You are on page 1of 25

1 Inhaltsverzeichnis

2 INTRODUCTION .............................................................................................................. 1
2.1 WHY AFGHANISTAN ...................................................................................................... 1
2.2 STRUCTURE OF PAPER ................................................................................................... 2

3 COUNTRY BACKGROUND............................................................................................ 2
3.1 GENERAL INFORMATION ............................................................................................... 2
3.2 THE PASCHTUNWALI ..................................................................................................... 4

4 ECONOMIC POLICY ....................................................................................................... 5


4.1 DEVELOPMENT POLICY APPROACH .............................................................................. 5
4.2 FISCAL POLICY .............................................................................................................. 6
4.3 MONETARY POLICY ...................................................................................................... 7

5 CURRENT MACROECONOMIC SITUATION ........................................................... 7


5.1 GDP GROWTH ............................................................................................................... 7
5.2 INFLATION ..................................................................................................................... 8
5.3 UNEMPLOYMENT ........................................................................................................... 8

6 ECONOMIC STRUCTURE.............................................................................................. 9
6.1 AGRICULTURAL SECTOR ............................................................................................... 9
6.2 INDUSTRY SECTOR ....................................................................................................... 10
6.3 SERVICE SECTOR ......................................................................................................... 11

7 INTERNATIONAL ECONOMIC RELATIONS ......................................................... 12


7.1 FOREIGN TRADE BROKEN DOWN BY MAJOR/REGIONS/COUNTRIES ............................ 12
7.2 FOREIGN TRADE BROKEN DOWN BY COMMODITIES ................................................... 13
7.3 FOREIGN DIRECT INVESTMENT .................................................................................. 14
7.4 MIGRATION.................................................................................................................. 14
7.5 PARTICIPATION IN CUSTOMS UNIONS/FREE TRADE AREAS ......................................... 15
7.6 FOREIGN EXCHANGE POLICY ...................................................................................... 15

8 THE VICIOUS CYCLE FOR DEVELOPMENT AID ................................................ 16

9 LIST OF REFERENCES................................................................................................. 18

10 AFFIDAVIT ...................................................................................................................... 25

!
II!
!
!

2 Introduction
2.1 Why Afghanistan
"Whatever countries I conquer in the world, I would never forget your beautiful
gardens. When I remember the summits of your beautiful mountains, I forget the
greatness of the Delhi throne."

Ahmad Shah Durrani


Founder of the Afghan Empire, (1747-1773); considered as the true founder of modern
Afghanistan1

Afghanistan is a country which suffered from war for decades. Also, with the
takeover of the Taliban a reign of terror started for the population. The country
was set back in shambles. Violence, suffering and terrible poverty is mostly what
gets on television. I am sure, it was not always that way. In the 1960s the country
was known as the exotic stop. Mountains, relics of empires thousands of years
old, deserts, little valleys and many other things have been the characteristics of
Afghanistan. This time was a brief, relatively peaceful era. The country appeared
to be on a path toward a more
open and prosperous society. It
seemed to be that Afghanistan
could become an independent
country, maybe poor but free to
make own decisions.

Today, you cannot see anything of


this time. I personally find
Afghanistan’s history interesting. My entire life I knew that Afghanistan is a
country of war, but never understood what happened to it. For me the history of
Afghanistan has a special meaning, because my father had to go to Afghanistan
into operation. At the age of 13 years you are not able to understand the
background information they are given to you, but now I am at that age at which I
am capable to understand its history and its effects on economy.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1
!Cf.!Afghan!Web!(w/o!Y)!
!
1
!
!

2.2 Structure of Paper


Information about Afghanistan and its economy is given in this paper. A general
overview and a brief summary of its history are provided in the first chapter, in
order to understand the current situation of Afghanistan. Afterwards,
comprehensive information about the country’s economy, such as the
development of GDP, international relations, and many other data are given.

Due to the situation in Afghanistan, there is not always guaranteed statistics


available about the economy of Afghanistan, but my intention is to use resources,
which seem to be reliable to me in all chapters.

The pictures are created by own recordings.

3 Country Background
3.1 General Information
Afghanistan, which literally means Land of the Afghan, with its capital Kabul is a
mountainous land-locked country located in Central Asia with Iran to the West
and Pakistan to the east.2 3 Beside of the mountains, dry deserts cover most of the
landscape of Afghanistan.4 The Hindu Kush Mountains run northeast to southwest
and divide the Northern Province from the rest of the country. The highest peaks
are in the northern Vakhan.

The country has an area of 652,230km2 and is slightly smaller than Texas. 5

At the 1st of January 2016 the population was estimated to be 33 045 4406. The
Afghan society is a mix of several ethnic groups, whereas 42% are Pashtuns,
which is the largest ethnic group in Afghanistan, followed by the Tajiks, the
Hazaras, the Uzbeks, and other minor groups.7 The official religion in
Afghanistan is Islam, which is worshipped by 99.7% of its citizens. The official
languages are Afghan Persian or Dari, which is spoken by 50%, and Pashto,
which is spoken by 35% of the citizens.8

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2
Cf. Qazi, A (2016)
3
Cf. Central Intelligence Agency (w/o Y)
4
Cf. National Geographic Kids (w/o Y)
5
Cf. Central Intelligence Agency (w/o Y)
6
Cf. Worldmeters (w/o Y)
7
Cf. SAARC Tourism (w/o Y)
8
Cf. Central Intelligence Agency (w/o Y)!
!
2
!
!

Afghanistan was founded in 1747 by Ahmad Shah Durrani and won independence
from national British Control in 1919.9 A long and destructive war was caused by
the Soviet Union, who supported the Afghan communist regime. With the help of
the anti-communist mujahidin rebels, which were internationally supported, the
USSR withdrew in 1989. After a series of civil wars Kabul finally fell to the
Taliban in 1996, which were partly defeated in 2001 by the NATO.10

Political reconstructions were forwarded by an UN-sponsored Bonn Conference


in 2001. They included the adaption or a new constitution, a presidential election
in 2004 and National Assembly elections in 2005. Since 2004 Afghanistan is an
Islamic Republic with a presidential system of government.11

The election in 2014 featured the top two vote-getters from the first round,
Abdullah ABEDULLAH, who was elevated to the newly-created position of chief
executive officer, and Ashraf GHANI as the president. Since this election the US-
Afghan bilateral security agreement and NATO Status of Forces Agreement,
which were signed by the GHANI administration, provide the legal basis for the
post-2014 international military presence in Afghanistan. However, the Taliban is
still a serious challenge for the Afghan Government. It remains a confident force
that declares it will pursue peace deal with Kabul only after foreign military
forces depart.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
9
Cf. LIPortal (w/o Y)
10
Cf. Bundeszentrale für politische Bildung (2014)
11
Cf. Central Intelligence Agency (w/o Y)
!
3
!
!

3.2 The Paschtunwali


In Afghanistan there is a big amount of different ethnic groups, which arose
during the past centuries embossed of civil wars and wars of power. Following
ethnic groups exist in Afghanistan: The Pashtuns, the largest group of
Afghanistan, the Tajiks, which make 27% of the citizens, the Hazaras and the
Uzbeks, which each make 9% of the citizens and some other minor ethnic groups
such as the Aimaks (4%), Turkmens (3%), Nuristanis and the Baluchs (2%).12
Because of the enormous variety of ethnic groups there come many different
faiths and ways of life together. Afghanistan had experienced many wars, because
of these different perspectives of life and believes.

The Pashtuns, who still believe in their tribal faith called Paschtunwali, do not
agree and did not agree in the past with the way the government were ruling the
country. Pashtunwali is a non-written ethical code, traditional lifestyle and a
system of law and governance that began during prehistoric times. It is still in use
today, widely practiced among Pashtuns and also be interpreted as “the way of the
Pashtuns” or “the code of life”.1314 The Taliban’s interpretation of Deobandi Islam
is also strongly marked by the code of ethics, the Pashtunwali.15

These ethnic conflicts have a huge impact on the people’s situation in


Afghanistan. Afghanistan is seen as one of the world’s most dangerous places for
women and children. Firstly, due to Islamic extremists, also called as Taliban,
women are hidden and isolated. They are not allowed to leave their home without
a male relative. Also, according to Sharia law, the religious legal system
governing the members of the Islamic faith, women’s legal standing is limited. A
female’s testimony is worth a half of that of a man.16

Furthermore, for almost 30 years Afghan children face a dangerous life due to the
internal conflict. 97 children out of 1000 die before the age of five and when they
survive they have no prospect of education or a good life. Female children are
seen and treated as objects. 17

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
12
Cf. SAARC Tourism (w/o Y)!
13
Cf. Afghan Aid (w/o Y)
14
Cf. University of West (w/o Y)
15
Cf. Cf2R (2013)
16
Cf. Trust in education (w/o Y)
17
Cf. Trust in education (w/o Y)!
!
4
!
!

There is no way to grow their infrastructure or their industry without help from
outside. No investors are willed to invest in a country that seems to be in an
instable situation and without a view of success, but there will be no improvement
if there are no investments made in education in order to improve skills and
knowledge that are needed to develop the country. Afghanistan appears to be in a
vicious circle.

4 Economic Policy
4.1 Development policy approach
Afghanistan is one of the poorest countries and its economy is one of the weakest
in the world.18 It was destroyed by decades of war, which started in the 70s.
Consequently, the Islamist powers were strengthened. In addition, successfully
completed development aid projects were destroyed by fighting.19

The infrastructure development is one of the major aims in the national


development strategy of Afghanistan. The expansion of the road network is a
matter of prime importance.20 Also the railway transport is poorly developed,
whereas plans for better connections to Iran and Uzbekistan are taken forward.

As significant barriers of the economic development are seen the high rate of
unemployment, poor education, drug trafficking, corruptions, and the tension in
21
the security situation, but there already have been measures implemented in
order to improve the weak areas of the country.

For example, the German-Afghan development cooperation has the aim to reform
the professional education and to build training facilities, in order to qualify
young people in professions. In addition, Germany stood up for human rights
within the “Tokyo Framework” (TMAF), by which “The Elimination of Violence
22
Against Women Law” (EVAW), the “National Action Plan for Women”, the
“Millennium Development Goal” (MDG), which target improving health, gender

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
18
Cf. Auswärtiges Amt (2016)
19
Cf. Deutsches Evaluierungsinstitut der Entwicklungszusammenarbeit gGmbH (2014)
20
Cf. Germany Trade & Invest (2013)
21
Cf. Deutsche Welle (w/o Y)
22
Cf. Die Bundesregierung, Dr. Michael Koch (2014)
!
5
!
!

equality, education, environment and food security, and many other indicators are
mentioned.23

Nevertheless, after decades of conflicts Afghanistan’s economy is recovering. An


improvement has been noticed since the fall of the Taliban regime in 2001
because international support by NATO, the growth in the service sector and the
recovery of the agriculture sector.24 Due to international help, improvement in
electricity, water, medical care and education the GDP has raised from
$2,462billion to $20,46 billion between 2001 and 2013.25

For 2016 a further growth in economy and a slow recovery over the next three
year is expected. The security environment is not allowed to experiences a return
in order to ensure further growth.26

4.2 Fiscal Policy


Afghanistan has to deal with many challenges, such as unemployment, lack in
infrastructure, political instability, and insecurity, in order to grow in economy.
The government fiscal policy has already focused on addressing security
concerns, improving service delivery, investing in infrastructure and facilitating
the growth of the private sector. The fiscal position has improved over the last
year, due to reforms to revenue collection and spending. Domestic revenues
increased from 8.7% in 2014 to 10.4% of GDP in 2015.27 The Fiscal Sector of the
Monetary Policy Department collects the data, such as finance sources,
expenditure and so on from the departments of the Ministry Finance.28 For the
government of Afghanistan, an important financial objective is to raise the
domestic revenues, and in order to achieve this goal an increase in the economic
growth and an improvement in the administration of custom is needed.

There are many reasons for low domestic revenues collection. Some of these
reasons are the small private sector, the large informal economy with a dominant
agricultural sector, and the low performance and mobilization.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
23
Cf. AG Friedensforschung (2012)
24
Cf. Central Intelligence Agency (2016)
25
Cf. Die Bundesregierung, Dr. Michael Koch (2014)!
26
Cf. The World Bank (w/o Y)
27
Cf. The World Bank (w/o Y)
28
Cf. Da Afghanistan Bank (w/o Y)
!
6
!
!

4.3 Monetary Policy


The Da Afghanistan Bank, as the central bank of Afghanistan, has the primary
objective to achieve and maintain domestic price stability. In the absence of
stability in the value of national currency it is not possible to achieve such objects.
Therefore, the central bank monitors the exchange rate and to avoid its negative
impacts on the domestic prices and other economic indicators, the Da Afghan
Bank intervenes in the market via Managed Floating Exchange Rate regime.

In Afghanistan, the demand for national currency, which is the New Afghani since
200229, is linked to the rate of national economic activities, also it depends on the
tendency of people to use the national currency. The main source of demand for
Afghani is the government spending. The increase or decrease of money supply,
also called monetary policy, is based on the demand for the national currency. For
this reason, monetary policy and fiscal policy are connected. The real sectors are
also responsible for the demand for national currency.30

5 Current Macroeconomic Situation


5.1 GDP growth
After the collapse of the Taliban in 2001 and with the new government in 2002,
the economy of Afghanistan enjoyed reasonably steady growth. The Gross
domestic product rose from $4.13 billion to 19.2 $billion between 2002 and
2015.31

It must be noted that the economic performance remained at the same level since
the withdrawal of ISAF troops in 2012 and therefore stagnated.32 While the
economic growth was about 14% in 2012, in 2013 it was down to 3,6%.33
Accordingly, it showed a growth of 1,3% in 2014. Nonetheless, the GDP growth
started to increase from 2015. An actual figure shows a growth of 1,9% in 2016
and an estimation of further increase in 2018 with an GDP growth of 3,6% in year
2018.34

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
29
Cf. Umrechnung von Währung und Einheiten (w/o Y)!
30
Cf. Da Afghanistan Bank (w/o Y)
31
Cf. The World Bank (2016)
32
Cf. The World Bank (2016)
33
Cf. Das Länder-Informations-Portal (w/o Y)
34
Cf. The World Bank (2016)
!
7
!
!

5.2 Inflation
The Consumer Price Index is made up by two main groups. 61,3% of the total
Consumer Price Index (CPI) includes Food Items, while the remaining 38,7% are
made up by Non-Food Items. Bread and cereals (28%), meat (6%), milk, cheese
and eggs (5,6%) and oil and fats (5,3%) are the most important food-items.
Housing, clothing, household goods, transportation, and health belong to the
mainly non-food items.35

The historical highest Inflation Rate was at 13,97%, while the lowest inflation rate
was -18,39%.36 In this year the inflation rate is 3,01%, compared to 2015 with an
inflation rate of -1,55%.37

5.3 Unemployment
Up to the half of the workforce in Afghanistan seems to be unemployed or
underemployed while the Afghan population is growing rapidly38. Since 2001 the
total population has increased from 20,500,00039 to 33 045 440 (01/2016)40,
which means that more and more training positions are going to be needed.

In 2014 the country already needed long term training positions for about 1,7
million young people. The Federal ministry for Economic Cooperation and
Development of Germany is leading a programme for continuing vocational
education, which aim it is to build vocational training facilities and to reform
vocational training. The programme is geared to reduce poverty risks and to create
future prospects. In this context, the Afghan Vice Ministry of vocational training
is going to be supported in the reconstructions of a vocational school system for
education and training in Kabul and Mazar-e Sharif.41

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
35
Cf. Trading Economics (w/o Y)
36
Cf. Trading Economics (w/o Y)
37
Cf. Das Statistik-Portal (w/o Y)! !
38
Cf. Die Bundesregierung, Dr. Michael Koch (2014)
39
Cf. The World Bank (2016)
40
Cf. Central Intelligence Agency (2016)
41
Cf. Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (2014)
!
8
!
!

6 Economic Structure
6.1 Agricultural sector
The economic performance has been achieved through three industries, which will
be discussed more deeply in the following chapters: Agriculture, Industry, and
Services. The agricultural sector had the large share in the GDP with 30,3% in
year 2004, but decreased to 23,5% in year 2014.42 While the proportion of
industry in the GDP has hardly changed and stayed at 24% in average, the service
sector has developed positively and has the largest share in GDP with 54% in
2014.

Agriculture is a very important part of the economy in Afghanistan and the share
of agriculture in GDP accounted for 24% (data exclude opium production) in
2014.43 80% of the population live in the countryside, many of them live a life of
poverty44 and about 60% of the population rely on agriculture.45 Either they need
a workplace on a farm, food for their family or animals, or complements
additional to their own food. Agriculture has the potential to reduce poverty in
each of the aspects. Therefore, according to the government the agricultural sector
has priority.46

In order to improve the agricultural sector they are investments in expansion of


irrigation of land needed, because most parts of the country enclose mountains
and deserts. Only about 8 million hectares of Afghanistan’s land area of 65
million hectares is arable. The country has a mainly dry continental climate and
most of the land receives less than 400 mm of rain per year47, so that the success
of the harvest is dependent on rainfalls each year. Since the fall of the Taliban
regime in 2001 the situation has improved due to international support by the
NATO but is still dependent of the security situation, transport, access to the
markets and investments.48

Afghanistan was a world-class producer and exporter of almonds, pomegranates,


pistachios, grapes and apricots in the 1970s before the wars. It supplied about

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
42
Cf. Das Statistik-Portal (w/o Y)
43
Cf. Central Intelligence Agency (2016)
44
Cf. EU The European Commission, International Cooperation and Development (2016)
45
Cf. USAID (2016)!
46
Cf. Auswärtiges Amt (2016)
47
Cf. The World Bank (2014)
48
Cf. Central Intelligence Agency (2016)
!
9
!
!

20% of the raisins on the world market. Also, it was self-sufficient in meat and
milk. Today these markets are taken over from other countries and the country
depends on imports.49

Today, there are many projects of the World Bank, the USAID, the EU and the
50
UN-FAO, which aim to improve the situation. Projects of the FAO especially
aim to encourage and develop women in agriculture.51 Also the EU carries out
projects, which aim to protect water resources through legal frameworks. One of
these efforts consists of increasing the productivity and reliability of harvests
through construction of irrigation canals.52

Over the next ten years, an improvement in agriculture productivity, Afghanistan


could raise it GDP growth rate to 5.8% annually, on average.53

6.2 Industry sector


The industry of Afghanistan contributes 21% to the GDP in 2014.54 The share of
industry in GDP growth rate accounted 2,4% at a real GDP growth of 1,3%.55

Afghanistan is limited on low end manufacturing. In this context, the processing


of animal by-products, such as animal fur and skin, the production of carpets and
clothing and the processing of fruits and nuts form the largest growth market and
the main part of the exports to the world and to Germany. As low-end
manufacturing countries are currently developing, Afghanistan could be able to
undertake the task of producing low-end manufacturing in a long term
perspective.

The German government development cooperation supported the industry sector


by providing about €4,5 million within a period from 2001 and 2011. They
supported two significant areas, firstly, the extension of further processing of
chemical products, and on the other hand the production of sugar. Furthermore, in
the same period of time the agricultural sector was also supported by €21 million.
Other countries with higher quality in both sectors are current competitors, which
create high pressure for Afghanistan and therefore it is also difficult to catch up in
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
49
Cf. The World Bank (2014)
50
Cf. World Bank (2016); USAID (2016); EEAS (2016); and Shichiri, T. (2015)
51
Cf. Shichiri T. (2015)
52
Cf. EEAS (2016)
53
Cf. The World Bank (2014)!
54
Cf. Central Intelligence Agency (2016)
55
Cf. The World Bank (2015)!
!
10
!
!

former traditional productions of ceramics, glasses and blades. Exclusive the


carpet and clothing industry held up well. In 2012 the Federal Ministry for
Economic Cooperation and Development invested about €65 million in this sector
and created as a result 5.000 new jobs.

The mining industry is still in its initial phase, but promises the largest growth in
tax revenues and the opportunity to attract foreign investors and their private
capital. For this the occurring mineral resources such as cooper and raw iron have
the biggest potential and coupled with an individualised focus Afghanistan has the
potential to become a major trading partner for Asia. The Afghan building law of
August 2014 creates finally a legal basis for the mining industry in Afghanistan,
which is seen as a central requirement for international investments by experts.
The Aynak-Cooper-Project of the Chinese in the southeast of Kabul could also
been seen as very attractive for foreign investors due to its high expected volumes.
The mining sector should be accepted through training of Afghans in order to
protect this sector from exploitation by foreign companies.

6.3 Service sector


The service sector is the most important sector of the Afghan economy. Its share
of the total GDP accounted 55% in 2014.56 This is especially based on
telecommunication, financial services and transportation. In 2004 about 10% of
the Afghan population earned their livelihood in the service sector of the
country.57 Over the next ten years this figure increased progressively and reached
a share of 15,7% in 2014.58 On the other hand the economic growth in the service
sector only accounted 2,2%. Nonetheless this sector remained the driving factor of
the growth due to its share in GDP.

The telecommunications sector was the fastest growing sector over the last ten
years. It grew more than 50% annually, on average, between 2003 and 2013. The
Afghan government focused on expansion of W-LAN, access to internet and on
television channels. For this, the government signed an agreement with the
Chinese ZTE Corporation and an allocation of $65,5 million.59 This project
contributed to improvements. In 2014 about 90% of population had access to
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
56
Cf. Central Intelligence Agency (2016)
57
Cf. Economy Watch (2010)
58
Cf. Central Intelligence Agency
59
Cf. Embassy of Afghanistan (2006)
!
11
!
!

communications products, while there were 23,4 million mobile phone users.60
Also, the amount of internet users rose from 1 million to 3 million between 2011
and 2014. This is mainly due to 3G licenses for GSM funk operators, the
development of the fibre optic network in further provinces of the country and an
increasing number of internet providers in the market. In the same period the price
of 1 megabit of bandwidth declined from $900 to $35 per month.61

The financial service sector has to cope with different challenges driven by weak
governance. In particular the crisis of the New Kabul Bank, which is the biggest
credit institute, threats the sector development.

In Afghanistan there are 15 dominating banks – three state-owned banks, nine


private-sector banks and three branches of foreign banks, from which 8 are
considered weak.62

The poor population only has limited access to banks. Less than 10% of the total
population uses banks, while the rest prefers to rely on hard cash. The Asian
Development Bank (ADB) sees a continued mistrust in banks due to the grave
Kabul Bank Crisis and the weak financial sector in general.63

7 International Economic Relations


7.1 Foreign trade broken down by major/regions/countries
The external trade balance shows a deficit, because the Afghan economy is
strongly dependent of imports. According to the yearbook, the exports amounted
$0,5 billion and the imports $3 billion in 2008.

Important trade partners are Pakistan, India, Iran, Russia, and the United States of
America. Especially Pakistan plays a central role, due to its geographic location,
and because of Afghanistan’s lack of access to the oceans.64 Afghanistan is also
Pakistan’s second largest export market. Both countries face substantial
challenges. They have to deal with their respective security, political and
economic level. Their trade relationship has suffered in the past, due to several
tensions.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
60
Cf. Central Intelligence Agency (2016)
61
Cf. The World Bank (2015), Afghanistan Development Update!
62
Cf. The World Bank (2015), Country Snapshot October
63
Cf. U.S. Department of State (2016)
64
Cf. Germany Trade & Invest (2013)
!
12
!
!

The countries signed an agreement in 1965, which is known under the


Afghanistan Pakistan Trade Agreement (APTTA). 65 The APTTA was redesigned
in 2010 to allow the transit of Afghan exports through Pakistan to the border with
India and extended to Tajikistan in 2012. All countries did enjoy advantages form
this extension.66

Trade between Afghanistan and Pakistan has increased noticeably, from $0.83
billion in 2006 to $2.1 billion in 201367. Of Afghan’s total imports Pakistan makes
the largest share, at 24,3% in 201368. Its share has declined since 2011, due to
many issues, such as political instability.

In return Iran’s share is greater than before, because a draft for a new transit trade
agreement was completed by India, Iran and Afghanistan. A land route has been
planned to run from Iran’s Chabahar port, in the Gulf of Oman, connecting
Afghanistan to the Persian Gulf, which allows the movements of goods from
South Asia into Afghanistan and Central Asia.

Therefore, in spite of all the challenges, Afghanistan enjoys an advance of its


location as a gateway to Central Asia as well as a land bridge between Central and
South Asia. The country could bring many opportunities for national and
international investors. It has deposits of natural resources worth around $3
trillion, but without sustainable security, technical support and political
institutions it will remain a cause of international rivalry rather than a source of
prosperity.69

7.2 Foreign trade broken down by commodities


In 2014 the exports amounted $770 million, whereas the vegetables products,
including grapes, tropical fruits, herbs, an some other kind of food, make 54% of
the total exports, followed by mineral products, such as coal briquettes (15% of
exports), textiles, including cotton wool, carpets and animal hair (12% of exports)
and metals (11% of exports).

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
65
Cf. United States Institute of Peace (2015)
66
Cf. Central Asia Regional Economic Cooperation (w/o Y)
67
Cf. United States Institute of Peace (2015)!
68
Cf. United States Institute of Peace (2015)
69
Cf. The Diplomat (2015)
!
13
!
!

In the same year, fuels are counted among to the largest part of import products,
which make 8.4% of total exports, followed by vegetable products, including
wheat, rice, and minor others (12% of exports), food and textiles (22% of
exports), and machines (11% of machines).70

In the last ten years, the trade balance has always shown a negative figure.

7.3 Foreign Direct Investment


Afghanistan is reliant on the foreign presence. This would also include the
economy. Afghanistan struggled to attract domestic and foreign investment, due
to political uncertainties and problems in bureaucratic procedures.

Nevertheless, its economy has experienced a growth which was driven


international help. The GDP per capita has increased six fold between 2001 and
2013 and amounted about $670 per capita.71

According to Santander Trade Portal, it seems to be very difficult to achieve


access to statistics on foreign direct investment, or they are unreliable. Due to the
effort of Government the FDI flows increased by 25% in 2013, but since the
departure of NATO troops in 2014 investments in the country were weakened.

Nevertheless, the Chinese Government is interested in supporting the railway


infrastructure development and the construction of a hydroelectric plant. China
has also invested in the oil industry and became Afghanistan’s largest investor.

However, the situation in the country is still seen as an enormous barrier.

7.4 Migration
Although Afghanistan has made an improvement in economy and social, it still
remains one of the world`s least developed countries.72 Also, it ranks 169th in the
Human Development Index out of 187 countries.73 Therefore, migration is
nothing new, because it has been existing for decades. There has been a lot of
emigration of Afghan refugees mainly to the neighbouring Islamic of Republic of
Iran and to Pakistan since the late 1970s when the Soviet Union invaded into the
country. About 1.5 million Afghans are estimated to have left the country between

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
70
Cf. OEC (w/o Y)!
71
Cf. Auswärtiges Amt (2014)
72
Cf. United Nations (2016)
73
Cf. Auswärtiges Amt (2016)
!
14
!
!

1979 and 1980. The war got stronger and in 1985 1,7 million total refugees which
fled to Pakistan were estimated.74 The second migration wave began with the
Taliban regime in 1992. Particularly, the urban and educated middle class fled to
the Islamic Republic of Iran and Pakistan. With the rise of the oppressive Taliban
regime from 1994, the emigration wave started again until 2000. The third and
largest migration wave was caused by the war between the Taliban and United
Stated 2001.75 2.7 million refugees came back from Pakistan and about 800,00
from the Islamic Republic of Iran, with the help of UNHCR between 2002 and
2005.

UNHCR was created in order to help millions of people who had fled or lost their
home and more than 80% of the returns were assisted by them.76

7.5 Participation in customs unions/free trade areas


Beside the Afghanistan Pakistan Trade Agreement (APTTA), there is an further
agreement 8 countries. The South Asian Free Trade Area (SAFTA) is an
agreement, that created a free trade area. Members of the agreement are
Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri
Lanka. The aim of this agreement was to reduce custom duties of all traded goods
to zero by 2016, with the motivation to realize the countries’ potentials for trade
and development.77

The following instruments are used in order to implement the SAFTA Agreement:
The Liberalisation Programme; Rules of Origin; Institutional Arrangements;
Consultations and Dispute Settlement Procedures; Safeguard Measures; Any other
instrument that may be agreed upon.78

7.6 Foreign exchange policy


The Da Afghanistan Bank is regulating the exchange rate policy with its new
Afghani as it currency since 2002. That is one of their main responsibilities. They
adopted the Managed Floating Rate Exchange Rate regime, under which the
exchange rate is determined on the demand and supply factors.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
74
Cf. Deutsch-Afghanische Initiative (w/o Y)
75
Cf. International Organization for Migration (w/o Y)!
76
Cf. UNHCR (w/o Y)
77
Cf. SAARC (w/o Y)
78
Cf. SAARC (w/o Y)!
!
15
!
!

The central bank monitors the exchange rate behavior and puts its effort to
prevent serious fluctuation.

8 The vicious cycle for development aid


Aggravating for the economic development and the improvement of the situation
is drug trafficking. 90% of the global opium production stemmed from
Afghanistan. Looking back to historical roots of the opium economy, this
economy developed in Afghanistan because of the weak government control.
Also, the agricultural and economical infrastructures were destroyed after decades
of war. Furthermore, the weak government and civil war have created a lawless
climate in which an opium economy succeeded79. There are three major problems
here. First of all, until the ban of president Karzai in January 2002, the opium
trade was de-facto legal. Since then, the state is not allowed to make earnings
from this economy, with the help of taxes, because it’s illegal. Secondly,
especially the provinces controlled by warlords enjoy this kind of income, through
raising taxes against security, which mainly used it for funding their private
militias, and for the purchase of weapons.80 Thirdly, many programs, which aim
to eliminate the opium cultivation and to focus on alternatives to farmers have
failed, because Afghan farmers grew opium poppy because opium became a form
of saving, a source of liquidity and therefore became an insurance against poverty
and hunger.81

There you can see that the drug trade seems to be a barrier in the development of
many areas of the country82. As the state is not able to make revenues, because
drug trafficking is not legalized, and the Taliban-regime, the warlords, becoming
more powerful, the country seems to be in a vicious cycle. The farmers are willed
to support them for their security.

Nevertheless, there are seen potentials for the development of the Afghanistan in
the mining sectors. There are rich mineral mines found in various regions of the
country. The Afghan Ministry of Mines claimed in 2012 that the minerals are
worth about §9 trillion. This deposits could have huge potential for economic

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
79
Cf. United Nations – Office on Drugs and Crime (2003)
80
Cf. United Nations – Office on Drugs Crime (2003)
81
Cf. United Nations – Office on Drugs Crime (2003)
82
Cf. Foreign Policy Journal (2015)
!
16
!
!

development.83 Based on the economic plan, of the Afghanistan Ministry of


Mines, the annual income of the government through the mining sector could
increase to $3.5 billion within the next 15 years. (auswärtiges amt)

However, there are still significant barriers to be overcome in Afghanistan before


its economic potential can be unlocked. The most important solution is to focus on
the infrastructure such as cold storages and roads, in order to export goods. This is
also difficult, because new roads have been regularly attacked by Taliban in the
past.

The other solution would be to encourage investors to establish food processing


and preservation industries for the manufacturing of fruit jams, pastes, and other
dairy products. This could boost the food export to international markets, which
means that revenues from exports could increase and the external trade balance
decrease, which would lead to further investments.

A release out of the vicious cycle – a slight hope.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
83
Cf. CAPS (w/o Y)!
!
17
!
!

9 List of references

AG Friedensforschung (2012): Tokyo Mutual Accountability Framework, p. 3, 4


in http://www.ag-friedensforschung.de/regionen/Afghanistan/Tokyo2012-
annex.pdf (online publication from 07/08/2016; accessed on 09/15/2016)

Afghan Aid (w/o Y): Pashtunwali, in http://www.afghan-aid.de/paschtunwali.htm


(online publication; accessed on 09/15/2016)

Afghan Web (w/o Y): History, in http://www.afghan-


web.com/history/quotes.html (online publication; accessed on 09/20/2016)

Auswärtiges Amt (2014): Zwischenbilanz des Afghanistan-Engagements, p. 28,


in http://www.auswaertiges-
amt.de/cae/servlet/contentblob/691670/publicationFile/199485/141119-
Fortschrittsbericht_AFG_2014.pdf (online publication from 11/2016; accessed on
08/15/2016)

Auswärtiges Amt (2016): Länderinformationen – Afghanistan; Wirtschaft in


http://www.auswaertiges-
amt.de/DE/Aussenpolitik/Laender/Laenderinfos/Afghanistan/Wirtschaft_node.ht
ml (online publication from 04/2016; accessed on 08/10/2016; 08/15/2016)

Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung


(2014): Deutsche Zusammenarbeit mit Afghanistan – Förderung der beruflichen
Bildung, in
http://webcache.googleusercontent.com/search?q=cache:MGPZGj4WA7UJ:ez-
afghanistan.de/fileadmin/content/fact-sheets/2016/German/2014-Bildung_TVET-
d_04_02_2015.pdf+&cd=3&hl=de&ct=clnk&gl=de (online publication from
11/2014; accessed on 09/10/206)

Bundeszentrale für politische Bildung (2014): 1989: Sowjetischer Abzug aus


Afghanistan, in http://www.bpb.de/politik/hintergrund-aktuell/178868/1989-
sowjetischer-abzug-aus-afghanistan-13-02-2014 (online publication from
02/03/2014; accessed on 09/15/2016)

!
18
!
!

CAPS (w/o Y): Opportunities for Economic Growth in Afghanistan, p. 1, in


http://www.caps.af/Doc/Economic%20Growth%20opportunities%20in%20Afgha
nistan%20final.pdf (online publication, accessed on 09/03/2016)

Central Asia Regional Economic Cooperation (w/o Y): CAREC in


Afghanistan, in http://www.carecprogram.org/index.php?page=afghanistan
(online publication, accessed on 08/12/2016)

Central Intelligence Agency (w/o Y): The World Factbook. Background;


Geography; People and Soiety, in https://www.cia.gov/library/publications/the-
world-factbook/geos/af.html (online publication updated on 09/08/2016; accessed
on 09/15/2016)

Cf2R (2013): Understanding Taliban through the prism of Pashtunwali Code, in


http://www.cf2r.org/fr/tribunes-libres/understanding-taliban-through-the-prism-
of-pashtunwali-code.php (online publication from 11/30/2013; accessed on
09/15/2016)

Da Afghanistan Bank (w/o Y): Fiscal Sector, in


http://dab.gov.af/en/page/monetary-policy/rates-statistics/fiscal-sector (online
publication, accessed on 09/15/2016)

Da Afghanistan Bank (w/o Y): Monetary Policy Target (Annual); Exchange


Rate Policy in http://dab.gov.af/en/page/monetary-policy/monetary-capital-
market-developments; http://dab.gov.af/en/page/monetary-policy/exchange-rate-
policy (online publication, accessed on 09/15/2016)

Das Statistik Portal (w/o Y): Inflationsrate in Afghanistan bis 2016, in


http://de.statista.com/statistik/daten/studie/256443/umfrage/inflationsrate-in-
afghanistan/ (online publication, accessed on 09/04/2016)

Das Statistik Portal (w/o Y): Afghanistan: Anteile der Wirtschaftssektoren am


Bruttoinlandsprodukt (BIP) von 2004 bis 2014, in
https://de.statista.com/statistik/daten/studie/256569/umfrage/anteile-der-
wirtschaftssektoren-am-bruttoinlandsprodukt-bip-von-afghanistan/ (online
publication, accessed on 08/10/2016)

!
19
!
!

Das Länder-Informations-Portal (w/o Y): Afghanistan, Wirtschaft &


Entwicklung, in https://www.liportal.de/afghanistan/wirtschaft-
entwicklung/#c1195 (online publication, accessed on 08/30/2016)

Deutsch-Afghanische Initiative (w/o Y): Afghanistan – Geschichte, in


http://deutsch-afghanische-initiative.de/afghanische/geschichte.html (online
publication; accessed on 08/15/2016)

Deutsches Evaluierungsinstitut der Entwicklungszusammenarbeit gGmbH


(2014): Ein Review der Evaluierungsarbeit zur deutschen
Entwicklungszusammenarbeit in Afghanistan, in
https://www.deval.org/de/evaluierungsberichte.html (online publication; accessed
on 09/15/2016)

Deutsche Welle (w/o Y): Afghanistan: Korruption, Drogen, Armut, in


http://www.dw.com/de/afghanistan-korruption-drogen-armut/a-2328785
(online publication, accessed on 09/16/2016)

Die Bundesregierung, Dr. Michael Koch (2014): Fortschrittsbericht


Afghanistan 2014, p. 6, 17, 28, 47 in http://www.auswaertiges-
amt.de/DE/Aussenpolitik/RegionaleSchwerpunkte/AfghanistanZentralasien/Forts
chrittsbericht-node.html (online publication from 11/2016; accessed on
09/15/2016)

Economy Watch (2010): Afghanistan Economic Structure, in


http://www.economywatch.com/world_economy/afghanistan/structure-of-
economy.html, (accessed on 08/11/2016)

EEAS (2016): Afghanistan and the EU, Delegation of the European Union to
Afghanistan, in http://eeas.europa.eu/delegations/afghanistan/index_en.htm
(accessed on 08/10/2016)

Embassy of Afghanistan (2006): Afghan news, in http://www.afghanemb-


canada.net/public-affairs-afghanistan-embassy-canada-ottawa/daily-news-
bulletin-afghanistanembassy-canada-
ottawa/2006/news_articles/november/11062006.html, (online publication from
06/11/2006; accessed on 08/11/2016)

!
20
!
!

EU The European Commission, International Cooperation and Development


(2016): Afghanistan, in https://ec.europa.eu/europeaid/countries/afghanistan_en
(online publication, accessed on 08/10/2016)

Foreign Policy Journal (2015): The Drug Trade in Afghanistan: Understanding


Motives behind Framers’ Decision to Cultivate Opium Poppies, in
http://www.foreignpolicyjournal.com/2015/11/27/the-drug-trade-in-afghanistan-
understanding-motives-behind-farmers-decision-to-cultivate-opium-poppies/
(online publication from 11/27/2015; accessed on 09/03/2016)

Germany Trade & Invest (2013): Wirtschaftsleitfaden Afghanistan –


Perspektiven der Zusammenarbeit, in https://www.giz.de/de/downloads/giz2013-
de-wirtschaftsleitfaden-afghanistan.pdf

International Organization for Migration (w/o Y): Afghanistan – Migration


Profile, in http://www.merit.unu.edu/publications/uploads/1442239958.pdf
(online publication; accessed 08/15/2016)

LIPortal (w/o Y): Afghanistan, in https://www.liportal.de/afghanistan/geschichte-


staat/ (online publication; accessed on 09/15/2016)

OEC (w/o Y): Afghanistan, in http://atlas.media.mit.edu/de/profile/country/afg/


(online publication, accessed on 08/15/2016)

National Geographic Kids (w/o Y): Afghanistan, in


http://kids.nationalgeographic.com/explore/countries/afghanistan/#afghanistan-
blue-mosque.jpg (online publication; accessed on 09/15/2016)

Qazi, A. (2016): General Information about Afghanistan, in


http://www.afghan-web.com/facts.html (online publication; accessed on
09/15/2016)

SAARC Tourism (w/o Y): Ethnic Groups of Afghanistan, in


http://afghanistan.saarctourism.org/ethnic-groups.html (online publication;
accessed on 09/15/2016)

SAARC (w/o Y): South Asian Free Trade Agreement (SAFTA), in http://saarc-
sec.org/areaofcooperation/detail.php?activity_id=5, http://www.saarc-
sec.org/userfiles/saftaagreement.pdf (online publication, accessed on 09/18/2016)

!
21
!
!

Shichiri, T. (2015): Afghanistan and FAO Partnering for food security through
gender equality, in http://www.fao.org/3/a-az491e.pdf, (online publication;
accessed on 08/10/2016)

The Diplomat (2015): Afghanistan at the Crossroads, in


http://thediplomat.com/2015/01/afghanistan-at-the-crossroads/ (online publication
from 01/28/2016; accessed on 08/12/2016)

Trust in education (w/o Y): Life as an Afghan woman, in


http://www.trustineducation.org/resources/life-as-an-afghan-woman/, (online
publication; accessed on 09/15/2016)

The World Bank (2016): Afghanistan, in


http://data.worldbank.org/country/afghanistan
(online publication, accessed on 08/19/2016)

The World Bank (2016): Afghanistan Overview , in


http://www.worldbank.org/en/country/afghanistan/overview (online publication,
accessed on 09/15/2016)

The World Bank (2016): Afghanistan, Data, in


http://data.worldbank.org/country/afghanistan (online publication, accessed on
09/10/2016)

Trading Economics (w/o Y): Afghanistan Consumer Price Index, in


http://www.tradingeconomics.com/afghanistan/consumer-price-index-cpi (online
publication, accessed on 09/10/2016)

The World Bank (2016): Afghanistan Development Update, in


http://www.worldbank.org/en/news/feature/2016/04/20/afghanistan-development-
update-afghanistan-riding-into-the-headwinds-of-lower-aid (online publication,
accessed on 09/05/2016)

The World Bank (2016): in


http://databank.worldbank.org/data/reports.aspx?source=2&country=AFG&series
=&period=, (online publication, accessed on 08/10/2016)

!
22
!
!

The World Bank (2015): Afghanistan Country Snapshot, in


http://documents.worldbank.org/curated/en/307891467998464206/Afghanistan-
Country-snapshot (online publication from 10/2015; accessed on 08/11/2016)

The World Bank (2015): Afghanistan Country Snapshot, in


http://documents.worldbank.org/curated/en/307891467998464206/Afghanistan-
Country-snapshot (online publication from 10/2015; accessed on 08/11/2016)

The World Bank (2015): Afghanistan Development Update, p. 2, in


http://documents.worldbank.org/curated/en/426671467987856430/Afghanistan-
development-update-October-2015, (online publication from 10/2015; accessed
on 08/11/2016)

The World Bank (2014): Islamic Republic of Afghanistan – Agricultural Sector


Review, p. 7, 11, 12, in
http://documents.worldbank.org/curated/en/245541467973233146/Afghanistan-
Agricultural-sector-review-revitalizing-agriculture-for-economic-growth-job-
creation-and-food-security (online publication from 06/2014; accessed on
08/10/2016)

Umrechnung von Währung und Einheiten (w/o Y): Wechselkurs Afghani -


Umrechnung Afghani - Währungsrechner AFA, in
http://www.umrechnung24.de/waehrungen/waehrung_1287842000.htm (online
publication, accessed on 09/18/2016)

USAID (2016): Afghanistan Agriculture, in


https://www.usaid.gov/afghanistan/agriculture, (online publication; accessed on
08/10/2016)

U.S. Department of State (2016): Countries/jurisdictions of Primary Concern –


Afghanistan, in http://www.state.gov/j/inl/rls/nrcrpt/2016/vol2/253377.htm
(online publication; accessed on 08/11/2016)

UNHCR (w/o Y): Afghanistan, in http://www.unhcr.org/afghanistan.html (online


publication, accessed on 15/08/2015)

!
23
!
!

United Nations – Office on Drugs and Crime (2003): The Opium Economy in
Afghanistan, p. 10, 69, in
http://www.unodc.org/pdf/publications/afg_opium_economy_www.pdf (online
publication from 2003; accessed on 03/09/2016)

United Nations (2016): LDC Country Information, in


http://unfccc.int/coopertation_and_support/idc/items/3097.php (online
Publication; accessed on 08/15/2016)

United States Institute of Peace (2015): The future of Afghanistan-Pakistan


Trade Relations, in http://www.usip.org/publications/2015/08/17/the-future-of-
afghanistan-pakistan-trade-relations (online publication from 08/07/2015,
accessed on 08/12/2016)

University of West (w/o Y): People and Ethnic Groups – Pashtunwali, in


http://uwf.edu/atcdev/afghanistan/people/Lesson6Pastunwali.html (online
publication, accessed on 09/15/2016)

Worldmeters (w/o Y): Afghanistan Population, in


http://countrymeters.info/en/Afghanistan (online publication; accessed on
09/15/20116)

!
24
!

You might also like