In-depth Business Intelligence
Books on Afghanistan
Update No: 042 - (24/05/05)
The month of May was characterised by an unexpected surge of violence in
Afghanistan. A series of riots mainly in eastern Afghanistan perturbed the
atmosphere of optimism which had been prevalent after the presidential elections
of October 2004. At the same time, even if Taleban activity did not reach the
level of the previous spring, it still exceeded most expectations. Most
worryingly for the international community, there were obvious signs of
resurgent xenophobia among certain sectors of the population, motivated both by
the slow pace of reconstruction and by the disproportionally high salaries paid
to Afghans working for international organisations. The perceived loose
behaviour of many expatriates and Afghan returnees, not in line with Afghan
mores and traditions, contributed to feed this sentiment of hostility. A sign of
this new trend was the renewed effort of the government to downgrade the role of
NGOs, national and international, and advocate for itself as big a share of
international aid as possible.
In the run up to the parliamentary elections more tension and occasional
outbursts of violence are likely. Although the demonstrations of May were
originated by protests against the alleged desecration of the Koran in
Guanatanamo, a number of radical groups intervened and turned them into violent
riots, during which many offices of international organisations and NGOs were
looted and burnt.
As part of its renewed public relations effort to woo international support,
the Afghan government is now claiming that finally the poppy eradication effort
is being successful and it expects the area under cultivation to fall this year
by 30-40%. Reports from the provinces confirm that the cultivated area has
reduced somewhat, although the government claims might be somewhat inflated. In
some areas, traders might have supported the eradication effort in order to push
prices areas and increase the value of their stocks. If this is the case, the
sustainability of the eradication effort would be in great doubt.
On the political side, the registration of candidates to the parliamentary
elections took place during May. As the end of May approached, only two
coalitions had been formed, one around former presidential candidate Qanuni and
mostly composed of Islamic groups, and the other one gathering 13 progressive
parties. The electoral law does not encourage coalition making, so it appears
likely that most parties will not form alliances, a fact which might lead to a
very fractured parliament.
Eager to increase its revenue (it only covers 7% of its total expenditure)
the government plans to introduce new taxes soon. Individuals earning US$250 or
more will have to pay a 10% tax, while companies are going to be liable for a
payroll tax and a 10% services tax, on top of the 20% corporate tax and of a
12.5% tax on gross receipts. The government is also planning to reduce custom
duties and increase sales tax, which would further discourage investment in
productive activities. The business community is becoming increasingly critical
of the government, both because of taxation and because of the failure to
improve policing. It complains that relatively high taxes add up to heavy
transport and security costs, as well as the lack of a skilled workforce.
Moreover, foreign investors, including diaspora Afghans, are held back by the
bureaucratic red tape and by uncertain status of land. Because Afghan industrial
production remains negligible, imports continue to grow faster than exports,
despite being already several times higher. During the July 2004-April 2005
period, imports from Pakistan grew by 84%, while exports only grew by 15%.
Another important development in May was the announcement that the
government will auction two more licences for mobile phone networks, bringing
the number of operators to four. This move has caused some complaints from
Roshan, Afghanistan's largest mobile operator, which did not expect the number
of operators to exceed three. Admittedly, since the number of Afghans owning
mobile phones has already reached 600,000, the space for new players might be
restricted, although the current very high profit margins might mean that more
competition would be beneficial to consumers.
Pakistan, Turkmenistan and Afghanistan reach pipe deal
A proposed trans-Afghanistan gas pipeline running from Turkmenistan to Pakistan
was given the go ahead recently by the Asian Development Bank (ADB) which
declared that the multi-billion dollar project was feasible, Deutsche
Presse-Agentur (dpa) reported.
"This is good news for all the 3 countries," Pakistani Petroleum
Minister Amanullah Jadoon told reporters after a meeting attended by Turkmen Oil
and Gas Minister Amangelgi Pudakov and Afghan Engineering Minister Mir Mohammad
Pakistani Prime Minister Shaukat Aziz who chaired the meeting said the 1,600km
long gas pipeline would improve ties and strengthen regional cooperation.
One of the major hurdles to undertaking the project was the quantity of gas
reserves in Turkmenistan's Daulatabad field. Pakistan insisted the project would
be profitable only if it provided 3bn cubic feet of gas supply every day.
The security of the proposed project, in view of the volatile situation in
Afghanistan, was another major concern of the planners.
Experts observe the project could ultimately be extended to India as well where
energy requirements are increasing by 27% each year.
Dushanbe and Kabul target stronger relations
Tajik president, Emomali Rakhmonov, accompanied by a senior delegation for
Tajikistan, arrived in Kabul recently for an official three-day visit. A meeting
was held between Rakhmonov and Afghan President, Hamid Karzai, at which both
leaders discussed the fight against terrorism and illicit drugs.
"Tajikistan benefits from peace in Afghanistan and Afghanistan benefits
from peace and security in Tajikistan. We share common interests. Tajikistan and
Afghanistan are like twins," Karzai said recently, Interfax News Agency
For his part, Rakhmonov said the most important subject of the meetings and
talks was the exploration of fruitful ways to expand the bilateral relations of
the two neighbouring and friendly countries. Tajikistan and Afghanistan have
signed an agreement to boost further already existing bilateral cooperation
between the two countries. The leaders of both countries also signed several
cooperation protocols in order to strengthen relations between the two
neighbouring countries. The protocols signed include those dealing with energy,
industry, education, trade and transit, good neighbourly relations,
counter-narcotics and counter-terrorisms.