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Update No: 077 - (28/04/08)

The electoral campaign has started
In April president Karzai announced that he will stand for re-election in 2009. The news came as little surprise since there have clear signs in the last few months that Karzai was already campaigning. With his popularity lagging, he has been trying to resuscitate it by taking a more autonomous stand vis-à-vis his international sponsors, executing a number of convicted criminals and exploiting ethic tensions in order to mobilise the Pashtun majority of the population behind him. He seems to have largely given up any effort to win votes among the minorities and tries to gather Pastuns around himself, appointing a growing number of Pashtun nationalists in government positions and supporting Pashtuns in local disputes. Moreover, his family and close allies have been trying to promote local initiatives to reconcile tribes and communities with Kabul. Among the challengers, the position of former minister of interior Jalali looks increasingly strong; rumours abound that he secured a deal with former US Ambassador the Afghan-American Khalilzad to support his campaign. If so that will scotch the rumours that Khalilzad himself was contemplating a run. 

Waiting for Bush to go
At the same time the existing American position in Afghanistan appears increasingly untenable. Most Afghan groups and factions are scrambling to open communication channels with the Taliban, expecting negotiations to start soon as the planned 2009 presidential elections cannot be held in about a third of the country without the consent of the armed opposition. With the departure of President Bush effectively in November, (although the new incumbent takes office only in January 2009) the main obstacle to negotiations will also be gone. Neighbouring countries exploit Washington’ weak leadership by increasing their leverage by buying the support of Afghan factions (like Iran does) or by forcing the Americans into a position of dependency. For example, following a campaign of attacks on US supply trucks in the NWFP, a deal has been reached with Russia over the transfer of non-lethal supplies through its territory. The deal gives some new leverage to the Russians to influence Afghan politics. 

Fleeing the taxman
Tax collection, which had been rising steadily over the previous 5 years, for the first time the past year fell short of the US$715 million target (8.2% of GDP) by at least US$30 million. The government claims that turmoil in neighbouring Pakistan impacted negatively on customs revenue, but it still plans to raise US$887 million this year. The growing pressure on businesses by raising taxes is causing a major capital flight. After the tax department raided Serena Hotel in Kabul and collected any cash which it could find (US$250,000), severely hampering its operations, the hotel transferred its funds to safety in Dubai and is likely to be imitated by many other businesses. The government has not even been able to prepare a proper fiscal legislation. After hiring highly paid consultants to draft the laws, it had them mistranslated into the local languages, with predictable results. 

Drought and privatisations
At the end of 2007/8, the government announced with suspect speed that GDP growth has been 13.5%, on the strength of a good harvest and of some major investment projects. The ADB forecast for the new year, however, is 9%, which is likely to turn out to be optimistic in the light of the weak snowfall this winter. A drought seems virtually certain, with a foreseeable impact on agricultural production. However, this will not impact on taxation as there is no land tax.

The government plans to continue its privatisation campaign this year. A number of oil and gas fields of northern Jauzjan and Sar-e-Pul provinces, an iron mine in central Bamyan province and the state telecommunication company should all be privatised this year. There seems to be at least a Norwegian interest in the gas fields and a Saudi interest in the energy sector, as well as in the travel and tourism sector.

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