U.S. Exit Risks Afghan Economy as Cash Pumped Into Dubai

Eltaf Najafizada
Monday, 09-July-2012
An Afghan money changer, center, in Kabul. Photographer: Massoud Hossaini/AFP/Getty Images


Afghan central bank inspector Fahim Satari stands in Kabul airport in front of a local businessman headed for Dubai, counting by hand the stack of $100 bills that police found the passenger carrying to the gate.

Satari declares the cash to be under the $20,000 limit imposed to stem the flood of money leaving through the terminal, which swelled to $4.6 billion in the year to March and equals almost one-fourth of the economy. While Satari’s team has slowed the airborne outflow, Kabul brokers who arrange informal transfers say business has jumped. In a country where only 7 percent of the population has a bank account and 15 percent of the economy depends on opium, cash is fleeing Afghanistan.

The lost billions are undercutting U.S. efforts to stabilize the country as it prepares to withdraw its troops by 2014 and exit an 11-year war with the Taliban. President Hamid Karzai needs to build an economy capable of financing long-term security and spurring the development that can help unite a nation fractured by decades-old ethnic rivalries.

“The money leaving the country shows that Afghans fear the war will escalate after NATO troops leave,” Saifuddin Saihoon, an economics professor at Kabul University, said by phone. The government and international community need to reassure companies that their assets will be protected or risk a business collapse, he said.


About 97 percent of the Afghan economy is based on spending by the militaries that comprise the North Atlantic Treaty Organization force and international aid, the U.S. Senate’s Foreign Relations Committee said in a report last year. A sharp decline in overseas funds “could trigger a major economic recession,” it said.

Assistance to Afghanistan totaled $15.7 billion in the 2011 financial year, mostly from the U.S., the World Bank and the Afghan finance ministry said in a November study. That’s slightly less than the country’s gross domestic product.

Omar Zakhilwal, Karzai’s finance minister, said June 28 on the sidelines of an investment summit for Afghanistan held in New Delhi that the airport curbs had been imposed to force people to use easy-to-monitor banks to move their cash.

Afghans have another option. Inside a scruffy three-story building in central Kabul guarded by police, the so-called hawaladars of Saraye Shahzada market, an eight-decade-old institution based on trust and the region’s deeply ingrained emphasis on honor, are busy at work.

Booming Business

“Since the airport restrictions came in more people are demanding our services,” Najeeb Ullah Akhtary, the president of Afghanistan’s currency-exchange union, said June 12. In February and March, business was up 10 percent, with one transfer of $700,000. The 400 hawaladars in Kabul doubled charges in April, to 2 percent of the transaction value, he said.

Approached to make a transfer, the hawaladar typically accepts the cash, then calls a counterpart in Dubai, Pakistan or Iran, where an equal amount is handed to the recipient. Transfers are often completed in minutes. Debts between brokers are settled later.

The hawala networks flourish in Afghanistan, where only 7 percent of 30 million people had bank accounts in 2011 according to the central bank. The reputation of formal financial services was savaged by the 2010 Kabul Bank scandal in which the lender’s politically connected owners lost more than $900 million of depositors’ money through illegal insider loans.

“People don’t trust banks very much and also the banks can’t send money as quickly as we do,” Akhtary said.

Troop Surge

Satari’s stationing at Afghanistan’s biggest international terminal was triggered by a spike in capital flight in the financial year that ended March 21. Just $800 million arrived at the airport versus $4.6 billion that passengers shipped out in their baggage, Mustafa Maqsudi, the head of the bank’s financial intelligence unit, said in an interview.

The uptick mirrors increasing insecurity across Afghanistan. A June 22 raid on a luxury hotel outside Kabul killed 18 people. More than 3,000 civilians died in attacks in 2011, and a further 579 up to April this year, according to a May 31 Congressional Research Service report.

U.S. Defense Secretary Leon Panetta said on June 7 that guerrilla strikes were rising in frequency and becoming more sophisticated as the U.S. prepares to withdraw troops the Obama administration deployed as part of its 2010 surge.

The U.S.-led International Security Assistance Force in Afghanistan reported June 26 that Taliban strikes rose 21 percent in May from the same month a year earlier.

Dubai Boost

“Taliban attacks have grown since the U.S. and Afghanistan signed their strategic pact” Waheed Mujda, a former Taliban official who is now an analyst at the independent Kabul Center for Strategic Studies, said June 12. The May accord allows some American soldiers to remain after 2014 for training and counterterrorism operations. “While Americans are in Afghanistan, the Taliban will keep fighting.”

Reflecting the uncertainty that awaits Afghanistan, prices of Kabul’s best properties have declined by 25 to 30 percent.

A year ago, “a luxury residential building could have been sold for $1 million in Wazir Akbar Khan,” a Kabul neighborhood of villas rented by many foreign companies, aid groups and embassies, Naser Behzad, a property dealer in the capital, said June 5 at his office. “But now we can’t sell them for $800,000.”

In Dubai, long a refuge for wealthy Afghans fleeing war, values of villa developments are rising, helping the desert sheikhdom emerge from a three-year property slump.

Multiple Purchases

“Virtually all of the money that is being invested in the UAE property market from Afghanistan is going into 100 percent cash transactions,” said Jean-Luc Desbois, who founded his Home Matters mortgage consultancy in Dubai in 2006. “There are still significant numbers of Afghani property purchases going on.”

Clients are mostly affluent and are buying multiple properties costing between 3 million ($817,000) and 6 million dirhams in locations such as Palm Jumeirah, an artificial archipelago shaped like a palm tree that juts into the Persian Gulf, Desbois said. “Many Afghanis with significant assets are concerned about what will happen once they fully govern themselves.”

The U.S. has prodded Afghanistan to better control cash flows that may be linked to corruption and the drug trade, in which 15 percent of the economy is rooted, according to a United Nations survey in January.

Opium Funds

Hawaladars in Kandahar, the country’s second largest city and the 1990s birthplace of the Taliban, and the opium-producing province of Helmand may handle $1 billion in drug money a year, according to a March 7 U.S. Bureau of International Narcotics report.

Over the past three years, the central bank, known as Da Afghanistan Bank, has built its first-ever hawala registry, requiring the brokers to submit monthly reports. Maqsudi, the bank official, said the greater transparency has reduced the laundering of money generated by growing opium.

Jalil Ahmad, a Kabul currency trader, said that while he asks for identity cards and questions clients on the purpose of each transfer, brokers have no way of checking the background of people using their services or the origins of their cash.

The central bank retains the authority to grant exceptions to the $20,000 airport limit, Karzai’s senior economic adviser, Sham Lal Patija, said June 12.

During an interview in April, the bank’s governor, Noorullah Delawari, was interrupted by calls from Satari requesting help in dealing with two businessmen, one with $200,000 in his luggage and the other bidding to leave Kabul with about $500,000. Delawari rejected the first case while allowing the second traveler to board the flight with his money, telling a reporter he could vouch for the man’s credentials.

Akhtary, the currency union chief, said he’s concerned that the money he helps move out of Afghanistan may undermine the economy. “But transferring cash abroad is a better option than losing it after 2014,” he said.

To contact the reporter on this story: Eltaf Najafizada in Kabul at





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