from USD 5.733 billion in July–October 2014 to USD 28 For the first time in history, India will not have a 3.263 billion in July–October 2015. Electricity power deficit in 2016, mostly due to increased shortages, however, remain the biggest challenge coal usage. The range of energy sources available for Pakistan. The demand-supply gap will increase to India— its energy mix— is quite diverse, but to over 6000 megawatts (MW) in the summer of the country still heavily relies on the use of fossil 2016, from 3500 MW in spring 2016. The demand fuels in power generation. According to the Indian escalated to 25,000 MW during the summer Central Electrical Authority Report released on 16 months of 2016. Gas-fired power stations can be a January 2016, over 70 percent of the country’s part of a solution. Pakistan also needs natural gas installed power generation capacity was run on for the fertilizer industry to replace more expen- coal and natural gas, with environmentally-un- sive fuel-oil for power generation and fuel Paki- friendly coal accounting for 61 per cent of installed stan’s large fleet of natural gas vehicles. generation capacity.26 However, India is experi- encing difficulties in securing adequate growth Domestic gas production is unable to meet the of gas supplies, which starts to limit natural gas demand. Pakistan’s energy deficit is, therefore, consumption, especially in the power generation the key driver for TAPI, but its competing projects sector. India’s gas production fell from 49.3 bcm might be faster. Islamabad will not put all its eggs in 2010 to 29.2 bcm in 2015, while consumption in the same basket, but will bet on both the gas decreased from 61.5 bcm in 2010 to 50.6 bcm in pipelines and LNG supplies. 2015. The availability of cheap LNG supplies still did not manage to cover India’s (hidden) gas sup- Port Qasim in southern Pakistan is a fast-track ply-demand gap. Therefore, India is in the same LNG import solution to alleviate the energy short- situation as Pakistan—looking for new sources of age faced by the country. The terminal, built in a gas supplies, also from Turkmenistan. record time of 335 days, has a base load capacity of 690 MMcfd or over 50 percent of projected supply from TAPI to Pakistan (1.3 bcfd). Pakistan is 27 Bloomberg.com. (2016). Bloomberg Crude 26 Government of India, Ministry of Power. Oil & Natural Gas data. (Accessed 12 May 2016). (2016). Indian Central Electrical Authority Report. (Ac- 28 Iqbal, Shahid. (29 November 2015). Pakistan cessed 16 January 2016). makes $2.5 billion savings in oil import bill. DAWN. 39 “Security is the least of TAPI’s challenges; if political will is mobilized to have these projects mobilized, even large-scale difficult obstacles can be surmounted”

Amb. Franz-Michael Skjold Mellbin EU Special Representative for Afghanistan

planning to import an additional 600 mmcfd from demand. This left Afghanistan’s capital city largely the Gwadar terminal. without power for nearly a month until the line was repaired; this repair was delayed as workers could Slowing growth of the Chinese economy is af- not access the affected area for security reasons.29 fecting the country’s energy consumption and imports. In 2015, China’s overall energy demand There is also a certain sense of urgency in the grew by only 2.5 percent, although gas consump- need to make Afghanistan a viable transit country tion and imports increased at a faster pace (gas for energy transmission, as alternative energy consumption went up by 3.7 percent to 190.9 bcm supply routes towards South Asia are already and imports rose by 4.7 percent to 62.4 bcm). developing. In particular, the Iran-Pakistan (IP) gas Nevertheless, for China this is the lowest natural pipeline is expected to be completed by December gas consumption growth rate in more than a 2017, almost two years ahead of TAPI. TAPI and IP decade. Should this trend continue, decreasing will bring gas into the different regions of Pakistan Chinese gas imports could be an additional driving and, at a first sight, should not enter into direct factor for alternative transmission projects such competition with each other. as TAPI. Chinese- and Russian-sponsored infrastructure projects in Pakistan bring an additional factor to Trans-Afghanistan energy the regional energy equation. Pakistan and Rus- transit and its alternatives sia signed an agreement for a North-South gas pipeline in October 2015. This 1,100 km-long gas Despite recent improvements, Afghanistan is link with a capacity of 12.4 billion cubic meters per still experiencing serious problems with electric- annum (bcma) will connect Karachi LNG termi- ity supplies. Only 38 percent of the country’s nals with the gas network in Lahore in northern population is connected to the power grid. During Pakistan. The pipeline is expected to be fully the winter months in Kabul alone, the power operational by 2020. This project will enlarge the deficit reaches 150 MW and a bulk of power national gas network of Pakistan, improve connec- supplies comes from neighboring Uzbekistan. In tivity between different regions of the country and this context, Afghanistan needs to both develop facilitate gas flows from Russia and Iran to Central domestic sources of energy and secure supplies and Northern provinces. from abroad. The China-Pakistan Economic Corridor (CPEC), The security situation in Afghanistan is a tremen- a USD 46 billion undertaking aimed at upgrading dous challenge for project development. Many infrastructure in Pakistan, is a part of China’s 13th parts of Afghanistan where the TAPI pipeline and Five-Year Development Plan. It will link Gwadar CASA-1000 are expected to pass through are in Pakistan to China’s Xinjiang region through a essentially no-go areas for non-armed personnel. network of highways, pipelines and rail links. En- This affects the personal safety of the construc- ergy projects in Pakistan, including electricity, are tion workforce and increases the insurance, hard- priority projects under the CPEC with an allocation ware, materials and personnel costs by 200 to of USD 33 billion. Over 10,400 MW of generation 300 percent. In 2015, insurgents damaged trans- capacity will be built by 2020 as part of CPEC. mission lines going from Kajaki Dam hydropower Pakistan and China signed a preliminary agree- installations to Kabul over 2,000 times. In January ment in May 2016 to build the 700 km Gwadar– 2016, the Taliban sabotaged a major 280 MW 29 Mackenzie, James. (23 February 2016). power transmission line between Uzbekistan and Power restored to Afghan capital Kabul after weeks of Kabul, which provided over half Kabul’s electricity blackout. Reuters. 40 Nawabshah gas pipeline with a capacity of 1 billion For Kyrgyzstan and Tajikistan, The Iran- cubic feet/day (bcfd). It will transport gas from the CASA-1000 provides an incentive Pakistan LNG terminal in southern Pakistan to the country’s to reform their energy markets and Pipeline Northern provinces. This USD 2 billion project is attract foreign investors into their (isgs.pk) slated to be completed by December 2017 and will energy sectors. be interconnected with the Iran-Pakistan pipeline. The two pipelines will be able to deliver natural gas Pakistan will have competing choices to the same markets as TAPI and are likely to be between TAPI and LNG-based gas completed ahead of the launch of the TAPI project. supplies, and between CASA-1000 These projects will, therefore, create additional versus domestic generation facilities competition for TAPI gas in Pakistan. being built under the CPEC initiative. Nevertheless, Pakistan might be inter- ested in learning from the experience The Road Ahead of the EU energy market. In Europe, additional pipelines/interconnections Despite a number of challenges, risks and signifi- and new sources of gas supply brought cant delays in the trans-Afghan TAPI and CASA- more competition and price relief for 1000 energy projects, their importance for South consumers. This success story could Asian economic and political stability only grew also be replicated in Pakistan if it makes stronger. In fact, these two projects are a “silver use of the gas and electricity supply op- lining” for other regional energy projects. tions available to it. With a proper price incentive, the country’s energy-hungry For Afghanistan, energy transit will market will be able to absorb large bring new investment, energy sup- volumes of imported energy. plies and additional income in the form of transit fees. This will result Multilateral financial institutions and donors in a greater stability for Afghanistan can play an important role in the actualization of and closer economic relations with its these projects through financial support and their neighbors. valuable experience in coordinating multilateral cross-border energy projects. Last but not least, For Turkmenistan, TAPI opens new all stakeholders should be brought onboard while markets and helps to monetize its discussing and/or implementing sizable projects gas reserves. within the framework of the trans-Afghan energy corridor.

41 Afghanistan Reconnected

Looking Ahead

There is a need for a new narrative- one focusing on opportunities and progress rather than defeatism- to be crafted for Afghanistan.

An Afghan girl performs during a competition in Kabul, August 2016.

42 43 Ambassador f efficiency is measured as the ratio of input the emergence of the Islamic State/Daesh in the Martin and output, or of investments and results, then country and an Al Qaeda revitalized with new lead- Ififteen years of international efforts for Afghani- ership and new contacts. Furthermore, in Europe’s Fleischer, stan’s stabilization and development present an current refugee crisis, Afghanistan represents the Vice President outstandingly frustrating balance. The costs of second-largest country of origin for asylum ap- Regional international engagement are tragic and high; plicants, following Syria and ahead of Iraq.34 estimates placed the cost of only the U.S. military Security, involvement at USD 1 trillion by the end of 2014,30 In this light, it would not be surprising if inter- EastWest while nearly 7,000 coalition soldiers and contrac- national stakeholders and actors were to grow Institute tors, 23,000 Afghan military and police personnel, tired of investment or daunted by persistent and and 26,000 Afghan civilians have lost their lives growing challenges and withdraw much-needed since 2001.31 In terms of reconstruction and eco- aid and support. “Afghanistan fatigue” is the term nomic relief, the United States alone has contrib- often heard in this regard. uted over USD 100 billion in nonmilitary aid since 2002,32 and other Western countries have followed Fortunately, facts and figures paint a different, suit, including Germany, which is the third-largest more hopeful picture. At the NATO summit in War- international donor and gave US 2.1 billion from saw in July 2016, the tough but necessary decision 2002-2010.33 was made to extend the ISAF follow-on Resolute Support Mission beyond 2016. Accordingly, And in spite of these fifteen years of international President Obama announced a slowing down of commitment, social and economic progress and the drawback of U.S. troops in Afghanistan, leav- the opportunity to increase the present pace of ing over 8,000 troops in 2017 as opposed to the development are jeopardized by a deteriorating 5,500 initially projected.35 The term “Transforma- security situation. Afghanistan’s long struggle tion Decade” used by NATO relates to 2014-2024 with the Taliban intensified in 2014 following the and illustrates that an end to military and civilian withdrawal of the majority of ISAF combat troops. investments is not yet in sight. Despite the progress made by Afghan security forces since that time, the Taliban continues to A parallel fresh resolve can be seen as regards the remain a persistent threat, further complicated by support of international financial institutions. The World Bank’s lending commitments (including 30 Apps, Peter. (01 October 2015). The war in IBRD and IDA) have jumped from USD 270 million Afghanistan has so far cost $33,000 per citizen. And 36 will not end well. Reuters. in 2015 to USD 700 million in 2016. In June 2016, 31 Crawford, Neta C. (22 May 2015). War-relat- the International Contact Group, jointly chaired by ed Death, Injury, and Displacement in Afghanistan and Pakistan 2001-2014. Watson Institute for International 34 European Commission. Countries of Origin Studies, Brown University. of (Non-EU) Asylum Seekers in the EU 28 Member 32 Dusai, Sujaya; and Lutz, Catherine. (5 Janu- States, 2014 and 2015. (Accessed 31 August 2016). ary 2015). US Reconstruction Aid for Afghanistan: The 35 Landler, Mark. (6 July 2016). Obama Says He Dollars and Sense. Watson Institute for International Will Keep More Troops in Afghanistan Than Planned. Studies, Brown University. New York Times. 33 German Missions in the United States. En- 36 The World Bank. (2016). Overview: Afghani- gagement in Afghanistan (Accessed 31 August 2016). stan. (Accessed 31 August 2016) 44 Children pose for photos outside their home in Kabul, August 2016. Afghanistan and Germany, reiterated its financial impossible, in conflict prevention. However, commitment at its Istanbul meeting, and at the there are several specific measures advocated upcoming Brussels Conference the European for by the Afghanistan Reconnected Process Union is expected to at least sustain its level of aid. that have been implemented in the short term. Examples include the relaxation of restrictions There is a need for a new narrative—one focus- preventing Afghan trucks bearing commercial ing on opportunities and progress rather than goods from crossing the border into Pakistan defeatism—to be crafted for Afghanistan. The as well as the granting of one year, multi-entry situation, though precarious, is not entirely grim. visas for businesspeople. These reforms were With international coverage of Afghanistan focus- facilitated by the Pakistan-Afghanistan Joint ing heavily on the negative, it is easy to let bad Chamber of Commerce and Industry (PAJCCI), news and setbacks, such as the recent events at the creation of which is another marker of the the Torkham and Wesh-Chaman border crossing commitment to cooperation. PAJCCI’s interven- points, overshadow the very real progress that has tions, and the participation of other chambers been made in recent years. Politically, the govern- of commerce and industry, have helped reduce ment has seen its first peaceful transfer of power problems with visa facilitation, goods declara- from one administration to the next, marking the tions, insurance and bank guarantees. Overall, first successful political transition in the coun- goods travel across borders more easily and try’s modern history and leading to a progressive with fewer delays than they did three years ago. cabinet including four female ministers. Significant Bilateral collaborations with neighbors, such and tangible advances in education, women’s as the Afghan-India Friendship Dam, and active rights and the rule of law have furthered the participation in regional energy projects like country’s overall advancement since 2001. The TAPI and CASA-1000 are further markers of an Ghani administration has made regional coop- increase in cooperation and an overall improve- eration a key part of the National Development ment in neighborhood relations. EWI is by no Strategy and a pillar of its foreign policy. To this means claiming that these encouraging trends end, the government of Afghanistan has pursued, in regional economic cooperation, which have participated in, and even initiated a number of gone largely ignored by the international com- regional integration and cooperation efforts. munity, are the direct result of its own efforts. Initiatives spearheaded by Afghanistan include the But at least it is reassuring that, with the policy Heart of Asia Process, of which Afghanistan is the recommendations developed by the eminent permanent co-chair, and the Regional Economic experts participating in the Afghanistan Recon- Cooperation Conference on Afghanistan (RECCA). nected Process, EWI has been marching in the Both of these initiatives have met multiple times right direction. Given the necessary donor sup- on the ministerial level, and have been largely suc- port, EWI is committed to carry its Afghanistan cessful, with RECCA in particular driving several Reconnected Process forward, as a small but regional projects. distinguished contribution to regional develop- ment and stability. NGOs working towards peace and security are often asked if their work has any impact. Obviously, measuring impact is difficult, if not 45 Afghan refugee families return to their country after spending more than three decades in Pakistan, at outskirt of Kabul, August 2016.

46 Afghanistan Reconnected

Abbreviations and Acronyms

ACCI Afghanistan Chamber of Commerce and Industry ANSF Afghan National Security Forces APTTA Afghanistan-Pakistan Trade and Transit Agreement CASA-1000 Central Asia-South Asia-1000 electricity project CICA Conference on Interaction and Confidence-Building Measures in Asia CPEC China-Pakistan Economic Corridor CSTO Collective Security Treaty Organization ECO Economic Cooperation Organization FATA Federally-Administered Tribal Areas (Pakistan) FICCI Federation of Indian Chambers of Commerce and Industry IBRD International Bank for Reconstruction and Development IDA International Development Association IPIS Institute for Political and International Studies (Iran) ISAF International Security Assistance Force OBOR One Belt, One Road PAJCCI Pakistan-Afghanistan Joint Chamber of Commerce and Industry RECCA Regional Economic Cooperation Conference on Afghanistan SAARC South Asian Association for Regional Cooperation SAFTA South Asia Free Trade Area SBP State Bank of Pakistan SCO Shanghai Cooperation Organization SPIC China State Power Investment Corporation SSAR Solutions Strategy for Afghan Refugees TAPI Tajikistan-Afghanistan-Pakistan-India Pipeline TPCL TAPI Pipeline Company Limited WTO World Trade Organization

47 Board of Directors

OFFICE OF THE CHAIRMAN MEMBERS John Hurley (U.S.) Managing Partner Ross Perot, Jr. (U.S.) Hamid Ansari (U.S.) Cavalry Asset Management Chairman President and Co-Founder EastWest Institute Prodea Systems, Inc. Amb. Wolfgang Ischinger Chairman (Germany) Hillwood Development Co. LLC Tewodros Ashenafi (Ethiopia) Chairman Chairman and CEO Munich Security Conference H.E. Dr. Armen Sarkissian (Armenia) Southwest Energy (HK) Ltd. Vice Chairman Ralph Isham (U.S.) EastWest Institute Peter Bonfield (U.K.) Managing Director President Chairman GH Venture Partners LLC Eurasia House International NXP Semiconductors Ambassador Extraordinary and Anurag Jain (India) Plenipotentiary Matt Bross (U.S.) Chairman Embassy of the Republic of Armenia to Chairman and CEO Laurus Edutech Pvt. Ltd. the United Kingdom Compass-EOS Former Prime Minister of Armenia Gen. (ret) James L. Jones (U.S.) Robert N. Campbell III (U.S.) Former U.S. National Security R. William Ide III (U.S.) Founder and CEO Advisor Counsel and Secretary Campbell Global Services LLC Former Supreme Allied Chair of the Executive Committee Commander Europe EastWest Institute Maria Livanos Cattaui Former Commandant of the Partner (Switzerland) Marine Corps Dentons US LLP Former Secretary-General International Chamber of George Kadifa (U.S.) Cameron Munter (U.S.) Commerce Managing Director CEO and President Sumeru Equity Partners EastWest Institute Michael Chertoff (U.S.) Former Ambassador Executive Chairman and Co-Founder Haifa al Kaylani Embassy of the United States to The Chertoff Group (Lebanon/Jordan) Pakistan Founder and Chairperson David Cohen (Israel) Arab International Women’s Forum CO-FOUNDERS Chairman F&C REIT Property Management Zuhal Kurt (Turkey) John Edwin Mroz* (U.S.) Chairman of the Board Former President and CEO Joel Cowan (U.S.) Kurt Group EastWest Institute Professor Georgia Institute of Technology Gen. (ret) T. Michael Moseley (U.S.) Ira D. Wallach* (U.S.) President and CEO Former Chairman Addison Fischer (U.S.) Moseley and Associates, LLC Central National-Gottesman Inc. Chairman and Co-Founder Former Chief of Staff Planet Heritage Foundation United States Air Force

Stephen B. Heintz (U.S.) Karen Linehan Mroz (U.S.) President President Rockefeller Brothers Fund Roscommon Group Associates

Hu Yuandong (China) F. Francis Najafi (U.S.) Chief Representative CEO UNIDO ITPO-China Pivotal Group

Emil Hubinak (Slovak Republic) Amb. Tsuneo Nishida (Japan) Chairman and CEO Professor * Deceased Logomotion Institute for Peace Science at Hiroshima University Former Permanent Representative of Japan to the United Nations

48 Ronald P. O’Hanley (U.S.) CHAIRMEN EMERITI William D. Dearstyne (U.S.) President & CEO Former Company Group Chairman State Street Global Advisors Martti Ahtisaari (Finland) Johnson & Johnson 2008 Nobel Peace Prize Laureate Admiral (ret) Former President of Finland John W. Kluge* (U.S.) William A. Owens (U.S.) Former Chairman of the Board Chairman Berthold Beitz* (Germany) Metromedia International Group Red Bison Advisory Group LLC President Chairman of the Board of Directors Alfried Krupp von Bohlen und Maria-Pia Kothbauer CenturyLink Halbach-Stiftung (Liechtenstein) Ambassador Sarah Perot (U.S.) Ivan T. Berend (Hungary) Embassy of Liechtenstein to Austria, Director and Co-Chair for Professor the OSCE and the United Nations in Development University of California, Los Angeles Vienna Dallas Center for Performing Arts Francis Finlay (U.K.) William E. Murray* (U.S.) Ramzi H. Sanbar (U.K.) Former Chairman Former Chairman Chairman Clay Finlay LLC The Samuel Freeman Trust SDC Group Inc. Hans-Dietrich Genscher* (Germany) John J. Roberts (U.S.) Ikram ul-Majeed Sehgal Former Vice Chancellor and Minister of Senior Advisor (Pakistan) Foreign Affairs of Germany American International Group (AIG) Chairman Security & Management Donald M. Kendall (U.S.) Daniel Rose (U.S.) Services Ltd. Former Chairman and CEO Chairman PepsiCo Inc. Rose Associates Inc. Amb. Kanwal Sibal (India) Former Foreign Secretary of India Whitney MacMillan (U.S.) Leo Schenker (U.S.) Former Chairman and CEO Former Senior Executive Kevin Taweel (U.S.) Cargill Inc. Vice President CEO Central National-Gottesman Inc. Asurion Mark Maletz (U.S.) Former Chairman, Executive Mitchell I. Sonkin (U.S.) Alexander Voloshin (Russia) Committee Managing Director Chairman of the Board EastWest Institute MBIA Insurance Corporation JSC Freight One (PGK) Senior Fellow Non-Executive Director Harvard Business School Thorvald Stoltenberg (Norway) Yandex Company President George F. Russell, Jr. (U.S.) Norwegian Red Cross Amb. Zhou Wenzhong (China) Chairman Emeritus Secretary-General Russell Investment Group Liener Temerlin (U.S.) Boao Forum for Asia Founder Chairman Russell 20-20 Temerlin Consulting NON-BOARD COMMITTEE MEMBERS DIRECTORS EMERITI John C. Whitehead* (U.S.) Former Co-Chairman Laurent Roux (U.S.) Jan Krzysztof Bielecki (Poland) Goldman Sachs Founder CEO Former U.S. Deputy Gallatin Wealth Management, LLC Bank Polska Kasa Opieki S.A. Secretary of State Former Prime Minister of Poland Hilton Smith, Jr. (U.S.) President and CEO Emil Constantinescu (Romania) East Bay Co. LTD President Institute for Regional Cooperation and Conflict Prevention (INCOR) Former President of Romania

49 Afghanistan Reconnected

Copyright © 2016 EastWest Institute Photos: Reporters.be On the cover: An Afghan displaced child plays outside his tent in Ghazni province, Afghanistan, February 2016.

The views expressed in this publication do not necessarily reflect the position of the EastWest Institute, its Board of Directors or staff.

The EastWest Institute works to reduce international conflict, addressing seemingly intractable problems that threaten world security and stability. We forge new connections and build trust among global leaders and influencers, help create practical new ideas, and take action through our network of global decision-makers. Independent and nonprofit since our founding in 1980, we have offices in New York, Brussels, Moscow, Washington, D.C and San Francisco.

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