Minerals worth trillion dollars: So really how big is Afghanistan's economy under Taliban control?

Written By: Srishti Singh Sisodia WION Web Team
New Delhi, India Published: Aug 22, 2021, 10:16 AM(IST)

The Taliban have been re-imposing repressive laws based on their version of Islamic Sharia law they enforced during their last regime from 1996 to 2001. Photograph:( AFP )

Story highlights

Here's an in-depth examination of what we know about the Afghan economy and future economic prospects. 

In spite of sitting on mineral resources reportedly worth a trillion dollars, Afghanistan, which was tremendously dependent on foreign aid, will face financial challenges as prospects under Taliban rule look uncertain. 

After Taliban's swift and shocking takeover of the Afghanistan government, how they are seen by the rest of the world will largely impact the country's future financial assistance receipts.

Amid the political chaos, some major donors have already halted their support for the country. 

European Union said not a single euro from the allotted billion-euro development aid will go to a country that violates rights of women and girls.

Canada has "no plans" to recognise the Taliban and Germany suspended its development aid. 

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However, some important countries like Russia, China and Turkey have welcomed the Taliban's public statements as the insurgents have promised to improve Afghanistan's economy. 

The conundrum leads to some unavoidable questions : What tools do they have and do they have the needed skill set to run a country? How will an insurgent group, with men wielding guns roaming the streets, promise a stable society? Will they be trusted by foreign investors? 

Here's an in-depth examination of what we know about the Afghan economy and future economic prospects, a country that has a population of just under 40 million and is categorised as one of the poorest nations in the world. 

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Afghanistan's GDP

After Taliban were driven from power in 2001, Afghanistan's economy was gradually progressing. A Bloomberg report stated that country's gross domestic product, estimated at $22 billion, has grown nearly threefold since 2001. 

After Taliban's exit, the economy was managed by experts, technocrats, some of them Western-educated or trained.

But the question is, will they stay on in the country now? And how will a skill-deprived Taliban rulers run the economy? 

In 2020, aid flows represented 42.9 per cent of Afghanistan's $19.8 billion GDP, according to World Bank data. 

Trillion-dollar worth of minerals

report published in 2010 revealed that Afghanistan is sitting on mineral deposits worth nearly $1 trillion. The data by US military officials and geologists determined that vast supplies of iron, copper, gold and rare earth minerals are scattered over the country. The value of the mineral deposits will be more now as compared to what it was estimated in 2010. 

The reports also stated that Afghanistan could be home to one of the world's biggest deposits of lithium. It is an essential but scarce component required in rechargeable batteries and other technologies vital to tackling the climate crisis, like solar panels and wind farms.

Copper, which is needed to make power cables, became a hot commodity this year as prices soared to more than $10,000 per tonne. 

World demand for lithium is expected to grow by over 40 times by 2040, according to the International Energy Agency. 

In 2010, the US Geological Survey's Jack Medlin said during a Pentagon briefing that "It's not a quick win" , as converting the potential of mineral wealth into actual revenue take years and huge investments. 

In an attempt to extract the minerals, the Taliban will face security challenges and a lack of infrastructure but such valuable minerals might lure foreign players despite the chaos. 

Afghanistan's possible wealth has the potential to enable a better future but other countries might try to exploit it, even as internal corruption poses a bigger threat. 

Opium and taxes

According to a May 2020 report from a UN Security Council sanctions committee, the Taliban gets much of its revenue from criminal activities such as the cultivation of poppies used to make heroin and opium, as well as from drug trafficking. 

Extortion of businesses, as well as ransom from kidnapping, also provide income, according to the report which estimated the group's revenues at $300 million to $1.5 billion a year.

It is imperative to note that the international community spent billions of dollars over the years to help Afghanistan eradicate poppy cultivation, but the country still produces more than 80 per cent of the world's opium. 

The industry employs hundreds of thousands of people in a country with high unemployment after 40 years of conflict.

However, the Taliban have promised that they will end the narcotics industry in Afghanistan. 

But is it really possible? 

Watch: Who created the Taliban?

International relations

Since the Taliban took over the Afghanistan capital, it appears that they want to be recognised by the international community as being a legitimate government. In a recent interview with ABC News, US President Joe Biden said that the Taliban are going through sort of an "existential crisis". 

Despite their promises of running the country smoothly, the "positively different" insurgents-turned-rulers have received a mixed response. Some countries have reacted on the basis of how the Taliban's reputation precedes them but some foreign donors trust the group. 

As mentioned before, Russia, China and Turkey have all welcomed the insurgents' first public statements. However, United States is wary. 

Canadian Prime Minister Justin Trudeau said his country has "no plans" to recognise the Taliban.

Germany announced the suspension of its development aid as it was going to provide $503.1 million in aid this year, including $292.5 million for development. 

China, however, can play a massive role here as some of the political experts have indicated China's substantial interest in the Afgan economy at the moment. However, it is not clear if it will fill the void should relations with western nations remain cold, especially with the United States. 

According to the World Bank's most recent estimates from May, remittance flows to Afghanistan from overseas were estimated at $789 million in 2020. 

Cash on hand

How much cash on hand does the country have? 

Amid uncertainties, international organisations are not willing to trust the Taliban as the International Monetary Fund (IMF) announced it would freeze aid to the country. 

Apart from IMF, The Biden administration has frozen the Afghan central bank’s assets and halted shipments of cash to the country. 

Central bank governor Ajmal Ahmady said on Twitter the Da Afghanistan Bank (DAB) had around $9 billion in reserves, but most of that is held overseas, out of reach of the Taliban. 

"As per international standards, most assets are held in safe, liquid assets such as treasuries and gold," said Ahmady. 

The US Federal Reserve holds $7 billion of the country's reserves, including $1.2 billion in gold, while the rest is held in foreign accounts including at the Basel-based Bank for International Settlements, Ahmady added. 

Also note that the Western Union also said that it was temporarily cutting off wire transfers to the country — another vital source of cash for the people. 

The World Bank has more than two dozen development projects ongoing in the country and has provided $5.3 billion since 2002, mostly in grants. The status of those programmes is unclear as the development lender works to pull staff out of the country. 

Impact of COVID-19 pandemic

The Coronavirus has also impacted the reeling Afghan economy, and the Taliban has acknowledged that it cannot improve the situation without foreign help.

(inputs and quotes from agencies)

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