AFGHANISTAN’S
PRIVATE SECTOR
Status and ways forward
richard ghiasy, jiayi zhou and
henrik hallgren
AFGHANISTAN’S
PRIVATE SECTOR
Status and ways forward
RICHARD GHIASY , JIAYI ZHOU AND
HENRIK HALLGREN
October 2015
STOCKHOLM INTERNATIONAL
PEACE RESEARCH INSTITUTE
SIPRI is an independent international institute dedicated to research into
conflict, armaments, arms control and disarmament. Established in 1966,
SIPRI provides data, analysis and recommendations, based on open sources, to
policymakers, researchers, media and the interested public.
The Governing Board is not responsible for the views expressed in the
publications of the Institute.
GOVERNING BOARD
Sven-Olof Petersson, Chairman (Sweden)
Dr Dewi Fortuna Anwar (Indonesia)
Dr Vladimir Baranovsky (Russia)
Ambassador Lakhdar Brahimi (Algeria)
Jayantha Dhanapala (Sri Lanka)
Ambassador Wolfgang Ischinger (Germany)
Professor Mary Kaldor (United Kingdom)
The Director
DIRECTOR
Dan Smith (United Kingdom)
Contents
Preface
v
Acknowledgements
vii
Authors’ note
viii
Executive summary
ix
1. Economic backdrop
1.1. A brief history of Afghanistan’s economy
1.1.1. The pre-war economy to 1979
1.1.2. Soviet invasion, the civil war, and
and Taliban years: 1979–2001
1.1.3. International intervention: 2001–14
1.2. Macroeconomic policies
1.3. The Afghan economy in transition
1.4. Conclusions
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2. Framing the private sector
2.1. Formal vs. informal economy
2.2. Economic integration
2.3. Private sector actors
2.4. Sectorial conditions
2.4.1. Agriculture
2.4.2. Mining
2.4.3. Industry
2.4.4. Services
2.5. Government legitimacy and the social contract
2.6. Legislation, enforcement and government policies
2.7. Conclusions
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3. Impediments to inclusive private sector growth
3.1. Extra-market conditions
3.1.1. The political situation
3.1.2. Business-political coupling and the issue of corruption
3.1.3. Influence of foreign aid
3.1.4. The regional politico-economic environment
3.2. Economic resources and critical infrastructure constraints
3.2.1. Access to land and physical resources
3.2.2. Access to finance
3.2.3. Human resources
3.2.4. Critical Infrastructure
3.3. Limited female economic participation
3.4. Conclusions
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4. The private sector and security
4.1. The private sector and the security nexus
4.2. Conclusions
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iv AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
5. An analysis of private sector development
5.1. An analysis of private sector development programmes
5.2. Private sector development coordination
5.3. Principles of engagement and red flags
5.3.1. Time frames and exit strategies
5.3.2. Sustainability
5.3.3. Holistic perspectives
5.3.4. Clear objectives
5.3.5. Market distortion
5.3.6. Needs-based interventions
5.3.7. Developmental mafia
5.3.8. Monitoring and evaluation
5.4. Conclusions
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6. Conclusions and recommendations
6.1. Conclusions
6.2. Recommendations
6.2.1. Recommendations to the Afghan Government
6.2.2. Recommendations to the international community
6.2.3. Recommendations to the private sector and
other Afghan stakeholders
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Annex 1. A provincial perspective
Balkh
Bamyan
Herat
Kabul
Parwan
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Annex 2. Methodology
Background and research questions
Provinces selection rationale
Approach
Limitations
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Annex 3. Abbreviations
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Annex 4. Notes
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Preface
This report on the state of the Afghan private sector and the nexus with
development and security was funded by the Swedish International
Development Cooperation Agency (Sida). It is a joint project by SIPRI and the
International Council of Swedish Industry (NIR) that commenced in
September 2014 and coincides with a critical juncture in modern Afghan
history: a triple transition that is forcing a new administration to reorient its
economy as the international military/civilian contingents and accompanying
aid are scaled down. Simultaneously, the National Unity Government is
preoccupied with addressing ongoing security challenges and resolving
political impasses that are threatening its direction and mandate. In light of
this, private sector development support by the international community is
much needed.
Scoping the attributes of any country’s private sector is a daunting task, but
particularly one as complex as the Afghan version. In comparison with more
developed economies, the Afghan private sector faces considerable
challenges: it is largely inequitable, informal and is shaped strongly by extramarket conditions.
Data was collected within the first nine months of the project: statistical data
was not always recent, entirely reliable or at times even available. Data
collected by the authors on three fieldtrips to five Afghan provinces was
therefore highly significant. Afghanistan’s security dynamics did not permit
visits to many of the other provinces, although most economic hubs were
visited. Eighty-three individual face-to-face meetings were held in
Afghanistan with relevant actors ranging from senior representatives of
government, international organizations and diplomatic missions, to think
tanks and business support agencies. Sixteen factories and workshops were
visited, and 164 entrepreneurs of all ages and industries, male and female,
were interviewed through a series of seminars held in all visited provincial
capitals except Kabul. These interactions gave the authors invaluable insights
into the opportunities the Afghan private sector holds, but more so into the
many structural impediments it faces to inclusivity, growth and
competiveness.
After scoping the private sector, the next goal was to provide
recommendations to the Afghan authorities, the international community and
the Afghan private sector on how to foster it. There is an emphasis on how the
international community can support the Afghan Government in developing
its private sector policy, and in what ways it may—prudently—intervene
directly in the market.
This report is a comprehensive piece of research on the current state of the
Afghan private sector, and should be of interest to any stakeholder in
Afghanistan’s reconstruction and (socio-) economic development. It should
also be of significance to those examining the country’s security-economic
vi AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
development nexus. As such, parts of this study are likely to be of interest to
those studying other (conflict-affected) countries with challenging private
sector conditions.
We would like to express our gratitude to Sida for their generous grant and
overall support, and would also like to thank all interlocutors who made time
to meet the authors and share their valuable insights.
Dan Smith
SIPRI, Director
October 2015
Jonas Borglin
NIR, CEO
Acknowledgements
This report benefitted from the invaluable input of many individuals, including
all the interlocutors from the non-governmental organization, business,
international and Afghan Government communities who were so kind as to
contribute their insights and experiences about the private sector and
development in Afghanistan during the course of our research. In addition, we
owe a debt of gratitude to multiple peer reviewers: Saeed Parto, Paul
Fishstein, Adam Pain, Graeme Smith, Ethan Kapstein, Peter Middlebrook,
Maihan Saeedi, Gary Milante, Damir Esenaliev, Anastasia Aladysheva, Kate
Sullivan, Emma Bjertén-Günther, Sofia Birkestad Svingby, as well as the
SIPRI Editorial Department without whose feedback this report would not be
in the condition that it is in final publication form. Special thanks go to
Fraidoon Sekander for the support he provided to our endeavour. This
research was funded by the generous support of the Swedish International
Development Cooperation Agency (Sida), for which we are grateful. It goes
without saying that any faults in the report are our own.
The Authors
Authors’ note
The difficulty of conducting rigorous analysis on the Afghan economy is
illustrated in the absence of such basic statistics as population size and
breakdown. Affected by physical insecurity and weak state capacity, data
collection and management continues to be a perennial challenge in the
post-international intervention period. Data referenced in this report should
thus be used with caution.
Executive summary
Afghanistan’s economy has a complex mix of informal, formal, illicit and aidsustained elements. This is foremost the product of a decades-long
convergence of protracted conflict, low state capacity, foreign interference and
external aid dependence. The formal Afghan private sector contributes a mere
10–12 per cent to the country’s official gross domestic product. In its current
state, the Afghan private sector is not the engine of economic growth or
instrument of social inclusion it has the potential to be. Popular dissatisfaction
with unequal access to economic resources, flawed public services and goods,
the adverse security situation, and predatory government activity undermine
an effective and sustainable private sector.
There is a prospect of reversing this dynamic. The Afghan private sector
could, in addition to leading economic growth, contribute to improving human
and traditional security conditions in the country. Immediate action by the
Afghan Government is needed to catalyse this process. The Afghan
Government will need to create a more facilitating environment for the private
sector, particularly for the many disadvantaged smaller players that form the
bulk of the economy. In light of weak state capacity as well as the dismal
fiscal outlook new partnership modalities with the private sector are
recommended. Support from the international community through private
sector development (PSD) will still be needed. However, a number of critical
conditions for effective PSD apply.
This Swedish International Development Cooperation Agency (Sida) funded
report is the product of a one-year field and desk research study of the state of
the private sector in Afghanistan and its nexus with development and security.
Based on the study’s findings, this report provides input on how the Afghan
Government, national stakeholders and the international community could
facilitate a more inclusive, productive and competitive Afghan private sector.
The findings are likely to be of interest to all stakeholders in Afghanistan’s
reconstruction.
Historically, the Afghan population has not been able to count on the
government or the formal market to provide welfare. Limited state capacity
and geographic reach are a congenital problem, and this has helped sustain a
fragmented society. Pre-1979, Afghanistan’s private sector was predominantly
informal, agrarian and subsistence-based. As a war economy emerged formal
institutions collapsed, the social fabric was torn, and illicit crops and criminal
cross-border activities became ingrained in the country’s economy. This
resulted in a complex backdrop and a very low baseline from which
internationally assisted state rebuilding and economic growth efforts began in
2001.
However, the introduction of new organizational structures after 2001 did
not constitute a decisive break with preceding economic patterns, processes or
players. The Karzai administration allowed the post-intervention conflict and
x AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
aid economy to create new revenue channels for an existing and emerging
oligopoly. Lack of interest and incapacity by political authorities have resulted
in weak formal economic institutions, largely unaccommodating economic
policies and regulatory failure. Moreover, neither government nor donors have
been sufficiently focused on accelerating trade and transit, agriculture and the
extractive industry, which are cornerstones for long-term structural economic
stability for Afghanistan. International community PSD efforts were slow and
limited throughout the first decade of engagement, with the bulk of donor
attention focused on security or on other developmental challenges.
In the absence of a free market with functioning state regulation, the
oligopoly and local power holders determine access to economic resources in
many markets across the country. Critical infrastructure is largely absent,
particularly in rural Afghanistan. Both these factors inhibit economic activity
and integration. These constraints are compounded by extra-market
conditions: concerns over the National Unity Government’s (NUG) longevity
and effectiveness, lingering and rampant corruption, a deteriorating security
situation and external aid flows that distort the domestic marketplace. The
politicized regional economic environment is also unfavourable to
Afghanistan’s private sector and is exacerbated by the fact that the country is
landlocked. A number of (extended) neighbours’ geopolitical agendas trump
regional economic integration initiatives.
Currently, the NUG’s attention is largely focused on security issues and
political infighting. The initial transition landscape has given little indication
that the security situation will improve in the short term. While the NUG has
initiated a number of economic reform processes, unpredictability and
uncertainty remain key negative factors for the private sector. Accordingly,
capital flows are largely outbound, and investments are put on hold or have a
short-term horizon. An improved security situation is necessary to stimulate
foreign as well as domestic private investment.
Consequently, the country’s economy is largely deadlocked. Its large yet
functional informal economy (accounting for 80–90 per cent of total economic
activity, and which also comprises the illicit economy) and a weak fiscal
regime limit the NUG’s ability to collect tax revenue and provide essential
public services and goods. This in turn erodes government legitimacy and
hampers state building efforts, including the creation of the conditions needed
to stimulate economic growth. Indeed, the lack of suitable conditions for the
private sector may even be driving anti-government sentiment. New
partnership modalities with the private sector are needed.
Clearly, at its current capacity levels and in the present environment, the
Afghan private sector cannot make use of the country’s economic potential.
There exist substantial untapped human capital resources in Afghanistan since
informal institutions tend to, among other population groups, marginalize
women, who make up around half of the potential labour and entrepreneurial
force. Unemployment levels also remain worryingly high and could continue
to rise as around half a million people, mostly rural-based and illiterate, enter
EXECUTIVE SUMMARY xi
the labour market each year. Beyond providing legitimate employment, the
private sector has a role to play in providing a tax base, mitigating poverty,
and granting the broader population, as well as the elites, an economic stake in
the survival of the state. Yet, in its current embodiment, small(er) players and
marginalized sections of the population have great difficulty participating,
competing and expanding in the private sector. Afghan Government
interventions to promote more inclusive private sector growth are therefore
urgently needed. However, the NUG is still weak in its administrative and
technical capacity. In the light of this, strategic PSD support from the
international community in the medium- to long-term time horizon is required.
The way in which this support is provided is critical to its sustainable
impact. Despite the obvious benevolent intentions behind PSD work, failures
of coordination and implementation by the international community are well
documented. A number of direct market interventions, for instance, have fed
into corruption and patronage networks, distorted markets and reinforced
dependency. PSD efforts have also had limited success due to fragmented and
uncoordinated approaches, and lack of contextualized knowledge. Some of
these miscalculations might have even worked to the detriment of government
legitimacy and private sector development. Therefore, coordination among all
stakeholders is essential, as is addressing root causes of market failures at the
structural and policy level. How, then, can stakeholders assist the Afghan
private sector to become a source of economic growth and an instrument of
social inclusion?
Recommendations to the Afghan Government*
I.
II.
III.
IV.
*
Provide direction by developing a realistic private sector
growth strategy with clear measurable milestones, division of
labour between international and national actors, and
implementation, monitoring and follow-up mechanisms;
Increase the capacity of state economic institutions that
support the productive potential of the private sector,
including through continuous training of the civil service.
Relevant public institutions must be given unambiguous
mandates;
Take immediate carefully tailored measures to curb corruption
starting at the highest government echelons. Curb corruption
in regulatory processes through increased use of digitalized
processes;
Improve the business climate in close coordination with the
organized business community through realistic growthpromoting economic policy reforms and by prioritizing
sustainable development of strategic industries. Instruments
See chapter 6.2 for more detail and rationale on the recommendations listed here.
xii AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
V.
VI.
VII.
VIII.
such as tax relief, state supply contracts and public-private
partnerships (PPPs) should be considered;
Evaluate and update the strategy for trade policy instruments
that can enhance Afghan competitiveness and protect infant
industries. Full digitalization of customs procedures could
help to eliminate exiting gaps in regulation;
Tackle the hurdles that limit access to economic resources, in
particular land and capital. Access to resources should be
combined with clearer and enforced property rights. Mobilize
state landholdings for use by the private sector through
favourable long-term lease agreements. Leverage the potential
of existing and developing unbanked credit mechanisms.
Sector-oriented banks that provide demand-led financial
products are recommended;
Invest in infrastructure critical to economic activity. In light of
government financial limitations, rapidly move to pass and
implement the new PPP law; and
Prioritize women’s full and equal participation in the
economy, leveraging women-to-women economic networks,
while promoting male endorsement. Support policies should
be mainstreamed within all economic plans.
Recommendations to the international community
I.
II.
III.
IV.
V.
VI.
Support the Afghan Government with all the above-stated
eight recommendations. Direct but careful market
interventions can also be considered;
Set up a formal cooperation and coordination mechanism for
the development of the private sector in conjunction with the
NUG;
Establish a new formal international aid database that
incorporates former and running PSD efforts, including offbudget development programmes;
Support full value-chain development projects in the
agricultural sector, which have high labour intensity and job
creation potential, including for women;
Consider diversifying geographic focus: aid interventions
should aim to target communities based on need rather than on
political or security priorities; and
Incorporate consumer demand perspectives into PSD
programming. Demand is a critical component of commercial
feasibility and sustainability for PSD programmes.
EXECUTIVE SUMMARY xiii
Recommendations to the private sector and other Afghan stakeholders
I.
II.
Strengthen the capacity, transparency and member
representation of organized business. The views of smallerscale business actors, including informal and rural-based
businesses, should be given greater weight; and
Strive to curb supply-side corruption. Leverage collective
action, engage officials, utilize media and engage organized
civil society to promote clean business.
1. Economic backdrop
1.1. A brief history of Afghanistan’s economy
1.1.1. The pre-war economy to 1979
Even before the devastation wrought by near-consecutive wars beginning with
the Soviet invasion in 1979, Afghanistan was marked by widespread poverty
and its human development indicators ranked among the world’s lowest.
Challenged by geography, topography and limited infrastructure, the country
has always been decentralized, with low connectivity to and between
communities, some of which remain beyond the capacity of the central
government to administer and monitor. Traditionally a trading and agrarian
society, nearly 80 per cent of the Afghan labour force throughout the pre-war
20th century was engaged in rural agriculture.
Economic modernization and nascent industrialization began in the 1930s
with state-led infrastructure projects followed by the limited emergence of a
variety of small- and medium-scale light industrial enterprises. These
activities created a modest hub of capital in Kabul, and profits were often
reinvested towards expanding industrial growth. Export markets did widen,
and Afghanistan’s agricultural products and specialty items even reached
Europe. Political elites played a supportive and largely backseat role to
private sector decisions until Mohammed Daoud Khan became prime minister
in 1953, after which much of the burgeoning formal economy was
nationalized to promote more rapid growth and modernization. These efforts
were to be carried out through a series of five-year development plans
between 1956 and 1972, the first two of which were focused on infrastructural
projects, government enterprises and heavy industry.
However, government ministries proved technically incapable and
administratively too weak to implement an effective state-managed economy.
On the eve of war, modern industry had contributed relatively little to
Afghanistan’s economy: domestic production was unable to meet the internal
demand for consumer goods, and exports remained based on traditional
agricultural goods, which constituted 60 to 75 per cent of exports in 1977.
Despite advances in irrigation and infrastructure, agriculture continued to be
subsistence-based and only a fifth of wheat production made its way to
markets. It was also highly vulnerable to the elements: devastating drought
and famine of the early 1970s contrasts with near food self-sufficiency
achieved under positive weather conditions at the end of the decade.
From the 1950s onwards, Afghanistan’s state-led economy also became
deeply tied to international financial aid, benefitting greatly in monetary terms
from, mainly, the competition between the Soviet Union and the United States
for political influence. Foreign sources provided an average of 75 per cent of
the capital for Daoud’s five-year plans, and by 1973, they were providing
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2 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
8
nearly two-thirds of the revenue of the government itself. Aid dependency
was also related to the extremely low fiscal capacity of the government —a
perennial problem. However, this aid money was largely fixed to specific
projects, which was provided and implemented on the condition of donors’
geostrategic priorities and in line with their politico-economic ideologies.
Lack of coordination and competition among donors led to a piecemeal
development agenda over which the central government had little ownership.
Many of these projects, including large-scale irrigation projects, suffered
problems of implementation, execution, and long-term sustainability.
Afghanistan’s developmental and aid-coordination challenges of the 21st
century in fact echo those that it faced in the 1960s and 1970s.
9
1.1.2. Soviet invasion, the civil war, and the Taliban years: 1979–2001
The 1979 Soviet invasion
The Soviet invasion of Afghanistan in late 1979 marked the beginning of what
became an over three-decade long disruption of the country’s developmental
trajectory. Sequential wars and conflict would result in enormous human,
societal and economic devastation from which subsequent reconstruction
attempts must begin.
Nascent national market integration begun in the 1960s ceased as the
highway and road system became battleground. Much of the war was
experienced in the countryside, resulting in massive rural flight not only to
neighbouring countries, but also to urban centres where the population was
heavily dependent on Soviet supplies for basic subsistence commodities. The
agricultural harvest had by 1982 already dropped to only a fourth of its 1978
level. The rest of the decade and beyond would be marked by tremendous
food insecurity as well as shortages in basic goods and utilities, which neither
the state nor the formal market could alleviate.
During the Soviet occupation, Afghanistan experienced massive trade
reorientation towards the Communist bloc and isolation from Western
markets. While the government in Kabul did attempt to restructure the
economy along the Soviet command-economy model, the Soviet Union did
not discourage private sector activity. Natural gas, a sector built and heavily
used by the Soviet Union, represented a large bulk of Afghan exports in the
1980s, although gas production declined and finally ceased as active wells
were depleted and Soviet maintainers left the country. Together with Soviet
aid, nearly half of government revenue remained rentier income. However, a
more lasting economic impact was the emergence of a deleterious war
economy that would continue to function well after Soviet withdrawal was
finalized in 1989.
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ECONOMIC BACKDROP 3
The emergence of the illicit economy
As a result of the state-led development model, much of Afghanistan’s prewar urban employment was in the public sector. But as the central state
crumbled during the Soviet occupation, formal economic institutions and
employment opportunities gave way to an unregulated and increasingly
criminal economy. Trade and agriculture, areas where the private sector
dominated, increasingly became intertwined with illicit cash-generating
activities controlled by political and military power holders beyond the reach
of the disintegrating state. Smuggling consumer goods to Afghanistan and
then re-exporting them to Pakistan had been a perpetual problem since the
signing of the Afghanistan Transit Trade Agreement (ATTA) in 1965. With
the influx of unfettered foreign financial aid and arms to mujahideen groups
by international stakeholders, this smuggling began to include weapons,
narcotics, and even human trafficking.
Opium production, which spread into Afghanistan from Pakistani networks,
trended upwards through the 1980s and 1990s. Revenues were used in part to
finance the activities of mujahideen and regional warlords, but production was
also an important means of income-generation for devastated farmers. Both
rugged and arid, Afghanistan is particularly vulnerable to climatic and
environmental hazards, and opium poppy is less demanding, more adverse
weather-resistant and cost-efficient to produce than most traditional crops.
Production increased particularly after 1987, as the central communist regime
collapsed. By 1991, Afghanistan had become the world’s largest opium
producer.
Smuggling and opium production were important cash-generators for both
infighting warlords and impoverished Afghanis living under conditions of
rampant inflation. These activities were also heavily facilitated by the hawala
finance system, the unregulated means by which both licit (such as
remittances from abroad) and illicit exchanges took place. By 1990,
Afghanistan had become the single largest producer of opium, and by the end
of the decade was responsible for 80 per cent of world output. In the absence
of functional state and supportive formal economic institutions, there was
limited incentive for the economy to formalize.
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The Taliban years (1996–2001)
Infighting during the civil war destroyed what infrastructure and industry
remained in the country, particularly in Kabul. Exhausted by this second round
of violence, which included widespread predation and looting by local
commanders, the Afghan population initially welcomed the draconian security
the Taliban provided. By 1998, the Taliban had consolidated control over the
large majority of the country’s roads, transport points and customs points. The
improved stability and road access allowed for marginal resumption of
economic activity. However, efforts to build critical economic infrastructure
or the state institutions that support the formal private sector were not made.
4 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
In fact, the Taliban only cemented an illicit economy centred on smuggling
goods and drugs.
Despite promises to rid the country of opium, Taliban leadership instead
issued an Islamic sanction of it and derived revenue from its transport.
Increased security expanded the area available for cultivation, although the
bulk of production continued to come from the same two provinces: Helmand
and Kandahar. Illegal cross-border trading and smuggling became the
Taliban’s largest source of official revenue, and it reoriented economic
activity from the capital to provincial cities. This trade, which included goods
imported from Arab states of the Gulf and smuggled into Pakistan, was
estimated at over $2 billion a year. The newly independent, post-Soviet
Central Asian states as well as Iran provided additional export routes for
heroin taxed by Taliban. Beyond the service sectors surrounding the illegal
trade and opium, there was little regular economy of which to speak. The brain
drain initiated by the Soviet invasion continued. Women, who were gradually
being integrated into urban and public sector employment in the pre-war era,
were no longer allowed to participate in the economy.
However, regular agricultural production did begin to recover: cereal
production improved throughout the 1990s, and by 1998 nearly reached 1977
levels as a result of enhanced security and good precipitation. Livestock
production also improved. However, these gains were quickly reversed in the
next year, due to a massive drought that by 2001 had brought production down
to half those levels. With the influx of repatriating Afghans and population
growth post-2001, there would continue to be tremendous food insecurity for
many parts of the country and segments of society. Rather than being met in
greater capacity by domestic supply, demand was, and continues to be,
predominantly met through imports of staple crops and international
humanitarian aid.
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1.1.3. International intervention: 2001–14
The international intervention that toppled the Taliban and destroyed al-Qaeda
cells in late 2001 was followed by notable economic development. From 1980
to 2001 Afghanistan had no growth or negative growth, economic growth in
the years after the 2001 intervention has been inconsistent but robust at an
average 10.5 per cent between 2005 and 2012. However, much of the growth
was not driven by either domestic demand or supply, but by international
community presence, particularly after the surge in combat and stabilization
operations post-2009. The growth is also a function of the initial low baseline
against which is measured. Military and civilian aid grew from the ‘light
footprint’ figure of $404 million in 2002/2003 to a massive $15.7 billion in
2010/2011, which was about the same in size as Afghanistan’s total gross
domestic product (GDP) that same year. From 2009 to 2012, Afghanistan
was the world’s largest annual recipient of official development assistance
(ODA). As during the cold war, Afghanistan has again become a rentier state
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ECONOMIC BACKDROP 5
highly dependent on foreign aid rather than domestically driven economic
dynamism.
The intervention established that Afghanistan’s economy would be rebuilt
on free market-based principles. The National Development Framework of
2002 stated that one of the three pillars of the post-war state-building would be
the ‘creation of sustainable growth through a competitive private sector, which
becomes both the engine of growth and the instrument of social inclusion
through the creation of opportunity’. Yet, economic development took a
backseat to overwhelmingly security-oriented priorities of the international
community. Neither was it prioritized by the presidential administration of
Hamid Karzai. In 2008 an agenda to develop the private sector was formally
delineated through the Afghan National Development Strategy (ANDS),
whose main economic goals for 2008–13 were to reduce poverty and ensure
sustainable development through a private sector-led market economy. While
this strategy had some notable flaws, the main reasons for its weak
implementation was little input from ministerial stakeholders in its design and
limited implementation support from top-level government.
Despite wide consensus by domestic and foreign state-builders that
Afghanistan’s economy should be propelled by the market, little has been
effectively done in the last decade to build the governance mechanisms
necessary for an inclusive, formalized, and competitive marketplace.
Insufficient effort has been made to support the economic engagement of the
underprivileged: the (rural) poor, women and Afghan youth. The state’s
administrative umbrella is far from able to cover, or even account for, much of
the economic activity in the country. Informal and unregulated markets have
continued to dominate, stretching from licit but unreported micro-, small- and
medium-enterprises (MSMEs) to criminal activities, of which opium
production and smuggling continue to form the bulk. In the absence of
sustainable alternative livelihoods and strong demand, Afghanistan’s drug
economy has soared since international intervention. Despite the billions of
dollars spent on counter-narcotics efforts, poppy production has expanded to
nearly all of Afghanistan’s provinces from its concentration in two during the
Taliban years. The export value of opium was 61 per cent of the licit GDP in
2004, and while this figure has since declined in relative terms (partially due
to overall national economic growth) the area under poppy cultivation was
Afghanistan’s highest on record in 2014. Along with the black market trade
and smuggling, such activities represent flourishing markets outside of
government control. Indeed, such illegal activities form what Weinbaum refers
to as ‘a capitalist intensity that in another enterprise would be laudable’, with
spillover effects to the rest of the economy.
Economic activity—even in broader terms—remains far from ‘free’ from
extra-market conditions: these include not only recognizable corruption, but
also distortionary interventions by political elite and power brokers (including
in illegal activities), the use of coercive measures and control over input
resources to hamper competition, and even socio-cultural norms that
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6 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
discourage inclusive participation for women, among a host of issues. The
persistence of mafia-like networks, whose activities blur between the licit and
illicit economy, reflects not only state regulatory failures, but also longstanding historical patterns of informal institutions as well as new dynamics in
a war environment where risks are high and social capital is accordingly low.
While the state framework can be improved through policy interventions,
broader trust in society and in markets requires time and increased positive
socioeconomic interactions to be built.
Nevertheless, there have been notable successes. A nationally integrated
market is slowly emerging, in part due to the rehabilitation of highway
transport infrastructure. Vehicles on the road have increased from under
200 000 in 2003 to nearly one million. The telecom and media sectors, led by
private corporations, have seen tremendous growth. From 2 telephones for
every 1000 Afghans in 2002, there were over 20 million mobile subscriptions
in 2012. . It should be noted that the telecom and media sectors entered a
market that lacked established players, posed very steep financial entrance
barriers, and was not subject to the challenging topography of the country.
While international trade remains heavily imbalanced, certain light
industries such as shoes and plastics manufacturing have seen annual
production increases (this does obviously not guarantee sales at a profit), and
Afghanistan is now completely self-sufficient in beverages. More generally,
agriculture continues to form a notable part (25.45 per cent of GDP in
2012–13) of what is an otherwise services-oriented economy (50.29 per cent
of GDP in 2012–13), although the proportion both in percentage of GDP and
employment terms has reduced in recent years. The absorptive capacity of the
agricultural sector in Afghanistan is increasingly under question as
urbanization proceeds. However, it continues to have the largest jobs potential
vis-à-vis other sectors, particularly considering the country’s human capital
conditions.
Despite more money having been spent on Afghanistan than was provided
after World War II to the entirety of Europe under the Marshall Plan (in real
dollar terms and corrected for inflation), the country remains one of the least
economically developed countries in the world. Social indicators, while
improved, remain low: in 2012 the adult literacy rate (15 years of age and
over) was 31.4 per cent; 45.4 per cent for men and just 17.0 per cent for
women. The country’s median age is estimated to be 17.1 years in 2015,
making it one of world’s youngest populations. While in theory, youth have
great potential to engage in Afghanistan’s private sector, they will need
quality vocational training, education and corresponding employment.
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1.2. Macroeconomic policies
While the Afghan Government and the international community have
provided only nominal support to Afghanistan’s private sector, relatively
stable macroeconomic policies have been in place since intervention. This has
ECONOMIC BACKDROP 7
been quite remarkable considering how insecurity, and at times looming
political instability, overshadowed the economy. Debt has largely been
relieved (it was 6.5 per cent of GDP in 2014) and the average inflation rate
(consumer price index) has been single digit in the past 10 years (it dropped to
4.6 per cent in 2014 from an average 8.1 per cent in 2005–14). The currency
has been stable, even if overvalued and as a result of constant US dollar
influx. The overvalued exchange rate has benefitted Afghanistan’s imports
but has negatively affected the private sector’s export competitiveness. While
the exchange rate has been steady since 2002, it has progressively depreciated
vis-à-vis the US dollar and euro since 2011–12. This places the private sector
in a more volatile and uncertain situation. Foreign reserves, which were stable
as of the end of 2013, were utilized to make up the shortfall in revenues in
2013–2014.
The triple (political, security, and economic) transition has augmented a
number of vulnerabilities: a fiscal gap (the budget deficit excluding
international aid) has risen, an estimated 20 per cent of the 2015 GDP, that can
only be filled through external financial support this year and most likely in
the foreseeable future. As an extension of the political transition, rampant
corruption and the poor enforcement of tax collection and customs control, tax
revenues fell from 11.6 per cent of GDP in 2011 to 8.4 per cent in 2014.
Fiscal revenue collection, which has been a perennial challenge in
Afghanistan, remains weak and vulnerability will remain high over the
medium term. The Afghan Government needs revenue—tax or non-tax—to
independently fund the Afghan National Defense and Security Forces
(ANDSF), which at approximately $5 billion per year is equivalent to
approximately 20 per cent of the GDP and is currently financed by the
international community, and to fund the mounting public goods and services
the country needs. Non-traditional forms of finance (e.g. sovereign wealth
funds, SWF) and new project financing modalities such as public private
partnerships (PPP) should be considered.
In 2010 the banking and financial system was rocked by the Kabul Bank
fraud case: this has made formal finance channels less diverse and more
difficult to access, as well as a less appealing for many private sector actors.
Protracted insecurity, doubts over the longevity of the National Unity
Government (NUG), and sensitivity to drought, fuel and food prices
compound this impediment and work destabilizing for macroeconomic
stability. The NUG needs to urgently mobilize revenue, pursue financial sector
reform, and instil confidence in the Afghan economy. In its bid to greater selfreliance, the NUG has commenced macro-fiscal reforms, yet these require
time to mature.
Finally, Afghanistan faces a tremendous trade imbalance: $7.12 billion in
2014, resulting in a nearly 1:14 ratio. The total estimated trade deficit was
37.9 per cent of GDP in 2014. Afghanistan has a trade deficit with its four
largest trading partners (Pakistan, India, USA, EU, by rank in 2014) and its
imports account for 80–90 per cent of total consumer market value.
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Neighbours continue to utilize Afghanistan as a dumping ground for lowgrade goods and edibles that its own private sector could, to a certain degree,
competitively produce itself. Well-designed and tuned economic policies that
protect infant and strategic industries from unfair foreign competition, keeping
in mind possible negative spillovers from these measures will be necessary to
mitigate prospect of an uncertain macro-economic future.
1.3. The Afghan economy in transition
At the dawn of the transformation decade (2015–24), the Afghan economy
continues to be spurred by external aid. The significant amount of aid and vast
international military spending post-2001 has re-ingrained a culture of aid–
rentierism: the Afghan elite competes internally for political rents from the
international community. The Karzai administration was disinterested in
facilitating a more inclusive private sector. The little wealth there is in the
country is inequitably distributed, and the rich-poor gap has been widening.
In 2014 the United Nations Development Programme ranked Afghanistan
169th out of 187 in human development worldwide and the lowest in Asia.
Afghanistan’s GDP in 2014, $20.8 billion (in current prices) and still a mere
$659 per capita, ranked at the bottom 15 worldwide (where the country was
positioned in 2001) and was also placed last position in Asia. Average GDP
growth in 2015 is anticipated to be 1.9 per cent, inadequate to alleviate
poverty when set against the population’s 2.7 per cent growth rate.
Now that the triple transition has been largely concluded, the business
climate is affected by an additional three major factors: (a) uncertainty over
longevity and effectiveness of the NUG; (b) a thus-far deteriorating security
environment; and (c) economic reorientation. Doubts about the longevity of
the forced marriage by means of the NUG between President Ashraf Ghani
and Chief Executive Officer (CEO) Abdullah Abdullah and corresponding
alleged bipolarization of political bases have contributed to discouraging
domestic investment. The insurgency that has recently spread activity
vigorously throughout the north and northeast of the country only exacerbates
the situation, as does the presence of the Islamic State of Iraq and the Levant
(ISIL) the country. Peace talks between the government and the Taliban have
been held in 2015, but it is too early to assess the outcome of this.
As the security situation is likely to remain unstable over the short term it
would be ideal for the private sector if the state would bear return on
investment risk and lay the foundation for economic development by investing
in hard infrastructure to support and link domestic markets and attempt to
secure safe(r) access to neighbouring countries and sea ports. To do this, the
state will need to increase its revenues (both tax and non-tax sources). In
doing so, the state will need to provide incentives to the informal economy to
formalize, but without security and public service delivery in return this will
be an impossible mission to accomplish. Public–private partnerships (PPP) are
a possibly viable alternative. The promising extractive industry could be
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leveraged by PPPs and/or the setup of state-owned enterprises (SOE) to
generate much-needed tax and non-tax revenues for the government.
In its need to reorient the economy towards one that is indigenously driven,
the Afghan Government and the international donor community face some
serious hurdles: more than 80 per cent of the population lives in
underdeveloped rural areas and urban centres do not have the current capacity
to host or employ them. About half a million new entrants join the labour
market each year: they unite with about the quarter of the labour force, some
1.8 million, who are either unemployed or underemployed. In theory, and
depending on a number of determinants, the agricultural sector could absorb
many of them, yet international donors have surprisingly neglected this sector
until about 2008. The vast majority of the labour force—60 per cent in urban
Afghanistan and nearly 70 per cent in rural Afghanistan—is employed in the
agricultural sector, many of which are still family-run and done so on a
subsistence level. During the period 2001-2005 the formal agriculture and
service sectors averaged near equal shares of the Afghan GDP each totalling
just under 40 per cent of the GDP. In 2012–13, services (dominated by
transport and storage) contributed to over half of GDP (50.29 per cent), with
agriculture following at 25.45 per cent and industry at 20.52 per cent. A
reorientation is anticipated, as the services’ share is unsustainable against a
backdrop of decreasing international community presence.
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1.4. Conclusions
The convergence of decades of foreign interference and the imposition of
competing economic ideologies; weak state capacity and economic
mismanagement; protracted conflict that resulted in the destruction of
infrastructure and formal institutions; and dependence on external aid has
created an unsound ‘conflict economy’. The economy is largely a synthesis of
illicit and informal economic activity. The Afghan private sector is not ‘free’,
productive, or competitive. The Afghan elite continues its sway over
economic resources through patronage networks and coercion.
The NUG has expressed clear commitment to fostering the private sector.
However, fundamentally, the private sector has witnessed limited positive
change to date since the NUG took over in September 2014. The NUG is
attempting to reform a number of macroeconomic policies, but these take time
to mature. Growth is expected to remain sluggish over the medium term, and
fiscal vulnerability high. In the process, unpredictability prevails and
investment horizons remain short term. Amid contracting aid recourses and
ongoing insecurity, post-transition economic instability is likely. A toxic set of
conditions has created a deadlock: the government can neither kick-start the
economy nor provide the core public goods and services necessary for the
formal private sector to blossom.
The Afghan Government will have to come up with bold, ingenious, and
well-coordinated solutions to gradually break the economy out of this
10 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
stalemate. This requires the government to take share investment risks with
the private sector and generate economic activity and subsequent jobs for the
large un- and underemployed labour force. Alternatively or in parallel to this
approach, it will have to increase investor and consumer confidence through
building a more business-friendly environment. Adjusting economic policies
to reflect domestic and regional economic realities would be one such
measure. In the absence of such initiatives, the economic ‘transition’ will
simply be a continuation of a largely aid-sustained status quo.
2. Framing the private sector
2.1. Formal vs. informal economy
Formal jobs represent only around 9 per cent of the total share of employment
in Afghanistan, 20 per cent of which are in the public sector. The public sector
dominates the formal labour market and provides twice the number of private
sector salaried jobs. At least 65 000 enterprises are formally registered, but
this figure may not accurately represent the myriad businesses that may
register with local authorities and municipalities. Comprehensive national
data on this has not been aggregated, collected or updated. Even less is known
regarding the informal sector.
Formal economic institutions have only recently been re-introduced in
Afghanistan and still have limited reach. In fact, estimates made in 2005 that
80–90 per cent of Afghanistan’s economic activity is informal have not
changed over the past decade. Informal economic activity encompasses all
economic activities that take place outside of the government’s regulatory
framework, from subsistence and in-kind transactions, licit but unregistered
activity, to irregular or illegal distribution and production of goods and
services. In Afghanistan as well as other developing countries, the
relationship between the formal and informal economy is often fluid,
encompassing the same human networks, as well as utilizing the same
unregulated economic resources.
There has been positive spillover from informal sector-led growth. Capital
accumulation in the informal sector can serve to the benefit of the formal
sector, by increasing consumer purchasing power and providing a source of
investment. The informal sector also plays a strong role in poverty reduction
through employing and servicing markets at the bottom of the pyramid.
Indeed, as the World Bank in 2005 stated, informal activity ‘has been largely
responsible for [Afghanistan’s] recent economic recovery and dynamism’. At
the same time, however, widespread informality—even when licit—does
place a ceiling on development. By acting parallel to and competing with
official economic governance systems, informality leads to a vicious cycle in
which the government is unable to generate the resources necessary through
taxation to provide an enabling environment for formal businesses. Roles that
the state could play related to welfare and labour protection are also reduced;
currently, socioeconomic safety nets are provided through informal channels,
which create additional disincentives to formalize.
In general, incentives for formalization by licit actors remain low. A survey
conducted in 2011 with small-scale business actors revealed that registration
brings few benefits in terms of government service delivery, contract and law
enforcement, government protection (including for labour), or access to
affordable finance. Formal businesses instead often face costs in terms of
entry requirements, taxes, extortion and corruption by officials, as well
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lengthy and complex bureaucratic processes. Distinctions are generally made
between barriers to formalization: lack of information or confusion regarding
procedures, literacy, or problems of access in rural Afghanistan—versus
conscious decisions to stay informal based on the above cost–benefit analysis.
Policy interventions are necessary at both ends. However, research has also
found an ‘informality of indifference’—whereby formal procedural and legal
changes but low state capacity has simply not altered pre-intervention
economic patterns. To date, little has been actively done to encourage or foster
informal businesses to build a relationship with the government, and it will
take time before the government earns the private sector’s trust and decides to
formalize.
As the Ministry of Commerce and Industries (MOCI) has stated, ‘for the
private sector to expand . . . and fulfill its role as the main engine for growth,
additional efforts must be made to address the needs and maximize the
contribution of the many informal enterprises, family-run farms and selfemployed men and women that conduct business there’. There is a need for
the state- and policy-shapers to build a relationship with licit informal sector
actors, to include Afghanistan’s more traditional trade associations.
Government and stakeholder processes and forums should not only take into
account the thin formal sector of registered businesses, the public sector, and
non-for-profit organizations, but also include the viewpoints of the vast
majority of Afghans whose activities remain unaccounted and unspoken for.
Informal workers, for instance, are not included in the 2007 Labour Law. In
this, particular care should also be taken to unpack the differential layers of
vulnerable or disadvantaged populations—including women, child labourers,
migrants and refugees—who are involved in informal activities.
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2.2. Economic integration
Integration with global markets has been both a curse and a blessing for
Afghanistan’s struggling economy. The availability of foreign products and
services increases consumer options, but goods from more mature, developed,
as well as state-supported economies crowds out market space for
competitively disadvantaged Afghan producers. Imports allegedly account for
more than 80–90 per cent of the consumer market, and the trade imbalance is
severe.
Regional economic integration has been widely touted as a panacea for
development. Afghanistan, indeed, has the potential to become the transit hub
that connects Central Asia with South Asia, and South Asia with the Middle
East. There are prospects of positive economic spillover with loosened
sanctions against Iran, whose Chabahar seaport could be a critical access point
for Afghan trade. However, dialogue on regional economic projects continues
against a backdrop of a heavily politicized regional environment (see 3.1.4). In
many respects regional economic integration, particularly with neighbours
Iran and Pakistan, is strong, albeit unbalanced. Trade agreements with
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neighbours often disadvantage Afghanistan—that is, when they are enforced.
What is needed is equitable and more rule-based economic integration.
Beyond the competitive advantages they have over Afghan businesses, a
number of foreign producers are also backed by government subsidies and
higher import tariffs—which further disadvantage Afghan exports. Currently,
Afghanistan is in the third stage of its ascension process to the World Trade
Organization (WTO). This will bring national industries and policies (closer)
in line with global standards, but questions remain as to how Afghanistan can
be competitive on world markets, and how nascent and budding industries can
survive if the country is plunged into these international institutions.
Precaution is advised.
Afghanistan’s current liberal trade regime is a product of low state capacity
as much as design: trade channels remain mostly irregular, and the bulk of
what could be appropriated as customs revenue continues to be lost to
smuggling and corruption. Thus, while Afghanistan serves as a dumping
ground for neighbours’ products, those neighbouring markets remain more
closed to Afghan goods, with trucks often stalled and stopped at border
crossings, damaging perishable products. Afghanistan’s power to negotiate
better terms over the past decade has been weak. Furthermore, what licit
goods do cross over are often raw materials or lower-value products that to
which neighbours add-value and capture the bulk of profits. Higher-value
products are exported, but are often relabelled and resold at higher prices to
other parties.
Afghanistan’s domestic market is weakly integrated. Rather than a single
economic space, there are instead a number of localized markets. Urban
centres are weakly connected with rural areas in infrastructural (and by
extension economic) terms. The largest provincial capitals—Herat, Mazar-e
Sharif, Kandahar and Jalalabad—are more economically integrated with their
adjacent neighbours than they are with each other. At the same time, in crossborder trade policies, beyond problems of heavy corruption, customs are often
not harmonized across borders. These price differentials are liable to, and have
been, exploited by traders to the detriment of local producers.
Fragmentation also goes beyond limited infrastructure and physical
connectivity, to include challenges of socially closed and relational trade and
business networks. This lack of internal integration exacerbates the problem of
broken value chains and market access, keeping the economy at the lowest
rungs of domestic, regional, and global economic value chains. Existing
domestic needs—not only for final products but also for pre- and postproduction inputs that could be met in-country—often remain unmet and
supply-demand linkages underdeveloped.
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2.3. Private sector actors
The vast majority of Afghans (some 90 per cent) are employed in
establishments with less than five employees, a clear majority of those with a
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sole proprietor. A facilitating private sector environment for microenterprises is instrumental in overcoming poverty and in employing the
country’s workforce, particularly for women and youth.
While Afghanistan’s few large enterprises are currently relatively marginal
to employment, they do play an important role in generating government tax
revenue, attracting foreign direct investment (FDI), providing certain critical
services (such as telecommunication and construction), introducing
technology and management standards and catalysing the establishment of
smaller enterprises. Foreign ownership outside of the services sector
connected to the international presence is limited and mainly concentrated to
technology-intensive industries, such as extraction and telecom. Large
Afghan-owned enterprises typically have an ownership and management
structure involving male members of the same family. A handful of large
business groups date back to before the Russian invasion, while a new set of
successful entrepreneurs emerged with the post-2001 service-driven economy.
Even when they maintain a core line of business, the large corporate groups
tend to be active in several sectors, foremost logistics, trade, finance, security
and construction, as a means to support their main business, spread the risk or
to reinvest profit. Many Afghan business groups, even when headquartered
overseas, maintain a strong commercial base in their region of origin, where
they often have ties to the ethno-political establishment. While this model
reinforces the existing configuration of interests and sidelines entrepreneurs, it
is, however, also a way for these enterprises to reduce risk in the volatile and
insecure environment, and, at large, maintain investment in the Afghan
economy.
While formal business organizations have only recently been introduced in
the country, the numerous urban micro- and small-enterprises in
manufacturing, retail and services have long organized in senfs (sector-based
guilds) where they cooperate on common issues and resolve disputes. This
model makes them more resilient to external shocks, while it should be noted
that it may also create entry barriers to outsiders by setting limits to free
competition. With perhaps 500 000 such micro-enterprises active across the
country, they are a substantial source of employment and apprenticeship,
largely in the informal sector. The Federation of Afghanistan Craftsmen and
Traders (FACT) for instance, has 75 000 members, many of them with
informal businesses, organized in some 1000 senfs. Considering the rapid rate
of urbanization and the role of these actors in engaging mainly male youth
(particularly as apprentices), the sustainability and adaptability of these longstanding economic institutions will only increase in importance.
The more contemporary organized private sector emerged through
cooperation between Afghan businesses and the international community
which shared a mutual interest in improving business conditions. Several of
the important recent business-environment initiatives in the country have been
grant funded through Harakat, a non-governmental organization supported by
the British Government’s Department for International Development (DFID).
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The Afghanistan Chamber of Commerce and Industries (ACCI) is considered
to be the country’s leading national business organization. It was developed
through a merger of a MOCI-controlled agency and a chamber founded by
prominent Afghan businessmen in 2004 to promote investment. While its
independence of major business interests has been questioned, ACCI is the
only voluntary membership services association with a voice in policy
advocacy available to broader layers of the formal private sector. Several
business organizations are represented in ACCI—including FACT and the
Afghan Women’s Business Federation (AWBF), the main national umbrella
organization for women active in business. The capacity of the AWBF and a
handful of other existing, mostly donor-initiated, organizations and networks
is currently wholly inadequate to face the many challenges facing
economically active women, both in terms of advocacy and everyday support.
Although most female business owners and employees face various forms of
discrimination, the commonalities between the country’s economically active
women may otherwise be tenuous. Still, the importance of these associations
is obviated by their role as sole representatives of Afghan women in the
private sector.
A final important point to note is the disproportionate concentration of not
only private companies to urban areas but also the lack of organized private
sector in agriculture and agricultural processing. Rural employees mostly lack
the corresponding organized representation of interests made possible by
FACT. As agricultural processing accounts for 90 per cent of the country’s
manufacturing and agriculture employs some 60 per cent of the workforce,
this lack of representation is problematic. This is partly explained by the
dispersed population and by differential needs engendering other forms of
cooperation, but as much hope is pinned on productivity increase in the vital
agricultural sector, the need for mechanisms to safeguard investment and
labour rights will increase.
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2.4. Sectorial conditions
2.4.1. Agriculture
Agriculture is commonly cited as the sector with the greatest potential for job
absorption and economic impact on rural Afghanistan, where over 80 per cent
of the poor are located. As of 2014, 40 per cent of the labour market is
employed the agricultural sector, but much of this employment remains on a
low-productivity basis and/or is at subsistence levels. In order to keep pace
with population growth, the World Bank estimates that agriculture will need to
grow at 6 per cent annually for poverty reduction to be achieved. On the
ground, however, there have not been structural and sustained productivity
increases. Output primarily depends on weather conditions in any given year:
for example, negative agricultural growth in 2008–2009 was followed by high
productivity upwards of 40 per cent the next year, which in 2010–11 was yet
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84
again negative. Absent more structural improvements such as in irrigation,
the sector remains highly vulnerable to environmental stresses.
Beginning in 2002, a variety of strategies and plans have been developed to
enhance and improve the agriculture sector of the country. Approaches have
not been entirely consistent, and certain major donors have worked on
assumptions that increased production and market linkages would very
naturally lead to increased food security and a reduction of poverty (i.e. an
emphasis on ‘growth’ versus ‘pro-poor growth’). However, evidence reveals
that, for the country’s most vulnerable, commercial agriculture may still be a
step too far. Programmatic evidence from rural enterprise development
programmes shows that when farmers are unable to guarantee basic
sustenance, the riskier endeavour of producing for markets is much less
appealing. Likewise, the World Bank’s 2014 agricultural sector review
recognizes that promotion of commercial agriculture, while necessary to
stimulate quick results in agricultural growth, will have limited impact on
those who are engaged in rain-fed farming, for nomadic livestock systems and,
in fact, for the majority of farmers who operate on a prohibitively small scale,
with limited access to factor inputs.
Noting that these will require more developmental interventions, the World
Bank has identified three key commodities (‘first movers’) that have the
greatest commercial agriculture potential and have been assessed to be able to
quickly generate jobs and incomes: irrigated wheat, horticulture
(encompassing vegetables, fruits, nuts, spices and other higher-value cash
crops) and intensive livestock and animal husbandry (meat, poultry, dairy and
animal-derived products). As a staple crop, wheat is essential for basic food
security, but the comparative and competitive advantages of domestic
production are not clear. Horticulture is comparatively labour intensive
compared to wheat, and women are substantially engaged in cultivation and
harvest. In quality terms, Afghanistan’s horticultural products have proven to
be internationally competitive. For example, Afghan saffron is widely
recognized to be of very high quality; it is also a labour-intensive crop that can
generate employment opportunities for women in particular. Fruits grown in
Afghanistan have also won first-place awards in international competition.
Livestock and animal husbandry ‘constitute(s) perhaps the most inclusive
production activity in Afghanistan’. Women are heavily involved in the care
of livestock and in the dairy sector, with most farmers in general operating on
a small-scale. Demand for meat is strong and growing (an estimated $3 billion
in annual consumption); with two-thirds of this demand being met through
imports, there is an ample market for domestic producers. Despite having
2 million dairy cows, Afghanistan still imports the bulk of its dairy products,
worth $42 million annually. In principle, the perishability of milk products
favours domestic producers, but the lack of dairy processing and
pasteurization plants is a major hindrance. In instances where facility
investments and market linkages have been made, this study has found that
domestic dairy production is commercially viable. Altogether, agriculture—
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almost entirely horticulture and/or livestock derived products, not including
rugs or carpets which also depend on wool material—constituted 75 per cent
of Afghanistan’s official exports in 2014–15.
These and similar commodities valuations may be useful to both
development, private sector and government actors, but the question remains
as to what support mechanisms are provided on the ground. The World Bank
recommends ‘commercial development of selected value chains, targeting
commercially oriented farms that can be linked to these chains on a business
basis’. A variety of programmes have taken this approach and preliminary
evidence, including fieldwork for this study, shows that there have been
positive outcomes from these market support programmes. As in other
sectors of the economy, commercial agriculture still faces key constraints at
every part of the fragmented value chain—from limited irrigation, to
perishability and transport, as well as many other post-production processes
that are necessary to bring Afghan products into, and make them competitive
in, the marketplace. Finally, while agriculture does indeed have substantial
absorptive potential, rural-to-urban migration, as laborers flock to cities both
seasonally and more permanently in search of economic opportunities, may
also limit the transformative economic impact of the sector.
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2.4.2. Mining
Afghanistan has rich resource deposits of mineral and natural resources. In the
medium to long term the extractives industry is among the most viable exportled growth and revenue generation options for Afghanistan. Should the
extractive industry take off, it would be a significant and sorely needed source
of revenue for the state. However, even optimistic estimates regarding the
sector’s development are clear that these resources ‘will not in itself be
transformative and may not be a source of inclusive growth’. According to the
World Bank and assuming the sector even moves forward, by the 2020s
mining would only likely create 10–20 000 direct jobs, mostly skilled or semiskilled labour—with little benefits going towards the poor or to women.
Furthermore, the derived revenue—an estimated 700 million to 1.5 billion by
the 2020s—would be ‘insufficient to replace aid flows’. The Afghan
Government is more optimistic about this sector and estimates that in the bestcase scenario it could possibly create an economic turnaround in some
10 years.
There are ideas for linking resource development to pro-poor growth,
however. The World Bank’s ‘resource corridor’ concept suggests that the
mining sector could have great spillover effects: stimulating local and diverse
downstream enterprises, creating indirect jobs and providing infrastructure
(hard and soft) that could be utilized for other key sectors with more poverty
alleviating impacts. The MOCI also suggests the establishment of a special
fund utilizing mining revenues that would go towards stimulating more
diverse industries and smaller actors. These remain at the ideational phase, as
mining in the country has stalled. Innovative partnerships between the Afghan
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Government, the Afghan private sector and international investors will be
necessary to tap the potential of the extractive industry. Responsible economic
management of these natural resources will be necessary, without which
resource dependency can have negative impacts on governance, development
and stability.
2.4.3. Industry
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Industry encompasses a little over 20 per cent of Afghanistan’s official GDP.
It remains relatively unsophisticated, with 90 per cent of manufacturing
accounted for in agricultural processing. As the relevant ANDS National
Priority Program (NPP) put its, ‘the manufacturing sector is tiny, exportorientation is minimal, and most producers, with the exception of a few agroprocessors, source their raw materials from abroad’. Manufacturing is seen
as a higher-risk, with larger upfront and fixed investment, longer maturation
and dependence on a more complex production supply chain. Competition
from foreign producers also reduces profit potential. Where productive
industries have been successful, such as in beverages, this is due in part to the
raising of tariff barriers, large-scale contracts with international military
presence, as well as the transportation-shielding effect of shipping imports. In
the interviews conducted for this study with Afghan industrialists, they noted
that the overwhelming constraint on their growth was unfair competition from
neighbouring countries: illegal dumping, export and customs problems, and
non-tariff barriers that fly in the face of trade agreements.
Nevertheless, a low-risk industrial policy was developed by the MOCI in
2011, to encourage the growth of small- and medium-enterprises (SMEs),
substitute imports, increase exports, and to facilitate ‘pro-poor growth’. The
policy identified as priority those sectors in which Afghanistan is competitive
across entire value chains, in which raw materials were readily available
in-country, that are ‘labour-intensive with a strong rural presence’, with low
entry barriers, low technological requirements, and which used existing human
resources and skills. Furthermore, the sectors were identified as ones within
which Afghanistan can move up the value chain. These sectors were agriprocessing, livestock skins and leather, carpets, construction (and construction
materials), marble and gemstones. Action plans were developed by line
ministries to boost each of the sectors. Certain concrete gains have been made,
but it is difficult to attribute most them to organized to these public
interventions.
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2.4.4. Services
An overwhelming amount of SMEs are engaged in trade and retail, up to
80 per cent according to the MOCI. While trade and retail are key for
providing goods to markets, they are of limited value in terms of job
creation. Trade is attractive for a number of reasons. As research has found,
the uncertain Afghan business climate creates strong incentives to ‘focus on
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short-term trading at the expense of long-term productive enterprises’ and to
invest in the ‘highest-margin businesses that require the least amount of
capital that produce benefits in the least amount of time’.
But the tertiary sector more broadly has accounted for most of the economic
growth in the country over the past years. From 2003–2009, 59 per cent of the
new GDP growth came from logistics, construction, and other services—
driven in large part by the international presence. This had some albeit limited
job creation and trickle down effect. These sectors were hard hit during the
triple transition, with a net negative impact on GDP in 2014–15. This may be
particularly in pronounced in regions with larger international presence. The
construction sector in Kabul has remained surprisingly stable due to strong
urban housing demand and potentially provides jobs for casual urban
labourers. New housing units themselves, however, remain largely
unaffordable for the bulk of the population.
Telecom has been the major success story of Afghanistan, with 90 per cent
of the country covered and over 80 per cent market penetration. This digital
network—which links all but the most remote parts of Afghanistan—can no
doubt be used to produce development results, not only for educational
outreach and public service provision (including e-governance) but also to
promote economic activity through access to information on markets and
pricing.
Financial services are still nascent in Afghanistan, with only 3 per cent of
the population banking through formal channels. For the vast majority of
Afghans, such financial transactions continue to take place through personal
networks and the informal hawala system—though some banks are exploring
sharia-compliant options to help penetrate this market. Commercial lending is
key for business development, but for most SMEs, loans remain prohibitively
costly for smaller actors. Microfinance more deliberately aims at
socioeconomic inclusion, and in other countries it has played a strong role in
stimulating growth at the bottom of the economic pyramid. In the Afghan
context, microfinance may be of mixed or limited overall impact: among other
problems, it has been noted in research that rural Afghans primarily borrow
money for consumption purposes. In many cases donors have also acted
directly as financial service providers, through matching grant schemes or
providing finance at programmatic levels.
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2.5. Government legitimacy and the social contract
Since the Afghan state was established in 1880, the social contract has been a
perennial experiment. Two socio-political experiments in the 20th century—
King Amanullah Khan’s in the 1920s and the Soviet-backed Communist effort
in the late 1970s—failed. Historically, Afghan households have sought
welfare through informal and even illicit means rather than through the formal
economy since neither the state nor the formal market could adequately meet
the needs of the population, particularly in rural Afghanistan. These two
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experiments further eroded trust in the state. Since 1978 the state has gradually
become, for many, the enemy, and since the 2001 international intervention
many, including urbanites, see the state as predatory, and for some even as
artificially imposed. This is despite the fact that ‘firsts’ in the Afghan social
contract—such as political representation, human rights protection and
electoral participation—have been introduced. Some see these as veneer, as
the Karzai administration did not prioritize upholding their integrity. The
social contract has thus to be proven efficacious by the new administration.
To understand Afghanistan’s dysfunctional social contract and the manner
in which it affects the private sector, its root causes need to be understood.
These are multifold:
1. The Afghan Government has traditionally provided limited public service
delivery, especially in rural Afghanistan and to women and youth in particular,
and this has affected how Afghan entrepreneurs and consumers still perceive
the role of the state. Perceptions differ across the country and many perceive
the state as an intruder or an obstructer. Some await the state to provide public
services and goods that could foster their business.
2. The Afghan Government has been unable to provide stability to the
Afghan people since 1979 and has failed to provide and facilitate either
physical or human security since 2002. International community state building
efforts following the Taliban collapse had an overly technical orientation, the
domestic and regional politico-economic context was not sufficiently taken
into account. The Taliban was kept outside of the political processes that
followed the Bonn Conference in 2001, which reinforced the Taliban’s view
of the Afghan state as illegitimate and fuelled the subsequent insurgency.
Insurgent activity has and continues to severely hamper the business
confidence climate.
3. Systemic kleptocracy and rent-seeking nurtured and sustained by the
Karzai administration, from the top to the sub-district level, gravely
undermined the state’s perceived legitimacy as a guarantor for a facilitating
private sector. The NUG now has the daunting task of uprooting engrained
corruption and pursuing performance-based legitimacy.
4. Three decades of conflict have damaged the social fabric and affected the
‘social covenant’ (i.e. social bonds and trust). Business cooperation is
preferably, but not exclusively, conducted intra-ethnically, while ownership is
largely managed intra-family. While this is arguably more prevalent post1979, it should be noted that this has been the case prior to the events that
have taken place since USSR invasion.
5. The largely rugged and harsh mountainous topography of landlocked
Afghanistan is disadvantageous to social cohesion and public service delivery;
this also affects market connectivity.
To entrepreneurs in Afghanistan the disincentive to formalize and pay taxes
is exacerbated by administratively and technically weak governing bodies, the
absence of a functional and more inclusive private sector, and, as noted above,
systemic kleptocracy. Afghan entrepreneurs are not incentivized to formalize
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their businesses and pay taxes if the state is perceived as predatory and fails to
deliver public services and goods. The size of the informal economy bears
witness to this. A section of Afghan youth eschews the private sector
altogether in light its many insecurities and poor labour conditions and rights,
and instead prefers public sector employment. Poor livelihood prospects in
the Afghan private sector are also an incentive for Afghan youth to embark on
illicit and insurgent trajectories: some Afghans are willing to commit a major
crime for as little as a one-off $200 payment. Absence of employment
opportunity and the deteriorating security situation has also led to a surge in
illegal immigration to Europe and elsewhere.
A cohesive society is a prerequisite for a successful state, and where social
cohesion is limited, political fragmentation and weak governing bodies are
more likely to feed on each other in vicious cycles. In an attempt to cement
legitimacy, the NUG will have to ‘break’ this mutually reinforcing dynamic
through sound economic and social policies that bring demonstrable
differences to the populace. The private sector is one, important, way to
accomplish this.
International community efforts can make valuable contributions to
government legitimacy, for example by supporting state efforts to create a
more facilitating environment for the private sector. In the process, to make
sure that international direct market interventions do not erode state legitimacy
by circumventing the state, it is indispensible that programmes are
implemented in close coordination with the government and other
international contributors—and that they are also presented to the Afghan
private sector and civil society as such. A more inclusive and sound Afghan
private sector contributes in turn to stronger human and traditional security. It
is, therefore, essential that the international community help foster the
capacity, transparency, and effectiveness of Afghan Government institutions.
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2.6. Legislation, enforcement and government policies
Already in its earliest days the NUG reaffirmed the government’s commitment
to private sector growth as the driver of the country’s development. However,
not only does the government lack the financial and human resources, the
administrative and technical capacity, and the provincial reach to foster the
private sector—it has often been an active part of the problem.
The government’s strategy to support the private sector has not been
consistent, and its implementation uneven at best. There has generally been a
structural absence of coordination, sometimes even based in ministry and
agency competition. Thus, the Presidential Office and several ministries and
agencies have been involved in various capacities. The Ministry of Commerce
and Industry (MOCI) General Directorate for Private Sector Development has
so far been the only agency with direct focus on supporting the private sector,
but it has not had full control over policy implementation. Nearly a year after
NUG was formed, private sector policy responsibilities within the state
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apparatus have also not yet been fully clarified and further reconfiguration
seems likely.
Commercial legislation has been the subject of ongoing reform since 2002,
resulting in adopted laws on, for example, business structure, partnerships,
arbitration and mediation, and several other laws are in the process of
amendment. The final version of the much debated minerals law, adopted
in 2014 and as of 2015 under further amendment, will be an indicator of the
NUG’s ability to reconcile the need for foreign investment with equitable
resource and revenue utilization and public transparency. For domestic
businesses of every size, the lack of a sufficiently unambiguous legislative
basis for investment protection of fixed assets is a major problem. The NUG
has commissioned international law firms for a general oversight of national
legislation, but the process of resolving inconsistencies, amending laws and
obtaining parliamentary approval is likely to be lengthy, not least due to
political-economic vested interests.
However, the arguably most important concern for businesses is in the
unpredictable implementation of legislation. In the field of government
procurement, the ANDS recognized the telecom industry as a model for
ensuring transparency and efficiency for regulatory authorities in several
sectors. Still, in many areas contradictory and overlapping legislation gives
opportunities for misuse by officials, exacerbated by the lack of (legal)
literacy among the population. While obtaining an operating license is
relatively easy, businesses are required to renew licenses with the
Afghanistan Investment Support Agency (AISA) on an annual basis and there
is a widespread impression of prevailing corruption in this process.
Simplification of licensing procedures, government agency coordination and
introduction of computerized registries may, if implemented, increase
transparency and limit the room for misuse. Recent experience shows that
with concerted effort business climate improvement can be achieved relatively
quickly. However, without incentives for enforcement and with continued
impunity of officials, relapse is likely. Currently, many formal and informal
businesses are dependent on ‘commission workers’: informal agents acting as
middlemen for access to government services.
A grave deterrent to investment and business operation is the inefficiency of
the judiciary, including in resolving commercial disputes. The courts are
seen as the country’s most corrupt institution. In addition, access to the
statutory justice system is very uneven, with commercial court competence
available only in the largest cities. Distrust in receiving fair redress in court
means that many business disputes are resolved by other means, such as tribal
jirgas or informal mediation and arbitration. A further aspect with important
consequences is that cases involving corruption charges are unlikely to be
fairly settled through the court system.
In the new administration, the level of coordination and clarity about the
role of presidential commissions as well as how strategic private sector-related
programmes will be divided between MOCI and implementing ministries will
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be important success factors to any private sector development strategy. In
line with the ambition to channel aid funds on-budget, the government aims at
more engagement in economic development programmes. Any private sector
programme will also have to be coordinated with ongoing macroeconomic
reform and the country’s trade and tax regime.
The Afghan Government is the only authority that legally can, and should,
create the conditions for a more facilitating private sector, but it should be
noted that the government’s inadequate influence over the criminal and
informal economy and its budget dependency on foreign aid limit what any
government policy can be expected to achieve.
2.7. Conclusions
Historically, Afghan households have sought welfare through informal and
even illicit means rather than through the formal economy, particularly in rural
Afghanistan. The post-intervention administration has not been able to alter
this status quo. Administratively and technically weak governing bodies rife
with predatory officials discourage the Afghan private sector to formalize.
Incentives for formalization remain low as registration brings few benefits.
The size of the informal economy bears witness to this: estimates made in
2005 that 80–90 per cent of Afghanistan’s economic activity is informal have
not changed over the past decade. The vast majority of Afghans, some 90 per
cent, are employed in establishments with less than five employees. Organized
business acts as a useful united voice, but capacity is limited and outreach
often fell on deaf ears during the Karzai administration’s tenure. On the other
end of the spectrum are a handful of large business groups that date back to at
least the early 1990s, the oligopoly, complemented by a new set of successful
entrepreneurs that emerged with the post-2001 service-driven economy. The
former uses its political and economic clout to undermine competitors.
Domestic market integration is limited, exacerbating the problem of broken
value chains and market access. Urban-to-rural linkages are weak, particularly
in the case of smaller provincial capitals and of rural Afghanistan to the
country’s largest urban clusters. This is much to the detriment of Afghan
farmers. Rather than a single economic space, there are instead a number of
localized markets in the country. This goes beyond the limitations of physical
connectivity, to include more socio-ethnic challenges of exclusive trade and
business networks. Regional trade channels are existent but irregular: trade
agreements with neighbours are often not enforced, and where they are, they
disadvantage Afghanistan and add to its trade imbalance. This is the extension
of low state capacity as much as design. Beyond rampant corruption and
enforcement problems, customs policies also are disharmonized across
borders. The consequent price differentials have been exploited by traders, to
the detriment of producers.
After nearly a year since the NUG’s inception, private sector policy
responsibilities within the state apparatus have not yet been fully clarified and
24 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
further reconfiguration seems likely. For domestic businesses of every size,
the lack of a sufficiently unambiguous legislative basis for investment
protection of fixed assets and enforcement of contracts is a major impediment.
The NUG, with international community support, will need to display bold
and decisive economic policy measures, uphold commercial legislation, and
engage in public goods initiatives that instil trust in the government and
slowly but gradually incentivize the private sector to formalize.
3. Impediments to inclusive private sector
growth
The 2002 NDF claimed that the private sector would be the ‘engine of
sustainable growth and the instrument of social inclusion’ in Afghanistan.
Follow-on national strategy documents, including the ANDS, made similar
claims on the ability of private sector growth to lead to developmental
outcomes. However, this growth has in reality has been neither sustainable nor
inclusive. Despite the tenfold growth in the size of Afghanistan’s GDP,
poverty rates have not substantially been reduced. The 2011–12 National Risk
Vulnerability Assessment (NRVA) finds an ‘absence of progress in poverty
reduction over the past four years’ and that ‘the poorest segment of the
population have not benefited from the general improvement in economic
conditions’. The rate of people living below the poverty line and the number
of people experiencing food insecurity have both increased (36 and 30.1 per
cent, respectively), particularly for rural and nomadic populations, while
consumption for the top quintile had increased. The capital accumulated in
connection with the international presence has gone primarily to economic,
political, and war elite, or a segment of nouveau riche. This is in contrast to 81
per cent of the population which is still in what is considered ‘vulnerable
employment’, with insecure sources of income. Regional disparities are also
pronounced. In the developmental aid provided by donors there are ‘well
documented inequities and imbalance across provinces’.
Circumstances for women have changed for the better in many ways, but the
labour market remains dominated by men: women constitute 19 per cent
labour force participation rate and have only an 11 per cent total share of nonagricultural jobs. Similarly, ethno-cultural groups have not benefitted equally
in economic terms. Overall, numbers such as per capita GDP do not reflect
the inequality that has so marked Afghanistan’s development—a gap that has
even been growing.
Finally, much of the growth, as has been noted, is not sustainable. Without
the market created by the fleeting international presence and the ongoing
injections of aid, the economy has experienced tremendous drop off in growth.
Rather than being reinvested into the domestic economy, urban capital has
been fleeing the country. Fluctuations in annual economic outcomes and in
basic economic indicators have often been the result of annual variation in
rainfall. Nevertheless, there has been little investment in structural
improvement of the agricultural sector, despite its role in providing livelihoods
for the most vulnerable.
The 2008–13 ANDS laid out an action plan for ‘making investments that
have a preferential impact on bringing the poor out of extreme poverty . . .’
This poverty reduction paper made a case for policy that addresses the quality
of growth rather than quantity. Its target of ‘pro-poor growth’ was defined as
growth in which ‘the incomes and livelihoods of the poorest rise faster than
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138
the average growth of the economy’. But as the private sector currently
stands—with only a handful of medium and large-sized business, and given
the above sections’ overview of some of the macro-level and durable
constraints—the ability of the formal ‘free’ market alone to tackle poverty
reduction may be in question.
3.1. Extra-market conditions
3.1.1. The political situation
Doubts over NUG sustainability and its effectiveness combined with extrapolitical realities put Afghanistan in a very delicate spot: the annual Fund for
Peace 2015 Fragile States Index (formerly the Failed States Index) ranked
Afghanistan 8th on its list of most fragile states. In 2014, the Afghan private
sector considered political instability as the biggest business environment
obstacle.
There has been a political vacuum in varying capacities for nearly two years
in Afghanistan: in anticipation of the elections the Karzai administration
amplified inertia, and political survival calculations sidelined day-to-day
duties since late 2013 already. As of October 2015, the new cabinet has not
been fully formed and parliamentary elections have been delayed as a result of
Ghani and Abdullah’s diverging stance on the particulars of electoral system
reform. These political indecisions—in combination with the waning security
situation—add to the poor investment climate and seriously hamper the
private sector. A recent ACCI survey conducted in five provinces concluded
that the business community had lost the enthusiasm it held after the NUG was
formed and that capital flight had increased extremely in the first three
quarters of 2015, particularly from the trade and construction sectors.
This drop in the business community’s enthusiasm is partially the result of
the manner in which the NUG agreement on 21 September 2014 came to
being. While the political transition in 2014 was the first peaceful transfer of a
democratically elected authority in the country’s recorded history, it was
ultimately not secured by the ballot box but through foreign brokerage (mainly
the USA’s) and extra-constitutional means. The uncertainty that prevailed
over succession has negatively impacted the business environment for four
reasons since 2013: first, there was speculation that former President Karzai
would either rig the election in favor of former minister of foreign affairs,
Zalmai Rassoul, or alternatively, would cling to power himself; second, after
Ghani took the lead in the run-off elections, rumours of vote rigging began to
dominate the media adding to paranoia and frenzy among the Afghan
populace and spoiling the business climate; third, the power sharing
arrangement between Ghani and Abdullah (Abdullah’s extra-constitutional
CEO role was created by Ghani through presidential decree) has the business
community concerned about the political sustainability of their working
relationship and its effectiveness; and fourth, the delays in cabinet formation
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have in turn deferred economic policy reforms. Ghani’s commitment to
introducing a younger pool of top officials through a more merit-based a
selection process has resulted in a sluggish reconfiguration of the cabinet. This
has been exacerbated by parliamentary fragmentation. This reconfiguration
affects the elite’s positions and connections within the new government, and
subsequently their investment windows and income channels.
While the NUG did perhaps prevent a violent scenario in 2014, it has
possibly sown the seeds of potential new conflicts among powerful business
patronage networks: chiefly vested interests of their political bases, elections
campaign financers and loyalists to either Ghani or Abdullah—none of which
had envisioned a power-sharing government. The NUG formation meant that
pre-designated seats and subsequent power, income channels and investment
windows quickly evaporated for some. This also impacted investment
horizons for their networks. A loya jirga (a grand assembly of elders, tribal
leaders and prominent individuals) has refused to constitutionalize Abdullah’s
position and its legal parameters before 2017, if ever. Until that date, existing
powerful patronage networks are anticipated to fend off other and incoming
political and ethnic factions’ business interests. The 2017 timeframe and the
power-sharing nature of the NUG negatively influences the business
engagement of the economic elite that sides with Abdullah; and indirectly that
of micro-, small-, and medium-sized businesses.
A number of available short-term indicators on new firm registrations and
other fiscal and monetary trends signal that the Afghan economic slowdown
deepened during the first half of 2014 suggesting that events since around
October 2013 have taken a toll on the private sector. The number of staff
employed in the private sector was cut 25 per cent in the first quarter of
2015.
Unless the Ghani–Abdullah administration makes demonstrable strides in
strengthening institutional capacity and resilience, providing increased
security and administering core public services and goods that hone the private
sector, both domestic as well as foreign investors will remain wary of actively
engaging the formal economy. On different occasions the new administration
has conveyed that bolstering private sector confidence is a key priority. A
number of reform processes at the institutional and policy levels has been
initiated, the impact is pending.
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3.1.2. Business-political coupling and the issue of corruption
Afghanistan is consistently considered one of the world’s most corrupt
countries, and despite awareness of the problem within the country and the
international community, the overall assessment has not improved in recent
years. The international intervention, which overwhelmed recipients’ aid
absorption capacity, has contributed to a climate of kleptocracy and fed
resources into a corrupt system. Corruption is not only a matter of squandered
government revenue and inefficient public service provision, but it constitutes
a major source of instability and violence and erodes the legitimacy of the
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state in the eyes of citizens and potential investors in the private sector.
Corruption also fuels civil society’s resentment at the government and fosters
insurgency lure.
Broadly, the particular character of Afghan corruption may be traced to the
breakdown of the state-centric economic bureaucracy in the civil war, when
the economy was captured by factional interests and state institutions
nominally remained in eroded form. The surge of narcotics-driven informal
capital and the influx of large amounts of foreign aid precluded the
development of a sustainable formal economy. It has been argued that that at a
macro-level Afghanistan’s state apparatus is an example of ‘trickle-up’
corruption, making it comparable to other resource-strapped states with a
centralized bureaucracy. However, the corruption pyramid also has a strong
element of top-level legislative subversion and nepotism with effects including
political embezzlement and money laundering. Clearly, neither the Karzai
administration nor the NUG, to date, have instilled an effective culture of
accountability. Furthermore, although Afghanistan is ostensibly a strongly
centralized state, in reality provincial power brokers often maintain their own
order, sometimes in competition with representatives of the central
government. Cross-border trade is also subject to heavy subversion on a lower
level.
Boundaries between private companies and public officials are blurred
through ethnic, family and personal ties. Major business interests are part of
an ecosystem of grand corruption, where officials subvert the economic, legal
and judicial system for their benefit. The Kabul Bank case exposed the
political shielding of business interests at the highest level and demonstrated
the politicization of the judiciary. Land access for real estate development
and government procurement, especially for lucrative import contracts for fuel
and construction materials, have reportedly been awarded to companies with
connections to state officials in Kabul. In the mining sector, where major
extraction royalties are yet to come, concession deals have often been highly
opaque. However, the NUG’s reinforced commitment to the Extractive
Industries Transparency Initiative (EITI) may be a sign of change.
The high cost and at times physical risk associated with clean business
incentivize companies to participate in the corrupt system. According to a
FACT official, proper payment of taxes is an issue ‘from both sides’. Midsize companies, having no direct access to political elite, often have no option
but to align with local economic strongmen, thereby often consolidating the
existing oligopoly. The overhead created by bribes is a major hurdle for the
growth of micro-enterprises and SMEs. In the words of one businessman in
Balkh, ‘as soon as you reach a certain size, the government moves in’ with
the effect that businesses may choose to remain informal up to a certain size.
Over the past 14 years the Afghan Government has repeatedly pledged to
make fighting corruption a national priority. However, bodies such as the
Independent Joint Anti-Corruption Monitoring and Evaluation Committee
(MEC) and the High Office of Oversight and Anti-Corruption (HOOAC) have
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no authority to independently prosecute corrupt officials, and HOOAC has
itself been accused of corruption. Repeated government-led anti-corruption
campaigns have so far yielded few tangible results. On the business-side,
initiatives like the Center for International Private Enterprise (CIPE)-initiated
Business Integrity Network Afghanistan (BINA) hopes to lead by example,
making business more transparent and less tolerant towards corruption.
Corruption is consistently a top three concern among Afghan businesses—
and is the top concern among female business owners. It erodes trust in both
the public and private sector, sets a bad example to Afghan youth, deprives
the state and companies of revenue, deters investment and discourages the
growth of a competitive Afghan private sector.
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3.1.3. Influence of foreign aid
Foreign aid underpins many of the developmental gains that have been made
in Afghanistan since 2001, but its application has been highly flawed, and its
success record is mixed at best. As the World Bank puts it, aid has ‘been
linked to corruption, fragmented and parallel delivery system, poor aid
effectiveness, and weakened governance’. But with poor domestic revenue
collection, the Afghan state is nevertheless highly dependent on it: foreign
assistance constitutes 74 per cent of public expenditure in Afghanistan. Net
ODA as a share of GDP has begun to decline in recent years (25.7 per cent of
GDP in 2013, compared to nearly 100 per cent at its peak in 2011). However,
this does not include the security budget, $5.4 billion in 2015, which is
entirely funded by donors.
Most aid to Afghanistan since 2001 has been provided outside of
government channels. This is usually due to donors’ own legislative
restrictions or concerns regarding the Afghan Government’s lack of capacity
and rampant corruption. In developmental projects this may mean more direct
reach to beneficiaries, but in the reconstruction process as a whole, off-budget
spending has had a particularly low local impact, with only an estimated
10–25 per cent directly reaching Afghans (‘phantom aid’). The bulk goes to
international contractors and technical assistants, or otherwise circulates back
to donor countries’ economies. With 88 per cent of all civilian aid provided
off-budget in 2011, local content is estimated at less than 40 cents a dollar.
Neither has aid reached Afghans equally. Beyond lining pockets for a small
segment of the population, aid has had highly varied geographic impact,
concentrated for instance in urban areas, insecure provinces and largely where
foreign troops have been stationed. Poor aid management and oversight, with
nearly no accountability mechanisms to the Afghan state or to beneficiaries,
have contributed to corruption and even to the insurgency. For the vast
majority of Afghans, developmental aid has made little lasting difference, and
poverty figures remain unchanged.
Nevertheless, international aid has substantially impacted the economy and
the private sector. Aid money, which often plays a subsidizing role in markets,
has distorted incentives for local businesses and created an industry designed
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specifically to respond to and siphon off foreign assistance. Young talent in
the labour markets has been captured by international or internationally
funded non-governmental organizations (NGOs) which pay higher salaries;
the influx of US dollars has kept the Afghani artificially high; and both wages
and expectations have been inflated beyond what domestic markets can alone
provide moving forward. Indeed, decreasing levels of aid are already
beginning to have a sharp impact on the economy. However, the World Bank
notes that while the transition needs to be carefully managed, there is in fact
much room to trim the fat, to increase aid efficacy and to provide aid in a more
targeted, need-based and responsible fashion.
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3.1.4. The regional politico-economic environment
The politicized economic environment of the larger region, as well as the fact
that Afghanistan is landlocked, has a profound impact on Afghanistan’s
private sector. This is exemplified by the Afghan private sector’s struggle to
compete with imports and to gain access to neighbouring, regional and world
markets. Broader regional geostrategic rivalry strongly shapes Afghanistan’s
security situation, which in turn affects the business climate.
The international community only began actively encouraging regional
solutions to Afghanistan’s security situation and reconstruction after it
announced in 2011 that it would wind down its military involvement by the
end of 2014. Until then, the intervention took very little account of regional
dynamics. Since the announcement (notwithstanding the founding of the Heart
of Asia Process and a number of bilateral, trilateral, and multilateral
initiatives), there has been no substantial coordinated regional approach to
support Afghanistan’s stability or to tap its economic potential as Asia’s
‘roundabout’. Regional stakeholders placed Afghanistan’s stability second to
their own geostrategic calculations, much to the detriment of regional
economic integration more broadly. This is one of the reasons why
multilateral bodies such as the Regional Economic Cooperation Conference on
Afghanistan (RECCA) have largely had minimal impact. The most recent
iteration in 2015, VI, is somewhat more promising and includes proposals on
transition from traditional donor support to new modalities of financing.
To its north in Central Asia, Afghanistan borders impoverished Tajikistan,
an economically largely insulated Uzbekistan, and a gradually economically
burgeoning Turkmenistan; to its east in South Asia is Pakistan, which changes
its customs policies for Afghan goods at will despite recently re-signing the
2010 Afghanistan–Pakistan Transit and Trade Agreement (APTTA); and to its
west in the Middle East is Iran, which has suffered economically from years of
imposed sanctions. Afghanistan joins three regions bound together by
politically rooted distrust and rivalries, exemplified by Uzbekistan’s
obstructionist economic policies to Afghanistan; Pakistan’s hindrance of
Afghan and Indian transit through its territory and the arbitrary enforcement of
trade agreements and product dumping in Afghanistan; and Iran’s
disadvantageous customs policies towards Afghan produce and ongoing
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product dumping in neighbouring Herat province. Afghanistan also has longstanding water-sharing disputes with neighbors Iran and Pakistan.
There is progressive consensus in the international community that
Pakistan—Afghanistan’s largest trade partner—is, in particular, the de facto
most influential foreign actor for Afghanistan’s security and development.
Pakistan is fearful of being ‘sandwiched’ between an economically emerging
India and an economically growing pro-India Afghanistan state. Pakistan is
widely believed to have provided safe haven and support to the Afghan
Taliban, a strategy that has backlashed when the Tehrik-i-Taliban Pakistan
(TTP) was formed in late 2007, leading to intertwined militancy in the two
countries. The Afghan Government claims that it is treated as Pakistan’s
backyard, one that Islamabad prefers to keep poor and disorganized. Yet,
Pakistan also depends on Afghan territory to export to Central Asian markets
and to import surplus hydropower energy and gas from Central Asia.
However, it is not just Pakistan. The rivalry between Pakistan and Saudi
Arabia on the one side, and India and Iran on the other side has had a complex
push and pull effect on Afghanistan. The rivalries are severely detrimental to
Afghanistan’s security, which in turn drains the Afghan Government’s
attention and budgets that could be used to foster the private sector. These four
actors’ geostrategic agendas and conflict proxies are extra-market conditions
that strongly affect the Afghan private sector, not least by creating the
insecurity that discourages investment. Furthermore, the majority of
Afghanistan’s neighbours produce the bulk of the agricultural products and
handicraft on which Afghanistan could have had an economic edge. Most of
Afghanistan’s neighbours also have limited economic infrastructure quality
and inconsistent customs policies, which affect Afghan foreign market access
and market prices of exported Afghan goods.
Nevertheless, these economic realities do not imply that there are no
economic opportunities: if political trust grew and economic integration
became less politicized, closer economic integration would be likely to follow.
At this stage it is uncertain how and when this will unfold, yet it would most
likely positively impact integration of regional private sectors and
corresponding capital flows.
The NUG is wary that a weak, economically underdeveloped and
landlocked Afghanistan will continue to be prone to foreign meddling.
Economic development at large, and private sector growth specifically, will
have little chance of fruition without resolving the security situation.
Increasing regional economic transit interdependence could possibly be one
such way to reduce foreign meddling. The NUG is therefore proactively
attempting to leverage the country’s unique geographic position as the ‘heart
of Asia’ and push for large-scale projects such as CASA-1000, the electricity
transmission and trade project between the Central Asian countries of
Tajikistan and Kyrgyz Republic and the South Asian countries of Afghanistan
and Pakistan, and the long-delayed Turkmenistan–Afghanistan–Pakistan–
India (gas) pipeline (TAPI). As it does so, the NUG must simultaneously
32 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
attempt to provide assurance over the country’s deteriorating security situation
in the north and the threat that emanates from presence of ISIL in its general
territory.
Despite all the various detrimental extra-market forces at play, a momentum
might be emerging that could gradually turn Afghanistan’s geographic liability
into an asset for the country’s private sector. Afghanistan’s vicinity to world’s
two fastest growing large economies, China and India, and their growing
regional security interests; the promised lifting of sanctions on Iran over the
course of 2015 and beyond; and the possible thawing of relations between
Kabul and Islamabad, could all possibly become a collective game-changer for
Afghanistan’s security and private sector. In particular, China’s concerns over
stability on its western borders, the threat of East Turkistan Islamic Movement
(ETIM) insurgents military training in non-controlled Afghan and Pakistani
border territories, and the growing investment and transit security interests that
come with the Silk Road Economic Belt (SREB) have made Beijing more
proactive in its Afghanistan policy and to Islamabad. China’s close
involvement in the Afghan peace process bears witness to this.
3.2. Economic resources and critical infrastructure constraints
3.2.1. Access to land and physical resources
The absence of discernable land ownership, usage characterizations and
definitions, and corresponding rights hurts the private sector and negatively
affects many commercial issues. It also unnecessarily creates risk for all
stakeholders. The private sector is dependent on mortgages to obtain formal
capital, lease private commercial land, and sell or lease (serviced industrial)
state land. A modern, efficient, and transparent policy on land and property
rights is required to make sure that the creation of wealth is not limited to the
economic elite: in its current state the private sector does not facilitate the
creation of a widespread business class. Absence of clear land and property
rights and corresponding enforcement can be considered a serious impediment
to (inclusive) private sector growth.
There are three land tenure types in Afghanistan: (a) individually owned;
(b) family-, clan- and community-owned; and (c) government-owned. In an
agrarian society like Afghanistan, land rights are central to government
legitimacy—and to the peace process. Perceptions of the government as
predatory permit the insurgency to provide shadow government services: the
government has used statutory law to lease and sell private land, completely
undercutting customary claims to those lands. The post-Taliban Afghan state
overlaid, but never fully replaced existing localized tribal land relations.
Popular views on the predatory role of the government with regards to
property ownership are well founded: an estimated 240 000 hectares were
usurped by officials under the Karzai administration.
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Land disputes are a primary driver of conflict in Afghanistan. Disputes over
unequal land distribution along politico-ethnic lines have existed since the
founding of the Afghan state, but they have been exacerbated by ongoing
instability since 1979. Since 2002, competition over land has increased even
more so: political disinterest and weak governing institutions during the
Karzai administration have brought little positive change amid population
pressure, rapid urbanization and rising land value. Land is a commodity with
an exceptionally high market value in Afghanistan. It easily converts to
political power and vice versa. Control over access to land is fundamental to
power relations and corresponding business activity: the Afghan business elite
receives security assurances, tax exemptions, credit lines and access to
lucrative contracts from political, financial and military power holders. These
mutually beneficial relationships provide parties with the resources to further
increase their power and to acquire physical resources.
There were a number of land reforms in 2009, of which the most notable led
to the establishment of Arazi as the country’s single source for managing all
land-related issues. While Arazi is entrusted to administer government land
leasing to investors, it has limited resources. Arazi and supporting
government bodies have still not been able to document the vast majority of
land in the country that continues to go untitled (or inaccurately titled) and
unregistered. This in turn further complicates the Afghan state’s ability to
resolve land disputes, particularly in rural settings. In addition, it is time
consuming for the average Afghan to consult authorities and official records:
it demands a certain level of education and dealing with forged documents by
counter parties is common. The complexity surrounding Afghan land issues is
well demonstrated by World Bank Doing Business data: it requires no less
than 250 days (more than tenfold the OECD average) to purchase registered
land and physical resources (i.e. real estate, free of title dispute). This puts
Afghanistan seventh last in the Doing Business global ranking. Securing land
tenure and the safe purchase (or rent for that matter) of real estate plays a
central role in the private sector growth process. Transparent laws on land
tenure and property rights gives entrepreneurs long-term incentives to invest
and save their income, it shifts orientation from protecting land rights to
economic usage of land, it facilitates the possibility of using land as collateral
for formal loans (access to formal finance is a key prerequisite for any private
sector to grow), and it contributes to social stability and local governance.
Specific to the Afghan context, the scarcity of economically viable land,
particularly upstream land amid increasing drought—in conjunction with high
dependence on access to land for subsistence farming and the inability of the
government and the market to provide welfare to the majority of the Afghan
populace—makes land a much contested production factor. Furthermore,
inheritance practices that subdivide assets over generations mean that the size
of land holdings is declining, adding to the problem. In urban settings,
property prices have skyrocketed as an extension of the international
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community’s presence, and consequently the political and patronage
dimensions of property have become further entrenched.
Due to lack of trust and confidence in formal judicial institutions, 90 per
cent of Afghans rely solely on customary law. This paves the way for
insurgents to intermediate in tribal and land disputes by what they present as
Sharia justice, the Islamic legal system. Such interpretation is subjective and
often self-serving, and many Afghans are not educated enough to know what
is Sharia and what is really local tradition. The main appeal of these
judgments is that they are seen to be untainted by corruption. Insurgents also
fill the conflict disputes intermediation void that (attempted) land grabs by
strongmen and government officials create and that the government does not
intermediate in to resolve. These strongmen particularly target more lucrative
state-owned land in urban settings (which is then often designated for
construction purposes or distributed to gain patronage), and tend to target local
ethnic minorities. Another challenge relating to equitable land access
concerns the return of many refugees and internally displaced persons (IDPs),
a number of whom with useful business ideas and connections. Many have
returned to face property disputes or have been unable to return due to
land and property disputes arising from either occupation or expropriation by
the government or powerful individuals, which has hindered business
development.
Of particular relevance to land access is the position of women. Contrary to
Afghan men, Afghan women typically have very limited mobility and access
to and involvement in land and livestock activities is of great social and
economic value to them. Despite their involvement in such activities, few own
the land, which hampers their influence within the family.
The challenge to accessing non-real estate physical resources (e.g. of cold
storage materials and cold-storage transportation, hi-tech machinery, and
modern IT systems) is financing: large formal loans can generally not be
obtained without evidence of registered land. Another major obstacle is
obtaining visas for the purposes of shopping abroad for production machinery,
its safe import into the country, and inadequate operation and maintenance
(O&M) expertise of and material for physical assets. While the economic elite
can afford and acquire these resources, the average SME has difficulty
procuring such inputs. Without modern machinery, it will be nearly
impossible for Afghan farmers, small agro-businesses and light industrialists
to improve efficiency and output and compete with foreign produce and
goods.
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3.2.2. Access to finance
As the influx of international community-related expenditures diminishes,
Afghanistan is seeing a reconfiguration of its potential sources of investment
capital. While only relatively limited amounts of aid gone directly into private
sector development, many companies will be affected by the termination of
supplier and service contracts and indirectly through reprioritization of aid
IMPEDIMENTS TO INCLUSIVE PRIVATE SECTOR GROWTH 35
programmes. Fortunately in the latter case, the post-transition aid agenda has
notably increased the focus on private sector development as the primary
means for the country to achieve a self-sustained economy.
Access to finance capital in Afghanistan is a problem on several levels. In
the transition year 2014, companies considered political instability to be the
biggest business-environment issue. Concerns about political instability
reflect a general lack of trust in the future, which partly explains many of the
country’s problems attracting and retaining capital. Much of the revenue
generated through Afghanistan’s macroeconomic growth over the past decade
has been funnelled abroad, typically to Dubai, or only available to narrow
segments of the private sector. Uncertainty and insecurity holds back both
foreign and domestic investment. Since FDI in Afghanistan has always been
low and is decreasing, a key question becomes to what extent, and under
which conditions, capital—particularly domestically generated capital—can
be reinvested in the economy.
For the extant Afghan private sector, companies of every size regularly list
access to finance among their top concerns. SMEs are facing even more
difficulties than large enterprises in obtaining loans, and women are further
disadvantaged, with 81 per cent of female SME owners stating a lack of
access to credit. In total, no more than a few per cent of companies employ
bank loans to finance investment. This is partly explained by the availability
of other forms of funding, especially through relatives and kin-based
networks. Among clusters of craftsmen, small mutual loans are part of the
common framework within which they otherwise compete. Overall trust in
the formal banking system is low and has decreased considerably since the
Kabul Bank scam—as credit restrictions have at the same time tightened. In
addition, there is still a scarcity of sharia-compliant instruments among banks
and microfinance institutions. Those companies which do opt for bank loans
often face prohibitive repayment conditions, including lending rates of at least
15 per cent, requiring a very high short-term profit margin. Collateral and
public credit registries—such as those introduced by the Central Bank
(Da Afghanistan Bank) in 2014—could, however, eventually be a step in the
direction of broader bank credit access.
Afghanistan is an outlier among least developed countries (LDCs) in the
low financing rate through banks. In fact, less than half of formal Afghan
firms have a bank account and even the major banks only have offices in the
largest urban centres. Moreover, most of the economically active population is
in the informal sector, or is for other reasons not eligible for commercial
lending. For large numbers of businesses, entrepreneurs or producers,
including in rural areas where access to finance can be decisive for vital
livelihoods, bank credit will likely remain out of reach. Therefore, in parallel
with recreating trust in financial policy and building a robust banking system,
non-banked-based (informal) credit mechanisms may be required to relieve
the financing issue. Microfinance has been one response, with mixed results.
Starting in 2003, the government initiated the microfinance support
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organization Microfinance Investment Support Facility for Afghanistan
(MISFA), which has since reached out to nearly a million clients, one third of
whom are women. However, in order to gain community acceptance and to
produce desired results, microfinance operations require a highly adaptive
model that takes into account existing local credit mechanisms, education
levels, religious and community sensitivities, security and other risks.
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3.2.3. Human resources
With almost half of the population under 15 years of age, Afghanistan has one
of the world’s youngest populations. The Afghan youth bulge is both a
challenge and potential asset. While in principle these demographics suggest
high dependency ratio, in reality such demographics have translated to a high
incidence of child labour. At the same time, only a fraction of the female
population participates in the labour force. This is particularly low in urban
households, although women participate to a greater extent in rural
agriculture. The transition year 2014 seems to have had clearly adverse affect
on employment: in 2015 nearly 40 per cent of the total labour force was
estimated to be unemployed or underemployed; half of them are women.
Since many low-income countries typically exhibit relatively high rates of
female labour participation out of breadwinning necessity, lack of inclusive
economic participation in Afghanistan is potentially a serious problem for
Afghanistan in terms of productivity and growth.
There is strong evidence for education as a determinant for individual
income. Moreover, literacy, especially if evenly distributed, in itself can
contribute to economic growth. Despite significant improvement in access to
education, Afghan literacy rates are still among the lowest in the world at an
estimated 31.4 per cent. Education, as the foundation for poverty reduction
and long-term equitable economic development, requires a sustained
commitment from donors and authorities.
The issue of fostering and retaining a qualified workforce also remains a
serious challenge to development of the country’s private sector. Outmigration
of the skilled workforce was substantial during the Soviet-Afghan war, and
peaked in the late 1990s when some 6 million Afghans left the country .
However, many members of the Afghan diaspora have contributed remittances
(or investment) back into the country, or have returned from displacement in
Pakistan and Iran with entrepreneurial skills and trade contacts. Worryingly,
however, outmigration has yet again increased over the past year, reflecting
renewed concerns over the political, security, and economic situation in the
country.
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3.2.4. Critical Infrastructure
As an extension of weak government capacity, the country’s rugged
topography, and recurring conflict, much of (rural) Afghanistan has never
been well connected or powered. This deprivation has cut rural Afghanistan
IMPEDIMENTS TO INCLUSIVE PRIVATE SECTOR GROWTH 37
from public services, cultivated societal fragmentation and undermined
economic connectivity. Critical infrastructure is a fundamental enabler for the
private sector. The poor state of Afghanistan’s infrastructure is detrimental to
private sector activity, as most of the country lacks decent quality roads,
which hampers market connectivity and inflates prices.
The Afghan energy sector suffers from low power generation capacity and
transmission systems are outdated, including those in power suppliers’
territory such as Tajikistan. In an ACCI 2014 Business Bottleneck Survey
across five major cities, 75.6 per cent of respondents stated that infrastructure
is a key impediment to the success of their business. Only 28 per cent of
Afghans have electricity and most of them are urbanites. The Afghan
electrical system primarily consists of nine isolated ‘island’ systems that mix
grid-based power, micro-hydro or solar panel stations. Only 6 per cent of the
rural population has access to electricity and are mostly dependent on microhydro or solar panel stations. Rural citizens are often dependent on the latter
two and only 6 per cent of them have access to electricity. A number of
industrial parks in the country have no access to electricity or share the same
patchy national grid.
The vast bulk of the country’s energy (78 per cent) is imported; this while
the country has ample potential for hydro-, solar- and coal-based power
production. While hydro-power has potential, all of the country’s river basins
are trans-boundary and require agreements with riparian countries. Grid-based
power—imported from Tajikistan and Uzbekistan, and run by the government
owned Da Afghanistan Breshna Sherkat (DABS)—is not reliable, and power
cuts are a near daily phenomenon, even in Kabul. This is partially the product
of poor operations and maintenance. Out of 183 countries, the World Bank’s
2015 Doing Business Data ranked Afghanistan 141st in ease of access to
electricity; yet this indicator does not sufficiently reflect reliability and
capacity of provided electricity.
Only 27 per cent of rural Afghanistan has access to clean drinking water and
even less to basic sanitation. Critical infrastructure urgently needs more
investment to maintain existing systems and to build new ones. This was also
reiterated by Afghan civil society in its position paper at the ‘2014 London
Conference on Afghanistan’ and by the Harakat and ACCI in their
recommendations ‘Outcome of Private Sector Priorities for Reform
Conference’ at a side event at the London conference.
Future infrastructure development should be more carefully integrated with
priority industry development to maximize impact. More liberal policies that
permit the private sector to (co-) invest and provide critical infrastructure
through for instance PPPs is worth serious contemplation by the NUG.
The telecom sector has performed remarkably well: in 2001 Afghans needed
to go to Pakistan to make international calls, in 2015 90 per cent of residential
areas have telecommunication and data coverage, and there are 23.21 million
mobile phone users in the country. 10 per cent of the population has access to
Internet services, however mainly in urban settings. The telecom sector
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employs about 204 000 people and generates over $200 million in annual tax
revenue.
To create a more enabling environment for the private sector, addressing
critical infrastructure deficiencies is fundamental. The Afghan Government
has considerable public expenditure needs to build, operate and maintain
critical infrastructure.
3.3. Limited female economic participation
The limited participation of half of the eligible working population in
Afghanistan’s economy has deep implications for the country’s wellbeing and
is a missed opportunity—for socioeconomic inclusivity, for poverty reduction,
as well as for overall growth and productivity. Afghanistan ranks at the very
bottom (149 of 152 countries) of the United Nations’ Gender Inequality Index
(GII). According to 2011–12 NRVA, the female labour participation rate is
18.5 per cent compared to 80 per cent for men, and UN Women estimates that
only 5 per cent of businesses in Afghanistan are female-owned.
There have been clear gains in women’s empowerment since the end of
Taliban era; however, progress has been highly variable across regions and
communities. In many pockets of Afghanistan life for women remains
unchanged. The limited role of women in the economy is rooted in their
exclusion from existing power structures due to longstanding social norms and
religious traditions, for example the stringent Pashtunwali that excludes
women from inheritance rights and the purdah which restricts female
visibility and presence in public spaces. There is of course variation across
regions, ethnicities, religions and other sociocultural communities. It was
found, for instance in Kabul, that, ‘most of the women working outside the
home in cities and who penetrate the male-dominated space of the physical
marketplace are Hazara women’. The economic needs, endowments and
constraints of women are also influenced by age, education level and special
circumstances, such as widowhood or extreme poverty.
Overall, however, traditional gender norms, which stipulate that men are
expected to be the primary or sole earner and providers for the family, remain
strong. But perceptions of gender roles are slowly changing—particularly in
urban areas. One key measure of this change is women’s own perceptions of
their place in society: 82 per cent of women now believe that they should be
able to work outside of home. Besides formal policy changes and donor
interventions, studies show that exposure to the outside world (for instance,
return migrants) and educational attainment are essential components in this
transformation. Rational economic considerations by households for more
diversified income sources are also playing a role in opening more space for
women to work.
Currently, the market in Afghanistan is by and large male-dominated, with a
small pool of women making a few inroads into the private sector in recent
years. Business remains a domain in which women’s participation is not seen
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as a culturally appropriate, and research suggests that even in urban areas
many believe that it is not appropriate for women to own or run a business.
Nevertheless, there have been visible successes and positive trends. A recent
study surveyed women engaged in the formal economy from a pool of
804 identified female business owners and 1604 female employees. Of these,
98 per cent of respondents were based in urban areas. Female business owners
indicated that their professional obstacles are not necessarily gender-specific,
with corruption listed as their top problem. Access to finance, however,
remains major challenge. It is well understood that women on the whole have
greater difficulty accessing finance due to lack of property (land) ownership
and collateral, as well as discrimination, but the degree to which limited
access to capital is the major ceiling to entrepreneurship and business growth
may be variable. While 81 per cent of female SME owners were unable to
access credit, 36 per cent claimed that they were not in need of it. However,
the greatest difficulty the women faced was not being taken seriously in the
business community. Outside of this particular survey, it is has also been
‘argued further that the burden of regulation is even larger for female business
owners (and workers), because they have less time and money to overcome
expensive and time-consuming barriers to registration’. Discrimination by
economic authorities was also a recurring theme in interviews conducted by
the authors.
Interestingly, female businesses owners range across a diverse set of
economic sectors, including non-traditional (i.e. male-dominated) ones. Of
these, 24 per cent were involved in the construction and construction materials
sector. This finding corresponds with AISA statistics; among 1130 registered
female businesses, 51 per cent were in construction, transportation and
storage. While it is possible that women have made inroads into these maledominated sectors, it may raise questions about whether donor priorities have
created a market for female-owned businesses to the extent that male business
owners may list a female relative as the proprietor to obtain benefits in access
like international contracts or donor support. While nearly half of the women
did business with the international community, half of those surveyed were
also unaware of any donor programmes supporting female economic
engagement. Moreover, there was some confidence expressed that these
female-owned businesses, while facing shrinking markets, were sustainable
beyond the international community’s involvement.
The same survey on women’s formal economic participation found that
there is a strong proportion of those working were in the younger age range
(below the age of 30), and that four out of five business owners had attended
institutes of higher education. Although many other factors are involved, the
gains made in female school attendance in Afghanistan in recent years likely
bodes well for increasing the pool of women able and willing to be involved in
the economy in the future, particularly in education, administration, finance,
business, health and other sectors where jobs are in demand. Currently,
however, this group of female trailblazers is very much elite, not the least of
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which by virtue of their educational status. They contrast sharply with the rest
of the female population, which for those 15 and older, count a dismal 17 per
cent literacy rate (compared to 45.4 per cent for adult males).
More broadly, a 2009 labour market survey, found that the top ‘occupations’
for urban working women are domestic/cook and homemaker, although
tailoring is also significant, at 25.5 per cent. Women are also heavily
involved in the traditional Afghan economic sectors, such carpet weaving and
handicrafts, products that are in fact key in the Afghan economy and comprise
17 per cent of the country’s exports in value. However, as in many other
facets of Afghan society, women’s economic role is embedded within
governance dynamics and processes in which they have little power; male
market intermediaries capture the lion’s share of profits in the value chain.
Outside of these sectors, waged income opportunities are still limited. Women
are still hampered by a lack of skills, which can make them uncompetitive
even excluding the other significant barriers to their work force participation.
Physical challenges—not only engagement in public spaces, but physical
safety and security (including during travel)—also disproportionately affect
women’s engagement with markets to a very significant extent.
In rural areas, the working environment for women is significantly different
in many ways, although there are again differences across regions, with
relatively more permissive environments in the north and western provinces
versus in the south and southeast. Broadly speaking, however, conservative
ideologies are often more pronounced in isolated village communities.
Economic opportunities for rural women are limited to home-based production
in handicrafts and carpet weaving, and often unmonetized work in agricultural
value chains. Female land ownership is rare in Afghanistan, and women have
limited financial interaction with markets. Despite these restrictions, women
do play an important role in the rural economy, taking on a variety of
agricultural tasks—from harvesting and post-harvest processing of
horticultural crops, to animal husbandry—as part of their household tasks and
chores. According to the World Bank, ‘an estimated 54 per cent of the
agriculture work force is female’. (The ‘hidden’ household dimension and
informality of this labour may explain why this may not be accounted for in
the wider NRVA labour participation estimates.)
In Afghanistan, women working in the informal sector have largely been
ignored by the international donor community. For such women, socialization
into market processes will be a long-term endeavour, requiring new normative
ideas to be brought into village life, with male buy-in and support. One key to
the success of urban, female business owners is a supportive family
environment —which may be difficult to donors to influence through what
are often seen as foreign incursions into highly traditional and often suspicious
communities. There are, however, entry points in select areas, and select value
chains in which rural women are substantially engaged, and those which the
World Bank has identified as highly viable for commercial production, and
competitive in both domestic and regional markets. These include horticultural
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crops and animal-derived goods. Among these categories, the most promising
products intersect both female labour and female production—such as
grapes/raisin, almond, and saffron, dairy production and carpets. Women are
the predominant producers in Afghanistan’s dairy industry—although their
role becomes more limited farther up the value chain and in market
governance. Beyond traditional products, donors have introduced relatively
new commercial crops into Afghanistan, in hopes of stimulating growth with
particular impact on women. Saffron has been success story in many regards,
after being introduced as a cash crop with the help of international NGOs,
while other newly introduced crops have had mixed results.
Certain donors have worked to increase productivity in female-dominated
segments of the value chain, providing materials or training for improved
processes. However, women’s participation in the agricultural sector remains
problematic due to poor compensation: they are often paid less than children
or not at all. Whatever compensation women receive is subject to male
capture, discrimination and sabotage further up the supply chain, and the
compensation is rarely sufficient to help them to overcome systemic
subjugation or provide control of the market processes to which they are
beholden.
With the help of donors, some fully female-owned value chains have
emerged in Afghanistan. These at a glance seem to be the most promising
types of female market engagement activities: full value-chain linkages ensure
a degree of sustainability and female engagement at multiple levels (from
businesswomen who engage with the transactional parts of markets to women
producer group’s at the village level), in addition to enabling women-towomen networking and support. For instance, there are successful models of
community-led development for female engagement in the food processing
sector. These programmes have created and supported linkages from self-help
groups and village-based female producer centres, to commercial enterprises
and outlets in the urban centre. In saffron production, donors have helped
support the emergence of what has now become the Afghan Women’s Saffron
Association (AWSA), which has been able to re-capture some of the saffron
market from a male-dominated oligarchy.
Women-to-women support networks, producer group’s, and female linkages
are particularly key at lower levels where women may be more vulnerable or
dependent and face higher risks claiming their individual economic rights.
Finance may also be more accessible for these associative groups.
Infrastructure such as village and saving loan associations (VSLAs, which are
a surprisingly 70 per cent female), and similar models established can be
utilized. Although it remains significantly more difficult for women to carve
out space higher up the value chain, there are examples of approaches that
have managed to push past community censure, male sabotage, and other
gender-specific constraints. Around Kabul, for instance, there exist female
trading companies engaged in dried fruits and nuts. While it should not be
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assumed that such models can work in all parts of Afghanistan, there may be
components of these models that are suitable for scaling up or replication.
Finally, while government prioritization of female empowerment is critical,
as one study puts it in Afghanistan, ‘it is unrealistic to expect that chain
governance and gender issues could be addressed formally and through
regulatory channels’. Greater and more equitable female participation in the
economy is a major opportunity for the country’s reconstruction, but will
require addressing obstacles at all levels, including through shifts in social
customs and norms, greater male buy-in and accommodation of women in the
market, and more de facto female ownership of economic resources and
decision-making processes.
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3.4. Conclusions
Afghanistan’s regional environment—Central and South Asia, and the Middle
East—strongly politicizes economic integration and permits historic rivalries
and geostrategic agendas to overrule economic integration. As a landlocked
economy, the Afghan private sector is strongly dependent on its neighbours
for access to world markets. Regional and domestic political factors are not
the only obstacles to inclusive private sector growth. Limited and unequal
access to economic resources (e.g. land and capital) and the lack of skilled
labour and physical resources (e.g. infrastructure and electricity) pose major
hurdles for inclusive economic development. The scarcity of economically
viable land and the inability of the government and the market to provide for
welfare to the majority of the Afghan populace make land a much contested
production factor. Limited access to land, and ambiguous property rights in
turn, limits access to formal capital that the private sector could use for
investments in production. Deprived of physical capital and more modern
production means, it will be a daunting task for the Afghan private sector to
improve efficiency, reduce costs, increase output and compete with foreign
produce and goods.
Socio-cultural norms and other hurdles marginalize women from economic
activity. As these women form half the potential productive base of society,
this is clearly a missed opportunity and major constraint on productivity and
inclusive growth. Markets in Afghanistan are controlled by men, but even
within this there are detriment extra-market dynamics at play: business is often
governed by elites through patronage networks and power struggles.
Although external and socio-cultural obstacles may require a longer
timeframe for change, the NUG (and a supportive international community)
will have to mitigate these obstacles to inclusive growth through enforced
legislative and legal reforms, greater public investments, and committed
economic policies at all levels. Increasingly more equitable access to
economic resources and providing more and better critical infrastructure is
necessary.
4. The private sector and security
4.1. The private sector and the security nexus
Afghanistan has experienced an upsurge in insecurity and violent attacks since
the 2014 transition. As the ANDSF assumed full combat responsibility in
2015, government casualties have increased 70 per cent in the first half of
2015 compared to the 2014, on tract to become the bloodiest year for progovernment forces to date. Attacks in Kabul have likewise doubled. But
physical insecurity in Afghanistan is wide-ranging, including: local intergroup
conflict among militias, organized crime, threats posed by transnational
extremist organizations, as well as the varied forms of conflict related to the
Taliban and anti-government insurgents. Such forms of violence are often
heavily interconnected and are compounded by the availability of arms in the
country, with an estimated 2 million weapons in circulation. Although often
less of a focus, non-organized crime—such as localized violent disputes for
resources like land and water, as well as interpersonal and household-level
violence—are also prevalent.
‘Security’ in Afghanistan encompasses a range of threats not only to the
state but also the wellbeing of individuals. Civilian deaths caused by the post2001 conflict are estimated at over 26 000 —with the highest civilian casualty
rate yet in the first half of 2015. Fear of attack is prevalent, with more than
half of Afghans in a 2014 survey reporting always, often, or sometimes
fearing for their safety or that of their family, and even more reporting fear for
safety when traveling to a different part of the country—with clear
implications for market integration and access. But insecurity goes far
beyond only the threat of physical force. Along a range of other humanoriented security indicators—for instance food, environmental, health,
political, personal, community and economic security —Afghanistan also
performs extremely poorly. Despite tenfold growth in the GDP since 2001, for
instance, Afghanistan is still ranked 169th in the Human Development Index,
with 59 per cent of the population in ‘multidimensional poverty’. As
surveyed in 2011-2012, 30.1 per cent is food insecure In the two essential
components of human security, ‘freedom from fear’ and ‘freedom from want’,
challenges are substantial. With GDP growth sharply declining, foreign aid
levels dropping, and the security situation still volatile, the prospects for
improvement are uncertain.
The private sector has a complex relationship with both traditional and
human security. Analytically, the ‘private sector’ refers to any profit-oriented
activities and transactions outside of direct state control. When promoted in
national strategy documents as driver of ‘increased employment, higher living
standards and a reduction in poverty’, and as the primary instrument for
‘sustained growth’, these implicitly refer to a private sector that has a formal
relationship with state authorities, or has the potential to build one. Such
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private sector growth does have a role to play in contributing to a secure,
viable and legitimate state, providing a tax base, creating legitimate
livelihoods and jobs, mitigating poverty, and for giving the broader populace
as well as elites an economic stake in the survival of the system. But ‘private
sector’ also includes activities entirely out of the state’s regulatory purview:
not only licit informal activities (including in-kind, subsistence, and extralegal activities that could potentially formalize), but also irregular and illegal
activities, altogether comprising an estimated 80–90 per cent of the economy.
Indeed, over the decades of conflict in Afghanistan, ‘the link between war and
illicit activities became progressively stronger’. To this day economic
opportunities and opportunism continue to fuel and be fuelled by conflict.
Opium accounted for 13 per cent of Afghanistan’s GDP in 2014 (80 per cent
of global supply of opium), the value of which ‘considerably exceeded the
value of the export of licit goods and services in 2014’. From a purely
economic point of view—opium is in fact one of the few value chain success
stories. Together with smuggling, irregular mining and other underground
activities, the illegal economy arguably constitutes the most functioning and
robust private sector in Afghanistan. While this report has not focused on the
irregular or illegal economy, it warrants attention here as an oft-cited source of
funding for the war economy, with implications for rule of law, governance, as
well as security. There are other important spillover effects into legal sectors
of the economy, both positive and negative. For instance, opium has
stimulated the rural economy and contributed to growth in legal sectors. And
although it is not always poverty that drives farmers to grow poppy, it is in
many cases an important source of income for some rural households.
However, opium can be a source of conflict itself; eradication programmes
embarked on by the international community have driven people to arms, and
not uncommonly, to join the Taliban.
While anti-government forces commonly perceived to be heavily dependent
on the opium economy for funding their activities, some experts suggest that it
may be pro-government factions and corrupt officials who take the biggest
share of the drug profits in Afghanistan. Taliban do impose taxes on opium
harvest, trafficking, and heroin laboratories, and are heavily involved in drug
production and trade in major-opium producing provinces. But it is
noteworthy that while the poppy economy provided an estimated quarter of
their income in 2011–12, this was only $100 million of drug crop value
estimated at $3.6 to 4 billion that year. Other sources of funding include local
taxation, extortion from major businesses, donations, as well as money derived
from international aid. The UN estimates Taliban have been able to capture
10–20 per cent contract money from the international community. Thus, the
problem extends far beyond political and ideological divides, and involves
economic governance more broadly. Organized crime, drug trafficking,
corruption, and other criminal activities related to protection and promotion of
the narcotics industry and other illicit activities, fuel and perpetuate alternate
power structures and poles of control that often directly subvert government
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control (notwithstanding complicity of government officials) by violent
means. Illegal extraction of natural resources, in which Taliban are also deeply
involved, can and will lead to resource-based and resource-fuelled conflict.
Yet the pathway away from violence also entails an important role for the
private sector. An addendum to the 2011 World Development Report finds
that ‘the private sector alone is in a position to generate large-scale,
sustainable employment opportunities, especially for young men, who are at
highest risk of becoming fodder for potential future conflicts’. Formal private
sector actors are allies to the government, providing a base for taxation and
revenue collection by the state, and acting as a form of organized society that
has stake in the stable and effective state that can provide public goods—of
which security is one of the most important. Moreover, in communication with
the authors, a variety of businessmen, particularly industrialists, actively
framed their activities in terms of rebuilding the country. This is also a
driving sentiment expressed by women business owners in surveys. Impacts
of insecurity to normal operations are severe: insecurity is frequently cited as
one of the main, and very often the top challenges to formal businesses.
Although such surveys often list ‘crime’ as a separate category, it is likewise
an important security concern; in the major cities of Afghanistan, the private
security industry for personal protection is steadily booming as productive
businesses suffer from crime, threats of kidnapping, and extortion.
Legal and legitimate businesses cope with physical insecurity in various
ways. These include: relocating business operations from insecure areas to
elsewhere in the country; negotiating with either local, government, or
insurgency actors, often entailing payments; building in a security budget into
business costs; or, in a few cases, implementing a community-based strategy
for protection. But insecurity places a ceiling on business growth, as
businesses prefer to stay ‘below the radar’, including by staying informal,
rather than expand and attract attention. While those that are linked to the
international community may be at more risk for targeted attack, threats may
also come from predatory government officials, or competitors. Insecurity
strongly deters both domestic and foreign investment. Large-scale extraction
projects in Afghanistan, revenues from which the economy was supposed to
have been jumpstarted, have stalled or halted their work due to the security
situation. Furthermore, due to the security situation, of Afghanistan’s largest
capitalists have moved their families, businesses, and capital offshores.
This is not to downplay the resilience of the legitimate private sector in
Afghanistan. Those domestic business actors that remain active often have a
high threshold of tolerance for insecurity, with more nuanced understandings
of how to mitigate risks within their environment. Indeed, research has found
that the forefront concern for many operating businesses is not insecurity, but
uncertainty: an inability to make long-term plans, or invest in long-term
activities due to unpredictable and volatile business conditions. This may be
harder to capture in surveyed questionnaires. But within a private sector, and
indeed society, that has been ‘traumatized and damaged’ by decades of
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conflict, some of the coping methods have deeper impacts. These include
maintaining tight and closed business networks, exclusive to kin or socioethnic groups, engaging in short-term opportunism, investing in low-risk quick
turnover activities, with a marked preference for trade over production. While
these may be rational economic choices, it places a ceiling on how much
businesses can contribute to the processes of social inclusion, integration, and
job creation that policy makers assume that a market economy will help
achieve.
The free market has a role to play in achieving the ‘freedom from want’ that
is still lacking for the majority of Afghans. But patterns of growth so far have,
as noted, largely served to the disproportionate benefit of power holders and
oligarchs. Afghanistan is one of the more classic examples in which elite
bargains for economic spoils can help constrain violence. But while perhaps
stabilizing in the short-term, this type of growth is damaging for long-term
development and for a competitive free private sector. Moreover, corruption
and exclusion have been found to increase the risk of violence in fragile
contexts, and inequitable growth feeds into an environment in which insurgent
groups and non-state violent actors can thrive. Lack of opportunities and
unmet economic expectations have driven people to petty or violent crime,
and even in cases into the arms of the insurgency. The unemployment
problem is particularly acute not only due to youth bulge, but also due to the
international withdrawal, which according to the Afghan Government has also
created a gap of half a million jobs. A ceasefire or peace agreement could
bring as many as one million refugees back into the Afghan job market.
But it is not growth per se which is necessary for broader stability, but highquality growth that gives people at all levels a stake in society. The private
sector as one report puts it, has always had a ‘crucial role in conflict—as a
cause and catalyst of strife, and as an integral part of restoring and maintaining
peace’. Research suggests that countries unable to raise themselves up in
economic terms are more at risk of falling (back) into conflict. But clearly, it
is content of the private sector and as well as the broader connection to state
governance, that matter in breaking cycles of violence. Absent an effective
regulatory framework, rule of law, justice and strong institutions, the any
peace-building effects of private sector development will be limited. Neither is
the private sector a panacea for the myriad security challenges that
Afghanistan faces, some of which are imposed onto it by external pressures.
Measures to support the functioning of the legitimate private sector will
require a host of reforms, but above all the building of effective and legitimate
institutions—although which private sector actors can capitalize on as well as
buttress a putative peace dividend.
Finally, it is worth noting that clear lines cannot always be drawn between
economic development and security. While there may be general trends to the
contrary, it is also the case that some of the safest provinces in Afghanistan are
the most economically vulnerable, and in cases it is farmers with the highest
average incomes which nevertheless cultivating opium. More involved
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analysis of motivations, political, social, and ideological is extremely
necessary. Simplistic models or theories of change, particularly as they relate
to entrenched economic and political power struggles, may not be applicable
without deeper analysis of what are often localized drivers.
4.2. Conclusions
Along a range of both traditional and human security measures, insecurity in
Afghanistan is substantial; physical violence is pervasive in society at all
levels, from use of force as a political and ideological tool by anti-government
elements, to its use in interpersonal conflicts in a society where rule of law
remains weak. The first half of 2015 has seen the highest casualty count both
for pro-government forces as well as for civilians since 2001. Insecurity in
developmental terms is also high, and with the slowdown in economic growth
and foreign aid decreasing, prospects for improvement remain uncertain.
The private sector, broadly speaking, has a complex and manifold
relationship with security. Economic opportunities and opportunism is a
source and driver of conflict, as is a lack of economic opportunities and
alternative livelihoods. As the same time, the private sector can play a strong
role in providing licit jobs, in buttressing state capacity, and in contributing
positively to development. In this, greater stress should be made on the quality
and content of the ‘private sector’, with care taken to ensure that marginalized
populations do not get left behind in growth models. But the private sector
alone is no panacea for Afghanistan’s security challenges, a solution for which
will require stronger and more legitimate state institutions, through which
markets and market actors can engage and partner with.
For formal businesses, insecurity (including crime) heavily impacts
businesses operations. While resilient businesses have been able to cope with
difficult security conditions in a variety of ways, some of Afghanistan’s
largest actors have already moved their businesses and capital offshores.
Foreign investments that were expected to help jump-start the domestic
economy have also stalled. Without a robust tax base from which the
government can begin to provide essential public goods, however, the state
building enterprise will also continue to face major challenges.
5. An analysis of private sector development
5.1. An analysis of private sector development programmes
Private sector development (PSD) encompasses the efforts of actors in the
public or non-governmental sector, as well as by corporations and individuals,
to promote and enhance the development and growth of the private sector.
Both in concept and in practice, PSD has been increasingly utilized by the
international aid community to harness the private sector’s presumed ability to
create jobs, reduce poverty, and to contribute broadly to developmental goals.
In Afghanistan, paper commitments to developing an inclusive and productive
private sector were made very early on, including in the National
Development Framework (2002), in which ‘the creation of sustainable growth
through a competitive private sector, which becomes both the engine of
growth and the instrument of social inclusion through the creation of
opportunity’, was one of the three main pillars on which Afghanistan’s
progress was to be based. The follow-on Securing Afghanistan’s Future
document made similar vision statements.
Technical assistance by international actors put in place the general
macroeconomic framework for Afghanistan’s market economy, including
basic economic institutions and its trade regime. Donors have been
instrumental in the creation of key private sector-related bodies: business
registries, business support organizations and investment promotion agencies.
While these contributions are laudable, both government and business actors
have also noted in interviews that the economic institutions established by the
international community in the early years failed to take full account of the
Afghan context. On the ground, few holistic attempts were made to help
transition Afghanistan out of what was and remains a largely informal
economy.
After the initial momentum subsided, PSD was low on the international
community’s list of priorities in Afghanistan, behind issues of security,
governance and rule of law and human rights. At the same time, the Afghan
Government was crippled by a general lack of capacity, when it was not being
recalcitrant, uninterested or merely self-serving. While the US Government
aid agency USAID has been involved since 2004 in PSD efforts, supporting
business organizations in particular, very few initiatives were launched during
the 2000s. A donor database operated by a department of the British
Government shows that outside of major infrastructure and public service
projects, and investments by the International Finance Corporation (IFC) and a
few microfinance and credit schemes, most notable PSD efforts by other
actors did not start until after 2009, with the majority beginning after 2010.
As an evaluation of World Bank programmes from 2002–11 noted, by the end
of the period, ‘the [Afghan] government’s objective to use the private sector as
the driver of sustained growth remain[ed] elusive’, and ‘progress in addressing
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critical constraints to PSD ... remain[ed] slow, with a lack of systematic and
coordinated efforts by the Bank Group and other development partners to
address these weaknesses’.
More active government and donor efforts have been made in recent years.
PSD first became explicit in the Afghan Government’s development strategy,
as a National Priority Program (NPP) cluster of the Afghan National
Development Strategy (ANDS). The PSD cluster encompasses the NPPs of
Integrated Trade and SME [small and medium-sized enterprise] Support and
e-Afghanistan. However, these NPP proposals were not fully developed and
released until 2011. The MOCI was the designated lead for PSD cluster
implementation, but lack of ministerial input and buy-in in the drafting
process, among other factors, led to weak implementation.
An SME Strategy was introduced in 2009, although implementation did not
start until 2011, when an SME Directorate was created within the MOCI. The
SME Strategy, which promotes ‘sectors in which Afghanistan has competitive
advantages across the value chain’, that are ‘labour-intensive with a strong
rural presence’, and where import substitution can realistically be achieved,
has many laudable aspects and is well worth re-examining. In addition, a
Private Sector Directorate was established within the MOCI in 2012. A New
Market Development Project (NMDP) designed to revitalize the private sector
in the four major urban centres was also launched that year. Given their
delayed and ongoing implementation, little in terms of impact assessments or
gap analysis on these initiatives is currently available. Anecdotally, however,
general ministerial capacity in these programmes remains very weak, a
problem that was exacerbated by the election deadlock and political transition
of 2014–15.
The NUG has promised to prioritize development of the private sector,
making a commitment at the 2014 London Conference that ‘improving
Afghanistan’s business enabling environment is the top priority’. A
dedicated side session at the conference on Private Sector Priorities for
Reform presented 11 reform priorities for the government developed by key
private sector actors. However, with no accountability or follow-up
mechanism in place, the reform priority document might join the growing list
of other prescriptive documents for Afghanistan that have gone unheeded.
On the donor side, PSD has received more financial and programming
attention in the past few years. Ongoing or recently completed PSD efforts by
donors range from matching grant programmes for SMEs, rural enterprise and
market linkages projects, and value chain development projects to
programmes promoting female entrepreneurship. These projects and
programmes have largely taken place on an ad hoc basis and are primarily
funded and implemented outside of the Afghan Government framework. The
Afghanistan Reconstruction Trust Fund (ARTF), the primary means by which
donor aid is channelled through the government, has not funded the PSD
cluster of the ANDS.
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Pitfalls common to many development programmes, such as short-termism,
weak commercial sustainability, reinforcement of dependency models, limited
outreach and fragmented approaches, have been widely observed as well as
documented in relation to programmes launched in Afghanistan. The supplydriven mentality inherent to many programmes has placed an emphasis on
spending rather than follow-through. In some programmes the focus has been
on measurable outputs rather than outcomes, while certain multi-million dollar
donor PSD projects have indicated, quite bluntly, that sustainability is not their
goal.
More anecdotal feedback from roundtables and interviews with
entrepreneurs in Kabul, Herat, Balkh, Bamyan and Parwan suggests, that
business owners have a generally unenthusiastic attitude towards these PSD
activities. There was among entrepreneurs a general preference for donors to
engage directly with beneficiaries, as working through the government was
perceived to result in dilution of aid as it filtered down through layers of
parasitic bureaucracy. However, those involved in established businesses
suggested that non-governmental organization- (NGO) or donor-dependent
businesses mostly fail as soon as donor financing is no longer available. Local
actors have also mentioned the emergence of ‘businesses’ that make their
profit essentially by siphoning money from aid programmes. While these may
or may not be systemic problems, quality control, monitoring and evaluation
clearly need more emphasis in PSD programming.
In other cases, some aid practitioners claimed that aid aimed at promoting
entrepreneurship often amounted to nothing more than salaried income for
beneficiaries in unsustainable business models. In addition, softer business
development efforts, such as training sessions, have not always been tailored
to their audience. During interviews, owners of established businesses often
remarked that business capacity training sessions offered by some
programmes were ‘useless’, while smaller actors and businesses that might
benefit, including informal ones, lack the connections and channels to access
such programmes. Better pre-intervention research of specific actors, needs
and context may help with the problem of ‘finding’ PSD beneficiaries. In
general, these aid activities fly in the face of the very principles underpinning
private sector-led growth.
International community PSD involvement in the form of procurement
contracts has perhaps had more success. Up until 2009, less than half of
international security and civilian assistance (and only 10–25 per cent in
externally budgeted programmes) was estimated to have actually made its way
into the Afghan economy. But programmes such as the Afghan First Policy,
adopted by the US military in 2008 and later by the North Atlantic Treaty
Organization (NATO) in 2010, committed in-country international forces to
procuring goods and services locally whenever possible. This brought large
and guaranteed markets directly to domestic producers, helping to sustain
local businesses—of which the local beverage industry was a more notable
beneficiary. Such military procurement contracts, including for the ANDSF,
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led to contracts not only for construction and logistics services, but also for
foodstuffs, furniture, textiles and other goods. The largest military contract in
Afghanistan is still held by an Afghan-owned company, which sources locally
for the agricultural produce and foodstuffs consumed by remaining
international troops. Overall, such international contracts were estimated to
have created 15 000 jobs at their peak. USAID in fact claims that the Afghan
First Policy supported the employment of 85 650 Afghans through its
contracts between 2008 and 2010. However, the impact of withdrawal is now
keenly felt where local economies became tied to international presence.
Such programmes have not been perfect, but proposals currently circulating
among Afghan policymakers to similarly provide market and purchasing
guarantees for local businesses through ANDSF or other government
procurement contracts should be seriously considered.
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5.2. Private sector development coordination
Coordination is necessary at multiple levels to ensure the effectiveness of aid
efforts in Afghanistan, including for PSD. It requires alignment and
coordination between donors and the Afghan Government, as well as
coordination between donors themselves and between relevant Afghan
government bodies. In 2011 PSD represented 2 per cent ($218 million) of
external assistance to Afghanistan—but only of the donor aid that the Afghan
Government was able to account for. With 82 per cent of aid bypassing state
channels that year, fragmented among donors and agencies, the figure does not
represent the full picture of the PSD projects and programmes that have been
attempted in the country. Donors committed to channelling 50 per cent of aid
through the national budget at the Kabul Conference 2010 and aligning 80 per
cent of this aid in accordance with national priorities (the ANDS NPPs) over
the following two years. But with only 18 per cent of aid delivered on budget
at the end of 2011, follow-through on these promises was clearly lacking.
The Afghan Ministry of Finance and donor counterparts have held a series
of high-level Development Coordination Dialogues (DCDs) since 2006. In the
past year, relevant actors have also been meeting for regular PSD donor
coordination meetings. But effectively coordinated aid needs more than
information sharing. It also requires alignment with government priorities and
harmonization of efforts—two key principles of the 2005 Paris Declaration of
Aid Effectiveness. Pooled funding mechanisms are important means by
which both can be achieved, lowering transaction costs for donors while
contributing to capacity building and ownership by the government. The
ARTF, which has had 33 contributing donors over the years, has been
assessed as a very effective vehicle for channelling on-budget aid, aligned
entirely with government priorities. However, the ARTF has on the whole
not been used for economic development programmes. When support for
microfinance was phased out of the ARTF in 2007–2008, this left the 6.5 per
cent invested in agricultural growth and development as the only multilateral
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funding stream oriented towards economic growth. The ARTF, moreover,
does not fund the PSD cluster of the ANDS, although it provides funding for
the other five priority clusters.
While legal restrictions in donor countries may act to limit the provision of
on-budget aid occasionally, the low levels of such aid are more often due to
the perceived weakness or undesirability of working through the government
itself. Off-budget aid may reach beneficiaries more swiftly and directly, but it
can cause a number of problems, ranging from negative impacts on
government legitimacy and capacity to lack of project sustainability and
handover to national authorities. The government currently has no clear
picture of the geographic scope of aid programmes in the country, with donors
directly contracting implementing partners and NGOs often without informing
relevant line ministries.
Besides lack of coordination with the government, however, there are also
major challenges in terms of cooperation among donors. Different agencies,
diplomatic missions, and NGOs can have vastly different agendas—which are
sometimes contradictory. Provincial Reconstruction Teams (PRTs) have
poured vast amounts of economic development money for stabilization
purposes. This type of aid is in time frame, methodology and metrics of
success, very different from aid intended for long-term sustainable
development. Within agriculture, actors have pursued different ‘not
necessarily complementary’ policies. However, the lack of coordination in
relevant instances may result in missed opportunities to create synergies
between actors, and lead to duplication and overlap, reducing effectiveness.
Moreover, the absence of an overarching structure for cooperation means that
there is little institutionalized memory of lessons learned. As new advisors are
appointed, and projects and programmes are initiated without any coordinating
mechanisms in place or guidance as to what has or has not worked previously,
aid efforts have become increasingly fragmented, and development—similar
to the military campaign in Afghanistan—can now be characterized as a series
of ‘one-year wars’ rather than a sustained and cohesive engagement.
Finally, it is worth noting that the Afghan Government’s lack of interministerial cooperation and coordination is still a major problem—not only
downwards from national to subnational counterparts, but also at the central
government level. PSD cuts across many departments, but the overlap in the
mandates of Afghan ministries and public institutions causes confusion as to
areas of responsibility. There remains no firm counterpart or single
responsible coordinator for development of the private sector as of the time of
writing.
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5.3. Principles of engagement and red flags
Limited coordination is one among a number of reasons why PSD efforts have
been neither systemic nor sustained. But another recurring challenge for those
involved in PSD is how to sequence and prioritize efforts given that resources
54 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
and time frames are limited. In addition, Afghanistan’s private sector faces
many problems that are not only interconnected, but also may be beyond the
capability of PSD to address.
PSD can be very broadly categorized into two types of interventions. The
first intervention focuses on the environment in which the private sector
operates, removing obstacles at the institutional or policy level. Properly and
carefully done, efforts by the state and other actors, to reform and implement
regulations, provide public services, enforce basic rule of law, and improve
the business climate can serve to the benefit of all market actors. However,
many donors are also engaged in more targeted assistance, in sectors of the
economy that they believe can deliver significant impact in relation to propoor growth. These interventions include providing resources to private sector
actors through matching grants or challenge funds, supporting specific value
chains, or otherwise actively encouraging enterprise development in select
geographic areas. These more direct interventions to stimulate economic
growth and reduce poverty are conceptually (and often in practice)
problematic for a ‘private sector-led’ economy. Analysis of the effect of direct
market interventions shows that the results have been somewhat mixed. While
direct intervention may be more effective in terms of donor impact and reach
(particularly when the Afghan state is seen to be an unreliable or ineffectual
partner), such interventions may address only the symptoms of market failure
rather than the root causes. Further, there are risks that poorly devised direct
PSD can distort the marketplace by favouring certain sectors or actors,
skewing supply and demand, or crowding out private sector investment.
However, in the Afghan context, given the massive and myriad constraints
on inclusive growth and the weaknesses of the formal private sector, donors
have also now come to the conclusion that in many cases, ‘strong assistance is
required’. Indeed, the Afghan Government itself has also concluded that
there are ‘strong grounds for believing that in some cases government
intervention will expedite (economic) development’. It has called for
industrial policy, import substitution, and promotion of export-oriented
sectors.
The following are a few principles and key potential pitfalls that should be
considered before initiating direct intervention. They should be taken into
account not only at the implementation stage, but also at the initial formulation
stage. The guidelines are based on a review of existing PSD programmes in
Afghanistan, in-country fieldwork and a broader review of the relevant
literature. Many of the guidelines can apply to other development
programmes, even those beyond interventions of a PSD nature. Better
coordination among actors will also help to ensure that the various actors
involved in PSD can learn from other development efforts.
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297
298
5.3.1. Time frames and exit strategies
PSD is a long-term process. Donors often have unrealistic expectations about
what can be accomplished in limited time frames, particularly given the
AN ANALYSIS OF PRIVATE SECTOR DEVELOPMENT 55
299
extremely low baselines from which they are working. Overly short time
frames incentivize measuring success on short-term outputs rather than
sustainable impact, undermine careful evaluative processes, and increase
chances for opportunism. Most donor aid initiatives are fleeting rather than
structural, do not incorporate a clear and responsible exit strategy, and often
leave behind orphaned projects and beneficiaries and value chains that remain
broken. Thus, assessment of realistic time frames for results should be
accompanied by an evaluation of responsible exit strategies that consider
sustainability.
300
5.3.2. Sustainability
Post-intervention sustainability may be achieved on a number of different
levels. When handing over to beneficiaries, donors should first determine
whether there exists sufficient capacity in human, financial and technical
terms to utilize or maintain the material or immaterial resources provided.
Establishing commercial sustainability requires a rigorous assessment of the
underlying context, the relevant value chains and the market. Maintaining the
successful results and models produced by a programme after it comes to an
end may require a handover to local actors, which may be easier to accomplish
if government institutions are involved from the outset. This, according to
Independent Directorate of Local Governance (IDLG), would help donors
move from a ‘programmatic’ approach to a more ‘institutional’ approach, as
well as help buttresses government capacity and legitimacy.
301
5.3.3. Holistic perspectives
The uncoordinated and patchwork nature of PSD projects has prevented actors
from taking a systematic and holistic approach to interventions. But many of
the individual constraints are closely interconnected and cannot be solved in
isolation. For instance, a project that supplied cold storage units to commercial
farmers failed to take into account the financial context, including the cost of
upkeep, and the units were subsequently sold to traders. In another case, a
programme to provide land for industrial parks failed to address the
interconnected issue of absent or inconsistent electricity supply. At the general
level, support for domestic producers fails to take into account the regional
trade environment. Moreover, in many instances, donors have intervened in
only one section of the value chain, leaving the rest broken, and the efficacy of
the entire endeavour in question.
Some issues, such as local human capacity, may lie beyond the capability of
direct PSD to address. However, these should be rigorously assessed preintervention. Indeed, if there are too many structural barriers to a successful
PSD intervention, donors should consider whether their funds would be better
spent in helping to deal with those structural problems.
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56 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
5.3.4. Clear objectives
Donors should differentiate between projects that aim to have a social impact
and those intended to be genuinely commercially viable, as ‘the muddying of
the two metrics has resulted in projects that satisfy neither goal’.
Programmes to stimulate socially inclusive economic participation may be
very meaningful, but it has been noted that these often amount to no more than
salaried income for participants and, as such, should have different metrics
and follow-through mechanisms from for-profit endeavours. On the other
hand, commercial viability is critical for projects whose clear objective is to
produce sustainable business models.
303
5.3.5. Market distortion
Donors should ensure that ‘the market’ is not an artificial one that is created
by donor funds, but rather addresses a genuine consumer demand. The
subsidizing role of donors, as noted, is ironic if not in what has been designed
to be a neoliberal market economy. Without more careful considerations of the
distortionary impact of aid, Afghanistan may suffer the worst of both systems:
economic inefficiencies as well as limited state support and protections. In
this, market assessments are key. The private sector should not be crowded out
and donor aid should only be used to kick-start the market when the private
sector cannot do so itself.
304
5.3.6. Needs-based interventions
PSD interventions should be needs based, rather than supply driven, and
should first consider what communities are ready, interested and able to
absorb. Numerous examples exist of donors first devising a project and then
searching for potential beneficiaries, rather than working together with
identified target groups to address meaningful or contextualized needs. In
some cases, finding beneficiaries becomes one of the primary hurdles to
implementation of the project. In some instances, rural communities have
perceived little to no benefit from market development or entrepreneurship
programmes, and lack interest.
Needs differ depending on the target group. Some large- and medium- sized
enterprises, for instance, have found training or capacity-building exercises
offered through PSD programmes to be of only marginal significance. PSD
may not even be suitable at smaller enterprise level, where beneficiaries’
needs may be more developmental in nature (basic livelihood for example).
While this does not mean that such programmes are not important, for PSD to
have greater impact and sustainability, communities should be seen more as
participants than as passive beneficiaries. Overall, as a recent Sida programme
evaluation points out, ‘it is better to start with analysing the situation on the
ground first and then developing the programme accordingly’.
305
306
307
308
AN ANALYSIS OF PRIVATE SECTOR DEVELOPMENT 57
5.3.7. Developmental mafia
As in all areas where developmental and reconstruction efforts take place,
there exist in Afghanistan groups of individuals who capitalize on
opportunities available for personal gain. As one local actor noted, siphoning
off development aid has become a for-profit private sector endeavour of its
own. Pop-up ‘businesses’ with no long-term prospects have sprung up to take
advantage of grant money and there are male-owned enterprises purporting to
be run by women in order to receive special benefits from donors. Local
interlocutors such as heads of business support organizations, neighbourhood
headmen, or other authorities who have more contact with donors, may claim
to represent others, when in fact they are merely presenting their personal
agendas. Information asymmetries can also compound unequal access. Very
careful assessment of actors, and finding ways to reach out directly to intended
beneficiaries rather than middle-men can help in this regard.
However, during the information gathering process for this report, the
authors also discovered examples of projects being deliberately sabotaged
because they did not have the endorsement of local community leaders or
power-holders. It is therefore important to obtain the approval of such
individuals in certain contexts. Intervening in markets is not a neutral activity;
it can impact social hierarchies, and resource and power configurations, either
reinforcing pre-existing structures or subverting them. While donors should
‘identify ways to provide access to resources that challenge existing
inequalities’, efforts should also be highly contextualized and sensitive to local
realities.
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310
5.3.8. Monitoring and evaluation
The endemic corruption, inefficiency and waste linked to the aid effort in
Afghanistan is well known, although not always documented. Vigorous
quality control of contractors and implementers, and evaluations of impact on
target beneficiaries should be built into any programme’s structure, While
compiling this report the authors learned of multiple complaints of corruption
levelled against developmental actors. Donors can hold the Afghan state to
account on the basis of their metrics, but there are no mechanisms for local
Afghan people to hold donors to account for their actions in Afghanistan.
Third-party or community-based monitoring could be important in this regard,
although in the latter case communities may lack the capacity or technical
knowledge to effectively monitor developmental projects. Programmatic
‘success’ is usually determined based on predetermined metrics. But a running
theme in evaluation reports is that these metrics emphasize only outputs rather
than outcomes or meaningful impact. Indicators for what may be immaterial
social returns may be difficult to develop or rigorously assess, but proper preintervention baseline assessments can be of use in this process.
311
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58 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
5.4. Conclusions
The Afghan Government and the international community made paper
commitments to encourage growth in the private sector shortly after
intervention in 2001, but most notable PSD efforts were actually implemented
only after 2010. An overarching strategic framework with clear division of
labour for development of the private sector was never created. The former
Afghan administration had a vested interest in limiting private sector
competition. The international community, despite good intentions, made a
number of miscalculations: a supply-driven mentality placed emphasis on
spending rather than follow-through and a focus was placed on measurable
outputs rather than outcomes. International donor community PSD efforts
have also had limited success due to the fragmented approaches taken and
restrictions in (rural) outreach. Ultimately, many have reinforced a model of
aid dependency. This combined with limited coordination between state and
non-state actors has resulted in disjointed interventions. The private sector
itself has had limited impact as organized business remains relatively weak
and attempts to interact with the state have often been ignored. At large, a
recurring problem is how to sequence and prioritize PSD efforts given that
many of the Afghan private sector’s impediments are interconnected and may
not be solved by direct PSD.
In the light of weak government capacity, the NUG’s preoccupation with the
security situation, and the overall poor state of the Afghan economy—PSD
efforts by foreign actors do have the potential to play a crucial role in
jumpstarting or supporting socioeconomic development. However, to avoid
eroding government legitimacy it is essential that there is also support at the
institutional and policy level. Donors should implement carefully devised
direct market interventions in close alignment with the Afghan Government.
Such harmonization can enhance efficacy, promote synergies and strengthen
long-term structural development impact.
6. Conclusions and recommendations
6.1. Conclusions
Afghanistan’s pre-1979 economy was predominantly informal, agrarian and
subsistence-based. The state’s capacity and reach beyond the country’s largest
urban clusters have always been inadequate. Thus, limited domestic
integration, informal economic activity and the socially fragmented tribal
nature of Afghan society have persisted. Starting from the 1980s foreign
interference, protracted conflict and a weakening government apparatus
contributed to the degeneration of the existing fragile social fabric and
facilitated criminal economic activity. By 2001, most formal economic
institutions and infrastructure had been destroyed, resulting in a very low
baseline from which to begin post-intervention reconstruction efforts.
The international community’s intervention did not necessarily constitute a
decisive break with past economic processes, patterns or players. Indeed,
although Afghanistan has received substantial amounts of aid intended to
bolster state-building efforts, the sudden introduction of a market economy to
a country beset by ongoing conflict has in some cases exacerbated existing
problems. Afghanistan’s private sector is today a complex synthesis of
informal, formal, reconstruction, war-related and illicit activities. Lines
between these elements are not always distinct, and private sector
opportunities and opportunism continue to fuel and be fuelled by conflict.
An inclusive free market is ideally characterized by equality of access by all
to economic resources and opportunities, and a rule-based playing field that
permits and encourages competition. Yet, in Afghanistan economic activity is
strongly impacted by extra-market conditions. These affect the production
capability and competitiveness of micro and small enterprises, which employ
the majority of Afghans. Furthermore, they influence the employment and
(formal) start-up opportunities of marginalized sections of the population.
Limited employment opportunities in turn increase the attraction of illicit
activities or the likelihood of radicalization: young men are at the highest risk.
Private sector constraints also erode NUG legitimacy, thereby jeopardizing
political stability and thus the country’s security situation.
Efforts by the state and international actors to foster inclusive economic
growth have so far been limited. Large family-owned business conglomerates
with political ties have disproportionally reaped profits in the growth process,
while for the vast majority of Afghans economic conditions have not
improved. Unaccommodating economic policies and weak regulatory
enforcement have even allowed some neighbouring countries to profit from
the Afghan market through unfair competition. Opportunities for the Afghan
economy to connect with neighbouring and world markets are complicated by
its landlocked position in a politicized and often toxic regional economic
60 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
environment. The culmination of these forces and conditions, compounded by
the triple transition, has created a precarious business climate.
Unpredictability, a weak regulatory system and physical insecurity dampen
both domestic and foreign investment. Indeed, the flow of capital in
Afghanistan often ends in Dubai. In addition, the fragile fiscal regime leads to
a lack of public services and goods, and it prevents the government from
establishing an attractive climate for investment. This in turn deprives it from
(growing) fiscal revenue that could be ploughed back into providing essential
public services and goods. Critical infrastructure, fundamental to economic
development, is still unreliable, inaccessible or completely missing in large
parts of the country. While the macroeconomic environment has been
relatively stable, there remains no clear strategy to support the private sector.
This is despite early paper commitments from the Karzai administration and
the international community that deemed the private sector to be the engine of
economic growth and an instrument of social inclusion. In the absence of an
overarching strategy that involved all stakeholders and addressed market
failures on a structural level, a number of direct market interventions have
distorted markets, fed into corruption and patronage networks, and even
eroded government legitimacy. PSD efforts have also had limited success due
to fragmented and uncoordinated approaches, lack of contextualized
knowledge
and
inadequate
consideration
of
sustainability
or
institutionalization.
Considering the structural nature of the impediments to the Afghan private
sector, the NUG will need to step up to address market failures at the
institutional and policy level. But considering its still weak administrative,
technical and financial capacity, international community PSD is much
needed. Finally, NUG, international community and other stakeholder
commitments have to be long term, have clear and realistic timeframes for
impact, and find a balance between commercial viability and inclusiveness.
6.2. Recommendations
The following recommendations are divided into three categories:
I.
II.
III.
recommendations to the Afghan Government;
recommendations to the international community; and
recommendations to the private sector and other Afghan
stakeholders.
These recommendations are based on empirical data collected by the authors
in Afghanistan, extensive dialogue with Afghan private sector stakeholders,
and desk research conducted in Stockholm, Sweden.
The formal Afghan private sector remains weak, and the ‘to-do list’ is
extensive. No one-size-fits-all framework for fostering a vibrant private sector
exists, as every context is unique. Recommendations in this report focus on
CONCLUSIONS AND RECOMMENDATIONS 61
what the research findings have indicated as the most critical impediments to
the Afghan private sector. In the case of the Afghan Government, the
recommendations are primarily on the institutional and policy level. As such,
the impact of these recommendations may be gradual, and demonstrable
results cannot be anticipated in the short term. The recommendations to the
international community are aimed at supporting the Afghan Government at
the structural level, as well as by means of direct market intervention. Given
the exclusionary nature of most of the Afghan private sector there is a case for
interventions that directly target marginalized sections of the population,
support smaller commercial enterprises and help to resolve provincial
disparities. Inclusivity agendas should however take commercial viability of
programme objectives into consideration.
The recommendations foremost endorse active support by the international
community to the Afghan Government’s own efforts, particularly considering
the government’s weak administrative, financial and technical capacity, and its
preoccupation with security issues. At the institutional, policy and direct
market-intervention levels, the international community should adhere to the
Tokyo Mutual Accountability Framework (TMAF) that was set out at the
Tokyo Conference in 2012, which states that the Afghan Government should
determine its own development priorities. Recent government interest in nontraditional financing modalities and new partnership modalities with the
private sector is one such example.
The authors would like to reiterate that the political, economic and social
contexts of any direct market intervention require further study, including
conflict-sensitivity analysis before and throughout implementation. It is
imperative that all market interventions are coordinated with the Afghan
Government, relevant international and national donors and implementers, and
target beneficiaries. Fragmented, uncoordinated and superficial initiatives will
not have any structural impact and might even negatively impact perceptions
on government legitimacy.
Finally, it should be noted that the current conditions—namely a still highly
volatile security situation, political instability and uncertainty, and a stagnant
economic policy environment—have an immeasurably detrimental effect on
the business climate. If the security situation deteriorates substantially, or if
the government fails to show lasting commitment to fostering a more inclusive
and encouraging private sector environment, international community PSD
efforts are likely to have minimal sustainable impact. The impact of any of
these recommendations on human and traditional security conditions in
Afghanistan depends entirely on intervention design and execution, and a host
of other relevant factors.
6.2.1. Recommendations to the Afghan Government
The Afghan Government must provide the preconditions for an inclusive,
productive, rule-based and formalized market economy. This report’s findings
indicate that the NUG should—with immediate effect—take on a much more
62 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
proactive role to address a long list of impediments that sustain market failure.
This report recommends that the Afghan Government:
I. Display leadership and vision by developing a realistic private sector
growth strategy with clear and measurable milestones, division of labour
between international and national actors, and the implementation of followup and monitoring processes. Considering the government’s limited
administrative, technical and financial capacity, this strategy should be
coordinated with the international PSD community and be in full dialogue
with the private sector. At this stage, an updated and overarching strategy to
give direction to the development of the private sector is absent: a number of
international PSD actors are awaiting clarity on NUG economic policies.
Existing policies are scattered and sometimes even overlapping.
Such a strategy would lead to greater integration and efficiency in the
approaches taken by the relevant authorities, the international donor
community, the Afghan private sector and other stakeholders with mandates
on PSD. For implementation to succeed, it is imperative that the views of all
stakeholders, the formal as well as smaller players in the informal private
sector, are taken into account in a systematic manner. Sector competitiveness
analysis will be needed to utilize the country’s limited resources to their
highest strategic impact. Commercial prioritization on a sectoral and (sub-)
provincial basis, for instance through local economic development (LED), will
be critical. A balance would have to be struck between commercial viability
and inclusivity. A flexible, pilot-driven, step-by-step approach is urged.
The results of this strategy will be entirely dependent on the speed,
determination and the quality of its implementation.
II. Increase the capacity of key state economic institutions that support the
productive potential of the private sector. There is a need to professionalize
administration at the national and provincial level through continuous
training. Effective public administration and a merit-based civil service are
essential. The best laws, regulatory frameworks and policies will be to little
avail if there is insufficient capacity in the civil service to implement them.
Existing institutions should be tasked with supporting inclusive private sector
growth through promoting transparency and more equal access to economic
resources, employment and rule of law. This would serve to the benefit of
broad layers of the population, encourage efficient use of resources and also
boost government legitimacy. Ministerial directorates and agencies must be
given a clear and unambiguous mandate on their precise roles.
III. Take immediate carefully tailored measures to curb corruption starting
from the highest government echelons. Corruption erodes trust in the
government and leads to anti-government sentiment. Numerous bodies and
committees have been set up to deal with corruption, all lacking consistency,
determination and unbiased follow-through; hence, they have had little
CONCLUSIONS AND RECOMMENDATIONS 63
positive impact. A precedent must be set, starting from the top and in
accordance with a clear agenda, in order not to squander what political
momentum still exists. Curb corruption in administrative interaction with the
private sector through increased use of digitalized processes. Corruption in
business-related processes, such as registering property and paying taxes is
rampant, and not only affects economic growth, but also results in unnecessary
loss of revenue for the government. It is strongly recommended that the
government pursue efforts to simplify and digitalize its economic processes.
IV. Improve the business climate in close coordination with the organized
business community. Establishing a business-friendly, predictable regulatory
framework will enhance the competitiveness of the formal private sector,
while serving to improve the investment climate. Against this background, and
in compliance with the recommended growth strategy, the government should
pursue growth-promoting economic policies that support strategic business
sectors. The current economic policy environment is stagnant: investor and
consumer confidence need to be boosted through bold and clear-cut economic
policies. Use of growth-promoting instruments, such as tax relief, state supply
contracts and strategic PPPs should be considered. Findings indicate that
businesses in the agricultural and derivative sub-sectors, in particular, have a
good combination of large employment absorption capacity and the potential
to produce competitive output. This does not, however, imply that other
business sectors should be neglected.
V. Evaluate and update the strategy for trade policy instruments to promote
sustainable development of prioritized sectors, primarily agriculture,
agricultural processing and light manufacturing. The current trade regime is
detrimental to the Afghan private sector and does not permit enterprises with
otherwise competitive characteristics to vie with foreign businesses exporting
similar goods into Afghanistan. Taking into account Afghanistan’s
vulnerability to dumping, some sectors of the economy such as agriculture and
light industry, may need temporary support to gain an adequate foothold in the
domestic market. Such support policies could also help Afghanistan to move
higher up the economic value chain. Policies should ensure that any level of
protectionism does not lead to diminished competitiveness, rent-seeking and
adverse impact on consumers. It should also be noted that the quality standard
of Afghan products currently does not always meet consumer demand. Poor
marketing of products is another major impediment to better sales. These
support measures must be combined with full digitalization of customs
procedures, which would help to eliminate corruption and allow for the
collection of revenue. The absence of adequate customs procedures deprives
the Afghan Government of about $1 billion annually. To mitigate racketeering
practices, e-payment systems at customs nationwide should be introduced,
which would also increase formal customs revenue collection. Current border
customs are tarnished by racketeering practices and are not subject to
64 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
government supervision. This affects price competitiveness of exports and
erodes import regulation, effectively constituting an impediment to the
development of domestic (export-oriented) production, as well as to the role of
Afghanistan as a logistical hub in regional trade.
VI. Tackle the hurdles that limit access to economic resources and inhibit
the private sector from using the full potential of the productive capacity of the
workforce. Access to land, physical resources and finance are partially
interlinked. In particular, access to land is multi-faceted problem, rooted in
Afghan customs that differ across the country. The absence of discernable
land ownership and corresponding rights negatively impacts the productive
capacity of the private sector, as the acquirement of capital, in most cases,
depends on proof of rights over formally titled land. Uncertainty about tenure
leads to reluctance to invest, as entrepreneurs may fear that the government or
power holders may take their land and property. A modern, efficient and
transparent policy on land and property rights is required to expand wealth
beyond the economic elite. As this is expected to be a lengthy endeavour, the
government should, in the process, mobilize state landholdings for use by the
private sector through favourable long-term lease agreements, including as
incentive for PPP, to reduce capital investment risk and enhance net land
value.
Access to physical resources must be combined with a more robust property
rights regime that—while accommodating towards customary laws—promotes
formal, rule-based dispute resolution. In parallel with broadening access to
formal bank credit, a comprehensive financial access strategy needs to
leverage the potential of and develop existing unbanked credit mechanisms.
Specific sector-oriented banks that provide demand-led financial products are
recommended. Mobile technology-based solutions should be considered given
current telecom coverage and penetration levels.
VII. Invest in the country’s critical infrastructure: a productive and
competitive private sector cannot operate without quality infrastructure.
Reliable electricity provision is a rapidly growing need and one of the private
sector’s first priorities. This requires investment in new systems, and better
operations and maintenance of existing grids (and ideally of those of
neighbouring suppliers). In conjunction with this, prioritization of road
connectivity between commercial agricultural clusters and large urban
centres is strongly recommended; as is investment in wet infrastructure and
irrigation schemes. To meet infrastructure needs, and in light of state financial
limitations rapidly move to pass the PPP law. Implementation should be
subject to a clear strategy. PPPs can contribute to building an atmosphere of
mutual trust, improve accountability and transparency, and mitigate the private
sector’s risk on investment. A strong legal framework for PPPs would need to
be implemented and enforced to ensure that the existing oligarchy does not
usurp them.
CONCLUSIONS AND RECOMMENDATIONS 65
VIII. Prioritize women’s full and equal participation in the economy.
Afghanistan’s low female economic participation is a barrier to realizing its
economic growth potential. Women are particularly important in the key
agricultural sector; this role should be more greatly encouraged and expanded.
In an economy where men dominate markets and higher parts of the value
chain (correspondingly capturing the bulk of the profits), fully female-owned
value chains and women-to-women economic networks can contribute to
ensuring more equitable growth and distribution of wealth, as well as wider
access to and control of economic resources. Going beyond the simple act of
implementing legislation, the government must ensure the enforcement of
labour protection laws, property and inheritance rights and equal opportunity.
A starting point could involve initiatives to raise public (including female)
awareness of such issues and the promotion of male endorsement wherever
possible. In all economic development plans, and across line ministries,
support for women should be a mainstream issue rather than a tokenistic one.
Broader sociocultural change may be a slow process, however, and female
economic promotion activities should be in coordination and conjunction with
other measures to increase the human and social capital of Afghan women.
6.2.2. Recommendations to the international community
In the context of the dismal state of the formal Afghan private sector and weak
government capacity, international community support will remain essential at
least in the medium term. The Afghan Government will require support
throughout the ‘transformation decade’ (2015–24) to build capacity to regulate
a healthy private sector and correct market failures. As a means to assist
beneficiaries more rapidly, carefully designed and implemented direct market
interventions are also advised. This report recommends that the international
community:
I. Support the Afghan Government with the above stated eight
recommendations. As stated in this report, the NUG will need continued and
closer international community support in at least the short and medium term.
It should be noted, however, that with an increasing amount of aid on budget
or provided in direct coordination with government agencies, demands for due
diligence on spending are high, not only to safeguard funds and ensure project
efficiency, but also to avoid contributing to corruption or jeopardizing
government legitimacy.
II. In conjunction with efforts by the NUG to develop the private sector,
jointly set up a formal cooperation and coordination mechanism. Aid
coordination at multiple stakeholder levels is vital to ensure the effectiveness
of all intervention efforts in Afghanistan, and PSD is no exception.
Uncoordinated efforts between top-level—as well as provincial and local—
government, fellow donors and beneficiaries are likely to produce superficial
66 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
and limited results. Currently, there is some level of coordination among a
number of diplomatic missions, but this excludes many other stakeholders.
III. Establish a new formal international aid database that incorporates
former and current PSD efforts, including their geographic scope, funding
streams and evaluations, as well as donors’ off-budget development
programmes. This database has to be combined with Afghan state-led efforts
to develop the private sector, meaning that the offices of the President and
CEO will have to be involved. A public aid database managed by the Aid
Management Directorate of the Ministry of Finance is available, but the digital
system is not satisfactorily updated and does not include off-budget
programmes. A coordinated, easily accessible and comprehensive information
system has not been utilized for international aid efforts during the period
2001–15. A more robust international aid information sharing system and
cooperation and coordination mechanism could improve what has so far been
an extremely fragmented international aid effort. Ideally, the PSD strategy and
the coordination and cooperation mechanism would incorporate a public
finance model with clear objectives and milestones that work towards a
scenario where the Afghan state becomes increasingly self-reliant.
IV. Support full value-chain development projects in the agricultural sector.
Support for agricultural development is critical for Afghanistan’s most
vulnerable people both in terms of income generation and food security.
Agriculture has higher labour intensity and greater job creation potential,
including for women, than most other sectors. A specific focus on those value
chains identified as commercially viable whether for domestic or export
markets is recommended. Such value chains include horticulture (e.g. fruits,
grapes/raisins, nuts, saffron and vegetables) and livestock (e.g. dairy, meat,
poultry and other animal-derived products). Dairy production has been
identified as a commercially competitive sector with high domestic demand
and which has income-generating potential for women who are highly
involved in dairy value chains. As such, sector-specific support for the dairy
industry, among other sectors, is recommended.
Donors may choose to work within existing frameworks and projects,
utilizing existing competencies, potentially filling gaps (such as greater gender
mainstreaming) and/or expanding the scope as appropriate. If entirely new
agricultural value chain support programmes are proposed, they should be
assessed against existing programmes through wide-ranging consultation
processes to utilize lessons learned. Prior to intervention there should be
rigorous assessment of local conditions and needs, consultation with the
government, and careful thought given to an exit strategy that envisions
commercial sustainability and/or project institutionalization. This
recommendation should be synchronized with the economic policies as
presented in recommendation IV in the Recommendations to the Afghan
Government section.
CONCLUSIONS AND RECOMMENDATIONS 67
V. Consider diversifying geographic focus. Regional disparities are
pronounced in the developmental aid provided by donors, with welldocumented inequities and imbalance across provinces. Even within national
development programmes, donors tend to prioritize aid based on their
individual political priorities, favouring regions in which their own PRTs had
been engaged, or on security and military assessments. Disbursements have
been heavily imbalanced, with little assessment of where needs are most
pronounced or developmental impact would be greatest. Moving forward, aid
interventions should consider targeting communities based on need and/or
commercial viability. For those donors able to make a sustained and longerterm developmental commitment, diversification of geographic scope to
under-prioritized provinces should be considered. This, however, will require
more in-depth study on province and sub-province private sector conditions to
determine what type of interventions are most appropriate.
VI. Incorporate consumer demand perspectives more fully into PSD
programming. Consumer perspectives, the demand side of the equation in
both domestic and international markets, are as critical as the Afghan producer
and supplier perspectives. There is, unfortunately, a dearth of information on
consumer choices, needs and preferences in Afghanistan, as well as in export
markets. Taking the entire producer to consumer chain into account may also
shift support priorities. Further research on this is recommended.
6.2.3. Recommendations to the private sector and other Afghan
stakeholders
Domestic and international companies share a responsibility with
governments, both in Afghanistan and in donor countries, for improving the
conditions for a rules-based, competitive and sustainable private-sector driven
economy. The Afghan private sector in its current state, however, is not in the
best position to ‘correct’ market failures; some level of economic intervention
is necessary to promote inclusiveness, competition and greater productivity.
As testified by this report, the Afghan private sector is heterogeneous,
representing a wide array of interests and with varying potential to effect
positive change. Nevertheless, this report recommends that the Afghan
private sector and relevant non-government organizations:
I. Strengthen the capacity, transparency and member representation of
organized business. While private sector business in Afghanistan is organized
to some degree, it is generally weak in capacity, rural representation and in
impact on policy making. The business oligopoly has ‘captured’ the
government, while other businesses, ranging from large to medium and smallsized enterprises, struggle to be heard. Active private sector participation is
necessary in all steps of government economic policy making to ensure that
priorities are in line with business concerns, that there is private sector buy-in
68 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
and to streamline bureaucracy. Internally, governance and corruption
challenges to organized business will also need to be addressed.
II. Strive to curb supply-side corruption where financial and physical risks
are manageable. Refusing to participate in corrupt behaviour in Afghanistan
today often means a short-term commercial disadvantage to companies or
even a physical risk to individuals. If also enforced by competitors, however,
ridding a market or supply chain of corrupt practices can lower direct costs,
reduce risks, encourage investment and cooperation, and could facilitate
access to formal credit. In practice, however, many factors limit the measures
an individual firm can take, including most fundamentally the absence of
impartial legal recourse, only certain actions may be feasible. A wellestablished and enforceable corporate anti-corruption policy is fundamental.
Options to consider include to participating in collective action, engaging
government officials, employing media outreach and cooperating with civil
society and citizens’ monitoring groups to place business corruption on the
political agenda.
Annex 1. A provincial perspective
Five sample provinces were selected by the authors for field data collection
based on the rationale provided in the methodology (see Annex 2). This annex
provides an overview of private sector conditions in these five provinces to
assess to what extent they overlap and differ.
Balkh
Balkh, bordering Tajikistan and Uzbekistan, is the most populous of the
Northern provinces and 36 per cent of the population is urban. Its capital
Mazar-e Sharif is an important economic hub and Afghanistan’s main trading
gateway to Central Asia. The booming post-Taliban economy of Mazar-e
Sharif attracted not only entrepreneurs and investment from across the
Northern provinces, but also villagers who found work in the transport and
construction sectors.
Since the fall of the Taliban, political life in Balkh has been dominated by
rivalries. In recent years, Governor Atta Mohammad Noor has consolidated
sufficient allegiances to maintain relatively stable levels of security in the
province, which has helped sustain the substantial independence Mazar-e
Sharif enjoys in relation to Kabul. One precondition for this has been a
strong concentration of economic interests around Governor Noor.
Nevertheless, independent and semi-independent business actors exist,
including some of the country’s largest business families. The result is an
oligopoly, where private sector actors outside these circles face constraints on
access to resources and markets. Compared to most other cities, however,
Mazar-e Sharif has a relatively competitive economic life. The business
community is also more open to female economic participation than in many
other provinces.
During the years when Balkh served as a military base and main hub for the
Northern Distribution Network (NDN), substantial capital was accumulated
through service contracts, mainly in construction and transport, some of which
may be reinvested if the business climate were to improve. The presence of
international military forces also resulted in an expansion of shops and traders,
effectively creating a growing middle class.
Infrastructure is relatively well developed in the province with a road
network connecting it to the Northern provinces and to Kabul. Mazar-e
Sharif airport has direct connections to Istanbul and is part of a German-led
effort to upgrade the country’s civil aviation. The only railway connecting
Mazar-e Sharif with the Uzbek border is open for limited Afghan exports.
Electricity is supplied from Tajikistan and partly from Uzbekistan in the
summer, but access and supply are still unreliable, including in Mazar-e
Sharif. Aside from fuel imports which enter the province from Central Asia,
trade between Balkh and the rest of Afghanistan (including Kabul) is limited.
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The relative wealth of Mazar-e Sharif has also not directly translated to
Balkh province and the rest of the North, other than through the income
created by temporary migrant workers. Balkh province has been a mostly
poppy-free province since 2007 and rural areas have potential for increased
agricultural production. This, however, is constrained by water shortage, due
to lack of streams and neglected irrigation infrastructure. The province also
boasts some mineral reserves, especially oil deposits, processed at the
country’s only refineries at Hairatan.
The effects of the foreign military drawdown, increased insurgent activity in
nearby provinces, and the general economic downturn are visible in Mazar-e
Sharif. Out of 10 large provincial centres, consumer prices on non-food items
fell the most in Balkh. The property market in Mazar-e Sharif, the target of
much local investment, has stagnated and foreign investment is on hold.
Outside the capital, the largely rain-fed agricultural lands remain susceptible
to droughts, while a decline in construction may also lead to difficulties for
rural labour migrants.
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Bamyan
Bamyan is located in the mountainous and mostly barren Central Highlands,
which according to many indicators of the National Risk Vulnerability
Assessment (NRVA), is one of Afghanistan’s most economically vulnerable
areas. Lying at the heart of the Hazarajat territory, Bamyan province has an
estimated population of 425 500 who are predominately of the Shiite Hazara
ethnic group that has historically faced socioeconomic and political
repression, as well in some cases targeted violence. The province is largely
rural, with more than 80 per cent of the population directly or indirectly
engaged in agriculture. This is despite the fact that only 5 per cent of the
province’s land is actually suitable for crop and livestock cultivation. Aside
from potato cash-cropping, farming has traditionally been in the form of
household subsistence. Bamyan suffers severe winters, and due to the lack of
cold storage and greenhouses, must import its food from outside the province
during its long lean season. Due to low productivity, the province is among
Afghanistan’s most food insecure. Nevertheless, there is commercial
agricultural potential. Among other high-value products, Bamyan’s white
potatoes have a reputation for quality—both in Afghanistan and in regional
export destinations. The livestock sector is also very robust. However, offfarm handling or processing of agricultural goods is still very limited, and
value chain development is desperately needed.
Outside of agriculture there are few employment opportunities and
outmigration for work is commonplace. There is virtually no secondary
production besides carpets, handicrafts and some agricultural value-adding
processes. Lack of electricity places a low ceiling for growth in the private
sector: Bamyan is not connected to any central power grid and relies therefore
on expensive diesel generators, solar panels and in some places micro-hydro
systems. Solar power services the city of Bamyan (the regional capital) and a
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A PROVINCIAL PERSPECTIVE 71
number of nearby villages. While solar energy has great potential for
expansion in the short term, in the long term it cannot be expected to sustain
the high-energy consumption associated with industrial development. There
are mineral resources in Bamyan, including iron ore, coal, and precious and
semi-precious stones, but absent central government support (among other
problems), formal extraction projects, particularly the Hajigak mining
concession, have stalled.
Bamyan is currently one of the safest provinces in Afghanistan, which
perversely has led to it receiving much less donor attention in comparative
terms. However, the security situation gives rise to a relatively favourable
environment not only for development activities, but also for tourism. Given
the cultural and geographic landmarks in the region, the tourism industry does
have medium- to long-term potential. Socioeconomic conditions in Bamyan
city centre are relatively favourable for women and allow them to engage in
economic activity and set up shops alongside those owned by men. This
appears to be a recent development catalysed by the organic rise of what, at
least anecdotally, seems to be a women’s rights movement.
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Herat
Herat is the country’s second largest province by population as well as land
area. Herat city until recent years had a predominantly Dari-speaking
population with a largely Pashto-speaking hinterland. However, in the past
decade there have been rapid changes. Herat province has seen a stronger
urbanizing trend than the national average since 2006. New citizens include
returning refugees from Iran, but there is also substantial rural-urban
migration, creating ethnically segregated enclaves. Half of the urban
population are economically vulnerable day labourers.
Herat is located on the Ring Road and it has long been an economic hub
along a trade route connecting Central Asia with Iran. The province has busy
trade ports of entry with Iran and Turkmenistan. The balance of official trade
for the main port of Islam Qala is heavily in Iran’s favour, but the levied
customs duties are an essential contribution to the Afghan Government’s
revenue. Over $1 billion of official imports were registered through Herat in
2011, 22 per cent of the national total. Fuels and oil products remained the
most significant import commodities from Iran in 2015, while sugar,
confectionery, eggs, chicken meat and vegetables were the most important
food imports.
Despite a relatively low direct dependence on revenue flowing from the
presence of the international community, Herat was hit hard by the political
uncertainty and accompanying economic downturn in 2014, which was further
compounded by increased organized criminal activity. The absence of security
in Herat is strongly linked to the competing business interests of powerholders, and is fuelled by the large gap between the poor and the better off.
Respondents stated that assault and kidnapping were a real risk in the course
of daily business. Corruption is also a persistent problem in the province,
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arguably based in mujahideen-led patronage networks consolidated in the
wake of the Soviet–Afghan War.
Herat has a comparatively diverse economic base. Marble production
accounts for some 5000 jobs and is often cited by international donors as a
success story. There is potential for further export growth and new domestic
markets (85 per cent of marble used in Afghanistan is currently imported), but
there are obstacles in terms of productivity, security and transport
infrastructure. This, like the revival or increase in productivity of existing
manufacturing, requires quite substantial investment.
In terms of human capacity, Herat has a large class of entrepreneurs
educated in Iran, who represent an important business asset and could help to
drive further growth. It is also home to Afghanistan’s second largest
university.
The province has a relatively diversified agriculture; the land is rain-fed in
the north and irrigated in the south and east. In season, fresh fruit, as well as
beverages and food products, are exported to Central Asia, but improved
irrigation and cold storage capacity could expand agricultural output and
return Herat closer to its previous position as the ‘bread-basket of Central
Asia’. Security problems outside the city and in adjacent provinces as well as
poor road conditions currently prevent Herat from fully contributing to the
domestic food supply.
The view that Herat is isolated from the rest of the country and its interests
under-represented in Kabul is widespread and most of the interviewees expect
little from the government. The province is heavily dependent on imports
from Turkmenistan for electricity, but there are good conditions for wind,
solar and hydropower. Major infrastructure projects, most prominently the
long overdue Salma dam on the Hari River, may, if finalized, significantly
boost both irrigation and electricity supply in the province. Easing of
sanctions against Iran, resulting in a new momentum in Iranian economic
development, is likely to have positive spillover effects for Herat’s private
sector. During the sanctions regime Herat became a useful source of foreign
exchange for Iran. Increased international trade with Iran may also provide
opportunities for investment in much needed infrastructure in Herat (e.g.
improved connections between Herat and the Iranian port of Chabahar on the
Arabian Sea).
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Kabul
Kabul is estimated to be home to 41 per cent of Afghanistan’s total urban
population. Officially, the city’s population is 3.5 million, although some
estimates place it at closer to 7 million. The number of inhabitants is growing
at the rapid pace of nearly 5 per cent annually and Kabul is now the fifth
fastest-growing metropolitan region in the world. Since 2002, millions of
internally displaced persons (IDPs), returning refugees and internal migrants
have flocked to the city, expanding it upwards as well as outwards; hillsides
and informal arrangements now represent 70 per cent of housing.
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Kabul’s population is more mixed in terms of ethnicities, with less stringent
tribal structures and institutions, than in other parts of the country. It is also
diverse in economic terms. As the economic and political centre of
Afghanistan, Kabul is where the capital accumulated in the post-Taliban era is
most visible. It can be seen in the fast growth of certain larger commercial
enterprises—some located in the Bagrami and Pul-e-Charkhi industrial
parks—and also in costly high-rise apartments and ‘poppy palaces’. High
demand for residential housing has sustained the construction sector beyond
the international withdrawal and there remain opportunities for private
businesses in this and other sectors. However, there are dense areas of extreme
poverty, not only in informal settlements, but also in the refugee camps
outside the city. Associated with these areas are problems such as eviction and
land tenure insecurity, absent or over-capacitated urban services and
infrastructure and vulnerability along many indicators.
But migration to Kabul remains appealing due to the opportunities available
in the capital, be they commercial or otherwise. Electricity is available to
95 per cent of households in the municipality and a quarter of households own
their own vehicles. The presence of educational facilities, including
76 higher education institutions, creates a pool of higher-skilled labour. The
city’s literacy rate (at nearly 65 per cent) is higher than the rest of the country,
as is the proportion of children enrolled in primary school. The situation for
women is comparatively more liberal than in other parts of the country. With a
thriving media and telecommunications sector as well as new roads, Kabul is
better connected to the engines of business at all levels than any other part of
the country.
As Kabul is the centre of government and the headquarters of the
international community, it is often the target of high-profile political attacks.
Security therefore remains a problem. The international presence has also been
a major driver of the local economy over the past decade, and the economic
impact of transition has been strongly felt by local businesses catering to this
market. This includes the non-governmental organization (NGO) sector,
which has absorbed many of the country’s educated elite.
Despite the greater range of opportunities available in Kabul, less than
10 per cent of the employment in the city is in fact formal, with a large
proportion of those jobs existing in the public sector. Outside of this, the
bulk of employment is in trade and services, with a large proportion of jobs
also being casual labour. Unemployment and underemployment are major
problems: only a third of the working age population was considered
economically active in recent surveys.
Some agricultural activity takes place, concentrated in the rural districts of
the province of Kabul. These districts are home to 20 per cent of the
province’s population. In Kabul province the vast bulk of production is in
higher-value crops such as fruits, vegetables and livestock, and is mainly
located in the northern three districts. Somewhat surprisingly, 19 per cent of
the land in the city itself is still being used for agricultural purposes.
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Parwan
Parwan province borders Kabul province’s northern boundary. Its population
is estimated to be about 631 600 of which 90 per cent are rural-based. The
province lies along the Ring Road and is the north-south transit point through
the Salang pass. Parwan benefits not only from traffic and economic spillover,
but also from having the large market of Kabul within close reach. Access to
land is easier and cheaper than in overcrowded Kabul. Agricultural potential
is very high: the province benefits from swathes of fertile land and the four
rivers that run through it, although water management remains a problem.
Production is a diversified mix of staple, high-value cash and niche crops, and
livestock. It has been designated a poppy-free province. Better cold storage,
greenhouses and improved post-harvest processing facilities are still essential,
however, not only for income generation, but also for food security purposes.
There is a mix of medium and small-sized enterprises in Parwan. However,
the labour market and many businesses were stimulated by the presence of the
Bagram Airbase, which at its peak employed up to 15 000 Afghans. While not
all these were Parwan locals, the declining international military presence has
had substantial impact on many of the province’s contractors and
businessmen. Interviewees pointed out that such international community
contracts brought little in terms of sustainable impact, although some longerterm investments were made: Parwan now has the largest cold storage facility
in Central Asia. The province has defunct but revivable Soviet-era factories,
and has potential for warehousing and spring water bottling, among other nonagricultural commercial opportunities.
As in so many provinces, reliable electricity supply is one of the key private
sector needs in Parwan. While household access to electricity is relatively
high, the supply to the province for commercial use remains unreliable.
Despite Parwan being relatively peaceful in terms of the threat of
insurgency, its business environment has been described as ‘ruthless’, with
extortion, kidnapping, robberies, factional fighting and other violent activities
rampant. Such a security environment makes the private sector unattractive
for local male youth, who are generally not encouraged to enter into it. Half
the population is estimated to be below 17 years of age, which has longer-term
economic implications. Interestingly, the diverse array of economically
active women interviewed by the authors in Parwan noted that they do not
face the same problems of business-related violence as the male population.
This may be due primarily to: the smaller scale of activity, the traditional
respect for women among many in the province and the fact that women have
not generally tended to become involved in vendetta-fuelled feuding.
Interviewees described the situation in Charikar as being favourable for
women to engage in economically. However, the situation for women in the
province as a whole remains limited.
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Annex 2. Methodology
Background and research questions
This Swedish International Development Cooperation Agency (Sida) funded
report is the product of a one-year scoping study on the state of the private
sector in Afghanistan, and its nexus with traditional and human security. By
examining impediments to the private sector this report seeks to provide input
on future Afghan Government and international community initiatives to
facilitate private sector growth. In this regard, special attention is paid to
inclusivity of economic development. This report’s findings are therefore
likely to be of interest to any stakeholder in Afghanistan’s reconstruction,
security and (socio)economic development.
The aim of this study is to contribute to the existing body of knowledge on
the Afghan private sector and on private sector development (PSD) initiatives
in the country by attempting to collect evidence to answer four key questions:
I.
II.
III.
IV.
What are the attributes of the private sector in Afghanistan?
Which institutions, either formal or informal, support or
discourage a functioning and more inclusive private sector,
and which are detrimental?
Can the private sector and PSD contribute to human and
traditional security in the Afghan context and, if so, under
what conditions?
What efforts to develop the private sector should the Afghan
government and the international donor community prioritize
for a more inclusive approach to private sector growth and
how could this be achieved?
Provinces selection rationale
To answer these questions the three authors conducted three data collection
visits to Afghanistan visiting five provinces: Balkh, Bamiyan, Herat, Kabul,
and Parwan. The rationale for choosing these five provinces was the
following:
—Kabul, the country’s capital is the nexus of the government and most
international and national organizations, as well as top policy advisors and
policymakers in the country. Kabul also best represents the centre of the
Afghanistan’s economy.
—Balkh, with its connection to Central Asia through shared borders with
Tajikistan and Uzbekistan, has been relatively secure from insurgency since
2002. Mazar-e Sharif is the largest urban centre and economic cluster in the
north of the country.
—Herat, with its proximity to Iran, has traditionally been a hub of economic
activity in Afghanistan, even during the Taliban’s rule. It is a key centre of
76 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
agricultural activity and is the most significant economic cluster in the west of
the country.
—Bamiyan and Parwan: while Nangarhar province in the east is an
important economic centre with economic connectivity to Pakistan through
Jalalabad, current security dynamics in Nangarhar province affected the
selection process, and Bamiyan and Parwan were chosen in lieu. Bamiyan is a
relative secure area and therefore has potential for intra-province commercial
activity. Historically, the international donor community and the central
government have also largely overlooked it. Parwan connects Kabul to the
north of the country and could potentially become a major centre of food
production in central Afghanistan. Private sector conditions and PSD
opportunities in these five provinces are shared in Annex 1.
Approach
In attempting to answer the four research questions a combination of desk and
field research was applied. The authors deemed it vital to interact closely with
private sector actors in Afghanistan and to assess in person key formal and
informal institutions, and extra-market conditions that shape the broader
private sector environment. This study is limited to licit formal and informal
private sector activities: except where noted, use of the term ‘private sector’
denotes these sub-sectors. Collected data was primarily qualitative and was
analysed through interpretive methods. The rationale behind this approach is
that in Afghanistan’s context quantitative sources provide an imperfect
indication of elements that influence the private sector’s development, such as
political will, relations with (extended) neighbours and religious and cultural
factors, but which are hard to quantify. Semi-structured face-to-face
interviews were held with a wide array of respondents in all five provincial
capitals and occasionally in locations outside of city borders; and a total of
12 thematic workshops were held, comprising 10 to 15 interlocutors at each of
them. Workshops took place in all the provincial capitals, with the exception
of Kabul. The authors interviewed 164 respondents during this stage of the
data collection process. This group comprised male and female entrepreneurs
and union representatives of all ages and from a wide range of industries.
Most of the interviews took place at the aforementioned workshops. Local
chambers of commerce (ACCI) selected the respondents in line with criteria
set out by the authors. The authors visited 16 factories and workshops
producing goods in a variety of sectors.
The authors also held 83 other separate meetings in Afghanistan with
interlocutors that included government officials, officials associated with or
assigned to foreign diplomatic missions, development practitioners at nongovernmental organizations (NGOs) and international organizations, scholars,
companies, business support agencies, organized business, policy advisors and
analysts. The authors conducted a further 23 interviews outside of
Afghanistan, including in Sweden, the USA, and the United Arab Emirates.
METHODOLOGY 77
To ensure that the data collected was as comprehensive as possible, the
authors also consulted actors involved in political, regional and security
affairs. These interviewees were chosen on the basis of their institutions’
impact on or involvement in the Afghan private sector.
All data from respondents was transcribed. Collected data was added to the
first-hand observations made by the authors in Afghanistan and desk research
conducted in Stockholm. In addition, the authors reviewed and took due
consideration of relevant literature on the economic development of
Afghanistan and various aspects of the current state of the private sector
landscape and PSD. A draft report, including recommendations, was
circulated internally and externally for peer review.
Limitations
The selected methodology certainly has its limitations: the territory and
population of the areas chosen are both considerable in size and although
much data was collected, it also widened the authors’ perspective. Taking into
account the extensive scope of the study, a set list of questions was not
feasible and questions were often tailored. The authors’ visits to the provinces
were generally limited to their capitals. Except for Kabul, which was visited
on all three data collection trips, other cities were merely visited once for a
number of days each. The geographic focus, length and frequency of these
visits were too limited to collect comprehensive primary data on the
particularities of the private sector in and beyond the five chosen provinces.
These dynamics also limited the scope of interlocutors. The authors did not
visit the neighbouring countries of Iran and Pakistan, both of which have a
strong impact on the Afghan private sector and would have provided
noteworthy impressions. The lack of reliable and up-to-date data has been an
impediment, but this is a hurdle faced by anyone conducting research on
Afghanistan.
Finally, since this is a scoping study of the complex Afghan private sector—
and consequently covers much ground—further research on identified
impediments and recommended PSD approaches shared in this report is
strongly endorsed, particularly on direct market interventions and their
specific contexts.
Annex 3. Abbreviations
ACCI
AISA
ANDS
ANDSF
APTTA
ARTF
ATTA
AWBF
AWSA
BINA
CEO
CIPE
DABS
DCD
DFID
EITI
ETIM
FACT
FDI
GDP
GII
GOIRA
HOOAC
IDLG
IDP
IFC
ISIL
LDC
LED
MEC
MISFA
MOCI
MSME
NATO
NDN
NGO
NMDP
NPP
NRVA
NUG
O&M
Afghanistan Chamber of Commerce and Industries
Afghanistan Investment Support Agency
Afghanistan National Development Strategy
Afghan National Defense and Security Forces
Afghanistan–Pakistan Transit and Trade Agreement
Afghanistan Reconstruction Trust Fund
Afghanistan Transit Trade Agreement
Afghan Women’s Business Federation
Afghan Women’s Saffron Association
Business Integrity Network Afghanistan
Chief executive officer
Center for International Private Enterprise
Da Afghanistan Breshna Sherkat
Development Coordination Dialogues
UK Department for International Development
Extractive Industries Transparency Initiative
East Turkistan Islamic Movement
Federation of Afghan Craftsmen and Traders
Foreign direct investment
Gross domestic product
Gender inequality index
Government of the Islamic Republic of Afghanistan
High Office of Oversight and Anti-Corruption
Independent Directorate of Local Governance
Internally displaced person
International Finance Corporation
Islamic State of Iraq and the Levant
Least developed countries
Local economic development
Independent Joint Anti-Corruption Monitoring
and Evaluation Committee
Microfinance Investment Support Facility for Afghanistan
Ministry of Commerce and Industries
Micro-, small-, and medium-enterprises
North Atlantic Treaty Organization
Northern Distribution Network
Non-governmental organization
New Market Development Project
National Priority Program
National Risk and Vulnerability Assessment
National Unity Government
Operation and maintenance
80 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
ODA
PPP
PRT
PSD
RECCA
Sida
SME
SOE
SREB
SWF
TAPI
TMAF
TTP
VSLA
WTO
Official development assistance
Public-private partnership
Provincial Reconstruction Teams
Private sector development
Regional Economic Cooperation Conference on Afghanistan
Swedish International Development Cooperation Agency
Small- and medium- enterprises
State-owned enterprise
Silk Road Economic Belt
Sovereign wealth fund
Turkmenistan–Afghanistan–Pakistan–India Pipeline
Tokyo Mutual Accountability Framework
Tehrik-i-Taliban Pakistan
Village and saving loan association
World Trade Organization
Annex 4. Notes
1
Loans issued by the bank were sharia-compliant. Bank profit was obtained from stamps that
borrowers were required to purchase and attach to repayment receipts. Ford, R. S. ‘The economy’, eds
R. F. Nyrop and D. M. Seekins, Afghanistan Country Study (The American University: Washington, DC,
1986), p. 143.
2
These included lambskin pelts, fruits, grain, cotton and opium, which constituted 80–90% of
Afghanistan’s exports in the 1930s and 1940s. Ford (note 1), p. 144; and Barfield, T., Afghanistan: A
Cultural and Political History (Princeton University Press: Princeton, 2010), p. 203.
3
In this report, the ‘private sector’ refers to a basic organizing principle of economic activity where
private ownership is an important factor, where markets and competition drive production and where
private initiative and risk taking set activities in motion—as based on the OECD’s Development
Assistance Committee’s (DAC) guidelines. See e.g. Organisation for Economic Co-operation and
Development (OECD), Support of Private Sector Development, Development Cooperation Guidelines
Series (OECD: Paris, 1995).
4
Ford (note 1), pp. 147–48.
5
Nijssen, S., ‘The Afghan economy: a brief history’, NATO Civil-Military Fusion Centre, 14 Oct.
2010; and Ford (note 1), p. 174.
6
Barfield (note 2), p. 204; Nijssen (note 5); and Ford (note 1), p. 174.
7
In 1977, Afghanistan only needed to import an estimated 2500 metric tons of wheat. Clarke, P.,
‘Food security in Afghanistan’, Afghanistan Outlook Dec. 1999, UN Office for the Coordination of
Humanitarian Affairs, 31 Dec. 1999, <http://reliefweb.int/report/afghanistan/afghanistan-outlook-dec1999>.
8
M. S. Noorzoy, ‘Planning and growth in Afghanistan’, World Development, vol. 4, no. 9 (1976); and
Barfield (note 2), p. 205.
9
Noorzoy (note 8), p. 761.
10
Rubin, B. R., ‘The Political economy of war and peace in Afghanistan’, World Development,
vol. 28, no. 10 (2000), p. 1793.
11
US Defense Intelligence Agency, ‘The economic impact of Soviet involvement in Afghanistan’,
May 1983, p. 2; and del Castillo, G., Guilty Party: The International Community in Afghanistan, Xlibris,
2014, p. 116.
12
Kalinovsky, A., A Long Goodbye: The Soviet Withdrawal from Afghanistan (Harvard University
Press: Cambridge, 2011), pp. 100–101.
13
Kalinovsky (note 12).
14
Rubin, B. R., The Fragmentation of Afghanistan: State Formation and Collapse, 2nd edn (Yale
University Press: New Haven, CT, 1995), pp. 296–97.
15
Rubin (note 10), pp. 1791.
16
A 1999 World Bank study conservatively put cross-border trade with Pakistan at $2.5 billion in
1996/1997, of which some 84% was estimated to be unofficial re-exports of transited goods back into
Pakistan. Naqvi, Z. F., ‘Afghanistan–Pakistan trade relations’, World Bank, 1999, pp. 3, 6.
17
Rashid, A., Taliban: Islam, Oil and the New Great Game in Central Asia (I.B. Tauris & Co Ltd:
London, 2002), p. 120.
18
Although the farmers ‘received less than 1 per cent of the total profits generated’ in the overall
process, according to the UN International Drug Control Programme. Rashid (note 17),
p. 125.
19
Favre, R., ‘Exploring the roots of opium and illicit economy in Afghanistan’, AIZON Report,
Nov. 2005, p. 24.
20
UN Office on Drugs and Crime (UNODC), 2004 World Drug Report, Volume 1 Analysis (UNODC:
New York, 2004). However, this was primarily concentrated in two provinces (Helmand and
Nangarhar), which accounted for around 90% of the country’s opium production between 1994 and
2000. Favre (note 19), p. 33.
21
It is notable that when the Taliban leader Mullah Omar declared opium growing ‘un-Islamic’ in
2000, output decreased by 95% the next year. This was reflective of how much effective control the
Taliban had in the Afghan countryside. By the 2006, opium production had spread to nearly all the
provinces of Afghanistan.
82 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
22
Rashid (note 17), p. 198.
Rubin, B. R., Afghanistan in the Post-Cold War Era (Oxford University Press: Oxford, 2013), p. 30.
24
Food and Agriculture Organization (FAO), Special Report: FAO/WFP Crop and Food Supply
Assessment Mission to Afghanistan’, 2 July 1998, <http://www.fao.org/docrep/004/w9095e/
w9095e00.htm>.
25
del Castillo (note 11), p. 119.
26
Counting since 1989, 3.84 million Afghans had repatriated by 1996. UN General Assembly,
Emergency Assistance to Afghanistan, 28 Oct. 1997, A/52/536, <http://www.refworld.org/docid/3ae6
aec28.html>; and Clarke (note 7).
27
Official growth does not include the substantial illegal smuggling or opium-related activities.
Annual growth over the decade fluctuated widely, much of which related to the agricultural harvest. See
World Bank, ‘World DataBank’, <http://databank.worldbank.org/data/views/reports/tableview.aspx>.
28
This does not include security spending. Hogg, R. et al., Afghanistan in Transition: Looking Beyond
2014 (World Bank: Washington, DC, 2013) p. 48.
29
See World Bank, ‘Net official development assistance received (current US dollars)’, [n.d.],
<http://data.worldbank.org/indicator/DT.ODA.ODAT.CD/countries>.
30
Interim Afghan Administration, The National Development Framework: A Summary (Interim
Afghan Administration: Kabul, 2002), p. 3.
31
The World Bank notes that its own statistics are unable to capture the picture precisely.
32
A Taliban ban on poppy-growing brought figures down to zero hectares of cultivation in Helmand
and only 218 hectares in Nangarhar in 2001. In the previous year these 2 provinces had accounted for
nearly 80% of the country’s poppy cultivation area. In 2004, the farm-gate value of opium was 12.5 in
per cent GDP terms. In the most recent UNODC report, this figure has dropped to 4%. UN International
Drug Control Programme (UNDCP), Afghanistan Annual Opium Poppy Survey 2001 (UNDCP:
Islamabad, 2001), p. ii; and UN Office on Drugs and Crime (UNODC), Afghanistan Opium Survey 2005
(UNODC, Nov. 2005), p. 1.
33
Weinbaum, M. G., ‘Afghanistan: rebuilding and transforming a devastated economy’, ed. L. Binder,
Rebuilding Devastated Economies in the Middle East (Palgrave Macmillan: New York, 2007), p. 213.
34
See Lister, S. and Pain, A., ‘Trading in power: the politics of “free markets” in Afghanistan’,
Afghanistan Research and Evaluation Unit (AREU), Briefing Paper, June 2004; and Pain, A.,
Communication with authors, Uppsala, Sweden, Feb. 2015.
35
Dowdy, J. and Erdmann, A., ‘After the “war economy”: the role of the private sector in
Afghanistan’s future’, complied by C. Richards and J. Stewart, Afghanistan Revealed: Beyond the
Headlines (Crux Publishing Ltd: 2007), p. 266; and World Bank, ‘Motor vehicles (per 1000 people)’,
Data, <http://data.worldbank.org/indicator/IS.VEH.NVEH.P3>.
36
Bhatia, B. and Gupta, N., ‘Transforming telecoms in Afghanistan’, Public–Private Infrastructure
Advisory Facility, Note no. 1, Apr. 2006; and US Agency for International Development (USAID),
‘Connecting to opportunity: a survey of Afghan women’s access to mobile technology’, May 2013,
<http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/06/USAID-Connecting-toOpportunity-A-Survey-of-Afghan-Womens-Access-to-Mobile-Technology.pdf>.
37
Dowdy and Erdmann (note 35); and Afghanistan Chamber of Commerce and Industries (ACCI)
Official, Communication with authors, Kabul, Nov. 2014.
38
Afghan Central Statistics Office (CSO), Statistical Yearbook 2012–13 (CSO: Kabul, 2013), p. 139.
39
Special Inspector General for Afghanistan Reconstruction (SIGAR), ‘Quarterly report to the U.S.
Congress’, July 2014, p. 5.
40
Afghan Central Statistics Office (CSO), National Risk and Vulnerability Survey 2011–2012 (CSO:
Kabul, 2014).
41
For 2015, under conditions of constant mortality. ‘Median age (years) (years)’, UN Data,
<http://data.un.org/Data.aspx?d=PopDiv&f=variableID%3A41>.
42
World Bank (note 27).
43
World Bank, Afghanistan Economic Update, Apr. 2015, <http://www.worldbank.
org/en/news/feature/2015/05/02/increasing-fiscal-stresses-against-the-backdrop-of-a-slowing-economyand-a-deteriorating-security-environment-demand-solid-reforms-to-restore-fiscal-stability-and-reinstateinvestor-and-consumer-confidence>.
44
World Bank (note 43).
45
World Bank (note 43).
23
NOTES 83
46
Byrd, W., ‘Afghanistan’s continued fiscal crisis: no end in sight’, United States Institute of Peace,
Peace Brief no. 185, May 2015.
47
‘Audit Says Kabul Bank Began as “Ponzi Scheme”, New York Times, 26 Nov. 2012,
<http://www.nytimes.com/2012/11/27/world/asia/kabul-bank-audit-details-extent-offraud.html?ref=topics&_r=0>.
48
Government of the Islamic Republic of Afghanistan (GOIRA), Towards Regional Economic Growth
& Stability: The Silk Road Through Afghanistan (GOIRA: Kabul, Sep. 2015).
49
World Bank (note 43).
50
World Integrated Trade Solution (WITS), ‘Afghanistan trade at a glance: most recent values’,
<http://wits.worldbank.org/countrysnapshot/AFG>; and GOIRA (note 48).
51
Afghan Central Statistics Office (CSO) of Afghanistan, Statistical Yearbook 1393 (2014/15) (CSO:
Kabul, 2015), Calculations made by authors.
52
Afghan Central Statistics Office (note 40).
53
See UN Development Programme (UNDP), 2014 Human Development Report— Sustaining Human
Progress: Reducing Vulnerabilities and Building Resilience (United Nations: New York, 2014).
54
See World Bank, ‘Country data’, <http://data.worldbank.org/country/afghanistan>.
55
World Bank, Senior officials meeting, Kabul, Sep. 2015.
56
As of Oct. 2015 ISIL has a presence in Afghanistan, but its footprint cannot yet be assessed: many
sources indicate that demotivated Taliban factions have rebranded themselves as ISIL and that the
number of foreign recruits is minor.
57
Afghan Central Statistics Office (note 40).
58
See Afghan Ministry of Economy, ‘Afghanistan’s job challenge’, [n.d.], <http://moec.gov.af/
Content/files/Afgh%20Jobs%20Challenge_Final.pdf>.
59
See Afghanistan Central Statistics Office (note 38), table 7-4, p. 139.
60
Formal jobs are estimated to encompass 29% of jobs in urban areas and 6% of jobs in rural areas.
Afghan Ministry of Economy (note 58).
61
These are the businesses registered with the Afghanistan Chamber of Commerce and Industries
(ACCI), which allegedly encompasses 90% of formal private sector employment in Afghanistan There
are also nearly 43 000 businesses registered with the Afghan Investment Support Agency (AISA), and
others registered with the Afghanistan Central Business Registry (ACBR), as well as the Ministry of
Commerce and Industries. There is substantial membership overlap among these registries, which makes
it difficult to determine the total number of formal businesses in the country. See Afghanistan Chamber
of Commerce and Industries, <http://www.acci.org.af/>.
62
More comprehensive surveys on the formal business sector include: Afghan Central Statistics Office
(CSO), Integrated Business Enterprise Survey 2009 (CSO: Kabul, 2009). For one of the few studies
conducted on the informal economy see Afghan Management & Marketing Consultants, ‘Informality
and
small
business
development
in
the
city
of
Kabul’,
July
2011,
<http://www.harakat.af/site_files/13623051011.pdf>.
63
World Bank, Afghanistan-State Building, Sustaining Growth, and Reducing Poverty (World Bank:
Washington, DC, 2005).
64
Classification used by the World Bank: formal, in-kind, extra-legal, irregular and illegal. World
Bank (note 63).
65
This includes the opium economy. Paterson, A., ‘Going to market: trade and traders in six Afghan
sectors’, Afghanistan Research and Evaluation Unit (AREU), Synthesis Paper Series, June 2008, p. 7.
66
See Swedish International Development Cooperation Agency (Sida), Making Markets Work for the
Poor (Sida, Oct. 2003).
67
World Bank (note 63).
68
As the Afghan Ministry of Commerce and Industries points out, this is less applicable in the Afghan
context. Afghan Ministry of Commerce and Industries, ‘Afghanistan SME development strategy’, Dec.
2009,
<http://afghanenterprise.com/wp-content/uploads/2014/04/MOCI-SME-Development-Strategy09-12-15.pdf>; and Afghan Management & Marketing Consultants (note 62).
69
47% of registered businesses surveyed noted that they received no benefits from formalization.
Afghan Management & Marketing Consultants (note 62). These complaints were corroborated in our
interviews and roundtables.
70
Afghan Ministry of Commerce and Industries, ‘The Ministry of Commerce and Industry introducing
its new Private Sector Development General Directorate’, [n.d.], <http://moci.gov.af/en/
page/542>.
84 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
71
Such as senfs, anjomans and the etehadia. See Afghan Public Policy Research Organization
(APPRO), ‘Resilience and conflict: clustered enterprises of Balkh, Kabul, and Parwan’, Feb. 2015.
72
Aga Khan Development Foundation (AKDF), Communication with authors, Kabul, 25 Feb. 2015.
According to the Afghan Central Statistics Office, Afghanistan’s official imports amounted to 7.7 billion
for the period 2014–15, while its exports amounted to only $570 million. Afghan Central Statistics
Office, ‘Economic statistics: annual trade’, 2015, <http://cso.gov.af/en/page/economy-statistics/6323/
annual-trade>.
73
Afghanistan’s largest trading partners for 2014–15 are Iran, Pakistan and China. However, as
mentioned, the trade is highly unbalanced. India is also a major export destination. Afghan Central
Statistics Office (note 72).
74
Tariff statistics for Iran are not available, although it is understood that Iranian policies are largely
protectionist. Pakistan’s applied average tariff for all products, agricultural and non-agricultural
products, at 13.5%, is well over twice that of Afghanistan’s (5.9%). World Trade Organization, ‘Tariff
Profiles’, <http://stat.wto.org/TariffProfile/WSDBTariffPFHome.aspx?Language=E>.
75
Afghan Central Statistics Office (CSO), Integrated Business Enterprise Survey in Afghanistan 2009
(CSO/Asian Development Bank, [n.d.]), p. ix. Note that not all establishments are necessarily
companies. They can also be branches of larger entities and are not necessarily private sector (though the
vast majority are).
76
According to the MOCI definition, a micro-enterprise has fewer than 5 employees. Afghan Ministry
of Commerce and Industries, The Small and Medium Enterprises Development Department, [n.d],
<http://moci.gov.af/en/page/7541/7544/the-small-and-medium-enterprises-development-department>.
77
E.g. consider the Dubai- and Mazar-based Ghazanfar Group, which originated in Faryab in 1910,
grew prominent in energy provision and is now one of the country’s most diversified business groups.
All 10 members of the board of directors (as of 2013) were relatives of Chairman Mohammad Ibrahim
Ghazanfar. ‘Ghazanfar Group: Afghanistan’s leading energy company’, Presentation, [n.d.],
<http://ihale.tobb.org.tr/dosya/2467_GG_Presentation.pdf>.
78
Parto et al., ‘Traditional economic clusters and reconstruction in Afghanistan: the case of Herat’,
Afghanistan Public Policy Research Organization (APPRO), 2012, pp. 8–9.
79
Numbers from GIZ, in turn partly based on FACT (Federation of Afghan Craftsmen and Traders)
estimates. Reier, G., ‘Bazaar study Afghanistan and conclusions for a systemic approach’, Presentation
at Bonn Conferences on Adult Education and Development, Bonn, Germany, 16–17 Oct. 2013,
<http://www.bocaed.de/media/Gustav_Reier_Bazaar_study_Afghanistan_and_conclusions_for_a_syste
mic_approach.pdf>.
80
Sepahi, H., FACT Chairman, Communication with authors, Kabul, 17 Feb. 2015.
81
‘Dueling chambers of commerce’, WikiLeaks, no. 05KABUL5118_a, 17 Dec. 2005,
<https://www.wikileaks.org/plusd/cables/05KABUL5118_a.html>.
82
Among its recurring activities, ACCI conducts quarterly business tendency surveys and yearly
bottleneck surveys, as well as elaborates the policy guidance National Business Agenda (NBA). For
alleged ties to elite interests, see e.g. Afghanistan Analysts Network, ‘Afghanistan’s elite has its own
election’, 23 Nov. 2011, <https://www.afghanistan-analysts.org/afghanistans-business-elite-has-its-ownelection/>.
83
ARTF Strategy Group Meeting, ‘Agriculture in Afghanistan: growing the economy, jobs and food
security’, Presentation, 20 May 2014, <http://www.artf.af/images/uploads/ASR_PPT_for_ARTF_
Strategy_Group_Meeting_May_20,_2014.pdf>
84
These figures do not include opium production. Hogg et al. (note 28).
85
See Pain, A. and Shah, S. M., ‘Policymaking in agriculture and rural development in Afghanistan’,
Afghanistan Research and Evaluation Unit (AREU), Case Study Series, Apr. 2009.
86
UNDP Official, Communication with authors, Nov. 2014; and Kantor, P. and Pain, A., ‘Rethinking
poverty reduction in Afghanistan’, Afghanistan Research and Evaluation Unit (AREU), Policy Note
Series, Oct. 2011.
87
World Bank, Islamic Republic of Afghanistan Agricultural Sector Review: Revitalizing Agriculture
for Economic Growth, Job Creation and Food Security (World Bank: Washington, DC, June 2014).
88
For the third year in a row, Afghan saffron has received the highest honours from the International
Taste and Quality Institute. Mohseni, G., ‘Afghan saffron named ‘world’s best’ for third time’, Tolo
News, 6 June 2015, <http://www.tolonews.com/en/business/19880-afghan-saffron-named-worlds-bestfor-third-time>.
89
Boustan Sabz Manager, Communication with authors, Kabul, 10 May 2015.
90
World Bank (note 87).
NOTES 85
91
Zamir, A., Minister of Agriculture, Communication with authors, Kabul, 10 May 2015.
Jahanmal, Z., ‘Afghanistan imports $42m worth dairy products annually’, Tolo News, 20 Feb. 2015.
93
This does not include the unspecified category of ‘other’. Afghan Central Statistics Office (note 72).
94
World Bank (note 87).
95
Under the framework of the ANDS, economic development packages (EDPs) have been developed,
partnering with the Comprehensive Agricultural and Rural Development Facility (CARD-F), to
intervene in, stimulate and enhance the local economic impact of selected value chains. The programme
takes a full value-chain approach. New programs, such as the Regional Agricultural Development
Program (RADP) are also being implemented.
96
World Bank, Afghanistan: Resource Corridor Strategy and Plan: Making Mining-Based Growth
More Inclusive (World Bank: Washington, DC, May 2013).
97
GOIRA (note 48).
98
Afghan Ministry of Commerce and Industries, ‘Growth during transition 2012–2015’, Oct. 2012.
99
World Bank, ‘Industry, value added (% of GDP)’, 2015, <http://data.worldbank.org/indicator/
NV.IND.TOTL.ZS>.
100
World Bank (note 87).
101
Afghan Ministry of Commerce and Industries, ‘Integrated trade and SME support facility,’ [n.d.],
<http://www.thekabulprocess.gov.af/images/npps/psd/1-pdd-itssf-final.pdf>.
102
According to the 2013–14 updated Action Plan for the Agribusiness Sector, MAIL will be
constructing 8 large-scale cold storage facilities in 8 major cities across Afghanistan. If these are in fact
constructed, this would be a major accomplishment for the Afghan Ministry of Commerce and Industries
and for the industry as a whole.
103
Afghan Ministry of Commerce and Industries (note 68), p. 36.
104
Cusack, J. and Malmstrom, E., ‘Bactrian gold: challenges and hope for private sector development
in Afghanistan’, Presentation at Council of Foreign Relations, 1 Nov. 2010.
105
Afghanistan Ministry of Commerce and Industries (note 103).
106
World Bank (note 87).
107
Rabani, S. M., ‘Study of Kabul housing market’, Afghanistan Investment Support Agency (AISA),
Feb. 2014.
108
Sangin, A., ‘PP-14 policy statements’, International Telecommunication Union (ITU)
Plenipotentiary Conference 2014, 21 Oct. 2014. <http://www.itu.int/en/plenipotentiary/2014/statements/
file/Pages/afghanistan.aspx>.
109
See Afghan Ministry of Communications and Information Technology, ‘Private sector development
cluster: e-Afghanistan’, 2011. <http://mcit.gov.af/Content/files/PSD%20NPP%202%20E%20Afgh
%20NPP%20Proposal%2023%20May%202011.pdf>.
110
Afghanistan International Bank (AIB) Official, Communication with authors, Kabul, May 2015.
111
Klijn, F. and Pain, A., ‘Finding the money: informal credit practices in rural Afghanistan’,
Afghanistan Research and Evaluation Unit (AREU), Synthesis Paper Series, June 2007. The FMFB does
not give personal loans, however.
112
Pain, A. and Kantor, P., ‘Local institutions, livelihoods and vulnerability: lessons from
Afghanistan’, Overseas Development Institute (ODI), Humanitarian Policy Group (HPG) Working
Paper, Apr. 2012, <http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/
7653.pdf>, p. 13.
113
Entrepreneurs in 5 Afghan provinces, Communication with the authors, 2014–15.
114
Youths, Communication with authors, Charikar, Parwan Province, May 2015.
115
Business support community, Communication with the authors, Herat city, Feb. 2015.
116
Kaplan, S., ‘Social covenants and social contracts in transitions’, Norwegian Peacebuilding
Resource Centre, Feb. 2014, pp. 2–3, <http://www.peacebuilding.no/Themes/Global-trends/Publications/
Social-covenants-and-social-contracts-in-transitions>.
117
A coordination initiative such as the High Economic Council, established in 2012, chaired by the
president and including key ministries, AISA and industry representatives, initially played a role in
investment policy, but has since lost in importance.
118
Afghan Ministry of Commerce and Industries (MOCI) Official, Communication with Authors,
Kabul, Nov. 2014.
119
A law can be adopted and signed by the president, or adopted by presidential decree and ratified in
parliament. The latter can be used without ratification with the risk of later being overturned by
parliament. See also MOCI, <http://moci.gov.af/en/page/550>.
92
86 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
120
See Afghan Ministry of Mines and Petroleum website for the most up to date version. Afghan
Ministry of Mines and Petroleum, ‘Laws’, <http://mom.gov.af/en/page/3993/3994>.
121
UN Assistance Mission in Afghanistan (UNAMA) Rule of Law Unit, Stolen Lands of Afghanistan
and Its People: The Legal Framework, Aug. 2014, <http://unama.unmissions.org/Portals/UNAMA/
UNAMA_RoL_Unit_Part_1_Legal_Framework_Final-2.pdf>, p. 6.
122
Government of the Islamic Republic of Afghanistan, Afghanistan National Development Strategy
1387–1391 (2008–2013) (GOIRA: Kabul, 2008), p. 76.
123
Starting in 2009, Afghanistan took several measures to simplify the business start-up process,
including by consolidating company and tax registration, eliminating inspections and cutting required
time and cost. The country made it to number 24 on the World Bank ‘Doing Business’ ranking for
starting a business in 2014, ahead of countries such as the USA and the UK. However, the following
year, both cost and time again increased somewhat. World Bank, Doing Business 2015: Economy Profile
Afghanistan (World Bank: Washington, DC, 2014).
124
In 2015, President Ghani suspended the leadership of AISA and ordered an investigation into
corruption claims. Office of the Afghan President, ‘A meeting chaired by President Ghani disucesses
problems at AISA’, 28 May 2015, <http://president.gov.af/en/news/47055>.
125
Among the most frequently mentioned sources of illegitimate fees is the requirement to keep tax
records for 5 years.
126
Afghanistan Public Policy Research Organization (APPRO), ‘Business licensing in Afghanistan.
Procedural reform or institutional regression?’, APPRO Working Paper, 2014.
127
Sometimes known as commissionkar, these middlemen facilitate registration or licensing for an
illicit fee with the consent of an official. Gardizi, M., Hussmann, K. and Torabi, Y., ‘Corrupting the state
or state-crafted corruption?’, Afghanistan Research and Evaluation Unit (AREU), Discussion Paper,
June 2010.
128
According to the World Bank’s Doing Business 2015, enforcing a standardized contract issue in
Kabul (in the formal legal system) takes 1642 days and involves 47 procedures, putting Afghanistan at
183rd place out of 189 countries. World Bank (note 123).
129
In Transparency International’s Global Corruption Barometer (2013), the Afghan judiciary was
perceived as the most corrupt institution, followed by government officials and non-governmental
organizations. According to Integrity Watch Afghanistan’s ‘National corruption survey 2014’, the courts
were considered by a wide margin to be the most corrupt Afghan government institution. Within the
court system, the prosecutors were seen as most susceptible to corruption. Transparency International,
‘Global Corruption Barometer 2013: Afghanistan’, <http://www.transparency.org/gcb2013/country/?
country=afghanistan>.
130
In rural areas, property, land and irrigation rights are common sources of dispute, resolved by jirga
or traditional arbitration. For a historical discussion, see Barfield, T., Afghan Customary Law and its
Relationship to Formal Judicial Institutions, draft (United States Institute for Peace: Washington, DC,
26 June 2003), <http://www.usip.org/sites/default/files/file/barfield2.pdf>.
131
Interim Afghan Administration (note 30).
132
Afghan Central Statistics Office (note 40), p. 56.
133
Afghan Central Statistics Office (note 40).
134
Emmott, S. and Jawhary, A.M., ‘Evaluation of the NABDP in Afghanistan, Final Report’, UN
Development Programme (UNDP) Afghanistan, July 2014, p. 20.
135
Kuchis, for instance, a nomadic Pashtun group whose livelihoods depend primarily on livestock,
have not seen developmental gains within an aid system largely oriented towards sedentary populations.
136
The GINI Index increased from 29.7 in 2007–2008 to 31.6 in 2011–12. Afghan Central Statistics
Office (note 40).
137
Hogg et al. (note 28).
138
Government of the Islamic Republic of Afghanistan (note 122), p. 27.
139
The Fund for Peace, ‘Fragile state index 2015’, <http://library.fundforpeace.org/library/cfsir1423fragilestatesindex2014-06d.pdf>.
140
See World Bank Group Enterprise Surveys, ‘Afghanistan (2014)’, <http://www.enterprise
surveys.org/data/exploreeconomies/2014/afghanistan>.
141
Afghan Government officials, Communication with authors, Kabul, 2014–15.
142
Afghanistan Chamber of Commerce and Industries, ‘Business tendency survey report’, Apr. 2015,
<http://www.acci.org.af/surveys-and-studies.html>.
NOTES 87
143
Cordesman, A. H., ‘Afghanistan at Transition: Lessons of the Longest War’, CSIS Report, Mar.
2015, p. 159.
144
Afghanistan Chamber of Commerce and Industries (ACCI), Business Monitor 2014 (ACCI: Kabul,
2014), p. 8.
145
In Transparency International’s Corruption Perception Index (2014), Afghanistan noted a slight
improvement, but only 3 countries were considered more corrupt. The TI Global Corruption Barometer
(2013) saw a trend where more respondents believed corruption had increased rather than decreased over
the past 3 years. In the compound World Bank worldwide governance indicators (WGI) for control of
corruption, Afghanistan was in the bottom 2% per centile every year but one during the period
1996–2013 with no overall improvement in score. Transparency International, ‘Corruption perceptions
index 2014’, <http://www.transparency.org/cpi2014>; and World Bank, ‘Worldwide governance
indicators’, <http://info.worldbank.org/governance/wgi/index.aspx#home>. See also Goodman, M. B.
and Sutton, T., ‘Tackling corruption in Afghanistan: it’s now or never’, Centre for International
Progress, 17 Mar. 2015, <https://cdn.americanprogress.org/wp-content/uploads/2015/03/Afghanistan
Corruption-FINAL.pdf>.
146
Chayes, S., Thieves of State. Why Corruption Threatens Global Security (W.W. Norton &
Company: NY, 2014), p. 59.
147
The issue of uneven application of tariffs and import tax featured in interviews in Mazar-e Sharif
and Herat. For a discussion of the politicized nature of border taxation at Torkham, see Minoia, G.,
Mumtaz, W. and Pain, A., ‘The social life of the onion: the informal regulation of the onion market in
Nangarhar, Afghanistan’, Afghanistan Research and Evaluation Unit (AREU), Working Paper no. 26,
2014, pp. 19–20.
148
For an analysis of the development and aftermath of the Kabul Bank scam, see Huffman, M., ‘The
Kabul Bank scandal and the crisis that followed’, US Policy in a Big World, Blog, 3 Dec. 2011.
149
See Byrd, W. and Noorani, J., ‘Exploitation of mineral resources in Afghanistan: where are the
government revenues or development benefits?’, United States Institute of Peace, 1 Dec. 2014,
<http://www.usip.org/publications/exploitation-of-mineral-resources-in-afghanistan>.
150
That is, abuse of power by officials and evasion by companies coexist and feed off of each other.
Federation of Afghan Craftsmen and Traders (FACT), Communication with authors, Kabul, Feb. 2015.
151
Business owner, Communication with authors, Mazar-i-Sharif, Feb. 2015.
152
HOOAC and MEC were established by presidential decree in 2008 and 2010, respectively, to
coordinate and implement the national anticorruption strategy and to evaluate national and international
efforts to fight corruption.
153
Butler, A. and McGuinness, K., ‘Afghan women’s economic participation: 2013 report’, Building
Markets, 2013, <http://buildingmarkets.org/products-services-/afghan-women-economic-participation>.
154
See Integrity Watch Afghanistan, ‘National corruption survey 2014’, <http://integritywatch.co/
downloads-ncs-2014/>.
155
Hogg et al. (note 28).
156
World Bank, ‘Afghanistan’, <http://data.worldbank.org/indicator/DT.ODA.ALLD.CD/countries>;
and US Department of Defense, Report on Enhancing Security and Stability in Afghanistan (1225
Report), June 2015.
157
Bontjer, R. A., Holt, J. P. and Angle, S., ‘Spending the development dollar twice: the local
economic impact of procurement in Afghanistan’, Peace Dividend Trust, July 2009.
158
Hogg et al. (note 28).
159
As Waldman points out, ‘The Afghanistan Compact has 77 measurable benchmarks for the Afghan
government, but none for donors. Donors are subject to little independent scrutiny; reporting to the
Afghan government has improved but is insufficient; and downward accountability to project
beneficiaries is limited or non-existent’. Waldman, M., ‘Falling short: aid effectiveness in Afghanistan’,
Agency Coordinating Body for Afghan Relief (ACBAR), Mar. 2008; and United Nations, Security
Council, ‘First report of the Analytical Support and Sanctions Implementation Monitoring Team
submitted pursuant to resolution 1988 (2011) concerning the Taliban and associated individuals and
entities’, S/2012/683, 30 May 2012, para. 19.
160
Afghan Central Statistics Office (note 40).
161
Cusak and Malmstrom (note 104).
162
Hogg et al. (note 28).
163
Afghan farmers, Communication with authors, Herat city, Feb. 2015.
164
UNAMA Rule of Law Unit (note 121), p. 34.
88 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
165
McEwan, A. and Whitty, B., ‘Water management, livestock and the opium economy’, Afghanistan
Research and Evaluation Unit (AREU), Case Study Series, June 2006.
166
Independent Joint Anti-corruption Monitoring and Evaluation Committee, ‘Report of the public
inquiry into land usurpation (Translated from Dari)’, Nov. 2014, <http://www.mec.af/files/2014_11_01_
Final_Report_of_the_Public_Inquiry_Into_Land_Usurpation_ENGLISH.pdf>, p. 9.
167
Land access challenges are partially the extension of Afghanistan’s topography: an extreme
continental arid climate gives Afghanistan an essentially semi-arid to desert (mostly the south) soil: the
bulk of crop production is limited to pockets of irrigable land, with some rain-fed areas in the country’s
north and at high-altitudes. 12% of the land is arable, 7.79% of which was used in 2012. 58% of the total
2014 work force was employed in agriculture, and 80% of the population depends on agriculture in some
capacity or the other.
168
Gebremedhin, Y., Land Tenure and Administration in Rural Afghanistan: Legal Aspects,
ADB/DFID Capacity Building for Land Policy and Administration Reform Project no. 7, Sep. 2007,
<http://terrainstitute.org/pdf/ProjectReport%207_Legal%20.pdf>, p. 15.
169
Wily, L. A., ‘Looking for peace on the pastures: rural land relations in Afghanistan’, Afghanistan
Research and Evaluation Unit (AREU), Synthesis Paper Series, Dec. 2004; and Patterson, M., ‘The
Shiwa pastures 1978–2003: land tenure changes and conflict in Northeastern Badakhshan’, Afghanistan
Research and Evaluation Unit (AREU), Case Studies Series, May 2004.
170
Gaston, E. and Dang, L., ‘Addressing land conflict in Afghanistan’, USIP Special Report 372, June
2015.
171
Lister and Pain (note 34).
172
Independent Joint Anti-corruption Monitoring and Evaluation Committee (note 166), p. 13.
173
80% is estimated to be inaccurately titled, but precise national statistics on land tenure, conflicts
and grabbing are unavailable. Gaston and Dang (note 170).
174
World Bank, Doing Business 2014: Economy Profile Afghanistan (World Bank: Washington, DC,
2013), p. 39
175
De Soto, H., The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere
Else (Basic Books: New York, 2000).
176
Kanto and Pain (note 86).
177
USAID, ‘Property rights and resource governance—Afghanistan, country profile’,
<http://usaidlandtenure.net/sites/default/files/country-profiles/fullreports/USAID_Land_Tenure_Afghanistan_Profile.pdf>.
178
Giustozzi (note 178), p. 29.
179
Grace, J., ‘Who owns the farm? Rural women’s access to land and livestock’, Afghanistan Research
and Evaluation Unit (AREU), Working Paper Series, Feb. 2005, p. 27.
180
Entrepreneurs in five Afghan provinces, Communication with authors, Afghanistan, Nov.
2014–May 2015.
181
World Bank, Enterprise Surveys: Afghanistan Country Profile 2014 (World Bank: Washington,
DC, 2011 (updated 2014)) <http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/
Documents/CountryHighlights/Afghanistan-2014.pdf>.
182
FDI decreased to only $54 million in 2014, the lowest value since 2002. It constituted a mere 1.3%
of gross fixed capital formation, much lower than the average for the region and for developing
economies. UN Conference on Trade and Development, World Investment Report 2015,
<http://unctad.org/sections/dite_dir/docs/wir2015/wir15_fs_af_en.pdf>.
183
Afghanistan Chamber of Commerce and Industries (note 144); and Butler and McGuinness (note
153).
184
Reliable numbers are unavailable, but in the World Bank Enterprise Survey 2014, 5.1% of firms
were surveyed to have bank loans or lines of credit. World Bank (note 181).
185
Sepahi, M. H., Chairman of FACT Central Council, Communication with authors, Kabul, 17 Feb.
2015.
186
World Bank ‘World Development Indicators’, <http://data.worldbank.org/data-catalog/worlddevelopment-indicators>.
187
In a 2014 company survey by ACCI, the majority of respondents (59%) viewed high interest rates
as the main problem in obtaining loans, followed by unreasonable collateral requirements. Afghanistan
Chamber of Commerce and Industries (note 144).
188
However, the issue is also one of registry data in a country with no updated census data, incomplete
property registries, etc. World Bank, ‘Modern credit infrastructure allows for quicker loans’, 2 Apr.
NOTES 89
2015,
<http://www.worldbank.org/en/news/feature/2015/04/02/modern-credit-infrastructure-allowsquicker-loans>.
189
As of May 2015, MISFA had disbursed a total of $897 million to slightly over 900 000 clients in
14 provinces. There were 120 000 active borrowers, 31% women: MISFA, ‘Outreach data of MISFA
partners’, <http://www.misfa.org.af/wp-data/uploads/2015/02/Monthly-Update-May-15.pdf>.
190
See e.g. Kantor, P. ‘From access to impact: microcredits and rural livelihoods in Afghanistan’,
Afghanistan Research and Evaluation Unit (AREU), Synthesis Paper Series, 2009.
191
Afghan Central Statistics Office (CSO), ‘Afghanistan living conditions survey 2014: mid-term
results (preliminary figures)’, Dec. 2014, <http://cso.gov.af/Content/files/ALCS%202014%20Halfyear%20Report%20-%20141208%20BdB.pdf>. The legal (limited) working age is 15-years old.
UNESCO estimates that 10.3% of children aged 5–14 are involved in economic activity (11% boys,
9.6% girls). UNICEF, ‘Afghanistan: statistics’, updated Dec. 2013, <http://www.unicef.org/infoby
country/afghanistan_statistics.html>.
192
There is a large discrepancy in the female labour force participation rate between the numbers in the
official Afghan Central Statistics Office surveys for 2011–12 (16.8%) and the preliminary figures for
2013–14 (28.3%). The authors attribute this to the set of questions being used rather than an actual
increase in economic participation. Afghan Central Statistics Office (note 40).
193
Afghan Central Statistics Office (CSO), ‘Afghanistan living conditions survey 2014: mid-term
results (preliminary figures)’, Dec. 2014, <http://cso.gov.af/Content/files/ALCS%202014%20Halfyear%20Report%20-%20141208%20BdB.pdf>.
194
Female labour participation is assumed to follow a U-shaped curve with highest participation rates
among countries with the lowest and highest per capita GDP. Despite this, Afghanistan has one of the
lowest female labour participation rates in the world.
195
For a summary of research, see UNESCO, Education for All Global Monitoring Report (UNESCO:
Paris, 2005), pp. 143–45.
196
Afghan Central Statistics Office (note 40).
197
International Organization for Migration (IOM), Transition, Crisis and Mobility in Afghanistan:
Rhetoric and Reality (IOM: Geneva, 2014), p. 10.
198
Bezhan, F., ‘Afghanistan tries to stem tide of migration “brain drain”’, Radio Free Europe Radio
Liberty, 23 Sep. 2015.
199
Afghanistan Chamber of Commerce and Industries (note 144).
200
According to statistics from the Afghan Ministry of Energy and Water of the IRA’s website,
<http://mew.gov.af/en/documents>.
201
World Bank (note 123).
202
According to statistics on the Afghan Ministry of Rural Rehabilitation and Development of the
IRA’s website, <http://mrrd.gov.af/fa>.
203
‘The Afghan civil society position paper, London Conference on Afghanistan, December 2014’,
Dec. 2014, <http://unama.unmissions.org/Portals/UNAMA/Civil-society-position-paper-london-confNov2014.pdf>; and ‘Afghanistan private sector identified their top priorities for London Conference’,
Reform, no. 9, Oct. 2014, <http://www.harakat.af/site_files/14180381391.pdf>.
204
Dowdy, J. and Erdman, A., ‘Private sector development in Afghanistan’, eds Burns, R. N. and
Price, J., American Interests in South Asia: Building a Grand Strategy in Afghanistan, Pakistan, and
India (The Aspen Institute: Washington, DC, 2011), p. 120.
205
According to statistics on the Afghan Ministry of Communication and Information Technology of
the IRA’s website, MCIT, ‘MCIT mission for the next three years’, [n.d.], <http://mcit.gov.af/
en/page/4876/6955>.
206
UN Development Programme (note 53).
207
Labour force participation rate (national definition). Afghan Central Statistics Office (note 40).
208
Echavez, C., ‘Gender and economic choice: what’s old and what’s new for women in
Afghanistan?’, Afghanistan Research and Evaluation Unit (AREU), Mar. 2012.
209
Under Islamic law, daughters are entitled to half the inheritance of sons. In Afghanistan, however,
many women often leave this entitlement unclaimed, either due to lack of understanding and
information, or due to more stringent sociocultural and customary traditions.
210
Pain, A. and Mallet, R., ‘Gender, youth and urban labour market participation: evidence from the
tailoring sector in Kabul, Afghanistan’, Afghanistan Research and Evaluation Unit (AREU), Working
Paper 18, July 2014; and Afghan Management & Marketing Consultants, ‘Informality and small
business development in the city of Kabul’, July 2011.
90 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
211
Echavez (note 208).
Echavez (note 208).
213
This compares to 51% for men (overall 63%). Urban areas are more likely to support this idea
(77%), compared to 58% for rural areas. The Asia Foundation, Afghanistan in 2013: A Survey of the
Afghan People (The Asia Foundation: Kabul, 2013).
214
Various entrepreneurs, officials and researchers, Communication with authors, Afghanistan, 2014–
15. See also Grace, J. ‘Gender roles in agriculture: case studies of five villages in northern Afghanistan’,
Afghanistan Research and Evaluation Unit (AREU), Case Study Series, March 2004.
215
Echavez (note 208).
216
Butler and McGuinness (note 153).
217
McKenzie, D., ‘Gender, entry regulations, and small firm informality: what do the micro data tell
us?’, World Bank, PREM Notes no. 142, Sep. 2009.
218
Butler and McGuinness (note 153).
219
Afghan Ministry of Commerce and Industries, ‘Implementing Afghanistan’s SME development
policy: the women’s SME action plan April 2014–March 2017’, [n.d.].
220
Butler and McGuinness (note 153).
221
Afghan Central Statistics Office (note 40).
222
27.5% are in cooking/domestic or housewife ‘occupations’. Afghan Ministry of Labor and Social
Affairs, Martyrs and Disabled, ‘An urban area primary source study of supply & demand in the labor
market’,
Jan.
2009.
<http://molsamd.gov.af/Content/files/research/An%20Urban%20Area%20
Primary%20Source%20Study%20of%20SupplyDemand%20in%20the%20Labor%20Market(En).pdf>.
223
Afghan Central Statistics Organization (note 51).
224
Afghanistan Public Policy Research Organization (APPRO), ‘Gender and the agricultural
innovation system in rural Afghanistan; barriers and bridges’, 2011.
225
World Bank, Afghanistan—Understanding Gender in Agricultural Value Chains: The Cases of
Grapes / Raisins, Almonds and Saffron in Afghanistan (World Bank: Washington, DC, 2011).
226
This was surveyed to be the second most important factor of success, behind capacity and skills.
Butler and McGuinness (note 153).
227
New Zealanders introduced rain-fed alfalfa in Bamyan, to little avail. Interview with Hashimi, Z.,
Associate Professor of Agriculture at Bamyan University, Bamyan, May 2015.
228
Afghanistan Public Policy Research Organization (note 224).
229
Nojumi, N., Mazurana, D. and Stites, E., Life and Security in Rural Afghanistan (Rowman &
Littlefield Publishers: Lanham, Maryland, 2009), pp. 210–11.
230
Ritchie, H., ‘A quiet revolution through the vehicle of enterprise: A women’s food processing
business in Afghanistan’, IS Academy Research Brief no. 2, Jan. 2012.
231
The AWAF has 1400 women farming members. See Negin Saffron, ‘About us’, [n.d.],
<http://neginsaffron.af/index.php/about-us>.
232
Swedish Committee for Afghanistan Official, Communication with authors, Feb. 2015.
233
Afghanistan Public Policy Research Organization (note 224).
234
Afghanistan Public Policy Research Organization (note 224).
235
‘ANSF casualties rise by 75 per cent in 2015’, Daily Outlook Afghanistan, 21 June 2015.
236
Afghanistan faces all the types of violence identified in the 2011 World Development Report.
World Bank, World Development Report 2011: Conflict, Security, and Development (World Bank:
Washington, DC, 2011).
237
United Nations (note 159).
238
Watson Institute for International and Public Affairs of Brown University, ‘Costs of war: Afghan
civilians’, <http://watson.brown.edu/costsofwar/costs/human/civilians/afghan> (accessed 28 Aug. 2015).
239
UN Assistance Mission in Afghanistan, Afghanistan: Midyear Report 2015 Protection of Civilians
in Armed Conflict (UNAMA: Kabul, Aug. 2015).
240
The Asia Foundation, Afghanistan in 2013: A Survey of the Afghan People (The Asia Foundation:
Kabul, 2013).
241
These are the 7 human security indicators noted in the 1994 HDR, but these are not exhaustive. UN
Development Programme (UNDP), Human Development Report 1994 (Oxford University Press: Oxford,
1994).
242
UN Development Programme, ‘Afghanistan: human development index’, 2014
<http://hdr.undp.org/en/countries/profiles/AFG>.
212
NOTES 91
243
Afghan Central Statistics Office (note 40).
See Interim Afghan Administration (note 30); Ministry of Communications and Information
Technology (note 109); and Government of the Islamic Republic of Afghanistan (note 122).
245
Peschka, M. P., ‘The role of the private sector in fragile and conflict-affected states’, World
Development Report 2011 Background Paper, World Bank, July 2010 (updated Apr. 2011).
246
UN Office on Drugs and Crime (UNODC), Afghanistan Opium Survey 2014: Socio-economic
Analysis (UNODC, Mar. 2015), <https://www.unodc.org/documents/crop-monitoring/Afghanistan/
Afghanistan_Opium_Survey_Socio-economic_analysis_2014_web.pdf>.
247
UN Office on Drugs and Crime (note 246).
248
See Smith, G. et al., ‘Special report: talking to the Taliban’, The Globe and Mail, 22 Mar. 2008,
<http://v1.theglobeandmail.com/talkingtothetaliban/>.
249
See Mansfield, D., ‘Responding to risk and uncertainty: understanding the nature of change in the
rural livelihoods of opium poppy growing households in the 2007/08 growing season’, Report for the
Afghan Drugs Inter-Department Unit of the Government of the United Kingdom, July 2008.
250
United Nations (note 159).
251
Special Inspector General for Afghanistan Reconstruction (SIGAR), ‘Quarterly report to the U.S.
Congress’, Apr. 2015; and Lakhani, S., ‘Extractive industries and peacebuilding in Afghanistan: the role
of social accountability’, United States Institute of Peace (USIP), Special Report no. 339, Nov. 2013.
252
Peschka (note 245). However, despite this almost prosaic statement regarding employment and
security, there has in fact been little in-depth research done on causal linkages between the two, and
major knowledge gaps remain. See Bruck, T., Krisko, K. and Tedesco, A., ‘Linking employment and
stability in fragile and conflict-affected situations’, Knowledge Platform Security & Rule of Law, June
2015.
253
Industrialists, Communication with authors, Mazar-e Sharif, Feb. 2015.
254
Butler and McGuinness (note 153).
255
It was the top concern in a 2010 business survey, at 78%. The World Bank’s 2014 Enterprise
Survey did not list insecurity as an option, but political instability as a proxy was the most prevalent
concern. Center for International Private Enterprise (CIPE), ‘2009–2010 Afghan business survey final
report: Afghan business attitudes on the economy, government, and business organizations’, CIPE, 2010,
<http://www.cipe.org/sites/default/files/publication-docs/Afghan%20Business%20Survey%20Report_504-10_FINAL.pdf>; and World Bank (note 181).
256
Cusack, J. and Malmstrom, E., ‘Afghanistan’s willing entrepreneurs: supporting private-sector
growth in the Afghan economy’, Centre for a New American Security, Nov. 2010.
257
Entrepreneurs and analysts, Communication with authors, five provinces in Afghanistan, 2014–15;
and Cusak and Malmstrom (note 104).
258
Cusack and Malmstrom (note 256).
259
North, D. C., Wallis, J. J., Weingast, B. R, Violence and Social Order (Cambridge University Press:
Cambridge, 2009).
260
World Bank, World Development Report 2011: Conflict, Security, and Development (World Bank:
Washington, DC, 2011); MercyCorps, ‘Youth & consequences: unemployment, injustice and violence’,
2015.
261
Katzman, K., ‘Afghanistan: post-Taliban governance, security, and U.S. policy’, Congressional
Research Service, 27 Apr. 2015.
262
Butler and McGuinness (note 153).
263
‘Afghanistan’s road to self-reliance: the first mile progress report’, Afghan Ministry of Finance,
Policy Department, Sep. 2015, p. 15.
264
Peschka (note 245).
265
Collier, P. et al., Breaking the Conflict Trap (World Bank and Oxford University Press:
Washington, DC, 2003).
266
UN Office on Drugs and Crime (note 246).
267
Interim Afghan Administration (note 30).
268
Securing Afghanistan’s Future: Accomplishments and the Strategic Path Forward, Interagency
report prepared for International Conference 31 Mar.–1 Apr. 2004 (Asian Development Bank, UN
Assistance Mission to Afghanistan, UN Development Program and The World Bank Group: 17 Mar.
2004).
269
See Deloitte Consulting LLP, ‘Afghanistan Economic Growth & Private Sector Strengthening
(EGPSS) Project’, Oct. 2010.
244
92 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
270
For a public listing of some of the donor activities in PSD, see Davis, P., ‘Private Sector
Development programmes in Afghanistan: A desk-study’, Swedish Institute for Public Administration
(SIPU), June 2013.
271
Independent Evaluation Group (IEG), Evaluation of World Bank Programs in Afghanistan 2002–11
(World Bank: Washington, DC, 2012).
272
Afghan Ministry of Commerce and Industries, ‘Strategic plan: 2011–2015’, Oct. 2011, p. 9.
273
Afghan Ministry of Commerce and Industries Official, Communication with authors, Kabul, Nov.
2015.
274
Afghan Ministry of Commerce and Industries (note 68).
275
Government of the Islamic Republic of Afghanistan, ‘Realizing self-reliance: commitments to
reforms and renewed Partnership’, p. 15.
276
DFID Official, Communication with authors, Kabul, Nov. 2015.
277
The website of ARTF has a full list of active and closed portfolio investment projects. World Bank,
ARTF at a Cross-roads: History and the Future—Final Report (World Bank: Washington, DC, 2012).
278
Director of undisclosed aid project, Communication with authors, Kabul, May 2015.
279
Zardozi Markets for Afghan Artisans Director, Communication with authors, Kabul, Nov. 2014.
280
It is estimated that that only 38 cents on the dollar have made their way into Afghan households and
bank accounts. Bontjer, R. A., Holt, J. P. and Angle, S., ‘Spending the development dollar twice: the
local economic impact of procurement in Afghanistan’, Peace Dividend Trust, July 2009.
281
Rhyne, D. W, ‘Afghan First: building a stable economy through strategic acquisition’, Defense
AT&L Magazine, May–June 2011, <www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA543600>.
282
Taylor, R., ‘Army procurement switch puts boot into Afghan dream’, Reuters, 3 May 2012,
<http://www.reuters.com/article/2012/05/03/us-afghanistan-procurement-idUSBRE8420B820120503>.
283
Special Inspector General for Afghanistan Reconstruction (SIGAR), ‘Quarterly Report to the U.S.
Congress’, Jan. 2011, p. 89.
284
Businessmen in Mazar-e Sharif and Parwan, Communication with authors, Mazar-e Sharif and
Parwan, Feb. and May 2015.
285
‘Kabul Conference communique’, Kabul International Conference on Afghanistan, 20 July 2010,
<https://www.unodc.org/documents/afghanistan/Kabul_Conference/FINAL_Kabul_Conference_Commu
nique.pdf>.
286
Afghan Ministry of Finance, Development Cooperation Report 2012 (Ministry of Finance: Kabul,
2012), p. 2.
287
German Embassy Official, Communication with authors, Kabul, May 2015.
288
Paris Declaration of Aid Effectiveness, 2005, OECD. <http://www.oecd.org/dac/effectiveness/paris
declarationandaccraagendaforaction.htm>.
289
World Bank (note 277).
290
World Bank (note 277).
291
ARTF Website, <http://www.artf.af/portfolio/active-portfolio-investment-projects>.
292
Afghan Ministry of Finance, Development Cooperation Report 2012 (Afghan Ministry of Finance:
Kabul, 2012), p. 2, 14.
293
See Beckwith, S., ‘The militarisation of aid in Afghanistan: implications for humanitarian actors
and the way ahead’, 30 Apr. 2012, <http://dx.doi.org/10.2139/ssrn.2167857>.
294
Pain and Shah (note 85).
295
Cusak and Malmstrom (note 104).
296
Sinha, S., Holmberg, J. and Thomas, M., ‘What works for market development: a review of the
evidence’, Sida UTV Working Paper, no. 1 (2013); and Curtis, L. et al., ‘Private sector development in
conflict-affected environments—key resources for practitioners’, Donor Committee for Enterprise
Development (DCED), Oct. 2010.
297
Government of the Islamic Republic of Afghanistan, ‘The agriculture and rural development cluster,
national priority programs (a preliminary draft in advance of the JCMB and Kabul Conference)’, 8 July 2010.
<http://foodsecuritycluster.net/sites/default/files/The_Agriculture_And_Rural_Development_Cluster_National
_Priority_Programs.pdf>.
298
Afghan Ministry of Commerce and Industries, ‘Growth during transition 2012–2015’, Oct. 2012.
299
See World Bank, ‘Restructuring paper on a proposed project restructuring of Rural Enterprise
Development Project’, 26 Oct. 2013; Gray, S. and Montgomery, E., ‘Evaluation of “Sustainable
NOTES 93
livelihood programme through community mobilization and establishing knowledge resource centre in
Mazar-e-Sharif”, final report’, Sida Decentralised Evaluation, no. 39 (2013).
300
CDA, ‘Listening project: field visit report Afghanistan’, Apr./May 2009, Revised Aug. 2010.
301
ILDG Official, Communication with authors, Kabul, Feb. 2015.
302
Davis (note 270).
303
Cusak and Malmstrom (note 104).
304
Cusak and Malmstrom (note 104).
305
Waldman (note 159); and CDA (note 300).
306
World Bank Official, Communication with authors, Kabul, May 2015.
307
Gray and Montgomery (note 299).
308
Gray and Montgomery (note 299).
309
Ittig, A., ‘Urban development in Kabul: an overview of challenges and strategies’, Institute for
Afghan Studies; Waldman (note 159); and CDA (note 300).
310
Kanton, P. and Pain, A., ‘Poverty in Afghan policy,’ Afghanistan Research and Evaluation Unit
(AREU), Briefing Paper, Nov. 2010, p. 11.
311
These actors pointed to a need for locals to in fact first assess donors for their own suitability to
engage in programs in Afghanistan. As an Oxfam report on donor aid in Afghanistan points out, while
the Afghanistan Compact provides 77 metrics to hold the state accountable to donors, there were none
holding donors accountable to Afghans. Waldman (note 159).
312
World Bank (note 277); Sinha, S., Holmberg, J. and Thomas, M., ‘What works for market
development: a review of the evidence’, UTV Working Paper, no. 1 (2013).
313
Afghan Central Statistics Organization (note 38).
314
Perception of security in Balkh among businesses seems currently strongly connected to the
personal control of governor Atta. Various entrepreneurs, Communication with authors, Mazar-e Sharif
18–19 Feb. 2015. See also Mukhopadhyay, D., Warlords, Strongman Governors, and the State in
Afghanistan (Cambridge University Press: New York, 2014), pp. 138–41.
315
Giustozzi (note 178), p. 22, 26–33.
316
Female entrepreneurs, Communication with authors, Mazar-e Sharif, 19 Feb. 2015.
317
Giustozzi (note 178), p. 36.
318
The section connecting Balkh westward to Herat, however, is still unfinished between Faryab and
Badghis. See Suroush, Q. ‘Going in circles: the never-ending story of Afghanistan’s unfinished ring
road’, Afghanistan Analysts Network, 16 Jan. 2015, <https://www.afghanistan-analysts.org/going-incircles-the-never-ending-story-of-afghanistans-unfinished-ring-road/>.
319
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), ‘Development civil aviation in
Afghanistan’, Apr. 2014, <http://www.giz.de/en/downloads/giz2014-en-flight-safety-afghanistan.pdf>.
320
Amin, M., ‘Power to the people: how to extend Afghans’ access to electricity’, Afghanistan Analyst
Network, 3 Feb. 2015, <https://www.afghanistan-analysts.org/power-to-the-people-how-to-extendafghans-access-to-electricity/>.
321
Giustozzi (note 178), pp. 34–36.
322
After successful eradication campaigns, the province has been free of a marginal producer since
2007. It is, however, one of the country’s cannabis-producing provinces. UN Office on Drugs and Crime
(UNODC), Afghanistan Opium Survey 2014: Cultivation and Production (UNODC, Nov. 2014)
<https://www.unodc.org/documents/crop-monitoring/Afghanistan/Afghan-opium-survey-2014.pdf>.
323
In addition to lack of investment, the expansion of water infrastructure is the victim of competition
between local strongmen. Giustozzi (note 178), pp. 29, 35.
324
Afghan Central Statistics Organization (note 51).
325
Balkh Chamber of Commerce and Industries Chairman, Communication with authors, Mazar-e
Sharif, 18 Feb. 2015.
326
The Central Highlands ranks low in food security, in potable water access, and Bamyan’s rate of
‘not-gainfully employed’, at over 40%, is among the highest between provinces. Afghan Central
Statistics Office (note 40).
327
Recently conducted population statistics were, and continue to be, the subject of much political
controversy. Afghan Central Statistics Organization (CSO), ‘Settled population of Bamyan province by
civil division, urban, rural and sex: 2012–13’, [n.d.], <http://cso.gov.af/Content/files/Bamyan(1).pdf>.
328
Hashimi, Z., Associate Professor of Agriculture at Bamyan University, Bamyan, May 2015; and
Afghan Ministry of Rural Rehabilitation and Development, ‘National area-based development program,
94 AFGHANISTAN ’ S PRIVATE SECTOR : STATUS AND WAYS FORWARD
Bamiyan provincial profile’, 2012, <http://www.mrrd-nabdp.org/attachments/article/267/Bamyan%20
Provincial%20profile.pdf>.
329
See Ritchie H. and Fitzherbert, A., ‘The white gold of Bamyan: a comprehensive examination of
the Bamyan potato value chain from production to consumption’, Dec. 2008.
330
Afghan Central Statistics Office (note 40), p. 59; and Afghan Ministry of Rural Rehabilitation and
Development, ‘Provincial profiles: regional rural economic regeneration assessment and strategies’,
2006.
331
A 2011 survey estimated that 12.4% of the total population had resided outside of Bamyan for at
least 6 months. Afghan Central Statistics Organization, ‘Socio-demographic and economic survey:
Bamiyan’, 2013.
332
‘Mineral
resources
of
Bamyan
province’,
Pahjwok
News,
14
Jan.
2014,
<http://mines.pajhwok.com/news/mineral-resources-bamyan-province>; and Deputy Governor of
Bamyan, Communication with authors, May 2015.
333
Including but not limited to: the remnants of the giant Buddha statues, Band-e Mir National Park,
new plans to build a Cultural Centre, as well as sports such as mountain skiing.
334
Female entrepreneurs, Communication with authors, Bamyan and Parwan, May 2015.
335
Leslie, J., ‘Political and economic dynamics of Herat’, United States Institute of Peace, 2015.
336
Leslie (note 335).
337
In the year 2014–15 (1393), imports from Iran constituted $1.5 billion, 19.5% of the country total.
One third consisted of fuels and oil products. Disaggregated trade statistics per province were not
available.
338
According to one local journalist, there is a large recruitment base of poor people who would
‘commit any crime for two hundred dollars’, Pajhwok Afghan news journalist, Communication with
authors, Herat, 23 Feb. 2015.
339
Various entrepreneurs, Communication with authors, Herat city, 24 Feb. 2015.
340
Leslie (note 335), pp. 6, 15, 33.
341
Currently, while profit margins are high, the price of Herat marble is around 4 times higher than its
Pakistani counterpart, and volumes are limited. 85% of the marble used in Afghanistan is imported,
some of it is reimported from Pakistan. See Rassin, A. G., ‘ A comprehensive study of marble industry
in Afghanistan’, AISA, 2011, <http://afghanenterprise.com/wp-content/uploads/2014/09/Marble_
industry_AFG_AISA_FINAL.pdf>.
342
Nearly all the businessmen and -women interviewed in Herat had gained experiences in or
conducted business with Iran. Various entrepreneurs, Communication with authors, Herat, Feb. 2015.
343
Aria, identified as Herat, was described as such by Herodotus in the 5th century BCE.
344
Interviews with ACCI, business owners and entrepreneurs, Communication with authors, Herat,
22–24 Feb. 2015.
345
The partly Indian-funded Salma Dam on the Hari River is Afghanistan’s largest energy
infrastructure project, expected to more than double the cultivated land and give 42 MW of electricity.
Iran, cautious of loss of downstream water and currently exporting 80 MW of electricity to Herat, has
sought negotiations. New governor of Herat province, Asif Rahimi, expected the dam to be finalized in
2016, but the project has already been delayed several times.
346
Government of the Islamic Republic of Afghanistan, State of Afghan Cities 2015 (GOIRA: Kabul,
2015), p. vii.
347
The official statistics at the provincial level is 4.2 million. Afghan Central Statistics Organization
(CSO), Statistical indicators in the Kabul Province: 2014–2015 (CSO: Kabul, May 2015).
348
City Mayor Statistics, ‘The world’s fastest growing cities and urban areas from 2006 to 2020’,
[n.d.], <http://www.citymayors.com/statistics/urban_growth1.html>.
349
Nearly half of these settlements are urban but irregular, and another 16% are on hillsides. UN
Habitat, ‘Knowing Kabul’, Discussion Paper no. 10, Mar. 2015.
350
UN Habitat, ‘Inclusive cities’, Discussion Paper no. 8, Mar. 2015.
351
Afghan Central Statistics Office, ‘Kabul Province socio-demographic and economic survey
highlights’, 2015, p. 20.
352
Afghan Central Statistics Office (note 347).
353
77.9% for males and 50.6% for females surveyed over 15 years of age. For the entire province, the
surveyed literacy rate was 55.2%. Afghan Central Statistics Office (note 347), p. 6.
354
There are over 110 000 government civil service employees in Kabul. Afghan Central Statistics
Office (note 347).
NOTES 95
355
Though estimates are inexact and outdated, casual labour has been estimated to be up to a third of
Kabul’s total labour force. Afghanistan Public Policy Research Organization (APPRO), ‘Return
migration and development nexus: casual labourers of Kabul’, APPRO Working Paper, Apr. 2014.
356
Economically active being defined as working for at least 6 months in the 12 months previous to
the survey. 64.1% of the total surveyed did not work at all. However, this captures women primarily
engaged in household duties, as well as students. Afghan Central Statistics Office (note 351), p. 6.
357
UN Population Fund (UNFPA), ‘Kabul: a socio-economic and demographic profile’, 2004.
358
UN Habitat (note 349).
359
Afghan Central Statistics Organization, ‘Settled population of Parwan province by civil division,
urban, rural and sex, 2012–13’, [n.d.], <http://cso.gov.af/Content/files/Parwan(1).pdf>.
360
Various entrepreneurs and public officials, Communication with authors, Parwan, May 2015.
361
Afghan Ministry of Rural Rehabilitation and Development, ‘Provincial profiles: regional rural
economic regeneration assessment and strategies’, 2006.
362
‘‘Poppy-free’ is a designation by the UNODC of provinces with less than 100 hectares of opium
cultivation. However, this does not mean that trafficking of narcotics has ceased. UNODC,
‘Afghanistan: opium poppy free road map and provincial profiles’, June 2008.
363
This does not mean that the province is food secure. In 2011, 46% of the population took out loans,
of which 70% stated went largely to purchasing food. Food is imported to the province outside of the
growing season. Afghan Ministry of Rural Rehabilitation and Development, ‘National area-based
development program, Parwan provincial profile’, 2012; and Farmers and entrepreneurs,
Communication with authors, Parwan, May 2015.
364
In most districts, household access to electricity is upwards of 80%; in the three remaining districts,
the proportion was upwards of 60%. Interestingly, solar is a prevalent source of household lighting (at
44%). Afghan Central Statistics Organization, ‘Parwan province socio-demographic and economic
survey highlights’, 2014, pp. 15–18.
365
UNAMA Official, Communication with authors, Kabul, May 2015.
366
Afghan Central Statistics Organization (note 364), p. 3.
367
In fact, the authors were encouraged by the Parwan branch of the ACCI to suggest to donors that
they work with the women entrepreneurs of the province, rather than the men. Parwan Chamber of
Commerce Official, Communication with authors, Parwan, May 2015.
368
A Sep. 2014 survey found that only 5.3% of women had worked for 6 months or more in the past
year, while 93.9% had not worked at all. Unfortunately, details on the methodology used to collect this
data is not entirely clear. Afghan Central Statistics Organization (note 364), p. 3.
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