Saturday, 30 July 2016

Will WTO membership help improve the economy of Afghanistan?

Precarious security situation and corruption are two of
the main impediments to economic growth in Afghanistan
Afghanistan, one of the poorest countries in the world, has joined the WTO. The country hopes greater access to global markets will lay the foundation for economic growth, but instability still poses major problems.
On Friday 29 of July 2016, Afghanistan became the 164th country to join the World Trade Organization (WTO). after its upper house of parliament passed a final handful of laws that were required as preconditions for membership. Afghanistan, one of the poorest countries in the world, first applied for WTO membership in 2004. It is rich in mineral resources such as copper, chromium and iron, and precious stones like lapis lazuli, but pervasive extremist violence in the country discourages investment. Afghan officials say the WTO membership will help their country "strengthen its rule of law, establish transparency and lay the foundations for healthy economic growth." "The World Trade Organization gives us the opportunity to bring reforms in the trade sector. It is also very important for business and transit," Siamuden Pasarly, director for public relations at the Afghanistan Chamber of Commerce and Industries, told DW. "We have many trade-related problems with our neighboring countries. Pakistan and Uzbekistan are both WTO members. Now, for example, we can put pressure on Pakistan to stop illegal activities regarding trade and transit through Afghanistan," Pasarly added.

Slugglish growth
But while the WTO membership is expected to confer benefits such as granting access to new markets and global supply chains, it is unclear how much Afghanistan would be able to benefit from the new opportunities. Rajiv Biswas, Asia-Pacific Chief Economist at global analytics firm IHS, says Afghanistan's export structure is dominated by agricultural products and some types of light manufacturing such as textiles and carpets, which may gain some benefits from lower tariffs and other non-tariff barriers as part of the WTO system. "Afghanistan has already been liberalizing its own tariff barriers as part of its WTO accession process, which has increased import competition in some segments of industry but allows consumers to benefit from lower prices," the economist told DW. After achieving remarkable growth over the past decade, the Afghan economy has floundered in the past three years as international investors and aid organizations have drastically scaled back operations following the withdrawal of most international troops. For instance, GDP growth shrunk to about two percent in 2014 after expanding at a nine percent rate just two years prior. Reflecting reduced investor confidence in the economy, foreign direct investment dropped by 30 percent in the first half of 2015, according to the Afghanistan Investment Support Agency. The economic shrinkage has been accompanied by spikes in unemployment and capital flight. It also dented the government's already weak tax revenues, leading to a fiscal crisis.
Deteriorating security situation
The economic hardship is in large part due to the continued political deadlock and worsening security situation in the conflict-ridden country. Experts believe that it is essential for Kabul to focus on improving the security situation in order to allow the country to benefit from the increased trading opportunities provided by joining the WTO. "Even if WTO membership opens up new markets and supply chains for Afghanistan, few will want to engage it on economic levels if the country is too unstable to sustain such transactions. The biggest issue therefore is security," said Michael Kugelman, South Asia expert at the Washington-based Woodrow Wilson Center. And then the government also has to tackle issues such as pervasive corruption, bureaucratic red tape and widespread inefficiencies that dissuade foreign investors, the analyst told DW.
'A value in itself'
But Alexey Yusupov, director of the Afghanistan office of the German foundation Friedrich-Ebert-Stiftung (FES), believes inclusion in regional and global economic and trade bodies such as the WTO is a value in itself for an isolated country like Afghanistan. However, Yusupov shares Kugelman's skepticism about the concrete benefits Afghanistan might draw from its WTO membership, as long as it remains one of the least-secure nations in the world. "I cannot see how the accession to the WTO will help Afghanistan attract more investments. The inhibiting factors are mostly security-centered, so the alleviation of tariffs and non-tariff barriers will not be a game-changer," the analyst said, adding that substantive investment projects like the Aynak and Hajigak mining concessions are not materializing anytime soon because of security impediments. Nevertheless, others say the biggest impact of a WTO membership will be on incentive structures. "Afghanistan will be expected to do certain things and fulfill certain conditions to ensure that it serves as a member in good stead," said Kugelman. "What this means is that in order to maintain its good standing in the WTO, Afghanistan's government would have a strong incentive to engage in liberalization reforms and crack down more robustly on corruption," the analyst explained. "In some ways, one could argue that Afghanistan's WTO accession is a case of putting the cart before the horse: trying to have Afghanistan join a prestigious economic club while its economy is still struggling to enjoy any semblance of sustained growth."
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