Infrastructure projects: off for German investments in Afghanistan

Germany has invested billions in infrastructure projects in Afghanistan. After the Taliban came to power, many are now threatened with extinction. German companies are also withdrawing – with consequences.

Afghanistan as the “energy hub in Central Asia”: That was the goal of the government’s multi-stage agreement with Siemens Energy. A modern, sustainable and inexpensive energy system should be developed. But this project is now about to end – like so much in the embattled country. “Unfortunately, the security situation in the country has deteriorated further due to the recent events in Kabul. We view the developments with concern,” said Siemens Energy. This seems to seal the end of the deal.

Only 30 percent of the 37 million inhabitants of Afghanistan are supplied with electricity. Access to electrical energy is just one of the country’s numerous infrastructure problems. In the past few years, they should primarily solve development aid – for example from Germany. But this money will no longer flow for the time being. In response to the change in power, the federal government stopped all aid payments.

For the German economy, the halt to infrastructure projects like that of Siemens Energy seems manageable. Because although Afghanistan has been in the public eye over and over again in the past 20 years, the country has not been able to establish itself as a location for private investors and companies, or as a sales market.

No central role for German foreign trade

This is also shown by the figures: According to the German Chamber of Commerce and Industry (DIHK), the volume of trade between Germany and Afghanistan was only in the high double-digit million range last year – and thus on a level similar to that with Togo or Rwanda. “German-Afghan economic relations are on a low-threshold level,” said DIHK foreign trade director Volker Treier tagesschau.de.

According to the state-owned company Germany Trade & Invest and the Federal Association of Wholesale, Foreign Trade, Services (BGA), Afghanistan was 130th of Germany’s 239 trading partners in terms of exports with just under 70 million euros. The main export goods are automobiles, auto parts, machines, equipment and food. The imports, on the other hand, are hardly measurable at 15 million euros.

For Afghanistan, too, trade with Germany plays a rather subordinate role. “Germany is neither among the top 5 buyers nor among the top 5 supplier countries,” explains Katrin Kamin, head of the Trade Task Force at the Kiel Institute for the World Economy (IfW), in an interview with tagesschau.de. In addition, the trading volume has steadily shrunk since 2018.

Political uncertainty stifles investment

The DIHK and the Federation of German Industries (BDI) do not have detailed information on whether and how many German companies produce in Afghanistan due to the low volume of trade. “As far as we know, there is no German company with German employees on site, but there are Afghan nationals who are employed by German companies and are still in the country,” said DIHK foreign trade director Treier.

There is also no overview of the investments made by German companies. In the past few years, for example, the Essen-based construction company Hochtief and the Munich banknote manufacturer Giesecke + Devrient had business relationships with Afghanistan. But now many companies have withdrawn. “The security situation and the general political uncertainty in the country are a big problem for companies – that inhibits the willingness to invest,” said Kamin. Uncertainty is not very helpful for economic activity.

60 percent of Afghanistan financed by donors

Since private investments fail in many places, Afghanistan is dependent on aid payments after more than four decades of war and conflicts. Around 60 percent of the budget was recently financed by international states. According to the OECD, the four most important bilateral donors from 2015 to 2019 were Germany, USA, Great Britain and Japan. For Germany, Afghanistan has so far been number one among the recipient countries of development aid.

For this year alone, 250 million euros were estimated. The Federal Ministry for Economic Cooperation and Development (BMZ) wanted to provide up to 430 million euros a year together with funds from other departments, for example for humanitarian aid or police training.

Since the start of the Afghanistan mission in 2001, the German government has invested around 3.5 billion euros in Afghanistan and is in third place among the largest donor countries over the period up to 2019. Germany paid 50 million euros for the expansion of an old landing pad into an international airport at the Bundeswehr base Mazar-i-Sharif, which was supposed to establish the connection to Europe and take care of business traffic. Most recently, the airport was mainly used for escapes and has been under the control of the Taliban since the weekend.

Infrastructure projects by GIZ and KfW

Other projects should also move the country forward and stimulate the economy. For example, hundreds of schools for girls and boys as well as dozens of hospitals and health centers have been built, says Kamin. Most of the money went into the infrastructure. “Almost 1500 kilometers of roads and numerous bridges were built and maintained.”

Until recently, more than 1000 employees of the German Society for International Cooperation (GIZ), which is responsible for state development aid, were on site. GIZ has been supporting Afghanistan in the area of ​​humanitarian aid and development since 2002. All German and international GIZ employees have safely left the country, according to the ministry. It is unclear whether individual projects can be continued on site.

The Kreditanstalt für Wiederaufbau (KfW) also has a portfolio of around 1.2 billion euros with around 30 projects in Afghanistan. The loans were also granted to German companies via Afghan ministries as part of tenders. For example, the state bank and the Stuttgart engineering consultancy Fichtner are funding the water supply in Kabul for almost 70 million euros. Just 16 percent of Afghan households are supplied by the state water authority. KfW also awarded EUR 74 million to improve the high-voltage network in the north of the country.

Development aid stopped

Foreign Minister Heiko Maas announced the stop of aid payments last week. Afghanistan will not receive “a cent more” from Germany if the Taliban ruled the country and introduced Sharia law. After the militant Islamist Taliban came to power, the federal government officially suspended state development aid for the country, as Development Minister Gerd Müller said.

This could have serious consequences for Afghanistan. Even before the Corona crisis, one in four employable people was unemployed. The country is one of the poorest countries in Asia. According to the World Bank, more than 50 percent of the population live below the poverty line. It is estimated that the gross domestic product continued to shrink during the pandemic in 2020 – by five percent. The lack of aid is likely to exacerbate the situation again, says Kamin.

“Of course it is difficult when funds are withdrawn at such short notice,” said the geoeconomic expert. In addition to the lack of new projects, the infrastructure that has been built can also disintegrate again if it is no longer maintained. However, there are also other actors who welcome the US withdrawal and hope to gain access to Afghanistan’s coveted raw materials. Some powers would have no problem cooperating with the Taliban.

Nonetheless, the crisis could also pose a lasting threat to Germany. “If the terrorist threat increases, this can quickly lead to a destabilization of the region, which in turn would put an additional burden on world trade,” said the President of the Federal Association of Wholesale, Foreign Trade and Services (BGA), Anton Börner, to the “Handelsblatt”. Ultimately, that would also affect the export nation substantially.