Afghanistan Pakistan Trade Portal

    Pak-Afghan Trade and Economic Potential

    With the signing of peace deal between US and the Afghan Taliban in Doha, a long war waged by the US in Afghanistan is likely to come to an end. This is great news for the people of Afghanistan who have borne the suffering and wreckage of the devastating war for two decades. It’s a high time for Pakistan to deepen its business to business ties with Afghanistan and become an ally in development and prosperity of Afghanistan and the region. In order to enable such a change, innovative and reformative thinking is needed in bilateral economic and industrial cooperation, trade and transit facilitation and liberalization, governance and compliance.

    Pakistan and Afghanistan have always been close trading partners as Pakistan has consistently been the top export destination for Afghan products over the years. For Pakistan’s exports, Afghanistan has also been a lucrative market as in the years 2011 and 2012, Pakistan was the top exporting country to Afghanistan, but slipped to the third largest exporter position in 2018, by losing 8% of its market share. Key exports of Afghanistan to Pakistan include, inter alia, fresh grapes, coal, waste and scrap of iron or steel, cotton, natural steatite, tomatoes, kidney beans, tamarinds, apples, leguminous vegetables, marble, raw hides and others. The top imports of Afghanistan from Pakistan are sugar, medium oils, wheat and meslin flour, rice, cement, potatoes, vegetable fats and oils, wood articles, medicaments, milk and cream, lead and acid accumulators, house hold articles of plastics, tents, confectionary, paints and varnishes, food preparations and others.

    Over the years, Pakistan has lost most of its export share in both consumables like fruits, vegetables, grains (including wheat and rice) and other food items as well as the intermediate or construction related inputs like cement, iron and steel (tubes, pipes, hollow structures, profiles), plastics, chemicals and others. Afghanistan has diverted its import from Pakistan to mainly Iran, China, India and Central Asian Republics. Pakistan’s current export to Afghanistan is almost $1 billion lower than the peak year exports, and hence depicts an opportunity for Pakistan to re-gain their market share in the short term and further build on these gains in medium to long term.

    Similarly Afghanistan’s exports to Pakistan only constitute a paltry share i.e. 0.84% of Pakistan global import market. Keeping in view the size of Pakistani market with a population of 207 million possessing a strong tendency for consumption due to one of the biggest youth bulge in the world, a huge opportunity is present for the Afghan business enterprises. Moreover, Afghanistan should look to partner with Pakistan and share the gains from on-going China Pakistan Economic Corridor, Special Economic Zones (SEZs) and operationalization of Gwadar port.

    Export enhancement is the most central objective for both Pakistan and Afghanistan. Lack of exports is the main reason why Pakistan ends up with IMF program, every 3 to 5 years on average. Whereas, Afghanistan’s import to export ratio is dangerously high, at almost eight times larger than its exports for 2018. Both countries should form the necessary bilateral linkages and value chains to enhance their global exports.

    Another important aspect of Pak-Afghan relationship is the Pakistan Afghan Transit Trade which is governed by Afghan Pakistan Transit Trade Agreement (APTTA), 2010. APTTA is a comprehensive document which guarantees freedom of transit to both countries, as it allows Afghanistan access to Pakistan’s sea ports and Wagah for its exports to India and also allows Pakistan access to the Central Asian Republics. During the last fiscal year 2018-19, 125,000 containers transited through Pakistan carrying Afghan merchandise worth almost $5.5 billion. This is the highest ever number of Afghan containers passing through Pakistan. Despite a significant improvement in the dwell time over the years, transit trade has seen many highs and lows. The major point of contention between the two countries surrounding APTTA is the condition attached by the Afghan authorities to allow Pakistan access to Central Asia only if Afghan trucks are allowed access to India (Atari) and Indian access to Afghanistan through Pakistani land route. Other than these issues higher shipment costs due to lack of competition in the bonded carriers, exorbitant bank guarantee requirement from Pakistan and huge amount of smuggling of transited merchandise back into Pakistan are also key burning issues between the two countries.

    It appears that issues surrounding APPTA are hurting the trade and bilateral relations the most, and hence causing below optimal trade between the two countries. Now with the peace deal between US and Taliban, it can be hoped that both countries can brush aside their differences and work together to resolve outstanding issues.

    To move forward both countries must engage in constructive dialogue under the existing Economic Working Group and find innovative solutions to the problems and must move ahead with a more liberal and open minded economic approach. Pakistan has to take a lead role in this being an elder brother and must look to win Afghan hearts by announcing extra ordinary measures like announcing a ‘GSP plus’ type of scheme for Afghanistan to free export their goods to Pakistan. It may sound costly for Pakistan, but in fact it will help curb smuggling due to tariff rationalization and ultimately help Pakistan’s industry.

    Similarly, the governance issues must also be resolved amicably and the cost of doing business for traders from both countries must be lowered. To enable such a change it is pivotal that smooth functioning trade single window must be deployed between the two countries. To enable security and compliance the most modern risk management practices must be adopted.