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March 13, 2007

Growth in legal economy outpaces growth of opium

Imf_logo_1 The IMF has estimated that agricultural gains will allow the Afghan economy to grow by a robust 16%  this year. That's well above the previously estimated 12% growth, and even higher than last year's 14% growth.

U.S. Assistant Secretary of State Richard Boucher told Congress yesterday that "What we've seen in Afghanistan is the regular economy has been growing a lot faster than the economy of opium production." Some of the figures cited in the Bloomberg story (e.g. that "now accounts for about a third of the economy, compared with more than 60 percent five years ago") are suspect; it's easy to get these figures wrong because people often cite the opium trade as a percentage of different things (for example total economic activity vs. legal GDP.) I plan to dig into these numbers more the coming days, but even if the trend is exaggerated it would be an encouraging development (even amidst the latest data that the opium economy continues to expand). As Boucher qualified, narcotics is still the biggest business in town, and it will be a challenge "to get Afghanistan to the point where it can develop an economy, it can develop a country without the corrosive and corrupting influence of the drug trade."

Afghan Economy to Quicken, IMF Says, Reducing Opium Dependence
By Michael Dwyer, March 9 (Bloomberg) -- Afghanistan's economic growth will accelerate over the next two years, according to the International Monetary Fund, with increased production of wheat and fruit helping reduce the economy's opium dependence.

"Growth is expected to accelerate in 2006-07, with even stronger growth likely in 2007-08 owing to a rebound in the agricultural sector,'' Murilo Portugal, IMF deputy managing director, said in a statement on the Washington-based lender's Web site. The pace of expansion had previously been expected to slow to 12 percent this fiscal year from 14 percent in 2005-06.

Better wheat harvests and higher yields from Afghanistan's orchards may help President Hamid Karzai wean the nation from its reliance on opium, which now accounts for about a third of the economy, compared with more than 60 percent five years ago. Still, Afghanistan's production of the illicit drug, the base ingredient for heroin, jumped more than 50 percent last year...

"It's a lot of money,'' U.S. Assistant Secretary of State Richard Boucher told a House of Representatives foreign affairs sub-committee in Washington yesterday. "The overall Afghan economy last year was about $9 billion and the value of the drug trade was 35 percent."

Afghanistan's non-drug economy, which the IMF estimates has grown at an annual average pace of about 16 percent over the past five years, is benefiting from foreign aid even as Karzai's government grapples with efforts to stamp out the opium trade.

Foreign Aid

Karzai's government relies on foreign aid for more than half its budget. President George W. Bush last month asked Congress for an additional $698 million in 2007 to build roads, provide food aid and rebuild Afghanistan. The European Commission has offered 600 million euros ($790 million) over the next four years.

"We spent $2.5 billion to $3 billion a year over the last five years," Boucher said, in reference to U.S. aid to Afghanistan. "We think this big push is needed to extend the effort more generally."

Projects aimed at eradicating the drug trade can still sometimes be counter-productive, according to analysts, as they tend to encourage corruption.

"Efforts to combat opium production in Afghanistan have been marred by corruption and have inadvertently helped to consolidate the drugs trade in the hands of fewer, more powerful players," the World Bank said in a November, 2006, report.

`Enormous Bribes'

Counter-narcotics campaigns like the ones conducted by Karzai's government and international aid donors provide leverage for corrupt officials to extract "enormous bribes" from drug traffickers, (Barnett) Rubin said.

Posted by Carl Robichaud on March 13, 2007 at 12:58 PM in Economics, Investment, Reconstruction |

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