Afghanistan crumbling economy set to deteriorate further under Taliban rule

Published 17 Aug,2021 via Arab News - Economy LONDON - Amid increased political criticism of Washington’s withdrawal from Afghanistan, concerns are intensifying about the potential economic fallout of the decision.

A World Bank report earlier this year said Afghanistan is dependent on international aidm which is equivalent to 22 percent of gross national income. That support is set to be drastically reduced now the Taliban is in complete control of the country.

Decades of political instability and insecurity mean there is little private sector development. The country’s illegal economy, which includes opium production, smuggling, and illegal mining, accounts for a significant share of exports and employment. Fears persist Afghan opium production will now increase, resulting in cheap heroin flooding Europe’s streets.

Afghanistan has substantial mineral resources, estimated to be worth up to US$3 trillion, but its torrid political situation has impeded their exploitation. Along with copper, cobalt, oil and iron ore, the country also has vast quantities of lithium. Often referred to as “the new oil,” lithium is a key component in batteries for mobile devices and electric cars. In 2010, the Pentagon called Afghanistan “the Saudi Arabia of lithium.”

A report by the International Energy Agency in May forecast global demand for lithium will soar over the next 20 years, increasing by a multiple of 40 by 2040, as electric cars and cleaner energy businesses increase.

A Bloomberg New Energy Finance report last year revealed that China leads the world’s lithium battery supply chain market. US President Joe Biden’s decision to withdraw US forces is expected to lead to an increase in China’s influence in Afghanistan. Within hours of the Taliban arriving in Kabul, Beijing announced it wanted “friendly cooperation with Afghanistan.”

The prospect of China, which has a border with Afghanistan, further tightening its control of lithium deposits would prove a major setback for both the US and Europe. In 2019, the US imported 80 percent of its rare earth minerals from China, while Europe imported 98 percent.

However, while China has been quick to build diplomatic ties with the Taliban, Afghanistan’s poor infrastructure makes exploiting its lithium resources much harder than sourcing the mineral from other countries, such as Chile and Australia, and from within China itself.

Although global markets are currently focused on the wider impact of the delta variant of the coronavirus disease (COVID-19) and post-pandemic inflationary pressures, one of the world’s leading independent financial advisory groups has warned the Taliban’s control of Afghanistan could impact on global equities.

Nigel Green, chief executive and founder of deVere Group, said: “The major geopolitical turbulence triggered by the Taliban’s effective power grab will certainly be added to investors’ growing list of global issues to track as it could have longer-term implications for markets. There will be questions regarding stability in the Middle East, the global influence of the US and the mounting pressure on Biden, the prospect of increasing international terror threats, and the growing dominance of China’s renminbi.”

Meanwhile, the Taliban said on Tuesday that some women will be able to work and go to university. The announcement followed reports that Taliban gunmen had ordered women in Kandahar to stop working and stay at home. Female employment has risen sharply in recent years, with 22 percent of women over 15 in some form of employment.

Afghanistan is a young country — almost 66 percent of the population is under 25 — and thanks to the West’s intervention, it is increasingly educated. The loss of young women to the workforce could also impede its economic growth.

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