Afghanistan: Show Me The Money!

Afghanistan: Show Me The Money!

Sushant Sareen

Capturing Afghanistan was the easy part; running Afghanistan is the more difficult and complicated part, especially on empty. A week after having occupied Kabul and almost the entire country, the Taliban are only just starting to find out that running an insurgency and administering a country is not quite the same thing. 

Afghanistan is nothing if not a wicked problem. But far from solving this problem, even managing it will be ‘Mission Impossible’ for the Taliban who possess a mindset from the 6^th Century, a toolkit from the Middle Ages, a skill set that belongs to an era in which ‘maal-i-ghanimat’ (spoils of war) was the way to garner resources to run the state.

No doubt, the Taliban have a formidable public relations machinery, which is cutting edge 21^st Century in spinning stories and holding press conferences that wow even the skeptics. But it can only go so far if the coffers are empty, anybody with any qualification is voting with their feet, the rest of the world is starting to shut doors on the ‘Emirate’ and the only people unequivocally celebrating your power grab are either fanatical Islamists or Pakistanis, neither of whom are in a position to finance the state.

Apart from all the administrative, political, foreign policy, security, governance, organisational and other challenges that the Emirate will face, its biggest headache will be economic. To put it simply, where is the money to run the Emirate?

Already the banking system is on the verge of collapse. The foreign exchange reserves have been frozen, as has been the assistance being given to Afghanistan by multilateral financial institutions. The Afghani is in a state of meltdown – according to a foreign journalist one US Dollar is now getting you 8600 Afghanis (it was 86 a week back!).

Foreign trade which is critical for the country has been severely disrupted. Investor confidence is non-existent. The aid money that was needed to run the state and provide services has been blocked. Investor confidence is non-existent. Businessmen and entrepreneurs are looking for the first opportunity to flee the country. Educated and talented people likewise. There is no money to pay salaries. Nor any money to provide civic services in big cities. And this is just the start.

Some people can argue that this is a passing phase and once things settle down, and a new government and governance structure and system is in place, normalcy will return. Good luck with that, because such optimism doesn’t have much backing it except for some pie in the sky dreams, or delusions. The simple fact of the matter is that Afghanistan is financially not a viable state.

For centuries, it is a state that has survived, and at times thrived, on what is best described as a war economy. The non-war stuff Afghanistan produces and exports is not enough to sustain an economy of around 40 million people. If Afghanistan was a primitive, subsistence economy, it might still be able to manage a very low-level equilibrium. But in the last 20 years, the billions of dollars spent in Afghanistan has transformed the country. It is no longer in the stone age, which it was in 2001. But the economy that came up in the last two decades was critically dependent on Western aid.

The revenue generated by the Afghan state was only enough to cater for around 20% of its budget, mostly from customs collections. The rest of the money came from Western countries – around $4-5 billion. Another around $3-4 billion came for the Afghan National Defence and Security Forces (ANDSF) which no longer exists, unless someone now considers the Haqqani Network, elements of Al Qaeda, Jaish, TTP, ETIM, etc. as the new ANDSF. Even if the money for the ANDSF is taken out of the equation, where will the rest of the $4-5 billion come from? Even the $2 billion of customs revenue is likely to fall quite precipitously because of the banking collapse and disruption in operations of international payments mechanisms.

The Taliban revenue stream from narcotics, extortion, smuggling and other illegal activities was an estimated $1-1.5 billion. But these activities are fine to fund terrorism and insurgency, not to run a country. Unless the Taliban model is to become a Jihadist-Narco state – let’s not rule it out completely – it will have to at least pretend to be a normal state. Because if it continues to follow the Jihadist-Narco model then there will be serious repercussions in the entire neighbourhood which will seal the borders with Afghanistan, making the economic crisis worse. More importantly, it will bring the grand plans that were behind the colonisation of Afghanistan come crashing down.

Hence the question: who will fund the Emirate? Pakistan is bankrupt and can only impose war on Afghanistan, not fund its government. The Chinese don’t give such grants to governments to manage their budgets. Nor do the Russians or Iranians.

For now, the expectation of the new colonial masters of Afghanistan (read Pakistan) is that given the astounding level of wokeness and obtuseness in the American establishment, it won’t take much to convince them to keep funding the Emirate. They will be sold the old blackmail: if you don’t incentivise the Taliban by giving them money, they will not change. Any number of Western, particularly American and British analysts, are already making this argument using the usual trope of ‘humanitarian crisis’ to plug their line.

Add to this the other line that will be sold: if the West gives money, it will be able to develop leverages and influence; but if it blocks all aid, it will have no presence, no influence, nothing.

Both these lines of argument have flopped spectacularly in the past. Worse, they betray an astounding ignorance of what the Taliban stand for, their ideological commitment, their antediluvian worldview that cannot countenance anyone who doesn’t subscribe to what they believe in. And yet, there are any number of Ivy League-educated ‘useful idiots’ who will lap up this argument. Because the West, especially the US has a death wish, they might reopen the aid tap to the Taliban. But what this will do is that it will prop up the Emirate only so that the Pakistanis and Chinese can reap on the cheap whatever benefit they hope to reap in Afghanistan. This is exactly the model adopted in Pakistan: the US and the West have funded the Pakistani state which is beholden to China and has shafted the Americans. 

Apart from the Western aid, there is a lot of talk on the Chinese coming in a big way to invest in Afghanistan, especially in the mining sector. It is being said that Afghanistan is a Saudi Arabia of gold, copper, iron ore and rare earth, all of which the Chinese are eyeing. The Pakistanis will ensure stability, the Chinese will invest and exploit the mineral riches. Both Iron Brothers will throw some crumbs – royalties etc. – to the Afghans and laugh their way to the bank.

The Pakistanis also believe that the Emirate will be the missing piece in the puzzle for not only reviving CPEC but also becoming the trade and transit hub for Central Asian states through Afghanistan. The Afghans will once again get some crumbs in the form of transit fees – the old rahdari tax – that the Afghan state traditionally depended upon when it didn’t have an empire.

But all these calculations are iffy. For instance, the mineral wealth of Afghanistan is basically based on a 1970s study. There is no recent geological study in recent years that bears out the estimates of mineral wealth. This is not to deny that there would be some deposits, but only to question whether these are rich enough for the Iron Brothers to get all excited.

The same mineral veins are also believed to be running in Balochistan, but in the last 30 years, there is nothing to show for it. Assuming these estimates are correct, even then what will come Afghanistan’s way? Apart from the prospect of what economists call Dutch Disease, there is the whole issue of Afghans resenting being short-changed. The Central Asian transit trade is also over-estimated. It might be useful to study trade patterns, direction and products of these countries before jumping to conclusions. Sheikh Chilli dreams do not make for good geo-economics, much less for good geo-politics and geo-strategy.

But even if all these geo-economic wet dreams come true, they won’t happen overnight. It will take a few years at the minimum for these investments to mature. Who will foot the bill for this transition period? And at what terms? Will the Taliban, who are hard-line Islamists, agree to pay interest on loans? Will the Chinese now take to Islamic Banking which is nothing but a sleight of hand in which interest is called profit, or will they stick to their guns?

Will Afghans take nicely to Chinese and Pakistanis treating their country like a playground, or a virtual colony? Will the West just roll over and play dead, swallowing its humiliation at the hand of Pakistan and the Taliban? Will the Taliban suddenly agree to sever all connections with their brothers in arms – the TTPs, al Qaeda, and other Islamist terror groups?

The bottom line is that there are just too many moving pieces in Afghanistan, and anyone being presumptuous about how the future will unfold is likely to get some very rude and unpleasant shocks.

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Author

Sushant Sareen is Senior Fellow, Observer Research Foundation and Consultant Editor, Chanakya Forum. He is an expert on Pakistan and Terrorism, his published works include Balochistan: Forgotten War, Forsaken People (2017), Corridor Calculus: China-Pakistan Economic Corridor & China’s Comprador model of investment in Pakistan (2016).