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The Economy

Written by AfghanSite Network. Posted in Afghanistan History

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Management of the Economy

Before the Soviet invasion, the government budget was divided into two parts, ordinary and development. The former covered administrative activities and the latter investment expenditures, incorporated into the national plans of development. Total domestic revenue was usually exceeded by expenditures; the difference was covered through deficit financing and foreign loans and grants. Following the Soviet invasion, a balanced budget was achieved with revenue derived principally from the sale of natural gas and from foreign loans and grants. Expenditures were mainly for government ministries, the developmental budget, and foreign debt service. The private sector engages primarily in agriculture and livestock breeding. There formerly was a mixed pattern of small, medium, and large landholdings, but this system underwent drastic change, particularly after 1978. The bulk of the trade and transport and most manufacturing were in the hands of private entrepreneurs until the late 1970s when these sectors of the economy were nationalized. Public enterprise formerly was confined to a section of the foreign trade, to mining, and to some industries. Because most of the population is engaged in agriculture, the industrial labor force is insignificant, and labor unions have failed to develop. Traditional loyalties to families and tribes are stronger than those to workers' organizations.


Mineral Resources: Extensive surveys have revealed the existence of a number of minerals of economic importance. The most important discovery has been that of natural gas, with large reserves near Sheberghan in Jowzjan province, near the Turkmen border, about 75 miles west of Mazar-e Sharif. The Khvajeh Gugerdak and Yatim Taq fields are major producers, with storage and refining facilities. Pipelines deliver natural gas to Uzbekistan and Tajikistan and to a thermal power plant and chemical fertilizer plant in Mazar-e Sharif. Petroleum resources have proved to be insignificant. Many coal deposits have been found in the northern slopes of the Hindu Kush. Major coal fields are at Karkar and Eshposhteh, in Baghlan province, and Fort Sarkari, in Balkh province. High-grade iron ore, with an iron content of 62-63 percent, has been discovered at Hajigak, 60 miles northwest of Kabul. Copper is mined at 'Aynak, near Kabul, and uranium is extracted in the mountains near Khvajeh Rawash, east of Kabul. There are also deposits of copper, lead, and zinc near Konduz; beryllium in Khas Konar; chrome ore in the Lowgar valley near Herat; and the semiprecious stone lapis lazuli in Badakhshan. Afghanistan also has deposits of rock salt, beryl, barite, fluorspar, bauxite, lithium, tantalum, gold, silver, asbestos, mica, and sulfur.

Biological Resources: Afghanistan is essentially a pastoral country. Only 12 percent of the total land area is arable, and only about half of the arable acreage is cultivated annually. Much of the arable area consists of fallow cultivable land or steppes and mountains that serve as pastureland. In addition, a large area is desert. Forests cover about 3 percent of the total land area; they are found mainly in the eastern part of the country and on the southern slopes of the Hindu Kush. Those in the east consist mainly of conifers, providing timber for the building industry as well as some wild nuts for export. Other trees, especially oaks, are used as fuel. North of the Hindu Kush are pistachio trees, the nuts of which are exported.
Power Resources: Afghanistan is potentially rich in hydroelectric resources. However, the seasonal flow of the country's many streams and waterfalls--torrential in spring, when the snow melts in the mountains, but negligible in summer--necessitates the costly construction of dams and reservoirs in remote areas. The nation's negligible demand for electricity renders such projects unprofitable except near large cities or industrial canters. The potential of hydroelectricity has been tapped substantially only in the Kabul-Jalalabad region.


Agriculture and animal husbandry, much of which consists of subsistence farming and pastoral nomadic, are by far the most important items of the gross national product, accounting for more than half of its total value. Since much of the land is arid or semiarid, about half of the cultivated land is irrigated. Most of the cultivated land is planted with cereals. Of these, wheat is the chief crop and the staple food of the population. The other food grains are corn (maize), rice, and barley. Cotton is important, both for the domestic textile industry and for export. Fruits and nuts are also important items of export. Opium poppy and cannabis are grown for the illegal international drug trade. Animal husbandry produces meat and dairy products for local consumption; skins, especially the famous karakul, and wool (both for export and for domestic carpet weaving) are also important products. Livestock includes sheep, cattle, goats, donkeys, horses, camels, buffalo, and mules. About two-thirds of the annual milk production is from cows, the rest from sheep and goats.


Industry is based mainly on agricultural and pastoral raw materials. Most important is the cotton textile industry. The country also produces rayon and acetate fibers. Other industrial products are cement, sugar, vegetable oil, furniture, soap, shoes, and woolen textiles. A nitrogenous fertilizer plant, based on natural gas, has been constructed in Mazar-e Sharif, and phosphate fertilizers are also produced. In addition, Afghanistan has a number of traditional handicrafts, which account for a fair proportion of the country's export earnings.


In 1975 the government nationalized all banks. The largest bank in the country, the Bank of Afghanistan, is the center of the formal banking system. It is the sole bank of issue, and it plays an important role in determining and implementing the government's financial policies. There are private money traders who provide nearly all the services of a commercial bank. International trade was done through Pashtany Tujarati Bank. D'Afghan Bank is also an important financial institution and Afghanistan. There are plans for private own Bank operation in Afghanistan.


Total annual imports usually exceed exports. Roughly two-thirds of Afghanistan's exports go to the former Soviet republics to the north, and one-seventh to the United Kingdom and Germany. The Soviet Union was traditionally the leading source of imports, followed by Japan, Singapore, China, and India. The principal export is natural gas, which for many years went mainly to the Soviet Union. In addition, dried fruit, nuts, carpets, wool, and karakul pelts are exported. Imports include vehicles, petroleum products, sugar, textiles, processed animal and vegetable oils, and tea.


Being a landlocked country, Afghanistan is primarily dependent on transit facilities from its neighbors for its international trade. Lacking railways and with few navigable rivers, it relies on roads as the mainstay of its transport system. These factors produce high transport costs and also add to the difficulty of integrating the transport system of the country with those of its neighbors. Nevertheless, in the 1960s major efforts were directed toward upgrading the highway system and connecting the main trading centers of the country with one another, as well as with the railheads or road networks of neighboring countries. The road network of Afghanistan now connects railheads in Kushka, Turkmenistan, and Termez, Uzbekistan, with those at Chaman and Peshawar, Pak., respectively, and provides for direct overland transit between the nations to the north and the Indo-Pakistani subcontinent. The most important Afghan highways are those connecting Kabul with Shir Khan, on the northern border, and with Peshawar. Other paved roads link Qandahar, Herat, and Mazar-e Sharif with Kabul and with frontier towns of Pakistan, Iran, Turkmenistan, and Uzbekistan. Despite the rapid development of motor transport, camels and donkeys are still commonly used as draft animals. In the countryside many people have not abandoned their cherished horses, which are important for prestige. Civil aviation has increased in importance. Almost all provincial centers have at least a seasonally operable airport, while there are international airports at Kabul and Qandahar.

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