The outcome of April and June presidential elections has finally been translated into a political deal. Former World Bank official Ashraf Ghani’ victory, with 56% of the vote has long been contested by his opponent Abdullah Abdullah due to widespread fraud allegations. Under US lobbying, a compromise has been agreed whereby Mr Ghani will succeed Mr Karzai as president and Mr Abdullah will become Prime Minister. Importantly, Mr Ghani is to sign a crucial bilateral security deal with the US to allow aid and military presence (around 10,000 US troops) to continue beyond 2014, and to grant immunity to US troops which should seriously complicate any peace agreement with the Taliban.

Impact on country risk

This year is pivotal for Afghanistan with a new president and the withdrawal of most NATO troops. Nonetheless, the latest political developments and the strong Taliban presence in the south and east leave few hopes for the country’s near future. The high turnout at polls, despite threats and intimidation from the Taliban, was a positive surprise as it highlighted the population’s enthusiasm for the country’s first democratic transfer of power. However, their expectations have been greatly disappointed by usual political games that indicate that government behaviour is unlikely to change in future. Short-term political stability is very uncertain in the medium-term, thereby harming economic performances. This is particularly true as the heightened Taliban national threat is expected to grow further next year and the quasi absence of political opposition might favour corruption and bad governance. Moreover, probable infighting between Mr Ghani (proponent of peace negotiation with the Taliban and popular among the majority Pashtuns in the South)  and Mr Abdullah (popular among the Tajiks in the North) could fuel ethnic tensions. Considering all those factors and unless security risk improves via a workable peace agreement with the Taliban, Credendo Group’s off cover policy on Afghanistan is not likely to change anytime soon.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com