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Books on Afghanistan


Update No: 063 - (22/02/07)

Shadow of corruption cast on growing international aid
Internal government revenue reached US$450 million in 2006 and is projected to reach US$714 during the coming year (March 2007-March 2008). The remaining US$316 million of the current budget will be financed through foreign aid. Overall, the proposed budget represents a 21% increase in expenditure over the previous year. However, the tide of criticism against government corruption is mounting. Even for development and humanitarian aid aimed at the areas affected by the insurgency, UK and US defence officials estimate that up to half of it is being stolen along the way. Afghan police are almost universally considered a particular black spot of corruption. The issue is of particular relevance because of the decision of the Bush Administration to up its aid to Afghanistan to US$10.6 billion over the next two years, which brings the yearly amount of aid delivered to US$5.3 billion, from less than US$3 billion during the 2002-2006 period. Of that total, about US$2 billion will be reconstruction and development and the rest military assistance, mainly aimed at completely re-equipping the Afghan National Army. 

Poppy Eradication debate
The future of the eradication plans is the subject of heated debates in Kabul currently. American pressure for aerial eradication had initially succeeded in convincing President Karzai. The importance of poppy eradication in the overall US strategy was highlighted by the appointment of a new US ambassador to Kabul, who has previously served as ambassador to Colombia. Such plans however were vetoed by American allies such as Britain, Canada and the Netherlands. As a result, the government is falling back to traditional eradication measures, but this time without any offer of compensation to the farmers. In some part of the south, the eradication teams are already at work. 

Investment climate
According to government figures, investment in Afghanistan reached US$1 billion during the first 7 months of 2006, up from US$570 million in 2005, although there was a slow down in the latter part of the year. Major development included the opening of a cement factory and the launch of a third mobile telephone network. Investment is likely to receive some boost from the government's decision to finally starting to act on its plan to privatise part of the state-owned enterprises. A total of 54 out of 63 will be auctioned over the next three years, with transport, power, water and hostels among those planned to remain in the government's hands. Dried food, wool, machinery and fertilizers will be sold. The government expects rather optimistically that it will earn some US$640 million from the sale. The lower house of parliament is however asking for the start of the privatisation to be postponed until the approval of the relevant law, while some members of parliament oppose privatisation altogether. A greater source of doubt on the sustainability of the positive trend in investments derives from a recent study of the World Bank, which highlighted how Afghanistan's business environment remains the worst of South Asia and one of the worst of the world. Afghanistan only ranks well in terms of the ease of starting a business and of the weight of taxation, which is low. With a tax burden corresponding to 36% of profits, Afghanistan does much better not only than India but also than Pakistan or Bangladesh. It does particularly badly in terms of ease of getting credit, enforcement of contracts, investors' protection, registering properties and ease of cross-border trade. The heavily bureaucratised system makes it very expensive to export from Afghanistan, with a cost of US$2,500 per 20-foot container.

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