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Afghanistan’s Overlooked Economic Transition

by Gayle Tzemach Lemmon
March 25, 2013

An Afghan vendor deals with customers at a local market in Kandahar Province, Afghanistan, December 2, 2012 (Ahmad Nadeem/Courtesy Reuters). An Afghan vendor deals with customers at a local market in Kandahar Province, Afghanistan, December 2, 2012 (Ahmad Nadeem/Courtesy Reuters).

Much attention has been devoted to Afghanistan’s upcoming political and security transition, with Secretary of State John Kerry arriving in Kabul today for meetings with Afghan President Hamid Karzai. But one critical piece of the stability equation has been largely overlooked to date: economic transition. As 2014 approaches, a great deal of progress will either be built upon or lost.

The Afghanistan the world leaves behind is much different from the one it found in 2001. Back then Afghanistan was an isolated pariah nation ruined by war and ruled by men who had no idea how to run an economy. Trade except with Pakistan had ground to a near halt and the banking system consisted of a handful of “largely inactive” state-owned intermediaries. Agriculture production reflected the cost of years of war: Afghanistan in the early 1980s accounted for 10 percent of the global raisin market. By 2001 it was far less than one.

The country had little access to the outside world. Internet penetration was nearly non-existent and telephones of any kind reached less than 1 percent of the population. The telecom sector did not exist. The most reliable information networks consisted of extended families sharing news as their members crossed back and forth between Afghanistan and neighboring countries. The state-sanctioned news organ was the Taliban’s Radio Sharia, with many listening to the BBC and Voice of America for news from the outside world.

Today, the story has changed for the now-$20 billion Afghan economy.

Agriculture, which continues to account for a large chunk of GDP, thrived last year, with the World Bank estimating that a bumper harvest would push GDP growth above 10 percent for 2012 and bring the country closer to food self-sufficiency.

Services, which account for about half of GDP, “grew by over 12 percent in 2011.” The Ministry of Communications and Technology reported a “21 percent increase in ICT service subscriptions over the past year,” according to the World Bank.

Mobile subscriptions soared from zero for every one hundred Afghans in 2000 to forty by 2009, at which point three-quarters of the country was covered by mobile networks. According to the Afghan government, “over a period of five years from 2002 to 2007, there was tenfold increase in the telephone subscriptions, indicating an annual growth rate of about 60 percent.”

More than half the country watches TV—with more than seventy stations found across the country and fare such as the Afghan version of “The Office” shown on the popular TOLO TV. And almost everyone listens to the radio.

By 2012 the telecom sector had attracted nearly $2 billion in investment, with six telecom companies and forty-four internet service providers serving the Afghan public. And phone service prices have dropped with rising competition. The first 3G mobile offerings arrived last year.

With roughly two-thirds of the population under the age of twenty-five, it is not surprising to see the hunger for connectivity soar. Afghanistan now counts around 400,000 Facebook users.

As for the mineral sector, China’s leading oil company is bringing the Amu-Darya oil basin online, with an expected output of 25,000 barrels a day by the end of this year. And as the World Bank has written, the basin is expected to “ramp up quickly
over the following two years to 15,000‐30,000
barrels per day. At those levels the oil
production could add some US$150 million‐US$200 million per year to fiscal revenues.” Afghan government officials say that extractive industry could well come to account for nearly half of the country’s GDP in a little more than a decade.

To be sure, Afghanistan’s bright economic future is not at all guaranteed and in fact remains very much a question to be answered. The reality is that foreign aid and donor dollars continue to account for well over 90 percent of Afghan GDP while corruption and a lack of rule of law hamper the private sector’s growth. And the continued upward trend for the country’s economic numbers requires a future that is not scarred by increased insecurity and a return to civil war.

The international community plays a role in eliminating some of the uncertainty. The country’s economic outlook right now is largely favorable, but as the World Bank has noted,political and security uncertainties of the transition period are likely to take a toll on business confidence.” President Obama and the State Department have discussed a “new Silk Road” in which Afghanistan and its regional neighbors create shared prosperity through trade and investment. “An Afghanistan firmly embedded in the economic life of a thriving South and Central Asia will support peace and stability throughout the region,” noted the State Department. Afghanistan’s participation in both the regional and global economy will depend upon the growth of telecoms, dried fruits, carpets, and mines rather than rockets and IEDs.

After more than a decade of war the international community has a role to play in an economic transition that fosters greater stability in Afghanistan and the region. Scaling back aid along a transparent and measurable path, while making sure committed dollars are spent within Afghanistan and by the government rather than by foreign contractors or on goods from donor countries, would help ease the concerns of Afghanistan’s greatest natural resource: its businessmen and women and the young entrepreneurs fighting to continue the country’s already significant modernization.

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