An International Marketing Report

Country profile

Afghanistan

Prepared For: Dr. Nurur Rahman Course Instructor International Marketing

Prepared By: Tanvir Bin Anwar Roll 02 BBA 11th Batch

Institute of Business Administration University of Dhaka

July 15, 2006

Dr. Nurur Rahman Professor Institute of Business Administration University of Dhaka

Subject: Letter of Transmittal

Dear Sir, I am glad to submit this report on the study of country profile of Afghanistan. The report deals with several important aspects including the study of the aspects of Afghanistan, its trading environment, its operations and the method of controlling over businesses. Current procedures are reviewed, present flaws are identified and thereby recommendations are made. I thank you for your sincere co-operation throughout the duration of the study. If you need further clarification on any issues, please summon any time at your convenience. I, therefore, would like to request you to accept my report and oblige thereby.

Sincerely,

________________________________ Tanvir Bin Anwar Roll # 02

Executive Summery Afghanistan currently is governed by a transitional administration headed by Hamid Karzai), who took office after a U.S.-led coalition defeated the previous Taliban government, which had provided sanctuary in Afghanistan for the terrorist group al-Qaeda. After more than two decades of war and chaos, and three years of drought in the late 1990s, Afghanistan's primarily agricultural economy is in very poor condition, although it has benefitted greatly over the past year from increased rainfall, with agricultural output expected to rise by 25% in 2004. During 2003, Afghanistan's overall economy is estimated to have grown by about 24%, with a projected 19% growth rate for 2004. Despite recent progress, the hurdles to recovery in Afghanistan are high. The transitional government has limited authority in much of the country, with lawlessness, the persistence of rival regional power centers, and a weak national army all serious problems. The country's infrastructure also remains in very poor condition, albeit improving. Commerce is inhibited by roads in need of repair, and in many places, existing electricity and telephone lines are inoperable. New opportunities exist for re-building and enhancing Afghanistan’s transportation and energy infrastructures. These opportunities will help recreate previously established trade links between several countries in the region and also open up new trade routes. The promotion of regional trade will boost private investment and growth in the short-to-medium term. Current trade policies of the countries of the region vary substantially, mainly as a result of diverse historical circumstances. Iran and Pakistan are sizable exporters and are largely integrated into the world economy. Both countries have made significant efforts to streamline their trade regimes, with import duties being now the main trade policy instrument. In recent years, Turkmenistan and Uzbekistan, by contrast, have pursued policies intended to promote national selfsufficiency, rather than international integration. The extended use of non-tariff barriers, such as foreign exchange restrictions, import licensing or export restrictions, have made tariffs largely irrelevant to them. These interventions to reduce foreign trade and establish domestic prices substantially different from world prices are likely to hamper economic growth, notably by limiting domestic competition and preventing an efficient allocation of resources. The desire of the Central Asian Republics to preserve their traditional industrial bases is understandable.

The development of an efficient and flourishing transit trade through Afghanistan, a goal endorsed by its neighbors not least because of its likely benefit to them, can seem a distant one. Advancing toward it will depend on combining the efforts and adjusting the trade policies and practices of a number of countries, some more advanced toward trade liberalization than others. Above all, responsibility for progress rests with the Afghan authorities and their supporters in the broad international community. The dual challenges before them are the restoration of security along trade routes in Afghanistan and the physical and institutional rehabilitation of the transport and transport facilitation systems devastated.

Table of Contents Introduction ___________________________________________________________ 1 a. Background ____________________________________________________________ 1 b. Reference and Objective ________________________________________________ 1 c. About the Report________________________________________________________ 2

Main Message _________________________________________________________ 3 a. Methods of Data Collection ______________________________________________ 3 b. Findings _______________________________________________________________ 3 History _________________________________________________________________________ 4 Geography, Size and Climate________________________________________________________ 5 Transportation ___________________________________________________________________ 7 Communications in Afghanistan _____________________________________________________ 8 Demographics ___________________________________________________________________ 8 Culture _________________________________________________________________________ 9 Education ______________________________________________________________________ 11 Politics ________________________________________________________________________ 13 Foreign relations of Afghanistan ____________________________________________________ 14 Economy ______________________________________________________________________ 16

c. Analysis and Interpretation _____________________________________________ 19 Recent economic performance______________________________________________________ 19 The State of the Private Sector______________________________________________________ 19 Today’s Investment Challenges_____________________________________________________ 20 Accelerating Private Investment: What needs to be done _________________________________ 20 Major constraints to growth ________________________________________________________ 21 International Market: Bangladesh perspective__________________________________________ 21 International Market: Bangladeshi farm perspective _____________________________________ 22

Recommendation ______________________________________________________ 24 Conclusion ___________________________________________________________ 27 a. Summery ______________________________________________________________ 27 b. Action_________________________________________________________________ 27

Reference ____________________________________________________________ 29

Afghanistan Country Profile

Introduction a. Background Afghanistan, a mountainous and landlocked country, has long been fought over because of its strategic location between the Middle East, Central Asia and the Indian subcontinent. After more than two decades of civil war and conflict, combined with the worst drought in 30 years, there is widespread suffering and massive displacement of the population inside and outside Afghanistan. Improving trade policy and customs administration has consistently been a high priority for the Afghan Government in recent years. This study is undertaken to discuss different aspects on the present situation prevailing in Afghanistan, analyzing the current import, export and trade policies and recommend the way of trade improvement with Afghanistan.

b. Reference and Objective General Objective This study is a partial requirement of the course on International Marketing. The general objective of the study is to develop a clear understanding about the international trading situation of a country. As per requirement, the country profile and the import-export possibilities of Afghanistan has been discussed in this report. Specific Objectives The specific objectives of the study are: − Discuss the geography, size, topography, climate, resources of Afghanistan − Identifying the social, economical, cultural and political environment − Possibilities of import export in terms of international market perspective − Formulating some recommendations

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Afghanistan Country Profile

c. About the Report Although data are limited, Afghanistan has a highly unusual trade structure, with exports dominated by illicit narcotics (opium and its products, morphine and heroin), with an estimated total value of $2.7-2.8 billion per year, and unofficial re-exports into neighboring countries. By contrast, officially recorded exports are only in the range of several hundred million dollars. The country is highly import-dependent for basic goods like petroleum products, construction materials, machinery and equipment, medicines, textiles, and in bad harvest years food, with imports financed largely by aid and (to a considerable extent) drug proceeds. Growth and diversification of ilicit exports will be critical for the country’s longer-term development success. Afghanistan maintains import bans on only a few products (largely for religious reasons) and imposes no seasonal restrictions, quotas, or other nontariff barriers. Furthermore, licensing requirements have been drastically simplified; the import license application process, which previously involved 42 steps, 58 signatures, and several weeks of processing, now requires only three steps, six signatures, and two days to process. Overall, Afghanistan’s trade regime is currently rated the same as the EU and USA in the IMF’s Trade Restrictiveness Index. Notwithstanding these major improvements, numerous problems remain, which hinder the actual conduct of trade and tend to keep it in unofficial channels. These include (i) severe weaknesses in the business climate and de-facto regulatory environment for trade, reflecting among other shortcomings lack of capacity in the concerned government agencies; (ii) transport and other infrastructural constraints (although rehabilitation of some of the major highways has greatly improved the situation on some routes); (iii) lack of key support services, such as commercial insurance, freight forwarding; (iv) restrictions against use of foreign trucks (in Afghanistan as well as regional trading partners); (v) fees imposed on transport by local authorities; and (vi) cumbersome customs clearance in some of the more problematic border areas. More generally, security issues may to varying degrees obstruct and distort trade.

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Main Message a. Methods of Data Collection Only seconary data has been used for this study. • The data were collected through various websites and documents found in internet. • The data were compiled and and fit into the report as per requirement

b. Findings Afghanistan (officially the Islamic Republic of Afghanistan; is a landlocked country at the crossroads of Asia. Generally considered a part of Central Asia, it is sometimes ascribed to a regional bloc in either South Asia or the Middle East, as it has cultural, ethno-linguistic, and geographic links with most of its neighbors. It is bordered by Iran in the west, Pakistan in the south and east, Turkmenistan, Uzbekistan and Tajikistan in the north, and the People's Republic of China to the east. Afghanistan is a mosaic of ethnic groups and cultures, and a crossroads between east and west. An ancient land that has often been plundered, and also a focal point of trade, the region of present-day Afghanistan has seen several invading forces come and go, including Aryan nomads, the Mede and Persian Empires, Greeks and Macedonians, Arabs, Turks, and Mongols. Modern Afghanistan arose as an independent state in 1919, when foreign intervention ceased following the Anglo-Afghan wars. The country's recent history has seen it ravaged by the Soviet Invasion of Afghanistan, the rise and fall of the Taliban, and the United States invasion of Afghanistan in 2001. As a result of these traumatic events, Afghanistan is in a rebuilding phase, as it attempts to reconcile the devastation that constant warfare has created, with a new government that seeks to unify and rebuild Afghanistan. Afghanistan faces numerous problems, ranging from its devastated economy, the return of millions of refugees, continued warlordism, drug trafficking, and a new government that is struggling with the political forces trying to define the sort of country Afghanistan will become in the 21st century.

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Afghanistan Country Profile

History Ahmad Shah DURRANI unified the Pashtun tribes and founded Afghanistan in 1747. The country served as a buffer between the British and Russian empires until it won independence from notional British control in 1919. A brief experiment in democracy ended in a 1973 coup and a 1978 Communist counter-coup. The Soviet Union invaded in 1979 to support the tottering Afghan Communist regime, but withdrew 10 years later under relentless pressure by internationally supported anti-Communist mujahedin rebels. A civil war between mujahedin factions erupted following the 1992 fall of the Communist regime. The Taliban, a hardline Pakistani-sponsored movement that emerged in 1994 to end the country's civil war and anarchy, seized Kabul in 1996 and most of the country outside of opposition Northern Alliance strongholds by 1998. Following the 11 September 2001 terrorist attacks, a US, Allied, and Northern Alliance military action toppled the Taliban for sheltering Osama BIN LADIN. In late 2001, a conference in Bonn, Germany, established a process for political reconstruction that included the adoption of a new constitution and a presidential election in 2004, and National Assembly elections in 2005. On 7 December 2004, Hamid KARZAI became the first democratically elected president of Afghanistan. The National Assembly was inaugurated on 19 December 2005.

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Afghanistan Country Profile

Geography, Size and Climate

Fig 1: Afghanistan location in world map

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Afghanistan Country Profile

Fig 2: Afghanistan map Afghanistan is a land-locked mountainous country, with plains in the north and southwest. The highest point, at 7485 m (24,557 ft) above sea level, is Nowshak. Large parts of the country are dry, and fresh water supplies are limited. Afghanistan has a continental climate, with hot summers and cold winters. The country is frequently subject to earthquakes. The country's natural resources include copper, zinc and iron ore in central areas; precious and semi-precious stones such as lapis, emerald and azure in the north-east and east; and potentially significant oil and gas reserves in the north. However, these significant mineral and energy resources remain largely untapped due to the effects of the Soviet invasion and the subsequent civil war. Location: Southern Asia, north and west of Pakistan, east of Iran Geographic 33 00 N, 65 00 E coordinates: Area: total: 647,500 sq km

land: 647,500 sq km water: 0 sq km Land total: 5,529 km boundaries: border countries: China 76 km, Iran 936 km, Pakistan 2,430

km, Tajikistan 1,206 km, Turkmenistan 744 km, Uzbekistan 137 km Coastline: 0 km (landlocked)

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Afghanistan Country Profile

Maritime none (landlocked) claims: Climate: arid to semiarid; cold winters and hot summers Terrain: mostly rugged mountains; plains in north and southwest Elevation lowest point: Amu Darya 258 m extremes: highest point: Nowshak 7,485 m Natural natural gas, petroleum, coal, copper, chromite, talc, barites, resources: sulfur, lead, zinc, iron ore, salt, precious and semiprecious

stones Land use: arable land: 12.13%

permanent crops: 0.21% other: 87.66% (2005) Irrigated land: 27,200 sq km (2003) Natural damaging earthquakes occur in Hindu Kush mountains; hazards: flooding; droughts Environment - limited natural fresh water resources; inadequate supplies of current issues: potable water; soil degradation; overgrazing; deforestation

(much of the remaining forests are being cut down for fuel and building materials); desertification; air and water pollution Environment - party to: Biodiversity, Climate Change, Desertification, international Endangered Species, Environmental Modification, Marine agreements: Dumping

signed, but not ratified: Hazardous Wastes, Law of the Sea, Marine Life Conservation Geography - landlocked; the Hindu Kush mountains that run northeast to note: southwest divide the northern provinces from the rest of the

country; the highest peaks are in the northern Vakhan (Wakhan Corridor)

Transportation Landlocked Afghanistan has no functioning railways, 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 and built a motor vehicle and railroad bridge between Termez and Jeyretan. Most road building occurred in the 1960s, funded by the U.S. and the Soviet Union. The Soviets built a road and tunnel through the Salang Pass in 1964, connecting northern and southern Afghanistan. A highway connecting the principal cities of Herat, Kandahar, Ghazni, and Kabul with links to highways in neighboring Pakistan formed the primary road system. The highway system requires almost total reconstruction, and regional roads are in a state of disrepair. The poor state of the Afghan transportation and Page 7

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communication networks has further fragmented and hobbled the struggling economy.

Communications in Afghanistan There is one phone line for approximately every 100 people, leaving a total of 100,100 as of 2005. Mobile communications are improving though, because of the introduction of two wireless carriers into this developing country. There are approximately 1.2 Million cellular lines as of 2005. The international calling code for Afghanistan is +93. There are five VSAT's installed in Afghanistan, providing international and domestic voice and data connectivity. Television Televisions are somewhat popular however, as there are approximately 100,000 televisions installed in Afghanistan as of 1999, with at least 10 television broadcast stations. Radio There are 23 FM stations broadcasting, 21 mediumwave stations, and 1 shortwave staion. Internet There are approximately 1,000 Internet users in Afghanistan as of 2002. Internet access is growing through internet cafes as well as public "telekiosks" in Kabul that are part of a nationwide network proposed by the Transitional Authority for internet access. The country code for Afghanistan is ".af".

Demographics The population of Afghanistan is divided into a wide variety of ethnic groups. Because a systematic census has not been held in the country in decades, exact figures about the size and composition of the various ethnic groups are not available. Therefore most figures are approximations only. According to the CIA World FactBook, an approximate ethnic group distribution is as follows: • • •

Pashtun: 42% Tajik: 27% Hazara: 9%

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• • • • •

Uzbek: 9% Aimak: 4% Turkmen: 3% Baloch: 2% Other: 4%

The CIA factbook on languages in Afghanistan refers to the official languages of Afghanistan as being Persian (Dari) 50% and Pashtu 35%, both Iranian languages of Indo-European origin. Other languages include Turkic languages (primarily Uzbek and Turkmen) 11%, as well as 30 minor languages (primarily Balochi and Pashai) 4%. Bilingualism is common. Religiously, Afghans are overwhelmingly Muslim, with approximately 80% Sunni and 19% Shi'a). There are also small Hindu and Sikh minorities. Afghanistan was once home to a many-centuries-old Jewish minority, numbering approximately 5,000 in 1948. Most Jewish families fled the country after the 1979 Soviet invasion, and only one individual, Zablon Simintov, remains today. With the fall of the Taliban, a number of Sikhs have returned to the Ghazni, Nangarhar, Kandahar and Kabul provinces of Afghanistan. The only city in Afghanistan with over one million residents is its capital, Kabul. The other major cities in the country are, in order of population size, Kandahar, Mazar-e Sharif, Herat, Jalalabad, and Kunduz. A recent highlighted news and media attentionto the arrest of an Afghan Muslim covert to Christianity showed that there are approximately 3000 to 10000 Afghan Christiansinside and outside Afghanistan as well. The Christians live in Afghansitan with a very low key and mostly secretive, fearing severe punishments if they were found even by the family members.

Culture Afghans display pride in their country, ancestry, military prowess, and above all, their independence. Like other highlanders, Afghans are regarded with mingled apprehension and condescension, for their high regard for personal honor, for their clan loyalty and for their readiness to carry and use arms to settle disputes. As clan warfare / internecine feuding has been one of their chief occupations since time immemorial, this individualistic trait has made it difficult for foreign invaders to hold the region.

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Afghanistan has a complex history that has survived either in its current cultures or in the form of various languages and monuments. However, many of the country's historic monuments have been damaged in recent wars. The two famous statues of Buddha in the Bamiyan Province were destroyed by the Taliban, who regarded them as idolatrous. Other famous sites include the very cities of Herat, Ghazni and Balkh. The Minaret of Jam, in the Hari Rud valley, is a UNESCO World Heritage site. The people of Afghanistan are prominent horsemen as the national sport is Buzkashi. Afghan hounds (a type of running dogs) also originated in Afghanistan. Although literacy levels are very low, classic Persian poetry plays a very important role in Afghan culture. Poetry has always been one of the major educational pillars in both Iran and Afghanistan, to the level that it has integrated itself into culture. Private poetry competition events known as “musha’era” are quite common even among ordinary people. Almost every home owns one or more poetry collection of some sort, even if it is not read often. The Afghan dialect of the Persian language Dari derives from "Farsee-e Darbari", meaning 'Persian of the royal courts'. It is regarded by some scholars as the more original version of the language. Iran, having a larger population, a stronger economy and closer ties to the rest of the world has developed its language further in the course of history. Afghanistan took a more conservative approach mainly due to lack of resources. As a result, Dari has not changed much over the last few centuries. Many of the famous Persian language poets of 10th to 15th centuries stem from what is now known as Afghanistan. They were mostly also scholars in many disciplines like languages, natural sciences, medicine, religion and astronomy. Examples are Mawlani (Rumi), who was born and educated in Balkh in the 13th century and moved to Konya in modern-day Turkey, Sanaayi Ghaznavi (12th century, native of Ghazni provice), Jami Heravi (15th century, native of Jam-e-Herat in western Afghanistan), Nizam ud-Din Ali Sher Heravi Nava'i, (15th century, Herat province). Also, some of the contemporary Persian language poets and writers, who are relatively well-known in both Iran and Afghanistan include Ustad Behtab, Khalilullah Khalili , Sufi Ghulam Nabi Ashqari, Parwin Pazwak and others. In addition to poets, the region of Afghanistan produced numerous scientists as well including Avicenna (Ibn Sina Balkhi) who hailed from Balkh. Avicenna, who travelled to Isfahan later in life to establish a medical school there, is

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known by some scholars as "the father of modern medicine". George Sarton called Ibn Sina "the most famous scientist of Islam and one of the most famous of all races, places, and times." His most famous works are The Book of Healing and The Canon of Medicine, also known as the Qanun. Avicenna's story even found way to the contemporary English literature through Noah Gordon's The Physician [12], now published in many languages. Before the Taliban gained power, the city of Kabul was home to many musicians who were masters of both traditional and modern Afghan music, especially during the Nauroz-celebration. Kabul in the middle part of the 20th century has been likened to Vienna during the 18th and 19th centuries. The tribal system, which orders the life of most people outside metropolitan areas, is certainly as potent in political terms as the national state system of 1914 Europe. Men feel a fierce loyalty to their own tribe, such that, if called upon, assemble in arms under the tribal chiefs and local clan leaders (Khans) in the same way that men throughout Europe "flocked to the colours" in 1914, forming up in regional divisions and battalions under the command of the local nobility and gentry. In theory, under Islamic law, every believer has an obligation to bear arms at the ruler's call (Ulul-Amr), but this was no more needed than was enforced conscription to fill the ranks of the British Army in 1914. The Afghan shepherd or peasant went to war for much the same mixture of reasons as the more "civilised" European clerk or factory worker - a desire for adventure, a desire not to be left out or lose esteem in the eyes of his fellows, a contempt for invading foreigners, revenge against those that ruined his family life or threatened his faith, perhaps even the chance of extra cash or enhanced personal prospects. The tribal system is not something particularly backward or warlike. It is simply the best way of organizing large groups of people in a country that is geographically difficult, and in a society that has an uncomplicated lifestyle from a materialistic point of view.

Education In the spring of 2003, it was estimated that 30% of Afghanistan's 7,000 schools had been seriously damaged during more than two decades of civil war. Only half of the schools were reported to have clean water, while fewer than an estimated 40% had adequate sanitation. Education for boys was not a priority during the Taliban regime, and girls were banished from schools outright.

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As regards the poverty and violence of their surroundings, a study in 2002 by the Save the Children Fund said Afghan children were resilient and courageous. The study credited the strong institutions of family and community. Up to four million Afghan children, possibly the largest number ever, are believed to have enrolled for class for the school year beginning in March of 2003. Education is available for both girls and boys. Literacy of the entire population is estimated at 36%, the male literacy rate is 51% and female literacy is 21%. The male literacy rate is higher because previous Taliban laws prohibited the education of women. Another aspect of education that is rapidly changing in Afghanistan is the face of higher education. Following the fall of the Taliban, Kabul University was reopened to both male and female students. In 2006, the American University of Afghanistan will open its doors, with support from USAID and other donors. With the aim of providing a world-class, English-language, co-educational learning environment in Afghanistan, the university will take students from Afghanistan and the region.

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Politics Politics in Afghanistan has historically consisted of power struggles, bloody coups and unstable transfers of power. With the exception of a military junta, the country has been governed by nearly every system of government over the past century, including a monarchy, republic, theocracy and communist state. The constitution ratified by the 2003 Loya jirga restructured the government as an Islamic republic consisting of three branches of power (executive, legislative, and judiciary) overseen by checks and balances.

Fig 3: President Hamid Karzai

Flag Emblem Fig 4; Afghan Flag and Emblem Afghanistan is currently led by President Hamid Karzai, who was elected in October 2004. Before the election, Karzai led the country after being chosen by delegates of the Bonn Conference in 2001 to head an interim government after the fall of the Taliban. While supporters have praised Karzai's efforts to promote national reconciliation and a growing economy, critics charge him with failing to rein in the country's warlords, inability to stem corruption and the growing drug trade, and the slow pace of reconstruction. The current parliament was elected in 2005. Among the elected officials were former mujahadeen, Taliban fighters, communists, reformists, and Islamic

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fundamentalists. Surprisingly, 28% of the delegates elected were women, 3% more than the 25% minimum guaranteed under the constitution. Ironically, this made Afghanistan, long known under the Taliban for its oppression of women, one of the leading countries in terms of female representation. The Supreme Court of Afghanistan is currently led by Chief Justice Faisal Ahmad Shinwari. Dominated by fundamentalist religious figures, the court has issued numerous questionable rulings, such as banning cable television, seeking to ban a candidate in the 2004 presidential election for questioning polygamy laws, and limiting the rights of women, as well as overstepping its constitutional authority by issuing rulings on subjects not yet brought before the court. Though many believed that Karzai would make reforming the Supreme Court a priority of his administration, as of 2006 he has yet to do so.

Foreign relations of Afghanistan The foreign relations of Afghanistan, like those of any country, have changed along with the political, sociological, and economic state of the various parts of Afghanistan. Before the Soviet invasion, Afghanistan pursued a policy of neutrality and nonalignment in its foreign relations, being one of few independent nations to stay neutral in both World War I and World War II. In international forums, Afghanistan generally followed the voting patterns of Asian and African nonaligned countries. During the 1950s and 60s, Afghanistan was able to use the Russian and American need for allies during the Cold War as a way to receive economic assistance from both countries. However, given that unlike Russia, America refused to give extensive military aid to the country, the government of Mohammed Daoud Khan developed warmer ties with the USSR while officially remaining non-aligned. Following the Marxist coup of April 1978, the Taraki government developed significantly closer ties with the Soviet Union and its communist satellites. After the December 1979 invasion, Afghanistan's foreign policy mirrored that of the Soviet Union. Afghan foreign policymakers attempted, with little success, to increase their regime's low standing in the noncommunist world. With the signing of the Geneva Accords, President Najibullah unsuccessfully sought to end the Democratic Republic of Afghanistan's isolation within the Islamic world and in the Non-Aligned Movement.

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Most Western countries, including the United States, maintained small diplomatic missions in the capital city of Kabul during the Soviet occupation. Many countries subsequently closed their missions due to instability and heavy fighting in Kabul after the Soviet withdrawal in 1989. Many countries initially welcomed the introduction of the Taliban, who they saw as a stabilizing, law-enforcing alternative to the warlords who had ruled the country since the fall of Najibullah's government in 1992. Those countries quickly alienated themselves from the Taliban after seeing learning of the harsh Sharia law being enforced in Taliban-controlled territories. The brutality towards women who attempted to work, learn, or leave the house without a male escort caused outside aid to the war-torn country to be limited. Repeated Taliban efforts to occupy Afghanistan's seat at the UN and OIC were unsuccessful. By 2001, only Pakistan, Saudi Arabia, and the United Arab Emirates recognized the Taliban. All three countries withdrew recognition to the Taliban in the months following the September 11, 2001 bombings. Following the American Invasion and the Bonn Agreement the new government under the leadership of Hamid Karzai started to re-establish diplomatic relationships with many countries who had held close diplomatic relations before the communist coup d'etat and the subsequent civil war. The government of President Hamid Karzai is currently focused on securing continued assistance for rebuilding the economy, infastructure, and military of the country. It has continued to maintain close ties with the United States, Pakistan, India, the European Union, and the Islamic world.

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Economy

Fig 4: Afghan Money Afghanistan is an extremely impoverished country, being one of the world's poorest and least developed countries. Two-thirds of the population lives on less than US$2 a day. The economy has suffered greatly from the recent political and military unrest since the 1979-80 Soviet invasion and subsequent conflicts, while severe drought added to the nation's difficulties in 1998-2001. The economically active population in 2002 was about 11 million (out of a total of an estimated 29 million). While there are no official unemployment rate estimates available, it is evident that it is high. The number of non-skilled young people is estimated at 3 million, which is likely to increase by some 300,000 per annum. As much as one-third of Afghanistan's GDP comes from growing poppy and illicit drugs including opium and its two derivatives, morphine and heroin, as well as hashish production. Afghanistan was once a world-renowned producer of cotton. Here Turkish President Celal Bayar and King Zahir inspect the produce of Khan Nasher's Spinzar Cotton Company in 1966. On a positive note, international efforts to rebuild Afghanistan led to the formation of the Afghan Interim Authority (AIA) as a result of the December 2001 Bonn Agreement, and later addressed at the Tokyo Donors Conference for Afghan Reconstruction in January 2002, where $4.5 billion was committed in a trust fund to be administered by the World Bank Group. Priority areas for reconstruction include the rebuilding of education system, health, and sanitation facilities, enhancement of administrative capacity, the development of the agricultural sector, and the rebuilding of road, energy, and telecommunication links. According to a 2004 report by the Asian Development Bank, the present reconstruction effort is two-pronged: first it focuses on rebuilding critical

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physical infrastructure, and second, on building modern public sector institutions from the remnants of Soviet style planning to ones that promote market-led development. But macroeconomic planning and management at present is hampered by poor information, weak service delivery systems, and less than adequate law enforcement. One of the main drivers for the current economic recovery is the return of over two million refugees from neighbouring countries and the West, who brought with them fresh energy, entrepreneurship and wealth-creating skills as well as much needed capital to start up small businesses. What is also helping is the estimated $2-3 billion in international assistance, the partial recovery of the agricultural sector, and the reestablishment of market institutions. While the country's current account deficit is largely financed with the "donor money", only a small portion - about 15% - is provided directly to the government budget. The rest is provided to non-budgetary expenditure and donor-designated projects through the United Nations system and nongovernmental organizations. It needs to be mentioned that there are some (as yet unconfirmed) claims that most of this money is spent on the expenses of the UN and other non-governmental organizations as well as being funneled into illegitimate activities. The government had a central budget of only $350 million in 2003 and an estimated $550 million in 2004. The country's foreign exchange reserves totals about $500 million. Revenue is mostly generated through customs, as income and corporate tax bases are negligible. Inflation had been a major problem until 2002. However, the depreciation of the afghani in 2002 after the introduction of the new notes (which replaced 1,000 old afghani by 1 new afghani) coupled with the relative stability compared to previous periods has helped prices to stabilize and even decrease between December 2002 and February 2003, reflecting the turnaround appreciation of the new Afghani currency. Since then, the index has indicated stability, with a moderate increase toward late 2003. The Afghan government and international donors seem to remain committed to improving access to basic necessities, infrastructure development, education, housing and economic reform. The central government is also focusing on improved revenue collection and public sector expenditure discipline. The rebuilding of the financial sector seems to have been so far successful. Money can now be transferred in and out of the country via official banking channels and according to accepted international norms. A new law

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on private investment provides 3-7 year tax holidays to eligible companies and a 4-year exemption from exports tariffs and duties. While these improvements will help rebuild a strong basis for the nation in the future, for now, the majority of the population continues to suffer from insufficient food, clothing, housing, medical care, and other problems exacerbated by military operations and political uncertainties. The government is not strong enough to collect customs duties from all the provinces due to the power of the warlords. Fraud is widespread and “corruption is rife within all Afghan government organs, and central authority is barely felt in the lawless south and south-west”. In short, the Afghan economy is currently going through a hefty change period. On the one hand, there are encouraging signs of positive development and increasing wealth creation and management. But on the other hand, the security situation, the lingering war against terrorism and the opium problem have created tall barriers for Afghanistan to rejoin the international community in prosperity and economic development.

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c. Analysis and Interpretation Recent economic performance Starting from a dire situation, Afghanistan has achieved respectable economic recovery and growth during the past three years, with the real value of nondrug GDP increasing by 29% in 2002, 16% in 2003, and 8% in 2004 (despite a lower agricultural harvest in 2004). Economic growth in 2005 is forecast at 14%, reflecting to a large extent excellent precipitation during the winter. Agriculture has been a major driver of growth, reflecting better precipitation except in 2003/04; construction, trade, and other services also have been important, reflecting in large part demand from the reconstruction program and international presence (including military presence), as well as massive private construction (notably housing). In addition, the opium poppy boom has contributed to a further increase in income. Of concern is the fact that these sources of growth are to a large extent onetime or temporary in nature and are running into their limits. (This includes agriculture, led by a resurgence of wheat production which is not the crop of Afghanistan’s future because, among other issues like its relatively low laborintensity and its use of scarce water, there are no prospects for wheat exports.) Hence the sources of recent growth will need to be replaced over time by more dynamic and sustainable growth drivers.

The State of the Private Sector Long years of conflict devastated Afghan industry. The fighting destroyed most of Afghanistan's production capacity and forced the flight of many skilled workers and managers. Sabotage of infrastructure crippled domestic and international distribution channels and cut off industry from its traditional markets. In addition, the Soviet-backed government in the 1980s worsened the situation by nationalizing large portions of the economy, imposing price controls, and attempting to set up a centrally planned economy. In response, many traditional industries, including carpet weaving, closed and moved to neighboring countries. Others, such as horticulture products, basically shut down because of the lack of suitable inputs. There was a brief recovery of agriculture (primarily horticulture and livestock) in the 1990s, which was wiped out by the drought of the late 1990s. Many of the large state-owned

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enterprises (SOEs), such as the cotton and transportation companies, continued to exist but by the end of the 1990s were essentially moribund.

Today’s Investment Challenges The Afghan government has taken a number of steps to improve the business environment and attract investment. Tax reform is a notable example. Afghanistan is now at number seven of 155 countries in the 2005 Doing Business rankings for paying taxes (World Bank 2005). The gross profit tax is 21.4 percent (compared with 35 percent for the region and 46 percent in the OECD), and the average medium-size company makes two payments and spends about 80 hours per year complying with taxes. Currently, entrepreneurs do not see tax administration as a big issue because there is little enforcement. But as the economy grows and becomes more formal, it will benefit from having an efficient system in place. As already mentioned in chapter I, Afghanistan has made the process of registering a business, if not actually starting operations, simple. Labor regulation is another area where Afghanistan has made significant progress. It ranks 25th in the 2005 Doing Business list. Regulations governing hiring, firing, and working hours all give Afghan firms more flexibility than firms have in most other countries of the world, particularly among its neighboring countries. The government has made important strides toward creating an enabling investment climate, but much more remains to be done, particularly in removing informal barriers to new entry, improving infrastructure, and reducing uncertainty.

Accelerating Private Investment: What needs to be done Despite adverse conditions, the entrepreneurial spirit is alive in Afghanistan, investment opportunities are being exploited, and jobs are being created. However, performance levels are still modest compared with the range of emerging opportunities. Much more needs to happen in the enterprise sector if it is to fulfill expectations and make a substantial contribution to job creation and improvement in the dismal human development indicators of Afghanistan. The challenges highlighted in chapter III-that the private sector is often oligopolistic, works through social and political networks, and is anticompetitive-need to be addressed. The key challenge is to broaden participation in the market by removing barriers to new entry and creating conditions that will encourage those already in the market to invest more.

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Major constraints to growth Constraints on private-sector led growth in Afghanistan are numerous and the Government’s role in addressing them can be summarized as follows: Through its National Development Framework, the Government has leading the country’s overall reconstruction agenda, tacking key constraints including: insecurity and lack of rule of law; lack of infrastructure (except the strong development of telecommunications); lack of skilled labor (notably lack of management skills). . The second group is related to legal and regulatory reforms: the backlog of laws in the Ministry of Justice should be addressed; fundamental laws and regulations should be developed to develop the rule of law, protect property rights, create an environment conducive to financial sector growth, and develop a sound governance framework; on taxation, while there has been progress (introduction of sound investment incentives and reduction in corporate income tax), too many nuisance taxes remain; the lack of standards, testing, quality control is also an impediment to private sector development; finally the divestment of State-Owned Enterprises should be accelerated. Cutting across these issues is the need for the Government to improve governance. . A third group of initiatives consists in creating opportunities for the private sector. Without picking winners, the Government can pilot programs to demonstrate potentials for private sector growth (in particular, in agriculture, donor-supported programs are being implemented to demonstrate the value of agro-based goods exports), create an environment where business services (including finance, insurance) can develop, encourage private sector participation in public procurement, and create special economic zones, such as Industrial Parks. The Government’s role in this agenda will be both to create an enabling environment (e.g. public procurement reform) and provide direct support in a transparent and competitive manner (e.g. matching grants).

International Market: Bangladesh perspective Bangladesh has long interest in trading with Afghanistan. This has been reflected in recent action of including Afghanistan in Saarc. If Afghanistan has become a member of Saarc, and the trade agreement between Saarc member nations come to action, Bangladesh will have huge opportunity open for doing business with Afghanistan.

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Five year plan for trading with Afghanistan: Analysing the current economic and infrastructural condition of Year 1 Afghanistan and helping Afghanistan to improve the situation, so the Bangladeshi ventures can be interested about investment in Afghanistan Year 2

Signing bi-lateral trade treaty with Afghanistan. The treaty will provide guideline for which items to export to Afghanistan and which items to be imported from her. Also the tariff and barriers is to be considered in the treaty.

Year 3

Implication of Safta to make the trading more easy with Afghanistan and the neighboring countries. With the Safta treaty, we will be able to use the roads and highways of India and Pakistan or China (if it becomes member of Saarc) for importing and exporting goods.

Year 4

Encourage local entrepreneurs to start joint venture business or DFI in Afghanistan. By then Afghanistan will have favorable infrastructure for business. Mainly service industry will be interested. For the manufacturing farms like Garments, they can use the huge oil and energy resources to produce garment goods and export them to western countries.

Year 5

The crucial point for Bangladesh, because many competitor countries will adopt the same strategy and start to compete in the local market in Afghanistan. With strong political relationship, Bangladesh can control the business environment of Afghanistan. Besides during this time opportunities maybe found to start service farms like Bangladeshi Banks, Universities etc which will last longer than the manufacturing farms.

International Market: Bangladeshi farm perspective Bangladeshi farms are yet to show interest about Afghanistan. A Bangladeshi NGO farm Brac, has already started its operation there. No other significant business events has been taken place. Five year plan for trading with Afghanistan: Year 1 Afghanistan is in need of petroleum products, construction materials, machinery and equipment, medicines, textile goods.

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Bangladeshi farms will benefit from exporting those items right now. Indirect or direct exporting can be used in this purpose. Year 2

High time to form joint venture to stay ahead of the international competitors. Afghanistan has a crisis on fresh pure water. Mineral water companies can thus be benfitted from forming joint ventures.

Year 3

As the need will grow in local market, Bangladeshi entrepreneurs can think of investing in Afghanistan in the form of DFI. The construction firms may also think of starting business here and develop infrastructure for Afghan government. Bangladeshi firms can get hold of some public companies through privatization.

Year 4

In this period Afghanistan will require skilled personnels to deal business and production facility. So exporting human resource in Afghanistan will be a good strategy at this time.

Year 5

The joint ventures and DFI firms can now think of becoming regional headquarters for exporting its goods to the neighboring countries like Pakistan, Kagakhstan and Iran. In this way the Bangladeshi firms can expand business from Afghanistan.

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Recommendation As noted, Afghanistan’s present trade-transport systems are extremely underdeveloped. There is an urgent need to develop the enabling regulatory, physical and commercial environment for modern trade logistics which would further the integration of Afghanistan into the world economy. While important progress has been made by the Afghan government, there is still a long way to go in policy and institutional reforms. Importantly, Afghanistan must also address the substantial security concerns without which positive outcomes of reforms will be very limited. Some major improvements to the Afghan transit system will require agreement with Afghanistan’s transit partners and changes to the transit agreements and regulations, however, much of the transit cost is incurred within Afghanistan and is thus under Afghan control. Corridor agreements are a feasible immediate action for the countries of the region rather than very ambitious regional logistics agreements such as exist in the EU. Corridor agreements are more focused, more easily monitored and perhaps within such a framework it is easier to develop the stakeholder pressure needed to ensure that governments live up to their agreements. This approach has been discussed and endorsed at the recent ADB-sponsored conference on Transport and Trade in Central and South Asia. The corridor approach has been reasonably successful in East Africa, and a similar approach is underway in Southern and Central Africa. The Northern Corridor Transit Agreement in Africa introduced a single transit document, the RCTD, which is accepted by all countries along the corridor, replacing numbers of other documents. Beyond the security and trade logistics issues, trade enabling environment in Afghanistan will also benefit from reforms in banking and insurance. Governments should ensure that the banking systems are capable of making credit available to credit-worthy exporters in a manner consistent with WTO guidelines. Liberalization of the domestic market for insurance with the termination of single-provider monopolies would encourage insurance product innovation, better risk assessment in designing premiums, risk pooling though domestic and international reinsurance, and competition for business. Immediate and short term measures needed to foster a strong trade enabling environment include the following:

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• •

• •

•

Implement a functioning payments system for international and domestic transfers through the formal banking system; Make transit bonds and transport insurances available with entry of companies capable of providing coverage as subsidiaries or as joint ventures; Ministry of Commerce should redefine its role to promote trade and investment rather than being a regulator of trade; Support a larger role for a private chamber of commerce to assist in export-promotion activities and delineate clearly between the roles of government agencies and of a private chamber of commerce; Design and implement major capacity building programs to develop skills and professionalism in banking, insurance and customs.

Along with reforms in Afghanistan, neighbors could facilitate greater trade cooperation and integration within the region and with the rest of the world by taking steps to remove outstanding quantitative and other trade barriers and improving trade logistics. Reducing non tariff barriers, particularly in the CAR, where they appear to block trade the most, have the potential not only to support general economic growth but also to encourage trade in labor-intense commodities such as agricultural produce so as to foster poverty-reducing growth. Ensuring adequate transit trade facilities to landlocked Afghanistan will be particularly important. Simple short terms steps should include: • • • • • •

•

Publish and place on government webs border crossing rules and customs procedures (all countries). Develop capacity to monitor trade logistics performance (all countries). Assign a high priority to the regional dialogue among IFIs and governments stemming from TTF national audits (CAR). ECOs technical resources in areas of survey and monitoring should be strengthened (members of ECO). Reduce discriminatory measures against foreign transport operators (all countries). Develop customs and related infrastructure by adopting classification system consistent with international standards such as ASYCUDA (CAR). (Iran already have functioning ASYCUDA systems and Pakistan has its own system with similar capacities. Review outright trade prohibitions such as agricultural commodities (Uzbekistan, Turkmenistan).

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• •

Review NTBs with intention to encourage border trade (all countries). Participate in transit-trade and transport-corridor strategy dialogue (all countries).

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Conclusion a. Summery

The development of transit trade through Afghanistan, a goal endorsed by its neighbors not least because of its likely benefit to them and the region, can seem a distant one. Advancing toward it will depend on combining the efforts and adjusting the trade policies and practices of a number of countries, some more advanced toward trade liberalization than others. Above all, responsibility for progress rests with the Afghan authorities and their supporters in the broad international community. The challenge before them is the restoration of security and efficiency along trade routes in Afghanistan and the physical rehabilitation of the transport system devastated by decades of fighting. Progress has been occurring, especially on road rebuilding. Substantive discussions are under way among regional countries on a reform agenda to foster intra-regional trade and transit trade. But, even if the pace of infrastructure investment can be accelerated, intra-regional trade and transit trade are not likely to expand significantly until supporting reforms occur to enhance the efficiency of customs practices, to improve trade logistics, and to greatly enhance behind-the-border services in banking, insurance, trade promotion, and national investment approval processes.

b. Action In a postconflict environment, attracting new foreign and domestic firms is central to private sector development. New decisions about investment (in existing or new firms) usually depend on the availability of five basic factors: political and economic stability and security; clear unambiguous regulations; reasonable tax rates that are equitably enforced; access to finance and infrastructure; and an appropriately skilled workforce. In Afghanistan, these conditions are lacking. The challenges facing the government of Afghanistan in addressing these constraints and in turn attracting further foreign and domestic investment cannot be underestimated. But, as the experience of other reconstruction efforts shows-for example, in Bosnia and Herzegovina and East Timor-reform can be achieved. Bangladesh can be a strong trade

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ally in this time of reformation. The opprtunity of starting early and capture the market, shouldn’t be wasted.

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Reference 1. CIA - The World Factbook - Afghanistan http://www.cia.gov/cia/publications/factbook/geos/af.html 2. Infoplease - Afghanistan: History http://www.infoplease.com/ce6/world/A0856490.html 3. Rashid, Ahmed (2000) "Taliban - Militant Islam, Oil and Fundamentalism in Central Asia", Yale University Press http://www.ahmedrashid.com/ 4. Fujimura, Manabu (2004) "Afghan Economy After the Election", Asian Development Bank Institute http://www.adbi.org/research-policy-brief/ 2004/10/15/698.afghan.economy.after.election/ 5. The Economist magazine, UK, October 2005 http://www.economist.com/displaystory.cfm?story_id=4494134 6. BBC News - Afghan poll's ethnic battleground - October 6, 2004 http://news.bbc.co.uk/1/hi/world/south_asia/3717092.stm 7. Washingtonpost.com - Afghan Jew Becomes Country's One and Only - N.C. Aizenman http://www.washingtonpost.com/wp-dyn/articles/A397022005Jan26.html 8. Heathcote, Tony (1980, 2003) "The Afghan Wars 1839 - 1919", Sellmount Staplehurst 9. Afghanmagazine.com - Ustad Khalilullah Khalili - 1997 http://www.afghanmagazine.com/arts/khalili/khalili.html 10. Afghanmagazine.com - Kharaabat - by Yousef Kohzad - 2000 http://www.afghanmagazine.com/jan2000/music/kharaabat/ 11. Doing Business Database http://www.doingbusiness.org/ExploreEconomies/Default.aspx?econo myid=2

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