As Aid Shifts, Afghanistan Must Change Its Economic Focus

By Jennifer Brookland

January 28, 2015

Afghanistan’s economy has dropped in value by a third during the past year, with an expected growth rate just one tenth of its 2012 level of 14 percent.

With aid dollars no longer a reliable stopgap for performance in other industries, it will increasingly fall to Afghanistan’s own private sector to step up with the funds needed to complete the infrastructure projects left unfinished by departing development organizations, and fill in the gaps where livelihoods and agriculture projects funded internationally were once in full bloom.

“Creating jobs in the private sector should become a major focus of donor aid in the years to come as the Afghan Government seeks to fill the large gap left by the shrinking international military, NGO, and contractor presence,” says Salem Helali, who directs a project for Creative Associates International in Afghanistan.

Cuts across the board

The $9.7 billion the U.S. spent on development in Afghanistan since 2002 initially paid off: the country’s GDP was $20.31 billion in 2013—five times higher than its 2002 levels—and indicators from health to education to gender equality all rose sharply. Overall, the United States has spent more than $100 billion on development in the country, according to the Associated Press.

But U.S. lawmakers slashed high levels of development assistance at the start of 2014 with a spending bill that took overall civilian assistance to 50 percent of its 2013 levels—an amount that had already been halved since 2011.

U.S. cuts were echoed by Australia and European donors, who also reduced their aid budgets to the country. The trimming forced some international NGOs to cut staff and pare down or even shut down projects.

“The recent decrease in development aid, along with the accompanied draw-down in [International Security Assistance Forces] has increased unemployment, particularly in fledgling sectors that have traditionally been supported by donor aid such as construction, banking/finance, and ICT,” says Helali.

“In addition to the direct impact on these sectors, rising unemployment decreases consumer spending and has a negative impact on private sector growth generally.”

National implications

The loss of development spending is now being felt at the national level.

Afghanistan’s current account balance (an indicator that includes trade, investments and cash transfers) is now forecasted by the World Bank to go into negative numbers by 2016—certainly not the worst in South Asia but hardly a hopeful sign for a country in sore need of a new beginning.

The Humanitarian Country Team for Afghanistan recorded 7.4 million people in need of humanitarian assistance as of Nov. 2014 and noted that 28 percent of the population is food insecure.

Supporting development through business

AFG09231330-300x200  The U.S. Agency for International Development has made clear its intentions to continue to support Afghanistan through education, agriculture and economic growth programs—including support for the private sector.

It supports workforce development programs that are producing skilled workers who can move Afghanistan’s economy into new sectors such as mobile development and technology in addition to much-needed small enterprises and construction.

Helali also predicts growth in sectors such as mining and telecommunications even in the face of decreasing foreign direct investment.

“Identifying the needs of those sectors with the most promise, while subsequently training and matching qualified job applicants with employers, is one important tool that donors and the Afghan Government can use to help boost the struggling economy,” he says.

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