President of Afghanistan Ashraf Ghani (R), Prime Minister of India Narendra Modi (L) and President of Iran Hassan Rouhani (C) are seen as they signed Chabahar transit agreement in Tehran, Iran on May 23, 2016
Iran's southeastern Chabahar port can be seen from two viewpoints. From the viewpoint of developing less-developed regions of Iran, it shows that in their drive to develop the southeastern part of the country, the Iranian government and nation are resolved to create a developed zone on a territory, which is commonly known as the “Makran coast.” These are almost forgotten coasts whose crown jewel is Chabahar port and are on the path to achieve an acceptable level of development in order to become a model of spatial planning for the entire Iran. The second viewpoint sees Chabahar as a logistics hub, which can connect Afghanistan and Central Asia to international waters through the shortest route and the most efficient logistic structure and port services. In addition, Chabahar Free Trade and Industrial Zone, as an infrastructure for economic and trade activities, is ready to attract foreign investment and remarkable developments have already taken place there to turn it into an active economic zone. In the meantime, cooperation between India and Iran for establishing port and rail infrastructure to facilitate connection to Afghanistan has led to signing of a trilateral agreement among Iran, India and Afghanistan, which promises a bright future for that region.
As two strategic allies, India and Afghanistan have been facing problems created by Pakistan, as a third country, for getting connected to each other. Therefore, after overarching assessments, they reached the conclusion that they should get connected through the shortest possible route, which was Iran, where Chabahar port was determined as the best point for connection between the two countries. In this way, all three sides to the trilateral agreement started a win-win game. There are very valuable mines in northwestern part of Afghanistan, which cannot be exploited under the present circumstances. The government of Afghanistan needs foreign revenues in order to reconstruct the country. The value of Afghanistan’s mineral reserves has been estimated at billions of dollars. However, minerals in their original form are voluminous and less valuable. Therefore, rail structures are needed for their export. India is a customer of Afghanistan’s raw minerals in order to turn them into mineral products through its mineral industries. Iran, in the meantime, can play a key role in connecting these two countries. Iran-Afghanistan railroad, which is being constructed through national investment in cooperation with India, will travel from Chabahar up to city of Zahedan, from which point it will continue up to the Afghan city of Zaranj. On the other hand, Iran's Khaf railroad (in Khorasan Province) is going to be connected to the Afghan city of Herat in the near future while a railroad is going to be constructed to connect Herat to city of Mazar-i-Sharif on its way to Uzbekistan. All these projects delineate the future roadmap for development of Chabahar, which will lead to a major development in the entire region.
Afghanistan has no access to free waters and this has proven to be a major obstacle on the way of the country’s development. The country can only access free waters through its eastern and western neighbors, that is, Iran and Pakistan. Pakistan’s Karachi port has been so far the sole way for Afghanistan to get access to free waters. However, as Afghan officials have said time and again, Pakistan has frequently violated all agreements signed by the two countries and this has been an obstacle to Afghanistan’s optimal use of Karachi port and further development of economic and trade relations between Kabul and Islamabad.
To get rid of this monopoly, the government of Afghanistan has been seeking alternative routes. Iran's Bandar Abbas port is another regional port, which can be used to transit goods to and from Afghanistan to other destinations. However, after Chabahar was highlighted and its striking advantages were made clear, the government of Afghanistan found itself faced with new hopes. In the meantime, India’s investment in this port has greatly increased its attractions for the government of Afghanistan. After Iran, Afghanistan and India signed their trilateral agreement to cooperate in Chabahar, the first part of the port’s dock was officially inaugurated by Iran's President Hassan Rouhani through a ceremony attended by officials from 17 countries. As a first step, three consignments of India’s aid for Afghanistan consisting of 110,000 tonnes of wheat were sent from Indian ports to Chabahar en route to Afghanistan and were received by Afghan officials through a special ceremony.
As Chairman of Herat Chamber of Commerce and Industries Haji Saeed Khatibi said during a meeting with Iranian officials of Chabahar Free Trade and Industrial Zone in April 2016, Afghanistan is a landlocked country and Chabahar port, which enjoys a good strategic position, is the sole way with high security index to connect it to free waters of the Indian Ocean. Therefore, transit and export of Afghanistan’s goods through Chabahar will be very economical and profitable due to proximity of the two countries. During that meeting, a trade and economic delegation from Afghanistan discussed important opportunities for investment in Chabahar and promised to take important steps in the near future for further development of relations between the two sides. The government of Afghanistan has put establishment of necessary infrastructure for transit and export of goods on its agenda, and construction of a railroad running from Iran's Milak border town to Afghanistan’s Herat city will soon begin through investment by India.
Afghanistan has common border with Iran's Sistan and Baluchestan Province and this province has been hosting Afghans since a long time ago. Registration of 130 companies by Afghan businesspeople in Chabahar port signals its high importance in the eyes of Afghan investors. Chabahar is a major route connecting Afghanistan to free waters and the priority for investment in this zone has been given to economic activists and businesspeople from this friendly and neighboring country. Five protocols and memorandums of understanding have been so far signed for development of economic and trade relations with Afghanistan and 50 hectares of land has been allocated to Afghanistan’s investment in Chabahar Free Trade and Industrial Zone.
According to remarks made by a member of board of directors as well as technical and engineering deputy head of Chabahar Free Trade and Industrial Zone, investors from 47 countries have already registered 354 companies active in the fields of trade, industry, service, tourism and transit in that zone. He added, “The total amount of foreign investment that has been declared at Chabahar Free Trade and Industrial Zone since 2003 up to the present time stands at 770 million dollars, of which 53 million dollars has been realized so far.” The official added that on the whole, 3,168 domestic and foreign companies have been registered in Chabahar Free Trade and Industrial Zone, which have so far created 13,600 jobs. Registration of companies in this zone is done electronically and in the shortest possible time, that is, two working days. On the other hand, 2,814 domestic investment companies have declared their intention to invest 160 trillion rials (about 35,555,555 dollars) in Chabahar Free Trade and Industrial Zone since 2002 of which 11 trillion rials (about 2,444,444 dollars) has been realized so far.
Meanwhile, a total of nine specialized industrial parks active in such fields as processing of dates, car manufacture, fisheries, information and communication technology, processing of food and agricultural products, chemical agents, logistics, and renewable energies in addition to a medical park are ready to attract investment from the private sector. A total of 1,276 hectares of land has been allocated to establishment and launching of nine specialized parks and the total volume of investment in these parks has been estimated at 551 million dollars.
Known as the gate to development of the east of Iran, Chabahar enjoys good conditions for investment. In addition, special incentives have been considered for Chabahar Free Trade and Industrial Zone in order to encourage investment there, which can attract profitable ideas to that zone. These incentives include offering guarantees for investment based on the “Encouragement and Support of Foreign Investment in Iran Act,” and the possibility of transferring abroad 100 percent of the principal capital and the profit emanating from the activities of all foreign persons.
One-hundred-percent tax exemption on income and property for 20 years, which can be extended; exemption on customs duties for importing machinery and raw materials by production units; waiver of general export and import regulations for exporting products produced in the zone; and customs exemption on products produced by industrial units in the zone for export to the mainland equivalent to the added value created through use of domestic raw materials are other incentives considered for industrial units active in Chahbahar. Those investing in Chabahar Free Trade and Industrial Zone are allowed to use foreign workforce up to 10 percent of the total workforce in this zone and are also allowed to embark on retail sales of their products. Other incentives considered for this zone include long-term sale and lease facilities for foreign investors, according to which foreign investors can own 100 percent of the shares of companies established by foreign nationals. At the same time, Chabahar Free Trade and Industrial Zone takes advantage of resilient laws and regulations with regard to the manpower working in this zone. Investors are also authorized to engage in such activities as cargo onloading and offloading, transit, and transship while availing themselves of exemption from customs duties except for warehousing and transport expenses. They can also take advantage of bank facilities to implement investment projects and can establish domestic and foreign banks and insurance firms or their branches in Chabahar Free Trade and Industrial Zone.
On the other hand, Iran issues six-month visas to foreign investors in Chabahar Free Trade and Industrial Zone, which can be extended, and the Iranian foreign ministry will also run a representative office at Chabahar airport to issue visas.
All told, due to these features and incentives, Chahbahar port and Chabahar Free Trade and Industrial Zone open the region’s gate to the Arabian Sea and the Indian Ocean. The hinterland for this region is Iran's Sistan and Baluchestan, Southern Khorasan, and Razavi Khorasan provinces in addition to Afghanistan to the east of this corridor, and Central Asia to its north. These regions can provide vast consumer markets for goods produced in this zone and also use it to export products, minerals and energy. These markets cover a population of more than 100 million.
The future of Chahbahar promises economic development. At the same time, Chabahar – Zahedan – Sarakhs transport corridor, which will connect Chahbahar through rail and road to Afghanistan and Central Asia in the near future, can be also connected to Afghan cities of Herat, Mazar-i-Sharif and Hairatan en route to Uzbekistan, Kazakhstan and China. It can also play the role of an alternative to China–Pakistan Economic Corridor (CPEC) in times of need. On the other hand, Chabahar port and eastern Iranian transport corridor will be able in the future to cooperate with the Central Asia Regional Economic Cooperation (CAREC) Program and connect its rail and road networks to economic markets in the Persian Gulf and the Indian Ocean through Iranian roads and railroads.
Another advantage for Chabahar and eastern Iranian transport corridor over other parallel corridors is the complete security that exists within Iran's borders and the fact that routes used in this corridor are away from such disputed regions as Kashmir, which is situated between India and Pakistan and can cause problems for the implementation of China–Pakistan Economic Corridor. Meanwhile, the existing insecurity in Pakistan’s Balochistan Province can cause problems for the implementation of plans that are aimed at developing the country’s Gwadar port.
Investment and other activities by the Islamic Republic of Iran in Chabahar are going on in cooperation with India and through attraction of foreign investment. However, the Iranian government is determined to go ahead with development of this port and the entire coast of Makran. Therefore, it plans to build new towns and settlements for accommodating more than 150,000 people during the Sixth Economic, Social and Cultural Development Plan (2017-2022) in order to provide an attractive ground for national and foreign investment. These towns will be active in such fields as providing services, fishing and tourism and will have good opportunities to grow. Sometimes Pakistani officials talk about a possible rail link between Gwadar and Chabahar ports, but their remarks have been assessed as an attempt to control India’s activities in Chabahar. Of course, development of Pakistan’s Gwadar port by China can turn it into a military base, where China’s military naval fleet will be stationed. However, the Islamic Republic of Iran will not allow foreign military rivalry between India and China to take place in its territorial waters, and in line with its Constitution, has not and will not join any military alliance. Therefore, Chabahar port is just a free trade zone, which provides friendly countries with an opportunity for investment and other forms of economic activity.
© Abrar Moaser Tehran
Bahram Amirahmadian, an assistant professor at The University of Tehran, is the senior fellow at IRAS.
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