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Update No: 075 - (28/02/08)

Misplaced optimism?
After a tough January, February seemed to allow some more optimism in Kabul. The result of the Pakistani elections was welcomed in Afghanistan, in the expectation that the return to power of civilians would reduce the room of maneuver of the insurgents based in Pakistan. Such hopes might be misplaced, however, as the politicians almost immediately started talking about truces with the fundamentalists and are unlikely to be able to push the armed forces towards a closer confrontation with the Taliban. Although the Taliban have come under some greater pressure during the last few months of 2007, that is unlikely to ever be sufficient to force them to surrender. 

International commitment to Afghanistan is not going to benefit from Karzai's clumsy efforts to distance himself from foreign 'domination'. At the end of January President Karzai embarked in an all out attack against British presence in Afghanistan, openly criticizing the activities of British troops in Helmand, refusing to accept the British nominee for the position of Special Representative of the UN in Afghanistan and expelling two diplomats with links to Britain. The hostility to Britain is motivated by both the country's support for Pakistani President Musharraf and by relentless British criticism of Karzai's failure to clean up and reform his administration.

In the meanwhile there are clear signs that the prospects of rapid economic development are already beginning to falter. Recently released figures show that in 2007 private investment in Afghanistan dropped by about 50% compared to 2006, when it had peaked to US$1 billion. The 2007 figure (US$500 million) is even lower than the 2005 one (US$570 million). Political violence, increasingly unrestrained criminal gang activities (particularly kidnappings) and a suffocating bureaucracy are all cited as causes of disillusionment among investors. 

The sorrows of a landlocked country
Afghans were once again reminded of the constraints to the development potential of a landlocked country in February, as the trade war with Pakistan continued. The Pakistani Trade Ministry disallowed private exports of much needed flour to Afghanistan, in the attempt to contain exports to 0.6 million tones. Prices of flour are subsidized in Pakistan and much of the production was being exported to Afghanistan for local consumption and even re-exported to Central Asia, where prices are higher. 

Another example of how bad it is to be dependent on your neighbours is the plan for a gas pipeline from Turkmenistan through Afghanistan. After lapsing for some time, it was once again revived by the ADB in February, which tried to organize a meeting between all parties concerned to agree on the project and fix gas prices. The move seems hardly to have much credibility however, given Turkmenistan's continuing tendency to play with gas prices and deliveries at will. Most recently it halted deliveries of gas to Iran on the ground of 'technical difficulties'. Which major investor will want to team up with such an unreliable partner for a pipeline to cross Western Afghanistan and Baluchistan?

Budget plans
The future budget is currently under discussion in Kabul. The two combined budgets (ordinary and development) will see a continuing stress on Physical Infrastructure and Natural Resources, which is planned to attract 29.6% of all funds; Agriculture and Rural Development should receive 13.4%, Education 12.3% and Security just 7.23%, a reflection of continued reliance on foreign support for all the talks of Afghan taking over a greater responsibility in this sector. Despite the worsening social crisis and the prospects for more refugees in neighbouring countries being soon forced to return, social expenditure continues to lag behind, with just 4.9% going to health and 2.5% to Social Security. Governance and the Rule of Law will take 6% and Economy and Private Sector Development the remaining 9.2%.

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