Economy of Afghanistan

The economy of Afghanistan has had significant improvement in the last decade due to the infusion of billions of dollars in international assistance and remittances from Afghan expatriates. The assistance that came from expatriates and outside investors saw this increase when there was more political reliability after the fall of the Taliban regime. The nation’s GDP stands at about $64.08 billion with an exchange rate of $18.4 billion (2014), and the GDP per capita is about $2,000. It imports over $6 billion worth of goods but exports only $658 million, mainly gold, opium, fruits and nuts.

Despite holding over $1 trillion in proven untapped mineral deposits, Afghanistan remains one of the least developed countries on the planet. About 35% of its population is unemployed or lives below the poverty line. Many of the unemployed men join the foreign-funded militant groups or the world of crime, particularly as smugglers. The Afghan government has long been pleading for foreign investment in order to grow and stabilize its economy.

Economic history
Ancient Afghanistan was one of the most prosperous countries in the world owing to its vibrant trade with Greater India that extended till Bangladesh and beyond.

In the early modern period under the rule of kings Abdur Rahman Khan (1880–1901) and Habibullah Khan (1901–1919), a great deal of Afghan commerce was centrally controlled by the Afghan government. The Afghan monarchs were eager to develop the stature of government and the country’s military capability, and so attempted to raise money by the imposition of state monopolies on the sale of commodities and high taxes. This slowed the long-term development of Afghanistan during that period. Western technologies and manufacturing methods were slowly introduced during these eras at the command of the Afghan ruler, but in general only according to the logistical requirements of the growing army. An emphasis was placed on the manufacture of weapons and other military material. This process was in the hands of a small number of western experts invited to Kabul by the Afghan kings. Otherwise, it was not possible for outsiders, particularly westerners, to set up large-scale enterprises in Afghanistan during that period.

The first prominent plan to develop Afghanistan’s economy in modern times was the Helmand Valley Authority project, modeled on the Tennessee Valley Authority in the United States, which was expected to be of primary economic importance. The country began facing severe economic hardships during the 1970s when neighboring Pakistan, under Zulfikar Ali Bhutto, began closing the Pakistan-Afghanistan border crossings. This move resulted in Afghanistan increasing political and economic ties with its northern neighbor, the powerful Soviet Union of that time.

The 1979 Soviet invasion and ensuing civil war destroyed much of the country’s limited infrastructure, and disrupted normal patterns of economic activity. Eventually, Afghanistan went from a traditional economy to a centrally planned economy up until 2002 when it was replaced by a free market economy. 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 $100 billion of aid entered the nation from 2002 to 2017. A GDP of $4 billion in fiscal year 2003 was recalculated by the IMF to $6.1 billion, after adding proceeds from opium products. Mean graduate pay was $0.56 per man-hour in 2010.

Agriculture and livestock
The Afghan economy has always been agricultural, despite the fact that only 12% of its total land is arable and about 6% is currently cultivated. Agriculture production is constrained by an almost total dependence on erratic winter snows and spring rains for water. As of 2014, the country’s annual fruit and nut exports is at $500 million. Afghanistan is known for producing some of the finest fruits and vegetables, especially pomegranates, apricots, grapes, melons, and mulberries. Several provinces in the north of the country (i.e. Badghis and Samangan) are famous for pistachio cultivation but the area currently lacks proper marketing and processing plants. It is claimed that some Indian companies buy Afghan pistachios for a very low price, process them in India and sell to western countries as Indian products. However, the Afghan government is planning to build storage facilities for pistachios since receiving bumper crops in 2010. The Bamyan Province in central Afghanistan is known for growing superior potatoes, which on an average produces 140,000 to 170,000 tonnes.

Wheat and cereal production is Afghanistan’s traditional agricultural mainstay. National wheat production in 2010 was 4.532 million tons. 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. Furthermore, since 2002 more than 4 million expats returned 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.

The availability of land suitable for grazing has traditionally made animal husbandry an important part of the economy. There are two main types of animal husbandry: sedentary, practiced by farmers who raise both animals and crops; and nomadic, practiced by animal herders known as Kuchis. Natural pastures cover some 7,500,000 acres (30,000 km2) but are being overgrazed. The northern regions around Mazar-i-Sharif and Maymanah were the home range for about six million karakul sheep in the late 1990s. Most flocks move to the highlands in the summer to pastures in the north. Oxen are the primary draft power and farmers often share animals for plowing. Poultry are traditionally kept in many houses, mostly in rural households.

Much of Afghanistan’s livestock was removed from the country by early waves of refugees who fled to neighboring Pakistan and Iran. In 2001, the livestock population in Afghanistan had declined by about 40% since 1998. In 2002, this figure was estimated to have declined further to 60%. An FAO survey done in the northern regions in spring 2002 showed that in four provinces (Balkh, Jowzjan, Sar-e Pol, and Faryab), there was a loss of about 84% of cattle from 1997 to 2002 and around 80% of sheep and goat. The majority of Afghans traditionally raise sheep instead of goats because goat meat is not popular in Afghanistan. After 2002, the Afghan ministry of agriculture and livestock with assistance from USAID have been helping to regrow livestock numbers throughout the country. This was done by providing Afghan villagers training and animals to start with. The Agriculture Minister Mohammad Asef Rahimi stated that over the past decade arable land had increased from 2.1 million hectares to 8.1 million hectares, wheat production from 5.1 million tonnes to 2.3 million tonnes, nurseries from 75,000 hectares to 119,000 hectares and grape production from 364,000 tonnes to 615,000 tonnes. Almond production jumped from 19,000 to 56,000 tonnes and cotton from 20,000 to 45,000 tonnes, with the saffron yield reaching 2,000 kilograms.

Fishing
The country has plenty of rivers and reservoirs, which makes it a suitable climate for fish farming. Fishing takes place in the lakes and rivers, particularly in the Kabul River around the Jalalabad area and in the Helmand River in southern Afghanistan. Fish constitute a smaller part of the Afghan diet today because fish farmers are unable to produce enough fish to keep up with the demands of customers. Most fish and seafood is imported from neighboring Pakistan, Iran and the United Arab Emirates. In recent years, USAID has helped many Afghans in establishing fish farms across the country. There are hundreds of fish farms throughout the country and the largest one is at the Qargha, which supplies fish eggs to the other fish farms. Fish farming has also been launched in the Salma Dam.

Forestry
Afghanistan’s timber has been greatly depleted, and since the mid-1980s, only about 3% of the land area has been forested, mainly in the east. Significant stands of trees have been destroyed by the ravages of the war. Exploitation has been hampered by lack of power and access roads. Moreover, the distribution of the forest is uneven, and most of the remaining woodland is only found in the Kunar, Nuristan and the Paktia regions in the east of the country.

The natural forests in Afghanistan are mainly of two types: dense forests of oak trees, walnut trees, and many other species of nuts that grow in the southeast, and on the northern and northeastern slopes of the Sulaiman ranges; and sparsely distributed short trees and shrubs on all other slopes of the Hindu Kush. The dense forests of the southeast cover only 2.7% of the country. Roundwood production in 2003 was 3,148,000 cubic metres, with 44% used for fuel.

The destruction of the forests to create agricultural land, logging, forest fires, plant diseases, and insect pests are all causes of the reduction in forest coverage. Illegal logging and clear-cutting by timber smugglers have exacerbated this destructive process. There is currently a ban on cutting new timber in Afghanistan. Prior to 2001 and under Taliban rule, massive deforestation of the country side was permitted and Afghans moved large quantities of logs into storage centers for profit, where the trees wait for processing on an individual tree by tree request.

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. Afghan handwoven rugs are one of the most popular products exported from the country. Other products include hand crafted antique replicas 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, and many rare earth elements. In 2006, a U.S. Geological Survey estimated that Afghanistan has as much as 36 trillion cubic feet (1.0×1012 m3) of natural gas, 3.6 billion barrels (570×106 m3) of oil and condensate reserves. According to a 2007 assessment, Afghanistan has significant amounts of undiscovered non-fuel mineral resources. Geologists also found indications of abundant deposits of colored stones and gemstones, including emerald, ruby, sapphire, garnet, lapis, kunzite, spinel, tourmaline and peridot.

In 2010, U.S. Pentagon officials along with American geologists have revealed the discovery of nearly $1 trillion in untapped mineral deposits in Afghanistan. A memo from the Pentagon stated that Afghanistan could become the “Saudi Arabia of lithium”. Some believe, including former Afghan President Hamid Karzai, that the untapped minerals are worth up to $3 trillion.

Another US Geological Survey estimate from September 2011 showed that the Khanashin carbonatites in the Helmand Province of the country have an estimated 1 million metric tonnes of rare earth elements. Regina Dubey, Acting Director for the Department of Defence Task Force for Business and Stability Operations (TFBSO) stated that “this is just one more piece of evidence that Afghanistan’s mineral sector has a bright future.”

Afghanistan signed a copper deal with China (Metallurgical Corp. of China Ltd.) in 2008, which is to a large-scale project that involves the investment of $2.8 billion by China and an annual income of about $400 million to the Afghan government. The country’s Ainak copper mine, located in Logar province, is one of the biggest in the world and is expected to provide jobs to 20,000 Afghans. It is estimated to hold at least 11 million tonnes or US$33 billion worth of copper.

Experts believe that the production of copper could begin within two to three years and the iron ore in five to seven years as of 2010. The country’s other recently announced treasure is the Hajigak iron ore mine, located 130 miles west of Kabul and is believed to hold an estimated 1.8 billion to 2 billion metric tons of the mineral used to make steel. AFISCO, an Indian consortium of seven companies, led by the Steel Authority of India Limited (SAIL), and Canada’s Kilo Goldmines Ltd are expected to jointly invest $14.6 billion in developing the Hajigak iron mine. The country has several coal mines but need to be modernized.

Afghanistan’s important resource in the past has been natural gas, which was first tapped in 1967. During the 1980s, gas sales accounted for $300 million a year in export revenues (56% of the total). 90% 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. Gas production has dropped from a high of 8.2 million cubic metres (2.9 × 108 cu ft) per day in the 1980s to a low of about 600,000 cubic meters (2.2 × 107 cu ft) in 2001. After the formation of the Karzai administration, production of natural gas was once again restored.

A locally owned company, Azizi Hotak General Trading Group, is currently the main supplier of diesel fuel, gasoline, jet fuel and LPG in Afghanistan. In December 2011, Afghanistan signed an oil exploration contract with China National Petroleum Corporation (CNPC) for the development of three oil fields along the Amu Darya river. The state will have its first oil refineries within the next three years, after which it will receive very little of the profits from the sale of the oil and natural gas. CNPC began Afghan oil production in late October 2012, with extracting 1.5 million barrels of oil annually.

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 1965 Afghanistan–Pakistan Transit Trade Agreement. This permitted goods bound for Afghanistan to transit through Pakistani seaports free of duty. Once in Afghanistan, the goods were often immediately smuggled back into Pakistan over the porous border that the two countries share, often with the help of corrupt officials. Additionally, items declared as Afghanistan-bound were often prematurely offloaded from trucks and smuggled into Pakistani markets without paying requisite duty fees. This resulted in the creation of a thriving black market, with much of the illegal trading occurring openly, as was common in Peshawar’s bustling Karkhano Market, which was widely regarded as a smuggler’s bazaar.

In Pakistan clamped down in 2003 on the types of goods permitted duty-free transit, and introducing stringent measures and labels to prevent smuggling. re-routing of goods through Iran from the Persian Gulf increased significantly. The pre-2003 smuggling trade provided undocumented jobs to tens of thousands of Afghans and Pakistanis, but also helped fuel the black economy, often intertwined with the drug cartels, of both countries.

In 2010, Afghanistan and Pakistan signed into law a new Afghanistan–Pakistan Transit Trade Agreement (APTTA), which allows their shipping trucks to transit goods within both nations. This revised US-sponsored APTTA agreement also allows Afghan trucks to transport exports to India via Pakistan up to the Wagah crossing point. Secondary to concerns regarding smuggling, Pakistani officials insisted that while Afghan exports destined for India can be transited across Pakistani territory, Indian goods cannot in turn be exported to Afghanistan across Pakistani territory. Instead, Afghan trucks offloaded at Wagah may return to Afghanistan loaded only with Pakistani, rather than Indian, goods in an attempt to curb smuggling.

According to Afghanistan’s Chamber of Commerce and Industries deputy head, Khan Jan Alokozai, about 500 shipping containers of trade goods enter Afghanistan via the Torkham and Wesh-Chaman border crossings on a daily basis. Other major trade routes in Afghanistan are via the crossing borders in Zaranj, Islam Qala, Hairatan, Shir Khan Bandar, and Towraghondi.

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 1952 it created the Helmand Valley Authority to manage the economic development of the Helmand and Arghandab valleys through irrigation and land development, a scheme which remains one of the country’s most important capital resources.

In 1956, the government 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.

Da Afghanistan Bank serves as the central bank of the nation and the “Afghani” (AFN) is the national currency, with an exchange rate of about 68.5 Afghanis to 1 US dollar. There are over 16 different banks operating in the country, including Afghanistan International Bank, Kabul Bank, Azizi Bank, Pashtany Bank, Standard Chartered Bank, First Micro Finance Bank, and others. 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. 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. Additionally, improvements to the business-enabling environment have resulted in more than $1.5 billion in telecom investment and created more than 100,000 jobs since 2003.

Afghanistan is a member of WTO, SAARC, ECO, OIC, and has an observer status in the SCO. It seeks to complete the so-called New Silk Road trade project, which is aimed to connecting South Asia with Central Asia and the Middle East. This way Afghanistan will be able to collect large fees from trade passing through the country, including from the Trans-Afghanistan Pipeline. Foreign Minister Zalmai Rassoul stated that his nation’s “goal is to achieve an Afghan economy whose growth is based on trade, private enterprise and investment”. Experts believe that this will revolutionize the economy of the region.

The capital of Kabul symbolizes the spirits of all Afghans and international cooperation, sets at the heart of this highly resourceful region, with great potential to turn into a business hub. After 2002, the new geo-political dynamics and its subsequent business opportunities, rapid urban population growth and emergence of high unemployment, triggered the planning of urban extension towards the immediate north of Kabul, in the form of a new city.

In 2006, former President Hamid Karzai established an independent board for the development of Kabul New City. The board brought together key stakeholders, including relevant government agencies, representation from private sector, urban specialists and economists, with cooperation from the government of Japan and French private sector, to prepare a master plan for the city in the context of Greater Kabul. The master plan and its implementation strategy for 2025 were endorsed by the Afghan Cabinet in early 2009. The initiative turned into one of the biggest commercially viable national development project of the country, expected to be led by the private sector.

As part of an attempt to modernize the city and boost the economy, a number of new high rise buildings are under construction by various developers. Some of the national development projects include $35 bn New Kabul City next to the capital, Ghazi Amanullah Khan City east of Jalalabad, and Aino Mena in Kandahar. Similar development projects are also taking place in Herat in the west, Mazar-e-Sharif in the north and in other cities.

In the last decade, companies such as The Coca-Cola Company and PepsiCo launched or re-launched operations in Kabul. In addition, a number of local mineral water and juice plants, including factories of other products, were built. This not only promotes foreign investment but also makes the country less dependent on imports from neighboring countries and helps provide employment opportunity to many Afghans. Watan Group is a company based in Afghanistan that provides telecommunications, logistics and security services. InFrontier is the first international private equity firm with a full-time team and investments in Afghanistan. InFrontier manages a $30 million dedicated Afghanistan private equity fund Afghanistan Fund backed by some of Europe’s leading financial investors – co-founded by Benj Conway and Felix von Schubert.

Tourism
Tourism in Afghanistan was at its peak in 1977. Many tourists from around the world came to visit Afghanistan, including from neighboring Iran and Pakistan, the Soviet Union, as well as India, Turkey, Europe, North America and other places. All of that ended with the start of the April 1978 Saur Revolution. However, it is again gradually increasing despite the insecurity. Each year about 20,000 foreign tourists visit Afghanistan.

The country has four international airports, including the Hamid Karzai International Airport, Mazar-e Sharif International Airport, Kandahar International Airport and Herat International Airport. Several other airports are also being upgraded to become international in the coming years. The city of Kabul has many guest houses and hotels, including the Hotel Inter-Continental Kabul, Safi Landmark Hotel, and at least one 5-star Serena Hotel. One five-star hotel is under construction next to the U.S. Embassy. An international brand frozen yogurt shop [Cherryberry Frozen yogurt bar] is also cited in kabul wazir akbar khan

Tourist sites within the country include:

The ancient city of Kabul
Gardens of Babur
National Museum of Afghanistan
Paghman Gardens
Qargha and many other places
Band-e Amir National Park in Bamyan
The ancient city of Herat
Herat Citadel
Minaret of Jam in the Shahrak District of Ghor Province
Shrine of Ali in Mazar-i-Sharif
Shrine of the Cloak in Kandahar
Mausoleums of Ghaznavid rulers in Ghazni
Mausoleum of Amanullah Khan, Bacha Khan, and other sites in Jalalabad
Sightseeing at Parwan Province, (i.e. ancient town of Bagram), Panjshir Province (mausoleum of Ahmad Shah Massoud in Bazarak), Badakhshan Province, and other places.

National accounts
GDP: purchasing power parity $64.08 billion, with an exchange rate at $18.4 billion (2016 est.)

GDP – real growth rate:

2% (2016)
GDP – per capita: purchasing power parity – $2,000 (2016)

GDP – composition by sector:

agriculture: 24%
industry: 21%
services: 55%
note: data excludes opium production

Population below poverty line:

35.8% (2011)
Household income or consumption by percentage share:

lowest 10%: 3.8%
highest 10%: 24% (2008)
Inflation rate (consumer prices): 13.8% (2011)
country comparison to the world: 19

Labor force: 15 million (2004)
country comparison to the world: 39

Labor force – by occupation: agriculture 78.6%, industry 5.7%, services 15.7% (2009)

Unemployment rate: 35% (2009)
country comparison to the world: 180

Budget:

revenues: $1.7 billion
expenditures: $6.639 billion (2015)
Industries: small-scale production of textiles, soap, furniture, shoes, fertilizer, apparel, food-products, non-alcoholic beverages, mineral water, cement; handwoven carpets; natural gas, coal, copper

Electricity – production: 913.1 million kWh (2009)
country comparison to the world: 150

Electricity – production by source:

fossil fuel: 23.5% of total installed capacity (2009)
hydro: 76.5% of total installed capacity (2009)
nuclear: 0% of total installed capacity (2009)
other: 0% (2001)
Electricity – consumption: 2.226 billion kWh (2009)
country comparison to the world: 137

Electricity – exports: 0 kWh (2010)

Electricity – imports: 1.377 billion kWh (2009)

Oil – production: 1,950 barrels per day (310 m3/d) (2012)
country comparison to the world: 210

Oil – consumption: 4,229 barrels per day (672.4 m3/d) (2011)
country comparison to the world: 165

Oil – proved reserves: 1,600,000,000 barrels (250,000,000 m3) (2006)

Natural gas – production: 220 million m³ (2001)

Natural gas – consumption: 220 million m³ (2001)

Natural gas – proved reserves: 15.7 trillion cubic feet (2006)

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

Exports: $658 million (2014)
country comparison to the world: 164

Exports – commodities: opium, fruits and nuts, handwoven carpets, wool, cotton, hides and pelts, and gemstone

Exports – partners: India 42.3%, Pakistan 29%, Tajikistan 7.6% (2015)

Imports: $7.004 billion (2014)

Imports – commodities: machinery and other capital goods, food, textiles, petroleum products

Imports – partners: Pakistan 38.6%, India 8.9%, United States 8.3%, Turkmenistan 6.2%, China 6%, Kazakhstan 5.9%, Azerbaijan 4.9% (2015)

Debt – external: $1.28 to $2.3 billion total (2011)

Russia – $987 million
Asian Development Bank – $ 596 million
World Bank – $435 million
International Monetary Fund – $114 million
Germany – $18 million
Saudi Development Fund – $47 million
Islamic Development Bank – $11 million
Bulgaria – $51 million
Kuwait Development Fund – $22 million
Iran – $10 million
Opec – $1.8 million
Current account balance: -$743.9 million (2011)
country comparison to the world: 132

Currency: Afghani (AFN)

Exchange rates: afghanis (AFA) per US dollar – 62 = $1
61.14 (2014-16)
57.25 (2013)
46.45 (2010)

Fiscal year: 21 March – 21 March

Source from Wikipedia