Expanding Bangladesh-Afghanistan Trade Prospects

The prospect of deepening trade ties between Bangladesh and Afghanistan has recently garnered renewed interest, particularly among small and mid-sized business groups in Bangladesh. This shift in interest follows significant political changes in Dhaka, notably the departure of former Prime Minister Sheikh Hasina on August 5, 2024, through a mass student-led movement, according to political and business insiders.

Although Afghanistan has long remained off the radar of Bangladesh’s major exporters, emerging business leaders are now eyeing it as a potential trade partner. These entrepreneurs foresee trade reaching the $100 million mark within the next few years, up from the current volume of approximately $30 million.

Official figures from the Export Promotion Bureau (EPB) of Bangladesh show that the country exported goods worth $10.16 million to Afghanistan during the July–June period of the 2023–24 fiscal year. In the first nine months of 2024–25, this figure stood at $8.85 million. While these numbers are relatively modest, they reflect a growing interest in exploring an underserved market in South Asia.

Afghanistan, with a population exceeding 40 million, presents a promising yet challenging opportunity. Clothing manufacturers in Bangladesh, particularly members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), believe there is potential to penetrate the Afghan apparel market, currently dominated by Chinese products.

One sector that appears particularly ripe for collaboration is fruit trading. Afghanistan, known for its high-quality fruits, could offer a cost-effective alternative to Bangladesh’s current import sources. Presently, Bangladesh imports apples from South Africa, Brazil, China, and Australia; pomegranates from India; pears from Pakistan; oranges from Egypt; tangerines from China and India; and grapes from India.

In FY2021–22, Bangladesh spent nearly $450 million on fruit imports. Data from the Bangladesh Bank shows traders opened letters of credit (LCs) worth $247.26 million for fruit imports during the July–January period of FY2023–24, up 25.81% year-on-year. Afghanistan’s competitive prices could help reduce this import bill while supporting trade diversification.

Currently, Afghan dry food products are exported to Bangladesh via the ports of Karachi and Chattogram due to Afghanistan’s landlocked status. Improved logistics and trade facilitation could significantly enhance this channel.

However, Afghanistan’s economic backdrop poses both risks and opportunities. According to the International Monetary Fund (IMF), Afghanistan’s economy is projected to grow by 2.6% in 2025—among the lowest in Central Asia. In contrast, Kyrgyzstan and Tajikistan are expected to grow at 6.8% and 6.7%, respectively.

The sluggish growth reflects Afghanistan's internal challenges—limited access to international finance, diminished foreign aid, high unemployment, food insecurity, and restrictions on women’s economic participation. The IMF report underscores the need for structural reforms, including improving domestic revenue collection, enhancing private sector development, and creating inclusive economic policies.

Inflation in Afghanistan has turned negative, with FY2024 seeing an annual deflation of 7.7%. Food prices fell by 11.8%, and prices of other goods dropped by 3%. This is largely due to the appreciation of the Afghan currency, which has reduced import costs. However, it also signals subdued domestic demand and weak monetary transmission mechanisms.

Despite the strengthening currency, Afghanistan’s merchandise trade deficit widened to 36.6% of GDP in FY2024. While imports rose by 13.5% to $8.0 billion, exports declined by 3.5% to $1.8 billion, largely due to falling coal exports to Pakistan and stagnant agricultural exports. The broader goods and services trade deficit stood at 42.4% of GDP.

Afghanistan remains heavily dependent on imports, with Pakistan and Iran serving as its primary suppliers. This import reliance makes Bangladesh a potential alternative partner, especially in supplying textiles, pharmaceuticals, and processed foods.

Afghanistan's energy infrastructure remains critically underdeveloped. Only 20% of its electricity needs are met through domestic generation, and just a third of the population is connected to the grid. The rest of its electricity is imported from Uzbekistan (40.5%), Tajikistan (24.0%), Turkmenistan (20.5%), and Iran (15.0%).

The Afghanistan Power Sector Master Plan projected a rise in electricity demand from 2,800 GWh in 2012 to 15,909 GWh by 2032. However, regime change in 2021 halted more than 20 grant-funded energy projects, undermining energy security and economic growth. The Asian Development Bank estimates a cumulative GDP loss of 7.1% between FY2023 and FY2025 due to stalled energy investments.

Compounding Afghanistan’s economic woes is the continued freezing of its overseas assets. In August 2021, the U.S. froze $7 billion in Afghan central bank funds, with another $2 billion held in Europe. While half of the U.S.-held funds were transferred to a Switzerland-based “Afghan Fund” for humanitarian purposes, the Taliban regime has not been granted access to it.

These sanctions, coupled with a lack of international recognition, severely constrain Afghanistan’s financial maneuverability. Taliban officials have condemned U.S. control over Afghan reserves, warning that such actions are "unacceptable" and undermine sovereignty.

While Afghanistan’s current economic and political landscape is riddled with uncertainty, opportunities for mutually beneficial trade between Bangladesh and Afghanistan do exist. Sectors like textiles, dry food, and fruits can serve as early entry points for Bangladeshi businesses looking to diversify export destinations and reduce dependence on traditional markets.

However, for trade relations to flourish, both countries must overcome substantial logistical, financial, and diplomatic hurdles. It is also essential for Bangladesh to craft a nuanced trade policy, balancing strategic interests with economic pragmatism.