Michael Hughes
AOPNEWS
May 15, 2021

Tehran and Kabul reached a preliminary agreement that would see $5.3 billion invested in developing Afghanistan’s infrastructure, an Iranian Roads and Urban Development Ministry (MRUD) official said, as the two countries look to strengthen relations in the wake of the U.S. military withdrawal.

Around $2.2 billion of the funding would be dedicated to finalizing the Herat to Mazar-e-Sharif Railway Project and the other $3.1 billion would go toward road construction, MRUD adviser on Afghanistan, Seyed Hossein Mirshafi, said on Friday (May 14) as quoted by the ministry’s news site (news.mrud.ir).

The U.S. government spent more than $110 billion trying to rebuild Afghanistan for almost two decades with little to show for its efforts. The Iranian official observed that now that Washington was pulling troops, perhaps Afghanistan could finally realize some of these reconstruction goals.

“This set of works will help us to witness the development of Afghanistan,” Mirshafi said. “We hope that with the reduction of insecurity and the withdrawal of the United States from that country, clear horizons will be provided for Afghanistan and the development of relations between the two countries.”

The MRUD adviser said the 656-kilometer Herat to Mazar-e-Sharif railway route, which can provide a link between Iran and Central Asia and China, “will be implemented and put into operation with the investment of the Iranian private sector.”

The agreement will also facilitate transit and ensure security for the Khaf-Herat railway, according to the Iranian official. The completion of the Khaf-Herat line had been halted for years but, fortunately, the presidents of the two countries inaugurated it last year, he added.

The 140-kilometer Khaf-Herat line, established in December, is the first rail link between the two countries, a $75 million project that began in 2007 with Tehran funding both sides of the construction. Afghan President Ashraf Ghani called the railroad a “precious gift from Iran.”

In the field of road construction, Mirshafi said good negotiations have been held with Afghanistan’s Ministry of Public Works, which identified important transit and transportation projects. In addition, MRUD and the Afghan Ministry of Transport reached agreements to reduce freight tariffs and increase traffic. 

The adviser also said that the two countries have even drafted arrangements to deal with Afghanistan’s housing issues with investments in new towns as well as the construction of tall buildings in major cities such as Kabul, Herat, Mazar-e-Sharif and Kandahar.

“The draft memorandum in this regard has already been prepared and is being pursued through diplomatic authorities. It is estimated that 5,000 to 10,000 housing units will be implemented by Iranian investors with the participation of Afghan companies in this framework,” he said.

Iran, he added, is ready to export engineering services and exchange engineering knowledge with Afghanistan. Both the Iranian Society of Engineers and Building Engineering System Organization are willing to establish representative offices in Afghanistan, the official said.

Iran has been eager to boost commerce with Afghanistan because American restrictions have handcuffed Tehran in trading with other countries in the region. Iran has apparently been able to persuade Kabul, it appears, given Pakistani exports to Afghanistan have suffered.

Sarhad Chamber of Commerce and Industry (SCCI) Senior President Manzoor Elahi told Dawn earlier this week that Afghanistan was now relying more and more on Iran, India and its Central Asian neighbors to meet its trade needs as opposed to Pakistan. He said Pakistan’s annual exports to Afghanistan fell from $2 billion a couple of years ago to only $700 million.

Meanwhile, Afghanistan’s trade deficit overall is around 35% of total GDP ($19 billion), putting it among the top ten highest in the world. The World Bank has said that foreign aid flows almost entirely to finance the widening trade deficit.

Afghanistan relies on more than $8 billion in foreign aid each year, which could shrink to $5 billion annually by 2024, according to data collected by World Bank economists. 

The IMF does project the Afghan economy to grow by 4% in 2021, a year after dropping by 0.5%. The Asian Development Bank forecasts Afghanistan’s GDP to rise to 3.0% in 2021 and 4% next year. However, the World Bank also estimated that Afghanistan’s poverty rate grew from 55% to 72% in 2020 due to Covid lockdowns.