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Challenges for the Economic Development in Afghanistan

10 years ago | Posted in: Articles | 1805 Views

Afghanistan, as like other post-conflict and transitional economies, faces many challenges ahead of its economic development. After suffering from an almost threedecade- civil war and political crisis, it is now one of the low-income (LIC) and leastdeveloped countries (LDC) in the world with severe constraints on its path towards
structural development.

Although lots of factors might have contributed in the economic destruction of the country, but the civil war and the political crisis were the principal factors. Let’s first analyze the current economic situation in the country before elaborating the structural economic policies which could help tackle the economic restraints.

Since 2002, Afghanistan has had an average economic growth of 12 percent per year. The income per capita has increased from a level of $180 in 2002 to $480 in 2009. Exports have almost doubled; they have increased from a level of $1.3 billion in 2002 to $2.1 billion in 2009. Moreover, over the same period, domestic revenue has increased from around 10 billion to 55 billion Afghanis.

The economic performance of Afghanistan has been quite successful since 2002. Given the pre-2002 economic situation, the current circumstances are quite optimistic. Foreign direct investment (FDI) has grown massively, despite the security tensions in most of the parts of the country, and agricultural and industrial sectors have started to grow once again. The reconstruction of roads, transportation facilities, bridges, and ports
have significantly contributed in increasing the economic activity in the country. It should be noted that such a successful economic performance would have been almost impossible without the cooperation and the assistance of the international community. The international community played a major role in re-bringing the economic stability in the country.

However, despite all the significant achievements, there still exist crucial challenges that need to be tackled. An “overall” increase in income per capita does not necessarily indicate an equitable distribution of income for all the segments of the population. The rate of poverty is still high: 53 percent of the population lives below the
poverty line. The people in the rural areas have little access to transportation, school, hospitals, electricity, and other public services. The unemployment rate is around 40 percent, which is one of the highest in the world. In addition, the government can finance only 60 percent of its operating or current expenditures by its domestic revenue, and the rest is being financed by the grants from donors and international community.

The Afghan economy is very dependent on the agriculture sector. The agricultural production makes almost 30 percent of the GDP (Gross Domestic Production) or the total output of the country. Hence, the economy is very vulnerable to the weather conditions. For example, in 2008 (1387) the country received very little rainfall and the drought
affected the performance of the agriculture sector. The crop production declined by 70 percent which lowered the economic growth to 3.4 percent in 2008 down from 12.1 percent a year earlier.

Therefore, much attention should be paid to the agriculture sector because the economic performance of the country depends heavily on the agricultural ouput, and almost 80 percent of the population is involved in the agricultural activities. The government should try to expand the irrigation system, so that the share of irrigated crop
production increases rather than that of the rain-fed production. And in that case, even if the country experiences a worse weather situation in a given year, it will not suffer greatly due to insufficient rainfalls.

Other agriculture-dependant countries which were once in the same situation as in what is now Afghanistan, achieved their long-term economic growth through investing heavily in the agriculture sector, such as Bangladesh, India, Pakistan, and others. Thus, given the geographic and climatic features of the country, the primary attention of the
government should be focused on the irrigation system and the organizations working on agriculture in Afghanistan such as FAO (Food and Agriculture Organization) should work extensively on the irrigation capacity.

Another policy which can ensure Afghanistan’s long-term economic growth is the human capital. The role of human capital in economic growth has been proven in various studies. Knowledge or human capital plays a vital role in the process of growth and development. Therefore, the government should prioritize the education in its long-term
policies. More emphasis should be put both on primary and secondary schools and on the universities. More and more schools should be built in the rural areas, at least one in each village; and there should be at least one university in each province. The government should increase the salary of the school teachers so that it can attract those with good education and with good qualifications to the public education system. Moreover, the
actual capacity of admission in the public universities is not acceptable at all. The enrollment capacity of the universities in the large cities such as Kabul, Kandahar, Herat, Mazar and Jalalabad should be “at least” doubled.

It is obvious that the Islamic Republic of Afghanistan does not have that much financial capacity to achieve the above mentioned objectives of the education system. Even if the government fails to raise that much amount of financial grant from the international donors, it should start borrowing from abroad to finance its educational
projects. Investment in the education will have a higher return in the future and it does merit increasing the government debt for such a purpose. Having a skilful, competent and knowledgeable working population will guarantee the country’s development in the future.

In addition to the above two crucial policies, there are numerous other policies which should be considered:

– to attract more foreign investments in the country to help decrease the unemployment
– to adopt more beneficial industrial policies in order to increase the domestic manufacturing rather than continuing to import from abroad
– to provide the agriculture producers with some subsidies
– to eliminate corruption in all governmental bodies and to simplify the bureaucratic procedures especially for the business and trade-related projects
– to initialize some public social projects in order to engage the unemployed people in social and economic activities, and this would also contribute in the decrease of security problems
– to engage in long-term infrastructure projects such as the construction of dams which would ensure enough electricity for future increase in industrial and economic activities
– to adopt more favorable trade policies which would encourage exports
– to extend the financial services of the banking sector to all over the country, so that the investors in need of money could finance their projects
– to consider in the medium-term prospective the construction of railroad between Kabul and Herat and between Kandahar and Mazar; this would have a huge and unlimited impact on the economic growth in Afghanistan
– to encourage the mining industry; the government should commence the exploration of gas and oil sites; the best possible way would be to permit the private sector engage in gas & oil extraction, but engaging the private sector in this activity should not be for a long-term contract, rather for a medium-term contract until the government gains the capacity to take over the oil extraction itself.

Furthermore, the government should adopt a sound macroeconomic policy. Currently, the government is following the free-open market policy at an “extreme”. The government should control and regulate the monopolistic behaviors in the markets, and should try correcting some of the distorting market activities in some sectors of the
economy. Apart from that, the government should create an “economic committee” which would study and analyze current economic challenges in the country, and which would propose necessary economic projects. The international organizations or donors can then choose to finance the proposed projects. This type of coordination between the
government and the international donors will be very effective. It would permit a sound and coherent policy for the project implementations and will avoid any non-worthy and non-essential projects to be funded.

In the hope to once witness the economic circumstances ameliorate in our beloved country Afghanistan!

Author

afghan writerName: Khalid Joya
Country: Kabul, Afghanistan
DoB: August 15, 1992
Education: Student of Civil Engineering, Bachelor Program
Career: Sr. Procurement Officer at Zadran Group of Companies
Tel: +93708163314
Email: [email protected]
Skype: joya.khalid

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