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In the 1930s, Afghanistan embarked on a modest economic development program. The government founded banks; introduced paper money; established a university; expanded primary, secondary, and technical schools; and sent students abroad for education. In 1956, the Afghan Government promulgated the first in a long series of ambitious development plans. By the late 1970s, these had achieved only mixed results due to flaws in the planning process as well as inadequate funding and a shortage of the skilled managers and technicians needed for implementation.
Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy. The 1979 Soviet invasion and ensuing civil war destroyed much of the underdeveloped country's limited infrastructure and disrupted normal patterns of economic activity. Gross domestic product had fallen substantially over the preceding 23 years because of loss of labor and capital and disruption of trade and transport. Continuing internal strife hampered both domestic efforts at reconstruction as well as international aid efforts. However, Afghanistan’s economy has been growing at a fast pace since the 2001 fall of the Taliban, albeit from a low base. In 2003, growth was estimated at close to 30%, and the growth rate is expected to be over 20% in 2004.
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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. Agricultural production is constrained by an almost total dependence on erratic winter snows and spring rains for water; irrigation is primitive. Relatively little use is made of machines, chemical fertilizer, or pesticides.
Grain production is Afghanistan's traditional agricultural mainstay. Overall agricultural production dramatically declined following 4 years of severe drought as well as sustained fighting, instability in rural areas, and deteriorated infrastructure. Soviet efforts to disrupt production in resistance-dominated areas also contributed to this decline, as did the disruption to transportation resulting from ongoing conflict. The easing of the drought, which had affected more than half of the population into late 2002, and the end of civil war produced the largest wheat harvest in 25 years during 2003. Wheat production was an estimated 58% higher than in 2002. However, the country still needed to import an estimated million tons of wheat to meet its requirements for the year. Millions of Afghans, particularly in rural areas, remained dependent on food aid.
The war against the Soviet Union and the ensuing civil war led to migration to the cities and refugee flight to Pakistan and Iran, further disrupting normal agricultural production. Shortages were exacerbated by the country's already limited transportation network, which had deteriorated further due to damage and neglect resulting from war and the absence of an effective central government. Agricultural production and livestock numbers are still not sufficient to feed a large percentage of Afghanistan's population.
Opium has became a source of cash for many Afghans, especially following the breakdown in central authority after the Soviet withdrawal, and opium-derived revenues probably constituted a major source of income for the two main factions during the civil war in the 1990s. The Taliban earned roughly $40 million per year on opium taxes alone. Opium is easy to cultivate and transport and offers a quick source of income for impoverished Afghans. Afghanistan was the world's largest producer of raw opium in 1999 and 2000. Much of Afghanistan's opium production is refined into heroin and is either consumed by a growing regional addict population or exported, primarily to Western Europe. Despite efforts to bring opium cultivation under control, the most recent 2003 crop is reportedly the largest recorded. The international community and the new Afghan Government are currently working on new initiatives to eliminate the narcotics economy.
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Trade accounts for a small portion of the documented Afghan economy, and there are no reliable statistics relating to trade flows. In 2002-03, exports--not including opium or re-exports--were estimated at $100 million and imports estimated at $2.3 billion, a significant increase over 2001-02. Since the 1989 Soviet withdrawal and the 1991 collapse of the Soviet Union, other limited trade relationships with Central Asian states appear to be emerging. Exports to Iran and Pakistan account for about one-half of total exports. Belgium, Russia, Germany, the United Arab Emirates, and the United States each account for 5% or more of Afghanistan’s exports. Japan, Korea, and Pakistan account for about 40% of imports. Other significant sources of imports are Germany, India, Iran, Kenya, Turkmenistan, and the United States. While the United States revoked Afghanistan’s most-favored-nation (MFN) trading status in 1986, it reestablished normal trade relations in June 2002. Most of Afghanistan’s exports (excluding illegal or smuggled exports) are agricultural products and carpets.
Afghanistan is endowed with a wealth of natural resources, including extensive deposits of natural gas, petroleum, coal, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, and precious and semiprecious stones. In the 1970s the Soviets estimated Afghanistan had as much as five trillion cubic feet (tcf) of natural gas, 95 million barrels of oil and condensate reserves, and 400 million tons of coal. Unfortunately, ongoing instability in certain areas of the country, remote and rugged terrain, and inadequate infrastructure and transportation network have made mining these resources difficult, and there have been few serious attempts to further explore or exploit them.
The most important resource has been natural gas, first tapped in 1967. At their peak 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 mujahidin. 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 dropped from a high of 290 million cubic feet (Mmcf) per day in the 1980s to a low of about 22 Mmcf in 2001.
Trade in goods smuggled into Pakistan once constituted a major source of revenue for Afghan regimes, including the Taliban, and still figures as an important element in the Afghan economy. Many of the goods smuggled into Pakistan originally entered Afghanistan from Pakistan, where they fell under the Afghan Trade and Transit Agreement (ATTA), which permitted goods bound for Afghanistan to transit Pakistan free of duty. When Pakistan clamped down in 2000 on the types of goods permitted duty-free transit, routing of goods through Iran from the Gulf increased significantly. Shipments of smuggled goods were subjected to fees and duties paid to the Afghan Government. The trade also provided jobs to tens of thousands of Afghans on both sides of the Durand Line, which forms the border between Afghanistan and Pakistan. Pakistan's closing its Afghan border in September 2001 presumably curtailed this traffic.
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