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Albania

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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.

Update No: 02

The focus is now rapidly moving away from the war and other emergencies, towards the issues of reconstruction and geopolitics/geoeconomics. Occasionally local clashes are reported, mostly involving tribal groups, but there are few signs that the Taliban have the potential to mount anything resembling a large-scale guerrilla warfare against the new government. Tensions among the factions making up the Karzai government have been defused by the attribution of extra government posts to General Dostum's Jumbesh-i Milli and the pro-Iranian Hizb-i Wahdat. Finally, the looming humanitarian disaster has been mostly avoided, with the exception of some areas of North Afghanistan, which have not been reached by international aid yet. 
Although none of the problems faced by the Karzai government have been definitely resolved, recontruction is coming to the fore, as it is clearly understood to be instrumental in stabilising the situation within the country. Starting from the second week of January, the new Afghan government led by Hamid Karzai has started addressing the issue of moving towards a centralised and disciplined army as a precondition for the reconstruction of Afghanistan. The plan is to create a 200-250,000-strong army, out of a total number of armed men around 700,000. Such a large army would clearly be in part conceived as a means to employ large number of people who could otherwise turn into troublemakers, but maintaining it could absorb much of the (future) resources available to the government, especially if they have to be properly equipped. For the moment being, the aim is to bring some order to the country, where the troops, no longer busy fighting, are turning to looting and crime with increasing frequency. The troops of the United Front have been ordered out of the capital, while the process of disarming local militias has started. Some instances of resistance have been noted, but overall the initiative appears to have enjoyed a good start. 
Of course, there is still much to be done, but as long as the government's budget stands at zero it will be difficult to improve. After widespread calls for the unfreezing of cash formerly belonging to the Taliban (more than $200 million), to be used by Karzai's government to start rebuilding the state structure, Washington has just done that, although it will take time before the money can actually be put to good use. At present some of the ministers do not even have an office.
However, potential donors have so far been slow in actually delivering any money, despite the calls from the UN, which asked for $2 billion for the first 2 and a half years of the reconstruction process. By mid-January, only $8 million had been paid in. During the second half of the month donors have become more active, with Japan in particular taking the step of pledging $500 million. Apart from the particular case of the US, which having spent billions on the military campaign is now trying to cut down the burden of sharing the reconstruction costs, the slowness of donors appears in part at least to the fears that, in the absence of a viable government and of controls over the way money is spent, most of it would be used for patronage rather than actual reconstruction, or even stolen. Assuming that the Karzai government fully commits itself to guarantee that money is spent properly, it would still take some time to create the structures needed to put such controls in place. Moreover, international observers and advisers will have to take part in the process and be accepted by the parties that make up the government.
In the meanwhile, the first steps are being taken by the UN for the abolition of the sanctions that had been imposed on the Taliban's Afghanistan. Both the national airline and the Central Bank are now allowed to operate again. 
The increasing attention paid to the issue of reconstruction is also evident in the attempt of some neighbouring countries to play an early role in it, not so much by contributing cash, but by taking over some reconstruction tasks. In this way, the donor country could ensure that its interests are not overlooked. Iran has been among the first to take steps, volunteering for some of the reconstruction works, for the example the Taibad-Herat road. However, it is likely that Russia, which has a high degree of influence within the Karzai government due to its closeness to Jamiat-i Islami, will take the lion's share in this early stage. Much of the 24,000 km of roads have actually been built by Russia itself, which would be well placed to repair them, assuming any Russian company sees an attractive deal in this. Russia also built the gas and oil extraction plants in Northern Afghanistan and would be an obvious candidate for their repair and upgrade. At present, production levels are very low. Moreover, much of what is left of Afghanistan's transport air fleet is originally from Russia, which could therefore start supplying spare parts and more second hand planes. Even the soon-to-be born national army has good chances of being equipped with Russian material, probably even in this case second-hand.
The role of neighbouring countries, however, is more ambiguous than just jockeying for a slice of the reconstruction funds cake. On 10 January President Bush warned Iran against attempting to destabilise Afghanistan. Whether or not the information pointing at Iran is accurate (and given the state of the CIA's information gathering and processing in Afghanistan, it may well not be), it is clear that both Iran and Russia might not have much interest in a pacified and stable Afghanistan in the long term, especially if their interests are not guaranteed. They might fear that once the situation stabilises, the idea of building pipelines across the country will gather support. The fact that Zalmay Khalizad, a former adviser to Unocal, has been named special representative to Afghanistan at the beginning of January, might have strengthened such fears. 

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FOREIGN LOANS & AID

Iran to extend US$10 million of emergency aid to Afghanistan 


Foreign Minister Kamal Kharrazi said recently that Iran is ready to extend over US$10m of emergency aid to the interim Afghan government. Speaking at the Afghanistan reconstruction conference in Tokyo, he added that Iran plans to donate US$120m in grants and loans to the interim government in 2002. He added that US$50m will be extended in the form of grants and another US$50 million will be on credit. A further US$10 million will be given to Afghanistan in the form of training assistance. Kharrazi said that holding of the conference is testimony to the resolve of the international community for peace and security in the country. He also said that he believes the Afghan interim government could establish security in the war-shattered country. 
Kharrazi referred to the shared cultural commonalties between Iran and Afghanistan and stressed Iran's determination to assist the war-torn country to overcome obstacles to reconstruction. Earlier, Kharrazi in an interview with IRNA on the sidelines of the two-day international conference on Afghanistan reconstruction stressed on the importance of stability in Afghanistan in safeguarding peace in the region. Kharrazi said that the objective of the conference is to attract world participation for reconstruction of Afghanistan and determining the financial share of each country in the operations. Iran, as Afghanistan's neighbour, has always provided the Afghan people with humanitarian aid and will have an appropriate share in the reconstruction of that country, he reiterated. Iran can provide loans to Afghanistan and facilitate the participation of Iranian companies in development projects in the country, the Iranian foreign minister noted. Kharrazi, heading a senior politico-economic delegation arrived in Tokyo recently. The conference on the reconstruction of Afghanistan is being attended, by the ministers and high officials from 54 countries and 18 international organizations. On the sidelines of the upcoming conference, Kharrazi is also expected to confer separately with Japan's Prime Minister Junichiro Koizumi and Foreign Minister Makiko Tanaka as well as a number of ministers attending the Tokyo conference. Meanwhile, Kharrazi will also confer with Japan's special representative in Afghanistan's affairs, Sadako Ogata who recently visited Iran, Pakistan and Afghanistan.

ADB team in Afghanistan to prepare aid projects 

A five-member Asian Development Bank (ADB) team has been sent to Afghanistan to prepare reconstruction projects for the war-ravaged country, the Manila-based organisation said AFP News Agency has reported.
Led by Hafeer Rahman, head of the South Asia operations coordination division, the delegation left "to prepare projects for the reconstruction and rehabilitation of Afghanistan," the bank said in a statement.
The ADB team, working with World Bank and the UN Development Programme officials, will hold talks with senior members of Afghanistan's interim administration on education, health, agriculture and environment issues, it said.
The organisation is expected to formalise plans to set up a liaison office in Kabul, the statement added. It did not say how long the team would be in Afghanistan.
The ADB said at an international donors meeting in Tokyo it was considering US$500 million worth of assistance to Afghanistan over two and a half years. 

Donors ponder how to spend Afghan funds

Having pledged billions, contributors debate which projects are priorities. Few want to help build military or pay officials' salaries. 
With US$4.5 billion in Afghanistan reconstruction funds pledged at a two-day conference that ended on 22nd January, officials from the United States and other donor countries are settling down to a far more difficult task: figuring out how to spend the money effectively in a nation that needs almost everything, The Los Angeles Times has reported. 
"We're seeing a country that's being born out of dust," said Torek Farhadi, economic advisor to the interim Afghan government. "People tell us, 'Give us a report of what you need.' We don't know what we need. It's a work in progress." 
Although the pledge total--including US$1.8 billion earmarked for this year--is below the US$10-billion, five-year benchmark, set by the United Nations, it represents a strong start. Several nations said they would be back with more in coming years.
China, India and Pakistan each offered US$100 million for this year, on top of the combined US$1.3 billion pledged by the United States, Japan and the European Union and the US$220 million offered by Saudi Arabia. "It's an excellent amount," said Hedayat Amin Arsala, Afghanistan's interim finance minister, at the close of the conference. Now that the funds have been pledged, decisions must be made about how to spend the money. U.S. officials, their foreign counterparts and members of international aid organizations emphasized that the final determinations must be made by the Afghan government in order for the money to have a lasting impact. 

Afghan officials want a national military unit

But there were early indications that some Afghan priorities may not be embraced as enthusiastically by the international community. Afghan officials, for instance, repeatedly cited the need to build a national military to secure the country's borders and limit the sort of meddling by neighbouring powers that helped reduce Afghanistan to a breeding ground for warlords and terrorists. 
"We can't rebuild Afghanistan, a country that's been victimized by 23 years of war, without thinking about basic security," said Omar Samad, a spokesman for Afghanistan's Foreign Ministry. "For us, it's a top issue." 
Many donors, however, did not put creation of an Afghan military at the top of their list. 
"Police, yes, but straightforward military expenditures, probably not," said Alastair J. McKechnie, the World Bank's country director for Afghanistan. 
The idea of earmarking grant money to build an Afghan government and pay bureaucrats' salaries likewise met with some resistance. "As we saw in East Timor and Kosovo, donors aren't very keen on paying for government," said Chris Patten, external affairs commissioner for the European Union. "They want to fund projects. But someone has to pay for government. This is the challenge we face." 
Aid agencies and major contributors also debated in meeting rooms and corridors whether aid should be distributed directly by donor governments or through a centralized trust fund overseen by multilateral agencies. Large nations such as the United States argue that direct disbursement puts the money in Afghanistan much faster. International agencies counter that pooled funds produce a more coordinated rebuilding effort, with less corruption and waste. In previous reconstruction efforts, some nations have been faced with the task of completing thousands of separate reports to different donors about how funds were spent. 

Health, food, roads and education are priorities 

Despite some inevitable disputes over methodology and tactics, experts said most contributors at the conference agreed on the overall objectives, including the importance of allocating money quickly for food, roads, education and health care. Programs that offer quick dividends in several priority areas also are being pushed, officials said. Food-for-work projects, for instance, are popular with Afghans, many of whom would rather be paid in food than the mercurial, highly speculative afghani, the national currency. 
In addition, such projects create jobs, boost the economy and reduce the ranks of people who might be tempted to harvest poppies for the drug trade or join militia groups. Road repairs help get fertilizer and seeds to farmers, surplus crops to famine areas and people to local markets. 
Likewise, rehiring female civil servants and teachers--who filled 43% of government jobs before the Taliban regime prohibited women from working--will help rebuild the education system, boost women's role in society and expand the nation's knowledge base. 
The interim Afghan government has outlawed poppy production. It has promised to fight corruption, help the disabled, share power among all ethnic groups, build a free-market economy, audit major contracts, restore women's rights and set up a fair legal system. 
But major contributors have warned that they will be looking for, among other steps, long-term progress toward rebuilding the country and movement toward real democracy as preconditions for future aid. 
Even if Afghanistan turns out to be a model student, international enthusiasm for rebuilding the Central Asian nation could drop off as taxpayers lose interest or get distracted by a new crisis. 
Secretary of State Colin L. Powell reiterated that the U.S. remains committed for the long haul. But Samad, the Afghan Foreign Ministry spokesman, said his country already has seen donor nations lose interest in a relatively modest US$20-million fund earmarked for the Kabul administration, and this is only the beginning. World Bank President James D. Wolfensohn even joked that donors should leave their checks at the door. 
Afghanistan's interim government, headed by Prime Minister Hamid Karzai, has only five more months before it faces possible replacement at the hands of a loya jirga, or traditional Afghan governing council. Political stability is a prerequisite for any rebuilding effort, and the current government is under considerable pressure to show it has what it takes long-term. 
So far, said foreign and Afghan officials at the conference, the new group is off to a good start. 
"A government that can return to Kabul and say we've brought you US$2 billion in pledges is pretty darned credible," said economic advisor Farhadi.

Pakistan favours setting up int'l body to supervise Afghan aid 

Pakistan recently supported the proposed establishment of an international body in Kabul to streamline funds committed by donor countries and international financial institutions for undertaking reconstruction work in war-devastated Afghanistan. Pakistan's Finance Minister Shaukat Aziz, who is leading his country's three-member delegation to an Afghanistan reconstruction conference starting Monday in Tokyo, told Kyodo News in an interview that the proposed body could go a long way in ensuring the proper use of funds pledged at the two-day conference. 
The proposal to set up such a body was formally made by Japanese special envoy for Afghanistan Sadako Ogata and is to be debated at the Tokyo conference. 
With Pakistan providing shelter to 3 million Afghan refugees, Aziz expressed hope that the Tokyo conference would help create conditions in their homeland that would encourage them to return. 
He said Pakistan has been facilitating the flow of food and other essential items into Afghanistan by allowing free trade across the border and would continue to do so in the years ahead, while also providing its neighbour with mostly humanitarian assistance. 
On the proposed setting up of the international body, Aziz said, ''Naturally, when donors give money, some degree of supervision is essential. Pakistan itself being a recipient country, we welcome donor countries coming and reviewing how money is used.'' 
The conference is expected to focus on the creation of a trust fund as in the cases of Gaza, Bosnia-Herzegovina and East Timor. But a number of donors have expressed their preference to disburse aid directly and bilaterally to the Afghan interim administration. 
Aziz said questions like the percentage of aid that should be in the form of grants and the concessionality level of loans, or how much should be provided bilaterally and how much through the trust fund, would all be discussed at the conference. 
He lauded Japan's active role in organizing the conference and likened it to putting together an ''economic coalition to help rebuild Afghanistan.'' 
The Pakistani finance minister said that while it is up to the people and government of Afghanistan to chalk out their priorities for reconstruction, they will undoubtedly stress reviving the agricultural sector as it is the mainstay of the economy and would likely create the most employment opportunities. 
But he said that without undertaking the demining of vast areas of agricultural land, it would be difficult to encourage people to start cultivation in certain areas of the country. 
Afghanistan is one of the most heavily mined countries in the world and according to the United Nations mines maim nearly 400-500 people every month. 
Another area seen by Aziz as a priority was reconstruction of infrastructure like roads, telecommunication facilities and electricity generators, which have been destroyed by 20 years of war. 
He also attached importance to the building of institutions like banks and insurance companies. 

World Bank team visits Kabul to prepare ground for technical and financial support 

In response to an invitation by the Afghanistan Interim Administration (AIA), a 10-member World Bank team is in Kabul to help the AIA build essential capacity and put in place effective, transparent, and accountable systems to manage reconstruction aid. 
The World Bank will provide technical assistance to the government to help it put the basic functions of financial governance in place. This will help the new administration to effectively manage aid flows while establishing the financial systems necessary to underpin the recovery of Afghanistan's economy. 
Following the high-level donor meeting on Afghanistan's reconstruction in Tokyo, a World Bank team, led by Country Director Alastair McKechnie, has been visiting Kabul between January 24 and 31. In addition to helping the government with aid management and accountability systems, the team is preparing the ground for emergency project preparation beginning early in February. Key sectors to be supported include health, education, energy, water supply, roads, community development, communications, and agriculture. It is envisaged that, under the leadership of the AIA, the World Bank, the United Nations Development Programme and the Asian Development Bank will team up with bilateral donors to prepare emergency projects in these sectors for quick delivery of results for the people of Afghanistan. 
During its visit, the Bank team has met with a number of ministers including Vice Chair and Minister of Finance Mr. Hedayat Amin-Arsala, and with senior government officials in different government departments. A team of the International Monetary Fund is also currently in Kabul and has been working closely with the Bank team to assist the government on macroeconomic and fiscal aspects. 
Government and Bank officials have explored possible financial support from the Bank, including grant support for urgent capacity building and technical assistance for key government agencies and sectors. The team is also working with the government on possible International Development Association grant support for selected rapid reconstruction projects that can quickly have a positive impact on people's lives. 
"We look forward to a very productive partnership with the government and people of Afghanistan in support of the country's reconstruction," said Mr. McKechnie. "We are pleased to be here in Afghanistan to learn more about Afghanistan's plans for reconstruction and to prepare our technical and financial support." The World Bank plans to establish a functioning Country Office in Kabul soon.

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INTERNAL ECONOMIC AFFAIRS

Afghan officials to get paid


The interim government in Afghanistan has started paying the salaries of some civil servants. In most cases, they have gone for several months without any pay. 
The acting head of the Central Bank said that civil servants in the ministries of education, higher education and health would start receiving their salaries. 
The salaries will be paid from the time the new government took office at the end of December, and civil servants in other ministries will be paid later. 
But there will be no back pay for the time being. 
The past 10 years of war have gutted the nation's civil service, leaving it with little more than a few decrepit buildings and a handful of unpaid clerks. 

Reconstruction

Getting the near-bankrupt administration back into shape is one of the priorities of the funding agreed in Tokyo. 
International aid donors have promised US$4.5bn to rebuild Afghanistan. Decades of war, factional fighting, neglect by the west and fanatical Taleban rule have left Afghanistan without adequate roads, electricity, schools or hospitals. 
The Taleban had banned schooling for girls, but many boys have not been going to school either, and the health crisis in Afghanistan is severe. 
In remoter places, there are people who have not been provided with any health care in years. 
Afghanistan's interim leader Hamid Karzai has said the cash must be made available quickly. 

Annan says Afghan recovery needs US$1.3 billion right now 

Donors from around the world pledged generously towards the recovery effort in Afghanistan as United Nations Secretary General Kofi Annan told the opening of an international conference in Tokyo that the war-battered country needed US$1.3 bn 'right now' to cope with the most immediate tasks. UN Information Center in Tehran quoted Mr. Annan as saying in the two-day International Conference on Reconstruction Assistance to Afghanistan, "For the first time in decades, Afghanistan is not being torn apart by war. "For the first time in many years, the international community is united around a vision of the country's future." The Secretary General warned, however, that success could not be taken for granted, since more than once in recent years, countries had sunk back into conflict just when peace seemed to be taking hold. "We are here today to do our part in making sure that does not happen in Afghanistan," he told the donors who had before them a document spelling out the country's reconstruction needs. Prepared by the UN Development Programme (UNDP), the Asian Development Bank and the World Bank, the Preliminary Needs Assessment estimates that the reconstruction of Afghanistan will cost some US$15 bn over the next decade. Describing Afghanistan's recovery requirements as 'immense', Mr. Annan said that an estimated US$10bn would be needed in the next five years to cover a wide array of tasks, from reintegration of former combatants, to revival of economic activity and restoration of basic services. He noted that it was separate from, and must be additional to, any commitments already earmarked for humanitarian relief. As for the country's immediate requirements, the Secretary General stressed that even before spending plans for the could be worked out, Afghanistan needed US$1.3bn 'right now', including US$237 million for the recurrent costs of the Interim Authority, US$376 million for quick impact and recovery projects that are ready to go, and US$736 million for humanitarian assistance which has yet to be funded. According to preliminary estimates, by the end of the day donors at the Tokyo conference made commitments exceeding the first year needs assessment target of US$1.7bn, and expressed substantial support for medium and long-term assistance to the country. The commitments by the conference's four co-chairs include up to US$500 million over two and a half years, with a maximum of US$250 million for 2002 from Japan; US$296 million for 2002 from the Untied States; US$500 million for 2002 from the European Union; and US$220 million for three years from Saudi Arabia. 
Meanwhile Mr. Annan's Special Representative for Afghanistan, Lakhdar Brahimi, told the Tokyo meeting that security remained an issue of 'paramount importance'. "To ensure security for the long-term, Afghanistan must build genuinely national, credible and affordable security institutions; a police force, a national army, an independent judiciary within a legal framework which installs the rule of law, that the people of Afghanistan crave for," Mr. Brahimi said. He stressed, however, that this 'formidable task' would require significantly more financial resources than the need assessment has anticipated drawing attention to another 'important and urgent' matter, Mr. Brahimi stressed that the Interim Administration had absolutely no funds in its coffers to pay salaries for Government employees. For his part, UNDP Administrator Mark Malloch Brown told reporters at the conference that priorities were for 'schools, fields and jobs-the need to get kids in school by the time of the school year in March, a similar deadline for getting seeds out, and the need to get the economy going'. He stressed that it would be important to 'shift the political economy from where the most important asset you can have is a gun to one where the tools of peace, from plows to computers, are what people value'. Over 60 countries and 22 international organisations have taken part in the International Conference in Tokyo.

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FOREIGN ECONOMIC RELATIONS

Germany supports cooperation with Iran in rebuilding Afghanistan 


The chairman of the foreign policy commission of the German parliament, Hans-Ulrich Klose, supported closer cooperation with Iran in rebuilding war-ravaged Afghanistan, DPA was quoted as saying. "Iran seeks to participate in it," Klose said in Berlin after his return from an official visit to the Islamic Republic of Iran. The deputy referred to joint interests in specific projects such as switching the Afghan agriculture system from poppy to wheat cultivation. "I believe that cooperation in this area would make sense," Klose added. He said since both countries are interested in fighting narco-trafficking, it is natural that Germany and Iran cooperate on these projects. Klose pointed also to Iran's repeated backing of the new interim Afghan government, headed by Hamid Karzai. Meanwhile, another member of the foreign policy commission, Ruprecht Polenz who accompanied Klose to Tehran, stressed Iran's regional "geo-political importance" and urged Germany to support Iran's constructive foreign policy.

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CONSTRUCTION

250 tons cement per day being exported: Afghan rebuilding 


Pakistani cement has started trickling out to the war-torn Afghanistan, and DG Cement, a giant privatised unit, is supplying 250 tons a day reported Ziqa'ad recently. 
"We have set up a warehousing facility between Chaman (Pakistan) and Kandahar in Afghanistan to supply 20,000 tons initially," Mian Mohammad Mansha, the chairman of DG Cement said at the end of January. 
He said another Pakistani cement company has also set up distribution arrangements on the Northern side near Kabul. Mansha was, however, not in a position to assess the full potential of cement demand from Afghanistan. 
"It all depends on the disbursement pace of 4.5 billion dollars committed for Afghanistan reconstruction by the donors community in Tokyo this month," he said. 
Mian Mansha signed recently a debt rescheduling agreement with the team of the executives of the International Finance Corporation (IFC), an affiliate of the World Bank to finance private sector projects. 
Peter Woicke, leader of the visiting IFC team who signed the agreement said that the corporation is extending financial assistance of US$20 million in gas sector and US$1.6 million in other areas. 
The IFC has completed debt rescheduling with all its client private power and cement projects in Pakistan. With a total exposure of about 400 million dollars in Pakistan, the IFC completed the debt restructuring for Pakistan's leading cement manufacturer DG Khan Cement Company. 
Those who signed the rescheduling agreement were Mian Mohammad Mansha, Chairman, Raza Mansha, Executive Director of the DG Cement project and the leader of the visiting IFC team Peter Woicke. Also to put their signature were the officials of the participating syndicating banks, Standard Chartered, Grindlays Bank, Deutsche Bank A.G., Agricole IndoSuez and ABN Amro. 
The restructuring involved local currency guarantee issued by the IFC amounting US$14.5 million, which would allow the DG Cement to borrow locally to refinance part of its foreign currency debt. 
"This is the first restructuring of its type done by the IFC in Pakistan," Mian Mansha said. The rescheduling cost, he said, was two to two and half per cent above Libor, which would enable his company to draw rupee equivalent to US$14.5 million up to July 15, 2004. This facility matures on January 15, 2009. 
Besides signing debt-rescheduling agreement with the DG Cement, Peter Woicke and IFC team held two detailed meetings with leaders of Pakistan's financial and manufacturing sectors and private power projects. 
In a dialogue of 'IFC and its Associates' on the theme 'Are we on the Right Path towards Growth' with the visiting IFC team about two dozen top manufacturers, private operators and financial sector leaders wanted Pakistan government to consider lowering of tax rates and in fact should review the whole taxation system. 
"Now is the time to attend to the growth and employment generation issues in Pakistan," Bashir Alimohammad said. Bashir Alimohammad, a leading textile manufacturer and exporter and operator of a power project, participated in the dialogue, said the local market support was essential for economic growth. 
Other participants generally appreciated the steps taken by the government to revive the confidence of the private sector, but, by and large, were of the unanimous view that specific steps should be taken to raise income levels. 
"Too few people are giving too much tax," remarked a participant, who said that a plea was made to "review the whole taxation system to make it investment friendly." 
Peter Woicke said that it was quite a big opportunity for private sector as government had done a good job by addressing the external sector. "Now the government should focus on domestic side." 
He said that during his two meetings with leaders of the financial sectors, insurance industry, capital market and top manufacturers and power operators he got the opportunity to hear view on all range of the business and investment issues. 
"Initial investment in China came from its expatriates abroad and so should be here in Pakistan where expatriates are a great potential for future investment," one participant remarked. But for this, the business leaders say that the government would have to take more steps to create an environment in which adequate return on capital is assured. "We are ready for a big leap forward," another participant of the meeting remarked. 

Customs creating hurdles for contractors: Afghan rebuilding 

Some Pakistani contractors are said to have been approached by foreign firms working in Afghanistan to supply construction equipment, on a rental basis for the reconstruction work they have been awarded by the Afghan government. However, All Pakistan Contractors Association chairman Akber Shaikh told The Dawn Group of Newspaper recently the contractors were facing problems at the hands of the customs authorities in moving machinery. "They (the customs authorities) are not aware of the fact that SRO 68(i)/2001 allowed the movement of machinery to Afghanistan on submission of a simple undertaking to the customs that the machinery would be imported back on completion of works," he said. 
Shaikh said he was aware of at least one case in which the customs authorities refused to allow, "export" of a bulldozer to Afghanistan under the said SRO because they were not aware of its existence. 
He said it was just the beginning of the works in the war-torn country. "If we fail to capitalise on this opportunity, we will lose the market. They (the foreign firms) would import materials and equipment from Iran and elsewhere in the region," he warned. 

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TEXTILE INDUSTRY

Afghan mart to provide a big boost to Dubai textile trade 


The return of Afghanistan as a serious market once again will provide the biggest boost for Dubai's textile trade this year, according to industry sources, Gulf News has reported.
Between 1995 and 2001, textile volumes meant for, and through, Afghanistan had slipped to well below 1 per cent of Dubai's overall shipments. 
"We are hopeful that latest by March/April, the trade here can see a return of buyers from Afghanistan. At its peak between 1991-1995, that country had pulled in about 3-4 per cent of the total shipments from Dubai," said Ashok Sawlani, vice-chairman of Textile Merchants Group (Texmas). 
"Dubai has been an old partner, and the possible resumption of flights by Ariana, will help regain the momentum. We are pretty optimistic."
Already, in the past few days, the local market has been sounded out about the possible heavy orders coming through. Traditionally, Bandar Abbas and Karachi have been the offloading points for goods headed into Afghanistan.
With international aid flowing into the war-stricken country, sources here aver that clothing requirements would hold an important place on the wish list. Afghanistan will also be a key conduit for goods to get into Pakistan and the Central Asian states making up the CIS.
Against hopes engendered by peace settling in Afghanistan, the lacklustre demand from India and Pakistan remains a sticking point for the textile trade here.
"Sentiments in these two markets have been depressed even well before September 11. The present fear of war breaking out between the two is also holding back off take," said Jhaman Asnani, Texmas chairman. 
"The still high import tariffs on textiles and fabrics are another impediment. If things were to return to normal, we could expect improved demand coming by the early second half of the year."
During the glory years, India and Pakistan together accounted for about 15-20 per cent of the overall textile volumes out of Dubai. 
Fabric exports during 2001 were estimated at between Dh7-8 billion during 2001, and more or less unchanged from 2000.
The immediate weeks of September 11 did have an impact on crimping new orders. But a quick recovery manifested itself right from October onwards.
Dubai's textile trade was insulated by its reliance on markets in the Middle East, Africa, the Subcontinent, Central Asia and Central and Eastern Europe, and less so on the more developed markets which are directly covered by the manufacturers themselves or their agents.
"2001 was stable, and there were no major dips apart from the last quarter. But the most important change is of mentality - the major players are all working towards consolidation and increasing their gross profits even if it be at the expense of volumes," said Raju Shroff, managing director of Regal Traders.
"A lot of people have controlled their credit terms as the risk-reward returns were too high," managing director of Regal Traders.
Globally, fabric prices have had a marked decline since the second half of 2001. Estimates place the drop at about 20 per cent, primarily brought on by the fluctuations in the petrochemicals market.
To some extent, China's emergence as a major sourcing point for all kinds of fabrics has mitigated the cost factor for Dubai's traders. 
"Dubai's textile retail scene has got issues. Many outlets are still complaining about the credit situation, delay in payments, high expenses and lower business volumes," said Mahesh Advani, secretary of Texmas. 
"But the present situation is still a vast improvement on the mid 1990s - the trade is not hurting as much. Apart from a couple of minor hitches, there were no major bankruptcies in the last years," Mahesh Advani said.
One of the major gains for Texmas, which currently has a membership roster of nearly 300, during the period was in getting some of the bad debts, which had clogged up the trade and given it a bad name either rescheduled or written off. 
"There are still the smaller players with no capital relying on money lenders, who in turn secure themselves against the goods purchased. Whenever a default occurs, obviously the lenders are not going to hold on to the goods - they will immediately dump these into the local market," said Ram Bhagchandani, managing director of Arjay Traders. 
"This is affecting the credibility of the overall trade. We cannot do much to counter this situation apart from telling these individuals to refrain from entering such financing terms," Ram Bhagchandani said.
In the medium term, the textile trade will do well to further its returns from the other Gulf markets. And that could be had as early as 2005 with the union of customs duties becoming a fait accompli.
"This is where the Dubai Textile City (DTC) can prove really beneficial and give us a major edge. But the trade has to wait for another three years to reap the full benefits as the customs union has to first become a reality," said Sawlani.
DTC currently has a membership base of nearly 140, and will be expanded in other stages, confirmed officials. 
The member investors are funding the entire project. Dubai Government provided Land for the project, totalling five million square feet, free. 
Work will shortly start on the first phase of the DTC project, which will have 45 blocks, spread over 1.4 million square feet, and should be ready by early 2003.

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FOREIGN INVESTMENT

Businesses slow to enter Afghanistan 


America has a lot. Afghanistan needs everything. But U.S. companies capable of selling to that shattered country are balking at doing business there, reported Christopher Newton, Associated Press Writer. 
A conference of international donors this weekend could speed up the release of billions to rebuild Afghanistan, opening potentially lucrative business opportunities. 
However, big U.S. companies, even traditional risk-takers, are gun shy. ``There are still bombs falling, there are still people being shot,'' says Alexander Winslow, speaking for engineering giant Bechtel. 
"As of now, we have no plans where Afghanistan is concerned.'' New York business analyst Jeffrey Rogers says he can't imagine a corporate leader telling stockholders he's found a great investment opportunity - in Afghanistan. The economy is too weak here and the danger too great there. 
"It's just not the kind of risk anyone is prepared to take right now,'' he said. "I can't imagine they will take a risk like that for some time.'' 
In past times and other places, U.S. companies have ventured into unsettled foreign lands, drawn by low operating costs, big financial incentives and a local corporate vacuum. 
Afghanistan's reputation for banditry and chaos is so far proving too intimidating even for them. "We're not talking about antique companies or rug manufacturers,'' said Benjamin Danvers of Anderson Consulting in Los Angeles. ``There would have to be massive amounts of money to draw in major energy companies and major telecommunications companies. And when that money is gone, will the companies stay?'' 
Bechtel is busy in other recent hotspots of conflict, building a US$1.3 billion gas treatment plant in Abu Dhabi and a US$900 million highway in Croatia. Afghanistan is getting a pass for now. 
Although Afghanistan sorely needs the basics, several U.S. telecommunications companies also said they were not interested. 
Lucent Technologies, which has built telephone systems in several African nations, said Afghanistan was not in its future. Sprint, which took a government contract to build a telecommunications system in Bosnia, was sceptical, too. 
"It's probably not something we would do,'' said Bill Brougham, Sprint's director of program management. ``If the military asked us to support them, safety would be the highest thing on our agenda.'' Verizon and AT&T made similar comments. 
Visiting Afghanistan this week, Secretary of State Colin Powell said America is committed to the country's future and will do much to help. 
"This country needs everything,'' he said. ``It needs a banking system. It needs a health care system. It needs a sanitation system. It needs a phone system. It needs road construction. Everything you can imagine.'' 
Drawing in business is a prime topic at the donors meeting in Tokyo recently. The U.N. Development Program will present a plan to rebuild the country and an estimate of the cost. 
So far, a group that includes the United States, Japan, Russia and Britain has pledged US$1.3 billion. Experts say rebuilding could cost US$6 billion over five years. 
Past attempts by U.S. businesses to put down roots in Afghanistan have been thwarted by conflict. 
In the 1990s, a group of seven companies planned a US$2 billion gas pipeline between Pakistan and Turkmenistan, via Afghanistan. The deal was dropped in 1998 when the United States attacked an Afghan base of Osama bin Laden in retaliation against the bombing of U.S. embassies in Africa. 
Unocal, the lead investor in the deal, has turned its attention to building a pipeline from Bangladesh to India. 
"We have shifted our priorities toward other parts of the world and other important ventures,'' said Teresa Covington, speaking for the company. "You can't just turn back around after leaving a US$2 billion deal. We have a full plate.'' 
Although companies in Korea and Japan were involved, too, energy analysts say it is unlikely the Afghan pipeline could be done without a major U.S. company. 
"It's unfortunate because a pipeline means permanent jobs, permanent income and lots of supporting companies,'' said Jennifer Williams, a business researcher and professor at the University of Texas. 
"You would have to have a telephone system, a transportation system, along with constant utilities and supplies. This was probably the best hope for Afghanistan and it died prematurely because of war.'' 

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FINANCIAL NEWS 

Dollar could be Afghan stopgap


Different versions of the Afghani are appearing, Reported the BBC. The International Monetary Fund has suggested that Afghanistan could adopt the dollar as an interim currency until a new Afghan currency can be introduced. 
The proposal came during a visit to Afghanistan by a delegation from the IMF and the World Bank. 

Trillions of afghani banknotes could be in circulation

The delegation has been holding talks with Afghanistan's interim government about ways of revitalising the country's shattered economy. 
A former governor of Afghanistan's Central Bank, Khalil Sediq, has welcomed the proposal, saying that it could help prevent disputes among various Afghan factions, many of whom have circulated their own version of the country's currency, the afghani. 

Budget preparations

Afghanistan's interim government is currently struggling to reconstruct the country's economic system.
People would want dollars more than afghanis. 
One of its priorities will be to prepare a budget for the coming financial year, set to start on 21 March.
But planning is being complicated by the lack of fiscal accounting during the Taleban's rule and the fact that there are currently around seven versions of the afghani in circulation. Khalil Sediq, the governor of Afghanistan's Central Bank before the mujaheddin took power in 1992, said:
"In Afghanistan, especially over the last 10 years, trillions of afghani banknotes has been issued. Each faction has issued them for themselves to support themselves financially and the foreign supporters of these groups have also provided them with huge amounts of afghanis.
"So now I can say that maybe trillions of afghani banknotes could be in circulation."

'Valuable stopgap' 

Experts say that at this stage it would be extremely difficult for the interim government simply to withdraw existing afghanis and release new notes.
It could jeopardise peoples' savings and could also be opposed by some Afghan factions. 
Khalil Sediq said that the dollar - already used for some transactions in Afghanistan along with the Pakistani rupee - could be a valuable stopgap. 
Once people realised that the dollar was being used as an interim currency, he said, they would want to acquire it and the afghani would gradually disappear from circulation. 
That would make it easier for the Central Bank to collect the old currency and issue a new one. 
As for how long that might take, the IMF says it is likely to be at least two years before a new currency can be phased in. 

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TELECOMMUNICATIONS

Pakistan to bid for $1b Afghan telecom project 

The government is seriously considering grabbing the opportunity of developing telecommunication infrastructure with an estimated cost of over US$1 billion in war-ravaged Afghanistan, a senior official told 'The Nation'. 
He said President Pervez Musharraf was given a presentation by the Ministry of Science and Technology (MoST), which said Pakistan was the only potential country in the neighbourhood of Afghanistan that could mobilise its resources in infrastructure development. 
The senior officials and experts believed that proper telecommunication development would require at least US$1 billion, which includes digital telephone exchanges, fibre optic links, satellite foot print, Internet, voice and data exchange service, etc. 
The proposed locations where these facilities will be developed include Kabul, Kandahar, Mazar-e-Sharif, Charikar, Herat, Jalalabad, Mehtar Lam Lam, Baglan, Kunduz, Gardez and Asadabad. 
The government may possibly adjust its promised amount of US$100 million for Afghanistan rebuilding into the services and infrastructure development cost, said the official. 
Pakistan had promised to provide US$100 million grant to Afghanistan in "Afghan Donor Conference," held on January 22. On the conclusion of the same conference a colossal amount of US$4.5 billion had been promised by the world countries and organisations. 
When asked how Afghanistan would be able to separate US$1 billion from the total US$ 4.5 billion, the official said that the proposed telecommunication development would be made in phased manner. 
"Initially, the satellite linkages to main locations of Afghanistan can be provided with a cost ranging from US$ 20 million to US$30 million. In this very basic development the government offices and commercial units can be equipped with telecommunication facilities. And for the general public the PCOs with prepaid cards can be operationalised," he added. 
The official expected a strong competition as a number of countries including India would be in the run to win the mega project, which would create job opportunities and bring foreign revenue. "The fate of the project largely depends on the government policies and its relation with the global decision makers," he added.

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