The beautiful land that you see here is Afghanistan. A land that just so happens to be blessed with a massive supply of natural resources. Think copper, gold, oil, and, a ton of rare earth minerals that are desperately needed for the technology that will help us in the energy transition.
So, Afghanistan should be super rich, right?
Well, it isn’t.
So that begs the question: why is Afghanistan still so Poor?
To answer that question, I will first introduce you to a simplified economic framework of how countries develop.
You see, if a country wants to catch up to the rest of the world, it can theoretically do so rather quickly by importing foreign knowledge and products.
But, to pay for these it will first need some foreign currency.
Now, different countries have used different development strategies to obtain that sweet sweet foreign currency.
For example, The United Arab Emirates obtained it by exporting its vast reserves of oil. And China did it by exporting simple manufacturer goods on a massive scale. Finally, Turkey simply borrowed it .Now, the second, CRUCIAL, step is then to actually use that money productively.
In other words, use it to build infrastructure, educate your population and, in general, build competitive industries. And if you are just able to pull of this simple two-step strategy, you’ve done it. You’ve now developed from a backwater into a thriving industrialised economy. But, then, if it is really that simple, then why hasn’t Afghanistan been able to pull it off?
Well, to answer that question, I will rely on the work of an expert in the field:
Oxford professor Paul Collier. Professor Collier has spent decades researching and advising those economies in which the poorest billion people on earth live. These bottom billion economies like Afghanistan always operate far below their potential. What’s worse they don’t even seem to be growing towards that potential level and some, like Afghanistan, even seem to be getting poorer over time. That is why economists say that these types of economies are trapped in poverty.
So, then the question becomes why is Afghanistan’s economy trapped in the bottom billion?
Well, in his work, professor Collier has identified four different traps that most bottom billion economies are stuck in.
- the trap of being landlocked,
- the conflict trap,
- the resource trap itself,
- and finally, the trap of having bad governance
So, let’s see if we can use this framework to see exactly what is keeping Afghanistan so poor.
Trap 1: Landlocked with bad Neighbours
Okay, Afghanistan is clearly a landlocked economy since it does not have a sea border.
Sadly, this could make the development strategies that the Emirates and China pursued much more difficult for Afghanistan. You see, these countries earned a lot of foreign currency through exporting their resources or goods to the wealthy West via very large container ships. However, at this point you might say, Joeri aren’t there many landlocked countries that did extremely well for themselves.
Why was being landlocked not a trap for Botswana? And… what could Afghanistan potentially learn from this?
Well professor Collier highlights four ways that countries can develop successfully despite being landlocked.
The first two are about luck.
For example, if you are lucky that your neighbours have become wealthy countries. Then, you can simply develop by exporting to them rather than to the whole world.
So when Botswana started developing in the 1960s, you could say that it was just lucky to be next to what was at the time Africa’s only developed economy: South Africa.
Sadly, Afghanistan is not in such a good neighbourhood, economically speaking.
Both are not doing particularly well at the moment.
So, that is just bad luck for Afghanistan.
Luckily, the second reason that a landlocked trap can be avoided does apply to Afghanistan.
You see, just like Botswana, its main export products are raw materials.
And luckily for them, these types of products are relatively easy and therefore cheap to move across large distances over land over land via rail or over rivers.
So, for resource rich countries such as Afghanistan being landlocked matters less.
Next, fairly recently, Collier highlights that a new way to get out of the landlocked trap has become available to many countries thanks to cheaper airfreight costs.
And especially with Russian airspace closed for many Western airlines at the moment, Afghanistan seems ideal spot for a new air-hub.
Here Afghanistan could actually learn from Africa’s two more recent growth leaders: Rwanda and Ethiopia. You see, these two landlocked economies radically transformed their fortunes by becoming regional air-hubs.
The final way that professor Collier sees that countries can get around the landlocked trap is
by convincing their neighbours to give them good access to their ports.
So, even though Botswana is landlocked, it has great rail connections to all of South Africa’s ports. Similarly, Switzerland exports a lot of its world class goods via the Rhine river to the Dutch port of Rotterdam in the Netherlands.
And yeah, actually Afghanistan has been talking to a lot of its neighbours about being integrated into these regional trade corridors.
For example it can be integrated into the Lapis Lazulli corridor to Europe via Turkmenistan. And there is talk about finishing the Khaf-Herat railway to connect Iran with China. And finally there are plans to integrate it into the North-South transport corridor from Russia to India.
So, yes Afghanistan is not in the best neighbourhood,
but still its raw material exports shouldn’t be impacted too much by this.
Even better, Afghanistan can avoid the landlock trap all together
by becoming a regional air-hub and by integrating into regional trade corridors.
There is just one problem, and that is that your trucks and trains need to be able to actually make it to the border.
Trap 2: Endless Conflict
Now, you might be under the impression that the war in
Afghanistan started in 2001 when the U.S. invaded.
But no that is not the case, scholars from Human Rights Watch argue that
Afghanistan has actually been in a civil war for decades.
A civil war that had more brutal twists and turns than three seasons of Game of Thrones combined.
The civil war started with a communist coup in 1978. The communists then tried their hand at some unpopular land reforms. What followed was rebellion, a Soviet invasion, an Iran, Pakistan, and U.S. backed Muslim insurgency, a humiliating Soviet retreat. And, this ultimately led to the fall of the communist government in 1992.
But, the Muslim rebels were in fact from various different ethnic groups. So, instead of governing they started to fight each other. Then, a Pakistan backed organisation, known as the Taliban rose to prominence and brought order to the south of the country. They took Kabul in 1996, hosted a rather controversial organisation
Then, in season 3 the U.S. started to back the Northern Alliance which allowed them to overthrow the Taliban government rather quickly. The U.S. then instated democracy. And it sends massive amounts of foreign currency to build roads and other infrastructure. Then, it got distracted in Iraq. And ended up only modernising the cities. This then, led to a broadly supported revolt in the countryside.
To counter, the U.S. started to fund brutal warlords, rather than new roads. This of course alienated the countryside even further. Leading to an ethnically diverse Taliban insurgency, and finally, the humiliating retreat of U.S. forces.
Okay, so, obviously such a long and bloody conflict prevented Afghanistan from building a thriving economy.
But, what makes this a trap, is that being poor also makes war more likely, and that again makes the country more poor.
So, why does being poor make a new civil war in Afghanistan more likely?
Well, Professor Collier gives one possible explanation and that is hopelessness.
First, imagine that you are a young person in a relatively prosperous country.
What would your economic motivations be for joining a violent gang or militia?
On the one hand, joining a militia will give you a small chance of becoming very rich. But, on the other hand, there is a pretty big chance that you will die. So, yeah, having an honest career path where you will also have fairly small chance to make it big and an extremely extremely small chance of dying seems like the better option.
But, now imagine that same choice for a young person in Afghanistan.
The honest path is one of hopelessness and at the moment, even hunger.
Now, the violent career path with the small chance of striking it big sounds much more appealing, doesn’t it?
And, that is, in a nutshell why Afghanistan is in a conflict trap. Violence destroys a country’s economy and that in turn entices more people to join violent militias.
Luckily, Collier finds in his research that, if one party decisively wins the conflict, there is a small window of opportunity to get out of the conflict trap.
This makes sense given that, if one party is strong enough, in this case the taliban, becoming rich through your local militia is not that likely anymore.
So, with broad ethnic support, the Taliban do now actually have a chance to pull Afghanistan out of the conflict trap.
This means that Afghanistan can now finally start exporting those precious minerals, and claw its way out of the Bottom Billion….
However, the bad news is that just having natural resources is, also one of Collier’s poverty traps.
Trap 3: Natural Resources
Now, this trap, that is also known as the paradox of plenty, is a bit of a weird one.
Could it be that Afghanistan’s abundance of natural resources is actually make it worse off?
Well, there are plenty of examples of countries that found amazing riches under the ground and subsequently got poorer, not richer.
For example, Venezuela sits a top South America’s largest oil reserves and now finds itself among the poorest countries in Latin America.
But, the most well-known example is actually: my birth country of the Netherlands.
You see, in 1959, the Dutch discovered a giant gas field in the north of the country. This field was so big that gas exports soon started to dominate the Dutch economy. This in turn drove up demand for the Dutch guilder, driving up its value. This, made other export sectors such as car, airplane, and electronics manufacturing less competitive.
Therefore, the phenomena of natural resource exports making other exports less competitive became known as the ‘Dutch Disease.’
But, in all honesty, I don’t think that Afghanistan’s natural resource discoveries are likely to lead to Dutch disease anytime soon.
After all it’s has now crashed so far that a little bit of appreciation would actually be good. And even if at some point it might become a risk, countries like Norway, and the United Arab Emirates have actually found some pretty smart strategy to get around Dutch disease.
You see, they kept all of the excessive earnings of foreign currency from their exports locked away in foreign exchange reserves. Hence, not driving up the value of their own currency too much all at once.
Therefore, I do think that Afghanistan can genuinely avoid the resource trap. That is, if it doesn’t get stuck in the final trap.
Trap 4: Bad Governance in a Small Country
Okay, so this last trap sounds pretty obvious, right?
Bad governance is bad for economic growth and if you don’t grow its more difficult to educate or attract capable governors.
But, for Afghanistan, this is where the various traps come together to form some sort of deadly cocktail.
Remember how in season 3 of the civil war the U.S. started to fund warlord governors that were good fighters rather than good governors?
Oh and what about the glorious idea of democracy in Afghanistan?
Well, here Collier has some pretty bleak findings for resource rich countries like Afghanistan.
He finds that, among countries with a lot of resources, it’s actually the autocratic ones that grow, on average, 2% faster than the democratic ones.