PART V
ECONOMY
In the 1930s, Afghanistan embarked on a modest economic development program. The government founded banks; introduced paper money; established a university; expanded primary, secondary, and technical schools; and sent students abroad for education.
Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy. The 1979 Soviet invasion and ensuing civil war destroyed much of the country's limited infrastructure and disrupted normal patterns of economic activity. Gross domestic product fell substantially because of loss of labor and capital and disruption of trade and transport. Continuing internal strife hampered both domestic efforts at reconstruction as well as international aid efforts. However, Afghanistan's economy has grown at a fast pace since the 2001 fall of the Taliban, albeit from a low base. In 2007, GDP growth exceeded 7%. In 2008, 11.5% GDP growth is expected.
In June 2006, Afghanistan and the International Monetary Fund agreed on a Poverty Reduction and Growth Facility program for 2006-2009 that focuses on maintaining macroeconomic stability, boosting growth, and reducing poverty. Afghanistan is also rebuilding its banking infrastructure through the Da Afghanistan National Central Bank. The central bank manages $2.8 billion in reserves. Sixteen banks have been established and more than 171 branches in over twenty provinces with $1.5 billion of total assets, a fourfold increase in three years.
Agriculture
The main source of income in the country is agriculture, and in the past, Afghanistan produced enough food and food products to provide for the people, as well as to create a surplus for export. The major food crops produced are: corn, rice, barley, wheat, vegetables, fruits, and nuts. In Afghanistan, industry is also based on agriculture, and pastoral raw materials. The major industrial crops are: cotton, tobacco, madder, castor beans, and sugar beets. The Afghan economy continues to be overwhelmingly agricultural, despite the fact that only 12% of its total land area is arable and less than 6% currently is cultivated. Agricultural production is constrained by an almost total dependence on erratic winter snows and spring rains for water; irrigation is primitive. Relatively little use is made of machines, chemical fertilizer, or pesticides.
Overall agricultural production dramatically declined following severe drought as well as sustained fighting, instability in rural areas, and deteriorated infrastructure. The easing of the drought and the end of civil war produced the largest wheat harvest in 25 years during 2003. Wheat production was an estimated 58% higher than in 2002. However, the country still needs to import an estimated one million tons of wheat to meet its requirements. Millions of Afghans, particularly in rural areas, remain dependent on food aid.
Opium has become a ready source of cash for many Afghans, especially following the breakdown in central authority after the Soviet withdrawal, and opium-derived revenues probably constituted a major source of income for the two main factions during the civil war in the 1990s. Opium is easy to cultivate and transport. Afghanistan produced a record opium poppy crop in 2007, supplying 93% of the world's opium. Much of Afghanistan's opium production is refined into heroin and is either consumed by a growing regional addict population or exported, primarily to Western Europe.
Afghanistan has begun counter-narcotics programs, including the promotion of alternative development, public information campaigns, targeted eradication policies, interdiction of drug shipments, as well as law enforcement and justice reform programs. These programs were first implemented in late 2005. In August 2008, the United Nations Office on Drugs and Crime estimated that 157,000 hectares of opium poppy were cultivated, representing a 19% decrease from 2007 and 2% of Afghanistan's agricultural land.
Trade and Industry
Afghanistan is endowed with natural resources, including extensive deposits of natural gas, petroleum, coal, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, and precious and semiprecious stones. Unfortunately, ongoing instability in certain areas of the country, remote and rugged terrain, and an inadequate infrastructure and transportation network have made mining these resources difficult, and there have been few serious attempts to further explore or exploit them. The first significant investment in the mining sector is expected to commence in 2008, with the development of the Aynak copper deposit in east-central Afghanistan. This project tender, awarded to a Chinese firm and valued at over $2.5 billion, is the largest international investment in Afghanistan to date. The Ministry of Mines also plans to move forward with oil, gas, and possibly iron ore tenders in 2009.
The most important resource has been natural gas, first tapped in 1967. At their peak during the 1980s, natural gas sales accounted for $300 million a year in export revenues (56% of the total). Ninety percent of these exports went to the Soviet Union to pay for imports and debts. However, during the withdrawal of Soviet troops in 1989, Afghanistan's natural gas fields were capped to prevent sabotage by the mujahidin. Restoration of gas production has been hampered by internal strife and the disruption of traditional trading relationships following the collapse of the Soviet Union. The government expects to pass a hydrocarbons law, developed with donor assistance, to regulate future exploration and development of Afghanistan's oil and gas fields. With the law in place, Afghanistan hopes to begin using natural gas to produce electricity. Trade in smuggled goods into Pakistan once constituted a major source of revenue for Afghan regimes, including the Taliban, and still figures as an important element in the Afghan economy, although efforts are underway to formalize this trade and remove non-tariff barriers limiting its expansion.
Transportation
In the 1960s, the United States helped build a highway connecting Afghanistan's two largest cities. It began in Kabul and wound its way through five of the country's core provinces--skirting scores of isolated and otherwise inaccessible villages; passing through the ancient market city of Ghazni; descending through Qalat; and eventually reaching Kandahar, founded by Alexander the Great. More than 35% of the country's population lives within 50 kilometers of this highway, called, appropriately, modern Afghanistan's lifeline. In 1978, the Soviet Union invaded and, after more than two decades of war, the Kabul-Kandahar highway was devastated, like much of the country's infrastructure. Little could move along the lifeline that had provided so many Afghans with their means of livelihood and their access to healthcare, education, markets, and places of worship.
Reviving the Ring Road: Restoration of the highway has been an overriding priority of President Hamid Karzai. It is crucial to extending the influence of the new government. Without the highway link, Afghanistan's civil society and economy would remain moribund and prey to divisive forces. The economic development that the highway makes possible will help guarantee the unity and long-term security of the Afghan people. The restored highway is a visually impressive achievement whose symbolic importance should not be underestimated. It marks a palpable transition from the recent past and represents an important building block for the future. An official in Herat likened the ring road to veins and arteries that nourish and bring life to the "heart" of Kabul and the body of the country. The highway will not end in Kandahar: there are plans to complete the circuit, extending it to Herat and then arcing it back through Mazar-e-Sharif to Kabul. The route is sometimes referred to as the Ring Road. As of December 2006, 100% of the Ring Road had been funded, with plans for completion in 2009.
Landlocked Afghanistan has no functioning railways, but the Amu Darya (Oxus) River, which forms part of Afghanistan's border with Turkmenistan, Uzbekistan, and Tajikistan, has barge traffic. During their occupation of the country, the Soviets completed a bridge across the Amu Darya. The Shirkan Bandar bridge, reconstructed with U.S. assistance, reopened in 2007 and has opened vital trade routes between Afghanistan and Tajikistan.
Afghanistan's national airline, Ariana, operates domestic and international routes, including flights to New Delhi, Islamabad, Dubai, Moscow, Istanbul, and Tehran. Civil aviation has been expanding rapidly and several private airlines now offer an alternative to Ariana and operate a domestic and international route network. The first, Kam Air, commenced domestic operations in November 2003. Many sections of Afghanistan's highway and regional road system are undergoing significant reconstruction, many with substantial U.S. assistance. The Asian Development Bank is also active in road development projects, mainly in the border areas with Pakistan.
Power
In 2001, Afghanistan produced 430 megawatts of electricity. Today the country produces 754 megawatts. International statistics maintained by the World Bank indicate the ratio of gross domestic product (GDP) growth to electrical production is approximately $1,000 to 300 kwh. The Afghan Government's current power plan sets a goal to deliver sufficient electricity to meet the needs of an economic growth rate of 9% per year. Additionally, the Afghan Government anticipates approximately 90% of urban businesses will have access to electrical power by the end of 2010. Finally, the plan's objective is to provide access to electricity to 65% of urban and 25% of rural households by the end of 2010.
Electricity distribution, rehabilitation, and infrastructure projects in all major urban centers are underway. Access of rural households to electricity has been increased by 7% and a renewable energy master plan has been approved. However, the lack of electrical power significantly affects the pace of development in Afghanistan. There is some potential for private funding of power-generation initiatives and business ventures. An example is the Aynak Copper Mine, where the Chinese developers are expected to build a power plant to provide energy for mining and processing needs.
Afghanistan is envisioned as the corridor for the Central Asian-South Asian (CASA) Regional Energy Market, intended to bring electric power from Kyrgyzstan and Tajikistan through Afghanistan into Pakistan. Under CASA-1000, the first phase of the project, 1,000 megawatts will reach Peshawar in Pakistan and 300 megawatts will reach Kabul. The North East Power System (NEPS) is used to import power to Kabul from three Central Asian neighbors. Other energy projects include: efforts to rehabilitate hydropower plants at Kajaki, Naghlu, and Darunta; the transmission line from Pul-e Khumri to Kabul to be built by India; the transmission lines from Naghlu to Jalalabad/Methar Lam; and the transmission lines from Kabul to Gardez (including a substation for Gardez) to be funded by the Asian Development Bank. The required 33% increase per year in electrical connections to meet 2010 goals will likely not be realized due to a $1.2 billion gap in funding the national energy sector plan.
