Afghanistan

For the fastest growing economy in South Asia, the future does not look so good. For Afghanistan is still one of the poorest countries on the planet. Decades of war and political instability have left it in ruins, and severely dependent on foreign aid. It gets around $15.7 billion in aid every year, which is roughly the same as its GDP. While economic growth here has averaged around seven per cent during the last few years, opportunities remain few, and the private sector is hamstrung by a lack of reliable power supply.

Meanwhile, officials within the Afghan government, as well as foreign organisations, have warned of an economic slump as a majority of the tens of thousands of foreign troops, that make up a key part of the economy, are to depart by next year. The United States has itself warned the Afghans about an impending economic slump after its troops pullout by 2014. A severe reduction in foreign aid is expected to follow, which, in turn, is likely to contribute to further economic vulnerability and potential job losses in the country.

Be that as it may, the country’s economy grew at previously unseen levels during the last few years. A recent World Bank report recognised the war-torn country as South Asia’s fastest-growing economy in 2012. Real GDP growth was estimated to be around 11 per cent in 2012, a significant increase from 7.3 per cent in 2011. However, the same report warned of a reduction in economic growth for the coming three years, afAfghan security forces assume more responsibility of their country’s security.

Meanwhile, the International Monetary Fund estimated Afghanistan's economy to have grown at a blistering pace of 12 per cent in 2012, compared with 5.8 per cent in 2011. However, it predicted the growth rate to drop to 6.5 per cent in 2013.

Revised data shows that inflation went down from 11.8 per cent in FY2011 to 9.1 per cent in FY2012. Forecasts show that it is expected to further go down to 6.7 per cent in FY2013. The falling prices reflect a moderation in international commodity prices, and a planned tightening of the country’s monetary policy.

As international forces transfer security responsibilities to the Afghan government, the country is in a state of transition process that is characterised by considerable political and security uncertainty.

The chief of the Afghan Transition Commission cited a rising young population, widespread unemployment and lack of investment opportunities as main challenges that the government needs to tackle. He also warned of various potential threats the country might face, including the devaluation of its currency, if significant attention was not paid to its economic and investment situation.

However, the Afghan government does not seem to be worried. It has constantly reassured its citizens as well as investors that Afghanistan would not face any economic crisis after 2014. A recent survey by the Asia Foundation further boosted the government’s optimism. More than 50 per cent of the Afghan population appeared optimistic about their country’s future, and believed that the country was moving in the right direction.

The Afghan finance minister has also repeatedly rejected apprehensions about the country’s economy in the future, and insisted that the economy would easily survive the foreign troop pullout. However, officials within the finance ministry have expressed the same concerns as other entities, that instability post-2014 could undermine the Afghan economy.

While more than 90 per cent of the country’s budget is made possible by foreign aid, several countries have pledged to give Afghanistan more than $16 billion in aid through 2015. Despite intense fiscal pressures of their own, donor nations are determined to help Afghanistan, in part to ensure that it does fall back into conditions that allowed the fundamentalist Taliban a foothold in the country in the 1990s, after the withdrawal of Soviet troops.

The Afghan government also realises that it needs to lessen its dependence on foreign aid, and that it needs to enhance domestic production. Several large mining projects are being planned in the country as well.

However, many foreign aid groups are also growing impatient with the government's failure to combat waste and fraud, as corruption continues to a problem in Afghanistan.

Iran

Iran enters the third month of 2013 with a significantly weak currency, an unenviable inflation level of 30 per cent, and a rising unemployment rate. It is facing a drop in its oil revenue of around 50 per cent. As nearly all of its major economic indicators are worse of than they were last year, observers are saying that the harsh sanctions imposed by the US are starting to have its toll. The US sanctions and an EU embargo on Iranian oil reportedly cost Iran up to $5 billion a month.

The sanctions are slated to reduce the Iranian government’s projected revenue from $117 billion to $77 billion in 2013. As oil sales provide around 80 per cent of the country’s export earnings, and contribute to around 50 to 60 per cent of the government’s total revenue, the coming year could be even tougher, as there appears to be little chance that the sanctions would be lifted in 2013.

Sanctions have been a key part of the US strategy to force Iran to negotiate over its nuclear programme. The US has enacted legislation that would compound Iran’s economic problems, as it forces countries like China, India, Japan and Turkey to lessen their dependence on Iranian crude oil, or see their own financial institutions suffer. The US wants Iran to be more open about its nuclear programme, and it has publicly stated a multitude of times that it doesn’t want the Islamic republic to enrich uranium to a level that could be used in a nuclear warhead.

Multiple Iranian companies, as well as individuals, have been targeted by US and EU sanctions. Iran’s oil and banking sectors appear to be the principle targets of foreign sanctions, which have been increasingly expanded and tightened over the last 18 months. While some previous US sanctions targeted individuals and firms linked to Iran’s nuclear industry, new policies closely resemble a complete trade embargo. These new strategies are intended to make it harder for Iran to evade sanctions through front operations.

While the US sanctions and a European oil embargo have been in place for some time now, they have so far failed to force the Iranian government to halt uranium enrichment. The Iranians are able to support their economy alive, despite ruthless pressure on its oil sector. The Iranian President, Mahmoud Ahmadinejad, has said that his country can escape the pressure of international sanctions by moving away from a petrodollar-based economy. The government could use the mining sector, among others, to generate revenue.

Despite the global sanctions, though, more than 400 foreign companies are now directly investing in Iran. Foreign investment plans in Iran amounted to $4.3 billion last year, showing a growth of 27 per cent compared with a year before. Iran needs up to $400 billion in direct foreign investment to materialise to achieve its target of eight per cent economic growth. Over the next five years, the government would need new sources of capital, through local as well as foreign entities.

Meanwhile, the Iranian parliament's research centre has reportedly rejected the President’s claim that the country's economy grew by 5.2 per cent in 2012, and instead claimed that the growth rate clocked in at 0.36 per cent. It said that worsening economic indicators, like rising unemployment rate and closing down of factories, showed that the president’s growth rate figure was incorrect. However, Iran’s Statistics Centre claimed that average income of Iranian families had increased during the same period, as a result of the subsidy reform plan implemented by the government.

Turkey

The Turkish economy grew by more than eight-percent in 2010 and 2011, and then crash landed to around three per cent in 2012. The country’s central bank estimated the economy to have expanded by 2.5 per cent last year, down from 8.5 per cent in 2011.The slowdown is due to slugging global economic growth, particularly in the European Union (EU), which dented a surge in Turkish exports. Interest rates for the country also doubled during 2012. However, the central bank expects growth of at least four per cent in 2013.

Turkey has been part of the EU Customs Union since 1995 for goods (excluding agricultural products), and has been negotiating its entry into the EU since 2005 at a snail’s pace.

Its economic performance over the past decade has been one of the more successful stories among emerging market countries. Per capita income tripled to more than US$10,000 since 2003. Despite the slowdown in growth in 2012, local employment remained exceptionally resilient, with a majority new jobs being created in service sectors. The unemployment rate declined to nine per cent in 2012. The country’s exports grew by around 12 per cent year-on-year in the third quarter, compared with 21 per cent in the second quarter. Export figures were boosted by sale of gold, particularly to Iran. Hit by global sanctions, Iran is trying its best to accumulate hard currency or its equivalent.

Meanwhile, according to a Bloomberg report, Turkey’s exports to Iran had fallen by 20 per cent by April 2012. The cost of imported oil had soared as well, after Iran was hit with sanctions over its nuclear programme. However, apart from Iran, the economic cost of the sanctions would be borne by Turkey as well as other countries. The US had passed legislation that warned countries purchasing oil from Iran to assure the US State Department that they would “significantly reduce” their dependence on Iranian imports. If any country failed to heed the US law, then its financial institutions that would process oil deals with Iran’s central bank would be disconnected from the US banking system.

Meanwhile, the ongoing global economic slowdown is unlikely to have any significant impact on direct investment in Turkey. The country won investment-grade status from Fitch Ratings, one of the three major ratings agencies in the United States, last November. That gave a serious confidence boost to the economy, as it was the first time since 1994 that Turkey received such a high rating. Fitch believed that the country’s economy was “on track to return to a sustainable growth rate, having narrowed the current account deficit and lowered inflation after overheating in 2011”. It forecasted the economy to grow by nearly four per cent in 2013. Inflation was expected to fall to 5.3 per cent this year, from 6.16 per cent in 2012. The budget deficit was around two per cent of GDP last year.

The figures matched World Bank’s forecasts, as it expected the Turkish economy to grow four per cent this year, and 4.5 per cent in 2014. It expected inflation to inch down to 6.1 per cent this year, and continue to 5.2 per cent in 2014.

However, the World Bank feared that Turkey’s current account deficit would widen to seven per cent of the GNP this year, from 6.8 per cent in 2012. It was expected to stay at 6.8 per cent in 2014.

The central bank has decided to keep its inflation target unchanged from last year, at five per cent. However, average inflation had clocked in at 6.2 per cent in 2012, but down from 10.4 percent in 2011. Meanwhile, the International Monetary Fund projected that Turkey’s economy would grow by 3.4 per cent this year, and 4.2 percent next year.