Afghanistan and the issue of foreign aid

Foreign aid has been counterproductive for the country. It’s time for Kabul to wean itself off

The international community, led by the United States, has appropriated more than $100 billion in aid in the last decade to reconstruct Afghanistan and rebuild its unbalanced economy. While there have been some improvements in GDP growth, life expectancy, poverty reduction, child and maternal health, education, and infrastructure, these improvements are relatively modest in relation to the amount of dollars poured into the country as aid. Moreover, this rate of improvement is too slow for Afghanistan to catch up with the rest of the developing world.
Fifteen years have passed and things don’t seem to have improved much. Afghanistan still ranks third in the world in corruption according to Transparency International, which contributes to its extreme poverty. Although education is more widely available, the quality does not meet world standards. The teaching profession is not attractive because of the low pay. Despite improvements in the health sector, health indicators still remain below the average for low income countries. Agriculture—the second largest contributor to GDP growth after services—declined by a projected 2 percent in 2015. Conflicts and a lack of economic opportunities have caused people to flee the country, leading to both capital flight and brain drain. As China, India, and other developing countries are advancing at a rapid rate, Afghanistan, despite the world’s military and financial investment, is being left behind.
Perhaps, for Afghanistan, as a post conflict country, the aid is “too little too soon.” With the government institutions fragile and incapable of handling foreign aid, and with the weak technical capacity, the country is not as yet ready to absorb and spend aid money wisely.
Aid to Afghanistan could have been more useful had it been phased over a decade rather than dumped in a rush, and had it followed the intended pattern of aid leading to investment, investment leading to growth and growth leading to poverty reduction, as was the case with Marshall Plan of the U.S. giving aid money to the Western Europe after World War II. In Afghanistan, unlike the Marshall Plan, foreign money is mainly converted into expenses and no significant amount is invested in the economy, leaving a negative impact on country.
Among the many side effects of aid is the “Dutch Disease”  effect: flooding U.S. dollars in billions into Afghanistan, a small open economy, adversely affects the country’s economy in terms of inflation and exports. Foreign currency inflows appreciate Afghan currency, making domestic goods less price competitive on the export market, and preventing exporters from competing. It also kills off domestic demand for Afghan goods, as the goods become more expensive. This causes businesses to close and people to lose their jobs, resulting in increasing poverty. With more poverty, Afghanistan gets more aid money, ending up in a vicious cycle. Furthermore, diverting dollars into the construction sector also draws labor from other productive sectors, such as agriculture, leaving those sectors lagging behind. Most farmers left their farms and moved to cities to work for construction companies as gatekeepers or cooks and thus contributed to the country’s dependency on neighbors for food staples.
Much of the corruption in Afghanistan also stems from an inflow of aid money, giving the country one of the worst reputations in the world—British Prime Minister David Cameron recently called the country “fantastically corrupt.” Aid is flowing in without question and mostly goes into the pockets of corrupt officials in a system that lacks accountability.  As Peter Bauer, the famed development economist, has rightly said, foreign aid is “an excellent method for transferring money from poor people in rich countries to rich people in poor countries.” Corruption is especially prevalent in construction and logistics, where most of the aid money is diverted. This doesn’t mean that other sectors are safe; corruption in procurement contracts in the Ministry of Defense and the Ministry of Education’s “ghost schools” are also striking.
Beyond fostering corruption, free money coming into the country in the form of aid kills entrepreneurship. According to World Bank, Afghanistan ranks 177th in terms of regulation quality and efficiency for investment, with no improvements during the past year. The number of new firm registrations in 2015 remains well below that of 2012-13. This shows the difficulties in launching new businesses in Afghanistan. The fact that the country has made no improvements over the past 15 years shows that the government is not interested in creating jobs—or creating systems for entrepreneurships.

The writer worked for the Afghan government for six years. He is currently a fulbright scholar and a graduate student at Auburn University

Afghanistan and the issue of foreign aid

Foreign aid has been counterproductive for the country. Its time for Kabul to wean itself off

The international community, led by the United States, has appropriated more than $100 billion in aid in the last decade to reconstruct Afghanistan and rebuild its unbalanced economy. While there have been some improvements in GDP growth, life expectancy, poverty reduction, child and maternal health, education, and infrastructure, these improvements are relatively modest in relation to the amount of dollars poured into the country as aid. Moreover, this rate of improvement is too slow for Afghanistan to catch up with the rest of the developing world. Fifteen years have passed and things dont seem to have improved much. Afghanistan still ranks third in the world in corruption according to Transparency International, which contributes to its extreme poverty. Although education is more widely available, the quality does not meet world standards. The teaching profession is not attractive because of the low pay. Despite improvements in the health sector, health indicators still remain below the average for low income countries. Agriculturethe second largest contributor to GDP growth after servicesdeclined by a projected 2 percent in 2015. Conflicts and a lack of economic opportunities have caused people to flee the country, leading to both capital flight and brain drain. As China, India, and other developing countries are advancing at a rapid rate, Afghanistan, despite the worlds military and financial investment, is being left behind. Perhaps, for Afghanistan, as a post conflict country, the aid is too little too soon. With the government institutions fragile and incapable of handling foreign aid, and with the weak technical capacity, the country is not as yet ready to absorb and spend aid money wisely. Aid to Afghanistan could have been more useful had it been phased over a decade rather than dumped in a rush, and had it followed the intended pattern of aid leading to investment, investment leading to growth and growth leading to poverty reduction, as was the case with Marshall Plan of the U.S. giving aid money to the Western Europe after World War II. In Afghanistan, unlike the Marshall Plan, foreign money is mainly converted into expenses and no significant amount is invested in the economy, leaving a negative impact on country. Among the many side effects of aid is the Dutch Disease effect: flooding U.S. dollars in billions into Afghanistan, a small open economy, adversely affects the countrys economy in terms of inflation and exports. Foreign currency inflows appreciate Afghan currency, making domestic goods less price competitive on the export market, and preventing exporters from competing. It also kills off domestic demand for Afghan goods, as the goods become more expensive. This causes businesses to close and people to lose their jobs, resulting in increasing poverty. With more poverty, Afghanistan gets more aid money, ending up in a vicious cycle. Furthermore, diverting dollars into the construction sector also draws labor from other productive sectors, such as agriculture, leaving those sectors lagging behind. Most farmers left their farms and moved to cities to work for construction companies as gatekeepers or cooks and thus contributed to the countrys dependency on neighbors for food staples. Much of the corruption in Afghanistan also stems from an inflow of aid money, giving the country one of the worst reputations in the worldBritish Prime Minister David Cameron recently called the country fantastically corrupt. Aid is flowing in without question and mostly goes into the pockets of corrupt officials in a system that lacks accountability. As Peter Bauer, the famed development economist, has rightly said, foreign aid is an excellent method for transferring money from poor people in rich countries to rich people in poor countries. Corruption is especially prevalent in construction and logistics, where most of the aid money is diverted. This doesnt mean that other sectors are safe; corruption in procurement contracts in the Ministry of Defense and the Ministry of Educations ghost schools are also striking. Beyond fostering corruption, free money coming into the country in the form of aid kills entrepreneurship. According to World Bank, Afghanistan ranks 177th in terms of regulation quality and efficiency for investment, with no improvements during the past year. The number of new firm registrations in 2015 remains well below that of 2012-13. This shows the difficulties in launching new businesses in Afghanistan. The fact that the country has made no improvements over the past 15 years shows that the government is not interested in creating jobsor creating systems for entrepreneurships. The writer worked for the Afghan government for six years. He is currently a fulbright scholar and a graduate student at Auburn University