Editor in Chief: Moh. Reza Huwaida Friday, March 29th, 2024

What about the Economic Transition?

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What about the  Economic Transition?

Afghanistan and the international community have had a close cooperation ever since the new chapter in Afghanistan's history began in late 2001. Since then, much has gone by and Afghanistan remains tied to what the international community has had to offer – without active assistance doled out by the international community, Afghanistan stands little chance of succeeding in the journey it has embarked upon. With a decade of Afghanistan-international community partnership already over, the need of the time is to re-calibrate this partnership and relationship.

This becomes all the more important considering the fact that the deadline of 2014 is fast approaching. Afghanistan is expected to achieve a significant degree of self-sufficiency by this deadline in the areas of not only security provision but also in economy, foreign trade and balance of payments.

Afghanistan's balance of payments situation is now to a large extent helped and stabilized by the large inflow of humanitarian aid dollars and billions in military related spending due to the presence of tens of thousands of international troops in the country. In the absence of this significant inflow of dollars from abroad, Afghanistan's balance of payment situation would be disastrous reflected in the fact that the Afghani-Dollar exchange rate is largely kept stable through regular auction of dollars by the Da Afghanistan Bank.

Another important factor in the favorable exchange rate of Afghani versus other currencies is the influx of tens of millions of dollars into the Afghan economy every month in the form of multitude of development projects as well as contracts that are awarded to Afghan companies. Beyond the time when the flow of these humanitarian and development dollars diminishes, it is difficult to see how Afghani would be able to hold up against other currencies. This is a real concern and must be addressed by the international community and the government of Afghanistan.

The one constant theme that has long dominated the headlines is the issue of security transition in Afghanistan. While the transition in the area of security has caught the imagination of all and sundry, what has always been neglected is the issue of economic transition.

After all, Afghanistan needs a stable and sustainable economy if it is to have a lasting and successful security transition – one that will be able to stand the challenges in the post-2014 Afghanistan when the majority of the foreign troops will evacuate the country.

The question of Afghanistan's economy is lost in the hubbub of confusion and the headline-grabbing daily ration of fatalities and casualties, of deaths and explosions and suicide bombings. This is appalling especially given the fact that Afghanistan of post-2014 will be able to provide for itself only if its economy is propelled to a self-sustaining trajectory. Currently, foreign aid makes up for more than 40% of the government's "ordinary budget". The entire development budget is funded by foreign donors.

In addition, thousands of development projects are being funded and executed by numerous non-governmental actors such as NGOs and private companies. These projects, in addition to injecting hundreds of millions of dollars into the economy of Afghanistan annually, have provided tens of thousands of direct and indirect jobs.

The cascading effect of all these on the economy of Afghanistan and their contribution to making the economy grow and create jobs is extremely significant. Now the question is whether the government of Afghanistan and the international community are willing to take some serious steps towards reversing the string of past failures and place the economy of Afghanistan and its rehabilitation in the center of efforts.

Rehabilitation of Afghanistan's economy and giving it even a semblance of self-sufficiency would not be possible only by paying it lip-service. Afghanistan's public administrators and those in charge of decision-making like to talk of ambitious plans for building a viable private sector. Their plans of course include developing Afghanistan's mining sector by bringing in further foreign investment.

Potential Chinese and Indian-Canadian Foreign Direct Investment (FDI) in Afghanistan's mining industry are being upheld as a major achievement. However, little is being said about the fact that sending a few mineral and mining projects online and earning royalties is way short of what Afghanistan needs.

Apart from these mineral projects, Afghanistan does not have and does not seem to have a vibrant and growing private sector on which the livelihoods of millions of people can be tied. This is especially so since the imposition of a laissez-fair model of economic organization on Afghanistan has meant that the government in Afghanistan is effectively withdrawn from the market and its hands are tied.

Under such circumstances, a vibrant market economy is what is proposed as the ultimate succor. Under conditions of constant conflict and a deteriorating security situation, and when business confidence and investment climate is fast worsening, it is difficult to see how Afghanistan can build a vibrant and successful private sector that can provide the answer to the country's myriad economic and developmental ills.

Of course, other challenges are the widespread corruption and the increasing criminalization of the state and the economy. Afghanistan's black economy has been gradually growing and its effects in terms ofcorrupting and criminalizing the formal economy and the state and governmental institutions have been massive.

Afghanistan needs to attract foreign investment and it should go beyond only Foreign Direct Investment (FDI) in the minerals and mining sector. There are plenty of other sectors in Afghanistan, most notably the transportation and other industries in the services sector not to mention the manufacturing sector, that require active and large-scale foreign investment in order for the private-sector led economic development model to gain traction.

The challenges facing Afghanistan, therefore, are manifold, formidable and grim. The government of Afghanistan and the international community better take cognizance of the range of actual challenges. Focusing solely on the military aspects of the situation at the expense of equally important and long-term imperatives would only delay the day of reckoning. Perhaps, a major shock to the economy and an overnight multiplication of living essential costs in a way that can infuriate the people is needed to awaken the decision-makers to the gravity of the situation.

The author is the permanent writer of the Daily Outlook Afghanistan. He can be reached at outlook afghanistan@gmail.com

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