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Books on Afghanistan
REPUBLICAN REFERENCE
Area (sq.km)
647,500
Population
26,813,057
Capital
Kabul
Currency
afghani (AFA)
President
Hamid Karzai
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Update No: 056 - (27/07/06)
Honeymoon over between Karzai and Europeans
Differences between President Karzai and several of his foreign backers
continued to grow in June and July, as he appeared bent on shoring up support
among influential power groups, disregarding the advice and requests of his
external allies. The announcement of the re-establishment of a Vice and Virtue
police, which had existed under the Islamic governments of the 1990s (Taleban
included), and the attempt to limit the freedom of the press are only the
latests of a series of moves which are seen as unacceptable by some of Karzai's
sponsors. Karzai also brought back into government former Defence Minister Fahim,
the pet hate of most expatriates, as his own security adviser. On the positive
side, however, Karzai has appointed a new Chief Justice, Abdul Salam Azimi, who
is close to the Americans and is less controversial than the previous nominee,
Shinwari.
Although the large scale Taleban offensive, which lasted a couple of months,
seemed to be petering out by mid-July, probably due to the Taleban leadership
deciding to abandon expensive and not very effective tactics, the sense of
insecurity among the population seemed to be still rising. The Taleban appear to
be returning to lower profile tactics and political work among the population,
such as distribution of propaganda and intimidating 'collaborators', over a
wider and wider areas. Recently, they have been reported just 20-30 km from
Kabul.
Economic development: too little, too late?
Some recent progress can be reported in terms of industrial development, in
particular concerning a number of businessmen who had requested licenses to set
up cement factories. One such factory is expected to open in Baghlan soon, while
three more should open over the next three years. The interest of businessmen in
cement factories has been stimulated by the booming building industry, which so
far has been relying mainly on increasingly expensive Pakistani cement.
Moreover, recent threats by the Pakistani government to limit exports of cement
to Afghanistan, on the ground of insufficient production to meet domestic needs,
have further strengthened business interest. The only cement factory currently
in operation has an output of a mere 3,600 tonnes per year, whereas demand is
estimated at between 5 and 8 million tonnes. It remains to be seen, however,
whether the current construction boom can be sustained, as house prices are
reportedly beginning to fall in Kabul, as the completion of new cement building
is beginning to outstrip demand.
Even these new factories, however, will do little to relieve the pressure from a
growing mass of unemployed. Officially estimated at 33% of the work force, the
jobless rate is growing under pressure of the increasing number of returnees
from Pakistan and from the rapid demographic growth, despite the fact that the
rate of returns from Pakistan and Iran this is year is down to just 100,000 in
the first 6 months, the lowest number since 2001. With the ongoing drought,
there is also a danger of more farmers being forced to migrate to the cities.
This year the drought is hitting again large parts of the country, especially
northern Afghanistan, forcing thousands of people to flee and head towards other
parts of the country. Many farmers are selling their livestock at half price,
because they do not expect to be able to feed them, which might make their farms
economically unviable in the future. There are now fears that growing
unemployment might feed popular unrest and provide recruits for the insurgency.
Efforts to create preconditions for development
The government is making some effort to create better conditions for future
economic growth. It has just launched a new plan to increase the availability of
electricity to the population, only 10% of which has currently access to it.
According to the plan, by 2009 this percentage should rise to 40%, mainly
through imports from Central Asia. The Finance Ministry has also finally agreed
to modify its custom tariffs in order to facilitate local producers. The duty on
machinery, for example has been reduced to 2.5% from 4%, while duties on locally
produced products, such as dairies, have been increased from 2.5% to 16%.
However the duty on raw materials imports has been left at 5%, causing
businessmen to complain. Kabul has also had some recent success in renegotiating
trade agreements with Pakistan, helped by the fact that an estimated 75% of what
used to be Afghan trade through Pakistan is now being diverted through Iran due
to the obstacles created to Afghan importers in Pakistan. Now the Pakistani
government appears ready to offer a new Afghan Transit Trade Agreement (ATTA)
which will facilitate Afghan traders. Negotiations between Afghanistan and
Pakistan appears to have succeeded in June to settle the bilateral trade issues
between the two countries. A Preferential Tariff Agreement is expected to be
entered soon, while the longer term aim is to establish a Free Trade Agreement
between the two countries, which would eliminate all tariffs and trade barriers.
Finally, Afghanistan's debts are slowly being sorted out. The Paris Club has now
agreed to write off US$1.6 billion of Afghan debt and reschedule payments on
another US$800 million. The issue of Russia's debt is still to be settled, but
now Afghanistan has decided to deal with it through the Paris Club, which should
facilitate the reaching of an agreement.
However, the government desperately needs more funding, under pressure from
donors which demand that at least the operational budget be paid for by Afghans.
It therefore needs to raise more taxes, which are not going to be popular. The
latest one to be introduced is a new toll tax system on the country's highways,
which is expected to return US$44 million per year.
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