Patr II
During a recent visit to Kabul Afghan friends pointed out that according to the World Bank, the contribution of the Services sector to the Afghan GDP was 50%. An optimistic but hopelessly unreal assessment was offered-this would be only marginally affected by the withdrawal of foreign forces. The truth of the matter is that again according to World Bank estimates 90 to 97% of economic activity in Afghanistan was driven, in the last few years, by the foreign presence. It would not be wrong to assume that once the foreign troops withdraw and foreign aided projects begin to be abandoned for lack of funding the services and construction sector of the economy will contract much more drastically perhaps by as much as 90%.
I had mentioned in the earlier article that the reduction of the ANSF would, by 2017, demobilise about 120,000 ANSF personnel and add these men, with few skills other than handling weapons, to the ranks of the large number of currently unemployed people in Afghanistan. To this one must also add the large number of people currently engaged by foreign and Afghan security companies who will be thrown out of work once foreign financed projects grind to a halt and the need for security at such sites diminishes. What will these people do to secure their daily bread? Out on the streets begging or more likely adding to the ranks of the common criminals or extortionists supported by one war lord or another, to exacerbate the difficulties that the ordinary Afghan citizen faces particularly in urban settings. Many of the unemployed may seek to become economic refugees. I have calculated that as many as 2 million Afghans may, post 2014, seek shelter in Pakistan where the border is open and a smaller number may try to cross into Iran where border controls are stricter
One way to handle this situation would be to ensure the maintenance of a high level of economic assistance to Afghanistan post 2014. The Afghans at the Bonn meeting had circulated a paper suggesting that the international community commit to providing $10 billion a year to Afghanistan up to 2024 by which time the Afghans estimated that enough progress would have been made on the exploitation of Afghanistan’s estimated $1 trillion worth of mineral deposits and on the development of its agricultural potential to allow Afghanistan to stand on its own feet. What most Afghans are asking is whether this is a realistic goal given the donor fatigue that exists in the NATO countries and the obvious reluctance of other potential donors to make such commitments.
They will note the example of Pakistan. The Obama administration pushed strongly for the American Congress to approve what came to be known as the Kerry-Lugar-Berman Bill, which committed the USA to providing 1.5 billion annually in economic assistance for 5 years. Since American law prohibited a commitment for longer than 5 years it included a recommendation that a future congress should extend this for another 5 years. In other words there was formally a decade long commitment of economic assistance. In practice however much of this is bogged down and the Pakistanis have been vociferously complaining about the shortfall in disbursements and about the projects that the Americans have chosen for implementation.
For the moment it is known that on 22nd April a draft ‘Strategic Partnership Agreement” document was finalised and signed by both Ambassador Crocker on behalf of the United States and National Security Adviser Spanta. While the contents of the agreement are not known it is generally believed that this provides for a decade long involvement of the USA with Afghanistan. Commenting on the agreement an American embassy spokesman said, “Our goal is an enduring partnership with Afghanistan that strengthens Afghan sovereignty, stability and prosperity and that contributes to our shared goal of defeating al-Qaeda and its extremist affiliates,”... “We believe this agreement supports that goal.”
It is highly unlikely that this document, which does not deal with the question of a residual American military presence after 2014, will spell out the specifics of the concrete economic assistance that the Americans will provide over the next decade. But even if it does the Afghans must assume that its implementation may face the some problems, as the Pakistanis believe they are experiencing with the Kerry-Lugar-Berman bill.
The Afghans know that those with money are rapidly taking the money out of Afghanistan. The Deputy Governor of the Central Bank has said that $ 8 billion were taken out of the country last year and there are good reasons to believe that despite the new regulations introduced to discourage the exodus of funds more than $4 billion will leave the country this year. Some Afghan friends have said that this fear is unfounded. They believe that the announcement of the US-Afghan Strategic Partnership will restore faith in the future of Afghanistan and such funds will be invested in Afghanistan. One can hope this turns out to be true but the prospects are bleak.
As the foregoing shows, the economic picture-post 2014 appears grim and that is the reality but one must also recognise that there are some bright spots, which, if properly developed, may mitigate the hardship.
These are the major foreign investment agreements signedso far. First the Aynak copper mines where the Chinese have committed to a $2.4 billion investment for strip mining that will provide considerable investment in the mine itself but will also involve the construction of such infrastructure projects as a thermal power plant and a railway to allow the shipment of the mined ore to some smelting unit. A similarly large investment has been committed for the exploration and exploitation of Afghanistan’s fossil fuel deposits. The Indians on their part have put together a consortium, which has committed to an investment of more than $10 billion for the exploitation and transport of iron ore from the Hajigak deposit-reportedly one of the largest and richest in the region. Lastly there is the finalisation recently of the agreement between Turkmenistan, Afghanistan, Pakistan and India on transit fee for the pipeline, which is to bring 3.2 billion cubic feet of gas daily from Turkmenistan to markets in Pakistan and India. This project alone would give Afghanistan a transit fee that at the agreed rate of 49.5 cents per thousand cubic feet an annual income of mote than half a billion dollars and would generate other economic activity that could add another half a billion to Afghanistan’s GDP.
Much remains to be done before these projects can bear fruit. The Aynak project remains stymied until the archaeological remains around the site have been completed. The routes to be followed by the transport infrastructure to be created to take the ore to market have yet to be decided. One would like to suggest that as regional cooperation increases the Chinese and Afghans should think in terms of transporting this copper ore to Pakistan’s Baluchistan where a similarly large deposit of copper is awaiting exploitation. The combined product of the two mines would permit the setting up of a smelting plant within the region and an economical transport of the finished product through Pakistan’s port at Gwadar. Currently legal problems are holding up the Pakistan project but were there a chance of a joint smelting plant being set up the incentive for resolving the legal disputes in Pakistan would become irresistible.
Similar work of an imaginative and innovative nature will need to be done for the other projects that are being considered. The most important issue however is going to be the post 2014 security situation and that in turn is going to depend on how rapidly the process of reconciliation proceeds and how this process helps to bridge the differences both ideological and political between the “armed opposition” and the Karzai administration on the one hand and between Afghanistan’s various ethnic groups on the other. Will there be agreement on retaining an American military presence after 2014? If so will this become an insurmountable obstacle as negotiations with the Taliban proceed? Will Afghanistan’s neighbours cooperate?
Only slightly less important will be the efforts that are needed to provide better governance and the impact on these efforts by President Karzai’s repeated assertion that he was considering stepping down before 2014 when the next Presidential elections are due to permit the holding of the elections before foreign troop withdrawal is completed. Will a new team to cope with the challenges of overseeing the withdrawal and undertaking the needed reform of government structures? These two sets of questions, perhaps the subject of the greatest concern to Afghans, will be the subject of my next article.
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