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Monday, 21 January, 2002, 09:44 GMT
Totting up the bill in Afghanistan
A boy carries firewood, with mountains behind him
Afghanistan's economy has suffered for 20 years
by BBC News Online's Emma Clark

The World Bank does not mince its words on Afghanistan.

"It must now be considered the poorest, most miserable state in the world," says a recent report on the country's economy.

It must now be considered the poorest, most miserable state in the world

World Bank

By way of contrast, the private Afghan website, Afghanistan Online, boasts it is "friendliest country in the world, possibly the universe."

Certainly Afghanistan is a country of extremes. During the last 20 years it has suffered extreme poverty, occupation by a foreign power, war, drought and religious fundamentalism.

This week, world leaders, bankers and non-government organisations are attending a conference in Tokyo to assess the damage.

Their intention is to donate a sum of money to resurrect the country and its long-extinct economy.

Delicate negotiations

The million (or in this case billion) dollar question is how much the international community is willing to give.

Afghan leader Hamed Karzai
The interim government wants $45bn

So far the international community has pledged more than $2.6bn over the next two-and-half years.

This should cover Afghanistan's short-term needs, after interim leader Hamed Karzai made clear at the conference that his government needed about $2bn for the next fiscal year.

In the long-term, however, the government has said it wants $45bn - but it is unclear whether it was bidding high, or genuinely felt it needed that amount.

The World Bank is talking more in terms of $15-18bn over the next decade, while UN Secretary-General Kofi Annan has said $10bn is needed for the next five years.

You are basically building a country from absolute scratch

Gareth Price
"That is the estimated cost of reconstruction, and it is that sum we hope will be pledged at this conference," said Mr Annan.

Initially, any money pledged will bankroll the interim government so that it can begin functioning and pay its civil servants.

After that the priority is to set up a legal system to protect rights and a financial system to provide credit - as well health and education programmes.

"You are basically building a country from absolute scratch," says Gareth Price, an analyst at the Economist Intelligence Unit.

Rebuilding infrastructure

World Bank president James Wolfensohn has also put emphasis on rebuilding utilities and roads, which are seen as the lifeblood for any kind of commercial revival.

A man carrying a sack of grain
Afghan's poor need employment

"An immense challenge is the rebuilding of the infrastructure of our country," Mr Karzai told the conference.

"Our country today is compared to a wasteland."

Such construction projects are labour intensive and would offer much-needed employment to many who are desperately poor.

Mr Wolfensohn has also talked about kick-starting the country's agriculture following extensive de-mining - an exercise that could cost up to $700m over several years.

"Afghanistan has enormous potential in agricultural, horticultural and livestock growth," said Mr Karzai at the conference.

"Giving our people in the rural areas an economic livelihood will allow us to fight poppy cultivation," he added.

State of the economy

Looking at the ravaged countryside, it is hard to believe that in 1978 - the last year of peace before the Soviet Union invaded - Afghanistan was a significant exporter of agricultural products.

Afghan market
In the 1970s, Afghanistan was an agricultural exporter

The country also had an infant manufacturing sector, with a few factories producing textiles, medicines and cement.

Afghanistan's agricultural industry has now sunk to a subsistence level and very little remains of the factories.

The country's 5 million refugees include many farmers, defeated by two decades of civil war, three years of drought and the West's conflict with the Taleban.

"The rebuilding is also dependent on rainfall," says the EIU's Mr Price.

"Good rainfall is needed before people can get back and be farmers."

Trading down

Trade has also suffered after borders around the landlocked country shut down during the recent conflict.

Principal Afghan exports (1990)
Fruit & nuts
Karakul (sheep) skins

Source: EIU

Under the relative stability of Taleban control, long-distance trade had revived after years of civil war.

As well as wool, carpets and fruit, contraband arms and opium found their way across Afghanistan's ancient trade routes.

Private investment?

Ongoing uncertainty and pockets of conflict, however, are likely to keep private investors from rushing into the country.

"From the foreign point of view, investors need the business climate to become more stable," says Ajit Ranade, chief economist at ABN Amro India.

He believes the government will need to run some small-scale "demonstration" projects to reassure investors waiting on the sidelines.

"Demonstrable success will have a snowball effect," he says, adding that Afghanistan's commercial vacuum is already being touted as an opportunity for Indian businessmen.

Oil pipe dreams

There are also hopes that a long-stalled oil and gas pipeline to transport reserves from the Caspian region, through Central Asia to Pakistan could back on the agenda.

Such a project could provide valuable transit fees and royalties for the interim government, says Aqib Elah Mehboob, head of Pakistan research at Khadim Ali Shah Bukhari & Co, a brokerage in Karachi.

However, there are sensitivities involved as the project could involve US companies.

"It's a slightly ticklish matter - the US may not want the oil thing to come up too soon after the war in case they are accused of ulterior motives," adds Mr Ranade.

Afghanistan Inc

Foreign investment in the country is important because it could provide further opportunities for local industry and entrepreneurs.

With little economic support from the country's previous Taleban rulers, Afghanis have certainly proved resourceful in the past.

When the Taleban blew up Buddha statues early last year, locals set up a thriving trade in the shattered remains.

Even today the website Afghanistan Online is cashing in on international interest by selling traditional Pakol hats for $25 plus shipping costs.

As the old silk routes showed long ago, Afghanistan is more than willing to do business - given half a chance and a few billion dollars.

See also:

15 Jan 02 | South Asia
US to unfreeze Afghan assets
18 Sep 01 | Country profiles
Country profile: Afghanistan
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