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Afghanistan’s Economy On The Verge Of Collapse

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Afghanistan’s Economy On The Verge Of Collapse

By Florance Ebrahimi

Power vacuum looms for Afghanistan as UN delays date for result of presidential elections to mid-September despite Karzai’s plans to leave office next week. Afghan President Hamid Karzai, who came to power after the U.S.-led invasion that toppled the Taliban in 2001, has set Tuesday as the deadline for a new president to take office, but a clear winner has yet to emerge after two rounds of voting. Outgoing Afghan President Hamid Karzai has packed up all his personal possessions and is ready to leave palace even though the disputed election has failed to find his successor. If this happens the country will be literally headless. But during this time of crisis when country’s economy is crumbling and a strong leadership is required for drawing down a plan to save Afghan economy from going into deep depression. Our honorable President just wants to wash out his hands from his responsibility and wants to live a comfortable and luxury life. Did our national leader is not aware about current situations of the country and his duties towards the nation.

It’s a known fact that Afghanistan’s heavy reliance on foreign aid made a slowdown in aftermath of the transition an eventuality. With the fall in grants, not to mention the absence of consumption generated by the foreign presence, the high growth seen in recent years is unsustainable. Afghanistan’s economy vastly supported by international military spending and aid since the 2001. Since the U.S.-led war began, Afghanistan’s economy has been boosted by foreign spending. The World Bank has said about 97 percent of Afghanistan’s gross domestic product is derived from spending linked to foreign forces and the donor community. Let’s take into account some of the figures and report in relations to Afghan economy. The new Business Tendency Survey Report, released by the Afghanistan Chamber of Commerce and Industries (ACCI) in August, points to a clear worsening of the situation: business conditions have deteriorated rapidly, orders are contracting, firms are closing shop, and layoffs are becoming more widespread. The report, based on interviews conducted in July 2014 with managers from 541 Afghan firms, covered the manufacturing, services, trade, and construction sectors across the Kabul, Balkh, Kandahar, Nangarhar, and Herat regions. The survey’s headline finding is that the overall business climate has worsened considerably since March: Almost three-fifths of all firms complained of deteriorating conditions.

The more troubling revelation is that the degradation is widespread and not concentrated in any particular region or sector. The most prominent indicator of rapidly declining confidence was business contraction, with many companies interviewed in March now having closed shop entirely or downsized significantly. This retreat was reflected in the unprecedented level of layoffs recorded by ACCI: – one-in-ten managers reported cutting workforce size in the last three months, and that too in a season traditionally known for more hiring. New firm registrations fell by 38 percent between 2012 and 2013, reaching the lowest levels seen since 2008. Foreign and local fixed investment also slowed last year, while real estate prices dropped considerably. Moreover, according the World Bank Enterprise Survey, 2014, employment growth dropped to 4.9 percent, almost one-third of the 2008 rate. Afghan elites lack confidence in the state’s ability to provide effective security once foreign forces leave, and they are increasingly shifting assets and investments to safer destinations like the UAE. Even government employees nervously await each payday, worried the next might be delayed.

Due to declining economic opportunities Afghanistan’s farmers have been hedging their bets by ratcheting up poppy cultivation since last year. According to US State department output rose from 2012 to 2013, reaching an estimated 5,500 metric tons. Based on U.N. estimates, this was nearly a 50 percent increase since 2012. In addition to output, farmland used for growing poppy expanded as well. According to U.N. estimates, there was 36 percent one-year increase in areas used for poppy cultivation in 2013. It is estimated that this year’s production will stay on par with 2013 levels, if not exceed it. This is major worry as most of the times opium money fuels insurgency. People are hoarding their money out of fears of having to flee the country as they fear a 1992 civil war like situation. This all is a because of political impasse that we are facing the situation of decreased volume of trade, investment, and moreover capital flight has also begun as investors taking out their money to more secured places.

But the down slide in economy can be arrested and more sustainable levels of growth can be achieved, provided there is political and policy stability and the government can credibly ensure security against the Taliban as well as other factions jockeying for control as foreign forces depart. Without a secure political environment, stabilizing the economy will be nearly impossible. This itself can exacerbate the security problem by creating more grievances against the government and reducing its legitimacy, while also heightening demand for illicit activities. But until that happens the lack of confidence in the state’s ability to provide security and stability will remain a major non-economic hindrance to growth.

(Author is a Doctor and currently practices in Sydney, Australia. She belongs from Kabul Afghanistan can be contacted at: drfloafghan@gmail.com)

Tags assigned to this article:
Afghanistan economyFlorance Ebrahimi

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