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Afghanistan

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  AFGHANISTAN

REPUBLICAN REFERENCE

Area (sq.km)
647,500

Population
26,813,057

Capital
Kabul

Currency
afghani (AFA)

President
Hamid Karzai

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Background:
Afghanistan was invaded and occupied by the Soviet Union in 1979, in the attempt to rescue and consolidate the pro-Soviet regime in place. It took 10 years before the USSR could withdraw its forces, having been delayed by the fierce resistance of anti-communist mujahidin forces, supplied and trained by the US, Saudi Arabia, Pakistan, and others. The pro-soviet regime survived for two years and a half, contrary to the expectations of many, and then fell in April 1992, having outlived its own mentor, the USSR. Fighting subsequently continued among the various mujahidin factions, but the fundamentalist Islamic Taliban movement had been able to seize most of the country. In addition to the continuing civil strife, the country suffers from enormous poverty, a crumbling infrastructure, and widespread land mines.

Internal politics 
The return of the old King Zahir Shah at the end of April was interpreted by many Afghans as a further sign that peace might really be at hand, a feeling that was already prompting hundreds of thousands of Afghans to come back to their native country from Pakistan or Iran. By mid-July, 1,300,000 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. 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. 

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. Moreover, some of the top generals in the Jamiat-led new Afghan national army, are former generals of the old communist regime and they still have good contacts in Moscow. 
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. Perhaps more importantly, the US have been building their own "party" among Pashtun warlords in Southern and Eastern Afghanistan, whose help they want to enlist in the hunt for the remnants of Al-Qaida. Not even the US, however, has been entirely successful in steering Afghanistan in the desired direction. These warlords, for example, are now exploiting their privileged access to funds and resources to try to establish their own hegemony over entire regions, but are facing a growing local opposition. 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 have pledged US$4.5bn, of which US$1.7 billion for the current year, but only US$1.1 billion has been confirmed in the form of actual commitments and it looks likely that just US$900 million will be actually received. Of this amount, the largest part ($650 million) is going to humanitarian relief, while US$100 million are being spent on staff salaries and the armed forces, with just US$150 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 both the Turkmen and the Afghan governments. 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: 09 - (29/08/02)

Karzai begins acting tougher
After criticism of Karzai's cautious approach had been mounting for months, especially from the majority Pashtuns, who feel sidelined, the Afghan president began to show signs of a new resolution towards the end of July. Although the international press focused mostly on the replacement of Karzai's Afghan bodyguard unit, judged unreliable, with American troops after the assassination of Abdul Qadir in July, there were several other signals. They ranged from an enquiry on the intelligence service, accused of human right abuses, to the strong criticism of Kabul's mayor, who resigned in protest to the replacement of the heads of state television and official news agency Bakhtar. The main target of Karzai's actions in July and August were loyalists of the Panjsheri faction, which had been strongly criticised because of its accumulation of power. Karzai also appointed four new governors in provinces surrounding the capital, who come all from other regions and therefore do not have a personal powerbase locally. 
The Panjsheri did not accept the changes too graciously, complaining about the adoption of an American bodyguard and staging demonstrations against Information and Culture Minister Makhdoom, who appointed new heads at Bakhtar and state television. It is possible that this growing antagonism might be playing a role in pushing the Panjsheris to openly challenge some of the policies of the government, exploiting the growing unhappiness among the population about American conduct in Afghanistan. At the end of July foreign minister Abdullah, one of the leaders of the Panjsheris, asked that Afghans be given a say in the conduct of US military operations, in contrast with the more conciliatory stand taken by the rest of the government.
The signs are however that the Panjsheris are resigning to accommodate at least some change. At the end of July, for example, Defence Minister Fahim for the first time acknowledged in front of a journalist that his ministry was largely controlled by members of his own Panjsheri faction and that this had to change.


Still cautious with warlords, though
From the point of view of the majority of Pashtuns, what Karzai has done so far is still far too little. As a result, he is alienating the Panjsheris, but is still unable to gather much support from other factions. He appears increasingly dependent on the support of the international troops deployed in Afghanistan. Unsurprisingly, therefore, Karzai has not modified his cautious approach to the major warlords who still rule most of Afghanistan, continuing to practice a policy of cooperation. At the end of July he announced he had reached an agreement with Northern warlord Rashid Dostum, by virtue of which Dostum was appointed his representative in Northern Afghanistan. In the case of the most unruly of Afghanistan's warlords, Padsha Khan of Paktia, despite having announced several ultimatums and the despatch of troops to deal with him, as a matter of fact Karzai has done very little. As the end of August was approaching, Padsha Khan continued to rule undisturbed over much of Paktia. Karzai's relationship with Ismail Khan, who rules most of Eastern Afghanistan, has also been ambiguous during the last few months. On the one hand Ismail Khan has refused to visit Kabul, despite repeated invitations, and apparently is also refusing military cooperation with both the government and the Americans, while being involved instead in clashes with local rivals in Western Afghanistan. On the other hand, he has agreed to pay the central government a share of the custom duties that he pockets on the Afghan-Iranian border.

International aid: something is moving, very slowly
After several weeks of polemics about the very slow pace of incoming reconstruction aid and the failure of donors to maintain their earlier promises, some positive developments took place during August. US Secretary of State Rumsfeld expressed his feeling that Afghanistan was not receiving enough help, a statement which might precede the granting of more aid. Moreover, it was announced that the first infrastructure reconstruction works are about to start. A Turkish company won the contract for the rehabilitation of the Salang Pass tunnel, which will start in September. Finally, some interest in the oil and gas sectors in Afghanistan was expressed during August by two Russian companies, Rosneft and Itera, which appear to be enjoying the support of the Russian government. 
However, the prospects for a rapid take-off of reconstruction activity suffered a serious blow at the beginning of August when the Asian Development Bank pulled out of a deal for the rebuilding of the Kabul-Kandahar highway. The ADB failed to reach an agreement with the Afghan government over the funding of the project, as the Bank was offering a loan to Kabul, which instead expected a grant.
The increasingly difficult relationship with the ADB is worrying, since the bank is also expected to play a leading role in gathering the funds necessary for the Turkmenistan-Afghanistan-Pakistan (and maybe India) gas pipeline, on which the Karzai government is so keen. For the moment being the bank is funding a US$1.5 million feasibility study, but it is also reported to be trying to convince India to join the project, an uphill task given the status of that country's relations with Pakistan. Even in the case that the ADB continued to play its role in this project, moreover, it is expected that the bank will offer loans, rather than grants, to fund part of the US$2 billion project. 


All as usual on the economic front
In the meanwhile, little changed in August as far as the predominant economic trends in Afghanistan are concerned. The local currency, the Afghani, continued its slide against the dollar, although at a slower rate than in the previous months. In August, the Afghani lost another 3% of its value against the dollar and was being exchanged at 39,200. Trading, smuggling and drugs remain the most active sectors of the economy. It appears increasingly clear that the Afghan government had been excessively optimistic in its claims that its opium eradication efforts were making important progress and there is increasing evidence that in most provinces only atiny percentage of the crops has so far been destroyed. 

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AUTOMOBILES

Afghan buyers boost Ducamz

The Dubai Custom Zone Vehicles Free Zone, one of the world's biggest used car lots, expects to sell 100,000 vehicles this year, with 50 per cent destined for Afghanistan, reported Gulf News. 
Last year Ducamz saw a slump in sales to 60,000 vehicles due to the brief war in Afghanistan. But since the departure of the Taliban regime business has soared.

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FOREIGN ECONOMIC RELATIONS

CII manages export orders from Afghanistan

The Kabul Office of the Confederation of Indian Industry (CII) is playing a leading role in getting valuable export orders for Indian firms, Capital Market Publishers India Ltd has reported. 
Jodhpur-based obtained an export order for stone machinery valued at US$2 million for a stone cutting and polishing factory being set up in Kabul by an Afghan entrepreneur. 
And the country's leading pharmaceutical major, Ranbaxy, netted an export order of US$50,000 from Kabul. 
CII is also in talks with Indian companies to set up a cement plant and a bulk drug factory in Kabul and the deal may be finalised within a fortnight. 
Meanwhile, Feedback Ventures, an infrastructure development group, plans an industrial park in Kabul; and the Jaypee group hotel projects Afghanistan.

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INTERNAL ECONOMIC AFFAIRS

Afghan Carpet Makers Find Industry at Crossroads 

Afghan carpet makers say they have had the rug pulled from under their feet with the demise of the Taleban and the return of over one million refugees from Pakistan this year alone, The Tehran Times has reported.
Ironically, the rebuilding of Afghanistan has deprived them of their workforce, as parents raise their aspirations for the boys who used to do much of the weaving.
"The industry is going through a very difficult time at the moment," said Ghulam Yahia, who runs a factory with 15 looms in the western suburbs of Kabul. "The next year is going to be a make or break one for the industry. I think it will get through, but there will definitely be some companies that do not make it."
Afghanistan has been famous for centuries for the beauty and durability of its hand-woven rugs and carpets.
Alexander the Great was said to have hired a counsellor to advise him specifically on what sort of carpets he should take back with him on his world-conquering travels.
But, ironically, very few Afghan carpets have been made in Afghanistan in the last two decades. Most, while made with Afghan wools, on Afghan looms by Afghan weavers, have been woven in the vast refugee camps that sprouted in Pakistan and Iran after the Soviet invasion of 1979. "It made sense," Yahia told Reuters. "Most of the weavers left Afghanistan to become refugees, so the carpet factory owners moved the looms to Pakistan. That is where the labour force was."
But since the overthrow of the Taleban in December, over 1.3 million refugees have returned home, carpet weavers among them, and the loom owners have moved their equipment back to Afghanistan.
Nevertheless, factory owners say they are still in the grip of Pakistan carpet dealers who they say take the lion's share of the mark-ups in price that an Afghan carpet experiences from workshop to showroom floor.
"We have got to get control of the industry in Afghanistan rather than allow the Pakistanis to run our affairs in Lahore," said Mohammad Faizal, head of a Kabul Carpet Cooperative. "At the moment we are hostages ... we have no say in the market. Buyers simply will not come here, so we have to go to them."
At Yahia's factory, around 75 boys, teenagers and young men are engaged daily in making carpets.
The looms are made of steel, the only bow to modernity in the process, but everything else is done the same way as it was centuries ago.
Far from the stereotypical image of a Dickensian sweatshop, Yahia's is a cheerful place with the boys teasing each other and constantly playing pranks. Some of the boys are as young as nine, but they all go to school and work after hours in the factory. "Most parents have greater aspirations for their children these days," said Yahia. "In the city, most parents would prefer for their children to go to school than work in the factory. We really are running out of labour."
He said if the trend continued, most carpet makers would move their looms to the rural areas and try to find women and girls to do the work.
Some carpets are on sale in shops in Kabul, but Yahia warned that many foreigners were not getting what they paid for.
"You really have to know what you are doing if you want to buy a carpet," he said.
Many shopkeepers lay their new carpets out on the pavements of the capital's dusty streets every day to "age" them.
According to local lore, a carpet left outside for a week will age 10 years -- increasing its value. "My best advice is to buy one that you want -- that you want to keep in your house because it is beautiful. If you are happy with the price, then buy it. So what if you pay US$50 more than you could have? It will give you years of happiness and will probably increase in value as well," he said. "Do not buy for investment unless you are an expert."

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TELECOMMUNICATIONS

India capturing Afghan telecom business 

An Indian telecom company has successfully installed a digital communication network and started receiving subscriptions in Afghan capital of Kabul that has now been linked with the world through a high-tech gateway exchange, Xinhua News Agency has reported. 
According to the Peshawar-based daily newspaper "The Statesman on Sunday", Indian engineers are now looking forward to the possibility of expending their network to other major cities of the strife-stricken country. 
Earlier, said the paper, some multinational satellite telecommunication companies have filled the void created by the destruction of telecom system in Afghanistan. 
"Satellite phones were the only available mean of communication in Afghanistan where the long spell of internal strife and heavy bombing by US-led coalition jets left the entire communication network in shamble," said the paper. 
Quoting Afghan sources, the paper indicated that American cell phone companies have also increased their activities in Afghanistan. "The growing interest of the American cell phone companies and the establishment of a sophisticated digital exchange in Kabul have seriously damaged the market of satellite communication in Afghanistan," they said. 
They revealed that India was the main beneficiary of the reconstruction work in Afghanistan. Indian officials, they said, have already levelled ground for offering Internet services besides making remarkable progress in the provision of Indian cable services for the Afghan population. 

Afghanistan GSM network expanded

The Afghan Wireless Communication Company (AWCC), a joint venture between Telephone Systems International and the Afghan government, has expanded the GSM service to Heart, the company's web-site has reported. 
AWCC introduced GSM coverage to the capital Kabul in April 2002 and has now extended the network to Herat, an ancient centre of the silk trade and a key economic area for Afghan redevelopment. Users can purchase pre-paid cards for their GSM handsets and access international voice, SMS and data services. In a country where deploying a traditional fixed telephony infrastructure would have been prohibitively expensive, AWCC launched a GSM network in just seven weeks. 
Ehsan Bayat, an Afghan émigré and AWCC's founder, commented: "I believe that a telecommunications system is the cornerstone for economic development in a country that has been ravaged by war. AWCC is committed to doing its part, today and in the future, to help bring the economy back to its feet." Further information is available from the company's web-site: http://www.afghanwireless.com.

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