Saving Private Enterprise in Afghanistan

In early December Afghan fashion found a place in the Middle Eastern edition of Vogue magazine, lithe models posed in colorful, high-end gowns and accessories made by craftsmen from Afghanistan.

The couture in Vogue’s pages was also featured in a United States-sponsored exhibition I visited here in Dubai focusing on Afghan exports, including carpets, fruits and nuts, and marble and precious stones. It was a small sample of the riches that the country of my birth could sell to the world.

Carpet exports from Afghanistan have reached around $200 million annually. The relatively meager sum, in terms of national exports, makes up about one-third of all legal Afghan exports of $600 million; since imports total $8 billion, the result is a huge trade deficit. The humble Dubai exhibition was a reminder that Afghanistan needs to look within to build an economic future after foreign aid runs out. It needs to judiciously harness its natural resources, modernize its economy beyond traditional goods, and alleviate the bureaucratic inefficiency and corruption that has hobbled its private sector.

Boys and men are reflected in the window of a tailor at a market in Helmand Province, Afghanistan. Adam Ferguson for The New York Times
Boys and men are reflected in the window of a tailor at a market in Helmand Province, Afghanistan. Adam Ferguson for The New York Times

Afghanistan’s budget is still mostly funded by international donors, which means 70 percent of the government’s overall spending and its entire security budget, which covers an army and police force of 350,000. Security remains a major problem given the Taliban controls 10 percent of the country and is contesting 20 percent more. The Islamic State is a worrisome presence in eastern Afghanistan.

However, countries such as Iraq and several African nations have managed to extract resources despite insecurity. Afghan soldiers trained by the Americans can be used to ensure that large-scale investment is protected. The United States has committed 8,400 troops, and the incoming Trump administration should maintain that commitment until Afghanistan can protect itself.

In Brussels this year, international donors led by the United States and the European Union committed to fund Afghanistan through 2020, hoping to buy four more years of stability and stem the record migration of despondent Afghans to Europe.

Afghanistan sits on oil, gas and mineral reserves amounting to over $1 trillion. Mining was expected to generate $1.5 billion for Afghanistan in 2015, but that figure reached only $30 million. The problem lies in both corruption and control of areas where the mines are situated and the roads leading to those areas.

There has been a surge in exports of precious and semiprecious stones — deep-blue lapis lazuli, emeralds and rubies — to China for jewelry. Most of these stones are extracted from around 3,000 illegal mines in the country. Global Witness, a London-based watchdog, has estimated that the Taliban and other armed groups earn up to $20 million a year from illegal mining of lapis from Badakhshan Province in northeastern Afghanistan.

The largest potential foreign investment in the country — a $3 billion Chinese copper mining project not far from Kabul — has been stalled for years because of the government’s inability to secure the area. Last month, the Taliban said it was giving China the green light by agreeing to protect the project. The security of such sites should be guaranteed by the Afghan government and not by the Taliban.

By making security for mining and other projects a priority, both the Afghans and the United States will reduce their burden after 2020, helping the country move toward a point where it can fund its own national budget and security forces.

While improving security, the Afghan government needs to harness its natural resources and invest in other sectors that will make use of Afghanistan’s site at the crossroads of Asia. In addition to the traditional trade in agricultural products, wool and skins, trade in new sectors like data and information technology services also has potential.

In the recent years, the construction of intercity highways and investment in agriculture have helped increase agricultural exports significantly. Agriculture now represents 25 percent of the Afghan economy and employs 70 percent of the population. The agricultural processing sector including beverage companies such as Coca-Cola and local juicing enterprises makes up 90 percent of the entire manufacturing activity, according to the World Bank estimates.

Afghanistan has made some progress by opening up the information technology sector, once a government monopoly, to private investment. The country has around 20 million cellphone users and three million internet users, according to the Central Intelligence Agency. An existing fiber optic cable network could be connected to Pakistan and to Tajikistan and Uzbekistan in the north, giving Afghanistan potential data fees of $200 million a year, according to American development experts. It would also greatly reduce what Afghan consumers pay for internet access, which is now 20 times the average in the region.

I was working with Etisalat, a telecommunications investor, in 2007, when it expressed interest in building an information technology park with other telecom and technology companies. After initial expressions of support from the Afghan government, there were no commitments to provide security or access to electricity. The project, which could have provided jobs to thousands of young Afghans, never took off. Almost a decade later, the country is still plagued by a lack of security, bureaucratic failure and weak infrastructure.

Code to Inspire, a coding school for girls in the western city of Herat founded by Fereshteh Furough, who fled Afghanistan and returned after the fall of the Taliban, recently graduated its first class of 40. It is the kind of program that needs to be expanded. These initiatives are often overlooked by the bureaucratic efforts to promote the development of the private sector.

The Afghan private sector is facing a bleaker future than at any time since United States forces arrived in 2001. International donors rely on limited measures of progress, such as legal reforms and the amount of tax collection. Laws against corruption are often written but rarely enforced. Tax collection in Afghanistan has increased 22 percent in 2015 from the previous year, but the methods of tax collection — increasing the tax percentage and freezing accounts of large investors — are shortsighted.

High school students at Afghanistan’s Code to Inspire, a coding school for girls in the western city of Herat. Code to Inspire
High school students at Afghanistan’s Code to Inspire, a coding school for girls in the western city of Herat. Code to Inspire

Companies with falling revenues are squeezed to pay more taxes to meet targets set by international donors and the International Monetary Fund, a situation that is prompting major businesses to consider pulling out of Afghanistan. Instead of absolute revenue collection, international aid programs need to be contingent on reforms that increase G.D.P. and get the economic engines going.

An air cargo terminal at the main airport in Kabul would allow for modern facilities and security checks to make it easier to consolidate exports. Cold storage units could house food products before takeoff. The new railroad lines from Turkmenistan and Uzbekistan can be connected to a dry port that takes advantage of the road networks already built.

Such investments, along with legal extraction of natural resources, emphasis on training and investment in I.T. and other modern industries, and loosening the chokehold of bureaucratic inefficiency and corruption on the existing private enterprise will make it possible for Afghanistan to one day provide for its own people.

Masuda Sultan is the author of the memoir My War at Home.

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