Participants at the Nangarhar PBA launch event.
A year after the impasse over the 2014 presidential election was resolved, Afghanistan finds itself at a critical juncture in its economic development. Given the dramatic reduction in foreign military presence over the past several years and the decrease in development assistance from the international donor community, concerns are mounting that Afghanistan’s economy will be unable to sustain itself.
A recent study published by the Stockholm International Peace Research Institute (SIPRI) and the International Council of Swedish Industry (NIR) draws attention to the problem. “In its current state,” the report notes, “the Afghan private sector is not the engine of economic growth or instrument of social inclusion it has the potential to be. Popular dissatisfaction with unequal access to economic resources, flawed public services and goods, the adverse security situation, and predatory government activity undermine an effective and sustainable private sector.”
President Ashraf Ghani and the National Unity Government have laid out a wide range of proposals to kickstart economic development, but security conditions and political infighting have made it difficult to implement many of these reforms. Nevertheless, hope for progress and success remains. The Swedish report, while painting a grim picture of the current outlook, provides a concrete set of recommendations to Afghan government policymakers, the international donor community, and other key stakeholders, for incentivizing private sector growth and boosting economic development, thereby improving prospects for peace and stability.
Chief among these recommendations is the need for the Afghan private sector to play a greater role in the policy making process. On October 28, over a hundred leaders of the Afghan business community, civil society, and media, as well as prominent provincial and national government figures, convened in Jalalabad for the official launch of the report of the Nangarhar Provincial Business Agenda.
The Afghan-Pakistan border. (Photo: EPA)
Afghanistan, being a landlocked country, depends on its trading route with neighboring Pakistan to get its exports to world markets. However, these two countries have an unstable political relationship.
Due to increase in political instability between the two countries in the last couple of months, Pakistan’s top foreign policy adviser Sartaj Aziz paid a visit to Afghanistan in order to reduce the ongoing friction between the two countries.
The foreign affairs adviser to the prime minister visited the Afghan capital Kabul on September 4 for a regional economic conference and also held meetings with the president, foreign minister and national security adviser.
In his statement on state television about his meeting with Ghani, he said, “The main thing that the both side agreed upon was to restore trust, end the blame game against each other and create a positive atmosphere.”
By Kirby Bryan
For sustainable economic growth, developing countries must have the capacity to functionally interact with the global market. Much of the onus for building that capacity rests on a domestic commitment to reforms compatible with global trade. Many emerging markets have lofty aspirations that are unachievable given the current state of affairs, but are determined to rectify the situation. Access to foreign markets can cement reform efforts aimed at improving the local economy and sustaining economic growth.
In late February, the Center for Strategic International Studies (CSIS) released a report from their Congressional Task Force on Trade Capacity Building (TCB) on “Opportunities in Strengthening Trade Assistance.” While the report focuses primarily on US efforts to improve the effectiveness and relevance of its TCB programs, it signals a shift in international engagement and understanding of the role trade plays on the growth of a developing economy.
The shift is also indicative of a growing global development trend toward incorporating the voice of the recipient country from the beginning stages of negotiations through agreement ratification. What is interesting about the current TCB discussions is the recognition by major players in the development world of including the knowledge and expertise of the private sector. Ultimately, it is the private sector in the developing and developed countries that will bear the fruits of economic growth and trade.
In early November, the World Bank published its annual “Doing Business Report,” which assesses government regulations that support or constrain business activity across 189 countries. This year, Afghanistan again ranked near the bottom, down one spot from last year, in the 183rd position. The full report on Afghanistan can be found here.
There is no disputing that Afghanistan is a difficult place to do business, yet as has been noted in the past on the CIPE blog, there are inherent limitations to what the Doing Business rankings measure. We frequently point out that these indicators reflect the “laws on the books,” or the formal economic environment, but do not address the so-called implementation gap between those laws and practice. There have been cases in which countries introduce reforms specifically to move up the rankings, but surveys of entrepreneurs reveal that business continues “as usual,” as these new laws do not work in reality, either because of a lack of political will or low public administration capacity. In addition, political stability and democratic legitimacy are not captured in the Doing Business rankings. Egypt was a “top reformer” prior to 2010, but the events in Tahrir Square were to a great extent fueled by economic woes.
In order to get a more comprehensive view of a country’s economic environment, it is useful to consider public opinion and understand attitudes towards state institutions and processes. In the case of Afghanistan, the Asia Foundation’s annual Survey of the Afghan People is one such tool. This year’s report is especially meaningful given the country’s post-election mood, and its implications for public confidence in the country’s economic environment.
Afghanistan’s image in the news media is often shaped by negative stories focused on security and political challenges. What is often not highlighted are a number of successes, achieved over the past several years, in shaping the country’s economic policy and democratic governance. These reforms have improved the business enabling environment and made a positive difference in the lives of small business owners whose livelihoods depend on a predictable and efficient regulatory environment.
More than 400 business leaders, including 30 women, met in in Karzai Hall in Jalalabad, Afghanistan on June 4 to discuss ways of improving the business environment Nangarhar Province. Organized by CIPE and led by the Afghanistan Chamber of Commerce and Industry‘s Nangarhar chapter and a coalition of 12 local business associations, the participants discussed the barriers and challenges to doing business in the province and identified policy solutions to support business growth.
The event is part of a CIPE supported Provincial Business Agenda (PBA) program. The PBA is a grassroots effort to bring the local business community together to develop a list of policy priorities to improve the business climate in the province.
Since 2005, CIPE has been working with the business community in Afghanistan to build their capacity to work with the government to improve the business environment in Afghanistan. CIPE has helped business associations identify the challenges and barriers to business, develop practical policy solutions, and effectively communicate the policies to government officials.
A major step for the business community was the launch of the CIPE-supported Afghanistan National Business Agenda (NBA) in 2011. The NBA is a grassroots program to build consensus among the business community of the most urgent policy priorities. The Afghan Chamber of Commerce and Industry (ACCI) led a coalition of 11 business associations in conducting public forums in five major cities with over 1,300 business people to gather input on improving the business environment. Based on the input from these forums, the coalition produced a report outlining the business community’s reform agenda.
Since the launch of the NBA in 2011, CIPE has supported the NBA coalition in advocating for the implementation of the policy reforms. The advocacy campaigns have been highly successful, increasing land and infrastructure for businesses, reducing and simplifying taxes and licenses, reducing corruption, and improving government services.
The 2014 Afghanistan presidential elections presented a great opportunity for a renewed efforts by the business community to advance their reform priorities. ACCI, in partnership with Harakat, organized a National Business Forum on February 27 to once again bring the business community together to unify behind a common agenda.