In-depth Business Intelligence
Books on Afghanistan
Update No: 043 - (27/06/05)
The war is not over yet
As the summer approached, hopes and claims of a demise of the Taleban were
dispelled by a resurgence of their activity. They appear to be better trained
than in the past and are operating further away from the Pakistani border. Their
ability to inflict casualties is reduced by the fact the old pro-government
militias have been disbanded and replaced by a more professional army, but they
are still able to cause serious trouble. The Afghan army units which operate in
the south are under heavy pressure and are suffering from a high level of
desertions. At the same time, a number of smaller and more local terrorist
groups seem to be emerging countrywide, recruiting youth and students mainly
targeting NGOs and Afghans working for them. They are trying to tap on the
rising xenophobia to recruit more members and expand their activities. Such
groups exist in most Afghan cities, although in many cases they have not gone
beyond the distribution of leaflets. Although their potential for inflicting
damage is limited, they could add to the sense of chaos and intimidation, which
can be felt in much of the country.
Signs of economic slowdown
The ongoing poppy eradication program is beginning to affect the Afghan
economy, especially in southern Afghanistan, where it is being enforced somewhat
more forcefully because of the fear that the Taleban might be using narcotics to
fund their activities. There is clearly less drug money around, a fact which is
depressing the regional economy especially of the main city in the area,
Kandahar. Property prices, which had been rising fast since the fall of the
Taleban regime, are now falling, while the building industry is slowing down.
Even imports of luxury goods like cars are significantly below previous levels.
In other parts of the country, trade has been slowing too, due to a change in
customs rates which is aimed at making transit trade and re-export no longer
profitable. Neighbouring countries had been complaining that custom-free transit
trade to Afghanistan had been damaging their business, because many goods were
being re-exported by Afghans especially to Pakistan. Now re-exporting is in
decline, harming many Afghan traders.
There is increasing evidence that the government's strict free-market policies
are not doing much good to Afghanistan's industrial sector, which has been
struggling to re-develop over the past three years. Especially in Herat quite a
significant number of small industries, mostly employing between 20-40 workers,
had sprung up. They were mainly food and drinks factories, but included a
motorbike assembly plant and some other non-food productions. However, despite
cheap labour, other production costs are too high and these new factories find
difficult to compete with the Iranians. Out of five cake factories, three have
already closed down.
Central revenue goes up
The central government, on the other hand, is doing some more progress in
reclaiming customs revenue. During 2004, the government had succeeded in raising
revenue to around US$250 million, largely coming from customs. 40% of which came
from Herat's customs alone. This year, following a US-funded program to weed out
corruption and theft at border with Iran, it is expected that revenue from Herat
will increase significantly. Other customs posts will be dealt with later. The
government is also attempting to finalise a new law, which will force NGOs to
re-register and will ban them from bidding for reconstruction contracts. Many
Afghan NGOs are in fact disguised private businesses, which compete with other
companies and at the same time try to attract donors' funds. The government aim
is also to force rare skilled Afghan staff, who are now mostly working for NGOs
and international organisations, to join the government or private Afghan
businesses, by preventing NGOs from having access to lucrative contracts.
In a major move to help war-ravaged Afghanistan rebuild its infrastructure,
India recently agreed to construct a 220 KV double circuit transmission line to
start power supply from Uzbekistan to Kabul and a power sub-station in the
Afghan capital at a total cost of Rs 478.72 crore.
The approval of the two projects was granted by the Union Cabinet at its meeting
chaired by Prime Minister Manmohan Singh, Defense Minister Pranab Mukherjee,
The transmission line from Pul-e-Khumri to Kabul would be implemented within a
period of 42 months, he said, adding that the entire expenditure would be in the
nature of assistance or grant to Afghanistan.
The approved project is envisaged to supply power to Kabul from generating
stations of its neighbouring Uzbekistan through the transmission line from
Tirmiz via Pul-e-Khumir to Kabul.
Besides acting as a catalytic agent to speed up the economic rehabilitation and
development of the region, the projects would enhance India's presence and
profile in Afghanistan, Mukherjee said.