Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa Saad Shabbir* and Vaqar Ahmed*

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Shabbir, S and Ahmed, V 2015 Welfare Impacts of Afghan Trade on the stability Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa. Stability: International Journal of Security & Development, 4(1): 6, pp. 1-16, DOI: http://dx.doi.org/10.5334/sta.et

RESEARCH ARTICLE Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa Saad Shabbir* and Vaqar Ahmed*

Amidst all the concerns of uncertainty over the future of Afghanistan, recent developments have given hope to the world, specifically south and central Asia. A coalition government has now been established following the deadlock that came after the May 2014 elections. President Ashraf Ghani and Chief Executive Officer Abdullah have already signed a Bilateral Security Agreement (BSA) between Kabul and Washington, according to which 9800 troops will remain in Afghanistan beyond 2015. Furthermore, the government of Afghanistan seeks the support of the neighbouring countries to keep peace in the region. Despite all these concrete steps, there has been an increased number of terror attacks and drone operations which has put a big question mark on the stability of the country. How Afghanistan tackles these rising problems will be crucial in defining its future, the trickle- down effects of which will determine the stability of the Afghan-Pakistan region. Concerns about what the future holds for this region with a long history of violence and insurgency are currently being voiced at many levels of society, including on talk shows, at government meetings, within NGOs, and at business forums. Unlike most of the studies done on the Afghan-Pakistan region that focus on the security of the region, this article focuses on the welfare and economic impacts of post-2014 Afghanistan on the neighbouring Pakistani provinces of Balochistan and Khyber Pakhtunkhwa, at the household level.

Background The Russians have once again shown an The International Security Assistance Force interest in Afghanistan and have identi- (ISAF) already pulled out 70 per cent of its fied numerous investment projects. They forces by the end of May 2014, with only about are concerned about the security of the 30,000 troops still remaining in Afghanistan. region which could have direct implications Due to recent developments, 9,800 foreign for Russia (Stepanova 2013). The European troops will remain in the country in 2015 to Union, China, Iran, and India have also shown continue combat operations against insur- interest in the reconstruction and smooth gents, with the help of Afghan National Army. transition of post-2014 Afghanistan. The decade-long war in Afghanistan and relations between Afghanistan and the above countries * Sustainable Development Policy Institute, Pakistan have implications for Pakistan, the neighbour [email protected], [email protected] most affected by turmoil in Afghanistan. Art. 6, page 2 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa

Figure 1: Trade between Pakistan and Afghanistan from 2005 through 2012. Source: Pakistan Bureau of Statistics and Trade Development Authority of Pakistan (2013).

Bilateral trade between Afghanistan Afghanistan and in neighbouring Pakistani and Pakistan has seen an increasing trend provinces. According to the authors’ cal- since the launch of the US war on terror in culations based on the Household Income Afghanistan. The volume of bilateral trade Expenditure Survey taken in 2004–05 and between the two countries has increased 2010–11, growth in the TTWC sectors was from US$ 1.1 billion in 2005–06 to US$ 2.4 about 290 per cent in Khyber Pakhtunkhwa billion in 2011–12. Exports from Pakistan and 450 per cent in Balochistan. to Afghanistan have increased from US$ 1,063.4 million to US$ 2,449 million during Objective the same period. Figure 1 indicates a bal- This study focuses on three specific changes: ance of trade heavily in favour of Pakistan. There has also been substantial change 1. The increase in the number of house- in the composition of Pakistan’s exports to holds associated with TTWC sectors in Afghanistan. Between 2006 and 2011 there the seven years from 2004 to 2011. was a decline (or stagnancy in some cases) 2. The number of TTWC sector house- in the export of milk products, animal and holds belonging to the lowest income vegetable oil, tableware, and household fur- quintiles defined in the Household niture. However, the export of cement, crude Income and Expenditure Survey of oil, wheat, and rice grew several fold. This is Pakistan. exhibited in Table 1. The growth in exports 3. The growth in TTWC sector incomes of these items can be attributed to a rise in compared to non-trade sectors in construction activity and reverse migration Khyber Pakhtunkhwa and Balochistan during this period. provinces (Pakistan). During the period NATO forces were in Afghanistan, employment in the trade, In the post-NATO exit milieu, any distur- transport, warehousing, and communi- bance that deteriorates the political rela- cation (TTWC) sectors increased both in tions between Afghanistan and Pakistan will Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 3 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa

Amount in thousands of US $ Items 2006 2007 2008 2009 2010 2011 Milk and cream & sugar 18701 36024 73369 47167 20712 15461 Animal and Vegetable oil 105726 87989 111196 102265 95466 112973

Cement 92427 77218 120524 162025 181770 222571

Crude oil 242333 156473 433484 311431 510019 862722

Wheat and Rice 59 565 1330 14868 16875 78018

Table ware and Household 69463 19211 36328 21790 17009 18789 furniture Table 1: Pakistan’s Key Exports to Afghanistan. Source: State Bank of Pakistan 2013. result in: reduction of the formal bilateral of both countries mainly discuss historical trade, reduced commercial transit, possible trends and barriers to trade. However, the increase in IDPs and refugees flowing from private sector has shown active interest in Afghanistan to Pakistan, and a rise in the ter- exploring new trade possibilities between ror threat to the Pakistani population neigh- Pakistan and Afghanistan. A recent study bouring Afghanistan. The worst affected in by Hamid & Hayat (2012) explains that this scenario would be households already in Afghanistan is one of Pakistan’s major trad- the lowest income quintiles in TTWC sectors. ing partners, with a long period of undocu- As we will show later, many have come out of mented trade until the fall of Taliban regime chronic and transient poverty as a result of in 2001. Between 2002 and 2010 there was increased trade with Afghanistan. However, a seven-fold increase in Pakistan’s exports under the scenario where NATO cargo comes to Afghanistan, and by 2010 Afghanistan to an end and there is a reduction in formal was Pakistan’s third largest export market, trade (if any) this population is poised to slip accounting for 7.9 per cent of the latter’s below the poverty line. total exports. This would have a direct impact on security. In a briefing paper for the Planning It is particularly dangerous to have a popu- Commission of Pakistan, Ahmed (2010) lation segment below the poverty line in a notes that Afghanistan had signed transit region that promotes and espouses militancy trade agreements not only with Pakistan but through madrassas1 (Hussain 2007) and has also with Uzbekistan, Iran, Turkmenistan, a history of militants challenging the author- and Tajikistan. However, Pakistan holds the ity of the state. A reduction in employment largest share (34 per cent) of transit imports levels in this region will imply more youth and exports. Other studies conducted by resorting to crime and other social evils. the World Bank, USAID, and PITAD focus on The remaining paper will include a brief issues that obstruct trade flows and suggest literature review, a look at trade and regional policies to overcome these obstructions. The cooperation efforts, methodology and data, main issues highlighted are a lack of reli- results and tables, and conclusion. able road or rail infrastructure, transportation bottlenecks, procedural inefficiencies, Brief Literature Review Pakistani businessmen’s lack of awareness There is hardly any research that looks at of the market potential in Afghanistan, and, the welfare implications of trade between last but not least, border tensions. Afghanistan and Pakistan. The studies con- There has been no research so far that ducted so far by the commerce ministries studies the impact of growth in trade, Art. 6, page 4 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa transportation, warehousing, and commu- anything conclusive will be reached (Xiangyu nication sectors (TTWC) on the economic et al. 2013). welfare of local populations in the Pakistani We believe that the Pakistani provinces provinces that border Afghanistan. However, studied in our analysis - Balochistan and studies show that Pakistan has suffered eco- Khyber Pakhtunkhwa - are prone to trade- nomically and socially as a result of the three related shocks in the event of any security million Afghan refugees that have entered disturbance in Afghanistan or closure of Pakistan over time (Rais 2009). Up until transit trade. It is important to bridge the 2013, estimates show that Pakistan had lost gap in the literature by assessing how much over US $ 90 billion in the ‘war against terror.’ these populations are dependent on these Moreover, civilian casualties were reported important sectors which in turn are reliant to be 51,000, with 11,000 in the year 2009 upon future political stability in Afghanistan. alone (Sultan et al. 2013). With already so much damage inflicted upon the two coun- Trade and Regional Cooperation tries it has been difficult to move forward Situation Analysis diplomatically. Cross-border raids and assas- Afghanistan is a landlocked country located sinations of senior officials have tainted any between central Asia and Europe. It has an efforts to pursue peace talks (Hussain 2011). area of 650,000 square kilometres and bor- With a four decade-long history of mis- ders Pakistan, Tajikistan, Iran, Turkmenistan, trust between the two neighbouring Muslim Uzbekistan, and China. According to the countries, Pakistan looked to the United World Population Review (2014), the popu- States to ensure a peaceful transition. That lation of Afghanistan by the end of 2013 too now seems to be a lost cause after the was estimated to be 30 million. Despite 2012 Chicago Summit, where President the fact that only 12 per cent of its land is Obama failed to recognize the harms suffered arable, more than 85 per cent of the Afghan by Pakistan during the decade-long war in population is dependent on agriculture Afghanistan. According to Lodhi (2012), the (Government of Afghanistan 2010). The Summit talks fortified the impression that country’s major crops include wheat cereal, the US is more interested in an exit plan than rice, barley, maize, fruits and nuts, and cot- lasting peace in the region. Furthermore, ton; livestock is also an integral part of the much to Pakistan’s dismay, the long-pend- economy. Afghanistan is a mineral-rich coun- ing Bilateral Security Agreement (BSA) was try with untapped natural resource deposits signed between Kabul and Washington in estimated to be worth US$ 1 trillion, accord- September 2014. ing to senior US government officials (Risen In recent months there has been a drastic 2010). Pakistan is Afghanistan’s single largest increase in terror attacks which have cer- trading partner, followed by Iran, China, and tainly caused alarms to sound in Pakistan India. Recently, imports from Kazakhstan and the rest of the region. The situation in have increased substantially, rising from Afghanistan is evolving quickly. The Afghan around half a billion USD in 2008 to 3.2 bil- National Army (ANA) is unprepared to com- lion USD (Parto et al. 2012). bat the insurgents alone which leads to the Pakistan, situated to the east of question: is Afghanistan headed towards Afghanistan, has an area of 796,000 square another civil war? If so, the increased influx kilometres. It borders Iran, Afghanistan, of refugees to Pakistan poses a great threat China, India, and the Arabian Sea. According to the economy of this region (Iqbal 2011). to the UNDP (2013), Pakistan is the sixth Repeated efforts have been made to initiate most populous country of the world with a peace talks between Kabul and the Taliban to population exceeding 180 million people. ensure a smooth transition after the NATO Pakistan, once a predominately agricultural drawdown, but there is little hope that economy, is now semi-industrialized with Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 5 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa growth centres located along the Indus river. strict adherence to the principles of United However, the principle economic sector Nations charter, were to promote the wel- continues to be agriculture, which employs fare of the people of South Asia, accelerate the largest share of the labour force. Major economic growth, enhance mutual trust crops include wheat, cotton, rice, vegeta- amongst the concerned nations, and extend bles, and fruit. The largest manufacturing assistance in social and economic fields. It sector in Pakistan is the textile industry was agreed that the principles of this asso- which has also generated huge employment ciation would be consistent with already opportunities for skilled and unskilled existing bilateral or multilateral agreements. labour. Pakistan’s top five trading partners Furthermore, this association was not to be are the United States, China, the United mistaken as a substitute for bilateral or mul- Arab Emirates, Afghanistan, and the United tilateral cooperation but as a complement to Kingdom (Government of Pakistan 2012). them. Annual meetings of the member states were also envisaged by the charter. Trade Agreements In 2004, at the 12th SAARC summit in Afghanistan Transit Trade Agreement (ATTA) Pakistan, the South Asian Free Trade Area Since the inception of the country of (SAFTA) agreement (SAARC 2004) was signed Pakistan there have been many bilateral by all member states. This agreement cre- and multilateral trade agreements signed ated a free trade area for the entire region, with neighbouring Afghanistan to facili- home to 1.6 billion people at the time. The tate and promote direct trade and transit aim was to reduce customs duties to zero by trade. The earliest, the Afghanistan Transit the year 2016. A working plan for SAFTA was Trade Agreement (ATTA), was signed in 1965 also discussed according to which the devel- between the governments of Pakistan and oping countries - i.e. India, Pakistan, and Sri Afghanistan (Government of Pakistan 1965). Lanka - were to bring their duties down to The first article of this agreement guaranteed 20 per cent in two years. Under-developed the freedom of transit trade to both coun- countries - i.e. Bhutan, Bangladesh, Nepal, tries. ‘Traffic in transit trade’ was also defined and Maldives - had an additional three years under this agreement. The transit routes to do the same. were identified as Peshawar-Torkham and In 2005, before the implementation Chaman-Spin Boldak, with a provision to add of SAFTA, Afghanistan also applied to future trade corridors. Both countries also join SAARC. In 2007, after much delib- agreed upon the development of the Kabul- eration among the SAARC member states, Torkham-Peshawar trade route with a railway Afghanistan was welcomed as the 8th mem- line extension. It was also agreed that liaison ber. SAFTA was ratified in 2009 by India and officers would be appointed in each country Pakistan and in May 2011 by Afghanistan. for efficient communication and planning to further facilitate trade. Officials from the two Pak-Afghan Joint Economic Commission countries would meet on an annual basis to In 1992 Afghanistan and Pakistan established review the working of the agreement (Swan the Pak-Afghan Joint Economic Commission et al. 1993). (JEC) to promote trade, deliberate on issues related to bilateral and transit trade, and South Asian Association for Regional Cooperation strengthen their economic relationship. The (SAARC) JEC meetings have been held alternatively in Pakistan, along with Bangladesh, Bhutan, Kabul and Islamabad. India, Maldives, Nepal, and Sri Lanka, signed The 8th meeting of the JEC was held in the charter of South Asian Association for January 2012 in Islamabad. The delegations Regional Cooperation (SAARC) in 1985. The from both countries were led by their respec- main objectives of this charter, drafted with tive finance ministers. During the meeting Art. 6, page 6 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa the delegates discussed the implementa- an additional transit-trade corridor through tion status of decisions taken at the previ- Bannu-GhulamKhan-Khost could also be ous JEC meeting and developed further on examined whereas the Sherkhan-Ninjpayan cooperation in areas of economics and trade. route, originally identified as the CAREC Problems faced by Afghan and Pakistani trad- corridor, would potentially be used as a ers put forth at the previous meeting were road link connecting Pakistan, Afghanistan, duly addressed and solutions were imple- and Tajikistan. The railway link connecting mented. Amongst those solutions were the Peshawar and Jalalabad was approved by the Web Based One Customs System (WeBOC) government of Pakistan, with construction (used to exchange information to facilitate set to begin in June 2014. It was mutually transit trade), insurance guarantees by the agreed that the progress of the TAPI pro- customs security,2 and permission for non- ject was on schedule. However, immediate containerized carriage of vehicles to be used resolutions were demanded on CASA-1000 by Afghan traders. Through the introduc- and the Joint Hydro Power Project on the tion of the new transit system at Torkham, Kunar River so that feasibility reports could Pakistani traders would no longer be required be presented to the Board of Directors at to acquire transit permits from the Afghan the World Bank for approval in March 2014 authorities. The ban on timber imports from (MoC 2014). Afghanistan was also lifted (MoC 2012). The 9th JEC meeting was held in Kabul from Central Asia Regional Economic Cooperation 22–24 February 2014. The agenda points (CAREC) were categorized by theme, including Trade In 1997 the Central Asia Regional Economic & Commerce, Reconstruction Activities in Cooperation (CAREC) Program was initiated Afghanistan, Water & Energy, and Industry & with the aim of increasing trade and coop- Agriculture. The Afghan authorities simpli- eration between the People’s Republic of fied the visa process for Pakistanis working China, Kazakhstan, the Kyrgyz Republic, and in Afghanistan to address issues raised by Uzbekistan. The program was principally sup- Pakistan at the previous JEC meeting. Despite ported by the Asian Development Bank (ADB). financial constraints, Pakistan increased lev- The European Bank for Reconstruction and els of investment in development projects Development, the International Monetary from US $ 385 million to US $ 500 million. Fund, the Islamic Development Bank, the An increase in the number of students to be United Nations Development Program, and admitted to an already implemented schol- the World Bank are also partners on the arship program (from 2,000 to 3,000) was in program. The objective was to integrate the the approval process. Moreover, disciplines economies of these Eurasian countries to covered by the scholarship program would facilitate rapid growth. Under the theme now also include applied sciences in addi- of ‘Good Neighbours, Good Partners, Good tion to social and natural sciences. The final Prospects’ the CAREC program aims to version of the Electronic Data Interchange reduce poverty and reach higher levels of (EDI) was approved to be launched in March economic growth by building on their neigh- 2014. After a re-evaluation of the cost of the bours’ strengths rather than working in isola- Torkham-Jalalabad Additional Carriage Way tion. In 2005 Afghanistan became a member (ACW) project it was agreed to resume work of CAREC; five years later, in 2010, Pakistan by June 2014 and finish it before the end also joined. To date, CAREC has ten member of 2015. For the motorway project between countries, namely Afghanistan, Azerbaijan, Peshawar and Kabul a team of consultants People’s Republic of China, Kazakhstan, were to share their report on the project by Kyrgyz Republic, Mongolia, Pakistan, March 2014. Before the next JEC meeting Tajikistan, Turkmenistan, and Uzbekistan. Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 7 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa

A strategic framework for CAREC-2020 - practicality of exporting 1000 MW of elec- endorsed in 2011 - was an enhancement of tricity from Central Asia to South Asia. The the earlier Comprehensive Action Plan (CAP), following year, in 2010, a techno-economic which defined priorities of cooperation in the feasibility report was added to the initial areas of transport, trade policy, trade facilita- report to take into consideration environmen- tion, and energy cooperation. The following tal and social costs. After much deliberation year the implementation of the CAREC-2020 by the Inter-Governmental Council (IGC), the strategic framework was endorsed under the Islamic Development Bank, the World Bank, Wuhan Action Plan. and the four concerned countries, the report Priority projects in the transportation sector was finalised in February 2011. The updated in Afghanistan under CAREC-2020 include report prepared by SNC Lavalin International the construction of the Shirkhan Bandar- (2011) predicts an annual summer surplus Kunduz-Kholam-Naibabad-Andkhoy-Heart of 3.75 TWh in Tajikistan and 2.15 TWh in railway line and the Bala Murgab-Leman road. Kyrgyzstan by the year 2016. In September In Pakistan prioritized projects include the 2011 a memorandum of understanding was reconstruction of a number of expressways signed in Bishkek, Kyrgyz Republic, binding and the construction of a new motorway the Central Asian states of Kyrgyz Republic connecting Karachi, Hub Dureji, and Sehwan and Tajikistan to supply surplus energy to (CAREC 2012). There are a total of 108 invest�- Afghanistan and Pakistan. The proposed ment projects under the Transport and Trade route to transport the surplus energy would Facilitation Strategy Implementation Action run from Datka (Kyrgyzstan) to Peshawar Plan projected to cost US $ 38.8 billion. The (Pakistan), passing through Khoudjand and rail link connecting Afghanistan to Uzbekistan Sangtuda (Tajikistan), then Salang Pass and was set to be completed by the end of 2014. Kabul (Afghanistan). This project is estimated Future planned links would connect Pakistan, to cost roughly US $ 950 million. The long Tajikistan, and Turkmenistan. term objective is to supply clean hydropower The Wuhan Action Plan calls for energy from Central Asian countries to South Asian cooperation in the region, exploring inter- countries during summers, a period during connecting options along the Central Asia- which the latter countries face chronic elec- South Asia Energy corridor. The plan also tricity shortages. In January 2014 the four calls for a design of regulatory framework member states met in Almaty to discuss for energy trade as well as a push to shift to project financing at length. Tajikistan and renewable energy. Kyrgyzstan briefed the Joint Working Group (JWG) to discuss progress made in reducing the Central Asia South Asia (CASA - 1000) financing gap; the delegation from Pakistan The Central Asia South Asia Regional Electri stressed its desire to expedite this process. city Market (CASAREM), popularly known At the last meeting, held in Washington, the as CASA-1000, is an agreement between National Transmission Companies (NTCs) of Afghanistan, Kyrgyz Republic, Pakistan, and the respective countries resolved to resolve Tajikistan. In 2004 a report submitted to the Power Purchase Agreement (PPA) issues by World Bank (Markandya et al. 2004) noted the end of March 2014; tariff structures were that South Asia (Afghanistan and Pakistan in eventually agreed upon in December 2014 particular) contained the largest markets for and financing has been approved. electricity exported from Central Asia (Kyrgyz Republic and Tajikistan). In 2008–09, before Afghanistan Pakistan Transit Trade Agreement CASA-1000 was inked, an initial feasibility In October 2010 the commerce ministers of report was prepared, financed by the Asian Afghanistan and Pakistan, Dr Anwar ul Haq Development Bank. The report analysed the and Makhdoom Amin Fahim respectively, Art. 6, page 8 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa signed the Afghanistan Pakistan Transit and henceforth be recognized by both countries. Trade Agreement (APTTA) in Kabul (MoC Special offices will be set up to respond to 2010). The agreement came into force on questions and concerns from nationals of 12 June 2011. Under this agreement Afghan either country regarding this issue. trucks were allowed to transport Afghan All duties were annulled for goods in tran- products destined for the (immense) markets sit. The only fees will include charges incurred of India and China (as well as the rest of the when scanning and weighing goods as well as world) to the Karachi seaports of Port Qasim tolls for bridges, tunnels, roads, and parking. and Gwadar. APTTA replaced the earlier The rate charged for the goods in transit will ATTA agreement (signed in 1965) following be non-discriminatory and reasonable. repeated concerns raised by Pakistan over its A coordination authority known as misuse. According to APTTA, the sole entry the Afghanistan Pakistan Transit Trade point for Afghan trade cargo into Pakistan Coordination Authority (APTTCA) made up was Port Qasim in Karachi. The exit points of government officials and private sector were Torkhum (North West Frontier Province stakeholders from both countries will over- [NWFP] since re-named Khyber Pakhtunkhwa see the implementation of the agreement. [KP]) and Chaman (Balochistan province). In the event of any disputes arising, a panel APTTA was intended to make it easier and consisting of members from the two coun- cheaper for Afghan goods to reach foreign tries and a neutral third country will examine markets. This agreement allowed Afghan the case and implement a solution. The deci- goods access to two of the world’s largest sion will be final and binding. markets: India and China, with populations APTTA encourages economic growth for of 1.1 billion and 1.2 billion respectively. both countries by building stronger com- APTTA is expected to increase Afghanistan’s mercial relationships between Afghanistan exports and reduce delays at borders, thereby and Pakistan. It also strengthens economic making Afghan products more competitive, ties and ensures the smooth and efficient attractive, and affordable abroad. Customs movement of goods through both countries practices in place at the borders will be and across the region. modernized and simplified. Additionally, This agreement makes the South Asian Free Pakistani exports will have easier access to Trade Agreement (SAFTA) easier and cheaper Central Asian and European markets. As a to implement. SAFTA will lower tariffs for consequence, the service sectors of both Afghan goods across the region. APTTA will countries should experience a boom, increas- also contribute to greater regional security as ing employment levels. Afghanistan and Pakistan work together for APTTA guarantees freedom of transit mutual economic growth and prosperity. between Afghanistan and Pakistan. Along the approved corridors, Afghan trucks are Pak-Afghan Joint Chamber of Commerce & allowed to transit into Pakistan. In addi- Industry tion, Afghans have the freedom to choose The first Board meeting of the Joint Chamber their type of vehicle as long as they remain was held in Karachi on 13 March 2012. During on specified routes within specified times. the meeting Zubair Motiwala from Pakistan Furthermore, port and rail fees will be the was unanimously elected as President of the same for national and international vehicles Chamber while Khan Jan Alkozai was elected without discrimination. Freight forwarders as Co-President. and transport operators are now at liberty to establish businesses in Pakistan to facilitate Methodology and Data transit trade activities. This study employs three different meth- Drivers’ licenses and vehicle documents ods, both quantitative and qualitative, to issued in Pakistan or Afghanistan will assess the impact of post-2014 Afghanistan Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 9 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa

Trader

Manufacturer Literature Review

Government Qualitative Analysis

Focus Group Stakeholders & Discussion Experts

Economic Think Tanks

Compare Interpret

Security Time-Series Data from Analysts TTWC

Quantitative Analysis

Media Household Income Expenditure Survey

Figure 2: Methodological Framework. on Pakistan, as shown in Figure 2. Firstly, analysis of HIES data will specifically address we use the Household Income Expenditure the following three questions: Survey (HIES) from Pakistan for the years 2004–05 and 2010–11 to form a descriptive 1. Has employment during the period analysis of the welfare of households asso- 2004–11 grown faster for the lowest ciated with TTWC sectors. Secondly, using quintiles? the same data set, we form a time series 2. Have the real incomes in TTWC sec- econometric relationship between house- tors increased more vis-à-vis non trade hold income and its determinants. Lastly, sectors in Khyber Pakhtunkhwa and two focus group discussions with govern- Balochistan? ment officials, security analysts, economic 3. Do households associated with TTWC think tanks, journalists, producers, and sectors have higher mean incomes traders helped form the qualitative part of as compared to households that are this study. not associated with TTWC sectors in In order to assess the impact of TTWC sec- Khyber Pakhtunkhwa and Balochistan? tors on the local population we use HIES data from Pakistan for the years 2004–05 Two focus group discussions were conducted and 2010–11. We limit our analysis to to gain an understanding into possible eco- Khyber Pakhtunkhwa and Balochistan. We nomic and security risks for Pakistan in the have compared population numbers, house- post-2014 Afghanistan milieu. The first hold characteristics, and welfare indicators group - which focused on economic impacts of respondents associated with trade, trans- - was composed of representatives from the port, warehousing, and communication sec- Ministry of Commerce, economic think tanks tors (TTWC) in both years. Our descriptive who have worked closely on issues related to Art. 6, page 10 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa

Variables Khyber Pakhtunkhwa Balochistan 2004-05 2010-11 2004-05 2010-11 Households in trade, transport, warehousing, and communication (TTWC) sectors 586 2,287 456 2,557 Sample population dependent on TTWC3 3,926 15,094 2,873 15,853 Actual number of households the sample represents in TTWC 209,286 737,742 130,286 639,250 Actual population the sample represents (TTWC) 981,550 2,515,700 718,200 1,761,489 Monthly per capita consumption (food) 1133 2731 1236 2566 Key Agriculture, forestry & Fishing 630 2714 746 4682 sources of occupation Social and Personal Service/ 455 727 403 890 (no. of Education HHs) Wholesale & Retail trade 435 1310 300 1449 Construction 213 1357 130 1208 Land Transport 151 720 156 864

Mean years of schooling 8.6 9.14 8.6 8.76 Infant mortality rate 81 72 81 72

Table 2: Salient features of Households (HHs) in Khyber Pakhtunkhwa and Balochistan. Source: WDI and authors own calculations from HIES 2004-05 and 2010-11.

Afghanistan-Pakistan relations, traders and substantially during this period: 290 per cent producers who have been trading actively with in Khyber Pakhtunkhwa and 460 per cent in Afghanistan, senior journalists, and chamber Balochistan. In both provinces monthly per of commerce members. The second group capita consumption by households associ- focused on security risks for Pakistan and ated with these sectors doubled. We also note was composed of security analysts (including that employment levels in TTWC sectors are retired army generals), senior journalists, and very near to the traditional agriculture and members of economic think tanks. The find- service sectors in these two provinces. Both ings of these sessions were then processed regions lack industrial infrastructure and using a qualitative analysis tool called NVIVO. therefore manufacturing activity is less prominent here than in other parts of Pakistan. Results and Tables We also note in Table 3 that the per capita Quantification of Welfare Impacts incomes across both provinces neighbour- Household Characteristics ing Afghanistan increased in both nominal In Table 2 we compare employment levels and real terms. More important is to note in TTWC sectors for Khyber Pakhtunkhwa that non-trade incomes remained lower than and Balochistan between the years 2004–05 incomes associated with the trade sector. and 2010–11. Other prominent characteristics of these households are also provided. Poverty reducing impact of trade A cursory look at these descriptive statis- We understand that growth in TTWC sec- tics reveals that the number of households tors will only impact the poor favourably if associated with TTWC sectors has grown there is job creation for the lowest income Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 11 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa

Variables 2004-05 2010-11 HHs in survey dependent on TTWC 1042 4844 Actual HHs dependent on TTWC 315,757 1,670,344 Mean per capita income in TTWC (nominal) PKR 5998 PKR 11,711

Mean per capita income in TTWC (real) PKR 5552 PKR 5685

Mean per capita income in non-TTWC (nominal) PKR 5472 PKR 10824 Mean per capita income in non-TTWC (real) PKR 5065 PKR 5254

Table 3: Employment and Incomes in Balochistan and Khyber Pakhtunkhwa. Source: Author calculation from HIES 2004-5 and 2010-11.

Income Quintiles 1st 2nd 3rd 4th 5th 2004 73 31 51 72 92 2011 516 402 313 164 340 Change in Employment (no.) +443 +371 +262 +92 +248

Table 4: Household distribution in TTWC Sector in Khyber Pakhtunkhwa. Source: SDPI calculations from HIES.

Income Quintiles 1st 2nd 3rd 4th 5th 2004 59 71 43 3 107 2011 611 441 305 348 403 Change in Employment (no.) +552 +370 +262 +345 +296

Table 5: Household distribution in TTWC Sector in Balochistan. Source: SDPI calculations from HIES. quintiles. We see in Tables 4 and 5 that this ‘Post-Conflict Needs Assessment’ explains is precisely the case. The highest increase in that terrorism-related threats have brought employment is seen in the 1st and 2nd income several industries to a complete standstill. quintiles (poorest segments). These increased Furthermore, several manufacturing and employment levels in the poorest quintiles processing industries, including mining, are are seen for both Khyber Pakhtunkhwa and now operating at less than 10 per cent of pre- Balochistan provinces. We should also note conflict levels. here that these calculations do not accurately More worrying is that agriculture and represent employment in the informal sector livestock, traditionally a principle source of in TTWC, which has also grown immensely as livelihood for the local population in these a result of the formal sector’s growth. two provinces, are now vulnerable to conflict There is evidence that while the TTWC and local political instability (Pasha 2013). sector has expanded in both conflict-ridden Despite several investment exhibitions in provinces (disproportionately benefiting various parts of Pakistan, domestic investors poor households), substantial contraction are not inclined to invest in agriculture and has been seen in manufacturing activity. The livestock processing in Khyber Pakhtunkhwa Asian Development Report of 2010 entitled and Balochistan. Art. 6, page 12 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa

Figure 3: Regression Results for 2004-05.

Regression results the household own a motorcycle, tv refers to Our aim in this section is to see the role access to information which is a binary vari- of the TTWC sector in overall household able that is 1 if the household own a tv, npers level incomes in Balochistan and Khyber is the number of person in the household, Pakhtunkhwa. While the log of household httwc is a binary variable which is 1 if the incomes is the dependent variable, our household’s income is generated from trade independent variables include household- or trade-related services (TTWC), and urban is level characteristics such as education, age, a binary variable which is 1 if the household region, access to information, assets owned is located in the urban area. by the household, number of persons in a The Ordinary Least Square (OLS) estimates household, and whether the household is for both years are shown in Figure 3 and 4. associated with TTWC sectors. The regression We can observe that in both provinces and equation is as follows: for both time periods overall household incomes are positively and significantly ˆˆ2 ˆ lnY=+ abˆ 12 age + b age + b 3 education impacted if the households belong to occu- ˆˆ ˆ pational sectors under TTWC. ++bb45telephone motorcycle + b 6 tv ˆˆˆ ++++bbbe777npers httwc urban t Perceptions on Economic & Security Risks (5.2.1) The data from the two focus group discussions on economic and security implications Where Y is the cumulative income of the were analysed using NVIVO software. The household, age refers to the age of the head frequency of the word ‘India’ yielded major of the household, education is the number of concerns about the role of India in the region years of education the head of the household after the exit of ISAF. As seen in Figure 5 has completed, telephone is a binary variable below, the trader community, which has which is 1 if the household owns a telephone, good relations with the Afghan locals and motorcycle is a binary variable which is 1 if their markets, were most concerned about Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 13 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa

Figure 4: Regression Results for year 2010-11.

Figure 5: Economic Implications Post-2014. the role of India. As a member of the trader Pakistani manufacturing and economic think community commented: tanks were moderately concerned about competition from India penetrating Afghan … interest was observed when the markets. One of the participants said, ‘We Indian government facilitated the have a comparative advantage over India due correspondence of tender agree- to logistics.’ The government and the media ments between Indian companies did not consider India to be a threat to the and Afghanistan’s government. Pakistani economy. Even though Iran has Art. 6, page 14 of 16 Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa

Figure 6: Security Implications Post-2014. taken a major share of Pakistan’s cement and representatives did not participate during steel exports to Afghanistan, the Pakistani the security discussion. government discarded any claims that this change has or will have an effect on the Conclusion country’s economy: This paper establishes two key conclusions. NATO cargo and commercial trade with Steel and cement demand has already Afghanistan is important for the large por- been reduced. The trade route has tion of Pakistan’s population employed in also been diverted through Iran. But the trade, transport, warehousing, and com- where is the major impact? munication sectors. During the period 2004– 2011 employment in Balochistan and Khyber The security analysts unequivocally expressed Pakhtunkhwa provinces increased in TTWC their concerns over Indian involvement in sectors. This increase in employment was par- the peace of the region post-2014 as shown ticularly significant in the poorest quintiles. in Figure 6. One of the discussants said, ‘The During the same period real incomes in Indians ignore Pakistan. The economies of TTWC sectors increased more vis-à-vis non- India and Pakistan are completely different. trade sectors in Khyber Pakhtunkhwa and India has a much bigger purse.’ On inquir- Balochistan. We also know from the second- ing about the interests of the Pakistani army ary literature that the trade sector in these regarding trade with India the security analyst provinces has a higher mean income vis-à-vis remarked that ‘The army is on board to trade non-trade sectors. Similarly, the income gap with India. You cannot go on forever isolating between trade and non-trade sector widened yourself from the region.’ Representatives in favour of trade sectors. from the media were the only other partici- Afghan refugees sheltered in Pakistan cur- pants to append to the concerns of the secu- rently number well above three million and rity analysts. A media representative urged, ‘A this number was expected to rise signifi- national decision is required about India and cantly following Pakistan military operations Pakistan on whether we should proceed with in North Waziristan in June 2014 and the exit bilateral or trilateral relations. How far is it of ISAF from Afghanistan in 2015. important for us to sell the argument that Change of governments in Afghanistan, western unrest affects relations with India?’ India, Iran, and Pakistan provide a renewed The producers and economic think tanks opportunity to revive diplomatic negotiations Shabbir and Ahmed: Welfare Impacts of Afghan Trade on the Pakistani Art. 6, page 15 of 16 Provinces of Balochistan and Khyber Pakhtunkhwa after a long period of stagnation. The employ- CAREC 2012 Implementing CAREC 2020 ment vacuum that will likely form in Khyber Strategic Framework: Wuhan Action Plan. Pakhtunkhwa and Balochistan after the NATO Wuhan. drawdown could be filled by increased transit Government of Afghanistan 2010 Afghan- trade to Afghanistan from India. Pakistan as a istan Statistical Yearbook 2009–10. 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How to cite this article: Shabbir, S and Ahmed, V 2015 Welfare Impacts of Afghan Trade on the Pakistani Provinces of Balochistan and Khyber Pakhtunkhwa. Stability: International Journal of Security & Development, 4(1): 6, pp. 1-16, DOI: http://dx.doi.org/10.5334/sta.et

Published: 17 February 2015

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