Economy
Will China’s latest investment in Afghanistan actually work? – Al Jazeera English
The Taliban-run Afghanistan saw its first significant foreign investment last month when a Chinese firm signed a 25-year-long, multimillion-dollar contract to extract oil. Experts are cautiously optimistic the project may bring jobs and income despite China’s sketchy record on executing deals.
On January 6, the Taliban signed with Xinjiang Central Asia Petroleum and Gas Company (CAPEIC), a subsidiary of the state-owned China National Petroleum Company (CNPC), a contract to extract oil from the Amu Darya basin, which stretches between central Asian countries and Afghanistan where it covers about 4.5 square kilometres (1.73 square miles). The deal will see an investment of $150m in the first year in Afghanistan and $540m over the next three years, a Taliban spokesperson said on Twitter.
“The daily rate of oil extraction will be from 1,000 to 20,000 tonnes,” spokesperson Zabihullah Mujahid shared in a tweet, adding that the Taliban will be a 20 percent partner in the deal, which will later be extended to 75 percent.
Abdul Jalil Jumrainy, an industry expert and the former director general of the Afghan Petroleum Authority at the Ministry of Mining and Petroleum, is one of the many following the development with a little bit of hope.
“Looking at the situation now, the way our people are struggling, in my opinion, this [project] can be a source of revenue that provides economic relief – an opportunity for Afghans to benefit from their resources,” Jumrainy said. “Even if a major part of it goes to the government, there will be jobs created and some Afghan expertise will be utilised, and that is a good thing,” he said.
Though “it all depends on how it is implemented”, he added.
Sketchy past
While the announcement has brought some initial cheer to the beleaguered country, old Afghan hands are cautious in their optimism, not only because China is yet to see through any of its investments in the country’s mining sector, but because this particular deal sounds just like the one the previous Afghan government had called off on account of corruption.
That exploration and production sharing deal was struck in 2011, under the previous Afghan government, between China’s state-owned CNPC and an Afghan company called Watan Group for the “Kashkari block”, one of the three blocks now part of the recent Amu Darya tender.
“It was a major win for the government because CNPC is a very big company and China is currently the biggest oil and gas buyer in the region,” recalled Jumrainy.
China imports gas from Turkmenistan via four pipelines, three of which transit through Uzbekistan and one via Tajikistan. Afghanistan was offered the opportunity to be part of the fourth pipeline.
The “Afghan government at the time asked CNPC to be part of the tendering process, which they rejected. It was a great opportunity for Afghanistan to develop its petroleum sector had the Chinese agreed to a fair tendering process,” Jumrainy said.
The previous deal, also for 25 years, would have seen a potential initial investment of $400 million to extract 87 million barrels of oil, eventually generating at least $7bn in revenues for Afghanistan.
Afghanistan has significant potential for oil and gas, Jumrainy said. “Afghanistan was among the major exporters via Turkmenistan to the Soviet Union. However, there hasn’t been sufficient exploration in the last few decades which requires billions in investment,” he said.
The previous government had hoped China would be a significant investor in Afghan extractive sectors, including copper, oil and gas, but very little materialised.
“There were certain regulatory and budgeting concerns of CNPC’s expenditures in Amu Darya EPSC and when the government raised questions and hired independent auditors, CNPC shut the field and its staff left the country. The expenses were higher and contracts were given to Chinese companies without following proper procurement rules,” he recalled.
The Afghan government made several other attempts to revive the deal but the negotiations fell apart. “When we visited China to ask CNPC to resume the deal, they asked to be the sole source for arrangements of the entire Amu Darya basin covering 10 blocks. But the government decided against it and instead put the potential gas block up for bidding. We offered for them to be part of the tender process but they were not interested,” Jumrainy said, adding that the CNPC’s local Afghan partners had similar concerns, which led to disputes between the two sides.
The previous controversies with CNPC, Jumrainy speculated, may be the reason why the deal with the Taliban was made through an affiliate company rather than with the state body itself.
Then there is the case of the Mes Aynak mines, one of the largest untapped deposits of copper globally, 40km (25 miles) southeast of Kabul.
In 2008, a Chinese company took a 30-year lease for Mes Aynak mines to extract nearly 11.08 million tonnes of copper. Now, more than halfway through their lease, the company is yet to develop the mines. “Until the concrete investments are actually made on the ground, I would be sceptical of considering any of the announced figures or targets as being more than declarative ambitions,” Zhou said.
In a sign the Taliban is aware of the Chinese lackadaisical performance, the Taliban spokesperson said that under the Amu Darya contract, “if the said company does not fulfil all the materials and items mentioned in the notice within one year, the contract will be automatically terminated.”
Political significance
Nevertheless, the deal has a degree of political significance given the Taliban government’s pariah state status, said Jiayi Zhou, a researcher at SIPRI, an independent conflict research institute based in Sweden, who specialises in China geopolitics. “But it is also not completely surprising: Chinese corporations had been publicly in contact with Taliban over the past year, to renegotiate and restart previous mining and oil contracts settled in 2008 and 2011. This deal is essentially the fruit of those talks,” she said.
Zhou also pointed out that the Taliban have been engaged in negotiations with several other neighbours as well to resume economic cooperation projects.
“Among Afghanistan’s neighbours, broadly, there is consensus that there is no alternative to some form of engagement with the Taliban, if only for reasons of ensuring regional stability and security,” she said, noting that such channels of economic interaction between Afghanistan and its neighbours have remained open. “I would at least in part contextualise Chinese investments as being part of that wider picture,” Zhou added.
Omar Sadr, an Afghan academic and former professor at the American University of Afghanistan, told Al Jazeera that China’s engagement with the Taliban is based more on security rather than economic interests.
“Chinese interest in Afghanistan is driven by two major factors: preventing an entrenchment of the Eastern Turkistan Islamic Movement (ETIM) and the return of the US to the region,” Sadr said.
ETIM is an al-Qaeda-affiliated armed group that has conducted attacks on China in its pursuit of the creation of “East Turkistan” on the Chinese mainland. It is in China’s interests to stabilise the Taliban government, Sadr told Al Jazeera.
“Both of these interests are historically embedded in the Chinese engagement over the last 10 years. Any form of economic interest would be secondary to the security interest,” he added.
China’s renewed interest in Afghanistan came after the fall of the United States-backed Afghan government. Independent Chinese investors were making inroads, albeit weak and flailing attempts, into Taliban-controlled Afghanistan. This latest deal cements China’s presence in the war-ravaged country.
But the true test of the deal will remain to be seen in its implementations, experts say.
“The real win is not in getting the contract or getting the Chinese back on the ground but in how [the Taliban] regulate and implement [contracts and projects], considering the current capacity within the Ministry,” Jumrainy, the industry expert, said, adding that not many details of the deal were made public.
“The question remains on what benefits Afghans will receive; training, technology transfer, revenues from the contract, none of these are known,” he pointed out.
China is also aware of the Taliban’s limitations and, as a result, has not committed much, Sadr added. The investments under the Taliban deal are significantly less than those announced between 2002 and 2021.
“Its state-owned corporations, in particular, will not invest in Afghanistan until it is sure of its security. We should recall the latest attack on Chinese investors in downtown Kabul which prompted China to advise its nationals to leave Afghanistan,” he said, referring to an attack in December 2022 on a Kabul hotel popular with Chinese nationals, for which ISIL (ISIS) claimed responsibility.
Economy
Federal budget to focus on clean economy, support for low-income Canadians, Freeland says – The Globe and Mail
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The federal government will “invest aggressively” in clean technology, Finance Minister Chrystia Freeland said Monday during a prebudget event in which she outlined the main themes of the economic plan she will deliver next week.
At a time when the U.S. government is spending billions through programs and tax breaks to spur the use of electric vehicles and clean energy, Ms. Freeland said it would “reckless” if Canada failed to also take action.
“Canada right now is really at a crucial crossroads. This is a moment when the great economies of the world have decided to embrace the clean economy,” Ms. Freeland told reporters after delivering a budget-themed speech to the International Brotherhood of Electrical Workers in Oshawa, Ont.
Ms. Freeland, who is also Deputy Prime Minister, said Canada must choose between two options.
“We also can invest aggressively in the clean economy of the 21st century in a smart, focused Canadian way – or we can be left behind,” she said. “Not making those investments is also a choice. And a choice, I believe, would be really irresponsible, really reckless.”
Monday’s speech is the latest in a series of public remarks in which the Finance Minister has provided broad outlines of the March 28 budget. She has previously said that accounting for the recently announced increase in health transfers to the provinces will be a key element. Her comments Monday add to earlier signals that the budget will include measures in response to green technology incentives contained in the Inflation Reduction Act approved last year in Washington.
In addition to those two areas of spending, Ms. Freeland said next week’s federal budget will include a “narrowly focused” boost to social safety net supports for low-income Canadians in response to the higher costs of living.
NDP Leader Jagmeet Singh, who is part of a supply and confidence agreement with the minority Liberal government, has said this should come in the form of an extension of the current six month doubling of the GST credit, a direct payment that is aimed at lower income Canadians.
Ms. Freeland did not provide specifics as to the form this support will take. She also repeated past assurances that the new spending can occur as part of a fiscally responsible budget.
Economists and business groups have cautioned that Canada can’t compete dollar-for-dollar with the billions in subsidies now on offer south of the border. A Congressional Budget Office report estimated that the measures in the Inflation Reduction Act add up to about US$400-billion over 10 years. A Credit Suisse report said the total could be twice as high.
Business Council of Canada CEO Goldy Hyder has said that Canada’s response should be about one-10th of the size of the U.S. package, given that Canada’s population is about one-10th that of the U.S. He also said that Canada’s response could include repurposing previously announced programs for business rather than funding it entirely through new spending.
In her speech, the finance minister also addressed the turmoil in financial markets following the failure of Silicon Valley Bank and this weekend’s merger of UBS and Credit Suisse.
“We have strong institutions, and we have a financial system that has proven its strength time and again,” she said. “Our financial institutions have the capital they need to weather periods of turbulence. A hallmark of our Canadian banks is prudent risk management—and this is also a core principle for those of us who regulate the financial system.”
The minister said the federal government is being vigilant and monitoring the situation closely.
Mr. Singh, the NDP leader, told The Globe last week that his party will be expecting to see cost-of-living support in the budget, including a previously promised expansion of a dental care program for lower-income Canadians.
The Conservative Party is urging the government to deliver a budget that reins in spending and avoids tax increases.
Sri Lanka’s president has said that the International Monetary Fund (IMF) has approved its request for a $2.9bn bailout and the country’s presidency said the programme will enable it to access up to $7bn in overall funding.
The IMF’s board confirmed it has signed off on the loan, which clears the way for the release of funds and kicks off a four-year programme designed to shore up the country’s economy.
The decision will allow an immediate disbursement of about $333m, the IMF said, and will spur financial support from other partners, potentially helping Sri Lanka emerge from its worst financial crisis in decades.
But IMF Managing Director Kristalina Georgieva warned that Colombo must continue pursuing tax reform and greater social safety nets for the poor – and rein in the corruption that has been partly blamed for the crisis.
“I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda,” Sri Lanka’s President Ranil Wickremesinghe said in a statement on Monday.
The country defaulted on its foreign debt in April 2022 as it plunged into its worst economic downturn since independence because of a major shortage of foreign currency reserves.
The Indian Ocean nation of around 22 million people ran out of cash to finance even the most essential imports, leading to widespread social unrest.
Mass protests over economic mismanagement, acute shortages of food, fuel and medicines, and runaway inflation forced President Gotabaya Rajapaksa to flee the country and resign in July.
Rajapaksa was replaced by President Wickremesinghe, who has implemented tough spending cuts and tax hikes in an attempt to secure IMF assistance.
IMF staff had provisionally approved the bailout in September, but the final green light was held up until China, the island’s biggest bilateral lender, agreed to restructure its loans to Colombo.
Beijing had said this year that it was offering a two-year moratorium on its loans to Sri Lanka, but the concession fell short of IMF expectations for the sustainability of the island’s debt.
Wickremesinghe had said after China agreed to restructure its loans that he expected the first tranche of the IMF package would be made available within the month.
Earlier on Monday, Wickremesinghe’s office said he was seeking a 10-year moratorium on Sri Lanka’s foreign debt as the country was out of foreign reserves to service its loans.
Officials involved in the negotiations said the terms of debt restructuring must be finalised and agreed upon by all parties before June, when the IMF is expected to review the bailout programme.
Wickremesinghe’s office said in a statement that the IMF programme will help improve the country’s standing in international capital markets, making it attractive for investors and tourists.
Wickremesinghe told the country’s parliament earlier that there were signs the economy was improving, but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.
Call to tackle corruption
Colombo is also banking on the IMF deal to unfreeze billions of dollars in foreign aid for projects suspended since Sri Lanka defaulted on its loans last year.
The government has already doubled taxes, increased energy tariffs threefold and slashed subsidies in an effort to meet the preconditions of the IMF bailout.
The austerity measures have also led to strikes that halted the health and logistics sectors last week. Wickremesinghe has said he had no alternative but to go with an IMF programme.
Georgieva said Sri Lanka must stick with its controversial tax reforms, manage government expenditure and do away with energy subsidies.
In a statement, she said that “the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor”.
She also urged Colombo to tackle endemic corruption.
“A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework,” she said.
Sri Lanka’s economy shrank by a record 7.8 percent last year as it grappled with its worst foreign exchange shortage since independence from Britain in 1948.
The International Monetary Fund (IMF) said Monday that its executive board has approved a nearly $3 billion US ($4.1 billion Cdn) bailout program for Sri Lanka over four years to help salvage the country’s bankrupt economy.
An IMF statement said about $333 million US ($455 million Cdn) of the funding will be disbursed immediately and the approval will also open up financial support from other institutions.
“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities,” the IMF statement quoted managing director Kristalina Georgieva as saying.
“Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.”
The office of Sri Lanka’s president said the IMF approval will unlock financing of up to $7 billion ($9.6 billion Cdn) from the fund and other international multilateral financial institutions.
CBC’s Salimah Shivji gives an inside look at how the political and economic unrest in Sri Lanka is hurting everyday people.
Earlier this month, the last hurdle for the approval was cleared when China joined Sri Lanka’s other creditors in providing debt restructuring assurances.
“From the very start, we committed to full transparency in all our discussions with financial institutions and with our creditors,” president Ranil Wickremesinghe said in a statement from his office. “I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda.”
Wickremesinghe said he has made some tough decisions to ensure stability, debt sustainability and to grow an inclusive and internationally attractive economy.
Sri Lanka increased income taxes sharply and removed electricity and fuel subsidies, fulfilling prerequisites of the IMF program. Authorities must now discuss with Sri Lanka’s creditors on how to restructure its debt.
“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors to make swift progress towards restoring debt sustainability consistent with the IMF-supported program,” Georgieva said.
“The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome,” she said.
Currency crisis
Sri Lanka announced last year that it is suspending repayment of its foreign debt amid a severe foreign currency crisis, because of a fall in tourism and export revenue due to the COVID-19 pandemic, mega projects funded by Chinese loans that did not generate income and releasing foreign currency reserves to hold the exchange rates for a longer period.
The currency crisis created severe shortages of some foods, fuel, medicine and cooking gas leading to angry street protests that forced then-president Gotabaya Rajapaksa to flee the country and resign.
Since Wickremesinghe took over, he has managed to reduce shortages and ended hours-long daily power cuts. The Central Bank says its reserves have improved and the black market no longer controls the foreign currency trade.
However, Wickremesinghe’ s government is likely to face hostility from trade unions over his plans to privatize state ventures as part of his reform agenda and public resentment may increase if he fails to take action against the Rajapaksa family, who people believe were responsible for the economic crisis.
Wickremesinghe’s critics accuse him of shielding the Rajapaksa family, who still control a majority of lawmakers in Parliament, in return for their support for his presidency.
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