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What China’s $540 Million Energy Deal with Taliban in Afghanistan Means

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By  Syed Raiyan Amir

The Taliban celebrated the signing of their first international deal since taking power in August 2021 with a televised event on January 5, 2023. The document signed is a contract for the exploitation of oil reserves in northern Afghanistan with a Chinese business. In accordance with the agreement, Xinjiang Central Asia Petroleum and Gas Co (CAPEIC) will contribute $150 million annually to Afghanistan, rising to $540 million for the 25-year contract in three years. The initiative is focused on a 4,500 square-kilometer region that spans three northern Afghan provinces: Sar-e Pol, Jowzjan, and Faryab. The latter two are Turkmenistan’s borders. After the US soldiers withdrew in August 2021 and the Taliban overthrew the U.S.-backed government, Afghanistan’s aid-dependent economy crumbled. The administration is attempting to stabilize the economy by luring in investments that will provide work for Afghans who are suffering from hardship. One of the few available economic choices is the development of mines and hydrocarbon resources where energy can play a significant role. Besides, in the regional domain, China can play an important role in terms of political and economic prospects. Hence the deal came across.

Previously, the state-owned China National Petroleum Corporation (CNPC) and the previous administration signed such an agreement back in December 2011. The Amu Darya basin was thought to contain up to 87 million barrels of crude oil at the time. Wahidullah Shahrani, the mining minister at the time, stated that “real work will begin in October 2012.” He mentioned negotiations with an undisclosed northern neighbor and the anticipation that Afghanistan may be producing 25,000 barrels per day by the end of 2013 when he stated in March 2013 that “the wells are ready for production.” As Kabul maintained talks with Uzbekistan on transit issues, construction had apparently been suspended and Chinese employees had left the country by August 2013. Hence the recent development holds a great deal of significance.

Dealing with the Taliban is an extension of a strategic conundrum China is experiencing with its energy security. China is the most populated country in the world, a powerhouse industrially, and it also consumes the most energy globally. The nation’s domestic resources are insufficient to meet the demands of its rapidly expanding domestic market. As a result, China is now a sizable net importer of oil and gas, which has been a driving force behind several of its recent alliances, including those with Russia, Ecuador, and the Gulf States of the Middle East. Although China has maintained excellent relations with these nations, Beijing’s energy imports have a strategic weakness since, with the exception of those from Russia, they must be transported by sea and via politically sensitive areas that the US is militarizing including the South China Sea. Since China has the BRI and other projects like this to create its own sphere of influence. But no strategic blueprint of China, including the BRI, would be complete without including Afghanistan. The Middle East, Central Asia, and Southern Asia are all connected via a little section of border that the Central Asian nation shares with China. This indicates that Kabul is essential to China’s own security and strategy as well as for the expansion of economic activities. Despite the fact that Afghanistan has always been intrinsically unpredictable and hence unsuitable in terms of the political landscape, the end of the US-led war against it and the Taliban takeover has provided China the ground to accelerate its sphere of influence in the region. But amidst the Ukraine war, the economy of the country got distorted in many ways and needs some sourcing. On the other hand, China with its vision to become an economic superpower, as mentioned earlier, needs Afghanistan on the right side of the line. Besides, the war also has disrupted its energy supply chain. Against the backdrop of all these, the investment has taken place. The write-up will highlight the major prospects of the deal and its outcomes.

Creating a Viable Economy for Afghanistan

At a contract-signing ceremony for the new field in Kabul, Mullah Abdul Ghani Baradar, the Taliban’s deputy prime minister for economic affairs, stated that his group aimed to create a viable economy for Afghanistan. It will channel newer windows of cooperation between the two.

Paving the ways to Create New Investment Opportunities

The worth of Afghanistan’s natural riches, which include rare-earth minerals now utilized in electric automobiles, was estimated by American specialists to be $1 trillion ten years ago. This potential wealth was never taken advantage of while the war raged. Besides, developing mining and oil ventures in Afghanistan is still the safest it’s been in years in comparison with the previous time. The development of this project provides a paradigm for China-Afghanistan collaboration in big projects in energy and other industries. Besides, Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum urged China to finish developing the massive Mes Aynak copper mine, which is one of the largest untapped copper resources in the world.

New Job Opportunities for the Afghans

Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum, claimed that the Amu Darya project would give Afghans 3,000 new jobs. He claimed that the Afghan side initially owns 20% of the project. In two to three years, he would make sure that the economy would flourish, and there would be people coming from overseas to work in Afghanistan. Mr. Dilawar stated that the field’s oil would be refined in Afghanistan, though it is unknown if China would be willing to set up a refinery there.

Attracting New Foreign Investments

Afghanistan has 1.75 trillion cubic feet of confirmed natural gas reserves and some oil in addition to its tremendous mineral wealth. The Chinese investment reflects the current state of improving political and economic nature of the nature. It will attract newer foreign investments in the related fields. Besides, China agrees to follow its long-standing policy of non-interference and to respect Afghanistan’s internal politics in exchange for this agreement. While providing the United States with a significant edge and different option. Other investors may get some insights from this.

Promoting Economic Growth and Stability in the Region

With this investment, in Afghanistan, China has had a significant role in a number of areas, including energy and minerals. The nation has recently made large expenditures in the infrastructure and development of Afghanistan’s natural resources, which has aided in promoting economic growth and stability in the area.

Growing Mineral Industry

China has also grown to be a significant role in Afghanistan’s mineral industry in addition to the energy industry. China has been involved in the exploration and mining of these resources. The nation is thought to have enormous quantities of minerals, including iron, copper, gold, and lithium. For instance, one of the biggest copper mines in the world, Mes Aynak in Afghanistan, has been developed in part by the China Metallurgical Group Corporation (MCC). It is anticipated that the development of this mine will provide thousands of jobs and significantly strengthen Afghanistan’s economy.

Another Milestone for the BRI

The overarching Belt and Road Initiative (BRI), a worldwide infrastructure development initiative aiming at tying together nations in Asia, Europe, and Africa through a network of roadways, trains, and ports, includes China’s involvement in Afghanistan’s energy and mineral industry. Afghanistan is viewed as a crucial participant in the BRI and as a means for China to expand its economic and political clout globally.

Energy Assurance for China

China has benefited from the expansion of Afghanistan’s oil and mineral industries in addition to the country itself. China is able to assure a consistent stream of energy and minerals for its own use by investing in Afghanistan’s natural resources, assisting in the country’s long-term economic progress. Additionally, China’s investments in Afghanistan’s infrastructure and resources have improved trade and transit connections between the two nations, further solidifying their economic ties.

Exploration of New Gas Fields

But, the estimated oil reserves at the Amu Darya site are not that much significant. However, there is hope that a massive gas field that is just across the border from Turkmenistan extends into Afghanistan; if this is the case, it could make Afghanistan’s economy as important as it is for Turkmenistan.

Facing the Odds: Real Challenges to be Addressed

The Chinese influence in the region will be confronted with strategic and diplomatic approaches by the Unites States of America and other regional actors. Besides, the country is surrounded by so many challenging terrains that it will be a massive task for China to channel out the resources to its destination. The local politics should also be taken into account since local war lords are heavily armed and can make huge obstacles in many areas. But in the end, this is a sign of new competition in the region in terms of economic prospects and the Taliban regime may find a new economic instrument to strengthen its grip in power.

Courtesy: Modern Diplomacy


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A Labour Government Should not Frighten the Horses

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The UK general election is likely to mean changes, but Gulf citizens need not be too worried.

By James Drummond

If the tension was killing you, now you know. If it wasn’t, then be aware that a general election in the United Kingdom will be held on July 4 – less than six weeks away.

For the hapless Rishi Sunak, it looks like a case of “If it were done when ’tis done, then ’twere well it were done quickly.” Polls indicate that after 14 years of conservatism, real or imagined, voters are likely to elect a new Labour government.

What does this mean for us here in the Gulf?

The six Gulf states are certainly exposed to Britain. The extent of GCC holdings in the UK is enormous, ranging from Qatari ownership of the Shard building in London, stakes in the Sainsburys supermarket chain and Barclays bank, to Sheikh Mohammed bin Rashid’s Godolphin stables in Suffolk.

Manchester City and Newcastle United football clubs are owned by Emirati and Saudi interests, respectively. Kuwait’s wealth is managed by the Kuwait Investment Office near St Pauls Cathedral.

Labour has been careful to detail very few policies (or hostages to fortune, as its strategists may see it), but last week, David Lammy, the likely new foreign secretary, outlined a further campaign against dirty money.

Britain is a “corruption services centre”, while London is a “hotbed of kleptocracy”, Mr Lammy said. He said that he wanted to reward whistleblowers and clamp down on “enablers” of financial crime.

Given the paucity of public announcements, Lammy’s speech is significant, because it implies that the incoming government is likely to act. Fighting financial crime is relatively uncontroversial and attracts cross-party support – although in the UK’s case with limited success.

British politicians have made similarly grandiose statements before. But after Russia’s invasion of Ukraine, London has moved particularly against Russian dirty money, and sanctioned individuals. It finally introduced an obligation mandating the disclosure of beneficial owners of property.

Overseas trusts are also now required to disclose their ultimate beneficial owners, and there is now greater transparency when registering entities at Companies House.

This seems to have had only limited effect, however. Last week Andrew Mitchell, the deputy foreign secretary, cited estimates that 40 percent of the world’s dirty money still passes through London.

Spotlight on Corruption, a non-governmental organisation, wrote in October last year that “major reform is needed to how lawyers and accountants, the property sector and company formation agents are regulated for money laundering.” Lammy may choose to take further action against these and other professionals.

Other so-called enablers include retired politicians, some of them in the House of Lords, who work as advisors to unsavoury actors. Labour could move to tighten disclosure, although several of its senior former members are likely to lobby against further transparency.

It is also possible that Labour will go further in taxing expatriates. In its limited public commitments, the party has promised to clamp down on “tax dodgers”.

Those with property in the UK already pay tax on rental income they receive, and worldwide assets are subject to Britain’s inheritance tax. Some Gulf Arab families with UK property have been caught by inheritance tax.

A government led by Sir Keir Starmer, the Labour leader, could go further, as the US does, in taxing worldwide income of its citizens, more than 200,000 of whom live in the UAE alone. The argument is that if you have the privilege of carrying the passport, you have an obligation to pay tax.

Another question surrounds nationalisation. Labour is committed to re-nationalising the railways for one, although the infrastructure is already under central government control.

But another target may – may – be England’s water supply network, which was privatised in 1989. Shareholders in various of the rump companies include the Qatar Investment Authority and Adia of the UAE.

The water companies have been the subject of a vociferous campaign, for allegedly paying their shareholders high dividends while neglecting maintenance and investment. It is possible that an incoming Labour government will nationalise the industry.

All that said, the primacy of the rule of law and respect for property rights remain strong in Britain.

Barratt, a mass housebuilder, reported earlier this week that London remains the top choice among world cities for UAE investors looking to buy overseas. The holdings of Gulf states and rights of Gulf citizens in the UK remain secure, even with a Labour government.

James Drummond is Editor-in-Chief of the AGBi

Courtesy: The AGBI.Com


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Kuwait’s Political Crisis Adds to Economic Uncertainty

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Kuwait’s latest standoff is deeply concerning for both the near and long term, writes Andrew Cunningham

The decision by Kuwaiti emir Sheikh Mishal Al-Ahmad to dissolve the country’s recently elected parliament just days before its inaugural session on May 14 presents overseas investors and Kuwaiti citizens with more uncertainty.

The situation raises concerns about the country’s economic prospects over both the short and long term.

Disputes and stand-offs between Kuwait’s emirs and its boisterous parliament are nothing new. Parliament has been dissolved, and the constitution suspended, numerous times over the past 40 years. The country has held four elections in the past four years.

Squabbling between the two sides is rooted in political disagreements and this most recent outbreak is no different.

A major factor behind the latest dissolution is believed to have been parliament’s objection to Sheikh Mishal’s choice of crown prince. Although the crown prince is nominated by the emir, the appointment has to be ratified by the parliament.

But these political, and sometimes personal, disputes have real consequences for Kuwait’s economy and financial system and, ultimately, for the long-term welfare of its citizens.

Kuwait is a prosperous country. If we take a snapshot today, we see it producing nearly 2.5 million barrels of oil per day (bpd), and there are plans under way to increase production capacity to 4 million bpd by 2035.

State foreign reserves are around $930 billion, according to National Bank of Kuwait, the country’s largest bank. With a population of a little over 4 million, its GDP per capita is one of the highest in the world.

Squabbling between the two sides is rooted in political disagreements and this most recent outbreak is no different.

A major factor behind the latest dissolution is believed to have been parliament’s objection to Sheikh Mishal’s choice of crown prince. Although the crown prince is nominated by the emir, the appointment has to be ratified by the parliament.

But these political, and sometimes personal, disputes have real consequences for Kuwait’s economy and financial system and, ultimately, for the long-term welfare of its citizens.

Kuwait is a prosperous country. If we take a snapshot today, we see it producing nearly 2.5 million barrels of oil per day (bpd), and there are plans under way to increase production capacity to 4 million bpd by 2035.

State foreign reserves are around $930 billion, according to National Bank of Kuwait, the country’s largest bank. With a population of a little over 4 million, its GDP per capita is one of the highest in the world.

In March this year, rating agency Fitch described Kuwait’s fiscal and external balance sheets as among the strongest of any of the governments it rates.

But when we look at long-term trends, the picture is more complex and less secure.

Kuwaiti government spending remains overwhelmingly dependent on oil and gas revenues. The government has made almost no progress, over many decades, in diversifying the economy away from oil, or in reducing the huge burden of government salaries and welfare payments.

Oil and gas revenues currently account for nearly 70 percent of total income and, according to IMF projections, will continue to do so for the rest of the decade.

These revenues have served the country well in the past, despite the volatility of oil prices, but such overwhelming dependence looks foolhardy when consumers worldwide are striving to reduce consumption of oil and gas and investors and energy firms have pivoted towards renewables.

Nearly all of the Kuwaiti government’s non-oil and gas revenue arises from overseas investments and from dividends from state-owned companies. Tax revenues account for less than 1 percent of total government income.

Looking beyond the fiscal imperative to diversify the economy is the need to provide employment opportunities for Kuwaiti citizens.

No less than 84 percent of the Kuwaiti workforce was employed by the government at the end of 2022. It is hardly surprising that nearly half of government expenditure is allocated to the salaries of public employees.

Pressure for social spending will increase in the years ahead. A World Bank report, published last year, showed that levels of obesity and Type 2 diabetes were higher in Kuwait than in any of the other GCC countries and nearly double the average in OECD countries.

Partly as a result of this, the World Bank estimated that Kuwait’s old age dependency ratio – the number of people over 65 years old in relation to those of working age – will be nearly double that of its neighbours by 2040.

Kuwait is also a country that is being significantly affected, even today, by climate change. Temperatures during the summer can exceed 50 degrees, making Kuwait one of the hottest places on earth.

These are difficult and complex challenges, both economic and social, but they are hardly unique to Kuwait. That they are, in some cases, more acute in Kuwait than elsewhere is due to decades’ long procrastination and political paralysis.

The government’s General Reserve Fund, which held most of its liquid assets, was entirely depleted in September 2020, according to Kuwait’s own ministry of finance. With AA ratings, the obvious solution was to borrow money – Kuwait’s debt-to-GDP ratio is less than 5 percent. Yet the parliament has still not passed a so-called ‘Liquidity Law‘ that would allow modest issuance of foreign currency debt.

The parliament also held up the introduction of Value Added Tax (VAT), making Kuwait one of two of the six GCC countries not to fulfil a joint commitment to implement a minimum VAT of 5 percent.

Over the past four years, all three of the big international credit rating agencies have downgraded the government of Kuwait.

In their rating reports, all agencies cited a dysfunctional and slow-moving political environment that was reducing the country’s financial flexibility and delaying much needed economic and financial reform.

Politics matters.

It is unrealistic to think that after decades of enmity the ruling family and the parliament will soon form a harmonious working relationship.

But they do need to find some common ground that will enable them to start addressing fundamental economic and social issues while the country still has large financial reserves and strong credit ratings.

Time is running out.

Andrew Cunningham writes and consults on risk and governance in Middle East and sharia-compliant banking systems


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ICD and JSC Ziraat Bank Collaborate to Boost Uzbekistan’s Private Sector

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At the 3rd Tashkent Investment Forum, the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan took a significant step forward in their partnership to empower small and medium-sized enterprises (SMEs) and foster economic growth in Uzbekistan. The forum, held in the capital city of Uzbekistan, brought together key stakeholders from the public and private sectors to discuss investment opportunities and economic development strategies for the region. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is aimed at boosting the private sector in Uzbekistan.

During the forum, ICD and JSC Ziraat Bank Uzbekistan formalized an expression of intent to collaborate on various initiatives aimed at supporting SMEs. One of the key elements of this collaboration is the provision of a Line of Financing (LoF) facility by ICD to JSC Ziraat Bank Uzbekistan. This LoF facility will enable the bank to fund private sector projects as an agent of ICD, thereby providing SMEs with access to the necessary capital to initiate and grow their businesses.

The partnership between ICD and JSC Ziraat Bank Uzbekistan is expected to have a significant impact on the SME landscape in Uzbekistan. By equipping entrepreneurs with the resources they need to succeed, this collaboration will not only support the growth of individual businesses but also contribute to the overall economic development of the country. SMEs play a crucial role in driving economic growth, creating jobs, and fostering innovation, and this partnership will help strengthen the SME ecosystem in Uzbekistan.

JSC Ziraat Bank Uzbekistan, as a strategic partner for ICD, brings a wealth of experience and expertise to the table. As a prominent commercial bank with foreign capital, JSC Ziraat Bank Uzbekistan has a strong track record of supporting SMEs and promoting economic development. The bank’s partnership with ICD further underscores its commitment to advancing the private sector in Uzbekistan and its dedication to supporting the country’s economic growth.

ICD, for its part, is a leading multilateral development financial institution that focuses on supporting the economic development of its member countries through the provision of finance and advisory services to private sector enterprises. By partnering with JSC Ziraat Bank Uzbekistan, ICD is furthering its mission of promoting economic development and fostering entrepreneurship in Uzbekistan and across the Islamic world.

The LoF facility provided by ICD to JSC Ziraat Bank Uzbekistan is just one example of the many initiatives that the two entities are undertaking to support SMEs in Uzbekistan. In addition to providing financial support, the partnership between ICD and JSC Ziraat Bank Uzbekistan will also include capacity-building initiatives and technical assistance programs to help SMEs succeed in today’s competitive business environment.

Overall, the partnership between ICD and JSC Ziraat Bank Uzbekistan represents a significant step forward in supporting SMEs and fostering economic growth in Uzbekistan. By working together, these two institutions are helping to create a more vibrant and dynamic private sector in Uzbekistan, which will ultimately benefit the country’s economy and its people. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is expected to have a far-reaching impact on the private sector in Uzbekistan.


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