Afghanistan (officially the Islamic Republic of Afghanistan (Persian: جمهوری اسلامی افغانستان, Pashto: د افغانستان اسلامي جمهوریت ), is a landlocked country that is located approximately in the center of Asia. It is variously designated as geographically located within Central Asia, South Asia, and the Middle East. It has religious, ethno-linguistic, and geographic links with most of its neighboring states. It is bordered by Pakistan in the south and east, Iran in the west, Turkmenistan, Uzbekistan and Tajikistan in the north, and China in the far northeast. The name Afghanistan means the "Land of Afghans."
Afghanistan is a culturally mixed nation, a crossroads between the East and the West, and has been an ancient focal point of trade and migration. It has an important geostrategical location, connecting South, Central and Southwest Asia. During its long history, the land has seen various invaders and conquerors, while on the other hand, local entities invaded the surrounding vast regions to form their own empires. Ahmad Shah Durrani created the Durrani Empire in 1747, with its capital at Kandahar. Subsequently, the capital was shifted to Kabul and most of its territories ceded to former neighboring countries. In the late 19th century, Afghanistan became a buffer state in "The Great Game" played between the British Indian Empire and Russian Empire. On August 19, 1919, following the third Anglo-Afghan war, the country regained full independence from the United Kingdom over its foreign affairs.
Between the late 1970s and late 2000s Afghanistan suffered continuous and brutal civil war, which included foreign interventions in the form of the 1979 Soviet invasion and the recent 2001 U.S.-led invasion that toppled the Taliban government. In late 2001 the United Nations Security Council authorized the creation of an International Security Assistance Force (ISAF). This force was composed of NATO troops that were involved in assisting the government of President Hamid Karzai in establishing the writ of law as well as rebuilding key infrastructures in the nation. In 2005, the United States and Afghanistan signed a strategic partnership agreement committing both nations to a long-term relationship. In the meantime, multi-billion US dollars have also been provided by the international community for the reconstruction of the country.
Following the elimination of the al-Qaeda leadership and the destruction of the majority of the al-Qaeda movement in 2007, ISAF began focusing on combating the Taliban and on humanitarian efforts to rebuild the country. As the Afghan National Army began taking over the security control of the 34 Afghan provinces, U.S. and ISAF forces began building up their strength in Afghanistan. On September 15, 2008 free, democratic elections were held in Afghanistan for the first time in peacetime.
While the War continues, Afghanistan has become a liberal Islamic presidential democracy with close ties to the United States, Europe and other Middle Eastern countries. With a relatively strong economy, political structure and military force, Afghanistan is today a major regional power.
Afghanistan is a member of the South Asian Association for Regional Co-operation (SAARC), Economic Cooperation Organization (ECO) and the Organization of the Islamic Conference (OIC). Until 2001 it was an impoverished country and one of the world's poorest and least developed. Its economy has suffered greatly from the 1979 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). As of 2005, the official unemployment rate is currently at 26%. The number of non-skilled young people is estimated at 3 million. Around 40% of the population lives on fewer than 2 US dollars a day.
The nation's economy began to improve since 2002 due to the infusion of multi-billion US dollars in international assistance and investments, as well as remittances from expats. It is also due to dramatic improvements in agricultural production and the end of a four-year drought in most of the country. On January 15, 2002 the U.S. Senate also passed a bill known as the Afghan Reconstruction Act, in which the United States would be committed to help building a modern infrastructure throughout Afghanistan, rearm and retrain the Afghan military, as well as investing billions in agriculture and education for the Afghan people.
The real value of non-drug GDP increased by 29% in 2002, 26% in 2003, 17% in 2004 and 24% in 2005. Following the implementation of the Law against Narcotics, passed by the Afghan parliament on February 17, 2004, trade and production of poppy and illicit drugs including opium and its two derivatives, morphine and heroin, as well as hashish production were banned, and farmers were invested by the Afghan, U.S. and other governments worldwide along with humanitarian organisations to go over to produce grain and silk. As opium production dropped to a record low in 2006, grain and vegetable production soared and rug and tea manufacturing began soaring. The law was considered a major victory in the war on drugs. In 2007 the real value of non-drug GDP increased by 31%, and in 2008 this had increased to 37%.
According to a 2004 report by the Asian Development Bank, the present reconstruction effort is two-pronged: first it focuses on rebuilding critical physical infrastructure, and second, on building modern public sector institutions from the remnants of Soviet style planning to ones that promote market-led development. In 2006, two U.S. companies, Black & Veatch and the Louis Berger Group, have won a US 1.4 billion dollar contract to rebuild roads, power lines and water supply systems of Afghanistan.
One of the main drivers for the current economic recovery is the return of over four million refugees from neighbouring countries and the West, who brought with them fresh energy, entrepreneurship and wealth-creating skills as well as much needed funds to start up businesses. What is also helping is the estimated US 2–3 billion dollars in international assistance every year, the partial recovery of the agricultural sector, and the re-establishment of market institutions. Private developments are also beginning to get underway. In 2006, a Dubai-based Afghan family opened a $25 million Coca Cola bottling plant in Afghanistan.
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 non-governmental organizations. 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 1000 old Afghani by 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. Since 2003, over sixteen new banks have opened in the country, including Afghanistan International Bank, Kabul Bank, Azizi Bank, Standard Chartered Bank, First Micro Finance Bank, and others. A new law on private investment provides three to seven-year tax holidays to eligible companies and a four-year exemption from exports tariffs and duties.
Some private investment projects, backed with national support, are also beginning to pick up steam in Afghanistan. An initial concept design called the City of Light Development, envisioned by Dr. Hisham N. Ashkouri, Principal of ARCADD, Inc. for the development and the implementation of a privately based investment enterprise has been proposed for multi-function commercial, historic and cultural development within the limits of the Old City of Kabul along the Southern side of the Kabul River and along Jade Meywand Avenue, revitalizing some of the most commercial and historic districts in the City of Kabul, which contains numerous historic mosques and shrines as well as viable commercial activities among war damaged buildings. Also incorporated in the design is a new complex for the Afghan National Museum.
The Afghan economy continues to be overwhelmingly agricultural, despite the fact that only 12% of its total land area is arable and less than 6% currently is cultivated. Agriculture production is constrained by an almost total dependence on erratic winter snows and spring rains for water; but irrigation has been improved over the years. U.S. investment and support has also increased the use of machines. The country's fruit and nut exports are at $113 million per year. This could grow to more than $800 million per year in ten years given the proper investment. Pomegranates from eastern Afghanistan
Wheat and cereal production is Afghanistan's traditional agricultural mainstay. The overall agricultural production dramatically declined following four years of drought as well as the sustained fighting and instability in rural areas. Soviet efforts to disrupt production in resistance-dominated areas also contributed to this decline, as did the disruption to transportation resulting from ongoing conflicts. However, in recent years the production of agriculture has sharply risen again. The production of wheat and cereal has tripled over the previous six years, despite the continuing tense security environment. It is forecast that the country's wheat and cereals output will reach 7.6 million tonnes in 2008, more than three times the 2001 level of 2.0 million tonnes.
The country's fruit and nut exports are at $800 million per year. Other agricultural production include vegetables, cotton, silk and karakul pelts.
Trade and industry
The current trade between Afghanistan and other countries is at US$5 billion a year. In 1996, legal exports (excluding opium) were estimated at $80 million and imports estimated at $150 million per year. Since the collapse of the Taliban government in 2001, new trade relations are emerging with the United States, Pakistan, Iran, Turkmenistan, the EU, Japan, Uzbekistan, India and other countries. Trade between Afghanistan and the U.S. is beginning to grow at a fast pace, reaching up to approximately $500 million per year. The Afghan handwoven rugs are one of the most popular products exported from the country. Other products include hand crafted antique replicas, precious and semi-precious stones as well as leather and furs.
Afghanistan is endowed with a wealth of natural resources, including extensive deposits of natural gas, petroleum, coal, marble, gold, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, precious and semi-precious stones. In 2006, the U.S. Geological Survey estimated that Afghanistan has as much as 36 trillion cu ft (1.0×10^12 cu m) of natural gas, 3.6 billion barrels (570×10^6 cu m) of oil and condensate reserves. According to a recent 2007 U.S. Geological Survey's assessment, it was again revealed that Afghanistan has significant amounts of undiscovered non-fuel mineral resources. Scientists also found indications of abundant deposits of colored stones and gemstones, including emerald, ruby, sapphire, garnet, lapis, kunzite, spinel, tourmaline and peridot. The government of Afghanistan is in the process of extracting and exporting its copper reserves, which will be earning $1.2 billion US dollars in royalties and taxes every year for the next 30 years. It will also provide permanent labor to 3000 of its citizens. Corruption in Afghanistan has also been reduced with 30% since 2002.
In May 2008, Afghanistan signed a contract with China for a project that deals with extracting copper. According to official sources, the project involves an investment of $2.8 billion dollars and an anual income of $400 million dollars to the Afghan government as well as 20,000 of its citizens provided with labor. The country's Ainak copper mine, located in Logar province, is one of the biggest in the world. According to some reports, it is estimated to hold at least 11 million tonnes or 33 billion US dollars worth of copper.
The nation's other most important resource has been natural gas, which was first tapped in 1967. 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. Gas production has dropped from a high of 8.2 million cu m (2.9 × 108 cu ft) per day in the 1980s to a low of about 600 thousand cu m (2.2 × 107 cu ft) in 2001. According to the U.S. Geological Survey and the Afghan Ministry of Mines and Industry, Afghanistan may be possessing up to 36 trillion cu ft (1000 cu km) of natural gas, 3.6 billion barrels (570,000,000 cu m) of petroleum and up to 1325 million barrels (2.107E+8 cu m) of natural gas liquids. This could mark the turning point in Afghanistan’s reconstruction efforts. Energy exports could generate the revenue that Afghan officials need to modernize the country’s infrastructure and expand economic opportunities for the beleaguered and fractious population.
After the formation of the new government under Hamid Karzai, production of natural gas is planned to be restored again. The Afghan National Oil Company (ANOC) (formerly known as the Azizi Hotak General Trading Group) is currently the main supplier of diesel fuel, gasoline, jet fuel and LPG in Afghanistan. The Afghan government has asked international oil companies such as ExxonMobil, Chevron and Texaco (United States), StatoilHydro (Norway), ADNOC (United Arab Emirates) and Gazprom (Russia) to help invest and develop the Afghan oil industry as well as investing in the ANOC]].
Trade in goods smuggled into Pakistan once constituted a major source of revenue for Afghanistan. Many of the goods that were smuggled into Pakistan have originally entered Afghanistan from Pakistan, where they fell under the Afghan Trade and Transit Agreement (ATTA). This permitted goods bound for Afghanistan to transit through Pakistan free of duty. This resulted in considerable problems for the Pakistani government, particularly its customs bureau who realized that many of the items being resold on the black market in Pakistan were the very same items being allowed duty free exemption from Pakistani ports (notable Karachi) on their way to Afghanistan. When Pakistan clamped down in 2000 on the types of goods permitted duty-free transit, and introducing stringent measures and labels to prevent such practices, re-routing of goods through Iran from the Persian Gulf increased significantly. The pre-2000 smuggling trade provided undocumented jobs to tens of thousands of Afghans, but also helped fuel the black economy, often intertwined with the drug cartels, of both countries.