Economics Final ReportMBA – 2 A

BY TOABDUL REHMAN SIR ALI SAEED

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ASSIGNMENT

AFGHANISTAN(1978-2012) AN ECONOMIC ADVANTAGE OR CURSE FOR PAKITAN’S ECONOMY

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CONTENTS

Pakistan and Afghanistan relationships before

1978.....................................4--5

Afghanistan (1978-2012) An Economic advantage

or curse for Pakistan’s Economy……………………………………………………………..6

Major Items of Import from Afghanistan to Pakistan………………………………..7

Major items of export from Pakistan to Afghanistan………………………………..8

Economic growth in 1990’s…………………………………………………………………….9

Economic growth in 2000………………………………………………………………………10

Impact on Pakistan industry.......................................................................11-12

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Impact on economic growth........................................................................12-14

Political and social impact............................................................................14

Suggest economic relationship from Pakistan perspective...........................15

Conclusion.....................................................................................................16

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Pakistan and Afghanistan relationships before 1978

Pakistan and Afghanistan have long historical ties that go back far beyond the partition

of the subcontinent. Yet, despite their cultural, ethnic, linguistic and religious proximities,

the relationship between the two cannot be termed friendly. At times it reached

deteriorating levels because of certain contentious issues historical legacies magnified

by inner divisions and external influences. After independence, Pakistan found itself

confronted with a neighbour that was the only country that voted against Pakistan’s

admission to the United Nations because of its claims over the Durand Line, Pakistan’s

border with Afghanistan on the western side. The Durand Line has been a major

concern throughout Pakistan’s foreign policy towards Afghanistan since 1947.

The Pashtunistan issue was raised by the followers of the Indian National Congress

Khan Abdul Ghaffar Khan and his brother Dr Khan Saheb in opposition to the creation

of Pakistan.. Afghanistan being a landlocked country dependent on Pakistan for its

economic development and transit trade to access international markets, decided on

territorial expansion as a way out to the sea. It took up the issue of Pashtunistan,

always supported by India, to claim more territory stretching as far as the Arabian Sea.

The demand for Pashtunistan also serves as an effective tool the Kabul regimes could

employ for diverting the attention of their people from domestic chaos and from the

backwardness at home. Due to Afghan propaganda against Durand Line’s validity the

border remains insecure and more threatened today with greater challenges for

Pakistan.

India’s involvement in the internal affairs of Pakistan since its inception to create

instability in the country through Afghanistan also remains a core problematic issue in

Pakistan-Afghanistan relations. The Kautiliyan concept of neighbour’s neighbour being

a friend and the neighbour being an enemy, applies here in the case of Pakistan’s

neighbours. Both India and Afghanistan partnered together became a major source of

threat for Pakistan at both eastern and western borders.

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The Afghanistan – Pakistan Transit Trade Agreement (APTTA) was signed in 1965 with

the objective of granting and guarantee to both parties the freedom of transit to and

from their territories. The routes that were identified included: a) Karachi – Peshawar –

Torkhum, b) Karachi – Chaman – Spin Boldak, and c) Port Qasim was included

subsequently in 1998. Relations between Afghanistan and Pakistan began in the

1970s.  Afghan president sardar daud khan made friendly gestures with Pakistan.

During Russian invasion in Afghanistan, government of Pakistan supported Afghanistan

or they welcomed afghan refugees to get shelter in the tribal areas of Pakistan. Bhutto’s

government created the “Afghan Cell” within Pakistan’s foreign office and assigned it a

policy that included strengthening ties with and empowering Islamists in Pakistan,

against the governments in Kabul.  Pakistan hosted over 3 million Afghans at various

refugee camps mainly around  peshawer  in Khyber Pakhtunkhwah  The United States

and others provided billions of dollars in humanitarian assistance to Afghan refugees in

Pakistan. There were no regular schools provided for the refugees but only madras’s in

which students were trained to become members of the Taliban movement. When the

Soviet Union began leaving Afghanistan, during the Presidency of Mohammad

Najibullah UNHCR and the international community assisted 1.5 million Afghan

refugees repatriate from Pakistan to Afghanistan. During the 1980s, the Durand Line

border was heavily used by Afghan refugees fleeing the  Soviet war in Afghanistan

including the large number of mujahideen  insurgent groups who crossed back and

forth. Pakistan became one of the major training ground for the 250,000 multi-national

mujahideen fighters who began crossing into Afghanistan on daily bases to wage war

against the Democratic Republic of Afghanistan and the Soviet forces. The mujahideen

included not only locals but also Arabs and others from over 40 different Islamic nations.

Many of these foreign fighters married local women and decided to stay in Pakistan,

among them were radical Muslims such as members of al-Qaeda and Muslim

Brotherhood as well as prisoners from Arab countries.

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Afghanistan (1978-2012) An Economic advantage or curse for Pakistan’s

Economy

In 1979 Soviet invasion of Afghanistan was seen by Pakistan as a great threat to its

national security. It also presented Pakistan with a major avenue to build on its 1973

policy of empowering dissident Islamists against the governments in Kabul.

Furthermore, Pakistan had been a partner of the United States in the Cold War since

the 1950s, and this cooperation had provoked numerous Soviet threats over the

years.  The new leader of Pakistan, General Muhammad Zia-ul-Haq, who seized power

in a 1977 military coup, was a fervent anti-communist and Islamist.  General Zia

approached the United States for help with organizing a religious resistance against the

Soviet invasion of Afghanistan.

The US Central Intelligence Agency (CIA) also began funding the Afghan resistance

in 1979.    As the war progressed and as US and the Saudi Arabia led Arab funding for

the mujahideen skyrocketed, the Pakistani government and the ISI gained enormous

influence in Afghan affairs. The Afghan resistance coalescing in Pakistan was a

combination of nationalist and religious parties. At the outset, they were divided into

over a hundred groups. Gulbuddin’s Hizb ultimately received the bulk of the foreign aid

(mostly American and Saudi) during the Afghan resistance.  Pakistan provided the

mujahideen with weapons, supplies, training, and bases from which to operate; and

Pakistani units, disguised as mujahideen, also participated directly in the fighting.

Economic growth in 1980’sPakistan was one of the few developing countries that had achieved an average growth

rate of over 5% over a fourth decade period ending 1988 to 1989. Poverty had declined

from 40% to 18% by the end of the 1980’s. In this decade there was a boom period in

because Pakistan earned maximum profit by exporting weapon and food to

Afghanistan at that time Pakistan economy Growing day by day.

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Pakistan was self sufficient in production of food.

Per capita income increases

Pakistan has developed highly diversified base of manufactured product for

domestic and foreign market

Pakistan has emerged as one of the leading and successful producers of cotton

and textile.

Physical infrastructure network has expanded with a vast network of gas, power,

roads and highways, ports and telecommunication facilities.

During afghan war Pakistan received huge amount of foreign aid, mostly they

spend this amount on import of consumer product rather than on education, rural

and health development.

Following are the major import and export which Pakistan had done during

Afghan and Russian war.

Major Items of Import from Afghanistan to Pakistan

Iron and steel

fruits

nuts

Edible Vegetables

Wood & its Articles

Charcoal

Leather and its manufactures

Petroleum

textiles

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Major items of export from Pakistan to Afghanistan

Cement

Live Stock (animals)

Wheat (floor)

pharmaceutical products

household equipments

chemical products

Paper and paper products

Import and export between Pakistan and Afghanistan

Pakistan and Afghanistan have long history of being trade partner. During Afghan

and Russian war the import and export between Pakistan and Afghanistan was at

its peak. Pakistan earned huge revenue by exporting major products to Afghanistan

that’s why during 1980’s our economy was growing rapidly there was increase in

foreign investment of Pakistan and also living standard of people were improved,

there was increase in annual GDP and also in income of the people as a result

demand for both consumer and industrial product increased. In present days in

view of peculiar status of Afghanistan, it has been a good market of Pakistani

products ranging from foods to machinery. The mutual trade has demonstrated an

encouraging and rising trend in the recent past.

chief import from Afghanistan to Pakistan

iron ore, fruit, nuts, wood and its articles ,leather, petroleum, textile. These are the

major imports from Afghanistan to Pakistan and it has also effect on our economy.

Pakistan get 34% import from Afghanistan. Affect on Pakistan economy of importing

goods is that it increases like.. In 2001 Pakistan’s imports from Afghanistan were

$30 million which rose to $101million in 2010. Import to Pakistan comes through

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wagha, Karachi port, qasim port. about US$ 71 million imported to Pakistan every

year equal to 21.8 percent of all Afghan imports.

Chief export from Pakistan to Afghanistan

Cement, chemical products, household equipments, food for animals, wheat, paper

and paper products, oil seeds, fish and fish preparation, pharmaceutical products,

petroleum. This export has also impact on our economy.GDP of Pakistan economy

is increasing FROM 2001 to 2004 which is 28.7 to 41.3 but from 2005 to 2006 it is

decreasing which is 2705 to 23.3. We have seen that trade is increased from 2010

to 2011 which is US$ 2509 to US$ 2164.7.

Economic growth in 1990’s

In the 1990s, economic growth plummeted to between 3% and 4%, poverty rose to

33%, inflation was in double digits and the foreign debt mounted to nearly the entire

GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML)

played musical chairs. Before Sharif was ousted in 1999, the two parties had presided

over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt

as percentage of GDP was the highest in South Asia 99.3 percent of its GDP and 629

percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in

1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in

1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared

to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4%

respectively in 1998).

On the other hand Afghan and Russian war had also great impact on Pakistan’s

economy in 1978 when war erupted between Afghanistan and Russian invasion at that

time about 2.8 million Afghan refugees came to Pakistan and they become burden on

our economy. Most of them had no identity card or any kind of registration as a result

they started illegal cross border trade activities in Pakistan like smuggling of goods

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which includes consumer to industrial level products. Economic mismanagement in

general, and fiscally poor economic policies in particular, caused a large increase in the

country's public debt and led to slower economic growth in 1990s. An average GDP was

17.1% in a year between 1984 and 1994 than it fell to 7.9 percent between 1994 and

2000.

Economic growth in 2000’sAfter a relatively peaceful but economically stagnant decade of the 1990s, the year

1999 brought a bloodless coup led by General Pervez Musharraf ushering in an era of

accelerated economic growth that led to more than doubling of the national GDP, and

dramatic expansion in Pakistan's urban middle class.

Pakistan became one of the four fastest growing economies in the Asian region during

2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a

result of strong economic growth, Pakistan succeeded in reducing poverty  by one-half,

creating almost 13 million jobs, halving the country's debt burden raising foreign

exchange reserves to a comfortable position and propping the country's exchange rate,

restoring investors' confidence and most importantly, taking Pakistan out of the IMF

Program.

Beyond these benefits there are also some disadvantages After the incidence of 9/11

Pakistan play again a front line state role as a result it has worst affect on our economy.

Pakistan army joined the American forces and began operations in tribal areas in order

to fight against the terrorist or to destroy their camps from Pakistan as a result our

economy ruins day by day.

Increase in terrorism

Political instability

Decline in foreign investment

Rise in inflation

Balochistan crisis

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Impact on Pakistan industry

Where Afghanistan has suffered from war its neighbouring country Pakistan also

suffered alot. 1979, more than 2.8 million Afghan refugees sought shelter in Pakistan

and about 1.5 million have fled to Iran. In 1988 the United States, Pakistan,

Afghanistan, and the Soviet Union signed an agreement by which the Russia would

withdraw its troops, which completed in 1989. After Russian invasion a group of tribal

and urban groups arose and all of these known collectively as the mujahidin and

afterward they form into now known Taliban. Even after the end of Russian invasion, the

Afghan refugees have stayed in Pakistan and caused extra burden on the economy of

our country. They also proof harmful for our industry because Pakistan industry suffer

huge loss due to illegal cross border trade activities by these Afghan refugees.

They prove as cheap labor causing unemployment to local workers.

Most of the Afghan immigrants have no documentation of any kind. Hardly any

of them have ID or any record to their permanent location.

This has given some of culprit’s an edge because they are not afraid to be

identified or recognized.

Most of the drug dealers, illegal arms dealer, car lifters, or smugglers are

Afghan refugees that have made their permanent shops in the borders areas.

The easy access to Illegal weaponry has promoted the Kalakov Culture and has

made weaponry very easily available even to common person at a very

reasonable price. For example, the 9mm pistol can be easily available at the low

price of only Rs 3600, US$.

Many goods smuggled from Pakistan to Afghanistan which includes wheat, live

stock or weapons etc . As a result there was shortage of these commodities in

Pakistan.

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From home appliance to vehicles are being smuggled that’s why our industry

lost huge revenue because small to large product are smuggled and sell at

reasonable price. These smuggled goods are available in all major cities of

Pakistan specially in Peshawar.

The real problem of smuggling started due to afghan tax free import via

Pakistan.

Drugs and smuggling effects on trade

The Taliban’s main source of income has been drug dealing and production. They

gathered their resources from Opium cultivation according to data from CSIS (Central

for Strategic and International Studies) Opium cultivation has continued to grow but has

shifted into Taliban controlled areas. An opium survey was conducted by UN in 2007

which showed production of 185 Metric Ton opium in 2001 and 8200 Metric Tons in

2007. There are more than 20 unofficial border crossing points on Pak Afghan border

from where opium is transferred to Pakistan in NWFP and Baluchistan Province. The

trade route between Afghanistan and Pakistan has also been affected. Trade Route

Torkham Jalalabad highway now considered as a danger zone. Dry fruits that were

imported to Pakistan, have now reached sky high prices such as nuts, Walnuts,

Almonds etc.

Impact on economic growth

Afghanistan the neighbouring country of Pakistan has been in war since one can

remember. From Mongol Emperors to Russian invasion and now the country is facing

war on terror. Where Afghanistan suffered from these war its neighbouring country

Pakistan also suffered huge loss.

After 9/11 America invaded Afghanistan to end the Al-Qaeda and Taliban Regime

but things seem to have gotten worse for both countries. Pakistan is now under

pressure by US leadership to wipe out the Terrorist camps in the Northern

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borders of Pakistan. Pakistan has played a front line role in the war against terror since

2001. According to a report released by an US Department in 2004, Pakistan had

faced a loss of 10 billion by becoming an ally on war on terror. Assuming that in 2004

we were not in as much problems as now then after three years as a front line ally we

have lost 40 billion minimum.

Taliban had only one rival group Northern Alliance in Afghanistan. NA was supported by

India and Russia to fight against Taliban. When US attacked Afghanistan, Taliban was

in great number and their only rival group Northern Alliance leaded by Ahmad Shah

Massoud was US main hope. Eventually US supported NA in fight against Taliban. With

time Taliban regime began to lose hold but did not end completely. The US army for the

time became confident of their victory but their dreams shattered when Taliban rose

again with more strength. By the end of 2006 there were more than 123 suicide attacks

in Afghanistan and 69 in Pakistan. In assessment report of Pakistan by Institute

for Conflict Management Database at least 3,599 persons, including 1,523 civilians, 597

security force (SF) personnel and 1,479 militants, were killed in 2007. These suicide

attacks began after the US attack on Afghanistan. Beside all these factors afghan war

has also impact on our annual GDP, inflation, employment, poverty and foreign

investment.

ANNUAL GDP RATE:

Pakistan annual GDP rate was 22.5% in 2006 to 2007 and then it decline upto 13.4% in

2010 to 2011. Reason behind continuously decline in annual GDP is due to impact of

Afghan war on our economy. Pakistan needs enormous resources to enhance the

productive capacity of economy. Security issues in Pakistan are other cause of decline

in annual GDP. It needs early end to this war on terrorism.

Rise in inflation

Pakistan is in inflation because of afghan war. The terrorism activities in Pakistan

destroy our land as well as industry as a result there is increase in prices of consumer

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products. because many goods illegally smuggled from Pakistan to

Afghanistan which include wheat, live stock and weapons ets as a result

there is shotage of these consumable products in Pakistan which cause rise

in prices. That is main reason inflation is rapidly increasing in Pakistan .

Over the past few years, low growth and high inflation, led by a spurt in food

prices, have increased the amount of poverty - the UN Human Development

Report estimated poverty in 2011 at almost 50% of the population. Inflation

has worsened the situation, climbing from 7.7% in 2007 to more than 13% for

2011.

Foreign investmentAfter 9 11 there is rapid increase in terrorism activities in Pakistan. Which destroy the

security environment in Pakistan as a result western countries continued to impose

travel ban for their citizen, investor and importer to visit Pakistan. this has affect on

Pakistan export, prevent the inflows of foreign investment, affect the pace of

privatization program, reduced the import demand and also tax collection. The FDI was

estimated at $472 million, in 1999-2000 and $322 million in 2000-2001. the main

factors that influence investment in Pakistan law and order, political

instability, ,government economic policies.

Unemployment

At the time of Russian invasion about 2.8 million Afghan refugees have stayed in

Pakistan and caused extra burden on the economy and they prove as cheap labour

causing unemployment to local workers. Most of the Afghan immigrants have no

documentation of any kind. Hardly any of them have ID or any record to their

permanent location. Beside this there are many other reasons in rise of unemployment

rate in Pakistan which includes slower economic growth, less production in factories

And industries, no foreign investment etc all these problems arises after the Afghan war

on terrorism.

Political and social impact

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Pakistan had supported Taliban in war against Russia. Russia and India supported

Northern Alliance Ahmad Shah but after US invasion against Taliban and using NA to

their advantage Pakistan got cornered and had to leave his old allies Taliban. The

Taliban consists of people belonging to a cast known as Pachtons. Most Pachtons live

in the Pak Afghan Border area. US army used our Air Fields against Taliban such as

Dera Ismail and Shahbaz Airbase which angered the Pachtons. Pak Army was also

utilized in operations against the bases of Taliban in Northern, southern reigons and

FATA. These things with time brought hatred in people of Northern and Southern

regions that has a majority of Pachtons. The war on terror in Afghanistan has left us

alone in many ways. In an survey of Afghan public opinion it shows that the Afghanis

remains supportive of the US and major NATO/ISAF countries but the results showed

high level hostility to Pakistan. We have to change our border policies. Iran and China

were also annoyed when we allowed US to use our land their home security was also

threatened by US. We became the welcoming guest of US in Asia. This has caused us

isolation from all sides we are in a state of being bankrupt and US has used us and left

us as always.

Suggest economic relationship from Pakistan perspective

Policy makers should make development and protection of the Federally

Administered Tribal Areas (FATA) of Pakistan. Pakistan has been operating

against its home-grown militants which is not only destructive in nature but has

caused unlimited displacement of people. The best course of action for Pakistan

is to secure FATA as quickly as possible before the full momentum of war

transfers from Afghanistan into Pakistan.

Pakistan needs to pay more attention to the reconstruction and development

effort in Afghanistan. Pakistan should support Afghanistan in changing the

infrastructure of Afghan economy. There is a need to bring education in

Afghanistan in order to reduce illiteracy and poverty from the country.

There is a need to bring improvement in APTA Trade agreement if Pakistan

impose duty tax on import and export with Afghanistan it is beneficial for both

countries.

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Pakistan should take immediate measures to reduce the illegal cross border

trade activities.

Pakistan should convince the US and the Afghan government into limiting India’s

role in Afghanistan. Because India’s involvement in Pakistan internal affairs

through Afghanistan is the major cause of Baluchistan instability.

Conclusion

As Pakistan play a front line role in both Russian invasion and war on terror as a result

it has great impact on our economy, our economy goes down due to low levels of

foreign investment, failure to expand a viable export base , rise in inflation led a spurt in

food prices which increase the amount of poverty ,unemployment, rise in political

instability has depreciated Pakistani rupee more than 40% since 2007 ,rise in

smuggling or On the other hand we have been harmed due to the security situation in

Afghanistan which has spilled over into Pakistan causing Terrorism activities which

have influence on our economic growth. Thus Afghanistan from (1978-2012) an

economic curse for Pakistan economy so Pakistan should change its economic policies

or must take immediate measures to save its border area with Afghanistan in order to

reduce the terrorism and smuggling activities, Proper law and order situation is advised

to maintain political stability in the country.

References

www.mafhoum.com/press

http://en.wikipedia.org/wiki/Economy

http://www.pbs.gov.pk

https://www.cia.gov/library/publications/the-world-factbook

www.pildat.org.com

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pakistanidefence.com

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