Countries of the World/COUNTRYS.BIN/dp/0001/00013.txt

Text File | 1991-06-24 | 32KB | 480 lines

$Unique_ID{COW00013}
$Pretitle{265}
$Title{Afghanistan
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Robert S. Ford}
$Affiliation{HQ, Department of the Army}
$Subject{government
development
foreign
afghanistan
soviet
economy
private
aid
economic
projects}
$Date{1986}
$Log{A Turkmen Merchant*0001301.scf
}
Country:     Afghanistan
Book:        Afghanistan, A Country Study
Author:      Robert S. Ford
Affiliation: HQ, Department of the Army
Date:        1986

Chapter 3A.   The Economy

[See A Turkmen Merchant: Artist's Rendition]

     Afghanistan's economy suffered markedly after the April 1978 coup d'etat
and the subsequent direct Soviet intervention in December 1979. The already
relatively slow pace of economic development was halted as agricultural and
industrial production declined and trade was disrupted. Per capita gross
national product fell from an already low Af7,370 in 1978 to Af6,852 in 1982.
In 1981 the gross national product was Af154.3 billion, 37 percent greater
than the 1976 figure of Af115 billion. Inflation, however, was far greater
than this, and therefore in real terms, i.e., discounted for inflation,
economic output was depressed. As the war and its effects extended throughout
the country in the early 1980s, two separate economies could be seen emerging.
The Kabul government and its Soviet backers held control of the urban areas
with their financial and industrial facilities. These sectors were becoming
increasingly dependent on the Soviet Union as the continued fighting cut their
links with the rural areas not subject to government control. The countryside
was reverting to a subsistence agriculture economy unaffected by government
decrees and regulations emanating from Kabul.

     The tradition of isolated and autonomous agricultural communities was
already well established in Afghanistan because of the country's imposing
geography. The fragmentation of the economy was a serious weakness in the
country's efforts at development. In 1985, however, that fragmentation was a
major strength to the resistance in the face of the bitter war dominating
most of the country. A better developed economy composed of more
interdependent sectors would have suffered proportionally far worse than has
the existing economy.

     The low level of internal trade and integration among the different
regions of Afghanistan had been a target of Afghan national planners after
World War II. The first development plans after the war focused on building
infrastructure, such as roads, power stations, and banks. These moves to
modernize and boost the country's output allowed Afghanistan to achieve a slow
but steady rate of growth in the two decades before 1978. Although many
communities remained virtually unaffected, most regions that had formerly
relied solely on barter trade became commercialized, and internal trade grew
rapidly. Afghanistan's development drive was spurred by large foreign aid
receipts, but poor domestic resource mobilization slowed economic progress.
Large amounts of arable land remained uncultivated, and the nation's mineral
resources were marginally exploited, with the exception of natural gas.
Skilled labor was in constantly short supply despite underemployment in the
countryside. The budget remained dependent on foreign aid, and domestic
revenue sources went untapped.

     In spite of these obstacles, Afghanistan had achieved some notable
progress by 1978. The country's solid internal transport infrastructure
handled ever larger volumes of goods, at least between the cities. The economy
remained dependent on the primitive agriculture sector, but fledgling
industries such as textiles, cement, and electric power recorded steady
production increases. The trade balance showed repeated surpluses, foreign
exchange reserves grew, and the currency, the afghani, appreciated in value.
Afghanistan remained one of the world's poorest countries by any standard, but
there was tangible progress.

     The continued fighting after the April Revolution set back the progress
achieved, although it was difficult to know precisely how much. Economic data,
always suspect in Afghanistan, were scarce in 1985 and of dubious reliability.
Nonetheless, a dramatic decline in agricultural output was observed after the
revolution, and this made for an ominous outlook for millions of Afghan
peasants. Some industrial production, dependent on the agricultural sector for
its raw materials, also declined. Only sectors deemed essential by the Soviet
Union, such as natural gas, maintained their levels of production. Foreign aid
from the West ceased. These factors combined to make the new regime heavily
dependent on the Soviet Union for imports of food, manufactures, and capital
and caused it to be subject to what many observers felt was the economic
integration into the Soviet economy.

Growth and Structure of the Economy

     By 1985 Afghanistan had developed little, in that it still relied on
traditional agriculture as the mainstay of its economy, while modern industry
contributed a relatively small portion of national output. Despite the
relatively low level of development, there had been major changes in the
previous 60 years, resulting in new industries and new links between formerly
autonomous economic units and regions. In the 1930s, when economic
modernization began, most Afghans were engaged in the cultivation of small
plots of land or tending orchards. Traditional and primitive farming methods
provided the population with a subsistence standard of living. In addition,
many nomadic peoples raised livestock as they moved between summer grazing
pastures in the highlands and winter feeding grounds in the lowlands (see
Mixed Subsistence Patterns, ch. 2). The subsistence level of existence in the
villages and the constraining geography discouraged trade between villages.
Nomads were the sole trading partners of the isolated mountain people. What
trade there was within and between villages was conducted by barter, with
wheat and sheep often the media of exchange. Commercial money was virtually
unknown to the majority of Afghans outside of the towns. In the towns there
were some small-scale handicrafts, such as rugs and sheepskin coats. Two
currencies, the afghani and the Kabuli, both silver coins, circulated among
urban merchants in the town bazaars. Transport of goods was almost always by
camel, donkey, or horse, for there were few roads and none for year-round
travel. Electricity was nowhere to be found.

     In the 1920s several wealthy merchants invested their profits in a
handful of small-scale industrial complexes to produce soap, leather goods,
and seed oils for local consumption. The growth of industry was led by an
entrepreneur, Majid Zabuli, and his Bank-i-Melli (National Bank), the
country's first bank, which was established in 1932. Zabuli found a clever
solution to the Islamic prohibition against interest on loans that had
hindered the establishment of banking in the country. His bank made interest
free loans, but the borrower was obliged to buy a stamp to be attached to each
repayment receipt, thereby giving the bank a profit rather than interest.
Bank-i-Melli became a center for capital accumulation and acted as an
investment bank. The bank was given currency issue rights, and paper money was
introduced in 1938. Funds from the bank flowed mainly into northern
Afghanistan and spurred the creation of most of the prewar industrial
development in Pol-e Khomri, Konduz, and Kabul. Bank-i-Melli was also an
integral part of the expansion of trade in the 1930s, for it granted loans to
traders and set up joint stock companies to engage in trade. Companies were
established for the export of wool, skins from karakul sheep, and cotton. The
cotton industry was a major recipient of Bank-i-Melli investment. The bank
financed the draining of swampy, malaria-infested lands in the north and their
cultivation with cotton. It also financed the construction of a ginning plant
and a pressing mill in Konduz.

     Bank-i-Mel