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Afghanistan was invaded and occupied by the Soviet Union in 1979, in the attempt to rescue and consolidate the pro-Soviet regime in place. It took 10 years
before the USSR could withdraw its forces, having been delayed by the fierce resistance of anti-communist mujahidin forces, supplied and trained by the US,
Saudi Arabia, Pakistan, and others. The pro-soviet regime survived for two years and a half, contrary to the expectations of many, and then fell in April
1992, having outlived its own mentor, the USSR. Fighting subsequently continued among the various mujahidin factions, but the fundamentalist Islamic Taliban
movement had been able to seize most of the country. In addition to the continuing civil strife, the country suffers from enormous poverty, a crumbling
infrastructure, and widespread land mines.
The return of the old King Zahir Shah at the end of April was interpreted by many Afghans as a further sign that peace might really be at hand, a feeling that
was already prompting hundreds of thousands of Afghans to come back to their native country from Pakistan or Iran. By mid-July, 1,300,000 had already done so.
However, the return of the former king has also caused tensions within the interim administration between royalists and anti-royalists. Despite all the talk
about the return of the king, Afghan internal politics since the fall of the Taleban regime has been dominated by the Loya Jirgah elections, which were widely
expected to be decisive in establishing the balance of power between the different factions in the future government. Even if these were never meant to be
strictly speaking political elections and despite the assurances by the interim government that the warlords will not be allowed to interfere, the military
factions in control of the various areas of the country determined the outcome to a fair extent. However, despite all attempts to buy influence and
pre-determine the outcome, a significant opposition emerged from its ranks to prevent a completely smooth transition from the interim government to the
provisional one, especially among Pashtun delegates. As a result, Hamid Karzai, who was elected president, had to slightly increase the weight of the Pashtuns
within the new government, succeeding in bringing over to his side some groups previously opposed to him. among the main factions vying for power, the
Panjsheris proved unable to match their power in the armed forces with anything similar in terms of influence among the delegates. the "Jihadi" alliance led
by former president B. Rabbani emerged as an important force, but did not take any prominent position in the new cabinet.
The international politics of the Afghan crisis is characterised by a row between the US and Iran, which is being accused of meddling in Afghanistan, with the
aim of destabilising the interim administration of Hamid Karzai. Iran fears the establishment of a government dominated by the monarchists in Afghanistan and
sympathises with all the Afghan factions that share the same feeling. Russia is rather indifferent to the internal politics of Afghanistan, but wants to
ensure the presence of a government compatible with its geopolitical aims. Its strongest links are with Jamiat-i Islami, a party mostly composed of Tajiks,
which it supported during the war against the Taliban. The former Soviet republic of Tajikistan is a Russian 'de-facto' protectorate, a fact that also favours
Russia's alignment with Afghanistan's Tajiks. Moreover, some of the top generals in the Jamiat-led new Afghan national army, are former generals of the old
communist regime and they still have good contacts in Moscow.
While Pakistan and Uzbekistan continue to keep a low profile, the role of the US in affecting events in Afghanistan is undoubtedly dominant, but continues to
encounter limits to its action. The Bush administration did exercise a considerable pressure on ministers of the Karzai government on several occasions,
especially Defence Minister Fahim, whose conduct increasingly appears biased. Perhaps more importantly, the US have been building their own "party" among
Pashtun warlords in Southern and Eastern Afghanistan, whose help they want to enlist in the hunt for the remnants of Al-Qaida. Not even the US, however, has
been entirely successful in steering Afghanistan in the desired direction. These warlords, for example, are now exploiting their privileged access to funds
and resources to try to establish their own hegemony over entire regions, but are facing a growing local opposition. Moreover, even Karzai himself has openly
refused to endorse American allegations against Iran.
The prospects for a quick recovery of the Afghan economy do not look very good. International donors have pledged US$4.5bn, but only a trickle of that money
has reached Afghanistan so far and the interim government is unable to raise funds on its own, as the provincial governors withhold any income deriving from
taxes and customs. Government revenue from domestic sources is still minimal, covering only 3-4% of the requirements. The international organisations have
decided that the Afghan government will be in charge of the reconstruction process, but now demand a properly scrutinised process of allocation of resources.
They also appear to expect the interim government to act towards the eradication of the poppy fields in several regions of the country, but so far the Karzai
administration has had only a very limited success in this regard. The UN expects a harvest of 1,900-2,700 tons of opium this year, much short of the peak of
4,600 tonnes reached in 1999, but still much more than 74 tons of 2001. Even discounting the many allegations of fraud that have been surrounding the
operation, it is obvious that a great deal more has to be done in order to reduce the impact of the Afghan opium on the European markets.
The focus of the reconstruction effort is expected to be initially in investment on transport infrastructure, which is in extremely bad shape. Iran is
expected to be at the forefront of those in 2002, in part also due to the greater economic dynamism shown so far by neighbouring western Afghanistan, and has
already budgeted the necessary resources, especially for a railroad leading from Iran to the Afghan city of Herat. Longer-term projects are also beginning to
be discussed, but the plan for a 850 km pipeline crossing Afghanistan, which could provide the Afghan government with as much as US$205m in transit fees every
year, is likely to struggle to find suitable funding, despite the support of both the Turkmen and the afghan governments. The project also features the export
of Afghan gas through the main pipeline and smaller pipelines from the Afghan gas fields of the North to Kabul and some other areas, where it could be used to
provide energy for industrial and mining activities. However, Afghan gas, or at least that from previously exploited fields, is of low quality and could have
difficulties in finding a buyer in a market that is soon going to be awash with gas from Dubai and Iran.
In the meanwhile, the government has been struggling to bring the money supply under control yet and as a consequence the local currency (Afghani) has
fluctuated wildly. This has negatively affected whatever economic life is left in the country, with traders and state employees being hit especially badly.
After the April currency crisis, the afghan central bank succeeded in stabilising the Afghani at around 36,000 to a dollar, a far cry from the high of 11,000
recorded in December 2001, but still significantly better than the low of 45,000 of April. The end of the Loya Jirgah selection campaign contributed to this
achievement, as warlords and politicians stopped paying off large sums of money to buy support. It is clear, however, that a long-term stabilisation of the
currency will require the replacement of the Afghani with a new one, as there are still estimated to be significant reserves of unspent funds in the hands of
Update No: 08 - (23/07/02)
The aftermath of the Jirgah
After a rather turbulent and in a way disappointing Loya Jirgah, during the second half of June and early July Hamid Karzai, newly elected head of state,
managed to put together a new government. The negotiations held during the Loya Jirgah led to some improvement in terms of the political support enjoyed by
the government. The main improvement was Karzai's success in enlisting the support of the single largest Pashtun group, led by Adbul Qadir and some 150 strong
among the Jirgah delegates. However, the importance of this success was in part offset by the worsening relationship with the majority of the monarchists,
whose role in the new government was actually reduced compared to the pre-Jirgah interim government. Moreover, the modest increase in the importance of
Pashtuns within the government came at the cost of rising tensions with the Panjshiris, still the dominant faction within the government, but somewhat reduced
by the demotion of Qanooni, who had to abandon his post of minister of the interior. Qanooni joined the newly created Nehzat-i Melli (National Movement) party
in protest, hinting that more political factionalism might be in store. Further tension might soon derive by Karzai's apparent new willingness to take on the
persistent ethnic and political bias of defence minister Fahim, the Panjsheri's strongman, who has been formally recalled to his duty.
The positive, if modest, developments in the immediate aftermath of the Loya Jirgah were threatened by the assassination in July of vice-president Abdul
Qadir. While the instigator of the assassination is difficult to identify, since Qadir had many enemies, the most immediate risk is that without his personal
authority his coalition of moderately fundamentalist Pashtuns might unravel, therefore depriving Karzai of a key source of support. Karzai, in any case,
appeared undeterred and set up a commission in charge of disarming the private armies of parties and warlords, the first concrete step in such a direction,
although the government still has only limited means of implementing any measure the commission might decide to take. However, Karzai is getting some help
from the Americans, who are exercising some pressure on the Northern warlords, such as Dostum and Mohaqqeq, in order to get them to comply with the
According to the plans, the real effort at reconstruction was meant to start after the Loya Jirgah, once the provisional government had been formed. However,
international help is not matching what had been promised. There are signs that the US$1.7 billion, which had been pledged, may never materialise in their
entirety, since only US$1.1 billion have been confirmed in the form of actual commitments and it looks likely that just $900 million will be actually
received. Of this amount, the largest part ($650 million) is going to humanitarian relief, while $100 million are being spent on staff salaries and the armed
forces, with just $150 million going to actual reconstruction and development. Since the government expects to be able to raise just US$83 million this year
from domestic revenues, it is now likely that Kabul's budget will close the 2001/2002 fiscal year heavily in the red. The one good piece of news in this
field is that finally the regional warlords are showing some signs of complying with the requests of the central government to hand over their customs and
taxes revenues. In July Ismail Khan, governor of Herat and warlord of Western Afghanistan, handed over the equivalent of US$230,000, not a huge sum in itself,
but still a sign of some goodwill.
In this context, it is hardly surprising that the local currency, the Afghani, failed to strengthen after the Loya Jirgah, as some government officials had
expected. The exchange rate to the dollar in July is actually lower than in June, having lost a further 5.5% to 38,000. The difficulty to stabilise the
currency is leading to fears that hyperinflation might lie ahead. In part aiming at soothing such fears, at the end of June the Governor of the Central Bank
formally announced the plan to introduce a new currency to replace the Afghani, with a nominal value about 1,000 times as high.
Still great hopes in the pipeline
The new provisional government continued the efforts of its predecessor towards the launch of the pipeline projects between Turkmenistan and Pakistan. The
three countries involved in the project have now proposed to expand the pipeline to the massive energy market of India, in an effort to make it more palatable
to risk averse international investors. It is, however, unlikely that in the present conditions India will be interested in receiving gas supplies through
Pakistan. At the end of June the three presidents, Karzai, Nyazov and Musharraf, have signed a memorandum of understanding about the construction of the
pipeline, encouraged by verbal US support and by the backing of the Asian Development bank, which at the beginning of July announced that it will fund a
feasibility study. However, not only private investors, but the World Bank too remain sceptical of the project, both because of the still tenuous stability
of Afghanistan and because of mistrust of Turkmenistan's president Nyazov. The approval by the government of the new investment law in mid-July is unlikely to
change much in the short term. Even the support of the Asian Development Bank might not be completely assured, due to the ongoing dispute between the bank and
the Karzai administration, following the bank's refusal to fund the construction of the Kandahar-Kabul highway. Finance Minister Ghani has even threatened the
bank with expulsion, which of course would seal the fate of the feasibility study.
Pakistani banks branches in Kabul sought
The North West Frontier Province's trade and business circles want Islamabad to set up bank branches in Afghanistan to help promote trade and business between
the two neighbouring countries, Dawn Newspapers have reported.
They say that in the absence of a proper banking system in Afghanistan the businessmen from Pakistan have to face immense difficulties in transferring money
to and from the war- torn country.
Sarwar Khan Mohmand, former president of the Sarhad Chamber of Commerce and Industry (SCCI), said that the government should extend its banks' network to
Afghanistan to facilitate the Pakistani business and trade community in their bids to capture their due share in the Afghan markets.
Businessmen talking to Dawn said that Islamabad should evolve a prudent policy to explore the increasing economic opportunities in Afghanistan. "This would
also help Pakistan's business to enter the consumer markets of the Central Asian Republics (CARs)," said Inam-ur-Rehman, a local trader.
Sarwar Mohmand, who has been carrying out business with Afghanistan for the last several years, said that there existed greater investment opportunities in
Afghanistan for the Pakistani investors.
The reconstruction and rehabilitation works inside Afghanistan, said Mohmand, had brought tremendous opportunities for the businessmen community of Pakistan
and the time was ripe for the people of Pakistan to gain. However, for trade it was essential that the government of Pakistan should ensure stability and
consistency in its trade policies towards Afghanistan, he said.
In this regard, Islamabad should ensure that the financial assistance it had announced for Afghanistan should be utilized in the best possible way. "It should
be utilized to construct the Jalalabad-Kabul road."
"Islamabad is not exploring the increasing trade and business opportunities in Afghanistan in a way some of the other countries including Iran, India, Turkey
and Japan are pursuing their objectives by getting involved in the reconstruction process in Afghanistan," said Mohmand.
Pakistani trade delegation likely to visit Afghanistan
A trade delegation from Pakistan with the chairman of Export Promotion Bureau as head is likely to make another attempt to visit Afghanistan in the third week
of July to ensure some share for local entrepreneurs in the unexpectedly slow Afghan reconstruction, the Pakistani 'The News' has reported. The official
delegation has so far been unable to visit the country to explore the limited reconstruction opportunities, the war ravaged country has to offer which,
according to reports, are being grabbed by the businessmen from other countries.
The News learnt that the world media hype about massive reconstruction work in Afghanistan failed to materialise because the promised assistance from the
world donors did not reach the country. Whatever reconstruction work is being done in Afghanistan is limited to places where the US-led coalition forces have
full control, that is, airports and other military installations. And only the countries which have free access to Afghanistan and are protected by the
forces, have been able to get the contracts.
It was learnt the donor countries working in Afghanistan prefer to award contracts to their countrymen. India for instance, which has undertaken
reconstruction of hospitals as a donation to the Afghans, has awarded contracts to Indian contractors.
The Pakistani private sector is making efforts to get its share of the reconstruction of war-devastated country. In this connection, a delegation of All
Pakistan Contractors Association (APCA) led by its chairman Akber Sheikh paid a visit to the border city Torkhum. As a result, foreign contractors engaged in
reconstruction there started buying cement and steel from Pakistan. This is in addition to export of sugar and other edibles.
But, all the government efforts to visit Jalalabad have so far met with failure. First the Afghan government at that time advised Pakistan not to send any
delegations for security reasons. But, now a trade delegation is expected to visit Afghanistan on July 21st. Chairman APCA Akber Sheikh said the private
sector is hesitant to venture into Afghanistan with government support due to security reasons. He said Pakistani contractors have entered into small
construction contracts in Afghanistan mainly for construction of western embassies, which are located in protected areas.
He said the foreign contractors have also got some construction machinery on rent. He said the CBR has removed all hurdles in this regard. Now, the owner of
the equipment has only to give an undertaking that the machinery would be brought back after the construction is over, to be able to rent out machinery.
Local businessmen complained that government's efforts to grab some share in Afghan reconstruction are fragmented. The Export Promotion Bureau and the
National Logistic Cell are working independently to get business there, they said. Since the government waived many of the duties on cement being exported to
Afghanistan, it was feared it might be smuggled back into Pakistan. The cement manufacturers had themselves kept a strong vigil to prevent smuggling and
managed to stop it after a few initial attempts.
Pipeline project through Afghanistan gets boost from Asian Development Bank
A gas pipeline project through Afghanistan revived by the fall of the Taliban has got backing from the Asian Development Bank at the first meeting of an
international governmental commission looking at new plans.
The bank will fund a feasibility study on the pipeline, chief economist at the bank Rajiv Kumar said at the meeting in the Turkmen capital Ashgabat, which
included ministers and government officials from Afghanistan, Turkmenistan and Pakistan, and a representative from the U.S. Embassy.
The US$2bn project calls for the construction of a 1,460-kilometre (907-mile) pipeline to carry natural gas from Turkmenistan's Dauletabad-Donmez field to
Afghanistan and Multan, Pakistan.
A similar project was launched in 1997 with the participation of U.S. energy giant Unocal Corp., but abandoned when the United States fired cruise missiles
into Afghanistan in 1998 in pursuit of Osama bin Laden's al-Qaida network, blamed for two U.S. embassy bombings that year in east Africa.
The United States welcomes the Asian Development Bank's decision to help fund the project, said Robert Hanzy of the U.S. Embassy in Turkmenistan.
The pipeline has been viewed as a way for Washington to counter Russian and Iranian influence in the region with a transit route that skirts those
Kumar said the bank considers the project extremely important for economic development in the region and will take a leading role in future plans, the
Interfax news agency reported. "The bank is trying to speed up the start of the feasibility study and to carry out this work as quickly as possible," he
said, according to Interfax News Agency.
Afghan government woos investors with new investment law
Afghan President Hamid Karzai on 18th July, asked domestic and foreign investors to actively participate the economic reconstruction of Afghanistan, pledging
that his government would provide all kinds of facilities and preferential treatment, Xinhua News Agency via COMTEX, has reported.
Karzai announced that after three months of discussions and consultations, the government finally approved the law of investment so as to encourage investors,
whether Afghans living abroad or foreigners, to make investments in Afghanistan.
In his keynote speech to a conference titled "Workshop on Trade and Private Investment in Afghanistan", Karzai said that investment is an integral part of the
economic reconstruction of Afghanistan and will lead the war-torn country from destruction to peace, stability and economic prosperity.
"No country will be rich with foreign assistance," he said. "A country will not be economically prosperous without investment, trade and cooperation of the
"There is a big gap between foreign assistance and foreign investment. Foreign assistance can only last for a short time, while foreign investments create
jobs and make people rich."
"In a backward country like Afghanistan, foreign and domestic investments are very important."
He promised to give investors preferential tariffs and tax exemption, to carry out one-stop-shop practice, to clamp down administrative barriers to
investment, and to provide 100 percent security for investors.
His remarks aroused warmly applause from about 600 participants, including governmental officials, representatives from international organizations and
diplomatic corps, and around 200 domestic and foreign businessmen.
The president reiterated the importance of infrastructure reconstruction, especially roads and highways.
He explained that highways linking Pakistan, Iran, India and Middle East countries would greatly foster trade and business activities between Afghanistan and
He expressed the determination to reconstruct roads with foreign and domestic investments from the private sector, citing the fact that donor countries have
not shown any, or little interest, in rebuilding roads.
Minister of Justice, Abdul Rahim Karimi, gave participants a brief introduction of the investment law, which has not been published, and the advantages of
three-eight years of tax exemption that will vary according to the different aspects and investment period.
He said under the new law, investors can make investment in any field except gas pipeline and telecommunications, which will be guided by special
Afghan licence hope for Ericsson
A move to change the terms of a Taliban-negotiated agreement with Afghanistan's sole mobile phone operator could open the door for Ericsson, the Swedish
mobile phone company, Charles Clover reported in the Financial Times.
Masoom Stanakzai, appointed as communications ministering June, said the negotiations with Afghan Wireless Communication Company (AWCC) would be part of a new
tender process for mobile licences, to take place in the next few weeks. A proposal earlier this year by Ericsson to gain a licence was lost.
Mr Stanakzai said the new licensing tender would raise money for the government and introduce transparency into the telecommunications sector currently
dominated by AWCC, which was granted a licence in 1998.
Mr Stanakzai said: "It doesn't mean we will cancel everything they [AWCC] are doing, but their operation should come under the same licensing procedures as
AWCC is a joint venture between the Afghan ministry of communications and Telephone Systems International (TSI), a New Jersey-based communications company set
up by Ehsan Bayat, an Afghan expatriate living in the US, and is part owned by Network Telecom, a UK-based group.
After coming to power last December, the US-backed interim government agreed to honour AWCC's licence, and the company began providing a GSM mobile service in
Kabul in May. It is in the process of setting up a service in four other Afghan cities. However, the company has been criticised by some within the
communications ministry for its poor technical performance, and opaque revenue structure.
Ericsson already operates a GSM system for the World Food Project in Afghanistan, which gives mobile phone access to all major government, UN, and donor
organisations in Kabul.
Telephone Systems International to provide phone service between U.S. and Afghanistan
Telephone Systems International, Inc. (TSIntl) has received authorization from the Federal Communications Commission to provide long distance phone service
between the U.S. and Afghanistan, PR Newswire Association has reported. It is the first U.S. company to receive such authorization since establishment of
the Afghan Interim Government in December 2001. Telephone Systems International will provide service in the U.S. on a resale basis, working with other long
distance companies, and will operate its own international gateway switch in the U.S. In Afghanistan, Telephone Systems International will connect calls
through its subsidiary, Afghan Wireless Communications Company (AWCC), a new provider of mobile voice and data services.
Telephone Systems International is a U.S. company based in New York, founded by president Ehsan Bayat, an Afghan emigre. "The goal of Telephone Systems
International is to bring communications to the people of Afghanistan in order to promote rebuilding of the economy. Our service, already operating in
Afghanistan, is connecting people in some cases for the first time," Mr. Bayat said. "The addition of service in the U.S. will provide a vital link between
Afghanistan and the rest of the world." Afghan Wireless Communications Company is Afghanistan's first terrestrial mobile communications service provider. Its
GSM system is currently operating in Kabul and is scheduled to be operational in four additional cities in the near future. AWCC is a joint venture between
Telephone Systems International and the Afghan Ministry of Communications.
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