3. Border Markets
Intra-regional trade is of minor importance in both South and Central Asia, reflecting their commonly perceived status as being among the least integrated regions in the world. The Central Asian states trade in similar products – primarily natural resources – and consequently have a low degree of trade complementarity, with the result that intra-regional trade accounts for just 7 per cent of total trade. The proportion of intra-regional trade in South Asia is even lower, at around 5 per cent of the total, for similar reasons – along with politics. Historically, textiles were one of the most important export items for each country in South Asia. This was taken to imply that the benefits of liberalizing inter-regional trade would be limited.
In South Asia, in almost every case, the border needs to be reframed as a potential source of profit rather than as a locus for illicit activities, such as cattle smuggling between India and Bangladesh, the conveying of weaponry and militants across the Line of Control separating Indian and Pakistani Kashmir, or, in the case of Afghanistan, the opium trade. Local border markets, often intended for the exchange of locally grown or manufactured products, have become increasingly common; these facilitate local-level connections and stimulate border economies. For the landlocked Central Asian countries, the inability to conduct trade beyond the neighbourhood without transiting third countries is a significant impediment to that trade. In an effort to break the cycle, since 2017 Afghanistan has opened up various ‘air corridors’ with India (to overcome political difficulties with Pakistan), along with, among others, Turkey, Saudi Arabia, the EU, Kazakhstan and the United Arab Emirates. However, while these may be cost-effective for high-value products, they are of little benefit for lower-value agricultural products.37
Local border markets, often intended for the exchange of locally grown or manufactured products, have become increasingly common; these facilitate local-level connections and stimulate border economies.
The lack of complementarities in existing exports can explain the current poor levels of intra-regional trade. However, in recent years it has become clearer that liberalized trade would involve a different set of products that are not currently traded. The World Bank38 recently estimated that intra-regional trade in South Asia could increase threefold if barriers to trade were reduced. In a development supportive of more liberalized trade, some regional value chains have started to emerge within the South Asian textile industry, and – once border trade becomes normalized – there should be a wider scope for other regional value chains, as part of the next stage of regional connectivity.
While the countries of South and Central Asia have traditionally been seen as competitors in terms of their export baskets, in recent years there has been a growing recognition that economic benefits can ensue from trading a different set of products in local border markets – in particular, locally produced agricultural goods. Cross-border trading, which has usually involved goods produced within 30 km of the border, has taken place illicitly for decades; however, in recent years ‘formal’ border markets have started to appear across South and Central Asia. Bazaars started to re-emerge in Central Asia following the collapse of the Soviet Union, while various border haats (markets) have arisen since the early 2010s between India and Bangladesh, and even across the Line of Control in Kashmir.
According to the World Bank, the effectiveness of border markets depends on a number of factors: the ease of access (or, conversely, the restrictions on movement), as determined by visa requirements; the extent of unofficial payments to border officials, and the delays they entail; and freedom to move vehicles across the border. However, the linked benefits from border trade are substantial: ‘By strengthening commercial ties, cultural understanding and deepening community relationships, cross-border trade nurtures amicable relations between neighbouring countries.’39 This can lead to more integrated economic and social development, and ease government-to-government relationships. In addition, border markets both require trust to work properly and in turn, they help to build trust between neighbours of different nationalities.
The border markets of South and Central Asia vary between those characterized by trade in local products, and those specializing in trade in ‘national’ exports, or indeed goods from third countries. Where border connections have facilitated ‘local trade’, the impact on local populations has been positive, as consumers on both sides are able to take advantage of price variations between countries. Furthermore, the border markets have created an environment in which cross-border trade becomes normalized, creating relationships that can help to resolve tensions along the border.
There are some concerns that easing the flow of goods would also ease the flow of illicit goods for which previously closed borders are notorious. However, the facilitation of licit cross-border trade does not necessarily encourage illicit trade, which frequently flourishes precisely because of the closed nature of borders. Poorly maintained infrastructure translates into a limited government presence and provides a more favourable environment for non-legal trade than better maintained and policed open borders. Meanwhile licit, perishable items are often unviable export items if transit times and customs procedures are too prolonged. Smuggling – whether of Indian ephedrine, used to make methamphetamine in Myanmar, of gold from Nepal into India or of Afghan opium – benefits from poor physical infrastructure and weak governance structures. Steps to improve formal connectivity have at worst a neutral impact on illicit activity and most likely serve to impede smuggling.
Once termed the ‘roundabout of the ancient world’, Afghanistan has after years of conflict become disengaged from the modern globalized economy. But historically, Afghanistan was pivotal to the trade that took place between Europe and Asia.
Afghanistan was centrally placed on the ancient Silk Road, with routes to the important Central Asian (now Uzbek) cities of Samarkand and Bukhara, as well as to China, India and Persia. Most of the trade between these regions had, by necessity, to pass through Afghanistan. Furthermore, goods from Afghanistan – notably lapis lazuli – were traded internationally as long ago as 2500 BCE. Trade between China and the Roman Empire traversed Afghanistan during the peak of the Silk Road era – from the first century BCE to the third century CE. Along with goods, an abundance of different ideas, religions and cultures were transmitted along the Silk Road, and through Afghanistan.
In the 15th and 16th centuries, the Silk Road faced competition from shipping, which became a cheaper way of transporting goods than overland. Yet archaeologists have discovered the remains of more recently constructed caravanserais across Afghanistan, suggesting that the Silk Road continued to flourish much later than was previously thought. These large walled wayside hostels were located a day’s travel apart, providing accommodation and protection for traders along the Silk Road. It was political developments, rather than economics, that finally ended the Silk Road, as Afghanistan became a buffer state separating the British and Russian empires in the 19th century, rather than a region central to pan-Asian trade.
The dominance of politics over economics in determining Afghanistan’s trading patterns became even more apparent during the 20th century. When Pakistan unofficially closed the border in 1950, trade shifted north to the then USSR. In 1980, 87 per cent of Afghanistan’s import trade – primarily manufactured products and military equipment – and 59 per cent of its exports – mainly agricultural products along with natural resources – were conducted with the Soviet Union. Following the Soviet withdrawal from Afghanistan, Pakistan became its major trading partner, and remains so to this day in terms of total trade, although Iran is the largest source of imports. (Historically, the border with Iran has generally been the least important economically.)
In 1980, 87 per cent of Afghanistan’s import trade – primarily manufactured products and military equipment – and 59 per cent of its exports – mainly agricultural products along with natural resources – were conducted with the Soviet Union.
There is clear value in demonstrating the benefits of trading ties – not least given the need for Afghanistan to be more open. This is despite its location between two of the least connected regions of the world, South and Central Asia, with the Central Asian states remaining influenced by autarchy while political tensions mean that Pakistan is averse to opening up trade links with India. At the same time, Afghanistan’s neighbours frequently interpret greater connectivity as a public ‘bad’. The ideas that spread in the era of the Silk Road made Afghanistan an entrepôt between different cultures and religions. In recent years, however, it has been seen as the source of radical Islamist ideology, as well as of opium: drug addiction is an increasing problem in each of Afghanistan’s neighbours as a result of slippage from the opium trade. While opium trading is likely to benefit some corrupt officials in Afghanistan’s neighbouring states, the effect of this is to undermine good governance.
A sustainable Afghan economy would almost certainly mirror the dual economies evident across South Asia. For the foreseeable future, most people will remain dependent on agriculture for their livelihoods. In parallel, other products (notably, textile products in much of South Asia) would be manufactured for higher-value markets. In the case of India, certain services are increasingly linked into global supply chains.
With few exceptions, mainstream agricultural production has struggled to move up the value chain, and each country faces common challenges, notably the lack of storage facilities, concerns over water availability and soil quality. The circumstances can foster a situation in which rent-seeking ‘middlemen’ have a significant advantage over local producers, meaning that the returns to farmers are well below prices paid by consumers.
In the case of Afghanistan, these hurdles have been exacerbated by conflict and the ensuing lack of governance. In response, Afghan producers have cultivated opium – a crop which overcomes some of the barriers faced by farmers across the region, but which reinforces conflict and undermines governance.
The challenges facing Afghan agriculture are manifold. Years of conflict have damaged the physical infrastructure – notably irrigation systems – along with the institutional infrastructure around the agri-food industry. Low levels of investment have led to a situation in which Afghan agriculture struggles to compete with regional competition, particularly from Iran and Pakistan. Planned or unplanned border closures can leave produce rotting in trucks. Migration has left farms untended and taken away farming expertise, and much land is unusable, because of land disputes, insecurity or landmines. The Afghan government meanwhile lacks the capacity to provide the technical support that farmers in other countries receive. Each of these factors has hindered efforts to encourage higher-value agricultural production, such as that of saffron, pomegranates or pine nuts.
Any steps to bring producers closer to consumers are positive, and the development of border markets – along with power trading – is one of the more positive developments in regional cooperation in recent years.
There are no standard procedures governing the various border markets: each of the recently established markets has specific rules. For instance, one between India and Bangladesh stipulates that no trader can purchase products worth more than $50; trade across the Line of Control40 is limited to 21 items, and 1.5 metric tonnes. The Khorgas crossing point, between China and Kazakhstan, allows duty-free access for goods worth less than $1,000 and weighing less than 50 kg. Several border markets – such as those spanning the Line of Control – are intended specifically for goods produced in neighbouring areas, creating, at times, concern regarding rules of origin. Such border trade makes transport costs largely irrelevant and allows sellers to exploit price differentials between neighbouring countries.
Afghanistan’s mountainous terrain, notably its border with China, inhibits its trade routes. At present Afghanistan has 10 border crossings with its northern neighbours: two with Uzbekistan and eight with Tajikistan. The two major trading posts are Hairatan, for trading with Uzbekistan, and Sher Khan Bandar on the border with Tajikistan. Afghanistan’s exports to the Central Asian Republics are vastly outweighed by its imports, particularly from Uzbekistan, though this reflects ‘standard’ trade for which data are recorded. According to the World Bank,41 around 40 per cent of Afghanistan’s trade is unrecorded: this category includes border trade.
Afghanistan’s exports to the Central Asian Republics are vastly outweighed by its imports, particularly from Uzbekistan, though this reflects ‘standard’ trade for which data are recorded. According to the World Bank, around 40 per cent of Afghanistan’s trade is unrecorded: this category includes border trade.
Afghan traders entering Uzbekistan cannot bring in goods worth more than $25 from neighbouring countries, or worth more than $100 from Afghanistan.42 Over the past couple of years, however, Uzbekistan has opened up to greater engagement with Afghanistan, and there are suggestions that these restrictions may be significantly relaxed. Tajikistan currently operates a more liberal policy, with 35 products being exempt from customs duties and other import taxes. Afghanistan restricts imports by weight: an individual cannot bring more than 50 kg of goods into the country. Costs are also heightened by charges for offloading and loading goods, since trucks are prevented from entering, and are certainly not permitted to cross the border markets.
Border markets require connectivity. In the case of Afghanistan’s northern neighbours, this means bridges across the Amu Darya river. The first bridge was opened in 2002. The AKDN, working with the governments of Afghanistan and Tajikistan, constructed the bridge in Tem district, near the Tajik town of Khorog.
Once the bridge was constructed, a weekly market was established, creating jobs and providing a venue for trade. There are currently five bridges and associated markets between the two countries, and a sixth bridge is under construction. Around 1,000 traders take advantage of these markets every week.43
A wide range of goods are traded, both local products – mainly agricultural in origin – and goods from further afield for which traders can exploit price differences and variation in taxation systems in both countries. The markets have served to foster better bilateral relations at local level, following an initial period of scepticism. Afghans expressed satisfaction in being better connected to their Tajik neighbours, while Tajiks expressed pride in being able to contribute to Afghanistan’s development. Given the remote geography and historically marginalized demography in the Afghan province of Badakhshan, the border markets have functioned as platforms to empower social interactions and also create incentives for local entrepreneurs.
The volume of trade has gradually increased, and procedures for entry to the markets have been simplified. This has been achieved largely by adopting innovative methods of constructing border markets within the neighbouring state’s territory, without the requirement for visas. Afghans are able to access the border markets by showing other forms of identification, circumventing the need to have passports stamped on crossing the border. Since the primary aim of traders is to interact with customers and sell products, the border markets facilitate both of these without the need to engage governments in tricky – and possibly prolonged – discussions on a liberalized visa regime.
A further four Afghan–Tajik border markets have been set up next to the bridges at Darvaz, Langar, Ishkashim and Shurobod. A sixth is currently under construction. The rules for the markets are similar. Afghans can enter the market without a visa, although they need to show a valid identity paper. They are not permitted to travel beyond the market space. Only Afghan and Tajik traders are permitted to operate. Provided the value of goods traded is less than $1,000, they can be sold free of taxes. Goods are also subject to the 50 kg weight limit.
The market at Tem is located close to Khorog, the capital of the GBAO. With around 100 traders, and a couple of thousand customers, it was the first market to be opened. The market at Ishkashim is slightly larger. Being closer to the capital of Badakhshan, it has more Afghan traders. A 2016 report prepared by the consulting firm Samuel Hall for the International Organization for Migration suggested that around 60 per cent of the local population bought or sold goods at these markets.44 The benefits are particularly profound for some on the Afghan side, who previously might have had to travel for days to reach a domestic market selling similar wares. Reduced transport costs and more free time engender significant economic benefits for this impoverished community.
Many of the products traded – almost half, according to a 2013 survey conducted by the Tajik customs authorities – are transit trade from third countries.45 Iranian and Pakistani products are frequently sold by Afghan traders, who in turn purchase goods from Russia and China, as well as from countries in Central Asia. While this may not necessarily benefit local Afghan producers, it is symbolically important to demonstrate the fact that Afghanistan is already the conduit between South and Central Asia.
Table 2: Goods typically traded at Afghan–Tajik border markets
|
Types of goods sold by Afghans |
Type of goods sold by Tajiks |
|---|---|
|
Sterilized milk |
Electronic goods |
|
Carbonated drinks |
Fresh fruit |
|
Tea |
Dried fruit |
|
Soap |
Flour |
|
Clothes and household items |
Clothes and household items |
|
Processed and unprocessed food |
Processed and unprocessed food |
|
Cooking oil |
Source: Compiled by the authors, partly based on Hall (2016), Assessment of Economic Opportunities Along the Afghan–Tajik Border.46
Trading in cigarettes, alcohol, precious stones and narcotics is banned. Demand fluctuates seasonally for many products. Afghan demand for food – in particular fresh and dried fruit, flour and processed food – falls in summer and autumn, when there is a surplus of domestic produce. The autumn decline is accentuated as preparations are made for winter. Tea, sugar, cosmetics, rice and soap rank among the goods purchased by Tajiks. In addition to those listed, other goods traded include textiles, construction materials and carpets.
The interaction has also brought social benefits. According to the report, Tajiks, brought up in the aftermath of Soviet central planning, expressed admiration for the entrepreneurialism of Afghans. Afghans, in turn, admired the stability of Tajik society. The markets also facilitate the development of a small accompanying economic ecosystem comprising cafés and small shops. Other service providers, such as taxi drivers, also benefit from the markets, along with those administering the markets and providing security. While there are concerns that greater interaction facilitates smuggling, anecdotal evidence suggests that the creation of licit opportunities reduces incentives for illicit behaviours.
Even though sales volumes may be low, the price differentials enable disproportionate benefits for those engaged in cross-border trade. Given the difficulty of transportation on the Afghan side of the border, there are significant price variations between the different markets for goods sold by Afghans. These price differences can be significant. The 2016 survey47 found that milk was 25 per cent cheaper in the border markets than in markets in Tajikistan. Sugar sold at the border markets originating from Afghanistan was also approximately 25 per cent cheaper compared with the prices in Tajikistan. In this regard, Tajik respondents to fieldwork in the GBAO capital of Khorog highlighted the negative impact of market closures on poorer families who usually bought sugar from there.
The provision of opportunities to trade with Afghanistan, of which the markets are one example, has led some young Tajiks to establish businesses selling imported wares. Many of them would earlier have been forced to emigrate in search of employment. The markets themselves encourage entrepreneurialism. In recent years, labour migration from Ishkashim has fallen.
Furthermore, the markets allow for a different dynamic between border security forces in both countries. Rather than guarding closed borders, they cooperate to ensure the smooth functioning of the cross-border markets.
The interactions enabled by the markets have thus created an environment in which broader Afghan–Tajik engagement can take place. Along with medical services provided by Tajiks for Afghans, cultural ties have been revived, and some engagement has taken place at the local level on water-sharing, enabled by the contacts forged through the border markets. In short, the border markets have facilitated broader connections to explore the possibility of developing a range of mutually beneficial public services. In the future, provided market opening is guaranteed, a number of potential value chains could be developed that build on the cross-border markets. These include processing of livestock and fruits, beekeeping and handicrafts.48
The border markets have facilitated broader connections to explore the possibility of developing a range of mutually beneficial public services. In the future, provided market opening is guaranteed, a number of potential value chains could be developed that build on the cross-border markets.
The markets have also enabled some families to be reunited. The border between Afghanistan and Tajikistan was not demarcated until 1894, before which people crossed freely. The existence of the border markets has provided an opportunity for cross-border discussions and peer-to-peer learnings on a range of issues. In the absence of the border markets, visa restrictions on the Tajik side and security concerns on the Afghan side would have made such dialogue unfeasible.
Despite the shared language and culture, Tajikistan and Afghanistan have different histories, systems of governance and economies providing significant scope for shared learning. Afghanistan’s National Solidarity Programme (NSP), established in 2002, provided the framework through which interaction could be structured. Under the NSP, a community-based development programme, the community development councils (CDCs) were established in 5,000 villages across Afghanistan. After being elected, members of the CDCs consulted with the community to establish a list of agreed projects to be carried out with funds from the NSP.
The first CDC was created in Shughnan around 2010, and the current council has been in place since 2014. The CDC invited community leaders from Khorog in Tajikistan to visit various schools and clinics that had been established as part of the NSP. However, visa difficulties meant that the Afghans could not visit Khorog for a similar experience. The Tajik authorities suggested that for information-sharing purposes the existence of the markets provided a space in which experiences and knowledge could be exchanged, and several meetings were held. However, after the NSP ended in 2016, there was a reduction in the resources that would enable such exchanges to take place. Its replacement, the ‘Citizen Charter’, is not yet in place in Badakhshan’s border districts.
While levels of cross-border community engagement between Badakhshan and contiguous communities in Tajikistan are high, and communities within the Afghan border districts rely on connectivity with Tajikistan for power, this has not translated into government-to-government engagement. Within the communities, this absence is believed to allow Tajikistan to shut down aspects of connectivity (such as the border markets), which Afghans argue is the result of exaggerated security concerns. For instance, Tajik authorities closed the Ishkashim border market in 2016 after the Taliban entered parts of neighbouring Zebak district; and it has remained closed since.
Security threats within Tajikistan have resulted in a crackdown on connectivity with Afghanistan and heightened sensitivity against Afghans entering Tajikistan. The arbitrary closure of the markets makes it difficult for the establishment of long-term, cross-border supply chains, while concerns and misunderstandings persist regarding the regulations governing the markets.
There are a number of challenges that can result in the interruption of trading at the border markets. Market opening times are limited, and there have been instances when the markets have been shut down at short notice by the Tajik authorities. Security threats within Tajikistan have resulted in a crackdown on connectivity with Afghanistan and heightened sensitivity against Afghans entering Tajikistan. The arbitrary closure of the markets makes it difficult for the establishment of long-term, cross-border supply chains, while concerns and misunderstandings persist regarding the regulations governing the markets.
The original vision for border markets included the construction of similar facilities on the Afghan side of the border, so Tajiks could trade in the same way as Afghans. There is enthusiasm among citizens of both countries for this to happen. In the case of the Tem border crossing, the market facilities have been built on the Afghan side; however, they have not yet opened due to security concerns on the part of the Tajik government. Tajikistan argues that the facilities on its side of the border are more secure under the constant watch of Tajik military, and that they have better controls in place in the event of any security-related incidents.
Some Afghans feel that the location of the markets on the Tajik side of the border provides Tajik traders with the ‘upper hand’. Specific concerns cited range from issues such as the need for Afghan traders to purchase lunch or dinner on the Tajik side of the border, to the fact that the Tajik authorities are able to determine the functioning of the market: who is allowed to cross the border, when the market opens and closes, and what products may be sold. In addition, Afghan traders have to pay an entry fee to the Tajik authorities in order to set up a stall in the market. Despite these concerns, most Afghans expressed support for the markets even as they currently operate, and many traders profit from the opportunity to sell goods to Tajiks. But with greater liberalization, the scope of the markets could be broadened and their impact increased. In addition, many Afghans noted that donor agencies’ depiction of the Afghan–Tajik border as unsafe prevented the creation of more border markets.
Lessons learned
While the construction of hard infrastructure is necessary, it is not sufficient to facilitate seamless connectivity. ‘Soft infrastructure’ – whether human capital or legal frameworks – needs to be developed in parallel. Administrative burdens can also work to limit the impact of connectivity initiatives.
Despite initial hesitation towards greater engagement with Afghanistan, once in place the benefits to both sides generate enthusiasm. Even though the volume of trade is modest, in absolute terms, the economic benefits can be substantial. The markets have also provided space – both literal and conceptual – for other cross-border interactions and the emergence of shared public services.
Regardless of their success, cross-border people-to-people contact mechanisms such as markets remain vulnerable to overarching political or security concerns, whether genuine or exaggerated. Until markets are guaranteed to open at particular times, it is difficult to build genuine cross-border reliance, since market closures will oblige consumers to procure products from alternative sources.
37 Majidyar, W. (2018), ‘Afghanistan’s economic gain and loss from “National Air Corridor Program”,’ Foreign Policy Journal, 16 November 2018,
https://www.foreignpolicyjournal.com/2018/11/16/afghanistans-economic-gain-and-loss-from-national-air-corridor-program/ (accessed 14 May 2019).
38 Kathuria, S. (ed.) (2018), A Glass Half Full: The Promise of Regional Trade in South Asia, South Asia Development Forum, Washington, DC: World Bank.
39 Kaminski, B. and Mitra, S. (2010), Skeins of Silk: Borderless Bazaars and Border Trade in Central Asia, Washington, DC: World Bank.
40 Since 2008 a form of barter trade has existed at two locations across the Line of Control, which separates Indian and Pakistani Kashmir. Goods exchanged include onions, coconut, garlic and ginger. Despite their geographic proximity, the neighbouring regions can benefit from comparative advantage in specific agricultural products. Trade across the Line of Control began as a confidence-building measure between India and Pakistan. Trade is allowed between Uri and Muzaffarabad, and between Poonch and Rawalakot. The opening up of trading on these traditional merchants’ routes followed a ban of more than 60 years. Trade was initially allowed for two days per week, extended in 2011 to four days. By 2015 goods with a value totalling almost $700 million had been traded at the two border crossings. See Conciliation Resources (2016), Trading Confidence: A Compelling Case for Cross Line of Control Trade, https://www.c-r.org/downloads/Trading%20Confidence%20Web.pdf (accessed 13 Mar. 2019).
41 Cited in UN Special Programme for the Economies of Central Asia (SPECA) (2016), Strengthening Trade and Economic Ties between Afghanistan and Central Asia, background paper to SPECA Economic Forum, 22–23 November 2016, Ganja, Azerbaijan, https://www.unece.org/fileadmin/DAM/SPECA/documents/ecf/2016/Session_I_Background_paper_1_English.pdf (accessed 14 May 2019).
42 Kaminski, B. and Mitra, S. (2012), Borderless Bazaars and Regional Integration in Central Asia: Emerging Patterns of Trade and Cross-Border Cooperation, Washington, DC: World Bank, http://documents.worldbank.org/curated/en/108461468016850647/Borderless-bazaars-and-regional-integration-in-Central-Asia-emerging-patterns-of-trade-and-cross-border-cooperation (accessed 14 May 2019).
43 Aga Khan Foundation (undated), ‘Energy & Infrastructure, Our approach to energy & infrastructure’, https://www.akf.org.uk/examples-
of-our-work/infrastructure/ (accessed 14 May 2019).
44 Hall, S. (2016), Assessment of Economic Opportunities Along the Afghan–Tajik Border, Dushanbe: International Organization for Migration, https://reliefweb.int/sites/reliefweb.int/files/resources/IOMT_border_final_after_publication_FINAL.pdf (accessed 13 Mar. 2019).
45 Ibid.
46 Ibid.
47 Ibid.
48 Ibid.