• Inside Development
Year in review

Amid development failures, some see reduced foreign aid as a boon to Afghanistan

By James M. Dorsey25 June 2012

Two small boys hold socks they received during a humanitarian aid mission organized by the U.S. Air Force in Kabul, Afghanistan. Photo by: isafmedia / CC BY-NC-SA

As Afghanistan braces for reduced foreign aid as part of the NATO drawdown over the next two years, some government and aid officials - current and former - view an expected drop in international support as a blessing in disguise despite the likely negative impact on the local economy. These officials argue that lower aid levels will force Afghanistan to become less aid dependent and limit opportunities for rampant corruption. More importantly, they say, foreign aid that builds up the Afghan government and tackles long-term objectives like infrastructure could create a path to truly sustainable development in a country long plagued by development disappointments.

Interviews with these government and aid officials, as well as with analysts and businessmen working in the country, suggest the prospect for Afghan development is less tied to overall aid funding and more to the specific projects selected for support and the way funds are channeled to those projects.

“Poor donor coordination and flaws in most international development assistance models are so profound in Afghanistan that I am not sure reducing the level of aid will cause great problems because most aid has not caused great good,” said Jeremy Pam, who participated in a U.S. Central Command high-level review of US strategy in Afghanistan and recently returned from an 18-month stint in the country where he oversaw local governance initiatives for the U.S. State Department.

There is evidence that development in Afghanistan is not simply a question of money. Under the belief that more is better, the U.S. doubled its assistance in 2010 from roughly $2.3 billion to $4 billion only to go back to $2.3 billion in 2011 without either the increase or the reduction having had any visible impact according to knowledgeable sources. The sudden and temporary increase may have highlighted the limits of Afghanistan’s ability to absorb aid and, perhaps more importantly, put a spotlight on the limitations of a foreign aid system designed largely to serve donors’ political goals.

“The international donors have been a major problem. We internationals wanted big symbolic statements. We doubled the resources and didn’t care about absorption capacity,” added Pam.

All in all, the impact of fluctuating aid levels on the local economy may be less than expected because, some say, most foreign aid is not spent in Afghanistan and much of what is spent there, leaves the country through imports, expatriated profits and outward remittances.

Wadan Farahi, a former spokesman of the Afghan women’s ministry asserts donor spending has focused on “quick fixes” and that “money spent did not produce long term benefits.” Having left government service to become a consultant, Farahi argued that strengthening the government’s capacity to handle large amounts of aid should be a priority. He said a litmus test would be the government’s willingness to enforce the law and hold those accountable who were responsible for past financial mismanagement. “Our economy cannot withstand another Kabul Bank crisis. It would spark hyperinflation,” Karahi said referring to last year’s discovery that $1 billion had vanished from the bank as a result of insider loans. He said the Tokyo Cooperation Conference on Afghanistan this coming July was expected to help the government streamline its procurement procedures in a bid to roll back corruption and focus on its development priorities.

Ironically, at least one well-placed official says Afghanistan’s government, despite rampant corruption and limited capability, has so far achieved a significantly higher rate of effective aid delivery than donor managed funds. “The money spent through the government had an 80 percent effect. In contrast, the money spent by donors had a 15 per cent local impact. There is not a lot of transparency in donor community spending. It involves multiple layers of contracting and sub-contracting. If they go through the Afghan government a lot of layers are eradicated. It is much easier to have the Afghan government as a single source to coordinate and monitor,” said Arian Sharifi, a partner in Afghan Financial Services, a privately owned consultancy, and former senior finance ministry official.

Sharifi and others may be overstating the evidence to argue their case. Nonetheless, donors implicitly admitted that the Afghan government was more efficient at aid delivery with their decision at the Kabul conference in 2010 that 50 percent of all aid would be channeled through the government (so called ‘on-budget’ spending) by the summer of 2012. Analysts and Afghan officials note that the country’s GDP rose in 2011, the year aid was cut back, although economic growth was also aided by increased agricultural production as a result of the end of a four-year drought in the country.

“That is what we demonstrated to the World Bank,” revealed Najib Manalai, an advisor to Afghan Finance Minister Omar Zakhilwal, arguing that foreign aid is not the only socio-economic driver in the war-torn country.

Local officials like Manalai say that a decade of channeling aid through donor agencies, nongovernmental organizations and contractors oriented development strategy toward vested interests of donor country institutions and a rush to allocate budgets – all at the expense of considering a project’s local results.

“Billions of dollars were spent, projects were developed that were not doable. For example, a school but no teachers, desks or chairs, a clinic with no nurses and no doctor. Every aid organization had specialists apply examples from elsewhere, money spent was not producing long term benefits,” Farahi said.

Mikhael Shahmahmood, the United States Institute for Peace representative in Kabul, noted the failure to exploit Afghanistan’s economic strengths in agriculture. “We are sitting with French imports of chicken and eggs; we import 200 million chickens a year from Brazil. We import grapes and yoghurt from Iran,” he said, suggesting those could easily be produced by Afghanistan itself. Sharafi recalled being pushed by the World Bank during his days with the finance ministry to spend his $600,000 budget for capacity building despite his lack of qualified candidates.

“I organized a few training workshops in Dubai and New Delhi but could not find a single person with sufficient English to participate,” he said.

A decade of ineffective aid coupled with the imminent drawdown of international forces has likely cost Western donors the ability to significantly influence the future course of Afghan development. That future will be determined to a large extent by domestic and regional players, and involves the ability of the Taliban, the Haqqani network and the Hekmatyar group to undermine the government of President Hamid Karzai as well as the roles of Pakistan, India, Iran, former Soviet Central Asian republics, Russia and China.

Complicating planning for the transition is lack of clarity around what funds donors have poured into Afghanistan over the past decade and how those funds were used. “No one actor – international or Afghan – knows how much money overall is being spent and where it goes. How do you plan a transition under those circumstances?” Pam, the former U.S. government advisor, asked. Critics argue that neither the United Nations nor the U.S. Department of State, U.S. Agency for International Development, other donor nations, the World Bank or the Afghan government has ever published a transparent assessment of the flow of aid to Afghanistan, its impact of the civil and security aid programs or an assessment of how aid has impacted the Afghan economy. Neither has any of these organizations developed credible measures for the effectiveness of aid, according to a recently published study of aid to Afghanistan by analyst Anthony H. Cordesman of the Center for Strategic and International Studies as well as a report late last year by the U.S. Senate Foreign Relations Committee. In contrast to Iraq, the U.S. Special Inspector General for Afghanistan has no criteria to validate plans and requirements for civil and security aid efforts in Afghanistan that go beyond the traditional audits which simply document past failures.

As a result, donors may find it difficult to assess the required financial support to ensure the troop drawdown and expected aid cuts do not drive the country into recession. Those eventualities would reduce demand for Afghan goods and services as well as public sector investment. The economic fallout is likely to occur amid an uncertain post-drawdown security vacuum and a deteriorating humanitarian situation. Without a baseline to work from, it will be challenging to ensure that the Afghan government can spend enough to offset the reduced international funding flows. Last November, a World Bank study of Afghanistan’s post-2014 funding and aid needs warned that a cut-off of aid could spark a fiscal meltdown and resulting chaos. Under such circumstances, the study said, Afghanistan could witness the eruption of a civil war with rival warlords and a militant Islamist faction battling one another much like in Somalia.

Cordesman’s first working draft report, “Afghanistan: The Uncertain Economics of Transition,” concluded that if “the level of future U.S. aid and other donor military and civil aid efforts is to have any chance of creating a reasonable level of post-2014 security and stability” planners would have to “approach economics with a level of integrity that has been sadly lacking to date.” That would involve being “honest when the data and sources are in conflict, or so conflicting and poorly based that they cannot credibly be used for planning – a state of affairs that is more often than not the case.”

Overall, some local officials and development experts are calling for delinking aid from military objectives and making jobs, human security, justice and governance a priority. Those interviewed for this article all argued for a shift away from quick impact projects driven by donors’ need to demonstrate progress against military and political objectives to less flashy, long-term development and infrastructure initiatives.

“Afghanistan has been doing quick impact projects for the last 30 years. The effect is obvious, they are not the solution,” said Shahmahmood.

Contradicting this view, a majority staff report of the U.S. Senate Foreign Relations Committee recommended last summer that “our aid should be visible among Afghans, and we should have a robust communication strategy in place so that Afghans know what U.S. aid in Afghanistan is accomplishing.” The report defined a sustainable U.S. strategy as one that would “pursue a limited number of high-impact programs that do not require complex procurement or infrastructure.”

If Western donors are to change their strategy, they are likely to increasingly rely on Islamic organizations and regional institutions such as the Aga Khan Foundation, the Organization of the Islamic Conference and the Asian Development Bank, according to Brad L. Brasseur of the Brussels-based EastWest Institute. The Aga Khan Development Network has already contributed around $700 million to large-scale rural development, health, education and micro-finance in Afghanistan. Moreover, Islamic and regional agencies could help develop and finance feasible annual provincial development plans involving transparent transfers of development funds in line with government capacity to implement projects. This larger role for the Afghan government and regional players, some say, may be the unexpected development benefit of the coming reduction in foreign aid.

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About the author

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James M. Dorsey

James M. Dorsey is a Devex correspondent, senior fellow at Singapore’s S. Rajaratnam School of International Studies and the author of "The Turbulent World of Middle East Soccer" blog. James has written frequently about Afghanistan, reporting as a foreign correspondent regularly from the country since he first covered the Soviet invasion in 1979 from Kabul.


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