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Books on Afghanistan
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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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