As foreign troops gradually leave Afghanistan, will its economic setup sustain and grow? What the country needs now is local and foreign investment and a dependable support structure.
As announced by the U.S. government, American troops will be moving out from Afghanistan by 2014 and will hand over the overall security to Afghan army. Here the big question that arises is whether the Afghan Army is capable to take care of Afghanistan with no U.S. and NATO supervision? The basic concern is - will Afghanistan sustain?
The economy of any nation is its backbone which ensures its sustainability. Looking at the performance of Afghanistan over the past decade, the economy is growing but at a slow pace. This is due to massive foreign investments and military spending. However, analysts fear that as the foreign troops move out of Afghanistan, this support will drop drastically.
The World Bank’s ‘Doing Business Index 2011’ ranked Afghanistan at 167 out of 183 economies in the ease of doing business. Although this ranking is not very encouraging, the country has achieved an average growth rate since 2002. In order to make the Afghan economy capable of standing on its own, decision-makers have to think around how the Afghan local population can be empowered. Only this can ensure that the economy moves forward smoothly.
Afghanistan is a country with huge mineral resources but unfortunately it has not been able to self-sustain. Besides the security challenge, one huge economic challenge is its local industry which is hardly appreciated. Last year the import of Afghans totaled $5.3 billion whereas the exports were only $547 million, comprising mostly hand-made products. Similarly, most of the contracts are handed over to foreign contractors and suppliers, who in turn employ a very small number of locals.
Over the past decade the services industry of Afghanistan has made a major contribution in the country’s overall growth. The service industry mostly includes transportation, communication, finance and insurance. Another contributor in the Afghan growth is its agriculture industry. Currently this industry is volatile due to improper irrigation system. Most of the lands are dependent on the climate and hence the production is unpredictable.
Another challenge to the economy is the complicated regulation to start a new business in Afghanistan. Though foreign investors are interested in investing in the country, laws and regulations are not favorable in an already insecure investment climate. As a result, the investor has to go through tedious stages to start any new venture. Some 12 legal documents are required for imports or exports. These include NOCs, certificates, tax challans and more.
For economic sustainability, it’s not only the direct investment that matters but there are also indirect factors like improving the educational system and living standards. Similarly, programs like Afghan Support Fund (ASF) and different health programs nationwide can also play a significant role. In recent years donors and investors have started understanding these concerns and have started to appreciate the potential in the local industry, especially the manufacturing sector. Giving the contracts of designing the Afghan Army uniform is a one good example. What more needs to be done is to help the mining, oil and gas sector and to develop a proper irrigation system so that the agriculture industry can be made more productive. Similarly, roads across the country also need to be built and improved thereby enabling a strong domestic communication.
When one looks at Afghanistan today, the empowerment of the private sector is the need of the hour. In recent years the concept of entrepreneurship is also excelling in Afghanistan where the entrepreneurs are strongly supported by the state-owned and foreign-funded financial institutions and venture capitalists. Such support structures need to be strengthened in order to help the Afghan economy stand on its own. The writer writes on entrepreneurship and skill development for various publications.