Afghanistan at the Crossroads

Recent Features

Features | Politics | South Asia

Afghanistan at the Crossroads

Economically dependent on the foreign presence, Afghanistan will need to work hard to succeed on its own.

Afghanistan at the Crossroads
Credit: U.S. Embassy Kabul, Afghanistan via Flickr.com

NATO forces led by the U.S. completed their combat mission in Afghanistan on December 31, 2014 as planned. The new role for the U.S. will involve support and training within the framework of the Bilateral Security Agreement (BSA) and the Status of Forces Agreement (SOFA). Realizing the significance of BSA for his government, Afghan President Ashraf Ghani was quick to ink the BSA and SOFA, doing so on his second day in office.

Last year was both a difficult and eventful one for Afghanistan. Successful security and political transitions were the major developments. The country had started receiving economic shocks well before 2014, partly because of the uncertainty surrounding the political dynamics and partly due to the very real impacts of the dwindling financial resources resulting from the drawdown of international forces. According to the World Bank annual GDP growth dropped from around 12 percent in 2012 to around 3 percent in 2013, remaining at about that level in 2014. With a new government in place, and a recently announced cabinet set to be endorsed by the Parliament, there is a growing sense of optimism that the economy will gradually improve.

Unemployment across the country has been held down by the large number of Afghans engaged in international aid operations. With foreign troops and aid workers leaving the country, an economic impact in inevitable. Yet the repercussions of the NATO pull-out are not all negative. It also means Afghan ownership of the development process and a first step towards efforts for self-reliance, provided that the new National Unity Government is able to fulfill expectations.

For the past 12 years, Afghan economy has been virtually dependent on foreign aid. According to the Ministry of Finance, almost 100 percent of its development budget and 45 percent of its operating budget is externally financed, with the U.S. being our major donor. National revenues struggle to fund even a small share of the national budget. Since 2002, with the new government in power after the collapse of the Taliban, the Afghan economy enjoyed reasonably steady growth. GDP increased from $3 billion in 2002 to $20 billion in 2012. In the absence of a viable economic base, however, there are no grounds for concluding that the reported economic growth was sustainable. With an unstable political environment and deteriorating security, the government never managed to build viable institutions that could have paved the way for sustainable economic growth by tapping the country’s vast natural resources.

Afghanistan also struggled to attract any notable domestic and foreign investment, hamstrung by political uncertainties, excessive bureaucratic procedures, the lack of an adequate legal and regulatory framework, and systemic corruption within the government machinery. The associated risks prevented potential national and international investors from becoming involved in major business ventures. The construction industry was the only sector where significant growth was witnessed, mainly because of the availability of generous foreign funding for infrastructure development where the business community could receive quick and highly profitable returns. In fact, construction thrived, with thousands of construction firms issued licenses by the Afghanistan Investment Support Agency (AISA). The Agency encouraged construction investors with simple registration procedures. But in the absence of strong institutional and enforcement framework, the government was unable to collect taxes from an industry that otherwise could have contributed significantly to national revenues. Construction has been rife with tax evasion, mainly because of rampant corruption and the powerful political players with a stake in the industry.

In sharp contrast to construction, the manufacturing and service sectors have seen negligible growth due to a lack of infrastructure and energy supply, insufficient institutional capacity, not enough support from the government, and longer payback periods with associated risks. Agriculture development is another unhappy story. In the absence of any strategic and integrated approach towards developing the farm sector, most foreign assistance ended up financing micro level projects, building capacity, or paying international consultants to produce reports as bulky as they were unnecessary.

A substantial portion of the aid money that flowed into Afghanistan over the past decade ended up in private hands, in the form of bribes, kickbacks and embezzlements. That money now appears in the form of high-rise buildings, huge foreign bank balances, and lucrative private businesses owned by the few, both within the country and abroad. It is true that ordinary Afghans have benefited from billions of dollars of international assistance during the past decade. But since the foreign aid has not created sustainable economic growth in the country, the departure of the international community is a major blow to ordinary Afghans, given unemployment and the economic implications.

As a key advisor to Ghani when he was chairman of the security transition commission, I am well aware of the overall framework of the transition process. From the very beginning, it was envisaged that the security transition must promote development, the rule of law, and good governance – considered to be three pillars of transition. Yet the civilian aspects of the transition received little attention from the ISAF and Afghan government as security overshadowed the entire process. It is noteworthy, though, that Ghani was unhappy at the Afghan government’s performance and its lack of proper attention the reforms that could have helped improve the security environment by increasing government credibility.

Now that the international community in general and NATO countries in particular are entering into new partnerships with Afghanistan, it is time to redefine the relationship in more credible terms based on realistic benchmarks and results-based indicators. The next decade following NATO’s completion of its combat mission and the peaceful transfer of power in Afghanistan has long been termed the decade of transformation. This decade can only bring transformation if genuine efforts are made. It is now up to the national unity government to fulfill expectations and achieve that vision.

In spite of all the challenges, Afghanistan commands a strategic location as gateway to Central Asia as well as a land bridge between Central and South Asia. As such, the country offers enormous opportunities for both national and international investors in sectors ranging from natural resources and infrastructure development to the service industry and tourism. Preliminary investigations suggest Afghanistan has mineral resources worth around $3 trillion. Yet without sustainable security, strong economic and political institutions, and international technical support, the mineral wealth cannot be utilized and will remain a cause of international rivalry rather than a source of economic growth and prosperity.

Ajmal Shams is President of the Afghanistan Social Democratic Party, or Afghan Millat National Progressive Party, and is based in Kabul, Afghanistan. He was Director of Planning and Policy at the Ministry of Urban Development. He served as Policy Advisor to President Ashraf Ghani when the latter chaired the security transition commission. He mainly writes on political and developmental issues. He has published in Foreign Policy, News International, Gulf News, Asia Times, South Asia Magazine, and others.