Can Afghanistan’s Economy Stand on Its Own?

Despite the ravages of war, the country is blessed with some significant advantages.

By Richard Ghiasy

January 30, 2014

http://thediplomat.com/2014/01/can-afghanistans-economy-stand-on-its-own/

At the turn of the century Afghanistan was economically comatose. The arrival of international forces in 2001 also marked the start of unprecedented international support. After 12 years of conflict, Afghanistan remains a burden for the international community.

The day is approaching when Afghanistan will have to stand on its own. To do that, Afghanistan will need to adapt to the dynamics and rules of globalization. The international community and incumbent administration have made a start to this adaptation process. The new administration will have to continue it with stronger commitment and at a faster pace – it has no pretexts to do otherwise.

Over the last twelve years, most media outlets, think tanks and experts have focused on the challenges that Afghanistan faces. Given the ravages of decades of conflict, this is not surprising, but it has led to a virtual “analysis paralysis.” Despite the very serious security challenges that clearly remain, few experts have underlined the fact that Afghanistan enjoys a highly unique convergence of factors that it could potentially seize to develop the nation

To begin with, there are a myriad of countries contributing to Afghanistan in a variety of ways: militarily, diplomatically, or financially. The U.S. has allocated an astonishing $100 billion of nonmilitary funds to Afghanistan since 2002, the largest amount the U.S. has ever spent on reconstructing a country. Even after the drawdown of forces this year many nations will remain committed: Germany, for example, has committed 430 million euro ($587 million) a year until at least 2016, while major aid organizations like the Asian Development Bank and the UN will also remain dedicated for years to come. This, the international community’s support and attention, is the exogenous advantage the country enjoys.

Add to this a set of endogenous advantages. Some of these have been in place for years, while others have emerged only recently. Among the latter are Afghanistan’s democratic political institutions, which permit participation and competition. Allowed to work as intended, these institutions should prevent the country becoming subject to the whims of a single authority. The election process meanwhile functions as a flushing mechanism for entrenched elites and ossified ideas – on paper at least. Supporting this and giving civil society a voice is a free media: today there are some 35 TV stations, over 100 radio stations and more than 150 newspapers. These are luxuries that civil societies in so many other underdeveloped nations can only dream of.

Afghanistan also boasts an astonishing resources endowment worth nearly $1 trillion. These include massive veins of coal, copper, lithium, gold; deposits of gemstones, and substantial natural gas and oil fields. Moreover, it hosts a number of rare earths; China currently controls over 90 percent of the global supply of rare earths.

Afghanistan has nutrient-rich soils for significant agricultural output: some 12 percent of the arable land of the country can annually produce food for up to 160 million people according to the chief economic advisor to the president of Afghanistan. Investing in this sector could enable food processing and substantial exports. Moreover, while some claim that the nation suffers from the tyranny of geography, it does in fact occupy a unique position connecting landlocked Central Asia with South Asia. This offers potential as a trade and energy corridor and subsequent prospects for downstream industries.

If all of these advantages could be seized, the revenues generated could then be invested in physical infrastructure, as well as social infrastructure such as schools.

The brains (and muscle) to develop the country, the Afghan people, is there: a youthful labor force (aged 0-25) of some 23 million, representing an incredible 68 percent of the population. Obviously those brains would have to be filled with the knowledge needed to develop the nation. Primary school enrollment has, at least, gone up, from 21 percent in 2001 to 97 percent ten years later.

The cherry on top? Afghanistan has the good fortune of having two manufacturing giants next-door: China and India. Both are captivated by its natural resources endowment. Afghanistan could take advantage of their reemergence and join their economic orbit. Mining and smelting operations will generate significant tax revenues, employment and spin-off enterprises and initiate much needed economic growth.

This array of exogenous and endogenous advantages and its very timing is an opportunity that many other developing nations could only dream of. As with all opportunities, it will not linger and Afghanistan will have to quickly embrace it with both hands if it wants to develop – and circumvent looming social disorder. The incredible youth ratio can be an advantage, but it could also be a liability: youngsters who do not have sufficient incentive or a stake in construction might instead lean towards destruction, especially unemployed and frustrated angry young men. Socioeconomic stasis is also a strong motivator for insurgents – the longer socioeconomic development wanders the more confident they will grow and the more appealing their lure to Afghan youth.

Afghanistan needs to realize the enormous development potential it possesses; there is a convergence of factors that will most likely not return for generations. If the new administration lacks the political determination and fails to seize these opportunities, Afghanistan will continue to disappoint and decades hence Afghans themselves will only look back and lament.

Richard Ghiasy is a Research Fellow at the Afghan Institute for Strategic Studies (AISS) in Kabul, Afghanistan. The views presented here are the author’s own and are not necessarily associated with the views of AISS.