In-depth Business Intelligence
Books on Afghanistan
Update No: 051 - (23/02/06)
The London conference of donors, held between the end of January and the
beginning of February, divided the observers with regard to its outcome. Most
saw it as a success and a sign that the international community remains
concerned with Afghanistan, given the attendance of many high-level officials.
However, the actual amount of new cash pledged showed a decline compared to
previous similar conferences, at just over US$8 billion for a 5-year period,
whereas the Afghans had asked for US$20 billion. Donors also renewed pledges for
another US$2 billion. The main development in London was the victory achieved by
the Afghan government in becoming the main conduit for the disbursement of
funds. The move was supported by the World Bank, which argued that this would
result in 20% savings compared to the previous system, where the funds were
channelled thorough international organisations, including NGOs. Critics argue
however that given the current very high level of corruption in the government
and the administration, it is far from certain that such savings will reach the
intended beneficiaries. Although there is talk of stricter supervision of how
the government spends the money, in the past similar attempts at monitoring have
been frustrated by the lack of transparency of Afghan government and the lack of
local knowledge among international supervisors.
Where are the private investors?
As part of the campaign leading up to the London conference, the Afghan
government also renewed its efforts to woo private investors, especially from
the Afghan diaspora, but scepticism remains given the high and growing level of
corruption and nepotism. The property sector, which so far attracted most
private investment, might be sliding into a crisis, as most new high rise,
modern-looking buildings remain empty and investors wonder whether they will
ever return a profit. Corruption aside, the road network in the capital keeps
getting worse and the delivery of an essential service such as electricity
remains erratic and mostly limited to just 4 hours a day. Even the government
admits that 24-hours supply will not be available before 2008. Finally, low
custom duties on imports discourage indigenous production. A measure that might
restore some credibility for the government among investors would be the
privatisation of state enterprises, but most Afghan economists oppose the move.
Another measure appreciated so far by investors is the creation of business
parks around the main cities. Since these are created on state land which is
then lent to businessmen, they resolve at least the problem of land property
rights, which in Afghanistan are very confused following contradictory
initiatives by a succession of governments.
Clouds in the blue sky
Without higher levels of investment in productive activities, international
help will not suffice to keep the pace with population growth. On top of a high
rate of natural growth, returnees contributed an additional two percentage
points to demographic growth, with 500,000 officially registered returns in
2005. In 2006, UNHCR expects 600,000 more. Although dubious opinion polls
continue to show very high levels of satisfaction among the Afghan population,
it is also obvious that frustration is growing in at least some quarters. The
February riots, despite being mainly set off by the indignation caused by the
Danish cartoons, had in reality different motivations in the various localities
affected, but all reflected increasing distrust of the "foreigners".
Even more worryingly, there are signs that spoilers might be trying to raise the
stakes in order to realise political gains. In February the first sectarian
riots in post-Taleban Afghanistan caused 19 deaths in Herat, when Sunnis and
Shias clashed in the streets. The conflict seems to have its roots in the
competition for the control of the western region between different potentates.
Population growth and frustration among the population are not the only clouds
in the sky. The international environment surrounding Afghanistan shows signs of
deterioration. Nor only Russia appears increasing restive and irritated by its
marginalisation, but Iran too, which had played very carefully so far, is
increasingly rumoured to be increasingly inclined to support radical elements in
order to prevent developments which it considers contrary to its interests, such
as the long-term concession of military bases to the United States.