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AFGHANISTAN

The Problems of Creating a New Afghan army -
and the critical dangers of failure!
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The essential companion to follow the complex events in Afghanistan - as they unfold - includes reports on the main warlords and a map of the territory held by them, as well as other key descriptive material.

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AFGHANISTAN


  
   

 

REPUBLICAN REFERENCE

Area (sq.km)
647,500

Population
26,813,057

Capital
Kabul 

Currency
afghani (AFA)

President
Hamid Karzai
 

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
During the first half of 2002, the interim administration led by Hamid Karzai was mostly busy preparing the ground for re-establishing a government structure and getting reconstruction help from the international community. Perceived as an honest and well-intentioned man, but at the same time as a weak ruler, Karzai faced the resistance of the warlords who rule the various regions of the country, but also the difficulty of keeping his own coalition together. The interim government was an alliance between Pashtun monarchists of secularist tendencies and the various factions of the United Front, mostly composed of moderate Islamists from the ethnic minorities, who favour an Islamic republic. The coexistence between these radically different approaches would have been difficult in any case, but the situation was made worse by the fact that one of those factions, the so-called Panjsheris, quickly monopolised the real power by getting not just three of the most important ministries (defence, interior and foreign affairs), but also most top positions in the bureaucracy and in the army. The resentment caused by the attitude of the Panjsheris led to rising political tensions within the interim government, while the return of the former king Zaher Shah in April emboldened the monarchists to become more assertive. Other political factions, apart from the monarchists and the moderate Islamists, mostly opted to keep a low profile during 2002, siding with either faction depending on their own interests, but might become more active in the future.
The watermark in the consolidation of the regime in Afghanistan was expected to be the Loya Jirgah (June), which was to select a new transitional administration and a parliament. However, in many regards the Loya Jirgah turned out to be disappointing, although it did elect Karzai as President. The government was not subjected to approval by the Jirgah and no parliament was selected. A significant opposition emerged from the ranks of the Loya Jirgah, showing how the monarchists were increasingly divided between moderates favourable to Karzai and more assertive elements, who resented the relatively marginal role played by the Pashtuns in the new regime. As a result, Hamid Karzai, had to slightly increase the weight of the Pashtuns within the new government, succeeding in enlisting the cooperation of 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 army and the state administration, causing a deterioration of his relationship with them. Nonetheless, opposition to his government continued to rise in the following months, especially among Pashtun monarchists, who felt that remnants of the Taliban and other fundamentalist groups might gain from the inability of the monarchists to defend the interests of the Pashtuns.
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. In November Karzai took his boldest step yet, dismissing about 20 officials across the country on charges ranging from negligence to corruption, extortion and drug trafficking. The move was widely welcomed, especially in Kabul, although many were quick to point out how the 20 officials were just the tip of an iceberg of wrongdoing. Karzai also tried to weaken the total control exercised by the warlords over whole regions, confining them to specific institutional roles. However, the credibility of the central government's campaign against the abuses of governors and local officials suffered a severe blow in mid-November, when Kabul's policemen repressed with extreme violence a student demonstration in favour of better living conditions in their dormitories, leaving as many as seven dead. By the year's end the discussion about the legal system began to heat up, with tensions arising between those who want the Sharia (Islamic law) confirmed as a basis for the legal system and those who want a more secular approach. A similar split was emerging within the commission working on the new constitution of Afghanistan, with the debate focusing on issues such as equality between men and women and the separation of religion and the state.

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 remained relatively indifferent to the internal politics of Afghanistan, but clearly wanted to ensure the presence of a government compatible with its geopolitical aims. Its strongest links were 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 favoured Russia's alignment with Afghanistan's Tajiks.
While Pakistan and Uzbekistan kept a low profile, the role of the US in affecting events in Afghanistan was undoubtedly dominant. The debate was mostly 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 remained controversial and one of their allied warlords even ended up fighting against government militias. During autumn 2002, the scale of American military operations was cut down, although this might well be more due to lack of suitable targets than to political considerations. 
By the end of 2002, the international politics of Afghanistan was characterised by renewed efforts to secure its freedom from the interference of neighbouring states, in the wake of the forthcoming war in Iraq. The fear was that the presence of Americans and ISAF forces in Afghanistan might weaken after the start of a war in the Middle East. On 22 December China, Iran, Pakistan, Uzbekistan and Turkmenistan pledged not to interfere again in the internal affairs of Afghanistan. However, such agreements took place amid reports that Iran continued to support Ismail Khan, the warlord who rules over most of Western Afghanistan, that Russia continued to provide arms for the Panjsheri faction of Jamiat-i Islami and the Pakistani intelligence service was helping the radical Pashtun groups in the East of the country.

Economy
The return of the old King Zahir Shah at the end of April was interpreted by many Afghans as a further sign that peace might really be at hand, a feeling that was already prompting hundreds of thousands of Afghans to come back to their native country from Pakistan or Iran. By mid-November, 1,870,000 had already done so. However, this development, while welcome in itself, added a further strain to an already difficult economic situation. By the autumn there were clear signs that scratching a living was a major challenge for most Kabulis, while in the countryside the population was often still at risk of starvation.
The economic situation was compounded by the slow start of the reconstruction. 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) went to humanitarian relief, while US$160 million were 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 started to be signs of a growing willingness of donors, including the US, to make more funds available. On the other hand, the interim government was unable to raise funds on its own until the end of the summer, when some of the provincial warlords started paying in at least some of the income deriving from taxes and customs. The government itself expected to be able to raise just US$83 million in 2002. 
Apart from merely trying to start to reconstruct the country, the government had to keep international donors happy. For example, the international organisations decided that the Afghan government would be in charge of the reconstruction process, but demanded a properly scrutinised process of allocation of resources. They also expected the interim government to act towards the eradication of the poppy fields in several regions of the country, but during 2002 the Karzai administration has had only a very limited success in this regard. The UN estimated the 2002 harvest at 3,400 tons of opium this year, short of the peak of 4,600 tonnes reached in 1999, but still much more than 74 tons of 2001 under the Taleban, and higher than previous estimates. Even discounting the many allegations of fraud that have been surrounding the operation, it appeared obvious that a great deal more has to be done in order to reduce the impact of the Afghan opium on the European markets. Many of the warlords and military leaders of both Northern and Southern Afghanistan were reportedly involved at least indirectly in the trade, which made the eradication of the crop all the more difficult.
The focus of the reconstruction effort during 2002 was on investment on transport infrastructure, which is in extremely bad shape. Iran was at the forefront of such efforts in 2002, in part also due to its willingness to exercise some influence on its Eastern neighbour. During the autumn, a number of other projects, funded by a variety of donor countries and the Asian Development Bank, also kicked off, but the rebuilding of the highway network is not expected to be completed before two years. Longer-term projects were discussed at length during 2002, mostly 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. By the end of the year the plan was slowly progressing towards a detailed feasibility study, funded by the Asian Development Bank, but it still looked likely to struggle to find suitable funding, despite the support of the Turkmen, Pakistani, Afghan and US governments, and of the Asian Development Bank. Many international financiers would regard it as the highest of high risk investments.
During the whole of 2002, the government struggled to bring the money supply under control yet and as a consequence the local currency (Afghani) fluctuated wildly. This negatively affected whatever economic life was left in the country, with traders and state employees being hit especially badly. A first serious currency crisis took place in April, when the Afghani hit a new low of 45,000 to a dollar, the Afghan central bank for a while succeeded in stabilising the Afghani at around 36,000 to a dollar. However, the currency continued a slow decline during the following months, until a new crisis developed in November, when the Afghani slipped to a new low of 58,000 to a dollar in November. The introduction of a new currency starting from 7 October, which was key to the stabilisation plans of the government, proceeded too slowly to appease a population which, wary of being left with worthless notes, rushed to the money changers to convert their savings. However, when the transition to the new currency was completed in January, its value stabilised at 43 for a dollar. 
Despite the slow start, in Kabul and other main cities, by the autumn there were already clear signs of a new economic vitality, as small trades were re-opening or being created ex-novo, although most of the rural areas had seen little improvement yet. After some initial enthusiasm, the various communities of Afghans in exile, who were expected to play a key role in the economic recovery, are now showing signs of losing faith. Many who returned from exile in the West are already reported to have left the country again. More than the slow pace of reconstruction, these potential investors were scared off by the high level of corruption and red tape in the Afghan state administration. 


Summary and forecast for 2003
If the consolidation of a central state in Afghanistan succeeds, in the longer term those countries will be rewarded which invested in befriending the Kabul government rather than regional factions. In this regard, a potentially very important development was in early January the signing of an agreement for the routing through Iran of Indian goods aimed for Afghanistan and Central Asia, with the concession of preferential treatment and tariff reductions. At about the same time, Afghanistan and Iran signed an agreement which allowed Afghanistan to trade with the rest of the world through the Iranian port of Chabahar, where it would enjoy a 90% customs discount. Taken together, the two agreements represented a massive blow for Pakistan's aspirations in Afghanistan and a resounding victory for both India and most of all Iran. Most commentators agreed that Pakistan courted disaster during the previous months, by exercising pressure on the Afghan government through raising the costs of Afghan imports and exports though the Pakistan territory and increasing the restrictions on Afghan goods. The choosing of Iran as a leading trade partner for Afghanistan might even have contributed to President Bush's decision to grant Afghanistan preferential trading status in mid-January. After touching their lowest level in mid-April, Afghanistan's relations with Pakistan showed some sign of improvement in late April and May, after president Bush's envoy to Afghanistan Khalilzad issued a veiled warning to Pakistan, saying that a threat to stability in Afghanistan is a threat to us interests. After the Karzai visit to Islamabad, the two countries agreed on upgrading the trade levels, improving banking links and facilitating travel between them. Trade with Pakistan is up on last year, but has not yet reached the peak level of the Taliban period, when Pakistan was by far the main source of imports. However, in July the relationship between the two countries worsened again, with armed border clashes and the ransacking of the Pakistani embassy in Kabul. Some factions within the Kabul government seem to be exploiting the simmering tension with Pakistan to delay the launch of the disarmament of the warlord militias. In fact, the beginning of the disarmament program, initially scheduled for the beginning of July, was postponed until October at the earliest. 
At the beginning of May the departing commander of US forces in Afghanistan Mcneill hinted at the possibility of the beginning of the withdrawal of US troops starting from summer 2004. Assurances that this is not going to be the case routinely followed, but it is likely that president Bush will want to start some sort of withdrawal, however slow, before next year's American elections. During July, however, there was growing speculation that the Afghan political election scheduled for the coming year might have to be postponed, although the US maintain that the election date will not be allowed to slip. While many NGOs and international observers had raised the issue before July, this is the first time that both the Karzai administration and UN envoy Brahimi hinted that this might be inevitable. As long as the international community will maintain a strong presence in Afghanistan in 2003, the transitional government appears likely to survive without major crises for another year, continuing slowly to push the reconstruction of Afghanistan forward. The institutional debate is likely to contribute to gradually shaping the political landscape of the country. Among the political forces which support the transitional government, the increasingly heated debate about secularism and religion will begin to challenge the ethnic divide as a major factor in deciding political alliances. A large part of Afghan popular opinion appears opposed to the fundamentalists desire to maintain a strict code of behaviour in the country, but the conservatives are well entrenched in the judiciary and within the government and state administration. The fact that the consultation process for the new constitution was started without even making available the draft of the constitution to the public has led to not unreasonable accusations that the whole process is a farce. The only official indications about the character of the constitution are that the judicial and religious powers are separated and that it provides for a constitutional court, which would take precedence over Islamic courts. These reassurances have been issued in part because the constitutional commission is dominated by Islamic fundamentalists. 
While the Taleban and their allies showed signs of recovering some operational capability by spring 2003, they are unlikely to go beyond a low-level guerrilla warfare against the government and international troops. However, the growing signs that the Pakistani intelligence is supporting the guerrilla, together with rising discontent at the behaviour of the government troops, mean that the insurgency has the potential to develop into something rather more serious. Various democratic groups tried to organise a National Democratic Front in March 2003, but were immediately targeted by the security services with threats and arrests. President Karzai will continue in his weak efforts to improve the ethnic and political balance within the state administration, as shown in January by the appointment of a new and younger interior minister, Ahmad Ali Jalali. In February, then, Defence Minister Fahim appeared to give way to pressures and announced a spate of new appointments to his ministry, which were supposed to break the virtual monopoly of Tajiks belonging to the Panjsheri faction. It is unclear, however, whether these changes will be enough to appease the critics. In June Karzai finally succeeded in getting the regional power holders to contribute some more money to the state coffers, while efforts to seize control of the custom posts were intensified. Modest signs of progress were being noticed by June at the Ministry of Interior too, the power of some of the more controversial characters was being reduced. 
Key efforts like poppy eradication and the disarmament of the private militias will continue to see the government struggling. In International politics, tensions are being caused within the government by the situation in the Middle East and especially the war in Iraq, with the Islamist elements within the government opposing US policies and the moderate monarchists being more inclined to approve them. There are also contrasts with regard to how to deal with Pakistan, especially since its intelligence service is widely believed to be helping insurgent groups along the border shared by the two countries. Again, the moderate monarchists headed by Karzai favour a rapprochement with Pakistan, which is however opposed by the Islamists of Jamiat.
During 2003 Afghanistan will continue to be kept afloat mainly by international help. Towards the end of 2002, the Oslo meeting of the donors to Afghanistan indicated that the level of international support will be maintained in 2003 at roughly the same levels of 2002, that is US$1.7bn. The government appears considerably less optimistic and stated that it would be happy to receive half that amount, perhaps trying to prevent the negative impact that a drop in the levels of help actually received might have among the population. The mid-March Brussels conference of donor countries ended with the promise of another US$2 billion of help to Afghanistan, an outcome judged a "success" by Finance Minister Ghani. However, even if help was forthcoming, there is increasingly an issue of delivering it to the rural areas, where the lack of security is hampering reconstruction efforts.
The growing presence of foreign personnel, both military and civilian, will stimulate the economy, but any recovery that will take place will be limited to the services. The bad state of the roads will contribute to feed inflation and the government's efforts to contain it will not be very effective, as shown in January, when it tried to introduce price controls and cut prices of consumer goods by an average of 20%. Even the agriculture will need to wait for much reconstruction work to be done before starting to climb out of its present depressed condition. 
In other terms, 2003 will still be a year of transition in Afghanistan. At the end of it, the country will still not be able to function on its own, even if all the current plans are accomplished. No viable independent army is expected to be deployed before 2004, that is about the same time when the highway network should be completed. Even the repatriation of Afghan refugees should be mostly complete only by 2004. The United Nations expect another 1.2 million refugees to return to Afghanistan in 2003. 
During the first half of 2003 the reform and reconstruction of the Afghan state proceeded slowly as in 2002. The bureaucracy is reported to be becoming somewhat more efficient, although admittedly starting from a very low level, while communication between regions has increased and improvements in the tax-collection system have also been reported. The Afghan state is still building up capacity in most sectors. During 2003, however, the first elements of a banking system should be re-established in Afghanistan, contributing to create a somewhat more favourable business climate. A draft of the new commercial law, prepared by US and European attorneys and expected to encourage foreign investment to flow in, is also ready. The government will likely continue to be short of cash, much to the chagrin of officials, soldiers and policemen, who will continue to be underpaid (if at all). The central Bank will continue to struggle to stabilise the currency. Attempts to reform what is left of the Afghan economic system will intensify. In January, a privatisation commission was launched, with the purpose of handing over to private businessmen what is left of Afghanistan's state industries. Only about 74 state-run businesses are still in existence and those active in the transport, construction and agricultural sectors will be targeted for privatisation, while the energy and water sectors are expected to remain under state control. In April, the National Solidarity Program was launched, a US$95 million program to provide village leaders with cash to spend locally in improvements and rebuilding activities. In some regards the government efforts to maintain the economy under control appear clumsy. The attempts to impose price and to increase its control over the NGOs that operate in the country are unlikely to deliver any good, given the inability of the country's bureaucracy to work with any degree of efficacy. Plans to cut the state bureaucracy staff by 20%, announced in April, might contribute to increase social tensions, which might also be stimulated as some elements of the middle class, involved in trade or working for the international community, will increasingly lift themselves above the mass of the population, who will by contrast continue to scratch for a living. On the other hand, donors are also becoming louder in their demand that the Afghan state bureaucracy be brought under control. Harassment and corruption are not only discouraging foreign investors from becoming active in Afghanistan, but are also contributing to frustrate the reconstruction effort. Karzai issued on 10 June a decree aimed at reforming the state administration. A commission will be established, with powers to appoint and dismiss state bureaucrats. It remains to be seen whether this will be enough to tame the multitude of 262,000 underpaid state employees, who are often forced to seek bribes to feed their families.
The economic recovery is not proceeding any faster than institution-building and administrative reforms. Electricity supply is still precarious or missing in large parts of Kabul, mainly because the dams have not been repaired, which affects agriculture negatively too, due to lack of irrigation. Even in Kabul most roads have not been repaired yet. The land phone system is still waiting for repair, while the new mobile system is already running into trouble due to oversubscribing. On the positive side, many shops have been opening throughout the country, however, deeper signs of actual economic recovery are still scant. The carpet industry is enjoying a revival and an estimated 200 carpet workshops have opened over the last 18 months, employing 40,000 people, but otherwise industrial activities have lagged. Good news is coming from the agricultural sector, at least. Good rains after years of drought are expected to lead to a record harvest this year. Unfortunately, they will also lead to a record poppy harvest, especially since the harvest area has been expanding during 2003, reaching provinces previously never affected by the opium business. Finance minister Ashraf Ghani declared at the end of June that the government is targeting economic growth of 12-14% over the next five years, after the 10% that it estimates was achieved in 2002/2003. 2003/2004 is already expected to represent an improvement over the previous year, mainly because of the end of the drought. From the point of view of the average Afghan, the achievements of 2002/2003 appear much less exciting. The return of two million refugees in 2002 meant that in per capita terms the economy was virtually stagnant. If the projected growth for the current year was actually achieved, it might be more easily perceived as real by the population, because the influx of returning refugees is much slower this year. During the first half of 2003, the number of returning refugees had reached 224,000 and is not expected to exceed half a million by the end of the year. International investment has so far remained very limited, with just two hotel projects in development, although the government expects that soon some banks will start activities in Afghanistan. Extraction and mining activity is the most promising sector for foreign investment, with gas, some oil, and large deposits of copper and iron. However, until security is firmly established, foreign investment will be lagging and no major initiative is expected for the rest of 2003.
This year's budget has been set at US$500 million, plus US$1.2 billion which are expected to be spent on reconstruction. Of last year's US$460 million budget, only US$380 million could be spent, due to lower-than-expected tax and custom revenues. Since the government had planned to receive US$83 million from that source in 2002/2003, it can be seen that very little of that money entered the coffers of the state. Hence the growing political pressure to improve revenue collection. Moreover, this year, like in 2002/2003, international funding is coming through slowly. 

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Update No: 21 - (29/08/03)

Ups and downs continue in relations with Pakistan 
During August both the Pakistani and Afghan governments made efforts to soothe the tension between the two countries, with some success. Pakistan conceded the deletion of six more items from the negative trade list of products whose transit to Afghanistan is not allowed. Moreover, it also announced a cut in freight charges, the reduction in custom duties on Afghan dry fruits and the provision of electricity. However, although President Karzai expressed his satisfaction, hostility towards Pakistan is growing in Kabul. Even those ministers who used to sympathise with Pakistan are now very critical of the attitude of Islamabad, or at least of its security services. This point of view is bolstered by the support of virtually all the diplomatic corps in Kabul, which is increasingly worried by the recent upsurge in Taliban activity. During August, a spate of attacks of unprecedented violence signalled that the insurgency might be taking off. Many attacks still take place across the border with Pakistan, which is considered a clear sign of Islamabad complicity. 
The stalling reconstruction and declining security are prompting the Bush administration to overhaul its Afghan policy. A new US$1 billion aid pledge is expected to boost the reconstruction, but the US are also planning to send hundreds of advisers. It appears obvious that the Bush administration feels the need for exercising a tighter control about what is going on in Kabul, in order to speed up the recovery process. Otherwise Bush will not be able to claim Afghanistan as a clear victory by the time of his reelection campaign at the end of 2004. 
However, since the Americans do not have any intention of committing more troops to Afghanistan, maintaining order is likely to remain a major problem. During August NATO took over the command of ISAF troops and some steps towards deploying troops outside Kabul were also taken in the form of small Provincial Reconstruction Teams, but problems loom ahead, as the Italians have announced that they will withdraw their units from the Coalition forces hunting the Taliban and the Germans will reduce their commitment by 800 troops.

Some small steps forward
During August, the main internal political development was the removal of a number of provincial governors, who were replaced with others without a power base in the provinces concerned. Karzai also tried to challenge Ismail Khan, governor of Herat and one of the most powerful warlords, by replacing him as commander of the 4th Army Corps, on the basis of a law which bans individuals from holding both political and military positions. On the other hand, moderate opposition to the Karzai administration continued to make efforts to organise, with the creation in early August of a new royalist party, which includes some relatives of the former King. The potential of this party appears greater than that of other smaller groups that had surfaced over the past year and a half, but the fact that the King has disowned it might hamper its political chances. 

Economy starts picking up
In August the government dramatically revised upwards its GDP growth estimate for 2002/2003, which is now estimated at 30%. A similar figure is provided by the Economist Intelligence Unit, which estimates growth at 28%. Trade figures also confirm that fast growth has taken place. Imports of the Afghan Transit Trade trough Pakistan have risen by 22.5% in 2002/2003. Up-to-date figures about agricultural production were the main cause of such GDP growth revision. The crops exceeded the most optimistic expectations and according to UN sources cereal production should hit 5.37 million tonnes, the best crop ever. The end of the draught, the provision by international organisations of high-quality seed and a greater availability of fertiliser have all helped. Small businesses also continue to boom in the cities, helped by the presence of many expatriates, but the weak spot in the recovery process is the delay of big reconstruction projects. The government is also trying to attract investment in the mining of Afghanistan's mineral resources. Apart from the oil and gas fields, which the government has been showcasing for some time, there is now an attempt to attract attention towards the iron ore reserves of Bamian, the Ainak copper mine and the gems of Panjshir. The government has invited companies from Europe, Asia and the US to invest in the exploitation of these resources, but so far with no results. The gems of Panjshir are already been exploited illegally and attempts to establish state control over the mines might cause trouble. Even the gas pipeline project, meant to link Turkmenistan and Pakistan, is not faring any better. The Pakistani government has faced difficulties in enlisting the interest of international investors with not unrealistic concerns about pipeline security, and in mid-August it had to ask Akshabad to provide documentation of the reserves studies of the relevant gas fields, to back up its guarantees.

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BANKING

NBP, HBL to open branches in Kabul 

Two nationalized Pakistani banks-National Bank of Pakistan and Habib Bank Limited-are seeking permission to open their branches in Afghan capital Kabul provided security of the premises, assets and of staff is guaranteed. 
Well placed sources said that Afghan authorities are expected to hand over their banking rules by the end of this month, probably when Pakistan's Foreign Minister Mahmud Kasuri visits Kabul.
Both the government and the State Bank of Pakistan are reported to have given go-ahead signals to the banks and a team of bankers is reported to have made initial exploratory visit twice in the recent past. 
The issue of opening banks came up early this month when the second Joint Economic Commission of Pakistan and Afghanistan held two-day session early this month at Islamabad. The JEC is expected to hold at least three meetings in a year and a third meeting is expected in December either at Islamabad or Kabul. 
In the second JEC meeting, the two countries had included five businessmen from each side to deliberate on the trade and economic relationship issues. 
"Afghan delegation was aggressive and demanded a complete restriction-free transit trade," Amjad Rashid, a Karachi-based businessman who attended the JEC meeting informed Dawn on Wednesday. Amjad, an international food merchant, is actively involved in the Afghanistan reconstruction work and has concluded 30 million dollars business in Afghanistan in last two years. 
He has participated in installation and renovation of four radiobroadcasting stations at Kandahar, Kabul, Jalalabad and Asadabad. According to Amjad, Afghans claimed that international conventions guarantee a complete restriction-free transit facility from the neighbouring seaports to all the land-locked country. 
"Any restriction, quantitative or on selected items runs contrary to the spirit of international conventions," the Afghans are reported to have stressed in the JEC meeting. 
Pakistan has already indicated to delete six items from the 18 items negative list. The indicated six deleted items are television sets, radio, tape recorder, razors, shampoo and soaps. Hardly six per cent of the 26 million population in Afghanistan have access to electric power. 
Afghans are now seeking about 100,000 ton of duty-free edible oil import under transit facility. "In Pakistan, the total impact of duty and tariff on edible oil is 95 per cent," Amjad said. 
He said that government charge Rs10,800 fixed duty on a ton of edible oil import in Pakistan. Add to this 20 per cent sales tax and other charges. The total impact is almost 95 per cent. 
Afghanistan has hardly any storage facility and there is no ghee plant. Obviously, bulk of this oil will come back in Pakistan as neither Afghan government nor Pakistan is capable of stopping this traffic. It will give such a blow to the Pakistan's ghee industry that it would hardly recover. 
"Afghans want to be in driving seat when dealing with Pakistan and they want free aid and a total restriction free transit facility," he said. 
Amjad said that Pakistani businessmen have access only up to Kabul, Jalalabad and Kandahar. Herat, Mazar Sharif and many other parts in Afghanistan just don't exist for Pakistani businessmen. Even when approaching Kabul, a truck loaded with goods have to pay Rs10,000 at the check post. 
Nonetheless, Pakistan government wants to increase the frequency of PIA flights from Islamabad and Peshawar and has indicated willingness to improve the construction of 40 kilometres stretch road that connects Pakistan check post at Torkham with Kabul. 
Afghanistan's trade volume directly with Pakistan and that of transit through Pakistan has increased appreciably in last one year. Pakistan's official exports have increased by over 95 per cent to Afghanistan to about $203 million in 2002-03 from $103.45 million a year ago. 
Afghanistan's import under transit has also increased by over 22 per cent and exceeded Rs16 billion figure. Pakistan has agreed to provide some transport and demurrage facilities in transit trade.

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FOREIGN ECONOMIC RELATIONS

Pakistan to reduce customs duty on imports from Afghanistan

The Pakistan government has decided to reduce customs duty on exports of Afghan dry fruits to Pakistan and on transportation fare for Afghan exports as well as imports from Karachi to Chaman, the Pak Tribune reported on August 17th. 
According to VOA reports, President of NWFP Chamber of Commerce and Industry, Sarwar Mohmand, said that Pakistani investors want to invest along with Afghan investors to establish cement and pharmaceutical factories as well as in the oil and gas sector.
"We want to evolve a permanent strategy to help our Afghan brethren in establishing an economic infrastructure of their country," Sarwar Mohmand said. 
"There are security problems for the Pakistani investor as they complain that the Afghan government does not extend importance and cooperation to them which it gives to investors of other countries," he said. 
He informed that an exhibition of Pakistani products would be held in Kabul in September and said that the Afghan Finance Minister, Ashraf Ghani Ahmadzai, who recently visited Pakistan, also supported the holding of the exhibition. 
"Ashraf Ghani promised that the Afghan government and the cabinet would help in holding the exhibition," he said. 
On the other hand, a delegation of Afghan businessmen visited Islamabad in the 1st week of August. The delegation held talks with Pakistani officials and traders about problems like the Afghan Transit Trade, custom duty and Karachi Port. After the talks, an Afghan businessman, Daud Mosa, said that Pakistani officials promised to resolve the problems in this regard. 
About the Pak-Afghan trade relations, the head of Afghan Trade and Commerce, Ziauddin Zia, who was member of the delegation, said that Pakistan has been exporting different commodities worth US$400 million to Afghanistan annually and Afghanistan has been exporting dry fruits and other goods worth US$25 million to Pakistan annually

CWC To Set Up Cold Storage At Kandahar 

The public sector, Central Warehousing Corporation (CWC) has decided to set up a 5,000 tonne cold storage at Kandahar in Afghanistan at an estimated investment of Rs 4.81 crore. The project will be funded by the ministry of external affairs and is likely to be completed within nine months, the Financial Express reported on August 16th. 
CWC has also won the order for developing truck terminal on Indo-Bangladesh border at Petrapole in West Bengal. This project will be funded by the Union commerce ministry. CWC is also slated to win another order for construction of a similar facility on the Indo-China border at Nathu La in Sikkim.
The project was conceived during the last visit of the external affairs minister, Yashwant Sinha, to Afghanistan. 
The governor of Kandahar had requested him for Indian assistance in construction of cold storage for fresh fruits and dry fruits as part of the aid being provided by India for reconstruction work in Afghanistan. The external affairs ministry then selected CWC to do the job. 
Accordingly, the Central Warehousing Corporation deputed a team of senior officials and experts to assess the feasibility of a cold storage either in Khandahar or in Kabul. The expert team submitted its techno-economic feasibility report and suggested Kandahar as a suitable choice. The MEA after examining the report of the expert panel has given green signal to CWC to go ahead with the project. 
The corporation has a network of 474 warehouses totalling up to a capacity of 92.34 lakh tonne. Besides, the CWC is an equity holder in all the state warehousing corporations in the country. 
The CWC is an equity partner in the National Multi Commodity Exchange of India Ltd. 
As a cold chain operator, the CWC has already gained the expertise to construct controlled atmospheric cold storages. One such storage facility is being constructed at Delhi-Haryana border in Kundli through a joint venture. 
The Central Warehousing Corporation has now diversified its activities and is operating 31 freight container stations with plans to participate in railway siding warehouses, floriculture-related infrastructure and bulk silo storage and transportation infrastructure. 

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TELECOMMUNICATIONS

Chinese companies to expand Afghan Telecom infrastructure 

Two Chinese telecom companies signed contracts with the Afghan Telecom and Communication Ministry on expanding digital telephone services in this war-damaged country, the People's Daily reported. 
According to the US$2.3m contracts, these two telecom companies, Huawei and Zhongxing, will cooperate with the Afghan ministry to expand 87,000 digital telephone lines in Kabul and other eight provinces.
The duties of the two Chinese companies are to install program-controlled switchboards in that areas. All the projects will be completed within six months. 
Afghan Telecom and Communication Minister, Mohammad Masoom Strauikzi, said at the signing ceremony that the coming project will improve the basic telecom network and Afghan authorities and people can befit a lot from it. 
"I am sure that after this project, the Afghan government can trust Chinese companies more," said China's Ambassador to Kabul, Sun Yuxi, on the occasion.

Afghan phone users eager for connections

Afghanistan's frustrated mobile phone users hope to start enjoying the fruits of competition recently as the country's second wireless telecommunications provider enters the nascent market, the Financial Times reported on July 28th.
Telecom Development Company Afghanistan, which in October won the country's second GSM licence, launched its new service, Roshan - or "new light" recently.
The company has so far invested about US$55m and will invest a total of US$120m over 10 years. Along with its competitor, the incumbent Afghan Wireless Communication Company, it represents one of the largest foreign investments in the country since the fall of the Taliban in late 2001.
TDCA is owned by a consortium that includes Monaco Telecom International, with 35%, US-based MCT (9%) and Alcatel (5%). The Aga Khan Fund for Economic Development has 51%.
Karim Khoja, TDCA's chief executive, says he hopes to claim about 50% of the market by the end of the year and be the number one by next July.
"We believe that just by treating people like human beings, giving them good service, we can attract subscribers," said Mr Khoja, in a thinly veiled reference to Kabul's notoriously unreliable existing service.
AWCC won a licence to operate from the Taliban in 1999 and has so far invested US$70m, but it did not set up business in Afghanistan until April last year. It has done brisk business in the hungry market, where its service provides the sole alternative to satellite phones or a network of about 9,000 landlines. The company is 80% owned by privately held Telephone Systems International of New Jersey, with the Afghan government owning the remaining stake.
But as mobile phone use has expanded - AWCCF says it has 50,000 subscribers - service has flattered, with outages lasting days, fading signals and dropped calls frequent.
Roshan's start-up fee will be higher than AWCC's with SIM cards going for US$110-US$135

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