Afghanistan Economy – Analysis of Afghan Economy

1. Introduction

The present Article offers a comprehensive analysis of the economy of Afghanistan, which is a country that does not receive as much attention as it deserves in terms of its economic and political successes and failures it has endured over the past four decades of its war-torn history. This article offers an in-depth look at the country’s macroeconomic conditions by exploring topics such as growth and development, political economy, social issues, and public policy. The research draws attention to these subjects in an attempt to highlight the ongoing struggles faced by Afghanistan as a developing nation. To sum up its findings, research suggests that Afghanistan must take major steps towards creating a stable economy in order to improve the quality of life for its citizens and reduce its dependence on foreign aid. This essay will hopefully be successful in giving its readers a greater understanding of the issues Afghanistan faces in the present day as well as the steps it needs to take to ensure a better future. Much of the data used throughout the research for this article comes from the period of Afghanistan’s recent and ongoing war commencing around 1978. This time frame marks the historical point in which Afghanistan transformed from a stable developing nation with a growing economy to a country plagued by macroeconomic instability and hardship.

2. Historical Overview

Throughout the 60s there was evidence of economic growth and modernization, but only for the urban population. The economy relied heavily on foreign aid and on the country’s earnings from its strategic location at the crossroads of Central and Southern Asia. Trading and profits from transit duties were stimulated mostly by the building of the Salang Tunnel and the completion of the Khyber pass highway. However, despite these advantages other economic activities failed to produce sufficient surplus for investment. The base of the economy was still agriculture, employing 80% of the workforce and contributing 50% of the GDP. Nevertheless, the relationship between agriculture and other economic sectors was weak and the productivity of agriculture was low with most of the output consumed by the producers themselves. This meant that resources for investment were less and there was an inability to create lasting structural change in the economy.

In the 1950s and 60s, Afghanistan was provided foreign aid in an effort to serve as a buffer state between the Soviet Union and a growing Pakistan. The Soviet Union might attempt to exert its influence in efforts to make Afghanistan a communist state. Afghanistan turned down the Soviet Union as they were cautious of maintaining good relations with the US and did not want to get tied down in international alliances. This decision by the Afghan government gave way to the building of closer relations with the US and Pakistan. Evidencing this decision, Afghanistan was a founding member of the South East Asia Treaty Organisation (SEATO) and the US gave foreign aid in return for permitting military bases and it was the time of the Plowman program where the US sent teams of American agricultural experts to other countries to promote the benefits of agricultural mechanization.

The economic history of modern Afghanistan can be divided into four distinct stages. The first stage was the period during the 1950s and 60s when Afghanistan was a poor, landlocked country with a primitive economy. The second stage began in the late 1970s when the country was invaded and a long and bloody war began, continuing through the 1980s and into the early 1990s, during which time many of the country’s institutions were destroyed and much infrastructure was lost. The third stage was the period under the Taliban when Afghanistan became a ‘failed’ state. The fourth, and current period is the post-Taliban, transition and early-recovery stage, beginning in 2002 after the Taliban were toppled. Each of these stages is characterized with its own context and set of constraints on the economy. Despite the divergent conditions between each of these stages, an overarching theme throughout Afghanistan’s economic history has been chronic poverty and underdevelopment, protracted conflict and sharp inequality for the majority of its citizens.

3. Key Sectors of the Afghan Economy

Agriculture is the main drive of Afghan economy. It encompasses about 28% of the gross domestic product (GDP) and a major portion of the labour force. The most important agricultural crop is wheat, which occupies a majority of the cropped land. This correlates with the fact that cereal is the Afghan diet staple. The remaining cropped land is divided between the production of fruits and vegetables and other crops such as cotton. Despite this, it is a well-known fact that Afghan farmers are the lowest paid in the country, and the returns on their produce is only a fraction of what the end consumer pays. The wages for farm labour are also incredibly low, and as a result, a majority of farmers are unable to take care of their families. The agriculture sector will continue to be the main player in the Afghan economy with potential for plenty of growth. If harnessed properly, Afghanistan can become a net exporter of agricultural goods. However, to enable farmers to maximize their productivity, they require education on modern farming techniques, technical and financial assistance, and appealing living wages.

4. Evaluation of Afghanistan

4.1 The Impact of Aid on Afghanistan

This section looks at what the trends say about the impact of aid on Afghanistan and its economy. This is done with reference to fiscal and financial studies and findings on aid effectiveness. This is a very important section that will provide us with a better understanding of where the aid money is going and if it is indeed improving Afghanistan’s economic situation.

4.2 Afghanistan’s Economic Situation from 2002-2009

This section will discuss Afghanistan’s real GDP growth and what this means for economic growth in real terms. It also looks at socio-economic progress with reference to human and income poverty and social indicators. This will give us a better understanding of the current situation and the rate at which Afghanistan is improving.

The evaluation section of our study builds upon the findings of previous studies (where available) and provides an in-depth analysis of Afghanistan’s current situation and its historical trends. The purpose of the evaluation section is to assess the current economic situation of Afghanistan and discuss the impact of aid and its trends. This is important because it provides us with an understanding of where Afghanistan stands and what needs to be done in order to improve the economy. By understanding the impact of aid, we can see if progress has been made and if the situation is improving. This will help ensure aid effectiveness and allow for informed policy-making. The evaluation section is divided into different sub-sections, each assessing a specific area of Afghanistan’s economy with the use of data analysis and graphical representation.

5. Challenges and Opportunities

The development challenges confronting Afghanistan are indeed daunting. While Afghanistan has numerous problems to overcome, including those of security and governance, the following are in our opinion the most critical development challenges: (1) managing and accelerating urbanization; (2) building human capital through education and the improvement of health and nutrition; (3) fostering private sector-led economic growth; and (4) improving the productivity and livelihoods of the rural poor. Several of Afghanistan’s current development challenges, most notably rural livelihoods and economic growth, can be linked inextricably to the current security situation. The ongoing conflict contributes to development challenges in several ways. First, the conflict causes new population displacement and damage to human capital. Second, it diverts government attention and resources away from developmental programs and siphons international aid funding off-budget and away from areas of greatest need. Third, it disrupts market access, degenerates investment climates and hinders the creation of a unified national economy. Measures to stabilize and reconstruct conflict-ridden areas and to provide security for development across the country will be a vital cross-cutting theme in addressing all of Afghanistan’s development challenges. The effectiveness with which Afghanistan meets its development challenges will depend upon two main factors. The degree of success with which governance is improved and the extent to which Afghanistan can effectively utilize and adapt the concepts and practices of the modern globalized economy. Application of new and effective governance practices must be underpinned by an understanding of the value systems, social organization and informal systems of dispute resolution that encompass Afghan traditional governance. A balance must be met between respect for these traditional systems and necessary improvements to the overall rule of law. High-level corruption which currently distorts all processes of policy and decision making for private gain must be allayed through elimination of opportunities and increased salaries in the public sector. Economic opportunities must also be improved for the general population so that they may let go of the many war economies and systems of clientelism that currently sustain the majority of the population.

6. Conclusion

It is clear that a future livelihood for 80% of the population involved in agriculture depends on the revival of this industry. Although stabilization, strong economic growth, and poverty reduction in the long term will depend on an effective transition of resources out of agriculture and into alternative industries. The primary method to raise rural household incomes, other than cultivating illegal drugs, lies in the regeneration of the agriculture sector with improved productivity.

The key to economic stabilization and growth is building a robust economic foundation. This includes the development of physical and social infrastructure, and the establishment of effective political, economic, and social institutions. The challenge for all these initiatives is to coordinate and find a balanced strategy, involving higher investment in all of these areas.

Afghanistan’s war-ravaged economy has a long road ahead, but there is a strong potential for success. The economic system is complex, relying heavily on the necessity of rehabilitating the agriculture industry. Severe poverty and a reliance on foreign aid are a consequence of the three decades of continual conflict the country has been subjected to. Although with an active effort by the Afghan government, coupled with the assistance of foreign powers and NGOs, the successful rebuilding and rehabilitation of the economy is entirely feasible.