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Update No: 076 - (28/03/08)

A victory for Karzai
The appointment of Kai Eide as new Special Representative of the Secretary General of the UN to Afghanistan was widely seen as a victory for President Karzai. Eide, a low profile diplomat who does not carry too much influence with him, will have a very limited ability to pressure Karzai for reforms. Moreover, the UN mission (UNAMA) is in pretty bad shape, with 30% of top positions unfilled and high turnover rates, which also contributes to reduce its ability to influence the government and monitor developments. NATO is now trying to involve Russia in a positive role, in part to appease it and in part to facilitate the logistics of deployment to Afghanistan, which is beginning to weight heavily on a number of European countries. The Russian response has not been particularly enthusiastic so far; Moscow is probably trying to extract as many concessions as possible in exchange, as well as to make a point that having disregarded relations with Moscow in the past has a price.

Mineral resources: so close and yet so far
The mineral exploitation ambitions of the Afghan government continue to receive mixed responses. The Turkmenistan-Afghanistan-Pakistan gas pipeline project is being re-launched in April, with a meeting in Islamabad. The main development is the fact that Turkmenistan has agreed to have its gas reserves certified by a third party, but it is not clear whether this will suffice to appease concern about Turkmenistan’s reliability as a business partner. The cost of the pipeline project is currently estimated at US$6-7 billion. As for mining projects, the world multinationals are mostly wary of investing in Afghanistan. None of the big British companies, for example, wants to invest in the foreseeable future, mainly on account of the security situation. The government’s confidence, that security might be provided through private security companies, is not shared by most international investors. Only the Chinese seem willing to take this kind of risk.

The hard life of Afghan industrialists
Although incoming investment has slowed greatly, Afghan investors still put a brave face to the uncertain future, in part because their options are limited, particularly when the cash is of dubious origins. One businessman has even gathered partners to invest US$15 million in a new luxury hotel in Kandahar city. It is targeted at foreign visitors, although at present international aid agencies have evacuated the city and there are practically no clients. A more substantial development is a growth of industrial production, particularly in the food sector, although the margins seem to be pretty low. Some of the growing industrial production even seems to be making it to neighbouring countries. In the first 9 months of 2007, Afghanistan’s exports rose by 15% to US$326 million, still only a small fraction of imports, but nonetheless an encouraging sign.

Prospects of future growth are hampered by the fact that the government is still struggling to improve electricity supply. The problem with Uzbekistan, which was originally supposed to supply electricity to Kabul, does not seem about to be resolved, despite the investment gone into building a power supply line to its border. The Ministry of Power is now talking about getting supplies from Tajikistan instead. Dushanbe already supplies parts of north-eastern Afghanistan, but it is not a wholly reliable supplier due to its own internal shortages, and fluctuations in productions; for example there were big shortages this winter. Can Dushanbe afford to supply four million of Kabulis throughout the year? Over the last few months, however, rising prices of staple foods have probably compressed the disposable income available to the poorest families to spend on any kind of industrial productions. The price of bread, for example, has risen 90% from November 2007.

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