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Political uncertainty clouds China Inc.'s Afghanistan ambitions

India Pulls Back But Turkish Players Keen To Remain In Country Under Taliban

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An Afghan laborer at a chalk factory on the outskirts of Mazar-i-Sharif: Mining, along with infrastructure, is one area where foreign companies hope to continue operating now that the Taliban has taken power.   © AFP/Jiji

Foreign companies active in Afghanistan face prolonged uncertainty as the new Taliban caretaker government grapples with a financial crisis and international reluctance to offer help.

Since the Taliban seized power last month, at least 10 publicly listed companies in China have expressed hope that they will be able to participate in mining or infrastructure projects in Afghanistan, but they linked doing business to political and diplomatic developments.

Businesses that had traded with Afghanistan or worked in the country under the previous U.S.-backed government are racing to assess the changing financial and security situations, or to build ties with Taliban officials.

The Beijing-based Metallurgical Corporation of China, which has a license to the Aynak Copper Mine 40 km southeast of Kabul, said it remained committed to the long-stalled development.

"In the future, the company will strive for the support of national policy and actively promote the development of the project," state-controlled MCC told the Hong Kong Stock Exchange on Aug. 30.

MMC was given a 30-year contract to develop the world's second-largest copper deposit in 2008 but has suffered repeated delays. Global Times, the Chinese Communist Party-controlled media outlet, reported on Aug. 17 that several major projects involving Chinese companies had stalled due to political instability, the Aynak Copper Mine project among them.

Jiangxi Naipu Mining Machinery, which sells to countries including Chile, Kazakhstan and Zambia, said it would not rule out the possibility of pursuing opportunities in Afghanistan. Metal mining company Tibet Summit Resources said it will consider mineral resource projects but added they are subject to "progress in [the] China-Afghanistan relationship and sufficient assurance."

The head of the Taliban's political commission, Abdul Ghani Baradar, had vowed to foster an "enabling investment environment" at a meeting with Chinese Foreign Minister Wang Yi in Tianjin on July 28. On Tuesday, he was named deputy prime minister.

The provisional government will be run by Mullah Hasan Akhund, an associate of the Taliban's late founder Mullah Omar. One appointment, the interior minister, is under U.S. sanctions.

The appointments did little to satisfy demands for a politically inclusive administration, a precursor to international recognition, while the participation of sanctioned individuals adds a further complication to businesses needing to deal with the regime.

The International Monetary Fund last month halted financing for Afghanistan, citing "a lack of clarity within the international community regarding recognition of a government," while the World Bank has frozen funding for development and reconstruction projects that total billions of dollars. International trade has been disrupted by the turmoil, and the United Nations on Tuesday said basic services were unraveling in the country.

"In the base case (a 60% probability), the Taliban are unable to establish an inclusive government that unlocks significant foreign assistance and widespread recognition or placates ethnic minorities," the Eurasia Group, a U.S. risk consultancy, wrote on Sept. 3. Eurasia put the chances of a "minimally inclusive" government at 40%, but in both scenarios Afghanistan remains a hub for foreign terrorist organizations.

Chinese companies' expressions of hope of being able to do business in Afghanistan chime with Beijing's warmer approach to the new regime. The U.S. has said recognizing a Taliban government is not in the cards. Analysts say U.S. ally India is likely to see its influence wane and Pakistan's rise in Afghanistan following the resumption of Taliban rule.

India, one of the few countries that trades with Afghanistan, was already pulling back. Bilateral trade declined to $1.4 billion in the fiscal year ended March 31, from $1.52 billion the year before, Sribash Dasmohapatra, executive director at the Plastics Export Promotion Council told Nikkei Asia.

"[Afghanistan] is a landlocked country and the air route, the main medium of [trade] has been disrupted [amid the ongoing turmoil there]," said Dasmohapatra. "Private [businesses] will have to deal through [a third country] to export to Afghanistan, but it depends on how the situation evolves."

Quadra Akos, a Jaipur-based agricultural product supplier that makes a fifth of its annual sales in Afghanistan, said trade has been halted completely since the Taliban took control of Kabul on Aug. 15. The group supplied spices, including cumin, red chili and coriander as well as wheat flour to Afghanistan.

"We are keeping a close eye on hourly developments [there] through various news channels, social media platforms [and] our sources in [government] ministries and export councils," said Quadra Akos managing director Indra Pal Singh.

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Turkey's 77 Insaat is constructing this hydroelectric power plant in Helmand Province. The company's chairman remains optimistic.  (Photo provided by 77 Insaat)

Some businesses with a presence in Afghanistan remain committed. Suleyman Ciliv, head of the Turkey-Afghanistan Business Council, said he met with Taliban officials in Kabul within days of their takeover. "I got the impression that the Taliban wanted to deliver results to convince the public at large," he said.

Ciliv is also the chairman of 77 Insaat, an Istanbul-headquartered construction group that has operated in Afghanistan since 2009. It has already built a solar power plant in the country and is now constructing one wind and one hydroelectric plant there. Turkish contractors have undertaken about $7 billion of work in Afghanistan over the past two decades, according to the Turkish government.

The officials promised to safeguard Turkish investment, Ciliv said, and followed up by sending a Taliban-appointed governor to visit 77 Insaat's hydropower plant sites in Helmand Province to ensure workers' safety.

"There are of course question marks. It is still not clear if the U.S. will recognize them or not, if Afghan central bank money will be released or not, the situation of the airport, etc.," Ciliv told Nikkei Asia. The ability to safely fly into and out of the country will be key, he suggested, expressing optimism. "Bottom line," he said, "is always someone will fly."

Additional reporting by Ojaswi Rao in Mumbai