Foreign Aid: A Curse of a Cure for Afghanistan

WRITTEN BY ABID AMIRI | 30 NOVEMBER 2011

Published in the Diplomatic Courier Magazine at http://www.diplomaticourier.com/news/economy/618

The World Bank forecast released last Tuesday, shows concerns that the Afghan economy will enter a deep recession as the international community gradually reduces both the aid it provides to the government of Afghanistan and the start to draw down the troops by the end of 2014. It begs a question of why Afghanistan is still dependent on foreign aid.

Even after 10 years of nonstop foreign assistance, the Afghan government can’t maintain an effective security force that costs about $7 billion annually with its $2.5 billion annual revenue. To keep things in perspective, 10 years ago the international community decided to wage a war against the Taliban and Al-Qaeda in Afghanistan. Right after the Taliban left the country, governments and other donors come together, and committed extraordinary resources to address the crisis in Afghanistan. In the 2002 Tokyo Conference, international donors pledged more than $3.5 billion in reconstruction aid for Afghanistan. The UN, as well as various NGOs, donors, and other international companies set up operations to begin delivering critical services and rebuilding infrastructure.

This all sounds like good news, however the real question should be: how much aid money is actually spent in Afghanistan? The answer is not much: as little as 5 percent of budgets reach the Afghan local economies. Most goods and services needed to carry out and sustain operations are imported from other countries.

Why is this a problem? For Afghanistan to be independent of international assistance, the country not only needs clinics and roads, it needs a functioning economy that can create jobs and supply the goods and services Afghans demand. While billions of dollars are spent on aid and peacekeeping each year, most products and proceeds are sent back to the developed world, leaving little sustainable investment behind. This creates a cycle of dependence on foreign resources, where Afghans remain unemployed, economic growth is slowed, and instability can return.

What is the solution? Instead of shipping goods and services in from other countries to carry out projects, the international community could start buying local Afghan products, and sub contract construction projects to local companies. This would allow critical services to be provided while creating much needed livelihoods, and developing local capacity.

Why isn’t this happening already? There are some key obstacles to local Afghan procurement, including an absence of information, corruption, lack of  accountability, and convoluted contracting processes – all of which inhibit local sourcing. The good news is that through an innovative approach, the Afghan market, with the help of government resources, can provide a set of services that help facilitate connections between the international community and  afghan companies, so that domestic firms are used whenever possible to carry out business. This includes training firms on how to find and bid on contracts, setting up and maintaining a supplier directory where verified local companies can be easily located, market research and advocacy, tender distribution services, and matchmaking promising local firms with development demands.

By spending locally, businesses are encouraged to grow and industries of awe. The Afghan governments would be able to invest new tax revenue to improve infrastructure, and corruption would be reduced as businesses enter the formal economy. That is how Afghanistan will become independent of foreign aid, and that is how it would sustain its economy after the troops withdraw and foreign aid is reduced after 2014.

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