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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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Afghanistan

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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 the end of August, 1,600,000 had already done so. However, the return of the former king has also caused tensions within the interim administration between royalists and anti-royalists. Despite all the talk about the return of the king, Afghan internal politics since the fall of the Taleban regime has been dominated by the Loya Jirgah elections, which were widely expected to be decisive in establishing the balance of power between the different factions in the future government. Even if these were never meant to be strictly speaking political elections and despite the assurances by the interim government that the warlords will not be allowed to interfere, the military factions in control of the various areas of the country determined the outcome to a fair extent. However, despite all attempts to buy influence and pre-determine the outcome, a significant opposition emerged from its ranks to prevent a completely smooth transition from the interim government to the provisional one, especially among Pashtun delegates. As a result, Hamid Karzai, who was elected president, had to slightly increase the weight of the Pashtuns within the new government, succeeding in bringing over to his side some groups previously opposed to him. 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.

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. 

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 expects a harvest of 1,900-2,700 tons of opium this year, much short of the peak of 4,600 tonnes reached in 1999, but still much more than 74 tons of 2001. Even discounting the many allegations of fraud that have been surrounding the operation, it is obvious that a great deal more has to be done in order to reduce the impact of the Afghan opium on the European markets.
The focus of the reconstruction effort is expected to be initially in investment on transport infrastructure, which is in extremely bad shape. Iran is expected to be at the forefront of those in 2002, in part also due to the greater economic dynamism shown so far by neighbouring western Afghanistan, and has already budgeted the necessary resources, especially for a railroad leading from Iran to the Afghan city of Herat. Longer-term projects are also beginning to be discussed, but the plan for a 850 km pipeline crossing Afghanistan, which could provide the Afghan government with as much as US$205m in transit fees every year, is likely to struggle to find suitable funding, despite the support of the Turkmen, Pakistani and Afghan governments and of the Asian Development Bank. 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 should 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.

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Update No: 011 - (31/10/02)

Karzai struggles on
After the June Loya Jirgah, President Karzai showed some signs of being willing to challenge the predominant power of the Panjsheri faction within the state administration and the government, recalling Defence Minister Fahim to a less biased approach towards personnel appointments and supporting liberal attitudes within state radio and television. His cautious approach however did not pacify the majority Pashtuns, while at the same time increasingly alienating his Panjsheri allies. Fahim is reported to have become increasingly dismissive of Karzai after the Loya Jirgah, while the non-Pashtun factions of the government are increasingly resentful of what they perceive as the growing role of former king Zahir Shah. After he was appointed to the honorific position of "father of the nation" during the Loya Jirgah, state media began devoting a considerable degree of attention to him. He has also been having meetings with Afghan notables and foreign ambassadors, which non-Pashtun groups found irritating. 
The success of Islamic fundamentalist groups in the Pakistani elections could encourage the defiance of Pashtuns opposed to the Karzai government. The tension among factions might also be exacerbated over the next few months, as the monarchist plan to seize the political initiative, after they failed to do so during the Loya Jirgah. There are reports that Zahir's son, Mirwais Shah, might step in as a presidential candidate for the 2003 elections. 
Despite the tension around him, Karzai continues in his efforts to rebuild the Afghan state and on 5 October a committee was created with the purpose of drafting a new constitution.

Help still trickling in
After the repeated warning launched by Afghan ministers during September, the donors community showed some signs of reacting in October. Between the end of September and mid-October, Karzai toured the Gulf States and the ECO states, asking for more reconstruction help. At the end of September, a large meeting of donors took place in Washington, aiming at accelerating the release of funds and coordinating the donors. The Asian Development Bank, which had previously been wrangling with the Kabul government over the funding of reconstruction projects, approved a US$15 million grant at the beginning of October, meant to get the reconstruction of the Kandahar-Spin Boldak highway started. Moreover, the World Bank confirmed its pledge of contributing US$470 million to the reconstruction of Afghanistan. However, the Afghan government is still short of the funds needed to run its basic activities, although the situation improved during October, as the initial gap of US$165 million, needed to run the country for the following 6 months, was cut to US$90 million. 
If the Afghan government can complain about the slow delivery of help, the international coalition which supported the overthrowing the Taleban regime also bears some grudges against the Karzai government. In particular, there is growing dissatisfaction at its performance in containing the production of opium in Afghanistan. It seems now inevitable that cheap heroin will once again be flooding 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. At the beginning of October Iran and Turkey stepped in, offering to contribute to Afghanistan's efforts to replace opium with less lethal agricultural products, but the basic issue remains unresolved: growing poppies offers much greater returns to both Afghan farmers and their local warlords than any other alternative.

A new currency and fewer custom duties
As far as the economic environment is concerned, the main development during October was the launch of the new Afghani, which started replacing the old currency on 7 October. The launch was welcomed by the population and the fact that the exchange rate stopped its slide downward in October can be seen as a positive sign of growing faith in the future. 
Among other measures taken to stimulate the economic recovery, the government announced at the end of September that it plans to abolish export duties, a decision which should favour the export of carpets, fruit, gems and other products. Iran, on the other hand, announced at the same time its intention of opening a tax-free route between Chabahar and Afghanistan. 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, but most of the rural areas have seen little improvement yet. 

Small steps towards a big project
The big projects, that is mainly the Turkmenistan-Pakistan pipeline, continued to make some progress in October. A formal agreement between Turkmenistan, Afghanistan and Pakistan was reached on 19 October and the formal signature was expected to take place on 26-27 October. The Asian Development Bank confirmed that it would fund the feasibility study, scheduled to start in December. The most important development concerning the project, however, was the interest expressed by the Japanese Itochu conglomerate, which had already been involved in the earlier Unocal project of 1997-1998. This is the first concrete sign that a major international investor might become involved in funding at least part of the project.

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BANKING

State Bank of India keen to open branch in Afghanistan

Close on the heels of its joint venture in Russia, the State Bank of India has evinced interest in opening a branch in Afghanistan after the war-ravaged country puts in place necessary legislations, Asia Pulse has reported.
"We are certainly interested in opening a branch in Afghanistan," a top SBI official said.
But everything would depend on how soon Afghanistan puts in a proper legislation for the banking sector, the official said without giving any time frame.
SBI chairman Janki Ballabh had earlier said that although the bank was interested in foraying into Afghanistan, it would take some time. "Let that country come out with the guidelines," he had told PTI.
The move also follows Afghan interim administration chief, Hamid Karzai's, assertion that his country would attach prime importance to banking sector.
SBI plans to open a branch in Afghanistan also comes as part of the "goodwill" gesture of India, which had enjoyed good trade relations for many centuries till the turmoil erupted in that country.
Once Afghanistan comes up with such a legislation, then the public sector banking monolith is expected to take up the matter with Reserve Bank of India for the necessary clearance.
SBI's foray into Afghanistan would also assume importance once trade between the two nations is stepped up.
India has already expressed willingness to sign a preferential trade agreement with Afghanistan for economic development and reconstruction.

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INFORMATION TECHNOLOGY

Afghanistan finally logs onto the Internet

Blasted back into an almost medieval state by years of war and the repressive rule of the Taliban regime, Afghanistan is now taking a great leap forward, logging on at last to the Internet revolution, Express India has reported. 
Previously, the war-ravaged country's only connections to the World Wide Web had been via prohibitively expensive satellite links or through a single tiny, crowded Internet cafe in the basement of Kabul's largest hotel. 
Now, thanks to the Afghan Wireless Communication Company (AWCC), which earlier this year established Afghanistan's first mobile phone system, a fledgling Internet network is being set up across the Capital. 
AWCC engineers are currently working flat out across Kabul installing equipment which will offer relatively cheap, unlimited access to high speed data exchange and finally establish Afghanistan's presence on the information highway. 
"We have just started rolling it out. A few customers were installed at first for test purposes, the feedback was very good, so we're going ahead," said AWCC marketing manager Eshan Bayat. 
Widely available Internet access would have been unthinkable 12 months ago in Afghanistan, which was still in the grip of the fundamentalist Taliban regime, eventually ousted late last year by a US-led campaign. 
Under the Taliban's extreme interpretation of Islamic law, which banned music, television and many forms of social interaction, the dizzying access to all three offered by the Web would have incurred swift and brutal punishment.

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TELECOMMUNICATIONS

Afghanistan licenses second GSM network

Afghanistan has licensed an international consortium led by the Aga Khan Fund for Economic Development (AKFED) to set up its second mobile phone network, the fund said in a statement, Reuters has reported. 
The Geneva-based AKFED said it had a 51 per cent stake in the project, while Monaco Telecom International (MTI) will hold 35 per cent of the equity, US-based MCT Corp nine percent and French telecoms giant, Alcatel, five per,cent. 
AKFED said the project would involve a total initial investment of US$55 million, rising to US$120 million over the coming decade. The statement said Alcatel would also provide financing for technical equipment, but gave no details. 
It said the World Bank's private-sector arm, the International Finance Corp, had expressed an interest in participating in the project. 
The network will initially be targeted at six main cities in war-battered Afghanistan -- Kabul, Herat, Kandahar, Mazar-i-Sharif, Jalalabad and Kunduz. The consortium expects to expand the network to other cities over the next four or five years. 
Afghanistan now has just one mobile operator, Afghan Wireless Communication Co, which established networks in Kabul and Herat this year. 
AKFED estimated these catered to about 20,000 subscribers, supplementing a fixed-line network almost totally destroyed in Afghanistan's years of civil war. Government ministries, aid organizations and other institutions rely on satellite telephones for day-to-day communications both inside and outside Kabul. 
"Addressing needs in as vital an area of infrastructure as communications is one of the ways AKFED is seeking to help jump-start economic development in Afghanistan," AKFED's statement said. 
It said Alcatel was already in partnership with it in the manufacture of digital telephone exchanges and related software development in South Asia, while MTI had recent experience implementing GSM projects in the post-conflict environments of Kosovo and the Balkans. 
MCT Corp, meanwhile, is an AKFED partner in a GSM venture in Central Asia. 

India may reactivate telecommunications links with Kabul

The Confederation of Indian Industry's "Made In India" show in Kabul, which registered business worth Rs 250 million (US$5.17 million), has also generated hopes of reactivation of telecommunications links between the two countries by the end of October, Asia Pulse has reported.
Briefing reporters on the show held from September 26-29, CII chairman, Subodh Bhargava, said the chamber was hopeful of reactivating the 0093 ISD code for Kabul to establish telecommunications between the two nations.
He said the chamber had been assured by telecom major Videsh Sanchar Nigam Ltd (BSE:VSNL) of the activation of links at reasonable tariff levels.
A major highlight of the show was that all exhibited products were sold, he said.
While Kamrup Industrial gases tied up with Yahya Gulf Trading company to set up a unit involving an investment of US$2.5 million, another agreement had been signed for setting up a mineral water plant in Kabul, he added.
Bhargava said CII had identified absence of communication facilities, banking system, higher transportation and freight costs as some of the problems in doing business with Afghanistan and would take up the issue with the government.
Elaborating on the business potential, he said some companies including Tatas, Escorts, Ashok Leyland, Electrolux among others had already appointed dealers.
He said there were immense opportunities for domestic companies in infrastructure, services and trading.

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