Afghan economy fights for survival

The closing of borders is hampering trade

The threat of US military action against Afghanistan looks set to devastate the livelihood of its people. As BBC News Online's Emma Clark explains, the economy barely functions, leaving Afghans to fend for themselves.

Centuries ago Afghanistan was part of an ancient trade route that supplied the West with spices, rich silks and other goods.

Although the importance of this trade route has since diminished, the country's impoverished people still cling to trade as a means of survival.

Look at pictures of Kabul. There is basically nothing standing

Aqib Elah Mehboob
Khadim Ali Shah Bukhari

Battered by two decades of war and political in-fighting, Afghanistan has had little else to depend on.

Much of the country lies in ruins, and there are no industries to speak of.

There has also been little time or resources to rebuild infrastructure or factories.

"Look at pictures of Kabul. There is basically nothing standing," said Aqib Elahi Mehboob, head of Pakistan research at Khadim Ali Shah Bukhari & Co, a brokerage in Karachi.

"There is nothing to hit in terms of infrastructure," he added, referring to potential US air strikes.

No economic data

Most economic data for Afghanistan dried up in 1979 following the Soviet invasion and became non-existent after 1993.

"It's a subsistence economy and it is not measurable by market yardsticks," said Ajit Ranade, chief economist at ABN Amro India.

Principal Afghan exports (1990)

Fruit & nuts

Carpets

Wool

Karakul (sheep) skins

Cotton

Source: EIU

But according to a United Nations rehabilitation action plan in 1993, the country's economy was worth 124.7bn Afghanis ($1.72bn) in 1991-1992.

By comparison, the country had a 117bn Afghanis economy in 1978-1979, showing a miserable rate of expansion during the decade.

Trade is mainly with neighbouring Pakistan and includes the export of Persian carpets, wool, sheep skins and dried fruit, as well as smuggled goods, including fridges and video players.

More recently, Afghanis have shown their resourcefulness by selling shards of the giant Buddha statues blown up by the Taleban in the spring.

There is also illegal trading of arms and contraband opium.

However, since the terrorist attacks on the US and the closing of borders around landlocked Afghanistan, trade has been severely hampered.

Agriculture in peril

Afghanistan's other mainstay is agriculture, but this has been badly hit by a drought in 2000 and the Taleban's decision to curb poppy production.

Drought has devastated Afghanistan's agriculture

The Economist Intelligence Unit said in a recent country report that the crop "has traditionally been used as a source of credit and many farmers are finding themselves unable to repay their seasonal loans".

While some farmers have resorted to selling land, livestock and even their young daughters to repay debts, others have joined the ever-growing tide of Afghan refugees.

Fending for themselves

The impression in the West is that most Afghans are left to fend for themselves, as the ruling Taleban government concentrates on building an Islamic state.

"The Taleban are not interested in economic management," said Gareth Price, an analyst at the Economist Intelligence Unit.

In June the Taleban announced an $82m national budget, which was reported in the local Pakistani newspaper, Dawn.

More than half of the money was for the use of Mullah Omar, the leader of the Taleban movement, and is expected to fund the war effort.

The EIU, which has studied the budget, added that "the development budget of $343,000 is clearly inadequate to have a significant impact on the devastated infrastructure of the country".

Starvation

Millions face starvation and the problem has become even more acute as aid agencies pull out and neighbouring countries, such as Iran, close their borders with Afghanistan.

"The major toll will not be through air strikes [by the US], it will be through starvation and lack of medical supplies," said Mr Elahi Mehboob at Khadim Ali Shah Bukhari.

It is estimated that about 2.5 million Afghans have died over the last 20 years as a result of the war, famine or lack of medical attention.

If Afghanistan refuses to give up its infamous "guest" Osama Bin Laden, that number looks set to accelerate as tens of thousands of Afghan people flee their homes.

Pakistan's dilemma

Across the border, Afghanistan's closest ally Pakistan also has much hanging in the balance as the US ponders military action.

Many Pakistanis have protested against possible military action in Afghanistan

President Pervez Musharraf risks strife at home - where many Pakistanis support the Taleban and Islamic fundamentalism - if he is seen to assist the US too much.

Such internal conflict could seriously damage Pakistan's $60bn economy, which experiences a growth rate of 2.6%, well below averages in the region.

The takeover by the military, when General Musharraf ousted the former Prime Minister Nawaz Sharif in 1999, as well as mismanaged power projects have already sent private investors running, said ABN Amro's Mr Ranade.

Sanctions against the country's nuclear activity have robbed it of much needed investment, while poor weather has battered its cotton production.

(Agriculture accounts for 25% of the country's gross domestic product.)

Good or bad?

Should Pakistan refuse to assist the US in possible strikes against Afghanistan, it risks derailing delicate negotiations to secure further funding from the International Monetary Fund.

Country profile - Pakistan

Population: 137m

Annual income per head: about $400 (less than 2% of the UK average)

Total debts: $36bn

Source: Fitch IBCA

"The economy has been bad this year, but it should pick up the year after, unless the Afghanistan thing blows up," said Mr Elahi Mehboob.

"Next week should show whether good or bad will win out."

But whereas Pakistan can hope for a better outcome, Afghanistan's near non-existent economy has little to lose and its future looks bleak whatever the US decides to do.