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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 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, Pashtun opposition to his government continued to rise in the following weeks. Among the main factions vying for power, the Panjsheris proved unable to match their power in the armed forces with anything similar in terms of influence among the delegates. The "Jihadi" alliance of moderate fundamentalists led by former president B. Rabbani emerged on the other hand as an important force and ended up joining the pro-Karzai coalition, being then rewarded with some ministerial positions and a vice-presidency. 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 international politics of the Afghan crisis is characterised by a row between the US and Iran, which is being accused of meddling in Afghanistan, with the aim of destabilising the interim administration of Hamid Karzai. Iran fears the establishment of a government dominated by the monarchists in Afghanistan and sympathises with all the Afghan factions that share the same feeling. Russia is rather indifferent to the internal politics of Afghanistan, but wants to ensure the presence of a government compatible with its geopolitical aims. Its strongest links are with Jamiat-i Islami, a party mostly composed of Tajiks, which it supported during the war against the Taliban. The former Soviet republic of Tajikistan is a Russian 'de-facto' protectorate, a fact that also favours Russia's alignment with Afghanistan's Tajiks.{deleted}
While Pakistan and Uzbekistan continue to keep a low profile, the role of the US in affecting events in Afghanistan is undoubtedly dominant, but continues to encounter limits to its action. The Bush administration did exercise a considerable pressure on ministers of the Karzai government on several occasions, especially Defence Minister Fahim, whose conduct increasingly appears biased. Not even the US, however, has been entirely successful in steering Afghanistan in the desired direction. They proved unable, for example, to control their allied warlords in Southern Afghanistan, one of which even ended up fighting against government militias. Moreover, even Karzai himself has openly refused to endorse American allegations against Iran. 

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. 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. It is clear, however, that a long-term stabilisation of the currency will require the replacement of the Afghani with a new one, as there are still estimated to be significant reserves of unspent funds in the hands of the warlords.

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Update No: 010 - (26/09/02)

Taleban resurgent?
The increase in terrorist activity in Afghanistan, which included the first serious attempt on Karzai's life on 5 September, was followed by speculation about an imminent offensive of remnants of the Taleban, allied with some other disgruntled fondamentalist leaders. There are also persistent reports of meetings and talks between leaders of the militant islamist groups which fought in the jihad against the Red Army, including some which were part of the anti-Taleban Northern Alliance. While there is quite a lot of exaggeration in some reports, the tide of hostility towards the new government in Kabul continues to rise among the Pashtun population of several provinces. The failure to deliver the promised reconstruction help from the international community is alienating the people, while the continuing near-monopoly of power by the Tajik Panjsheri faction is a major factor of discontent among the Pahtun elites. During the summer, Karzai tried to reduce the power of the Panjsheri and of other non-Pashtun factions, but with limited effects so far. Certainly, the Pashtuns seem to have hardly noticed any effort in that direction. At the same time, the consolidation of central power in the provinces is making little progress. The only major achievement during September was the defeat of Padsha Khan, a royalist leader in Paktia province, who became increasingly defiant towards the government over the last few months. Some potential good could derive from the end of American opposition to the expansion of the ISAF outside Kabul, although it is far from clear yet whether this expansion will actually take place and which forms it will assume.
The rift between liberal and islamist factions within the government itself is increasingly evident. An example is provided by the diatribe over the aims and purposes of state medias, which continued in August and September. The Supreme Court, dominated by the islamists, supported the decision of state television and radio to ban women from singing on the radio and the showing of Indian movies on television, despite the contrary advice of Information and Culture Minister Makhdoom.

Mixed signals on prospects of reconstruction
Reconstruction funds continued to trickle through to Afghanistan in August and September and the prospects of an improvement were severely shattered on 20 August, when President Bush vetoed an aid bill, which included US$174 million for Afghanistan. While President's Bush decision appears to be due to essentially domestic considerations, it was taken as a bad signal from NGOs and observers in general. However, three weeks later, the same President Bush sent a completely different signal, announcing that Saudi Arabia, Japan and the United States were teaming up to fund the US$180 million necessary for rebuilding of the 600-mile Kandahar-Kabul highway. This is considered especially good news, since hardly any reconstruction work of the road network has started yet, except on the Afghanistan-Iran border. 

Good projects, but how realistic?
The Karzai government continues to try to do its best to push ahead the reconstruction of Afghanistan with the very limited means at its disposal. A free-trade agreement is in the process of being negotiated with Pakistan, while the drafting of a new banking legislation is underway and the establishment of half a dozen private banks have already been proposed. At present, there is no banking system in Afghanistan. Despite the lack of a working transport infrastructure and the extreme weakness of its hold on the provinces, the Kabul government is also proceeding with the launch of two ambitious plans, aimed at reviving the Afghan economy. The replacement of the old Afghani notes with new ones, at the rate of 1,000 old Afghanis for a new one, is about to start. The new notes, printed in Europe, are already in Kabul and the conversion process is now being organised. The aim is to bring the supply of currency under control and prevent the injection of counterfeit notes into the system. Some commentators are however sceptical of the plan, given the widespread insecurity which reigns in the provinces, but the government is adamant that the conversion will take place at the same time all over the country. While this plan had long been announced and was therefore expected, the announcement of the establishment of a tariff-free zone in Afghanistan was more of a surprise, especially because of its timing. Many observers believe that the plan, while sound in itself, is premature, as domestic and especially foreign investors are unlikely to be willing to invest their capital until security is guaranteed and a reasonably efficient road network re-established. 
The same criticism could be applied to the project of a gas pipeline running from Turkmenistan to Pakistan through Afghanistan. The project moved one more step ahead in September, as the three governments defined the details of the plan and the Asian Development Bank, which supports it, announced that it will soon start a feasibility study in the field. Even in this case, however, the problem is the willingness of foreign investors to fund the project, and in this regard little progress is being made.
The difficulty of the government in implementing its plans is well illustrated by the fate of its ban on the cultivation of poppies. Several reports had raised doubts about government statistics concerning the success of the ban and local officials were often accused of corruption. A confirmation came at the end of August, when UN officials stated that the Kabul government had failed to make substantial progress in the eradication of the opium poppy crop. The good weather, which has benefited the cereal crops, appears to have caused a substantial increase in the poppy crop too, a development which is certainly not going to please the European governments, whose countries continue to be flooded by cheap heroin coming from the region. 

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CARPET INDUSTRY

Carpet dealers flock to Afghanistan where bevy of foreign workers brings brisk business 


The hulking ruby and turquoise ring Ghamay Mohammed wears as an emblem of his thriving carpet business catches a glint in the merchant's eye and reflects the red hues of the frayed Afghan carpets lining his shop, Associated Press Writer, Paisley Dodds, has reported. 
Mohammed is one of dozens of carpet dealers who have returned to Afghanistan where the arrival of foreign aid workers is bringing brisk business. The merchants can fetch double the price of what they would get in their shops on the Pakistani border and get five times the number of customers. 
They also get cheaper prices on items brought from Herat, a western city near the Iranian border where many of Afghanistan's finest carpets are either made or imported. "Since we reopened this shop, we've already sold more than 60 carpets," says the 18-year-old Mohammed, who closed one of his shops on the Pakistani border two months ago to reopen one in Kandahar. "That's better than what we did for a year at our shop near Chaman" on the Pakistan-Afghanistan border. 
Since the Taleban's ousting in December, throngs of foreign aid workers, journalists, soldiers and visiting diplomats have flocked to Afghanistan. The influx has hiked the demand for carpets, which used to be the third largest export item next to oil and fruit. Export revenues from the carpet industry were once estimated at more than US$250 million, although it is unclear how much the industry is worth today. 
Carpet connoisseurs say Afghan carpets are special because of the quality of wool that is used, the tightness of the weave often accomplished by the nimble fingers of child labourers the varied designs that reflect the ethnic diversity of the country and the use of vegetable dyes made from walnuts, pomegranates, flowers and onions. 
Even in Kandahar, the former Taleban stronghold of the south, considered a backwater to some international aid groups and agencies who have congregated around the capital, carpet dealers have zealously returned, sometimes doing business within 24 hours upon arrival.

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CONSTRUCTION

Babcock wins £2 million services contract in Afghanistan 

Babcock International Group PLC said it has won a 2-year contract worth £2 million to provide infrastructure support services through Defence Estates for the MoD in Afghanistan, AFX News has reported.
Babcock-HCS will work in partnership with the British Army to complete the construction of a camp by Oct 31, so that troops are out of tented accommodation before the Afghan winter.

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FOREIGN ECONOMIC COOPERATION

Made in India trade show heads Kabul 

Nine months after India reopened its embassy in Afghanistan, Foreign Secretary Kanwal Sibal will fly into Kabul later this month at the head of a big business delegation that finally signifies New Delhi's new intent to integrate money with foreign policy initiatives abroad, Jyoti Malhotra reported for Indian Express Newspapers. 
Having been banished from the Taleban-led Afghanistan for nearly a decade and having returned with both access and influence in the Hamid Karzai-cum-Northern Alliance administration, the government is now backing a major business exhibition that was held in Kabul from September 26th-29th that hoped to not only displace Pakistan-made goods in the long term but also piggyback on the massive American effort in Afghanistan. 
Coordinated by the Confederation of Indian Industries (CII), the ''Made in India'' show showcased over 150 Indian companies at the exhibition ground built by the Germans in Kabul for the loya jirgah in May. The show was expected to work under its own steam, by financing its own chartered plane to Kabul and back and arranging the transportation of goods by Ariana Airlines or ship (via the much longer route through Iran). 
The big names were there, the likes of Godrej and Hindustan Motors and Eicher, as well as lesser-known ones like SAF Yeast Co (manufacturing yeast, icing sugar and bakery items) and Meso Pvt Ltd (non-alcoholic perfumes, talcum powders, hair oils). An Indo-Afghan Business Forum was launched on September 26th, a function everyone hoped would be attended by Ashraf Ghani, economic advisor to Karzai. 
Piyush Bahl, the head of CII's international division, acknowledges that he has told participants that ''they will have to compete with both China and Pakistan, and therefore sell goods that are not only price but also quality sensitive.'' 
Added Bahl, ''Kabul is quite a happening city today.'' So now we know.

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TELECOMMUNICATIONS

Afghanistan Look to Rewire Country 

There are only 12,000 functioning telephones for nearly 2 million people in Kabul. And most calls never go through, AP News Agency has reported.
The situation is worse in the provinces. Wiring Afghanistan is a colossal challenge that has only just begun.
For starters, the government is scrambling to lure investors to build private cellular networks. The bigger challenge will be repairing and extending the rudimentary, bomb-damaged wireline phone network.
After years of war, Afghanistan is one of the world's poorest countries, and many Afghans have never made a phone call or even heard of the Internet, let alone sent an e-mail.
"We have a big technological gap because no investment has come into this sector over the past two decades apart from very limited investment in telephones," Communications Minister Mohammad Masoom Stanakzai said during a recent interview.
He has big plans to install digital phone lines and fibre optic cables in the war-scarred country - even though he doesn't even have an Internet connection in his office.
Already, the Afghan government and New Jersey-based Telephone Systems International have formed a partnership, Afghan Wireless Communication Co., and began offering cell phone service in April when President Hamid Karzai called an Afghan refugee in Germany. But the service from Afghan Wireless works best in Kabul and the cities of Herat and Kandahar. Its links with other Afghan cities and the outside world are tenuous, analysts say.
Outside Kabul, communications are bleak. "There's no functioning national backbone network," said Ken Zita, president of New York-based Network Dynamics Associates, a consultant to the Afghan Ministry of Communications.
Building one is a delicate job akin to laying oil pipelines, with cables crossing hostile territory still governed by warlords, he said. The country now has two wireline networks, one dating to the Soviet occupation that began in 1979, the other a newer, Chinese-built system. Neither extends beyond Afghanistan's borders or interconnects reliably.
The country relies entirely on satellite bandwidth for telephone calls and data transmission to the outside world - and between most cities inside the country, said Zita and Stephan Beckert of the Washington, D.C., research firm TeleGeography.
Internet access isn't any better. "It's only for rich people," said Mohammad Sharif, an Afghan who was instant messaging his 14-year-old son in Pakistan and sending e-mail from a new Internet cafe in the basement of the Intercontinental Hotel. Afghan Wireless, in partnership with the government, opened that cafe - the country's first - in July. The government plans to open a second by September and hopes competition will bring access prices down.
Nonetheless, wealthier Afghans are wild about the communications network in the capital, and foreign investors have noticed. Telecommunications is the only sector of the economy attracting private foreign investment. Though investments have been modest thus far, Stanakzai expects more as he struggles to develop a communications policy for Afghanistan and standard licensing that he says "should not change with political change."
On July 31, the Ministry of Communications announced that two mobile phone licenses would be granted to private bidders in the coming months, opening competition with Afghan Wireless. The deadline for bidding is Sept. 19. Stanakzai is hoping that foreign competition will make cell phone service available to more people.If a major telecommunications company like Siemens or AT&T bids for the license, it would likely make mobile phones much more accessible to Afghans.
Afghanistan's Foreign Ministry is perhaps a sign of hope: With two satellite dishes for Internet connections and 135 computers, it's one of the most wired places in Afghanistan. "We're now teaching 138 students," said the ministry's director of technology, Fawad Muslim, who was a software engineer in Virginia for Leros Technology before returning to Kabul in December. "But it's going to take a long, long time to get Afghanistan connected."

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