Economy of Afghanistan - Economic History

Economic History

Historically, there has been a lack of information and reliable statistics about Afghanistan's economy. In the early modern period under the rule of kings Abdur Rahman Khan (1880-1901) and Habibullah Khan (1901-1919), a great deal of Afghan commerce was centrally controlled by the Afghan government. The Afghan monarchs were eager to develop the stature of government and the country's military capability, and so attempted to raise money by the imposition of state monopolies on the sale of commodoties and high taxes. This slowed the long-term development of Afghanistan during that period. Western techonogies and manufacturing methods were slowly introduced during these eras at the command of the Afghan ruler, but in general only according to the logistical requirements of the growing army. An emphasis was placed on the manufacture of weapons and other military materiel. This process was in the hands of a small number of western experts invited to Kabul by the Afghan kings. Otherwise, it was not possible for outsiders, particularly westerners, to set up large-scale enterprises in Afghanistan during that period.

The first prominent plan to develop Afghanistan's economy in modern times was the Helmand Valley Authority project, modelled on the Tennessee Valley Authority in the United States, which was expected to be of primary economic importance. The country began facing severe economic hardships during the 1970s when neighboring Pakistan, under Zulfikar Ali Bhutto, began closing the Pakistan-Afghanistan border crossings. This irresponsible move forced Afghanistan to increase political and economic ties with its northern neighbor, the powerful Soviet Union of that time.

The 1979 Soviet invasion and ensuing civil war destroyed much of the country's limited infrastructure, and disrupted normal patterns of economic activity (See Democratic Republic of Afghanistan#Economy). Eventually, Afghanistan went from a traditional economy to a centrally planned economy up until 2002 when it was replaced by a free market economy. Gross domestic product has fallen substantially since the 1980s due to disruption of trade and transport as well as loss of labor and capital. Continuing internal strife severely hampered domestic efforts to rebuild the nation or provide ways for the international community to help.

According to the International Monetary Fund, the Afghan economy grew 20% in the fiscal year ending in March 2004, after expanding 30% in the previous 12 months. The growth is attributed to international aid and to the end of droughts. An estimated $4.4 billion of aid entered the nation from 2002 to 2004. A GDP of $4 billion in fiscal year 2003 was recalculated by the IMF to $6.1 billion, after adding proceeds from opium products. Mean graduate pay was $0.56 per manhour in 2010.