by Mironshokh Murodilloev
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November 18, 2021

Afghanistan is crucial for investment goals with weighty natural resources estimating 3 billion USD. So far, some foreign states and companies made investments to develop certain fields of the Afghan economy and benefit from efforts. Nonetheless, such efforts were not as high as were experienced in other neighboring states like Uzbekistan or Kazakhstan due to the fact that Afghanistan has been considered as a battlefield of modern times. In such circumstances, normally, most of the investors are extremely cautious to protect both their properties and lives in Afghanistan.

Since      Taliban gained the control over the state and changed the democracy into the Theocratic regime based on Sharia laws, the concern among both current and potential investors has climbed. This article aims to prove those concerns baseless by analyzing all factual and legal circumstances so far.

Ever since the Taliban set up its reign over Afghanistan after two decades declaring that all regulations were in power two decades ago, especially strict Sharia law came into force and applicable within the territory of the Islamic Emirate of Afghanistan biased facts arose between foreign investors making them be in dilemma. Most investors are reluctant to invest their capital in Afghanistan under an autocratic reign. They also tend to argue that stricter Sharia law deprives foreign investors of the investment leading to the squandering their money in another foreign state and being hopeless from the protection of their assets under Taliban reign because of only biased facts provided in unofficial and baseless dogmas. Unlike other non-democratic governments, the Taliban declared the sanctity of all contracts made by the previous regime and guaranteed protection for previous and further investments.

 Since the protection of foreign investment by the home state through military power is not applicable according to Article 2 (4) of the UN Charter, there has been an effort by most states to create legal protection for their overseas investments by establishing a layer of current investment protection mechanism. As a result of this, numerous legal methods have been created conferring protection upon foreign direct investments (FDIs). The analysis of these legal methods connecting with factual circumstances in today’s Afghanistan is the basis of this paper. Most predominantly, investors may suffer when the economic policy of the host state is changed as this alteration does not amount to any compensable responsibility if it has been carried out in a bona fide manner.

The risks of investment can be categorized into two types: illegitimate and legitimate. The former type is based on biased facts which come from inaccurate reports and news only contemplating negative features of the new Afghan government – the Taliban. They include ideological hostility, discriminated nationalization, absence of BIT protections presumed from future risk of the termination of international investment agreements, all of      which will be proved      groundless in this article    


The fundamental concern is for the rights on the property, in other words, the possibility to be declared to belong to the public and be taken away. There is a concern that the new forces may have ideologies that allow them to confiscate all property rights and turn them into a public entity. However, unlike communist ideology, the Taliban do not have such ideologies that allow them to confiscate private land.

Unlike communist ideological beliefs, Islamic law – the basis of the current Afghan government – recognizes private property and does not allow to simply take away the property.      As the Taliban is neither following communist ideology nor hostile to foreigners, any concerns regarding property ownership are groundless.


It may be pointed out that nationalistic sentiments based on discrimination could pose a threat to the investment, particularly when the economy of the host state is in decline, foreign investors who control specific sectors and repatriate profits may be an easy target of xenophobic nationalism.

There has been a notion that this type of risk is based on religious fundamentalism as a result of the Iranian revolution in 1979. After the installation of the government of Ayatollah Khomeini in Iran, American businesses were driven out of Iran based on nationalism.  Then, Iran-US Claims Tribunal was set up to determine the claims of US companies that had suffered damage as a result of the Iranian revolution. However, the different stands between the present Taliban and the directorate of Ayatollah Khomeini is nationalism and fundamentalism. The charges in US-Iran claims have also emphasized the sufferings mostly due to hostile nationalist approaches towards foreigners. Any measure taken by the Iranian government was based on political disputes. For example, only British and US investors suffered while most non-Muslim foreigners, such as Russians, remained inviolable. Additionally, Uzbekistan has already recognized the Taliban as a non-terroristic organization, and both sides hope for great attitudes towards the development of the economic relations by both sides. As current Uzbek-Afghan relations are not similar to those between the US and Iran, it is unlikely to presume any future hostile policy based on nationalism.


Any treatment of investors by the host state should not exceed principles that were mutually set in accordance with international investment agreements. Otherwise, the suffered party may bring a claim against the responsible state before arbitration. But the issue is what measures can be taken if there is no international agreement between home state and host state? Will the investor lose all investment values if the investment is not based on Bilateral Investment Treaty(BIT) or Free Trade Agreement(FTA)? Although Uzbekistan and Afghanistan have not concluded BIT between two states to protect and encourage foreign investment, this fact cannot be considered to be a threat to the investment.

Subsequently,      national investment legislation can be used as a basis for investment protection if any treatment is considered to be illegitimate. Take the SPP Tribunal case, for instance, it referred to the Egyptian investment legislation which clearly guaranteed protection from nationalization or confiscation. The very tribunal was able to exercise jurisdiction over the dispute based on the national legislative norms. Subsequently, under Article 27 of the Private Investment Law of Afghanistan (PIL), the state can expropriate the investment only for public interest and it is still compensable under customary law.

But, there is another problem whether the investors will be able to invoke the method of SPP Tribunal if the Taliban terminates the PIL adopted by the former Government. In such cases, the investor is still under the protection anyway. If the Taliban terminates the PIL and adopts Islamic sharia laws, investors can be protected in such a case. That is, according to Sir Alfred Bucknil in Qatar arbitration, Islamic law admires property protection which principle can be widened to Investment matters. But, if Islamic scholars argue that fiqh cannot be applied to the protection of FDI, the principle suggested by Lord McNair will apply which states that if the local law is silent on investment issues, general principles of law should be applied. All in all, investors will not lose anything even if the sharia law comes into force.      

The latter types of risks are based on legitimate presumptions in which most tribunals made conclusions to exclude state responsibilities. These, even, are contained in major BITs permitting states to act in necessity. In such cases, investors may even be left without compensation if the expropriation occurs. These risks usually include ethnicity “discrimination”, changes in industry patterns, termination of onerous contracts, regulation of the economy, and the law-and-order situation.


Alongside nationalistic factors, the role of the ethnic structure of the host state on foreign investment has become a focus of attention. In this case, a state in emergency factors may limit the entrance of certain investments made by people belonging to certain nationalities or ethnicity with the justification. The hypothesis is that in developing states alliances are made by foreign investors to control business creating a backlash in the majority community which holds political power. Naturally, realizing fatal consequences of this, the Taliban may also take necessary steps establishing a limit to the market liberalization in certain industrial sectors, for example, may refuse entry of investors or simply nationalize the property on a basis of national security.

Nevertheless, as long as the Taliban claim to protect basic human rights, they also possibly admit the tenant required to pay compensation in the case of nationalization or legitimate expropriation.


If any agreement between the state and foreigners is almost impossible to perform, they, in turn, are subject to the risk of government intervention reducing the loss that can be suffered by the host state. Such circumstances require not to terminate the contracts but make unilateral amendments to them. The case      of Sattebello v. Banco Totta Acores is illustrative. When a state-owned shipyard was not able to perform the contract due to inability for non-subjective reasons and had to pay penalties, the Portuguese Government interfered and made alterations to the provisions. The other party was unable to obtain remedy neither within nor outside Portugal.

Fortunately, as explained, as far as foreign investors were cautious to make contracts, there is not a gradual number of agreements far beyond onerous provisions at all. Any potential investor had better take into account the possibility of unilateral amendments in case the contracts in question are not really to be performed. For the case of the Uzbekistan-Afghanistan business forum which is estimated at 654 million USD, there is not any concern regarding onerousness except mutual interest both for Afghan and Uzbek sides.


As far as Afghanistan is declared to be under the reign of the Taliban Government establishing Sharia laws, any investor is obliged to respect local rules. Islam totally prohibits the consumption of alcoholic drinks and wearing light clothes for women in public. Additionally, under Article 5 (1)(3) of PIL, production of intoxicants is prohibited and such investments are not considered covered. Since Uzbek investors are not active in extractive industries, assets can be seen in food and textile manufacturing. Hence, the investors are also advised to consider if their investments are in tune with Islamic rules. Otherwise, local administrative organs may deprive them of enjoying the investment and such types of expropriation are considered to be fully legitimate.


Under customary international law, the state is obliged to guarantee full protection and security against physical property damages caused by governmental interferences or by citizens. Although the war in Afghanistan has ended in August 2020, some terroristic acts are still in course by the ISIS-K group. In such circumstances international law only recognizes full protection from governmental military actions, but not by opposite military groups. However, if there is a direct requirement in the contract to expand the provision to non-governmental property damages, the host state is under liability regardless of governmental nexus.

Hence, any potential investor should make explicit directions for protecting the property from physical damage.


One may argue that the Taliban may terminate all agreements made by the former government and parties to them will be unable to react or require remedy. However, Uzbekistan made a strong position to accomplish this potential problem first in 2018. This is because the only Uzbek investment in Afghanistan is initiated by the Government itself. This program is based on building a railway beginning from Termiz and making Uzbekistan able to reach the coastal ports of Pakistan. Respectively, the Taliban has also interested and this program is far from onerous nature. Also, any state-to-state dispute is easier to be solved through diplomatic relations as stated in Barcelona Traction. Finally, the Taliban has declared itself as a legitimate successor of the former government and all bona fide investments are far from any risks tantamount to expropriation unless they are contrary to the basic principles of Islam. So, an agreement made between Tashkent and Kabul on the very railway, may not possibly be terminated one-sidedly.


Based on all the above-stated facts and international law perspective, it can be concluded that the Taliban Government is not hostile towards foreign investment as was shown by fundamentalist and nationalist Tehran to foreigners from the US or akin to disrespect basic property rights as in former Soviet countries. On the other hand, foreigners should respect measures taken by administrative organs based on tenant religious beliefs. Furthermore, they also should not forget the state’s right to take measures to preserve national security.

Cite as: Mironshokh Murodilloev, “Risks to Uzbek FDIs and Their Legal Protection under Taliban Forces”,  Uzbekistanlawblog, 18.11.2021