The South Asia Channel

Sustaining Afghanistan’s Economy

If Afghanistan is going to thrive in 2015, it will need policy changes in three main areas: sustainable and inclusive development, governance, and resource management.

In this photograph taken on December 29, 2014, an Afghan customer (2nd L) counts his Afghani currency notes at a currency exchange market along the roadside in Kabul.  The Taliban insurgency may still be raging but the poor state of the economy could pose a bigger threat to Afghanistan's long-term viability, and huge mineral reserves are unlikely to offer a quick fix. In Kabul's Sarayee Shahzada market, moneychangers wave thick bundles of Afghanis, dollars, rupees and dirhams, but the customers are not packing the alleyways like they used to and business is well down on two years ago.       AFP PHOTO / Wakil Kohsar        (Photo credit should read WAKIL KOHSAR/AFP/Getty Images)
In this photograph taken on December 29, 2014, an Afghan customer (2nd L) counts his Afghani currency notes at a currency exchange market along the roadside in Kabul. The Taliban insurgency may still be raging but the poor state of the economy could pose a bigger threat to Afghanistan's long-term viability, and huge mineral reserves are unlikely to offer a quick fix. In Kabul's Sarayee Shahzada market, moneychangers wave thick bundles of Afghanis, dollars, rupees and dirhams, but the customers are not packing the alleyways like they used to and business is well down on two years ago. AFP PHOTO / Wakil Kohsar (Photo credit should read WAKIL KOHSAR/AFP/Getty Images)

One-third of Afghans live in absolute poverty and more than one third live slightly above the poverty line. Drug trafficking and corruption have prolonged Afghanistan’s conflicts while insurgency, racial inequality, and ethnic tensions cause enduring political rivalry. Afghanistan was recently positioned as the fourth most corrupt state in the world by Transparency International, a non-governmental organization that monitors corporate and political corruption around the world. Lack of institutional protection has made Afghans vulnerable to policy reforms and economic structural adjustments. Despite important gains in the education and health sectors, unemployment is still the biggest challenge to economic growth and sustainable development. The United States and the international community have spent billions of dollars in Afghanistan, but people still lack access to their basic needs.

Afghanistan needs policy changes in three main areas: sustainable and inclusive development, governance, and resource management. Currently, most development projects are not sustainable due to high corruption per capita and millions of contracting dollars ending up in the hands of the Taliban. Moreover, financial mismanagement, waste, bribery, and fraud have weakened the legal and judicial institutions.

Sustainable and inclusive development is crucial for the future of Afghanistan. The Afghan government needs to integrate the marginalized and excluded communities, such as women and minorities, in the development processes to build a strong domestic support system. Sustainable practices will change the national structures so that ultimately, Afghanistan can function independently — without foreign aid. For example, infrastructure as critical and basic as reliable power is available to nearly 30 percent of Afghans today, compared to just 6 percent in 2002.

Stakeholders need to be accountable for all the responsibilities they undertake, and transparency must be prioritized for countering corruption. Public awareness and participation are crucial to alleviating poverty and improving the resilience of the one-third of the Afghan population living slightly above the poverty line.

The second intervention needed is good governance. Good governance is the most important element for the economic growth and development in post conflict states: Sixty years ago, South Korea was poorer than two-thirds of the countries in sub-Saharan Africa, but as a result of foreign aid and good governance practices, the country is the world’s 12th largest economy today. The instrumental components of good governance — transparency, accountability, participation, and prediction — can open new windows of opportunities for Afghans. Good governance practices, like improving employment provisions, will promote economic growth and stability for foreign investments, raise the standard of living, and lead to social cohesion. It will also help slow the emigration of Afghans, both reducing Afghanistan’s brain drain and refugees’ burden on foreign economies.

The third intervention is needed in resource management. Afghanistan is a very dry and mountainous country. Because of its natural landscape, the impacts of climate change — flooding, landslides, severe storms — will affect the livelihoods of millions of Afghans across the country. Afghanistan shares rivers with neighboring countries — Pakistan in the south and east and Iran in the west — and the number of conflicts over water resources in the region is increasing every day. Lack of water-sharing agreements and shifting political boundaries can turn intra-national disputes into international conflicts.

Afghan policymakers need to involve intergovernmental organizations, such as the World Bank, to resolve water issues with neighboring countries. Positive, active, and continuous involvement of a third party is vital in overcoming conflict. The Indus Water Treaty between India and Pakistan is a successful example of stability between two South Asian states in conflict.

The incapability of Afghan institutions, systematic corruption, and bribery have wasted Afghanistan’s limited resources. Afghanistan has a high risk of natural disasters; drought, flooding, and river erosion are common.

Agriculture is the backbone of Afghanistan economy — currently more than 70 percent of its population is working in agriculture, which forms 24.6 percent of the country’s GDP. The government needs to subsidize this sector to increase the financial and human capital of Afghan farmers. Moreover, any increase in human resources will increase the farmers’ assets. Investing in the mechanization of agriculture will help the largest portion of the population rise above poverty lines. Afghan President Ashraf Ghani, during the 2014 London Conference on Afghanistan, promised to implement new plans for reforms and development.

The world community, during the 2012 Tokyo and the London conferences, promised to help the Afghan government invigorate the dead economy if the Afghan government practiced political will. Development of the private sector and an open, competitive market are the best opportunities for long-term economic growth. Using the Tokyo Mutual Accountability Framework pillars, adopted by the Tokyo conference, as a checklist can help both the world community and the Afghan government act on their obligations. The newly-formed National Unity Government needs to bring Afghan policymakers and practitioners, who can practice sustainable and inclusive approaches, into the government. With any hope, these policymakers will influence policies and strategies at the national and regional levels for creating a dynamic and sustainable trade environment.

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