Letter from Afghanistan: Some bright spots, and how to encourage them

Here is a note from my CNAS colleague Ethan Kapstein, who has been hanging out in Kabul lately:

The firing of General Stanley McChrystal following his remarks to a Rolling Stone reporter risk overwhelming the real progress that is now being made in Afghanistan. In particular, Afghanistan is enjoying strong economic growth in several parts of the country.

What explains these regional booms? The answer is clear: It’s security.

For that reason, a premature withdrawal of American forces — now slated by the Obama Administration to begin in July 2011 — could undermine all that is being achieved. The data show that when Afghans feel secure, they invest in their economy. The United States and its coalition partners should not depart before they are confident that this economic momentum can be maintained, since it is growth which provides the surest foundations for a more peaceful future.

It’s not really surprising that Afghanistan is ready for an economic take-off; after so many decades of conflict, there’s pent-up demand for almost every good and service imaginable. As a result, many different sectors of the economy are booming, including construction, finance, and transportation.

In the northern city of Mazar-e-Sharif, for example, the number of registered firms has doubled since 2008, while out west in Herat, it has grown by a third. These firms are generating employment: in Mazar, they’ve created about 5000 jobs, and in Herat, another 2500.

Foreign investors are also discovering the Afghan economy. Some 150 firms registered in Kabul last year, with estimated employment of more than 6000 workers. Foreign firms are also now flocking to the provincial capitals as well, with growing interest among them as Afghanistan’s mineral wealth and other natural resources become better understood.

Beyond the statistics, signs of growth are apparent to even the casual observer. Traffic is heavy in the major cities and people everywhere seem to be speaking on cell phones. The local restaurants (still only open to men) are bustling — and of excellent quality — and it seems that new and palatial wedding halls are going up every day. While most of the cabs are still beat-up relics, one sometimes stumbles upon a driver with a relatively new car, purchased with a bank loan.

Nor is all this growth dependent on foreign aid. In fact, the regions of the country that are enjoying the most economic activity-like Herat and Balkh (where Mazar is located)-are probably those where the least aid has gone on a per capita basis. In both these provinces, for example, strong governors have made security a priority, giving entrepreneurs the breathing space to exploit existing business opportunities. Indeed, these leaders wonder why all the aid funds seem to flow to those regions which are still violent; to them, this is a reward for bad behavior.

For sure, the Afghan economy still faces numerous challenges. The currency is over-valued, inducing imports from neighboring countries like Iran and Pakistan. Bank loans, while becoming more available, are still in short supply; Afghanistan remains "under-banked" even by developing world standards. Successful businessmen face intimidation from criminal gangs, and corruption in government reportedly remains widespread. The large foreign presence and availability of aid funds and contracts means that too many entrepreneurs are making money off cozy relationships with embassies and the military instead of through productive investment. Finally, the continuing threat from insurgents — especially in the southern provinces of Kandahar and Helmand-cannot be understated.

What are the lessons of the Afghan success stories for the United States and its coalition partners? They are straightforward.

First, the military should focus on its primary mission of providing security and bolstering the Afghan National Army and Police, giving entrepreneurs the "breathing space" to develop their economy.

Second, the United States and its coalition partners should support those regional authorities who are creating a more secure environment by providing them with some transparent and accountable budget support. Too much aid money is going to projects like schools and meeting halls that are not necessarily the local priority.

Third, the United States and European Union should pass free trade agreements with Afghanistan. It is absurd that local entrepreneurs face high tariff barriers when they ship their goods to Afghanistan’s coalition partners. As in much of the developing world, it seems that Washington and its European allies prefer providing aid to supporting trade.

A final thought: Foreigners based here, often in highly protected compounds from which they rarely venture, should be encouraged to become tourists in this beautiful land, partaking of its legendary culture, cuisine, and hospitality, while boosting the economy at the same time. By sharing that image of Afghanistan with friends and family, instead of one that emphasizes violence and fear, they will do much to restore this country’s mythical place in the world’s imagination.

Ethan B. Kapstein, an Academic Advisor to the Counter-Insurgency Advisory and Assistance Team at ISAF, Kabul, is a non-resident senior fellow at the Center for a New American Security, and a professor of international affairs and business at the University of Texas at Austin. The views expressed here are his own.