Foreign Policy: It’s the economy…Even in Afghanistan

June 28, 2012

Americans are not alone in worrying that their economic futures are headed in the wrong direction. Afghans, too, fear that the next several years will bring a business tailspin that will see recent gains eked out by small and medium companies dissolve amid security woes and a sharp pullback in international largesse and, of course, foreign forces.

The “light of a new day” may be “on the horizon,” as President Obama announced this May from Bagram Air Base, but Afghan entrepreneurs want to make sure their start-ups survive the changes that will accompany whatever comes next. This Thursday 50 such business-owners, 12 women among them, will gather at an investment conference in New Delhi hosted by the Confederation of Indian Industries with support from the Confederation of Women Entrepreneurs in India (CWEI).

The goal is to promote private sector investment in Afghan firms that will increasingly be seen as growth anchors for their country going forward. Companies descending on India this week in search of dollars range from big mining entities to smaller but growing entities including software, carpet-making, and media ventures. Outside Afghanistan few may think of the war-plagued nation as a small-business or start-up hub, but the resourcefulness of the dogged entrepreneurs I have covered these past seven years matches that of any I have interviewed in other countries, rich or poor. Afghan businessmen and women will need every bit of this determination as they confront the uncertainty of the coming years. And it is in America’s and NATO’s interests that they succeed.

As President Obama noted at Bagram, “Americans are tired of war,” and the military intervention in Afghanistan has plunged to new depths of unpopularity in the latest public opinion polls. But economic development is critical to promoting stability and U.S. security interests, and it is essential to making the President’s laudable idea of bringing a “responsible end” to America’s longest war more than just empty words. Research shows that negative economic shocks of five percent can increase the risk of a civil war by 50 percent in fragile environments . Bolstering entrepreneurs, particularly those running small- and medium-size enterprises, is part of fostering lasting growth that is in both Afghanistan and America’s best interest.

Despite remaining on the list of the world’s poorest nations, Afghanistan has logged economic successes and macroeconomic stability on which to build. The country’s GDP has more than tripled in the last decade, averaging around nine percent a year, with notable gains in infrastructure, telecommunications, and financial and business services. The Ministry of Communications recently began awarding 3G licenses to cellular phone companies and internet usage is expected to climb as technology improves and prices drop. Mobile phone penetration has leapt from less than one percent in 2001 to well above 60 percent today.

And business growth has not been limited to large firms. Small companies have cropped up across sectors, creating desperately needed jobs in a country whose unemployment rate is estimated at well above forty percent. The non-governmental organization Building Markets, which ran a business matchmaking service that helped Afghan firms learn of and apply for international contracts, counted 3,400 companies in its business database in 2008. By 2012 that number had climbed to 8,300, with nearly 300 owned by women. According to theWorld Bank’s “Doing Business” report, Afghanistan ranks 30th among 183 economies when it comes to the ease of starting a business, requiring four procedures and seven days to register a firm. Training programs such as the International Finance Corporation’s “Business Edge,” Goldman Sachs’ “10,000 Women,” and Bpeace’s “Fast Runners” now work with entrepreneurs seeking management and marketing training. And Afghan export promotion officials proudly point to recent wins marketing their carpets and dried fruits and nuts to consumers in Europe and the Middle East.

Yet bad news and economic question marks threaten to swamp the small steps forward. In 2010, Afghanistan’s economy received nearly the same amount in foreign aid as it counted in GDP, and the assistance tsunami, often routed around the rickety central government rather than through it, has hardly helped to bolster the country’s already weak institutions. Graft remains rampant: Afghanistan shared the next-to-last spot with Myanmar inTransparency International’s 2011 “Corruption Perceptions Index.” Meanwhile, the trade deficit looks to top $6 billion and fiscal health remains shaky at best, with estimates suggesting government revenues will cover only 60 percent of the Afghan operating budget in 2013.

President Obama pledged in the Strategic Partnership Agreement he signed with Afghanistan’s President Hamid Karzai that the United States “shall help strengthen Afghanistan’s economic foundation and support sustainable development.” This promise was not made simply because America is a benevolent power, but because an economically stable and increasingly prosperous Afghanistan connected to the world is good for the United States. It will soon be up to Congress to decide how much continued economic aid and development assistance to offer Afghanistan, and the temptation will be great to follow the Iraq example of ever-smaller requests met by even smaller authorizations. But shoving Afghanistan off the economic edge would be both short-sighted and counter-productive. As the World Bank noted recently, “international experience and Afghanistan’s own history show that an abrupt cutoff in aid can lead to fiscal crisis, loss of control over the security sector, collapse of political authority, and possibly civil war.”

America may be drawing down troops and withdrawing militarily from Afghanistan, but the Afghan entrepreneurs gathering this week in India remain worthy of U.S. support and investment. They are allies in the American quest to bring “sustainable stability” to a country and a region that desperately need it.

Gayle Tzemach Lemmon is a fellow at the Council on Foreign Relations and the author of The Dressmaker of Khair Khana.