Landlocked Afghanistan
is highly dependent on livestock raising and farming. In the 1970s agriculture
and pastoralism accounted for about 60 per cent of Afghan GDP. According
to some estimates, the cash economy constituted slightly less than half
of Afghanistan's GDP till the early 1970s. The oil price boom of 1973
and the subsequent increase in remittances from Afghan labour working
in the Gulf increased the share of the cash economy in the country. Government
expenditure was less than a tenth of the size of the economy. Even then
the government could not generate enough resources internally to meet
its expenses and in the 1960s depended on foreign aid to cover two-fifths
or more of the budget. Both the US and the Soviet blocks contributed,
but the share of the latter was more. As aid declined in the late 1960s,
export of natural gas from northern Afghanistan to the Soviet Union (principally
Uzbekistan) replaced it. Most of the rest came from taxes on a few items
of foreign trade and government monopolies of commodities such as fuel
and tobacco.
In Afghanistan property rights came to depend on enforcement by the state,
rather than being a manifestation of local social relations. The state
assured Pashtun nomads and landlords access to pasture and agricultural
land in the largely non-Pashtun areas of central and northern Afghanistan.
The state also made possible the development of absentee landlordism in
the periphery of major cities. Till the mid-1950s the merchant class has
substantial control over the country's economy. However, later the state
nationalized the banking system and controlled the small industries that
developed. Urban society depended on the redistributive activities of
the state. After the mid-1950s the role of the Afghan private sector became
largely confined to trade. The state controlled most urban employment,
which expanded alongside the foreign funded state.
About 80 per cent of the Afghan population is engaged in agriculture,
while almost the entire fifth not in agriculture are nomads, travelling
to their summer quarters (yaylaqs) in the highlands in summer, and returning
to the lowlands to stay in their winter residences (qishlaqs) in winter.
Among the agriculturists are the landed gentry (those who own between
50 and 500 acres of land) and the farmers. The gentry are also involved
in commerce, and some from this group hold high positions in government.
In contrast the farmers are a poorer lot. The well-off farmers own between
20 and 50 acres of land, the moderately rich ones own between 8 and 20,
while the petty landowners own between 3 and 8 acres. This group sometimes
rent in land from the richer groups to cultivate. However, nearly 85 per
cent of Afghan agriculturists are landless peasants, for whom the only
available occupation is to work in the fields of the three richer groups.
Afghanistan does not have a rich industry. In fact industry in the country
has been barely above the cottage industry level. Before the Soviets came
into the country, around 60,000 workers were working in the industrial
sector.
The economic interest in Afghanistan can be traced to the British desire
to annex the country to India to gain an upper hand over the Russian Empire,
which was threatening to gain control over Afghanistan. The British however
failed in all their efforts to conquer Afghanistan, and in 1919 gave up
control over the country's foreign policy, and accepted the independence
of Afghanistan.
The departure of the British allowed the then newly-formed Union of Soviet
Socialist Republic to become a major ally of Afghanistan. In March 1919,
Amir Amanullah, then ruler of Afghanistan, welcomed the Soviet Union as
the first state to recognize Afghanistan as an independent country. During
Amanullah's regime, payment of taxes in kind was abolished. Livestock
taxes were unified, private ownership of land was legalized, there was
an attempt to settle some nomadic tribes living in northern Afghanistan,
and waqf (religious endowment in land) was abolished.
Amanullah also tried to promote modernisation of the agricultural and
industrial sectors in the country. However, in the field of agriculture,
Amanullah failed to change the difficult conditions in which Afghan peasants
were trapped. They remained tied to the land, were increasingly surviving
at the mercy of the landlord and the tax collector, and many could pay
their taxes only by selling portions of their land every year.
Reforms undertaken by Amanullah, however, angered the religious and tribal
chiefs in the country, as their power and control over the populace got
diminished. Amanullah had to finally abdicate power, and Habibullah (Bacha
Saqaw), a Tajik wrested control over the country in January 1929. His
rule (till October 1929) was not successful as Habibullah hardly had any
expertise to govern over a nation.
When Nadir Shah ascended the throne of Afghanistan, aided by the British,
the Afghan economy was in shambles. The rural economy was ravaged by inter-ethnic,
inter-tribal and religious conflicts, as well by neglect of the state.
However, Nadir Shah's regime was also fairly short and he was assassinated
in the year 1933. His only surviving son, 19-year-old Zahir Shah, succeeded
him. However, during the initial years, it was Zahir's uncle, Hashim Khan,
who actually ruled over Afghanistan in the name of Zahir Shah. Later,
the king's cousin Daoud Khan also gained considerable powers.
During Zahir Shah's rule Afghanistan witnessed a massive overhaul of its
education system. The figures below can give one an idea about the educational
facilities that were made available in the country during this time.
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During this period there was a significant improvement in the health care facilities available in Afghanistan as well. While in comparison with other nations the figures do not inspire, nevertheless things definitely improved during the reign of Zahir Shah.
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The patient-doctor ratio in comparison to neighbouring countries
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The Soviet contacts with Afghanistan during the 1950s and 1960s helped Afghans to become familiar with Soviet technology, so that Soviet aid packages (which mostly have a technology content) could be utilised in Afghanistan. These included kits for building a combined flour mill-bakery-granary or a motor repair workshops or an asphalt factory in the initial phases, and equipment and trained personnel for building roads in the later stages. Such expertise helped Afghans to construct the Salang highway through the Hindu Kush Mountains. Although this road is only 100 miles long, this helped to reduce the journey-time between Kabul and Mazar-I- Sharif from four days to three days. Another highway was constructed joining Kushka in southern Uzbekistan to Kandahar in the south of Afghanistan. This highway was 680 kilometres in length. Another 750-kilometre long highway was built in the 1960s between Kabul and Sherkhan. Other infrastructural projects completed in Afghanistan with Soviet aid included the Naghlu hydroelectric station, the Jalalabad irrigation system, and the Kabul polytechnic. A gas pipeline, spanning the Amu Dariya, and several airports, including smaller ones at Aq Chah, Mazar-I-Sharif, Heart, Farah, Kandahar, Khost, and Bamiyan, besides an international airport in Kabul, were among the other major infrastructural facilities set up in Afghanistan with Soviet help.
Soviet expertise also helped Afghanistan to improve the irrigation facilities in the country. Not only were more canals and dams constructed with Soviet aid and technology, Afghanistan also improved in the fields of mechanized farming, setting up of fertilizer plants, and adopted Soviet techniques to improve on its traditional river valley farming practices.
However, while the Afghan population welcomed Soviet help in building infrastructural facilities in their country, the attempt by the erstwhile USSR to influence policies of the Afghan government met with resistance. To overcome this opposition USSR made a move to gain control over Afghanistan and installed Babrak Karmal as the ruler of Afghanistan and on December 27, 1979 executed Hafizullah Amin, whom Karmal displaced, and many of his followers.
Afghanistan under the Soviets:
The state of the Afghan economy worsened since the Soviet took control of the country in 1979. The mujahideen, backed by Pakistan, Saudi Arabia, and the United States, fought throughout the 1980s in an effort to oust the Soviet-backed regime from Afghanistan. This ravaged the nascent Afghan economy entirely and the only profitable ventures remained opium cultivation, and illegal trade in narcotics and arms. The war economy destroyed what could have been called a rural subsistence economy. With most of the men fighting the war for one side or the other, the civilian role of women increased in Soviet-ruled Afghanistan. Besides, the country now had to depend only on Soviet aid and revenue from the sale of natural gas as aid to the Afghan government from the US and its allies had now ceased to flow. Many fled to neighbouring Iran and Pakistan, with those going to the latter often finding them initially confined to Pak camps for Afghan refugees, and many among them returning to Afghanistan to fight the Soviet-backed state army.
Agriculture took a backseat during this period. While the Afghan government wanted the peasants to grow cash crops like cotton and sugar beets and sell the produce to government factories, opium cultivation and trade was the more lucrative option to earn money for the mujahideen. The income from opium per hectare of land sown was almost 2.5 times that from wheat in provinces like Farah, Kandahar, Nimroz, and Hemland. The peasants however received only a fraction of the eventual price at which this opium got sold in the market. The production of opium led to a major macroeconomic change induced by the war: a rapid increase in the supply of money, which, combined with the destruction of the much of the subsistence economy, induced an apparently large, if as yet unmeasured, monetization of economic and social relations, as well as hyper-inflation.
Once the Soviet troops started moving out of the country, taking with them the Soviet technicians who ran the gas fields, revenue from natural gas also dropped. In order to pay its employees, particularly the expanded security forces, the Afghan government also issued more currency notes. Data published by the IMF shows that beginning in 1987 and until the fall of Najibullah in April 1992, the value of banknotes in circulation increased by an average of 45 percent per year. Food prices rose by factors of five or ten. The afghani rapidly lost value against the dollar, trading at 1000 to the dollar, or about twenty times the official rate, by the summer of 1991.
From Soviets to Taliban:
The departure of the Soviets and the subsequent fall of Najibullah threw Afghanistan into utter chaos with several ethnic groups fighting with one another for wresting control over the country. However no single faction could get control over the whole of Afghanistan. While the UN and other international agencies tried to provide aid and food to the Afghan people, a job the Soviets were doing previously, it fell far short of what the war-torn country needed, and the food aid was less than half the amount supplied by the Soviets (120,000 tonnes of wheat per year compared to 250,000 tonnes of wheat per year). The most important source in the hands of the state, of financing its expenditure, remained printing of new notes. The afghani devalued further as a consequence, and by September 1996 (when Kabul fell to the Taliban) it was trading at 17,800 to the US dollar. In Mazar-I-Sharif the afghani was trading at 25,600 to the US dollar at that time. While pipelines through the country to bring oil from Central Asia and the Caucasian nations remained a lucrative proposition for Afghanistan to earn valuable foreign exchange, political uncertainty has prevented this proposal from seeing the light of the day even till date.
Economy under the Taliban:
Two decades of war have devastated the Afghan economy. A third of the country's population fled Afghanistan during the decade-long military occupation of the country by USSR from 1979. Pakistan and Iran gave shelter to more than 6 million Afghan refugees during this period. The warring factions who kept fighting with one another even after the Soviets left (on 15 February 1989), and the Taliban rule during the latter half of the 1990s prevented the return of all Afghan refugees to the country. Even as late as early 2000 two million Afghans remained in Pakistan and another 1.4 million remained in Iran. This flight of labour alongside the capital loss and disruption of trade and transport during the years of unrest resulted in a substantial fall in Afghanistan's GDP. The severe drought that affected the country between 1998 and 2000 added to the woes of the Afghan economy. With most of the male members fighting or getting killed in the war, and female members being barred from getting employment, many women-only families did not have anybody to work and earn to sustain themselves. Basic necessities like food, clothing and shelter remained in short supply, and international aid failed to match the need for it. Almost 80 per cent of the grain shortfall in the country was being provided by Pakistan. Inflation continues to be a problem.
The years of strife witnessed a rapid rise in illegal production of opium poppies and narcotics trafficking. While initially the Taliban put a check on the trade of narcotics and opium production, faced with economic ostracization by most of the international community, the Taliban regime very soon gave up its opposition to this illegal trade, and in fact took steps to boost it. Opium cultivation and trade in narcotics remained a major source of revenue all through the Taliban regime. In 1999 the country had become the largest producer of illicit opium in the world, overtaking Myanmar in this regard. A total of 51,500 hectares were sown with opium poppy in Afghanistan in 1999, and the estimated output was 1650 metric tonnes. Area under the crop in 1999 rose 23 per cent over the area under opium poppy in 1998. With all the major political factions in the country profiting from drug trade, the number of heroin-processing laboratories in the country increased significantly during the period of civil strife in Afghanistan.
The main source of the Northern Alliance (like the late Tajik Ahmad Shah Masood) for financing the war was by mining for emeralds and other precious stones, mostly using environmentally destructive methods in the Panjshir area in the Hindu Kush Mountains.revenues from such unsustainable mining amounted to anything between US $60-100 million every year. The Northern Alliance also used to print currency notes that had acceptability in the regions they controlled. Between 1996-2001 an estimated seven trillion afghanis, or about US $175 million were printed. Another US $8 million were quickly printed in December 2001, shortly before Karzai took over as the leader of Afghanistan.
Afghanistan's GDP, prior to the war to oust the Taliban, was estimated at US $6.9 billion in nominal terms. The per capita income in 1989 was US $300. With the Taliban gradually gaining control over most of Afghanistan, the ‘security' provided to goods carriers boosted internal and external trade in the country. However, most of the goods that were being transported even under Taliban ‘protection' were goods being smuggled in and out of Pakistan. ). A World Bank study estimates that in 1997, the first year after the Taliban capture of Kabul, this trade amounted to at least $2.5 billion per year, equivalent to nearly half of Afghanistan's estimated GDP and around 12-13 percent of Pakistan's total trade. Only a few ventures were started by foreigners in Taliban-controlled Afghanistan, but almost all of them were to cater to the transit trade.
Indeed, the Taliban started acting as a rentier, seeking rental incomes from traders in order to allow them to carry on with trade in illegal goods and drugs. One reason that sanctions against the Taliban regime did not have the intended impact was that the economy was predominantly illegal. Indeed efforts to curb smuggling across the Afghan-Pak border have failed in the face of opposition from various quarters. For example some economic technocrats from Pakistan had suggested that for duty-free trade as well traders should pay duty on entry of goods into Pakistan, which would be refunded at the point of entry into Afghanistan. However this proposal was never implemented.
The World Bank study stated above estimated that the Taliban got at least US $75 million in 1997 by simply taxing trade between Pakistan and Afghanistan. Zakat, an Islamic tax to fund ulama and jihad, amounting to 20 per cent of the trade in opium and opium derivatives, helped the Taliban garner another US $100-200 million in revenues.
However this money did not reach Kabul. While Kabul remained the capital of Afghanistan, Kandahar was the base of the Taliban and its leader, Mullah Omar. This resulted in much of the trade shifting out of Kabul, with the population in the city becoming more and more dependent on aid for survival. Most of the funds collected by the Taliban went to finance their war efforts. Even civil servants were paid US $5 per month, and that to at irregular intervals.
Afghanistan after the Taliban:
While there has been a lot of hope arising from the exit of the Taliban and the subsequent appointment of Hamid Karzai as the President of Afghanistan, the policies that are being executed by the Afghan ruling class hardly inspire confidence amongst the masses of impoverished Afghans. The externally driven, and spatially segregated economic system, dependent on outside dollars for economic prosperity will surely enough bypass Afghanistan existing traditional, subsistence, and nomadic economy that is prevalent widely in the informal sector. The economic system the West is trying to hoist on Afghanistan is consumptionist, and hugely dependent on imports. In contrast, the only avenues for the country to earn the foreign exchange necessary to finance these imports were from oil pipeline fees, tourism, and from export of traditional items like carpets and fruits.
The foreign interest in post-Taliban Afghanistan has not been so much for the advancement of the Afghan economy as much as to cater to the business interests of their own corporations. The major interest of the US in particular, in Afghanistan, has been to get access to the largely unexploited oil and gas reserves of Central Asia. Till date all access to these reserves has been through Russian territory as the existing pipelines run through that country. Getting pipelines through Afghanistan will help the US to wrest control over the reserves from Russia. Provided that the Afghan government can provide security, UNOCAL (of which Karzai had been an employee) is planning a pipeline that would run from Turkmenistan, through Afghanistan, into Pakistan.
Also almost all the new investments those are being proposed are mostly targeted either towards exploiting Afghanistan's natural resources (like a copper mine at Aynak in Loghar province, a cement plant in Herat, a gas liquification unit in Sheberghen, or a gold mine in Kandahar), or are coming in sectors like telecommunications, reconstructing demolished buildings, and also in creating a large police and military establishment. However, in a country where even in the capital city of Kabul only a fifth of the residents have access to clean water, such reconstruction measures mean nothing.
According to the United Nations figures, annual per capita income is $178, malnourishment afflicts 70 percent of Afghans, and men's life expectancy is 44 years [for women it is 43]. The World Health Organization reports a mere 24 percent of Afghans have access to safe drinking water -- which is a major cause of diseaseAccording to the United Nations figures, annual per capita income is $178, malnourishment afflicts 70 percent of Afghans, and men's life expectancy is 44 years [for women it is 43]. The World Health Organization reports a mere 24 percent of Afghans have access to safe drinking water -- which is a major cause of disease [1].
Also such measures have mostly bypassed rural areas which are home to 78 per cent of the Afghan population. Nearly 90 per cent of the Afghan economy is agro-based, but there has been hardly any investment in this sector. Only there has been distribution of about 3,500 tonnes of controversial GM wheat seeds to around 60-70,000 Afghan farmers under a US $12 million grant from the USAID. Even those getting some job in the cities and towns are mostly employed on a casual or contractual basis and are paid abysmally low wages.
The additional demand that is being generated as a result of technology-intensive investments and consumption needs of the Afghan and western elite serving in Afghanistan is mostly catered to by products either entirely imported or having strong import contents. The presence of foreign organizations like the UN and several NGOs has driven house rents in Kabul through the roof. Real estate prices in the capital of Kabul have doubled. Owners of such houses now have suddenly become rich and are buying imported and luxury items. Sales of TV's, VCRs, music cassettes, videotapes and satellite dishes, all Taliban taboos, are soaring. The market has seen the arrival of many imported eatables as well.
However, the trouble with the plan visualised for Afghan reconstruction is, as said before, that it is entirely dependent on outside monies. In February 2002, Amin-Arsala, Karazi's Minister of Finance admitted that the government would be able to finance only three to four percent of its budget from domestic resources. While the Afghan Reconstruction Conference held in Tokyo in January 2002 had pledged US $4.5 billion over five years, more than a quarter of it towards repairing Afghanistan's roads, most of it has to be approved by the parliaments of donor countries. In the meanwhile Afghan roads have become virtually non-existent with 95 per cent of the country's 30,000 miles of highways being either destroyed or damaged by warfare or neglect. Also there is hardly any cash grant component in the amount pledged by the donors to Afghanistan. And Karzai has promised that the country will assume responsibility for the foreign debt incurred by previous governments. This is worth US $ 5.5 billion, a billion more than the aid pledged to the country.
Capitalism has hardly created new markets; they have only followed existing ones. So multinational presence in Afghanistan is not going to make the Afghan economy a vibrant one. The opening up of Afghanistan may only allow some Afghan and non-Afghan entrepreneurs abroad to set up factories in Afghanistan to produce traditional items for western markets. The widening gap between a Westernized Kabul and an impoverished, under-educated, and powerless countryside does not bode well for Afghanistan. If steps are not taken to correct the rising imbalance within the Afghan society, the nation may be thrown back into a state of utter chaos and lawlessness.