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Economy of Afghanistan

The economy of Afghanistan has improved significantly since 2002 due to the infusion of multi-billion US dollars in international assistance and investments, as well as remittances from expats. It is also due to dramatic improvements in agricultural production and the end of a four-year drought in most of the country. However, Afghanistan still remains poor for now and highly dependent on foreign aid.

About half the population suffer from shortages of housing, clean drinking water, electricity and employment. The Afghan government and international donors have remained committed to improving access to these basic necessities by prioritizing infrastructure development, education, housing development, jobs programs, medical care, and economic reform over the recent years. The replacement of the opium trade - which probably makes up about one-third of the country's GDP - is one of several potential spoilers for the economy over the long term.

Economic history

Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy. Current GDP per capita of Afghanistan grew 14% in the 1960s, reaching a peak growth of 75% in the 1970s.

The Soviet invasion of 1979 and ensuing civil war destroyed much of the country's limited infrastructure and disrupted normal patterns of economic activity. Gross domestic product has fallen substantially since the 1980s due to disruption of trade and transport as well as loss of labor and capital. Continuing internal strife severely hampered domestic efforts to rebuild the nation or provide ways for the international community to help.

According to the International Monetary Fund, the Afghan economy grew 20% in the fiscal year ending in March 2004, after expanding 30% in the previous 12 months. The growth is attributed to international aid and to the end of droughts. An estimated $4.4 billion US dollars of aid entered the nation from 2002 to 2004, about equal to its GDP. A GDP of US $4 billion in fiscal year 2003 was recalculated by the IMF to $6.5 billion, after adding proceeds from opium products.

Agriculture

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. Agriculture 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. The country's fruit and nut exports are at $113 million per year. This could grow to more than $800 million per year in 10 years given the proper investment.

Wheat and cereal production is Afghanistan's traditional agricultural mainstay. The overall agricultural production dramatically declined following four years of drought as well as the sustained fighting and instability in rural areas. Soviet efforts to disrupt production in resistance-dominated areas also contributed to this decline, as did the disruption to transportation resulting from ongoing conflicts. However, in recent years the production of agriculture has sharply risen again. Cereal production in Afghanistan has doubled over the previous six years, despite the continuing tense security environment. It is forecast that the country's cereals output will reach 4.6 million tonnes in 2007, more than twice the 2001 level of 2.0 million tonnes.

The twenty years of war also resulted in the emigration of six million people to Pakistan, Iran and other parts of the world, further disrupting normal agricultural production. Since 2002, more than 4 million refugees returned back to Afghanistan. Many of these former refugees are now involved in the farming industry. Some studies indicate that agricultural production and livestock numbers may only be sufficient to feed about half of the country's population. Shortages are exacerbated by the country's limited transportation network, which is currently being rebuilt. A report by the Food and Agriculture Organization (FAO) states that Afghanistan was nearing self-sufficiency in grain production.

Opium became a source of cash for some Afghans, especially following the breakdown in central authority after the Soviet withdrawal. Opium-derived revenues constituted a major source of income for the two main factions. The Taliban earned roughly $40 million per year on opium taxes alone. Opium is easy to produce and transport and offers a quick source of income for impoverished Afghans. Afghanistan has been the world's largest producer of opium for most of the past decade. In 2000, the Taliban banned opium poppy cultivation in part to attract foreign aid and, allegedly, to control the opium market with large existing stockpiles that earned substantially large price increases. While cultivation of opium poppy was virtually eliminated in Taliban-controlled areas, drug trafficking has continued unabated.

Afghanistan's opium production is refined into heroin and is consumed by a growing regional addict population in Asia, however, most of it is exported world-wide, primarily to Europe and North America. The current government of Afghanistan has begun to enact major counter-narcotics policies and programs. According to research by the Afghan government and the United Nations, presented December 11, 2005, two million people (about 9% of the population) are engaged in opium poppy cultivation. According to the United Nations, about 92% of the world's heroin originates from Afghanistan and is believed to hold street value of approximately $120 billion.

Trade and industry

The current trade between Afghanistan and other countries is at US$5 billion a year. In 1996, legal exports (excluding opium) were estimated at $80 million and imports estimated at $150 million per year. Since the collapse of the Taliban government in 2001, new trade relations are emerging with the United States, Pakistan, Iran, Turkmenistan, the EU, Japan, Uzbekistan, India and other countries. Trade between Afghanistan and the U.S. is beginning to grow at a fast pace, reaching up to approximately $500 million per year. The Afghan handwooven rugs are one of the most popular products exported from the country. Other products include hand crafted antique replicas, precious and semi-precious stones as well as leather and furs.

Afghanistan is endowed with a wealth of natural resources, including extensive deposits of natural gas, petroleum, coal, marble, gold, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, precious and semi-precious stones. In 2006, the U.S. Geological Survey estimated that Afghanistan has as much as of natural gas, of oil and condensate reserves. According to a recent 2007 U.S. Geological Survey's assessment, it was again revealed that Afghanistan has significant amounts of undiscovered non-fuel mineral resources. Scientists also found indications of abundant deposits of colored stones and gemstones, including emerald, ruby, sapphire, garnet, lapis, kunzite, spinel, tourmaline and peridot.

In May 2008, Afghanistan signed a contract with China for a project that deals with extracting copper. According to official sources, the project involves an investment of $2.8 billion dollars and an anual income of $400 million dollars to the Afghan government as well as 20,000 of its citizens provided with labor. The country's Ainak copper mine, located in Logar province, is one of the biggest in the world. According to some reports, it is estimated to hold at least 11 million tonnes or 33 billion US dollars worth of copper.

The nation's other most important resource has been natural gas, which was first tapped in 1967. 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 Mujahideen. Restoration of gas production has been hampered by internal strife and the disruption of traditional trading relationships following the collapse of the Soviet Union. Gas production has dropped from a high of 8.2 million cubic metres per day in the 1980s to a low of about 600 thousand cubic metres in 2001. After the formation of the new government under Hamid Karzai, production of natural gas is planned to be restored again. A locally owned company by the name of Azizi Hotak General Trading Group (Azizi Hotak) is currently the main supplier of diesel fuel, gasoline, jet fuel and LPG in Afghanistan.

Trade in goods smuggled into Pakistan once constituted a major source of revenue for Afghanistan. Many of the goods that were smuggled into Pakistan have originally entered Afghanistan from Pakistan, where they fell under the Afghan Trade and Transit Agreement (ATTA). This permitted goods bound for Afghanistan to transit through Pakistan free of duty. This resulted in considerable problems for the Pakistani government, particularly its customs bureau who realized that many of the items being resold on the black market in Pakistan were the very same items being allowed duty free exemption from Pakistani ports (notable Karachi) on their way to Afghanistan. When Pakistan clamped down in 2000 on the types of goods permitted duty-free transit, and introducing stringent measures and labels to prevent such practices, re-routing of goods through Iran from the Persian Gulf increased significantly. The pre-2000 smuggling trade provided undocumented jobs to tens of thousands of Afghans, but also helped fuel the black economy, often intertwinned with the drug cartels, of both countries.

Economic development and recovery

Afghanistan embarked on a modest economic development program in the 1930s. The government founded banks; introduced paper money; established a university; expanded primary, secondary, and technical schools; and sent students abroad for education. In 1956, the government of Afghanistan promulgated the first in a long series of ambitious development plans. By the late 1970s, these had achieved only mixed results due to flaws in the planning process as well as inadequate funding and a shortage of the skilled managers and technicians needed for implementation.

The nations banking system has improved recently with over fourteen different banks operating as of 2003. They include Da Afghanistan Bank, Afghanistan International Bank, Kabul Bank, Azizi Bank, Afghan Independent Bank, Standard Chartered Bank, First Micro Finance Bank, and others. Money can be transferred electronically in and out of the country. 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. As a result of the new banks in the country, Afghans living overseas are sending more money back home to their family or relatives. According to a UN report in 2007, Afghanistan has received over $3.3 billion from its expatriate community in 2006. UN officials familiar with the issue said remittances to Afghanistan could have been more if the banking regulations are more convenient.

The UN and the international community continue to provide considerable humanitarian relief. Since its inception in 1991, the UN Office for the Coordination of Humanitarian Affairs (OCHA) to Afghanistan has channelled more than $1 billion in multilateral assistance to Afghan refugees and vulnerable persons inside Afghanistan. The US, the European Union (EU), and Japan are the leading contributors to this relief effort. One of its key tasks is to eliminate from priority areas--such as villages, arable fields, and roads--some of the 5 to 7 million land mines and 750,000 pieces of unexploded ordnance, sown mainly during the Soviet occupation, which continue to litter the Afghan landscape. Afghanistan is still a heavily mined country; mine-related injuries number about 60 per-month. Without successful mine clearance, refugee repatriation, political stability, and economic reconstruction will be severely constrained.

An initial concept design called the City of Light Development, envisioned by Dr. Hisham N. Ashkouri, Prinicpal of ARCADD, Inc. for the development and the implementation of a privately based investment enterprise has been proposed for a multi-function commercial, historic and cultural development within the limits of the Old City of Kabul along the southern side of the Kabul River and along Jade Meywand Avenue, revitalizing some of the most commercial and historic districts in the City of Kabul, which contains numerous historic mosques and shrines as well as viable commercial activities among and within war-damaged buildings. Also incorporated in the design is a new complex for a new Afghan National Museum. The design has garnered interest from President Hamid Karzai, and has support from Ambassador Said Tayeb Jawad, who signed a Memo of Understanding regarding the development.

The United States has not delivered $5 billion worth of aid it pledged to help rebuild Afghanistan, and other donors have fallen short by about that same amount, reported The Agency Coordinating Body for Afghan Relief on March 25 2008. Since 2001, the international community has pledged $25 billion in help but has delivered only $15 billion. The reconstruction of Afghanistan requires a sustained and substantial commitment of aid.Too much money meant for Afghanistan aid is wasted, with a vast amount spent on foreign workers' high salaries, security and living arrangements.

National accounts

The majority of the following information is taken from, or adapted from the CIA World Factbook

GDP: purchasing power parity - $31.9 billion (2006 est.)

GDP - real growth rate:

  • 14% (2005 est.)

GDP - per capita: purchasing power parity - $1,490 (2007 est.)

GDP - composition by sector:

  • agriculture: 38%
  • industry: 24%
  • services: 38% (2005 est.)

Population below poverty line:

  • 53% (2003)

Household income or consumption by percentage share:

  • lowest 10%: NA%
  • highest 10%: NA%

Inflation rate (consumer prices): 16.3% (2005)

Labor force: 15 million (2004 est.)

Labor force - by occupation: agriculture 80%, industry 10%, services 10% (2004 est.)

Unemployment rate: 40% (2005)

Budget:

  • revenues: $269 million
  • expenditures: $561 million

Industries: small-scale production of textiles, soap, furniture, shoes, fertilizer, and cement; handwoven rugs; natural gas, petroleum, coal, copper, marble

Electricity - production: 905 million kWh (2003)

Electricity - production by source:

  • fossil fuel: 36.3%
  • hydro: 63.7%
  • nuclear: 0%
  • other: 0% (2001)

Electricity - consumption: 1.042 billion kWh (2003)

Electricity - exports: 0 kWh (2003)

Electricity - imports: 200 million kWh (2003)

Oil - production: 0 barrel/day (2003 est.)

Oil - consumption: 5,000 barrel/day (2003)

Oil - proved reserves: 1.6 billion barrels (2006 est.)

Natural gas - production: 220 million m³ (2001 est.)

Natural gas - consumption: 220 million m³ (2001 est.)

Natural gas - proved reserves: 15.7 trillion cubic feet (2006 est.)

Agriculture - products: opium poppies, wheat, fruits, nuts, karakul pelts

Exports: $500 million; note - not including illicit exports or reexports (2007)

Exports - commodities: opium, fruits and nuts, handwoven rugs, wool, cotton, hides and pelts, precious and semi-precious gems

Exports - partners: India 23.7%, Pakistan 22.7%, United States 21.3%, Russia 4.1% (2007)

Imports: $5 billion (2007)

Imports - commodities: capital goods, food, textiles and petroleum products

Imports - partners: Pakistan (26.9%), United States 11.8%, Germany 6.8 %, India 5.5%, Turkey 5.1%, Turkmenistan 5%, Russia 4.7%, Kenya 4.4% (2005)

Debt - external: $1.23 billion to Russia and Multilateral Development Banks (2007)

Economic aid - recipient: multi-billion dollars were provided as non-returnable grants to cover the years 2002 to 2009, most of it from the United States and European Union (2007)

Currency: afghani (AFN)

Exchange rates: Afghanis per one US dollar ($1) - 49 (2006), 49 (2005), 48 (2004), 48 (2003), 48 (2002) note: in 2002, the Afghani was revalued and the currency stabilized at about 48 afs. to the dollar.

Fiscal year: 21 March - 20 March

See also

References

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