As US draws down, can Ghani brake Afghanistan's economic slide?

Afghan President Ashraf Ghani told Congress Wednesday that his country was trying to stand on its own feet. The US government has poured nearly $1 trillion in war and reconstruction in Afghanistan. 

Focus

For almost two years now, Javed Jami has watched business evaporate. His logistics company once employed 350 drivers and 150 administrative workers to operate a fleet of 500 trucks that delivered fuel and supplies to foreign forces throughout Afghanistan at the height of the war.

But like countless other businesses that depended on foreign troops, when the drawdown began Mr. Jami watched his customers leave the country. Jami has since fired about 85 percent of his staff and is trying to sell 400 of his trucks, most of which he expects to let go for half price. By downsizing Jami hopes his firm, Faisal Mohammedi Group, can survive on the few remaining contracts to support international troops.

In the mud lot behind his office, scores of tightly parked trucks now sit idle. “In previous years this lot would have been empty because all of the trucks would have been out working. There would have been a lot of noise from all the mechanics working,” he says.

President Obama said Tuesday that US troop levels in Afghanistan would remain this year at 9,800, a slower drawdown than previously announced, but said all bases outside Kabul would be closed by the end of 2016. He spoke after meeting with Afghan President Ashraf Ghani at the White House.

Like other businesses here, Jami’s logistics firm faces a new economic reality left by the end of America’s nearly $1 trillion war effort. After this unprecedented flood of cash, Afghanistan has seen a sharp reduction in foreign spending, resulting in the elimination of an estimated 100,000 to 135,000 jobs.

Now the question is whether the nation can fashion a functional economy on its own, something it has not been able to do up to this point. If the country doesn’t succeed, it may see many of the political and social gains achieved over the past decade begin to slip away.

“We are one of the countries where our economy has completely failed and we are trying to build it from the ground up,” says Saifuddin Saihun, a professor of economics at Kabul University.

By any measure Afghans’ outlook on the future has not been this bleak for years. With the notable exception of opium cultivation, virtually every industry has fallen into sharp decline. Despite promises from Afghan leaders to take steps to turn around the grim economic situation, Afghans say they have yet to see any concrete steps or results.   

In the face of the economic downturn, Ghani has taken a far more conciliatory tone than his predecessor, thanking American soldiers, politicians, and taxpayers for years of support. During an address to Congress on Wednesday, he called on the US to continue its partnership while providing assurances that his country is working toward self-sufficiency.

“Our partnership with America and its allies has brought our country hope where we had none,” Ghani told Congress. “We want your know-how, the business skills of your corporations, the innovation of your start-ups, and the commitment of your NGOs, but we don’t want your charity. We have no more interest in perpetuating a childish dependence than you have in being saddled with a poor family member who lacks the energy and drive to get out and find a job.”

Immune to stimulus

Since the war began in 2001, the US has invested $107.5 billion to rebuild Afghanistan, in addition to its spending on its war effort. Much of the rebuilding money went into security sectors. Yet the Afghan economy has largely proven immune to stimulus. Even when NATO troops and foreign money flooded the country, the payoff was mixed. 

From 2003 to 2012, Afghanistan’s GDP averaged a decent 9 percent growth rate, but in 2013 growth fell to 3.7 percent and in 2014 was projected to be just 1.5 percent. A report by the Institute for Economics and Peace, an independent, non-partisan think tank that promotes peace, found that in 2010, the country’s per capita GDP remained about the same as it was in 1970.

At his office in Kabul, after cataloging the problems – unemployment as high as 40 percent, internal revenue shortages, corruption – economist Hamid Farouki outlines some potential bright spots for the Afghan economy. An adviser to President Ghani, Mr. Farouki says the answer lies in exploiting the country’s mineral resources, building local industry, and luring back local businesses who now operate in neighboring countries like Pakistan.

It’s a good pitch. The problem is that it reads like a list of failed or unrealized development projects that many international agencies have already tried in Afghanistan – and to little effect.

To understand the amount of money the US has spent in Afghanistan, the Special Inspector General for Afghanistan Reconstruction, a US government oversight agency, last year compared it to post-World War II reconstruction in Europe. From 1948 to 1952, the US invested $13.3 billion to aid in the reconstruction of 16 European countries. In inflation adjusted terms, that’s $103.4 billion in today’s dollars, less than the US has spent rebuilding Afghanistan. 

The report’s authors note that unlike the US effort in Afghanistan, the Marshall Plan did not extend to rebuilding armed forces. In Afghanistan, the development of security forces has constituted the largest component of US development spending, taking up $65 billion of the $107.5 billion price tag.

Ghost towns

Ghani won a contentious run-off election held last June. A bitter dispute over the results was eventually settled when Ghani and his rival, Abdullah Abdullah, agreed in September to form a coalition government. Many had hoped Afghanistan could then begin moving forward, but the pair has yet to select a complete cabinet that parliament will approve, effectively leaving the country without a fully functioning government.

Both the challenges of forming a government and ongoing insecurity have deterred both foreign and Afghan investors. Ordinary Afghans say they’re unwilling to spend their money right now, fearing the country may spiral into chaos.

In an industrial park on the edge of Kabul, Ainudin, the facility’s general manager, says he’s watched investor confidence decay starting with the drawdown of foreign forces and made even worse by the protracted electoral dispute.

“People were afraid they would invest money and the next day there could be fighting and their factory could be looted,” says Ainudin, who like many Afghans has only one name.

At its peak, the factories here employed 3,500 people. Now there are just 1,000 workers, after entire factories shuttered their operations or drastically scaled back production. Today it has become a virtual ghost town.

Shikeb, a cleaning product manufacturer, has cut both its workforce and its product line in half over the last three years. Inside the factory, workers move at a leisurely pace as products are poured into bottles. “We are just passing the time now,” says Mohammed Zaman Sarwari, the finance manager. Demand is so low that the company has no need to make any more products.

'The doors are closed for me'

In education, Afghanistan has seen major improvements during the US-led military intervention. Since 2001, school attendance has increased from around one million to nearly 8 million by 2012. The expansion of primary and secondary schooling has created a much larger pool of Afghans who go on to attend college. In 2001, less than 8,000 were enrolled in tertiary education; by 2012 that number had risen to nearly 152,000.

But for educated Afghans, a stricken economy offers few job opportunities. Salim Joya completed an undergraduate degree and a Masters of Business Administration in India. Between degrees, he returned to Afghanistan and took part in an eight-month, German-run training program that taught project management and how to write grant proposals. 

Despite his qualifications, the only job Mr. Joya could find was an unpaid internship at the Ministry of Foreign Affairs. He took the position, hoping it would lead to a full-time position. Instead, after seven months at the ministry, he was passed over for a permanent job.

Now he’s been unemployed for over a year. He occasionally takes teaching jobs at private colleges in Kabul, but the wages barely cover his meals and bus fare. Many of his fellow graduates are also struggling and some have already gone overseas.

“In this country, you feel like your hands are tied with ropes and you can’t open them,” he says. “Sometimes I think that leaving is an option. I am going to every door, but the doors are closed for me. No respect is given for the education in this country.”

'Poppy is what helps us stay alive'

Still, not everyone is feeling the pinch. Haji Baridad is among arguably the one group of Afghans whose finances are improving: opium farmers. Cultivation is at a record level, despite a $7.6 billion US-funded effort to eradicate the crop over the last decade. Indeed, the harvest is increasingly lucrative. As of 2013, the value of opium and its derivative products in Afghanistan was $3 billion, a 50 percent increase from 2012.

Mr. Baridad says no other crop offers the same payoff to farmers as opium poppies. On his small plot of land in Tarinkot, in the central province of Uruzgan, he could plant wheat instead of the narcotic plant. But that would only net him a $400 profit, he says. Growing opium, on the other hand, yields about $3,000.

For farmers living on the edge of poverty, those profit margins can mean the difference between life and death. Without the money he’d made growing poppies, Baridad says that when his wife grew seriously ill, he would not have been able to afford her medical bills.

Growing opium also puts Baridad in the good graces of smugglers and drug runners, who often step in to help with daily life. For example, when he needed money for his son’s wedding, it was a drug smuggler who fronted him the cash. 

“I know that this crop is not good and people look down on the grower of this crop, but what can we do? We have to feed our kids and family, and get your daughters and sons married,” he says. “The country is drowning in the corruption and no one is helping the poor and the farmers. Poppy is what helps the poor farmers stay alive.”