Democratic Republic of Afghanistan - Economy

Economy

Taraki's Government initiated a land reform on 1 January 1979, which attempted to limit the amount of land a family could own. Those whose landholdings exceeded the limit saw their property requisitioned by the government without compensation. The Afghan leadership believed the reform would meet with popular approval among the rural population while weakening the power of the bourgeoisie. The reform was declared complete in mid-1979 and the government proclaimed that 665,000 hectares (approximately 1,632,500 acres) had been redistributed. The government also declared that only 40,000 families, or 4 percent of the population, had been negatively affected by the land reform.

Contrary to government expectations the reform was neither popular nor productive. Agricultural harvests plummeted and the reform itself led to rising discontent amongst Afghans. When Taraki realized the degree of popular dissatisfaction with the reform he quickly abandoned the policy. However, the land reform was gradually implemented under the later Karmal administration, although the proportion of land area impacted by the reform is unclear.

During the civil war, and the ensuing Soviet war in Afghanistan, most of the country's infrastructure was destroyed, and normal patterns of economic activity were disrupted. The Gross national product (GNP) fell substantially during Karmal's rule because of the conflict; trade and transport were disrupted along with the loss of labor and capital. In 1981 the Afghan GDP stood at 154,3 billion Afghan afghanis, a drop from 159,7 billion in 1978. GNP per capita decreased from 7,370 in 1978 to 6,852 in 1981. The most dominant form of economic activity was the agricultural sector. Agriculture accounted for 63 percent of gross domestic product (GDP) in 1981; 56 percent of the labour force worked in agriculture in 1982. Industry accounted for 21 percent of GDP in 1982, and employed 10 percent of the labour force. All industrial enterprises were government-owned. The service sector, the smallest of the three, accounted for 10 percent of GDP in 1981, and employed an estimated one-third of the labour force. The balance of payments, which had improved in the pre-communist administration of Muhammad Daoud Khan; the surplus decreased and became a deficit by 1982, which reached minus $US70.3 million. The only economic activity that grew substantially during Karmal's rule was export and import.

Najibullah continued Karmal's economic policies. The augmenting of links with the Eastern Bloc and the Soviet Union continued, as did bilateral trade. He also encouraged the development of the private sector in industry. The Five-Year Economic and Social Development Plan, which was introduced in January 1986, continued until March 1991, one month before the government's fall. According to the plan, the economy, which had grown less than 2 percent annually until 1985, would grow 25 percent under the plan. Industry would grow 28 percent, agriculture 14–16 percent, domestic trade by 150 percent and foreign trade by 15 percent. As expected, none of these targets were met, and 2 percent growth annually, which had been the norm before the plan, continued under Najibullah. The 1990 constitution gave due attention to the private sector. Article 20 covered the establishment of private firms, and Article 25 encouraged foreign investment in the private sector.