The Afghan War Economy Collapses

The latest Western retreat from Afghanistan has already left an ignominious legacy for the new president who will take over from Hamid Karzai in the country’s first democratic transition of power. An election process marred by violence will culminate in the inauguration of a national leader who inherits a shrinking economy and an escalating insurgency, as sovereignty returns to Afghanistan after more than a decade of foreign occupation. A military economy worth hundreds of billions of dollars propped up Karzai’s government for more than a decade, and directly supported almost half the population; much of it has already evaporated.

A shift in the nature of insurgent violence, to include magnetic bombs and assassins with silencers, indicates a split in the ranks of groups at war with the Kabul government, and sends a warning to the new leadership of worse to come — the degree of which depends on the incumbent — once foreign combat troops are withdrawn. With the spring poppy harvest in, these groups have access to more men for what they call their "summer fighting season," as localized militant groups begin a large-scale expansion of opium production to supplement the curtailed flow of military and aid cash.

While there is minimal concern that the Taliban will return to power in the foreseeable future — amid some never-say-never warnings aimed at ensuring Western vigilance of gains in women’s and human rights — analysts say the game-changing violence of recent months is not unusual when rebel groups are engaged in peace negotiations with sitting governments. For Antonio Giustozzi, a visiting senior research fellow at King’s College London’s War Studies Department, "behind the Taliban’s wavering between compromise and extreme violence appears to be an increasingly divided movement."

The International Crisis Group (ICG) said in a May report that insurgent attacks rose by 15 to 20 percent in 2013, and predicted further violence in 2015. The ICG called on the new Afghan president to sign a bilateral security agreement (BSA) with the United States, ensuring the presence of international troops after the drawdown to back up national forces in the fight against the insurgency. 

President Obama said in late May that he plans to pull all American troops out of Afghanistan by the end of 2016, leaving behind an embassy presence and a small security assistance force — contingent on the signing of the BSA. David Sedney, Washington’s former deputy assistant defense secretary for Afghanistan, Pakistan and Central Asia, said recently that a U.S.-NATO force of 15,000 troops — rather than the 9,800 Obama said will remain next year — was needed to train, mentor, and equip Afghan forces, and should be part of a 20-year commitment to the country.

The international military drawdown has had an immediate impact on Afghanistan’s economic growth, with a GDP of more than 14 percent in 2012 cut to a World Bank estimate of 3.6 percent last year. According to an as yet unpublished report for NATO and the U.N., the International Security Assistance Force (ISAF) has estimated that 11.5 million people lived within a 5-km radius of at least one military base or facility that provided economic support to the local population.

Afghanistan’s military economy has depended on local services, including: construction; food, fuel, and other supplies; logistics; security; transportation and trucking. If a jeep broke down, local mechanics fixed it. If a base needed a latrine or laundry block, local carpenters built it; locals usually cleaned it, too. One analyst said that providing security for military supply convoys alone cost around $2 billion a year. The number of military bases is down from a peak of 850 in 2012 to fewer than 100 now.

The report adds that almost 90 percent of Kabul’s 4.25 million people have directly benefited from 75 ISAF and Afghan National Security Forces facilities. The capital’s febrile atmosphere is born of the shrinkage of economic activity as small businesses collapse, the construction industry winds down, and many of the wealthy prepare to leave the country.

In the southern Kandahar and Helmand provinces, where the war was most savage, the figures similarly reflect the economic benefit of the bases: in Kandahar, 72 percent of the population living within 5-km of one of 152 bases directly benefited from its presence; in Helmand, 60 bases directly benefited 47 percent of the population. ISAF figures in the report show that the economic benefit directly correlates with the presence of bases, on a sliding scale to zero. The poorest provinces had the fewest bases — Ghor had one, Nimruz two, Dai Kundi zero. They were poor to start with, the bases made barely any difference, and so they simply remain poor. 

The Afghan currency, after years spent hovering between 45 to 50 afghanis to the dollar, is now around 57 to 59 to the dollar despite aggressive efforts by the central bank to counter growing demand for dollars. Afghanistan’s trade deficit in 2012 was nearly $9 billion.

Washington’s Special Inspector General for Afghanistan Reconstruction, which is auditing the $103 billion appropriated by Congress since 2002, says of that figure, $64 billion has been provided for reconstruction programs since 2010. That figure does not include allocations from other countries with commitments to Afghanistan. The Congressional Research Service estimated in 2013 that 95 percent of Afghanistan’s annual GDP of $15-20 billion was derived from international military and aid spending, though some experts say this is exaggerated as it does not take the black economy into account.

Not all aid allocations make it to Afghanistan — with around one-third remaining in the donor country — and not all is spent because of a lack of capacity and oversight. Accordingly, it is difficult to know just how much international money has made it to Afghanistan, and how much has been spent. As an indication of the vast amounts involved: $5 billion was dispensed directly to Afghan security companies by the U.S. government between 2011 and 2012; and $49 billion was spent on security and reconstruction between 2009 and 2012, according to the unpublished report.

Amid unconfirmed reports that tens of thousands of Afghans have been laid off by international contractors as bases have closed, the U.S. Congress in January cut civilian aid funding to Afghanistan by $1.12 billion for fiscal 2014, 50 percent of the commitment for the previous fiscal year. The United States and other donors pledged $16 billion in development aid through 2015 at a conference in Tokyo last June. As funding for civilian development programs tapers off, the Afghan government has no alternative legitimate source of funding, despite hopes of the Afghan government and its backers that vast mineral and hydrocarbon deposits worth an estimated $1 trillion would be generating revenues by 2012.

Oil production, mostly under contract to Chinese state firms, is proceeding haltingly amid security threats from vested interests in the country’s north, government and security source
s have said. Mining has yet to yield more than $100 million a year to the Afghan treasury, most from contracts rather than royalties. Mineral resources are instead being sequestered by armed local interests, according to Integrity Watch Afghanistan, an independent research organization, with little revenue reverting to the state.

Afghanistan’s new president comes to power at the end of his country’s latest war, but lacking the funds needed to deal with the intransigent problems of poor governance and endemic corruption. Without an income, his government will be unable to pay the salaries of security and defense forces, which are already suffering high casualties and defections to the Taliban who pay in cash.

As the vast Western military and aid juggernaut moves on, Afghanistan’s hard-won sovereignty comes with a codicil: as hard as it was won, it will be even harder to hold onto.

Lynne O’Donnell is an award-winning journalist and writer based in London.