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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 government's requests.

Promises, promises…
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. 

Hyperinflation ahead?
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.

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BANKING

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.

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CONSTRUCTION

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.

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ENERGY

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 countries. 
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.

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INVESTMENT

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 people." 
"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 these countries. 
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 regulations.

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TELECOMMUNICATIONS

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 other operators."
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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