A Business Center in KabulAfghanistan is an extremely impoverished country, one of the world's poorest and least developed nations. Two-thirds of the population lives on less than US$2 a day. The economy has suffered greatly from the recent political and military unrest since the 1979-80 Soviet invasion and subsequent conflicts, while severe drought added to the nation's difficulties in 1998-2001.
The economically active population in 2002 was about 11 million (out of a total of an estimated 29 million). While there are no official unemployment rate estimates available, it is evident that it is high. The number of non-skilled young people is estimated at 3 million, which is likely to increase by some 300,000 per annum.
As much as one-third of Afghanistan's GDP comes from growing poppy and illicit drugs including opium and its two derivatives, morphine and heroin, as well as hashish production.
On a positive note, international efforts to rebuild Afghanistan led to the formation of the Afghan Interim Authority (AIA) as a result of the December 2001 Bonn Agreement, and later addressed at the Tokyo Donors Conference for Afghan Reconstruction in January 2002, where $4.5 billion was committed in a trust fund to be administered by the World Bank Group. Priority areas for reconstruction include the rebuilding of the educational system, health, and sanitation facilities, enhancement of administrative capacity, the development of the agricultural sector, and the rebuilding of road, energy, and telecommunication links.
According to a 2004 report by the Asian Development Bank, the present reconstruction effort is two-pronged: first it focuses on rebuilding critical physical infrastructure, and second, on building modern public sector institutions from the remnants of Soviet style planning to ones that promote market-led development. But macroeconomic planning and management at present is hampered by poor information, weak service delivery systems, and less than adequate law enforcement.
One of the main drivers for the current economic recovery is the return of over two million refugees from neighbouring countries and the West, who brought with them fresh energy, entrepreneurship and wealth-creating skills as well as much needed capital to start up small businesses. What is also helping is the estimated $2-3 billion in international assistance, the partial recovery of the agricultural sector, and the reestablishment of market institutions.
Afghan King (Zahir Shah) and Turkish President (Celal Bayar) inspecting the produce of Khan Nasher's Spinzar Cotton Company in 1966. Afghanistan was once a world-renowned producer of cotton.
While the country's current account deficit is largely financed with the "donor money", only a small portion – about 15% – is provided directly to the government budget. The rest is provided to non-budgetary expenditure and donor-designated projects through the United Nations system and non-governmental organizations. The government had a central budget of only $350 million in 2003 and an estimated $550 million in 2004. The country's foreign exchange reserves totals about $500 million. Revenue is mostly generated through customs, as income and corporate tax bases are negligible.
Inflation had been a major problem until 2002. However, the depreciation of the Afghani in 2002 after the introduction of the new notes (which replaced 1,000 old Afghani by 1 new Afghani) coupled with the relative stability compared to previous periods has helped prices to stabilize and even decrease between December 2002 and February 2003, reflecting the turnaround appreciation of the new Afghani currency. Since then, the index has indicated stability, with a moderate increase toward late 2003.
The Afghan government and international donors seem to remain committed to improving access to basic necessities, infrastructure development, education, housing and economic reform. The central government is also focusing on improved revenue collection and public sector expenditure discipline. The rebuilding of the financial sector seems to have been so far successful. Money can now be transferred in and out of the country via official banking channels and according to accepted international norms. A new law on private investment provides three to seven-year tax holidays to eligible companies and a four-year exemption from exports tariffs and duties.
While these improvements will help rebuild a strong basis for the nation in the future, for now, the majority of the population continues to suffer from insufficient food, clothing, housing, medical care, and other problems exacerbated by military operations and political uncertainties. The government is not strong enough to collect customs duties from all the provinces due to the power of the warlords. Fraud is widespread and "corruption is rife within all Afghan government organs, and central authority is barely felt in the lawless south and south-west".
The real good news for Afghanistan is that it has great potentials to come out of poverty very quick and become a normal stable country. This is due to many reports showing that the country has possession of mass amounts of highly demanding natural resources and minerals. According to the US Geological Survey and the Afghan Ministry of Mines and Industry, Afghanistan may be possessing 15.6 trillion cubic feet of natural gas, 1.6 billion barrels of oil and up to 1,325 million barrels of natural gas liquids. This could mark the turning point in Afghanistan’s reconstruction efforts. Energy exports could generate the revenue that Afghan officials need to modernize the country’s infrastructure and expand economic opportunities for the beleaguered and fractious population. Other reports suggest that there are huge amounts of gold, copper, coal, iron ore and other rich minerals.
On a positive note, international efforts to rebuild Afghanistan led to the formation of the Afghan Interim Authority (AIA) as a result of the December 2001 Bonn Agreement, and later addressed at the Tokyo Donors Conference for Afghan Reconstruction in January 2002, where $4.5 billion was committed in a trust fund to be administered by the World Bank Group. Priority areas for reconstruction include the rebuilding of the educational system, health, and sanitation facilities, enhancement of administrative capacity, the development of the agricultural sector, and the rebuilding of road, energy, and telecommunication links.
According to a 2004 report by the Asian Development Bank, the present reconstruction effort is two-pronged: first it focuses on rebuilding critical physical infrastructure, and second, on building modern public sector institutions from the remnants of Soviet style planning to ones that promote market-led development. But macroeconomic planning and management at present is hampered by poor information, weak service delivery systems, and less than adequate law enforcement.
One of the main drivers for the current economic recovery is the return of over two million refugees from neighbouring countries and the West, who brought with them fresh energy, entrepreneurship and wealth-creating skills as well as much needed capital to start up small businesses. What is also helping is the estimated $2-3 billion in international assistance, the partial recovery of the agricultural sector, and the reestablishment of market institutions.
Afghan King (Zahir Shah) and Turkish President (Celal Bayar) inspecting the produce of Khan Nasher's Spinzar Cotton Company in 1966. Afghanistan was once a world-renowned producer of cotton.While the country's current account deficit is largely financed with the "donor money", only a small portion – about 15% – is provided directly to the government budget. The rest is provided to non-budgetary expenditure and donor-designated projects through the United Nations system and non-governmental organizations. The government had a central budget of only $350 million in 2003 and an estimated $550 million in 2004. The country's foreign exchange reserves totals about $500 million. Revenue is mostly generated through customs, as income and corporate tax bases are negligible.
Inflation had been a major problem until 2002. However, the depreciation of the Afghani in 2002 after the introduction of the new notes (which replaced 1,000 old Afghani by 1 new Afghani) coupled with the relative stability compared to previous periods has helped prices to stabilize and even decrease between December 2002 and February 2003, reflecting the turnaround appreciation of the new Afghani currency. Since then, the index has indicated stability, with a moderate increase toward late 2003.
The Afghan government and international donors seem to remain committed to improving access to basic necessities, infrastructure development, education, housing and economic reform. The central government is also focusing on improved revenue collection and public sector expenditure discipline. The rebuilding of the financial sector seems to have been so far successful. Money can now be transferred in and out of the country via official banking channels and according to accepted international norms. A new law on private investment provides three to seven-year tax holidays to eligible companies and a four-year exemption from exports tariffs and duties.
While these improvements will help rebuild a strong basis for the nation in the future, for now, the majority of the population continues to suffer from insufficient food, clothing, housing, medical care, and other problems exacerbated by military operations and political uncertainties. The government is not strong enough to collect customs duties from all the provinces due to the power of the warlords. Fraud is widespread and "corruption is rife within all Afghan government organs, and central authority is barely felt in the lawless south and south-west".
The real good news for Afghanistan is that it has great potentials to come out of poverty very quick and become a normal stable country. This is due to many reports showing that the country has possession of mass amounts of highly demanding natural resources and minerals. According to the US Geological Survey and the Afghan Ministry of Mines and Industry, Afghanistan may be possessing 15.6 trillion cubic feet of natural gas, 1.6 billion barrels of oil and up to 1,325 million barrels of natural gas liquids. This could mark the turning point in Afghanistan’s reconstruction efforts. Energy exports could generate the revenue that Afghan officials need to modernize the country’s infrastructure and expand economic opportunities for the beleaguered and fractious population. Other reports suggest that there are huge amounts of gold, copper, coal, iron ore and other rich minerals.
See also: Opium Production in Afghanistan
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