Afghanistan: Economy

In the 1930s, Afghanistan embarked on a modest economic development program. The government founded banks; introduced paper money; established a university; expanded primary, secondary, and technical schools; and sent students abroad for education. Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy. The 1979 Soviet invasion and ensuing civil war destroyed much of the country's limited infrastructure and disrupted normal patterns of economic activity. Gross domestic product fell substantially because of loss of labor and capital and disruption of trade and transport. Continuing internal strife hampered both domestic efforts at reconstruction as well as international aid efforts. However, Afghanistan's economy has grown at a fast pace since the 2001 fall of the Taliban, albeit from a low base. GDP growth exceeded 12% in 2007 and 3.4% in 2008; growth for 2009-2010 was 22.5% and was approximately 8.2% in 2010. Despite these increases, unemployment remains around 35% and factors such as corruption, security, and shortage of skilled workers constrains development and the conduct of business. In June 2006, Afghanistan and the International Monetary Fund (IMF) agreed on a Poverty Reduction and Growth Facility program for 2006-2009 that focused on maintaining macroeconomic stability, boosting growth, and reducing poverty. The IMF suspended credit programs in Afghanistan following the collapse and discovery of widespread fraud at the country’s largest bank, Kabul Bank. Following regulatory action by the Government of Afghanistan to address the banking crisis, the IMF approved a new extended credit facility in November 2011. The new $133 million program is designed to enable progress toward a stable and sustainable macroeconomic position, assist in the management of the economic impact of withdrawal of international forces, and address governance and accountability issues.

Agriculture
An estimated 79% of Afghans are dependent on agriculture and related agribusinesses for their livelihoods. Opium poppy production and the opium trade continue to have a significant monetary share of the country’s agricultural economy. Licit commercial agriculture is playing a significant role in increasing the income of rural populations. The major food crops produced are: corn, rice, barley, wheat, vegetables, fruits, and nuts. The major industrial crops are: cotton, tobacco, madder, castor beans, and sugar beets. Agricultural production is constrained by an almost total dependence on erratic winter snows and spring rains for water; irrigation is primitive. Relatively little use is made of machines, chemical fertilizer, or pesticides.

Afghan farmers need financing to buy quality seeds, fertilizer, and equipment. The United States and the international community are helping to restore banking and credit services to rural lenders, which now administer loans in nearly two-thirds of the country’s provinces. As of September 2009, more than 52,300 agricultural loans ranging from approximately $200 to $2 million had gone to small businesses, with a repayment rate of 94%. Of these, 49% of loans had gone to women-owned businesses, and 27,700 borrowers were women. The program’s success has encouraged commercial banks to extend revolving loans for agribusinesses. Funds have been provided for leases and to promote agro-processing and support for crop exports.

In 2009, the United States significantly revised its counter-narcotics strategy for Afghanistan, ending direct involvement in eradication of poppy and increasing support for licit agriculture and interdiction. The new strategy puts heavy focus on going after those targets where there is a strong nexus between the insurgency and the narcotics trade, to deny resources to the Taliban. Poppy is easy to cultivate and opium is easily transported. Afghanistan produces the majority of the world’s illicit opium. However, poppy cultivation has dropped by over 35% since 2007. Much of Afghanistan's opium production is refined into heroin and is either consumed by a growing regional addict population or exported, primarily to Western Europe.

Trade and Industry
Afghanistan is endowed with natural resources, including extensive deposits of natural gas, petroleum, coal, copper, silver, gold, cobalt, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, rare earth elements, and precious and semiprecious stones. Unfortunately, ongoing instability in certain areas of the country, remote and rugged terrain, and an inadequate infrastructure and transportation network have made mining these resources difficult, and there have been few serious attempts to further explore or exploit them. The first significant investment in the mining sector is expected to commence soon, with the development of the Aynak copper deposit in east-central Afghanistan. This project tender, awarded to a Chinese firm and valued at over $2.5 billion, is the largest international investment in Afghanistan to date. The Ministry of Mines also plans to move forward with additional tenders in 2012.

The most important resource has been natural gas, first tapped in 1967. At their peak during the 1980s, natural gas sales accounted for $300 million a year in export revenues (56% of the total). Ninety percent of these exports went to the Soviet Union to pay for imports and debts. However, during the withdrawal of Soviet troops in 1989, Afghanistan's natural gas fields were capped to prevent sabotage by the mujahideen. Restoration of gas production has been hampered by internal strife and the disruption of traditional trading relationships following the collapse of the Soviet Union. In addition, efforts are underway to create Reconstruction Opportunity Zones (ROZs). ROZs stimulate badly needed jobs in underdeveloped areas where extremists lure fighting-age young men into illicit and destabilizing activities. ROZs encourage investment by allowing duty-free access to the U.S. for certain goods produced in Afghanistan.

Transportation
Restoration of the “Ring Road” that links Kabul, Kandahar, and Herat with the northern cities of Mazar-e-Sharif and Kunduz continues. Much of the road has now been completed, including economically vital stretches linking Kabul, Kandahar, and Herat.

Landlocked Afghanistan has little functioning rail, but the Amu Darya (Oxus) River, which forms part of Afghanistan's border with Turkmenistan, Uzbekistan, and Tajikistan, has barge traffic. During their occupation of the country, the Soviets completed a bridge across the Amu Darya. The Shirkan Bandar bridge, reconstructed with U.S. assistance, reopened in 2007 and has opened vital trade routes between Afghanistan and Tajikistan.

The new Hairatan to Mazar-e-Sharif railway began operation in August 2011. The railway aims to increase trade between Afghanistan and Uzbekistan, reduce transport costs, increase vehicle operation savings, and create job opportunities. The railway construction project improved Hairatan's marshaling yard and railway station, constructed a new single-track railway line of about 75 km from Hairatan to Mazar-e-Sharif, constructed a new transshipment terminal facility at Mazar-e-Sharif, installed signaling and telecommunication systems, developed institutional capacity of the railway sector, and provided construction supervision and project management consultancy.

Afghanistan's national airline, Ariana, operates domestic and international routes, including flights to New Delhi, Islamabad, Dubai, Moscow, Istanbul, Frankfurt, and Tehran. Civil aviation has been expanding rapidly and several private airlines now offer an alternative to Ariana and operate a domestic and international route network. The first, Kam Air, commenced domestic operations in November 2003.

Power
For nearly 3 decades, the availability of secure energy supplies in Afghanistan was significantly disrupted by conflict. Much of the country's power generation, transmission, and distribution infrastructure was destroyed, and what remained was stretched far beyond capacity. More than 90% of the population had no access to electricity. In January 2009, with the help of the Asian Development Bank and the Indian Government, electricity began to flow into Kabul along a newly constructed transmission line running from neighboring Uzbekistan. For the first time in more than a generation, the majority of the capital's 4 million people enjoy the benefits of power. In 2001, Afghanistan produced 430 megawatts of electricity. As of 2009, the installed generation capacity had grown to 1,028 megawatts. International statistics maintained by the World Bank indicate the ratio of gross domestic product (GDP) growth to electrical production is approximately $1,000 to 300 kWh.

The United States has provided considerable assistance to help develop new electricity generation capacity and provide 24-hour power in key cities including Kabul, Lashkar Gah, and Kandahar. Major projects carried out include refurbishment of power generation capacity at Kajaki Dam in the south and opening the Kabul power plant. Under the U.S. and partners’ supervision, the Afghan Government has transferred all assets, liabilities, and personnel from the troubled, state-run power utility Da Afghanistan Breshna Mosesa (DABM) to the new corporatized national electricity utility Da Afghanistan Breshna Sherkat (DABS). The move was a significant breakthrough in Afghan Government and donor efforts to modernize and begin to commercialize the national electricity sector.

Reliable, affordable electricity is vitally important to Afghan economic growth, prosperity, and stability. The energy infrastructure continues to be a priority for the U.S. and other donor nations.

Demining
Landmines and other explosive remnants of war affect virtually every province in Afghanistan, a tragic legacy of nearly 3 decades of continuous conflict. According to the Mine Action Coordination Center of Afghanistan, 77 people were injured or killed in the first quarter of 2011 by landmines and other explosive remnants of war. This represented a significant decrease compared to the high point of a monthly average of 176 casualties in 2001-2002. Of the total, 77% were children and 94% of the overall casualties were caused by explosive remnants of war and unexploded ordnance. As in many countries struggling to recover from conflicts, landmines and unexploded ordnance inhibit development, disrupt markets and production, prevent the delivery of goods and services, and generally obstruct reconstruction and stabilization efforts. Removing these deadly hazards enables socio-economic development that could further the larger goal of promoting stability and security in Afghanistan and the wider region.

Many Afghan non-governmental organizations (NGOs) such as Organization for Mine Clearance and Afghan Rehabilitation (OMAR), Afghan Technical Consultants (ATC), Demining Agency for Afghanistan (DAFA), Mine Clearance Planning Agency (MCPA), and Mine Detection Center Afghanistan (MDC) have hard-won demining expertise and experience. The United States works with a wide array of international partners in mine action efforts in Afghanistan, but the majority of U.S. financial assistance for demining in Afghanistan goes directly to Afghan-run NGOs, which have pioneered an approach called “community-based demining.” The United States also works with international NGOs: The HALO Trust, Swiss Foundation for Mine Action, Marshall Legacy Institute, Clear Path International, and Danish Demining Group.

In community-based demining, Afghan NGOs recruit, train, and employ local workers, in close partnership with community leaders, to survey and clear explosives. Training local Afghan demining technicians offers a new skill, allowing the country to build self-sufficient capabilities to continue resolving its own issues, as well as lend support to other countries recovering from conflict in the future.

Community-based demining represents a new and unique opportunity to link Afghan and U.S. humanitarian, development, and counterinsurgency objectives. It furnishes jobs that keep young men employed, establishes trust with local leaders, and enables local personnel to participate in taking back their community, thus reinforcing local governance and reducing insurgent influence.

Since FY 1997, the United States has provided more than $220 million for humanitarian mine action in Afghanistan, making it the largest international donor to Afghanistan for this type of assistance. International and Afghan partners have used these funds to clear more than 225 million square meters of land and are now extending these efforts through community-based demining.

Refugees and Internally Displaced People
Afghanistan has had the largest refugee repatriation in the world in the last 30 years. Over 5 million Afghan refugees have returned to the country since 2002, with 4.4 million receiving repatriation assistance from the United Nations High Commissioner for Refugees (UNHCR). The Ministry of Refugees and Repatriation (MORR) leads the Government of the Islamic Republic of Afghanistan in assisting its citizens in returning from exile. The UNHCR leads the international community's response, in coordination with the International Organization of Migration (IOM), United Nations Children's Fund (UNICEF), the World Food Program (WFP), the World Health Organization (WHO), and a number of other national and international NGOs and donors.

In February 2009, UNHCR reported 235,833 internally displaced people (IDPs) in the country. The United States channels a significant amount of aid to refugees, returnees, IDPs, and other vulnerable conflict victims through agencies such as UNHCR, the international Committee of the Red Cross (ICRC), the World Food Program, and numerous non-governmental organizations. The U.S. also supports various organizations in providing assistance and protection to the 3.6 million Afghan refugees residing outside Afghanistan. While anchoring returnees in Afghanistan will remain a priority for U.S. assistance programs, the U.S. will also continue to support refugee assistance and protection inside countries of asylum. Since September 2001, the United States has contributed over $718 million to these programs.

Health
Afghanistan has one of the highest mortality rates in the world: one in five children dies before the age of five and one out of every eight Afghan women die from causes related to pregnancy and childbirth each year. Life expectancy is 49 years for both men and women. While these statistics are tragic, there has been progress. Recent reports indicate that 85% of the population has access to basic health services within 1 hour of travel to a health facility (68% for those on foot)--up from 9% in 2002. More than 1,650 professional midwives are employed by the ministry of public health, providing health care and childbirth services across Afghanistan. This has helped reduce infant mortality rates, and child mortality has also fallen since 2002. The U.S. through various agencies and in conjunction with the Afghan Government has implemented health programs to help meet the immediate health care needs of the population by strengthening the health care service delivery system; addressing the management leadership and stewardship capacity of the Afghan health care system at the central, provincial, district, and community levels; and increasing demand for and access to quality health products and services through the private sector--60% of the population receive health care from the private sector.

Insecurity along the border, especially in the south, has led to a lack of health workers. Polio cases increased from seven in 2004 to 38 in 2009. Twenty-five cases were reported in 2010, and 10 confirmed cases were reported in the first 6 months of 2011. The U.S. supports the national Polio Eradication Initiative to strengthen Afghanistan’s immunization communication, service delivery, and surveillance networks. As a result of this assistance, more than 7 million Afghan children (nearly 90% of children under the age of 5) had been vaccinated against polio by 2010. Tuberculosis (TB) is one of the main public health burdens in Afghanistan, killing 8,200 people in 2007. WHO reported 46,000 new cases of TB in 2009, with twice as many women infected as compared to men. The United States also supports tuberculosis detection, treatment, and control efforts in 13 target provinces using the Directly Observed Therapy, Short Course (DOTS) methodology of 6 months to 8 months of directly administered medication and monitoring. As of November 2011, DOTS coverage was 97%, case detection was 64% (below WHO’s target of 70%), and treatment success was slightly below the target of 85%.

To strengthen the private sector and foster best practices, the U.S. is supporting private hospitals, pharmacists, and pharmaceutical manufacturers in the development of professional associations.

Education
Afghanistan has made impressive advances in increasing basic education. More than 10,000 schools are providing education services to over 7 million children, a more than six-fold enrollment growth since 2001. During the Taliban regime no girls were registered in schools. Today, 37% of the student population is girls. Similarly, the number of teachers has increased seven-fold to 142,500, of whom nearly 40,000 are women.

Adult literacy activities increased rapidly in 2009. Learning centers grew from 1,100 to 6,865, and activities expanded from 9 to 20 provinces, bringing literacy and financial services to over 169,000 beneficiaries (62% female). Ongoing support of literacy and basic education is paramount, as well as the quality and preparation of teachers in order to close the literacy gap left by 30 years of conflict. University enrollment has grown to 62,000.

Sources:

CIA World Factbook (November 2011)
U.S. Dept. of State Country Background Notes ( November 2011)

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