What will the Taliban do with a $ 22 billion economy?

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Bobby Gosh; Bloomberg

22 Aug 2021, 14:05

Last modification: Aug 22, 2021, 2:32 PM

Buyers in Kabul before the city fell to the Taliban. Photographer: SAJJAD HUSSAIN / AFP

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Buyers in Kabul before the city fell to the Taliban. Photographer: SAJJAD HUSSAIN / AFP

No sooner had the Taliban taken Kabul than questions began to be asked about how they were going to run the Afghan economy. Do insurgents-turned-leaders have the skills to run, say, a modern finance ministry and central bank? Will foreign donors entrust their aid to them? Can they do business with investors interested in the country’s mineral wealth?

Throughout their two decades in the desert, the Taliban have shown themselves capable of generating resources to sustain an insurgency, primarily through drug trafficking, illegal mining, and supporter donations overseas, but also from taxes and rents in areas under their control. In good years, the Taliban’s revenues amounted to over $ 1 billion.

But the Afghan budget is more than five times higher. The country’s gross domestic product, estimated at $ 22 billion, has nearly tripled since the Taliban was ousted from power in 2001. And the economy has been in poor health for several years, supported by foreign aid. According to World Bank calculations, three quarters of the government’s budget is funded by international donors, led by the United States

Running this economy has been a cohort of Afghan technocrats, many of whom were educated or trained in the West. Very few of them are expected to stay in the country, despite the Taliban’s promise of “amnesty” for all those who worked with the ousted government.

The most pressing economic challenge for new leaders is therefore a yawning skills gap in government ministries and departments. The Taliban will struggle to find ministers and administrators that donors and foreign investors can trust.

At present, new donors or investors are not inclined to trust the Taliban anyway. The Biden administration froze $ 9.5 billion in Afghan central bank assets and halted cash shipments to the country; European governments have suspended development aid; and the International Monetary Fund cut access to Afghanistan’s Special Drawing Rights.

Western governments, multilateral agencies and donors will impose strict conditions on resuming funding. Aid will be based on the Taliban preserving many of the freedoms – especially for women – introduced in their absence, and preventing the resurgence of terrorist groups such as Al Qaeda.

Western investors will be guided by their governments, taking into account economic sanctions. They will also be influenced by public perceptions: most American and European companies will be aware of the likely reaction at the national level against doing business, directly or otherwise, with the Taliban.

Could non-Western investors feel insensitive to such considerations? There has been speculation that China and Russia are keen to fill the void created by the US withdrawal. Beijing, in particular, is said to have an eye on Afghanistan’s mineral deposits, worth from $ 1 trillion to three times that.

Beijing and Moscow have many security concerns over Afghanistan that will prompt them to engage closely with any Taliban-led government in Kabul, but serious investment is a different matter altogether.

Chinese banks and companies are less averse to risk than their Western counterparts, but they tend to be wary of unstable economies. The experience of Venezuela, where Chinese loans have to be renewed just to avoid huge write-downs, is a cautionary tale for investors.

Although Beijing has been talking wisely about investing in Afghanistan for the past few years, very little money has materialized. The flagship Chinese company, a $ 2.8 billion copper project funded by the state-owned Metallurgical Corporation of China in Mes Aynak, near Kabul, has long been stalled.

The infrastructure needs to extract Afghanistan’s mineral wealth are enormous: the country is sorely lacking in transport networks, for example. Getting the minerals out of the ground and sending them to China would require more investment than the Mes Aynak project. Chinese investors have other, safer places to deposit this kind of money.

The Taliban may covet Chinese aid, but they will have to compete with governments in the developing world, especially in Africa. For its part, Russia is far from being the most generous aid donor, far behind the richest countries in the world in terms of disbursement of development aid.


Bobby gosh is a Bloomberg Opinion columnist. He writes on foreign affairs, with particular emphasis on the Middle East and Africa.


Disclaimer: This article first appeared on Bloomberg and is published by a Special Syndication Agreement


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