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Afghanistan Economy and Business Opportunities
Afghanistan is a member of the South Asian Association for Regional Cooperation (SAARC), Economic Cooperation Organization (ECO) and the Organization of the Islamic Conference (OIC). It is an impoverished country, one of the world's poorest and least developed. Two-thirds of the population lives on fewer than 2 US dollars a day. Its economy has suffered greatly from the 1979 Soviet invasion and subsequent conflicts, while severe drought added to the nation's difficulties in 1998–2001.
The economically active population in 2002 was about 11 million (out of a total of an estimated 29 million). As of 2005, the official unemployment rate is at 40%. The number of non-skilled young people is estimated at 3 million, which is likely to increase by some 300,000 per annum.
The nation's economy began to improve since 2002 due to the infusion of multi-billion US dollars in international assistance and investments, as well as remittances from expats. It is also due to dramatic improvements in agricultural production and the end of a four-year drought in most of the country.
The real value of non-drug GDP increased by 29% in 2002, 16% in 2003, 8% in 2004 and 14% in 2005. As much as one-third of Afghanistan's GDP comes from growing poppy and illicit drugs including opium and its two derivatives, morphine and heroin, as well as hashish production. Opium production in Afghanistan has soared to a new record in 2007, with an increase on last year of more than a third, the United Nations has said. Some 3.3 million Afghans are now involved in producing opium. In a recent article in the Washington Quarterly, Peter van Ham and Jorrit Kamminga argue that the international community should establish a pilot project and investigate a licensing scheme to start the production of medicines such as morphine and codeine from poppy crops to help it escape the economic dependence on opium:
According to a 2004 report by the Asian Development Bank, the present reconstruction effort is two-pronged: first it focuses on rebuilding critical physical infrastructure, and second, on building modern public sector institutions from the remnants of Soviet style planning to ones that promote market-led development. In 2006, two U.S. companies, Black & Veatch and the Louis Berger Group, have won a US 1.4 billion dollar contract to rebuild roads, power lines and water supply systems of Afghanistan.
One of the main drivers for the current economic recovery is the return of over 4 million refugees from neighbouring countries and the West, who brought with them fresh energy, entrepreneurship and wealth-creating skills as well as much needed funds to start up businesses. What is also helping is the estimated US 2-3 billion dollars in international assistance every year, the partial recovery of the agricultural sector, and the reestablishment of market institutions. Private developments are also beginning to get underway. In 2006, a Dubai-based Afghan family opened a $25 million Coca Cola bottling plant in Afghanistan.
While the country's current account deficit is largely financed with the donor money, only a small portion – about 15% – is provided directly to the government budget. The rest is provided to non-budgetary expenditure and donor-designated projects through the United Nations system and non-governmental organizations. The government had a central budget of only $350 million in 2003 and an estimated $550 million in 2004. The country's foreign exchange reserves totals about $500 million. Revenue is mostly generated through customs, as income and corporate tax bases are negligible.
Inflation had been a major problem until 2002. However, the depreciation of the Afghani in 2002 after the introduction of the new notes (which replaced 1,000 old Afghani by 1 new Afghani) coupled with the relative stability compared to previous periods has helped prices to stabilize and even decrease between December 2002 and February 2003, reflecting the turnaround appreciation of the new Afghani currency. Since then, the index has indicated stability, with a moderate increase toward late 2003.
The Afghan government and international donors seem to remain committed to improving access to basic necessities, infrastructure development, education, housing and economic reform. The central government is also focusing on improved revenue collection and public sector expenditure discipline. The rebuilding of the financial sector seems to have been so far successful. Money can now be transferred in and out of the country via official banking channels. Since 2003, over sixteen new banks have opened in the country, including Afghanistan International Bank, Kabul Bank, Azizi Bank, Standard Chartered Bank, First Micro Finance Bank, and others. A new law on private investment provides three to seven-year tax holidays to eligible companies and a four-year exemption from exports tariffs and duties.
Some private investment projects, backed with national support, are also beginning to pick up steam in Afghanistan. An initial concept design called the City of Light Development, envisioned by Dr. Hisham N. Ashkouri, Principal of ARCADD, Inc. for the development and the implementation of a privately based investment enterprise has been proposed for multi-function commercial, historic and cultural development within the limits of the Old City of Kabul along the Southern side of the Kabul River and along Jade Meywand Avenue, revitalizing some of the most commercial and historic districts in the City of Kabul, which contains numerous historic mosques and shrines as well as viable commercial activities among war damaged buildings. Also incorporated in the design is a new complex for the Afghan National Museum.
According to the U.S. Geological Survey and the Afghan Ministry of Mines and Industry, Afghanistan may be possessing up to 36 trillion cubic feet (1,000 km3) of natural gas, 3.6 billion barrels (570,000,000 m3) of petroleum and up to 1,325 million barrels (2.107E+8 m3) of natural gas liquids. This could mark the turning point in Afghanistan’s reconstruction efforts. Energy exports could generate the revenue that Afghan officials need to modernize the country’s infrastructure and expand economic opportunities for the beleaguered and fractious population. Other reports show that the country has huge amounts of gold, copper, coal, iron ore and other minerals. The government of Afghanistan is in the process of extracting and exporting its copper reserves, which will be earning $1.2 billion US dollars in royalties and taxes every year for the next 30 years. It will also provide permanent labor to 3,000 of its citizens.
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