Leadership and Democracy LabWestern Social Science

Why Invest in AfPak in 2016?

Why AfPak in 2016? The investment question of the year

February 1, 2016

Ushah Qazi – Primary Article Contributor following AfPak

Nathan Sukhdeo – Team Leader following AfPak

Keywords: 2016, investment, economic cooperation, silk road, infrastructure, Afghanistan, Pakistan, AfPak

Violent clashes and security concerns in the AfPak region have hindered economic development in many aspects. However, there have been some promising developments of late, which suggest that 2016 could be an excellent time to invest in the regions.  Both countries have witnessed the peaceful transfer of power from one political party to another, which suggests a slow return to the stability necessary for investment. Directly or indirectly, economic growth in the region is linked to infrastructure. The region’s geographic location continues to be an important crossroads for potential trade routes and regional projects. Rich mineral reserves in the AfPak region provide ample incentive for investment into regional infrastructure.

The region’s geographic location has the potential to become a transit route to various thriving economies and trade roundabout, and any investment in AfPak’s infrastructure will surely reap long-term benefits for various economies. Afghanistan has the potential to connect Central Asia to South Asia and East Asia to West Asia, but years of conflict has contributed to the lack of infrastructure, which has hindered development. As of 2015 however, Afghanistan successfully held the sixth installment of the Regional Economic Cooperation Conference on Afghanistan (RECCA) in Kabul. RECCA focused on a list of continental infrastructural projects including the Silk Road Economic Belt led by China and The New Silk Road initiative by the United States. These developments suggest that the climate is friendly for foreign investment, which can help the country achieve its natural potential. Pakistan’s geographic position also has the potential to link prominent economies like China to new markets in Central and South Asia. The deep-sea port located at Gawadar in the Baluchistan province is a particularly important cornerstone in utilizing the region’s natural position as a transitory route into new and thriving markets. Foreign investment into AfPak’s infrastructure can open new trade routes and in doing so jumpstart economic growth.

Both Pakistan and Afghanistan suffer from an electricity crisis that is in part linked to weak infrastructural networks. Foreign investment in road networks can hence have economic benefits for various other aspects of the economies. Both Afghanistan and Pakistan face issues in power distribution, which has in many cases had crippling affects on business activity. As of 2012, only one in three Afghan’s had access to electricity. Lack of infrastructure has meant that many parts of the region continue to not have access to electricity and given the economic conditions in the region, foreign investment can greatly aid in this regard.

Investing in infrastructure will also allow ventures into the region’s rich mineral reserves. In 2010, the United States identified 1 trillion dollars worth of mineral reserves in Afghanistan, then in 2012, Exxon Mobil showed interest in the country’s oil reserves. Furthermore, Chinese projects to tap into Pakistani copper and gold reserves started in 2005. However years of conflict have meant that the infrastructure needed to venture into these reserves is missing. In Pakistan for example, the second biggest gold and copper reserves are situated in the sparsely populated province of Baluchistan, which consists of an arid landscape and lacks basic infrastructure. In Afghanistan, according to the US AID, decades of war destroyed much of the country’s little amounts of infrastructure. The region has the potential for successful mining projects, but without necessary investment in infrastructure developing such projects continues to be difficult. Foreign investment can aid the region in this and pave the way for successful mineral ventures. 

Finally and perhaps most importantly, infrastructural development will improve stability in the region, which in turn will encourage economic growth. A lacking infrastructure has meant that many parts of the region, and hence chunks of their respective population, have been isolated. This has been the case in the Federally Administered Tribal Areas (FATA) of Pakistan and villages on the outskirts of Afghanistan. Aside from cutting them off from basic needs such as electricity and sanitation, this also means that many people are vulnerable to radical fringe elements. Terrorism continues to be a major hindrance to economic growth, not just within Afghanistan and Pakistan but for neighboring countries and the international community as well In contrast, a strong, stable government has the potential to encourage economic development and growth. Foreign investment in the region’s infrastructure can potentially integrate the population within the countries, thereby strengthening regional government and ultimately aiding economic development and growth.

Hence as the region moves towards stable democratic governments, the time to realize its economic potential is upon us. Investing in Afghanistan and Pakistan’s infrastructure can have economic benefits for the region and the world at large and given the steps taken in recent time, 2016 is an excellent time to invest in and further improve the economies.