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Afghanistan

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  AFGHANISTAN

REPUBLICAN REFERENCE

Area (sq.km)
647,500

Population
26,813,057

Capital
Kabul 

Currency
afghani (AFA)

President
Hamid Karzai

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Background:
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.

Internal politics 
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-November, 1,870,000 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. Despite all 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. All attempts to pre-determine the outcome notwithstanding, 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 (reluctantly) some groups previously opposed to him. Starting from August, there were also signs that he was trying to reduce the power of the Tajik Panjsheri faction within the state administration. Nonetheless, opposition to his government continued to rise in the following months, especially among Pashtun monarchists. 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. Subsequently, Karzai attempted to reduce their power in the army and the state administration, causing a deterioration of his relationship with them. The "Jihadi" alliance of mostly moderate fundamentalists led by former president B. Rabbani emerged on the other hand as an important force and ended up supporting to some extent the pro-Karzai coalition, being then rewarded with some ministerial positions and a vice-presidency, but at the same time continuing to work for Karzai's replacement. Meanwhile, the central government tried to increase the pressure on the regional warlords, to force them to come to terms with it, but only achieved moderate success. The task of rebuilding political institutions is also being pursued slowly, as the drafting of a new constitution started in October, but the appointment of members of parliament out of the Loya Jirgah, originally expected in June, has not taken place yet.

International politics 
The 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, faded away from the centre stage over the summer and autumn, after having attracted much attention during the first half of the year. 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.
While Pakistan and Uzbekistan continue to keep a low profile, the role of the US in affecting events in Afghanistan is undoubtedly dominant. The debate has increasingly been centred on the scope of military operations and the extent of US involvement in the consolidation of the new regime in Kabul. The relationship of the US armed forces with private militias continues to be controversial and one of their allied warlords even ended up fighting against government militias. During autumn 2002, the scale of American military operations was cut down, although this might well be more due to lack of suitable targets than to political considerations.

Economy
The prospects for a quick recovery of the Afghan economy do not look very good. International donors pledged US$4.5bn in March and another US$600 million before that, of which a total of US$2.3 billion was for the current year. However, only US$1.7 billion has been confirmed in the form of actual commitments and by the end of August just about US$1.2 billion had been received. Of this amount, the largest part ($840 million) is going to humanitarian relief, while US$160 million are being spent on staff salaries and the armed forces, with just US$200 million going to actual reconstruction and development. Between the end of the summer and the beginning of autumn, however, there have been signs of a growing willingness of donors, including the US, to make more funds available. On the other hand, the interim government is unable to raise funds on its own, as the provincial governors withhold most if not all income deriving from taxes and customs. The government itself expects to be able to raise just US$83 million this year. 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 estimates this year's harvest at 3,400 tons of opium this year, short of the peak of 4,600 tonnes reached in 1999, but still much more than 74 tons of 2001 and higher than previous estimates. 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. Many of the warlords and military leaders of both Northern and Southern Afghanistan are reportedly involved at least indirectly in the trade, which makes the eradication of the crop all the more difficult.
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 the Turkmen, Pakistani and Afghan governments, of the Asian Development Bank and of the US government. 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, although the currency continued a slow decline in the following months. 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. The focus is now on the replacement of the old Afghani with a new currency, which started on 7 October and is expected to greatly contribute to the stabilisation of the economy. The government is also negotiating a free-trade agreement with Pakistan and working for the re-establishment of a banking system. Despite the slow start, in Kabul and other main cities, there are already clear signs of a new economic vitality, as small trades have been re-opening or are being created, although most of the rural areas have seen little improvement yet.

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Update No: 012 - (28/11/02)

Karzai gets tougher
Widely criticised for being a honest but weak ruler, President Karzai took in November his first effective measures against the abuses taking place in the provinces. Until November, Karzai had not gone beyond issuing warnings, although these had progressively become louder. At the end of October Karzai issued his strongest warning yet, against corrupt officials who, in the provinces, were giving his government a bad name. Then, two weeks later, he dismissed about 20 officials across the country on charges ranging from negligence to corruption, extortion and drug trafficking. The move was widely welcomed, especially in Kabul, although many were quick to point out how the 20 officials were just the tip of an iceberg of wrongdoing. Karzai was clearly meaning to send a message to the powerful warlords who rule most of Afghanistan, by hitting some of their men. 
The regional warlords, however, showed few signs of being impressed. One of the officials dismissed, head of security and intelligence of Kandahar province and very close to Gul Agha Sherzai, governor and local warlord, openly refused to step down. Elsewhere, there were few immediate signs of a change in the behaviour of local officials, despite some help coming from the Americans and from international NGOs. Organisations such as Human Rights Watch and Amnesty International are actively campaigning against some of the warlords, such as Ismail Khan of Herat and Rashid Dostum of Northern Afghanistan, who stand accused of harassing and torturing opponents. The US government, moreover, threatened two warlords in Northern Afghanistan with the suspension of aid delivery in their region, if they did not stop fighting against each other. The low-intensity conflict, however, continued.
The credibility of the central government's campaign against the abuses of governors and local officials suffered a severe blow in mid-November, when Kabul's policemen repressed with extreme violence a student demonstration in favour of better living conditions in their dormitories, leaving as many as seven dead. 

Slow recovery, but recovery nonetheless
The economic situation continued to improve only very slowly, with some areas of the country doing well and other stagnating. Herat and the surrounding areas are reported to be better off than the rest of the country, helped by a flourishing trade with Iran, while business activity is burgeoning in Kabul too, but elsewhere still over a million villagers are reported to be at risk of starvation. Moreover, the growing imbalance between cities and countryside is beginning to cause serious problems in Kabul too, whose population is booming and has now reached 2.7 million people, with an increase in excess of 100% over the previous year. This has led to overcrowding and a shortage of drinking water.
On the other hand, the countryside is unlikely to see its situation improve much until the road network is restored. Some progress in this direction is being made. After the beginning of the works on the road from Herat to the Iranian border, on the Kabul-Kandahar-Herat road and on the Kabul-Jallalabad road, more initiatives are now taking shape. In November, Iran's Minister of Roads and transportation travelled to Kabul to discuss the project of linking Tajikstan, Afghanistan and Iran with a new road. Italy, on the other hand, has agreed to contribute to the rebuilding of the Kabul-Bamiyan road, while the European Union will help financing the Kandahar-Spin Boldak road. 
After the repeated calls for help by Karzai and other members of the transitional government, international donors have shown some signs of intensifying their efforts, although some also expressed dissatisfaction at the pace of reform within Afghanistan. The most important news was that the Congress of the United States approved a US$2.3 billion aid package to Afghanistan on 15 November, to be spent over four years. On the other hand, the European Union, another key donor, warned on 13 November that it might withdraw its support if the government failed to push through improvements in the field of human rights, in particular (but not only) with regard to the condition of women. 
The most immediate problem the Karzai government faced in November, however, was the failure of the newly introduced currency to stabilise the exchange market. On the contrary, the decline of the Afghani accelerated during November. The old Afghani, which still represents the overwhelming majority of the circulating currency, due to the slow release of new notes, slipped to a new low of 58,000 to a dollar in November, as Afghans, wary of being left with worthless notes, rushed to the money changers to convert their savings. The government had underestimated the amount of Afghanis held by the population and the supply of new notes soon appeared to far too limited. The opinion of those observers, who claimed that the it was too early to introduce a new currency, appears to be vindicated. The worried population became increasingly inclined to change old Afghanis at less and less favourable rates, in order to get rid of them as quickly as possible. In order to stabilise the currency, the Afghan government was soon planning to start selling its dollar reserves, while at the same time pledging foreign governments to lower tariffs for Afghan goods, in order to stimulate exports. India and the European Union are reportedly considering such a move.
The devaluation of the Afghani risks pushing inflation towards an upward spiral, with predictable effects on the living standards of the population and on the political stability of the country. Already during September and October, the price of a staple food like bread rose by a third.

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CARPET INDUSTRY

Afghan carpet makers find industry at crossroads

Afghan carpet makers say they have had the rug pulled from under their feet with the demise of the Taliban and the return of over one million refugees from Pakistan this year alone, David Fox reported for Reuters News Agency. 
Ironically, the rebuilding of Afghanistan has deprived them of their workforce, as parents raise their aspirations for the boys who used to do much of the weaving. 
"The industry is going through a very difficult time at the moment," said Ghulam Yahia, who runs a factory with 15 looms in the western suburbs of Kabul. 
"The next year is going to be a make or break one for the industry. I think it will get through, but there will definitely be some companies that do not make it." 
Afghanistan has been famous for centuries for the beauty and durability of its hand-woven rugs and carpets. Alexander the Great was said to have hired a counsellor to advise him specifically on what sort of carpets he should take back with him on his world-conquering travels. 
But, ironically, very few Afghan carpets have been made in Afghanistan in the last two decades. Most, while made with Afghan wools, on Afghan looms by Afghan weavers, have been woven in the vast refugee camps that sprouted in Pakistan and Iran after the Soviet invasion of 1979. 
"It made sense," Yahia told Reuters. "Most of the weavers left Afghanistan to become refugees, so the carpet factory owners moved the looms to Pakistan. That is where the labour force was." 
But since the overthrow of the Taliban in December, over 1.3 million refugees have returned home, carpet weavers among them, and the loom owners have moved their equipment back to Afghanistan. 
Nevertheless, factory owners say they are still in the grip of Pakistan carpet dealers who they say take the lion's share of the mark-ups in price that an Afghan carpet experiences from workshop to showroom floor. 
"We have got to get control of the industry in Afghanistan rather than allow the Pakistanis to run our affairs in Lahore," said Mohammad Faizal, head of a Kabul carpet cooperative. "At the moment we are hostages ... we have no say in the market. Buyers simply will not come here, so we have to go to them." 
At Yahia's factory, around 75 boys, teenagers and young men are engaged daily in making carpets. The looms are made of steel, the only bow to modernity in the process, but everything else is done the same way as it was centuries ago. 
Far from the stereotypical image of a Dickensian sweatshop, Yahia's is a cheerful place with the boys teasing each other and constantly playing pranks. Some of the boys are as young as nine, but they all go to school and work after hours in the factory. 
"Most parents have greater aspirations for their children these days," said Yahia. "In the city, most parents would prefer for their children to go to school than work in the factory. We really are running out of labour." He said if the trend continued, most carpet makers would move their looms to the rural areas and try to find women and girls to do the work. 

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ENERGY

Afghanistan plans gas pipeline

Afghanistan hopes to strike a deal shortly to build a US$2bn pipeline through the country to take gas from energy-rich Turkmenistan to Pakistan and India. 
Afghan interim ruler, Hamid Karzai, is to hold talks with his Pakistani and Turkmenistan counterparts on Afghanistan's biggest foreign investment project, Mohammad Alim Razim, minister for Mines and Industries told Reuters. 
"The work on the project will start after an agreement is expected to be struck at the coming summit," Mr Razim said. 
The construction of the 850-kilometre pipeline had been previously discussed between Afghanistan's former Taliban regime, US oil company, Unocal, and Bridas of Argentina. The project was abandoned after the US launched missile attacks on Afghanistan in 1999. 
Mr Razim said US energy company, Unocal, was the "lead company" among those that would build the pipeline, which would bring 30bn cubic meters of Turkmen gas to market annually. 
Unocal - which led a consortium of companies from Saudi Arabia, Pakistan, Turkmenistan, Japan and South Korea - has maintained the project is both economically and technically feasible once Afghan stability was secured. 
"Unocal is not involved in any projects (including pipelines) in Afghanistan, nor do we have any plans to become involved, nor are we discussing any such projects," a spokesman told BBC News Online. The US company formally withdrew from the consortium in 1998. 
"The Afghan side assures all sides about the security of the pipeline and will take all responsibilities for it," Mr Razim said. 
Afghanistan plans to build a road linking Turkmenistan with Pakistan parallel to the pipeline, to supply nearby villages with gas, and also to pump Afghan gas for export, Mr Razim said. 
The government would also earn transit fees from the export of gas and oil and hoped to take over ownership of the pipeline after 30 years, he said. 
The Asian Development Bank (ADB) has been surveying routes for transferring local gas from northern Afghan areas to Kabul, and to iron ore mines at the Haji Gak pass further west. "ADB will announce its conclusion soon," Mr Razim said. 
The pipeline is expected to be built with funds from donor countries for the reconstruction of Afghanistan as well as ADB loans, he said. 

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FOREIGN ECONOMIC RELATIONS

Iran to hold first exclusive trade fair in Kabul 

The Islamic Republic of Iran will hold its first exclusive trade fair in Afghanistan called 'Kabul 2003', officials in charge of export department for foodstuff, Mohammad Bisotoni, said on 9th November. 
In an exclusive interview with IRNA News Agency, he said the agreement to this effect was signed between the Iranian private sector and the Afghan commerce ministry following a year of market survey and negotiations. 
The first exclusive trade fair 'Kabul 2003' is slated for January 30th for a ten-day period in which foodstuff and industrial products will be put on display, he said. 
The second exclusive trade fair dubbed as 'Norouz-e Kabul' is to be held on March 1st for a ten-day period in which foodstuff as well as industrial products will be put on public display, he said. 
The fairs will prepare grounds for about 1,000 Iranian companies to present their products and services in four phases at the fairs, he pointed out. 
UN representatives in Afghanistan, active non-governmental organizations (NGO's) as well as foreign embassies in Afghanistan have cooperated in organizing such events, he said. 

Pakistani products demand increasing in Afghan market 

As the process of reconstruction and rehabilitation in Afghanistan continues, demand for Pakistani products is increasing in the country, offering great opportunities for trade and investment for Pakistani businessmen and exporters, PakNews has reported.
This is the right time for Pakistani businessmen and exporters to benefit from the opportunity of reconstruction in Afghanistan as Pakistani products are well recognized for their quality and competitiveness there, the Commercial Councillor of Pakistan Embassy in Kabul, S.M Tahir, told APP News Agency during his recent visit to Pakistan. 
He said Pakistan has also established a Commercial Wing at its Embassy in Kabul to facilitate exports and promote trade between the two countries. Tahir said this step would help both countries to further cement bilateral relations especially in the field of trade and investment. 
He said there was a great demand for the construction materials in Afghanistan, adding, that Pakistani companies can take advantage of the opportunity by exporting construction materials to the country. 
The Commercial Councillor said that Afghanistan has now started imports of PVC and GSP pipes, cement, panes of glass used in houses and buildings, bathroom tiles, aluminium and steel utensils from Pakistan, adding, in the past these products were being imported from China and other countries. 
S.M Tahir disclosed that an agreement between Pakistani Courier Services (OCS) and Bakhtar courier service Afghanistan had been reached under which they can send samples of Pakistani products to Pakistan's Commercial Council Wing Kabul for exporting the commodities to Afghanistan. He expressed the hope that as a result of these measures the annual balance of trade between the two countries would reach to US$200m. During his visit, S.M Tahir had a meeting with the Minister for Commerce, Industries and Production, Abdul Razak Dawood, and briefed the Minister about the potentials and opportunities of trade and investment for Pakistani business community and exporters in Afghanistan. 

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TELECOMMUNICATIONS

Afghan telecom risk paying off - Internet cafes will open across Afghanistan next year 

The telecom sector has been a precarious place to make money over the past couple of years, CNN's Diana Muriel has reported. 
The failure of Global Crossing, trouble at WorldCom and the massive debt burdens of the European telecom operators have all contributed to a negative investment climate. But perhaps taking some of the biggest risks of all is Afghan Wireless Communications Company (AWCC). 
After more than two decades of conflict in the region, AWCC is building a mobile phone and Internet network throughout Afghanistan with a growth rate that would put many of its Western competitors to shame. 
The Afghan capital of Kabul is not known for a proliferation of mobile phones, but AWCC - the only company granted a mobile licence in Afghanistan - has been working to change that. 
It has invested US$60m to build a mobile network and it has committed another US$45m to expand service over the next 12 months. AWCC, the country's biggest private employer with almost 500 staff, provides services in four other major Afghan cities. 
"An investment of this nature will always be a compromise between pure commercial interest and, emotional may not be the right word, but emotional interest and the president of TSI telephone system international, the major shareholder, is an Afghan émigré and I know that both these factors play a large part," said Gavin Jeffrey, managing director of AWCC. 
Despite the difficulties of operating in a war-torn country, such as housing telecoms equipment in walled compounds with round-the-clock guards, AWCC is adding customers at a rate of between 1,500 and 2,000 a month. 
Still, Afghan customers are not exactly spoiled for choice. They can buy either one brand of Nokia handset for US$290 or one of a range of three by Motorola, which cost as much as US$350. 
Given the fact mobile phones have become a status symbol, Afghans are tending to choose the most expensive models. "It's good to have one. I've never had a phone," said one mobile handset owner said through a translator. 
"In order to keep in touch with my son who lives in England, I asked him to send me money to buy a phone. I am very grateful to the Afghan Wireless Company for providing this service." 
Internet access is the next challenge facing Afghanistan's fledgling telecom industry. AWCC operates just one Internet cafe in Kabul but has plans open outlets across the country next year. 
However, the company's monopoly in the mobile phone market will not last for long. The Afghan Government is preparing to award a second licence soon. 

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TRANSPORT

Tajik-Afghan bridge gives Kabul new trade route

The Central Asian state of Tajikistan has opened a bridge that provides a new route for vehicles carrying humanitarian aid and goods in and out of war-ravaged Afghanistan, Roman Kzhevnikov has reported for Reuters News Agency.
The bridge, opened by Tajik President Imomali Rakhmonov and Prince Aga Khan IV, leader of Shi'ite Ismaili Muslims, is the first vehicle bridge spanning the Pyandzh river between the countries.
Vehicles can now be driven from the Afghan capital Kabul through north-eastern Afghanistan to Khorog in Tajikistan, then on to Kyrgyzstan and Russia.
"The opening of this new bridge is a significant step forward," the prince, who represents more than 20 million Ismailis around the world, told Reuters in Dushanbe, before leaving for the bridge.
Goods can now be driven "through Kyrgyzstan and Khorog south to Afghanistan," he said. "That is, you will have a direct route from north to south which previously did not exist."
The bridge has been largely funded by the philanthropic prince, the 49th direct descendant of the Prophet Mohammed, who has given more than US$30m in aid to various projects in Tajikistan since 1994.
No cost estimate for the new bridge was available from the Aga Khan Foundation.
A bridge already crosses the Pyandzh river at Termez in Uzbekistan, which gives access to the Afghan city of Mazar-i-Sharif. The Soviet army fled Afghanistan via that route after its 10-year occupation in 1989.
Much of the traffic between Afghanistan and the outside world had up to now moved across the Khyber Pass to Pakistan.
Tajikistan, the poorest of the former Soviet republics, was plunged into civil war from 1992 to 1997, shortly after the Soviet Union collapsed. Its average wages are still about US$9 per month.

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