Overview of Afghanistan Economy

The reports from different national and international organizations in Afghanistan indicates that,

Political uncertainties, security challenges alongside with withdrawal of international security

forces since 2014 have resulted in a significant slowing down to economic growth of the country.

The real GDP declined from 1.3 Percent to 0.8 percent in 2015, however, it was projected to 1.5

percent growth in 2015, and 1.2 percent in 2016. This is dramatically lower than the average of 9

percent recorded between 2003 and 2012 (World Bank, 2016).

Agriculture

Afghanistan’s primary sector plays a major role in the country’s economy, about 31% of the

country’s GDP comes from agriculture. Some of the major crops cultivated in Afghanistan are

opium, wheat, fruits and nuts, while wool, mutton, sheepskins and lambskins also form a major

part of the produce. In 2015, the deceleration in GDP growth was primarily driven by the decline

of the agriculture sector. Over the year, agricultural output fell by 5.7 percent, primarily as a result

of the drop in cereals production (–14.2 percent). The production of both rain-fed and irrigated

wheat, which account for almost 80 percent of Afghanistan’s entire output of cereals, fell, mainly

due to low rainfall. By contrast, the fruit output increased by around 7 percent. In 2016, the

production of cereals is projected to decline by an additional 2.1 percent, with the per hectare yield

of wheat falling by 8 percent due to crop diseases and pests. Total agricultural output is projected

to decline by 0.5 percent in 2016, with some of the decline in cereals production being offset by

an increase in fruit production.

Services

The revenues primarily come from the transport, retail and telecommunications sectors. As of

2004, approximately 10% of the Afghan population earned its livelihood from the services sector

of the country. Banking services are offered by Afghanistan International Bank, Standard

Chartered Bank, Kabul Bank, Azizi Bank and First Micro Finance Bank. Since 2002 the

government has encouraged recovery of a formal banking system and a set commercial banking

laws was passed in 2003 and banks from Britain, India and Pakistan opened their branches in

Kabul. In mid-2004 (AIB) begin operating with the backing of the Asian development bank and

75% ownership by afghan businessmen The smuggling and other illegal economic activity that

were pervasive during war periods left a very strong residual black-market. The growth rate for

services declined from 2.2 percent in 2014 to 1.6 percent in 2015. After contracting in 2014, the

rates for transportation and wholesale and retail trade recovered in 2015, growing by 0.3 percent

and 2.8 percent respectively. However, these rates are still well below historical averages (see

Table 1). Other services sectors, including financial services (banking), government services, real

estate activities and ownership of dwellings, continued to contract significantly over the year,

offsetting most of growth generated in retail trade, communications and transport

Industry

The industrial sector expanded over the year, with growth increasing from 2.4 percent in 2014 to

4.1 percent in 2015. This increase was driven by the strong growth in construction activities (7.9

percent) in both the public and private sectors. While public infrastructure investments have been

sustained throughout the years, private construction growth may have been driven by the ongoing

implementation of projects contracted during boom years. Manufacturing, which mostly consists

of food processing and carpet production, recovered slightly after contracting last year, growing

by a modest 0.7 percent. Without any large mining projects and without a pick-up in small-scale

mining activities, the mining sector contracted for the second consecutive year. Afghanistan’s only

large mining project so far is in the Amu Darya oil basin which started its operations in 2013.

However, this project has suffered a number of interruptions since it was first implemented.

Afghanistan’s industrial sector survives on the small-scale production of textiles, woven carpets

and fertilizer. Around 10% of the country’s population is engaged in this sector. The industrial

sector contributes 26% of the revenues for the GDP of the country. The value-added processing of

minerals and agricultural products is heavily relied upon by a considerable portion of the Afghan

population. Some other products that substantially contribute to the manufacturing sector of the

country are dried fruits, timber, leather, natural gas, coal, copper, cement, semi-precious minerals,

soap, furniture, shoes, granite and marble. Afghanistan is keen on setting up a low-cost, laborintensive

manufacturing sector, as has been done in India and China, to decrease the level of

unemployment. In early 2000s, foreign investment in the industrial sector focused on small and

medium –sized enterprises, predominantly in telecommunications revival projects have

concentrated on agricultural processing and carpet enterprise To encourage foreign investment, in

2002 the government began allowing 100% foreign ownership of afghan enterprise Offering

substantial tax, benefits and unlimited transfer of assets out of country.

The Afghanistan investment support agency (AISA) was established in 2003 to centralize foreign

investment activities Further investment sectors are: telecommunication, energy, agricultural and

healthcare system. The largest FDI largest investors are Pakistan, Iran, china, United Arab

Emirates, Central Asian countries, members of the European union and the United States.

Since Afghanistan has been the junction of trade routes between central and south and east Asia

for long years, this geographically location provides the country with a good opportunity for trade

purpose, however lack of infrastructure caused the country to be less effective on this.

Import

Major imports for domestic use include: agricultural inputs, rice, wheat, fuel, and cooking oil and

amount estimated to $7.63 billion. Official statistics show that the total value of imports stood at

US$ 3.3 billion in the first half of 2016, a decline of around 10 percent relative to the same period

in the previous year. The decline in imports is probably the result of weakening domestic demand

and the currency depreciation, which has increased the costs of imported goods. Iran now surpasses

Pakistan as the largest exporter of products to Afghanistan, with nearly one fifth of Afghanistan’s

imports originating from Iran in 2015. The trade deficit stands at nearly 40 percent of GDP, with

this deficit financed by foreign aid and remittances.

Export

In the first half of 2016, exports increased by around 6 percent compared to the same period last

year, with the total value of official exports standing at around US$ 250 million.

In 2015 Afghanistan exported $ 865M, and during the last 5 years the export of Afghanistan have

increased at an annual rate of 8.4 percent, from $ 555M in 2010 to $ 865M in 2015. Major exports

including; fruit and nuts, primary material and timber. The top export destination of Afghanistan

are Pakistan, India, Iran, Turkey, and the United Arab Emirates.

Trade Balance

As of 2015 Afghanistan had a negative trade balance of $6.76B in net imports. As compared to

their trade balance in 1995 when they still had a negative trade balance of $196M in net imports.

the following figure provides a information on different economic indicators from 2013 - 2019.

Reference

o The World Bank (2016). Afghanistan Development Update. Retrieved May 6, 2017 from

https://openknowledge.worldbank.org/handle/10986/25350

o