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Economics Final Report

MBA 2 A






BY TO
ABDUL REHMAN SIR ALI SAEED


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ASSIGNMENT


AFGHANISTAN(1978-2012) AN ECONOMIC ADVANTAGE OR
CURSE FOR PAKITANS ECONOMY




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CONTENTS
Pakistan and Afghanistan relationships before 1978.....................................4--5
Afghanistan (1978-2012) An Economic advantage
or curse for Pakistans Economy..6
Major Items of Import from Afghanistan to Pakistan..7
Major items of export from Pakistan to Afghanistan..8
Economic growth in 1990s.9
Economic growth in 200010
Impact on Pakistan industry.......................................................................11-12
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 Pakistans
admission to the United Nations because of its claims over the Durand Line, Pakistans
border with Afghanistan on the western side. The Durand Line has been a major
concern throughout Pakistans 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 Lines validity the
border remains insecure and more threatened today with greater challenges for
Pakistan.
Indias 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 neighbours neighbour being
a friend and the neighbour being an enemy, applies here in the case of Pakistans
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. Bhuttos
government created the Afghan Cell within Pakistans 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 madrass 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 Pakistans
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. Gulbuddins 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 1980s
Pakistan 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 1980s. 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
thats why during 1980s 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 Pakistans imports from Afghanistan were
$30 million which rose to $101million in 2010. Import to Pakistan comes through
wagha, Karachi port, qasim port. about US$ 71 million imported to Pakistan every
year equal to 21.8 percent of all Afghan imports.
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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 1990s

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 Pakistans 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 Pakistans
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

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
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17.1% in a year between 1984 and 1994 than it fell to 7.9 percent between 1994 and
2000.
Economic growth in 2000s
After 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 culprits 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.
From home appliance to vehicles are being smuggled thats 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.

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

Drugs and smuggling effects on trade

The Talibans 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
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.
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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
products. because many goods ill egal l y smuggled from Pakistan to
Afghanistan which i nclude wheat, li ve stock and weapons ets as a result
there is shotage of these consumable products in Pakistan which cause rise
in prices. That i s main reason inflati on is rapidl y 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
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Report estimated poverty in 2011 at al most 50% of the population. Inflation
has worsened the si tuation, cl imbing from 7.7% in 2007 to more than 13% for
2011.
Foreign investment
After 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

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
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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.
Pakistan should take immediate measures to reduce the illegal cross border
trade activities.
Pakistan should convince the US and the Afghan government into limiting Indias
role in Afghanistan. Because Indias involvement in Pakistan internal affairs
through Afghanistan is the major cause of Baluchistan instability.


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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
pakistanidefence.com