Linking the Heart of Asia and the Indo-Pacific for greater economic cooperation

Report from the outcomes of the Mumbai Session

The concept of the Indo-Pacific and the Heart of Asia platform are interlinked even if this linkage is not apparent at first. The Indo-Pacific concept captures the growing geo-economic and strategic interactions among the many nations between the Indian and Pacific Oceans. The Heart of Asia platform calls for regional cooperation by positioning Afghanistan at the center of South, Central and Western Asia. This platform recognizes that sustainable economic growth requires Afghanistan’s security and stability but also access and interconnectivity with regional economic marketplaces via sea, land, and air. Although Afghanistan is landlocked its strategic partner India, is not, which raises opportunities for Kabul to utilize New Delhi’s multidimensional interactions across the Indo-Pacific. It is in this context that the Indo-Pacific and the Heart of Asia should be seen together as what happens in one interaction influences the outcomes in others. Accordingly, Afghanistan’s economic development is poised to accelerate if it actively engages with economies in the Indo-Pacific besides those in the Heart of Asia. One way through which Afghanistan can plug itself into the Indo-Pacific is via the operationalization of the Afghanistan-Australia-India trilateral. Moreover, the institutionalization of this trilateral would support Afghanistan’s economic strategy.

India is a marketplace and a gateway for Afghanistan’s goods and services. From the standpoint of a marketplace, bilateral trade between them for the year 2016-17 totaled US$800 million. This trade relationship has immense potential to grow particularly as the benefits from the air corridor gain traction. India also offers Afghanistan a unique opportunity to be the strategic springboard for Afghan goods and services to reach deeper into the international market.

India can play the role of an enabler for the Afghan private sector. International businesses are more likely to engage Afghan enterprises if they are accessible to a third country like India where security is not an issue. India can also give Afghan entities the opportunity to link with other international markets which would diversify their economic activities. For instance, two-way goods and services trade between India and Australia totaled AU$19.4 billion in 2015-16. Canberra’s 2035 economic engagement strategy aims to increase this figure to AU$100 billion. Although bilateral trade between Afghanistan and India, and Australia and India, vary considerably in value, the significant feature to note is that the economic strategies of Kabul and Canberra intersect in New Delhi. This intersection is a potentially enabling factor for Afghan businesses and can translate to Australia becoming a significant purchaser of Afghan exports.

The strategic rationale for the Afghan government to insert itself into India’s domestic growth and international trade relationships is threefold: jobs, growth, and economic self-reliance. In addition, the dual nature of India as a destination of and a strategic springboard for Afghan goods and services has the potential to mitigate a range of limitations that stem from Afghanistan’s landlockedness. These include trade with India and other international markets, growing investments in domestic industries, the creation of jobs, and driving innovation. Furthermore, sustained economic engagement with India will contribute to Afghanistan’s long-term objective of economic self-reliance.

India’s strategic and economic partners will benefit from its growth and prosperity. There are three reasons why India matters to its international economic partners. First, India is the fastest growing major economy in the world which is currently valued at US$2.6 trillion. India is estimated to grow between 6-8 percent for the foreseeable future which will be transformative for the country, its region and economic partners. Second, India will overtake China as the world’s largest population before 2035. India’s scale and growth will require economic partners that can provide its citizens with what they want and need. Third, India offers its economic partners the prospect of diversifying their trade and investment risk in Asia.

India’s relationship with Australia is well placed to deliver a range of goods and services that it demands. These include education services, resources and energy, food, healthcare, and expertise in water and environmental management. The services sector is likely to be the fasted growing segment of Australia’s future economic relationship with India.

Deeper economic engagement between India and Australia also has the potential to benefit Afghan businesses. The three sectors that stand out where Afghanistan can gain from include education, mining, and agribusiness as discussed below.  

First, the demand for education is increasing and is certain to keep growing as both Afghanistan and India have a young demographic. Indian students account for the second largest international student cohort studying in Australian universities. Following a similar trend, a large number of Afghan students are studying in Indian universities and more recently, schools too. As the demand for high-quality tertiary education taught in English continues, countries like Australia are likely to gain but so can others. From an educational services perspective, Afghan educational providers can work with Indian and Australian research and teaching institutions to deliver education in high demand areas in India, such as in ICT, business and finance, and the natural sciences. Australian education institutions and trainers can be drawn to India easily without the challenges presented to them of going to Afghanistan for knowledge delivery.

Second, resources are and will remain as a significant commodity in demand in India and Australia. As Afghanistan’s mining sector comes online, the mining industry could work with their Indian counterparts and re-exporters to jointly explore the market in Australia. One area for cooperation is in high-quality Afghan marble. This is an attractive area as the average incomes of Indian households increases, and as they look to build their dream homes with exotic materials. Similarly, high-quality Afghan marble can be marketed as a luxury material in Australia targeting residential and commercial projects.

Third, agribusiness with a focus on saffron and other culinary ingredients. Saffron is a low cost but high-value product. The price variation for saffron in the Indian vis-à-vis the Australian markets is striking, but this price difference also presents business opportunities for Afghan saffron growers and sellers. In India, high-quality Afghan saffron retails for US$2 per gram. By contrast, 1 gram of saffron in Australia retails for US$100. These price points suggest that India presents a volume-based market for saffron whereas Australia presents a luxury market where consumers are willing to pay significantly higher prices. Despite the market differences, Afghan saffron growers are well placed to benefit from the scale of India’s market, its proximity, and its growing middle class. Similarly, Afghan saffron can become the next truffle in Australian cuisine and in other developed economies that prize and pay large sums for exclusive products. Another marketing strategy could be targeted at the growing South Asian community in Australia that might be attracted to saffron as a product.

Besides these three sectors, other industries that present opportunities include textiles, carpets, and gemstones.

Afghanistan is translating its vision for regional cooperation via extensive economic engagement. For instance, at the recently concluded Second Passage2Prosperity Trade and Investment Show in Mumbai, Afghan businesses signed deals worth US$115 million for carpets with their Indian counterparts and secured loan guarantees in excess of US$200 million. Afghan and Indian businesses also signed more than 400 MoUs thus indicating a dynamic business relationship. In addition, Japan’s development agency, JICA committed to investing US$40 million in Afghanistan. This snapshot shows that Afghanistan is open for business and that extending its economic footprint across the Indo-Pacific has significant potential.

Looking to the future, the intersection of the Heart of Asia and the Indo-Pacific presents a sizeable opportunity for Afghanistan, but it will need to position itself to bank its position. The Indo-Pacific is the highest growth region in the world and Afghanistan’s partnering with India and other nations including Australia is a highly attractive way to strengthen economic engagement. A trilateral Afghanistan-Australia-India dialogue could be a template or carried out in parallel with other countries that present an addressable market for Afghan goods and services such as Indonesia. Another way to look at Afghanistan’s potential engagements in the Indo-Pacific is to see them as connecting the dots, meaning connecting Afghan businesses to an array of markets. Equally important is the development of a business plan which can translate, sustain, and monetize the relationship between Afghanistan and its partners.