Free Market Economy in Afghanistan

By: Rohullah Sharifi

Abstract

development of Afghanistan. (By

Sarah Siegel, Posted on 15
February, 2007, Article Trading in
Power: The Politics of Free
Markets in Afghanistan)

he free market economy

all of a sudden emerged
during
2001.
The
phenomenon has been
differently interpreted by the
investors and the people as
exploiter and exploited.

The three decades of civil

war in the country that resulted in
total destruction of infrastructure
and institutions. Agriculture once
had been the backbone of the
economy
for
centuries,
but
replaced by poppy cultivation and
opium economy. The rising of
narcotics economy during the
Taliban
era
and
wealth
accumulation by few and rest
fight for subsistence and survival.

Afghanistan adapted free market

economy after 2001 political
revolutionary
change.
The
government political economy
towards the adoption of free
market as part of the reform
strategy.
The
pressure
by
international organizations like
the World Bank, IMF and the
donors towards free market
economy,
privatization
and
liberalization
and
joining
globalization.
The Afghan weak economy,
heavily dependent on foreign aid
money and opium revenue.
The limited analysis of
Afghanistans political economy
has not sufficiently addressed
informal sector issues. The reality
on the ground is that participation
in the market is not open to all,
benefits are spread unevenly
among participants, and the
countrys market structures in
their current state undermine
governance and state-building.
These factors have the potential
to seriously impede both the
democratic
and
economic

The free market economy

Afghanistan has many facet:

in

The
weak
interim
and
transitional government during
the years 2001 2004 fought for
survival and sustenance.
The
government could not formulate
sufficient policies to meet the
need.
The
fact
is
that
the
government that is supposed to
act as a regulator and supporter

in a free market system has not

been able to provide the required
conducive business environment
for
businessmen
and
entrepreneurs to invest with
peace of mind and certain that
their investments will be safe
both from armed groups and
corrupt government bureaucrats.
Corruption in the government has
been the complaint of every
businessman who wanted to
invest in the country and create
jobs and employment. (By
Mehdi Rezaie, October 18,
2012, Article Free Market in
Afghanistan, Is It Working? )

addresses a pressing problem

affecting Afghanistans political
and
economic
development.
According to the authors, Sarah
Lister and Adam Pain of the
Afghanistan
Research
and
Evaluation Unit], (by Sarah Siegel,
Posted on 15 February, 2007.
Trading in Power: The Politics of
Free Markets in Afghanistan)
The Taliban regime largest
revenue portion was coming from
opium trading, loots, and import
and terror sponsors. They could
not institutionalize sustainable
economy in the country.
The
people fought for subsistence and
survival.

The existence of command

economy and dependence on
USSR for economic assistance for
decades. Then, the emergence of
war
economy
during
the
Mujahidin era and reign of few
warlords as estates mainly in four
zones as North, South, West and
East regions. The revenue never
reached the central government
and remained as private property
of warlords that kept captive the
area and people and continue the
war. Afghanistan is experiencing
economic growth, but that growth
does not benefit all citizens.
Instead, it benefits only the
wealthy and connected, leaving
the
majority
of
citizens
disenfranchised. State institutions
are currently unable to regulate
the economy and ensure that all
people have the opportunity to
participate
[CIPEs
recently
published
Economic
Reform
Feature Service article, Trading
in Power: The Politics of Free
Markets
in
Afghanistan,

The sudden change of Afghan

Political Economic during the
early days of interim government
and
westernized
influenced
Afghan thinkers role in free
market economy adoption. Their
lack of understand of existed
socioeconomic situation of the
country.
The broken economy
and absence of law and order,
and policies to fill the gap and
establish proper control over the
free market functions. Dr Syed
Mohammad Mangal, chairman of
Kabul
Universitys
Economics
Department, favors a command
economy with the government is
firmly in control of every sector.
Professor
Mangal
stressed
government control over the
economy, which would slip into
chaos if the nascent private
sector is given a crucial role at
this point in time. Afghanistans
economy
was
still
in
a
rudimentary phase, he reiterated,

where a free-market system

could not yield the desired
results.
(By
Aleksandr
Shkolnikov,7
February,
2006.
Article: Debates on Free Markets
in Afghanistan)
The emergence of artificial
economy
that
is
heavily
dependent on the international
aid, and imports revenue. The
government priority to encourage
import to generate adequate
revenue, but failed to foreseen its
future circumstances for the
economic growth.
Especially,
after
the
departure
of
international forces and reduction
in the aid quantity.

The saving and investment

opportunities never encouraged
as alternative to prevent the
waste of capital on luxury goods
and inferior products imported.
The government allowed import
of expired vehicles to the country
that wasted millions of dollar and
resulted in catastrophic pollution
of the environment. There are
many heart patients, breathing
problem, cancer and many other
disease in the country.

There are four major revenue

streams
which
support
the
economy in Afghanistan today:
the drug trade, contracts and
grants, terrorism and the local
market economy. The drug trade
is also a major source of funding
for
the
insurgency.
The
contracting sector has been
rebuilding
infrastructure
and
purchasing power in Afghanistan,
but it lacks sustainability and
seems to have corruption in its
DNA. It also competes for the
best personnel with the market
economy as it pays far higher
salaries. (Hon. Don Ritter, Sc. D.
President and CEO, the Afghan
American Chamber of Commerce
(AACC).
Building the Afghan
Market Economy Presented at
the
Iraq
and
Afghanistan
Reconstruction Summit Istanbul,
Turkey, June 3, 2010 by)

The
business
communitys
influence
over
the
political
leadership
led
to
policy
formulation that mostly suited the
businessmen and traders and loss
to general public.
Another
economist,
Haji
Hafiz
Khan
believed
the
system
would
eventually
concentrate
all
economic benefits in a specific
group of moneyed people. He
suggested the government should
commission a survey on which
system could be most beneficial
for the Afghans in the obtaining
conditions.
(by
Aleksandr
Shkolnikov, Posted on 7 February,
2006. Debates on Free Markets in
Afghanistan)
The
businessmen,
traders
general perception of the free

market economy is to rob the

people.
They imported inferior
quality products that most of
them are really harmful to the
health of citizens e.g. cooking oil,
flour, dairy products, children food
items, medicine etc
At the same time, the import of
inferior and subsidized products
by neighboring countries led to
collapse
of
many
young
companies in the country that
could not compete with cheat
products. There used to be 420
such small factories in Herat's
industrial park. Not any longer.
However in 2009, Khorram, an
Iranian competitor, brought down
its price to 25 Afghani and
Gulchin to its knees. Now that the
Afghan
competitor
is
gone,
Khorram has raised the price to
40 Afghani, above the original
level. Many Afghan businesses
cannot compete with cheap
imports
from
neighboring
countries.
Not too long ago,
DAMA used to be one of Herats
biggest employers. About 500
staff
worked
for
the
food
producer, baking cakes and
cookies for the Afghan national
market. Today the factory lies
idle: just a few guards are left,
patrolling behind the high gates
that used to fling open for dozens
of trucks a day.
When DAMA
started production, the Iranians
reduced their prices.
Iranian
competitors from across the
border,
just
100
kilometers
away.
(by Mohayudin Noori ,
Herat, 13.5.2011. Article Iran's
imports to Afghanistan have
increased by 20 per cent)

The current economic situation

is not suitable for laissez faire
political economy. The country is
century
behind
and
lacks
institutions and required capital to
operate.
The government failed to
adopt clear stance and to
formulate laws for proper market
control and corrective measures.
The systematic corruption in
governmental organizations that
lets the entrance of inferior
products
to
the
country.
Therefore, we clearly see that
imposition of free trade and neoliberal economics on Afghanistan
has been a near total failure.
What are the causes of this failure
over the past ten years? Lack of
security and stability in many
parts of the country is one reason
but it is not the only one. Even in
many areas that have been
relatively safe like the western
and northern regions, growth and
development have been limited.
The fact is that the government
that is supposed to act as a
regulator and supporter in a free
market system has not been able
to provide the required conducive
business environment for Afghan
businessmen and entrepreneurs
to invest with peace of mind and
certain that their investments will
be safe both from armed groups

and
corrupt
government
bureaucrats. Corruption in the
government
has
been
the
complaint of every businessman
who wanted to invest in the
country and create jobs and
employment. On the other hand,
the government has been unable
to provide and back up the
prospective entrepreneurs with
proper laws and regulations that
can protect them and their
investments and encourage more
investment. The existing rules are
not transparent, are obsolete and
old,
are
complex
and
cumbersome
and
discourage
businessmen
and
interested
foreign investors and financiers
from investing inside the country.

The government failure in the

past 13 years to formulate
sustainable economic growth and
gradual
reduction
and
dependence on foreign aid. The
government could not utilize its
own revenue sources.

Recommendations

he
new
elected
government
must
formulate solid strategies
on trade policies.
The
amendment and formulation of
new laws to control the free
market
functions.
The
government economic polity must
be based on mixed economy. The
need of the day is government
protectionist policy to prevent
dumping of the Afghan economy
by neighboring countries.

Conclusions

he free market economy

is proved disaster for the
economy. The reduction
in the international aid
money to Afghanistan resulted in
thousands of unemployment of
qualified professionals. This badly
affected the Purchasing Power
Parity (PPP) of the people.
The capital fled the country and
contributed towards economic
development of UAE, Turkey,
Pakistan, India, Tajikistan and
other
countries.
The
businessmen accept high risk and
invest on high profit ventures and
quick yielding investments. The
worst off are the general people
and especially the civil servants,
middle class and poor people that
have to pay the high cost.

The import quota of similar

products
from
outside
that
currently the domestic producers
are producing. The US and UK,
the free market economy and
capitalist system defenders are
practicing
protectionism
to
support its home industries.
The government must encourage
saving and actively support
Import
Substitution
Industrialization in the country.
5

Otherwise, the dependence on

the imported goods and budget
deficit will remain high and affect
the economy in the future.
Meanwhile, the government has
to face blackmailing schemes of
neighboring countries e.g. Iran
control of fuel and Pakistan
barriers to transit of goods to
reach Afghanistan via Karachi
port.

References
By Sarah Siegel, Posted on 15
February, 2007

There is need to establish unified

import quality control cell and
equipped with ICT technology &
machinery,
expert
human
resources.
The inferior quality
products not only damage our
economy, accompany with many
physical defection and huge
burden on the countrys future.

By Mehdi Rezaie, October 18,

2012
By Sarah Siegel, Posted on 15
February, 2007
By
Aleksandr
February, 2006)

Shkolnikov7

Hon. Don Ritter, Sc. D. President

and CEO, the Afghan American
Chamber of Commerce (AACC)
By
Aleksandr
Shkolnikov7
February, 2006
By Mohayudin Noori , Herat,
13.5.2011
By Mehdi Rezaie, October 18,
2012