Country Must Construct Economy From Zero

By Kevin Sullivan Washington Post Foreign Service Wednesday, December 26, 2001; Page A01

KABUL, Afghanistan -- The Toofan shoe factory, a collection of grubby workshops facing a trash-blown courtyard, is on the leading edge of this country's industrial technology.

In rooms where the doors are walk-through holes in mud-brick walls, under a roof made of wood, tin and straw, 15 workers using ancient machines crank out 10,000 pairs of low-quality plastic and rubber shoes per month.

The factory can barely afford electricity -- when there is electricity at all -- and the price of chemicals imported from Pakistan and South Korea is killing the business. But the 15 people come to work, earning 80 cents a day, to grind up vast piles of old shoes, melt the rubber and mold it into new shoes that sell for less than 50 cents a pair.

"When it is peaceful in Afghanistan, we hope that more people will start more businesses," said Mohammed Alim, 27, the factory manager. "We need good factories, good machines and better shoes."

As this country emerges from two decades of war, perhaps the first task for its new leaders -- and the most daunting -- will be building an economy virtually from scratch.

Afghanistan subsists on an almost medieval economy of traders and bazaars, where the biggest-selling items include slaughtered lambs hanging on hooks and firewood cut from gnarled grapevines. Before the wars, Afghanistan was already one of the world's most backward countries; the generation of fighting, bombing and looting managed to knock it even further down the scale.

Toofan and about 60 other small plastic-shoe factories like it in Kabul are among the few enterprises that actually manufacture something. Most businesses simply swap and hawk whatever is available: hubcaps and old bicycle parts, buckets of grease, seeds and grains, a wheelbarrow full of oddly grinning sheep heads.

"Afghanistan has been destroyed," said Wahidullah Sabawoon, who acted as finance minister until Afghanistan's interim government was installed on Saturday. "There are no jobs for people. No other kind of income for people. And cold winter has set in."

No one from the new government, which has been consumed with smoothing over long-standing political and ethnic divisions among its members, has publicly articulated any comprehensive plan for Afghanistan's economic recovery. What little recovery is happening is spontaneous, the work of people with a knack for business.

About the size of Texas, the country is largely a land of farmers and herders. But the agricultural sector has been essentially vaporized by minefields and flight from fighting, Taliban policies and a severe drought over the last three years. Only the poppy growers, who have made Afghanistan the world's biggest supplier of opium, are expected to rebound quickly.

What little industry it had -- remnants are visible in a crumbling 30-year-old industrial park near the bombed-out airport -- was largely lost to war or neglect.

Roads are horrible; in many neighborhoods they look more like rocky riverbeds. The country's 12 miles or so of railway lines are defunct. There are no banks, no credit cards or checking accounts, almost no telephones and barely a notion of computers, let alone the Internet.

The economy is one of survival and opportunity -- a broken water main on a major Kabul street this week immediately attracted eight taxi drivers, who turned their city's crumbling infrastructure into a chance to wash their cars for free.

There are virtually no reliable economic statistics. During the five-year rule of the radical Islamic Taliban militia, international organizations were not welcome and the government produced few data of any kind -- the Finance Ministry building today is deserted.

"Afghanistan's economy is in a state of collapse," said a report issued last month by the World Bank. Estimates indicate that it will cost $9 billion over the next five years to put the country back on its feet, a figure that does not include security costs. "The key economic institutions of state -- a central bank, treasury, tax collection and customs, statistics, civil service, law and order, judicial system -- are extremely weak or simply missing."

That comes as no surprise to Ullah Mohammed Fayez, general secretary of the Afghanistan National Bank. One of this country's most important economic leaders, Fayez works in a large office with a lovely Afghan rug, a space heater and not much else. An aging personal computer sits in the corner, but it is not connected to anything -- most notably, not to any of the bank's records, which are kept by hand.

Fayez has a nice new Japanese telephone on his desk, along with two 1950s-style rotary-dial phones, all of which seem to function mainly as intercoms to the next office. There is simply no one else to call.

"The economy of Afghanistan has been weak from the beginning, but it has never been this bad," said Fayez, who has worked for the bank for 30 years. "People don't have jobs; they are just selling things on the street. This does not produce anything useful and it does not help our economy. The only thing that can help us is money from other countries."

Foreign governments and aid agencies are assessing how much money they will provide to Afghanistan, first for humanitarian aid to help millions of homeless people and refugees in a nation where the United Nations says 25 percent of children die before they reach age 5.

Fayez said he hopes that in addition to that, seed money will become available, perhaps through his bank, to provide loans and financing to the small manufacturers that he sees as critical to Afghanistan's economic growth.

That was never possible under the Taliban, who on religious grounds banned the collection or payment of interest. It also has not helped the bank's fortunes that on the night the Taliban fled town, they looted the bank's vault of most of its foreign currency, more than $6 million worth. Sabawoon, the caretaker finance minister, said that the Taliban's people were in such a hurry that they dropped money all along the corridor on their way out.

The Taliban's major economic accomplishment was to turn Afghanistan into the world's largest producer of poppies, which are used to produce opium and heroin. Analysts estimate that 90 percent of the heroin consumed in Europe now comes from Afghanistan. "Afghanistan is their Colombia," said one U.S. government official in Pakistan, who monitors drug production here.

For the first four years of the Taliban's rule, it boosted poppy production and levied taxes on the crops, bringing in an estimated $40 million to $70 million a year, according to the U.S. official, in a land where earning $1 a day is rare. The Taliban also built heroin laboratories so they could export finished drugs, not just the raw material.

Last year, the Taliban leader, Mohammad Omar, banned poppy production, cheering international law enforcement authorities, although the reason for his decision is unclear: Some say Omar was trying to curry favor with the West; others think he simply had an oversupply of poppies and needed to reduce his stock to drive up the price.

Now, with the Taliban removed from power, Afghan farmers are reportedly busy sowing poppies, which are planted before the snow falls, then harvested in the late spring. Poppies require less water than other crops, and they bring a much higher price. "Once it became clear that the Taliban had more important things to think about, the farmers went back to opium planting as fast as they could," the U.S. official said.

If Afghanistan has a Wall Street, it is the Shahzada Market in the center of the city, a teeming, pulsing, bumping and shoving mass of people buying and selling big stacks of Afghanistan's national currency, the afghani.

And if Afghanistan has an Alan Greenspan, it is Amin Khosty, a bearded bear of a man who sits on pillows in a storefront office overlooking the market, passing out cups of green tea and candies and setting monetary policy with a nod and a few barked orders.

Khosty is head of the currency traders' union here, which he said has 5,000 members, many of them educated former government functionaries who lost their jobs when the Taliban took over in 1996.

"The central bank was controlled by the Taliban, so this was really where the price of money was set; this is the country's economic heart," he said, snapping a 500,000-rial Iranian bank note in his fingers to check its authenticity. He nodded to his trader, and the bill was exchanged for afghanis.

Even Afghanistan's currency is murky and mysterious. When the Taliban came to power, the previous government of President Burhanuddin Rabbani, which retreated from Kabul to the north, essentially kept control of the afghani, ordering up new batches of notes to be printed in Russia and passing them out.

The Taliban tried to stop that by banning use of bills with new serial numbers. So the opposition began printing new currency with old serial numbers. To make things more complicated, at least one Afghan warlord, Gen. Abdurrashid Dostum of Mazar-e Sharif, also managed to have stacks of afghanis printed for himself in Russia.

The result, in addition to runaway inflation, was the flooding of the country with real bills, counterfeit bills and others that are somewhere in the middle.

U.S. dollars and Pakistani rupees are also accepted currencies here. The only way anyone knows what the currencies are worth is by stopping by the bazaar and asking, a situation that, if not changed, may give foreign investors pause about getting involved in postwar Afghanistan.

Lately, the afghani has risen against the dollar, based essentially on the Shahzada Market's optimism about the replacement of the Taliban by a new government. A couple of months ago, $1 bought about 80,000 afghanis; that's dropped as low as about 12,000 this week.

"Our currency depends on the political situation; it's been getting better, and so has the afghani, which is good for us," Khosty said as he poured more tea.

The fall of the Taliban appears to have created a surge in imports of previously banned goods. Within days of the militia group's Nov. 13 departure from Kabul, video shops began stocking relatively recent American movies such as "15 Minutes," all of which had been banned. Satellite dishes and television antennas from China and Japan were almost instantly for sale here.

The Chelsi Market on Chicken Street, Kabul's version of Rodeo Drive, is perhaps this city's most cosmopolitan center of commerce. English-speaking men with calculators sell imported wares that include everything from a $6 box of corn flakes to French's mustard, Playboy musk cologne, Maxwell House instant coffee and a shampoo called Garish.

About 85 percent of the shop's goods are shipped in from Dubai in the United Arab Emirates, and the rest come from Pakistan and Iran. The shopkeepers are cagey about saying how the goods get there and who collects a cut along the way -- but for shoppers looking them over, the important thing is that they arrive at all.

© 2001 The Washington Post Company

-- Anonymous, December 26, 2001