The Limits of U.S. Aid in Afghanistan

John Sopko, the special inspector general for Afghanistan reconstruction (SIGAR), reported in July 2014 that, after adjusting for inflation, the $109 billion the United States has appropriated since 2002 to reconstruct Afghanistan exceeds the $103 billion it committed between 1948 and 1952 for the post-World War II Marshall Plan. But the SIGAR comparison is misleading, as it does not take into account the varied complexities of the two different contexts — the Marshall Plan, after all, was designed for the successful economic recovery of 16 European countries — and the long-term objectives of the United States.

What the report does show, however, is the failure of U.S. aid policy in Afghanistan. There, despite some modest progress in areas such as the expansion of education and health-care services, Afghanistan remains fragile, poor, and highly dependent on foreign aid.

One of the reasons U.S. aid hasn’t been as effective in post-2001 Afghanistan as it was in post-1948 Europe is that many characteristics of the Marshall Plan are missing in the U.S.-Afghanistan relationship. Ninety percent of the Marshall Plan’s disbursement was in grant aid and was mostly spent inside the European economy. It also did not exceed 3 percent of GDP in the recipient countries and lasted only a few years. The United States was the single donor, and there was consensus in Washington about how to approach the economic recovery of Europe, which was composed of already industrialized nations well-endowed with human resources and skills, but chronically short on capital.

Post-2001 Afghanistan, on the other hand, was overwhelmed by protracted conflict. More than two decades of fighting since 1978 had shattered the country’s nascent infrastructure and institutions and had undermined the long-term prospect for stability. The country was not only short of human resources, with nearly 2 million Afghan lives lost in the fighting, but also short of skills and capital. The two decades of conflict has cost $240 billion in lost growth and the cost of humanitarian assistance and military expenditures, according to the World Bank.

While the United States was, and remains, the largest donor of foreign aid to Afghanistan, 53 countries and international organizations actively participated in the country’s reconstruction. They, however, lacked a coherent view on where and how to spend their aid, which made aid coordination a daunting task. Unlike in Europe, foreign aid — of which about three-quarters was provided by the United States — on average made up over half of Afghanistan’s GDP. The war economy, as a result, posed major challenges to the country’s reconstruction and governance, as did Afghanistan’s narcotics industry — neither of which were challenges in postwar Europe.

The SIGAR report, however, ignores these differences and only highlights the U.S. expenditure of $62 billion on building and sustaining the Afghan army and police as varying from the Marshall Plan.

Another factor that has minimized the impact of U.S. aid on the Afghan economy is the fact that more than 90 percent of this aid was spent outside the government’s budget and systems, creating a parallel public sector. Of the total U.S. appropriations spent in Afghanistan since 2002, the Afghan government accounts for only about 7 percent, which was spent through the Afghan government’s annual budget and jointly managed trust funds. In July 2011, for instance, Afghanistan’s Finance Ministry stated in a press release circulated via email that of the $2 billion that had been channeled through government institutions for the past decade, only $45 million had been spent at the discretion of the Afghan government. Corruption in the Afghan government and its limited capacity encouraged the United States to directly manage the larger portion of its aid. But this approach only exacerbated the existing corruption and institutional weakness. The United States remained preoccupied with the management of the parallel public sector and missed the opportunity to provide adequate support for building local formal institutions. While the United States then promised to channel up to 50 percent of its aid through the Afghan government’s budget and trust funds, conditional to increased transparency and improved capacity, reliable information is not available to measure this target. Afghan government officials, however, argue that the 50 percent target is underachieved.

Large amounts of U.S. aid also went toward contracts with international companies, which were often subcontracted at multiple levels, increasing the cost of projects and leading to fragmentation and inefficiency. The cost of U.S.-funded projects therefore was much higher than projects funded by other donors, such as the World Bank. In January 2012, James Petersen, a former auditor of SIGAR, noted, "USAID has struggled to keep NGO overhead costs below 70 percent [in Afghanistan] — more than double the norm." So just 30 cents of every dollar goes to aid, of which, according to Petersen, "frequently only half reaches the intended recipient. The remainder is lost, stolen or misappropriated by Afghan workers and officials."

Unlike the Marshall Plan, U.S. aid to Afghanistan also suffered from a number of internal contradictions. A major contradiction in the U.S. involvement in Afghanistan has been between the "war on terror" and state-building. The former concentrated on short-term objectives, such as making alliances with individual power brokers to defeat the Taliban and al Qaeda and funding of projects for winning hearts and minds of locals, which eventually undermined building of viable and accountable institutions.

Despite its shortcomings, the SIGAR report is a call for a comprehensive review of the United States’ aid policy in Afghanistan. This review needs to take into account the local societal context, as well as the existing governance challenges, which must be addressed. A greater portion of U.S. aid should be spent through the government’s budget and systems and inside the Afghan economy. A greater focus on state-building is also necessary. The case of Afghanistan shows the limits of U.S. aid in the 21st century and urges a reform of U.S. aid policy.

Nematullah Bizhan is a global leader fellow at Oxford and Princeton universities and is a research associate at the Australian National University. His doctoral research focused on the impacts of foreign aid on state-building in Afghanistan. He also led the national aid coordination process at Afghanistan’s Ministry of Finance and the secretariat for the Joint Coordination and Monitoring Board, a high-level coordination body between the Afghan government and the international community.