CORPORATE WINDOW: The crossroads of collapse

Five years after the Taliban returned to Kabul, Afghanistan’s economic relationship with Pakistan is undergoing a structural shift. For Khyber-Pakhtunkhwa, particularly Peshawar, this is not simply a bilateral trade issue. It is increasingly a question of industrial resilience and competitiveness.

The clearest evidence is Afghanistan’s transit trade through Pakistan. Container traffic, which had risen to nearly 89,000 containers worth about $5 billion before the Taliban returned to power, briefly climbed to a record 102,886 containers valued at $6.7bn in FY23.

It then went into reverse. Volumes fell to 54,114 containers in FY24 and 42,959 in FY25, worth $1.36bn. In FY26, they collapsed to just 11,592 containers valued at $367 million, according to customs data cited in a recent Dawn report.

The numbers matter because they show that Pakistan’s October 2025 border restrictions did not create the decline; they accelerated a process that was already under way.

As Afghanistan shifts imports towards Iran and Central Asia, Pakistan risks losing not only transit trade but also the industrial and commercial ecosystem built around it

Kabul has been deliberately diversifying its trade routes, with Iran emerging as the most important alternative. The World Bank’s Afghanistan Economic Monitor reports that the Iranian corridor has become the backbone of Afghanistan’s import supply chain.

In FY25, Iran accounted for 31.3pc of Afghan imports, while direct imports from Iran and imports transiting through Iran together represented 48.6pc of total imports. Central Asian routes are also gaining importance.

This means Pakistan is losing more than transit fees. It is losing its traditional position as Afghanistan’s principal gateway to international markets. The reverse-transit trade has suffered an even sharper collapse. Afghan exports travelling through Pakistan to third markets fell from $454m in FY25 to only $7m in FY26, according to Customs data.

For decades, Afghan demand supported an economic ecosystem linking Karachi’s ports with Peshawar and the border markets. Manufacturers, wholesalers, transporters, clearing agents, warehouses and financial intermediaries all benefited from the movement of goods into Afghanistan. When that flow contracts, the damage travels far beyond the customs post. Industries in KP already face high energy, financing and transport costs. A shrinking Afghan market adds another burden: weaker demand precisely when businesses need greater capacity utilisation to remain competitive.

Cement, construction materials, food products, pharmaceuticals, textiles and consumer goods have traditionally found markets in Afghanistan. A sustained reduction in Afghan orders threatens manufacturers and wholesalers alike. A truck that does not cross the border means less income for a transporter. A warehouse without cargo requires fewer workers. A wholesaler with fewer Afghan customers reduces purchases from manufacturers. A factory with fewer orders cuts production.

The disruption is also affecting trade of industrial inputs, for example, imports of coal from Kabul. Cross-border supply disruptions can therefore raise production costs while export demand is weakening.

The situation is problematic to say the least. A manufacturer can respond to falling demand by reducing prices, production or margins. But if input costs are rising simultaneously, the options narrow sharply. The result is a loss of competitiveness, not only in Afghanistan but potentially in domestic and other export markets.

The consequences extend beyond industry. Agricultural markets on both sides of the border are highly sensitive to delays because fruits and vegetables are perishable. When Torkham or Chaman is closed or severely congested, exporters cannot simply store their cargo indefinitely.

Recent developments illustrate the cost. In 2025, five southern Afghan provinces that make up the country’s main grape-producing region exported 44,225 tonnes of grapes worth $13.8m; nearly 43,000 tonnes went to Pakistan, with the remainder going to Bangladesh, Iraq and India. So far in 2026, exports have fallen to just 256 tonnes, valued at about $100,000, according to a recent Associated Press report. Such losses are not confined to Afghan farmers. Pakistani transporters, commission agents, wholesalers and retailers are also affected by interruptions to cross-border commerce.

At the centre of the problem is the Afghanistan-Pakistan Transit Trade Agreement (APTTA), designed to turn geography into economic opportunity. Pakistan offered Afghanistan access to seaports; Afghanistan offered Pakistan a potential land bridge towards Central Asia. But security concerns, smuggling, regulatory disputes and political tensions have steadily eroded the commercial value of that arrangement.

Pakistan has legitimate concerns. Transit cargo destined for Afghanistan can be diverted into Pakistani markets, depriving the government of revenue and creating unfair competition for domestic businesses. In October 2023, Pakistan imposed a 10pc processing fee on specified categories of Afghan transit goods, including garments, footwear, machinery, blankets and textiles, as part of efforts to curb misuse of the transit system.

Afghanistan, however, has legitimate commercial concerns of its own. Every additional document, financial requirement, inspection or border delay raises the cost and uncertainty of trade. If an alternative route through Iran becomes commercially viable, traders have an incentive to use it. And once a trader establishes a new supply chain, winning him back becomes considerably harder.

Afghanistan will not escape the cost of this realignment. Longer routes can increase transport and logistics expenses, while Pakistan loses port activity, trucking, warehousing, customs-related business and market access.

There are undoubtedly consequences for the entire Pakistan economy, but for KP the consequences are immediate. Peshawar’s traders, transporters, warehouses, clearing agents and manufacturers form an interconnected commercial ecosystem built around access to Afghanistan and, beyond it, Central Asia.

The Pak-Afghan Joint Chamber of Commerce and Industry estimates that Pakistani exporters suffered about $225m in losses over eight months of this year because of restrictions and blockades. It puts Pakistan’s annual exports to Afghanistan around $1.5bn, while exports to Central Asian markets through Afghanistan at $800m a year.

This is particularly disturbing for KP because geography has traditionally been its competitive advantage. Peshawar and the wider Khyber corridor were positioned to benefit from trade between Pakistan, Afghanistan and Central Asia. That advantage is now being weakened as Afghanistan diversifies its trade routes.

Pakistan therefore cannot treat the collapse of Afghan transit trade solely as a security or diplomatic issue. Nor can Kabul assume that replacing Pakistani routes with Iranian and Central Asian corridors carries no economic cost. Both sides need a predictable, rules-based transit regime.

Published in Dawn, The Business and Finance Weekly, August 24th, 2026