Investment in infrastructure and employment in Afghanistan - Review of past and present investment plans
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Investment in infrastructure and employment in Afghanistan Review of past and present investment plans February 2018 Fazalrabi Shirzad | TLO Rabia Nusrat | International Alert Joint publication by
Investment in infrastructure and employment in Afghanistan
Contents
List of tables and figures 3
Abbreviations 4
Executive summary 6
Introduction 8
Historical overview of investment in Afghanistan 12
National Unity Government and future plans 23
Regional complexities and impact on investment in Afghanistan 27
Security measures for infrastructure projects and implications 34
for employment in Afghanistan
Conclusion 39
Bibliography 41
2 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
List of tables and figures
Tables
Table 1: Distribution of labour force by sector for third five-year plan (1967–1971)
Table 2: Distribution of labour force by sector for seven-year plan (1976–1983)
Table 3: Investment projects in Afghanistan and employment effects (2002–2005)
Figures
Figure 1: Net ODA received by Afghanistan between 2000 and 2015
Figure 2: Foreign direct investment (net inflows)
Figure 3: FDI in Afghanistan between 1970 and 2016
3 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Abbreviations
ADB Asian Development Bank
AISA Afghanistan Investment Support Agency
ALCS Afghanistan Living Conditions Survey
ALP Afghanistan Local Police
ANP Afghan National Police
ANPDF Afghanistan National Peace and Development Framework
APPF Afghan Public Protection Forces
CAREC Central Asia Regional Economic Cooperation
CASA-100 Central Asia-South Asia power project
CIDA Canadian International Development Agency
CPEC China-Pakistan Economic Corridor
CSO Central Statistics Organization
ECO Economic Cooperation Organization
FDI Foreign Direct Investment
GCC Gulf Cooperation Council
GDP Gross Domestic Product
GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit
HoA Heart of Asia
IDP Internally Displaced Person
ILO International Labour Organization
ITC International Trade Centre
IS Islamic State
MIGA Multilateral Investment Guarantee Agency
MP Member of Parliament
NATO North Atlantic Treaty Organization
ODA Official Development Assistance
OECD Organisation for Economic Co-operation and Development
PDPA People’s Democratic Party of Afghanistan
RECCA Regional Economic Cooperation Conference on Afghanistan
SAARC South Asian Association for Regional Cooperation
SDGs Sustainable Development Goals
SIGAR Special Inspector General for Afghanistan Reconstruction
SME Small and Medium-sized Enterprise
TAPI Turkmenistan–Afghanistan–Pakistan–India Pipeline
4 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
TIR Convention on International Transport of Goods Under Cover of TIR
Carnets
TVET Technical and Vocational Education and Training
UNDP United Nations Development Programme
UNHCR United Nations Refugee Agency
USAID United States Agency for International Development
USSR Union of Soviet Socialist Republics
5 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Executive summary
Scholars of economics contend that infrastructure development is the foundation of a
sustainable economy and a means to achieving broader nation-building goals. However,
while infrastructure is fundamental to moving popular support away from pre-war or
during-conflict loyalties, there is also the argument that it could be a means to direct
spoilers towards post-war political objectives. For a country to reap maximum benefits
from investment into infrastructure projects, this development needs to be viewed
through a conflict analysis lens and understood in the context of the conflict dynamics of
the region that it is taking place in.
This paper argues that in order to reap maximum benefits from large-scale
investment in Afghanistan, government and donors need to ensure that this investment
contributes to generating employment opportunities for Afghans, particularly youth,
returnees and internally displaced persons (IDPs), in a conflict-sensitive manner.
Afghanistan has a long history of developing five-to-seven-year plans, which have
been focusing on infrastructure and have been financed by both public and private
investments. During the 20th century, Afghanistan has experienced both rapid waves of
intensive public (and sometimes private) investments in infrastructure as well as heavy
destruction of infrastructures and industry. However, these plans have not contributed to
economic growth and addressing the problem of unemployment because they have been
over-ambitious, and the implementing institutions have been marred by corruption and
do not have the capacity to effectively implement the plans. Trying to overcome past
difficulties, the National Unity Government has recently developed (in 2017) a number of
ambitious plans and frameworks in an effort to coordinate and unify development
projects in the country. These plans are all guided by the Afghanistan National Peace and
Development Framework (2017–2021), which seeks to build a productive and broad-based
economy that creates jobs. While the Framework appreciates that, in the short term, the
economy will require ‘bridging’ strategies that provide jobs because of the lack of skills
available, it envisages that Afghanistan will have comparative advantage in the long term
because of the labour it can supply. To build the requisite skill needed to support the
economy, the government plans to invest in vocational education, engineering,
managerial skills and the service industry, as well as in reforms, to make Afghan labour
more flexible and responsive. However, as with previous plans, the Framework has set
itself enormous targets to meet in a short period (five years). Furthermore, although
investment projects in Afghanistan are expected to create three types of jobs (skilled jobs,
unskilled/daily wage jobs and security-related jobs), it is most likely to generate only
short-term, low-skilled and security-related jobs.
6 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
This paper argues that in fragile contexts such as Afghanistan, employment
generation alone is not enough. Rather, there is a need to generate employment in a way
that is conflict sensitive. Only then can investment in sectors such as infrastructure
contribute to peace and stability in the country. Furthermore, in fragile contexts such as
Afghanistan, the situation and context are unlikely to change overnight. As a result,
businesses, investors and donors need to support the government in endeavours to
address corruption and to support interim investment strategies that take into account
the political and conflict dynamics.
7 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Introduction
At the Brussels Conference in October Department of State’s Bureau of Economic
2016,1 donors pledged US$15.2 billion to and Business Affairs identifies “a still-
support Afghanistan until 2020, in the developing legal environment, security,
expectation that the government of varying interpretations of tax law, and the
Afghanistan would eliminate corruption impact of corruption on administration”
and deliver on the Afghanistan National as the main challenges to business in
Peace and Development Framework Afghanistan (Bureau of Economic and
(ANPDF).2 The ANPDF is Afghanistan’s plan Business Affairs, 2017).4 It adds that “(n)ew
to achieve self-reliance and increase the firm registrations tailed off dramatically in
welfare of the population by building a 2014, with half as many new firms
productive and broad-based economy registered in 2014 compared to 2013. That
that creates jobs. To achieve this, the reduced level has remained relatively
government plans to make strategic constant through 2016”. According to the
investments in infrastructure, human Ministry of Finance (2017), the donor
capital, quality service delivery and community had pledged around US$90
technology, backed by a robust and well- billion of aid for Afghanistan in the period
regulated financial sector that can 2002 to 2013. Out of this amount, US$57
channel money to where it can best be billion was disbursed between 2002 and
spent. 2010, of which 51% was spent on security
The donor pledge at the Brussels and the remaining 49% on development
Conference in 2016 came at a time when projects.
investment in Afghanistan had dropped to Scholars of economics contend that
an unprecedented low, where it has infrastructure development is the
remained since 2014. While development foundation of a sustainable economy and
aid for Afghanistan has increased since a means to achieving broader nation-
2003, private foreign direct investment building goals. They consider the
(FDI) has been declining.3 The US provision of basic services as critical to
1 4
Communique on the Brussels Conference on In more detail: “Afghanistan’s legal and regulatory
Afghanistan, 5 October 2016: frameworks and enforcement mechanisms remain
https://af.usembassy.gov/communique-brussels- irregularly implemented. The existence of three
conference-afghanistan-october-5-2016/ overlapping legal systems – Sharia (Islamic Law), Shura
2
ANPDF 2017–2021: (traditional law and practice), and the formal system
http://extwprlegs1.fao.org/docs/pdf/afg148215.pdf under the 2004 Constitution – can be confusing for
3
Whereas development aid increased from about US$1.2 investors and legal professionals. Corruption hampers fair
billion in 2003 to a peak of nearly US$7 billion in 2011 and application of the laws. Commercial regulatory bodies are
declined to US$5 billion in 2013, FDI fell from about often understaffed and under capacity. Financial data
US$270 million in 2005 to about US$60 million in 2013, systems are limited” (Bureau of Economic and Business
with an interim high of about US$210 million in 2009 Affairs, 2017).
(World Bank, 2017; International Trade Centre, 2014).
8 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
security, governance, economic Latest annual available figures from
development and social well-being. the Afghanistan Living Conditions Survey
Moreover, in conflict-affected (ALCS) 2014 suggest that Afghanistan’s
environments such as Afghanistan, the labour market is under considerable
condition of infrastructure can be viewed strain. In 2014, 78% of the labour force
as a barometer of whether society will slip were not gainfully employed,
further into violence or make a peaceful underemployed or unemployed, while
transition out of the conflict cycle (see for 79% were in vulnerable employment.5 As
example Boudet et al, 2011). According to per the mid-term results from the 2016–
Mashatt et al (2008), infrastructure is 2017 survey, the percentage of the labour
fundamental to moving popular support force who were not gainfully employed, or
away from pre-war or during-conflict were underemployed or unemployed,
loyalties and to attracting spoilers to stood at 71%. If Afghanistan is to deliver
post-war political objectives. Linking on the ANPDF, it will be important for
infrastructure development with conflict investment and development aid to create
analysis helps to focus the attention of employment. While job creation is
infrastructure programme planners and necessary to ensure a sustainable
implementers on the conflict cycle population, the precarious, underpaid,
instead of using an engineering low-skilled and unsustainable jobs that
perspective – a perspective through the majority of Afghans have are neither
which infrastructure experts tend to suitable to propel the development of the
approach problems. While this view is also country nor do they provide future
important, it must be linked with an prospects for individuals or communities.
appreciation of the conflict dynamics. With discussions underway about
Indeed, traditional engineering concerns Afghanistan’s inclusion in a number of
such as efficiency are secondary in a regional connectivity initiatives such as
conflict-sensitive approach (Mashatt et al, the China-Pakistan Economic Corridor
2008; see also Boudet et al, 2011). Foreign (CPEC), the next decade could see a
financial aid and other international significant amount of investment coming
interventions can play an important role to Afghanistan, particularly for
in rebuilding infrastructure and hence in infrastructure development. However, the
solidifying the transition to peace (Collier current conditions in Afghanistan point to
and Hoeffler, 2004; Collier et al, 2003). mounting corruption of government
5
According to the ILO’s definition, decent work “involves working as day labourers, own-account workers or as
opportunities for work that is productive and delivers a unpaid family workers, more than three quarters of all
fair income, security in the workplace and social employed Afghans are earning too little for sustenance,
protection for families, better prospects for personal working in jobs that are insecure, without social
development and social integration, freedom for people to protection, and that offer few opportunities for personal
express their concerns, organize and participate in the development and productivity enhancement (Afghanistan
decisions that affect their lives and equality of opportunity Living Conditions Survey 2013–2014,
and treatment for all women and men”. It is clear that with http://cso.gov.af/Content/files/ALCS/ALCS%20ENGLIS
78 percent of Afghan workers in vulnerable employment, H%20REPORT%202014.pdf).
9 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
authorities, a rise in violent attacks more easily after the job has ended, or
targeting security force establishments, skills that enable them to set up a small
the government and international business in their field of specialisation.
organisations, as well as the frequent Creating jobs that are sufficiently paid to
kidnapping of wealthy individuals for make other options less attractive (such
ransom. These conditions deter private as jobs involving carrying arms as a
foreign investors as well as international security guard, soldier, fighter) also have a
construction companies from investing in violence-reducing effect. Beyond this,
Afghanistan. companies and investors should ideally
This paper addresses the question of comply with the International Labour
how investment in infrastructure can be Organization (ILO) standards for decent
achieved despite the adverse conditions in work, providing work that is productive
Afghanistan, arguing in favour of creating and delivers a fair income, security in the
conflict-sensitive employment under workplace and social protection for
these conditions. Conflict-sensitive families, prospects for personal
employment is an approach that has been development and social integration,
developed on the basis of empirical freedom for people to express their
research on successful practices of Afghan concerns and to organise and participate
transport and construction companies in the decisions that affect their lives, as
operating under the conditions of rising well as equality of opportunity and
violence in Afghanistan.6 It requires an treatment for women and men (ILO, 2016).
initial analysis by companies of the Essentially, conflict-sensitive employment
conflict context in the area where the represents the creation of meaningful jobs
(infrastructure) project is to be located. that provide future prospects for
Close communication with local individuals and reduce, or at least do not
community leaders (elders) and power fuel, local violent conflicts (Grawert et al,
holders is particularly crucial for 2017b). In order to reap maximum benefits
negotiating ways on how the project can from large-scale investment in
be implemented with local support. Afghanistan, this paper argues that
Conflict-sensitive employment avoids government and donors need to ensure
divisive effects in the local communities that this investment contributes to
affected by the project and reduces the generating employment opportunities for
potential for conflict. Moreover, Afghans, particularly youth, returnees and
companies seek to provide workers with internally displaced persons (IDPs), in a
new skills so they can find employment conflict-sensitive manner.
6
The research project included a pilot phase during which al, 2017a) was developed and tested with four companies
a conflict-sensitive employment framework (Grawert et on their project sites in different parts of Afghanistan.
10 WORKING PAPER | March 2018Methodology the plans of the current National Unity
Government and their possible
For the purposes of this paper, the implications for employment generation
authors critically reviewed existing in the country. Given the strategic
documents and literature on investment geopolitical positioning of Afghanistan, it
in infrastructure in Afghanistan. The is important to view investment in
secondary data was further Afghanistan through a regional lens. The
complemented by four interviews: two subsequent section highlights the
with representatives from bilateral regional complexities and the role of
agencies, one with a manager from an global powers, and how this has
international construction firm and one impacted and will impact on investment
with a member of the Afghan Public in Afghanistan. According to the Ministry
Protection Forces (APPF). The paper is a of Finance (2017), the donor community
part of the ‘Conflict-sensitive had pledged around US$90 billion of aid
employment under construction: Peace for Afghanistan in the period 2002–2013.
and stability strategies for the private Out of this amount, US$57 billion was
sector in Afghanistan’ project, supported disbursed between 2002 and 2010, of
by the Dutch Knowledge Platform, and which 51% was spent on security and the
benefits from research in earlier papers remaining 49% on development projects.
published as part of the project.7 This continues to happen in the country
as the security situation remains
Overview precarious. The final part of the paper
analyses the implications of security
The paper starts with a review of measures regarding infrastructure
investment in Afghanistan since its projects for employment generation in
creation and focuses on its impact on Afghanistan.
employment. The next section looks at
7
Other project papers can be viewed at
http://www.international-alert.org/projects/14135Investment in infrastructure and employment in Afghanistan
Historical overview of investment in Afghanistan
During the 20th century, Afghanistan and extending support to traders and
experienced rapid waves of intensive industrialists.
public (and sometimes private) This was necessary because Abdur
investment in infrastructure and at the Rahman took power in a period when
same time heavy destruction of its Afghanistan had incurred major damages
infrastructure and industry. Large due to the first (1838–1842) and second
investments have mostly been financed (1878–1879) Anglo-Afghan wars. The
by foreign countries and international administrative system and military
agencies. Historically, investment in structures had been destroyed, the
infrastructure in Afghanistan can be capital Kabul ruined, and traders and
divided into three periods: industrialists disappeared in defence of
• Pre- and post-independence era their country (picking up arms to defend
(1880–1979); themselves and their country). The
• Era of Soviet invasion, civil war industrial city of Istalif and Ghazni city’s
and Taliban rule (1979–2001); bazaars had been burnt, Kandahar and
• Era of international intervention Jalalabad cities had been emptied of
(2002–2017). traders and industrialists, and turned
into military bases of the enemy.
Investment in the pre- and post- Meanwhile, young farmers from the
agricultural regions of Kabulistan,
independence era (1880–1979)
Zabulistan, Parwan, Kapisa, Nangarhar
The history of modern infrastructure and Kandahar were sent to war fields. As
investment in Afghanistan dates back to a result, industry in cities and rural
the reign of Amir Abdur Rahman Khan agriculture almost vanished. After
(1880–1901) in the 19th century. instituting security, the Amir focused on
Afghanistan of the 19th century reviving trade and industry. Metal and
witnessed internal clashes and several leather manufacturing, such as the Kabul
incursions by Russians and the British military factory and the leather factory,
until full independence was proclaimed received support from the government
from Britain in 1919, following the third (Ghobar, 1996).
Anglo-Afghan war (Ghobar, 1996). Under The first large-scale infrastructure
the reign Rahman, some efforts were investment in the country, the Jabul Siraj
made to modernise the economy through Hydroelectric plant, occurred in the
introducing fiscal and monetary reforms period 1910–1913, during the reign of the
Amir’s son and successor, Amir
12 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Habibullah Khan (1901–1919) (Jalalzai, since 1954 attempting to steer an uneasy
2003). In addition, a number of irrigation, course of political and economic
road and bridge construction projects neutrality between East and West”
were completed. These included the Siraj (Franck, 1960, p. xiii). By 1978, the USSR
canal of Helmand and the Siraj canal of and the US had invested US$1.265 billion
Nangarhar, the Kabul-Jalalabad highway, and US$471 million in the development of
the Jalalabad-Laghman highway, the Afghanistan (DRDC, 2007). Details of
Kabul-Ghazni highway, the Kabul-Jabal these investments can be best
Siraj highway, and the Gulbahar, Matak understood from the review of the
and Daronta bridges. As Habibullah had national plans of the time, particularly
great interest in the construction of the first three.
buildings, his tenure also saw the
construction of some prominent First five-year plan (1956-57 to
buildings around the country, such as the 1961-62)
Dilkasha building in Kabul, the Siraj-ul-
Emarat in Jalalabad and the Qala-e-Siraj The first five-year plan was an
in Laghman (Ghobar, 1996). ambitious programme aimed at
The 1950s and 1960s were crucial in economic development in the country.
Afghanistan’s infrastructure investment The plan provided for investment and
history. During this period, significant development in agriculture and
investments were made in the irrigation, transport and
agriculture, irrigation, energy communications, social services,
transportation and communication manufacturing and mining, banking and
sectors. Of special importance during commerce. “The total budget for the plan
this period was the 10-year tenure of was AFN 11 billion (equivalent to about
Mohammad Daud Khan (1953–1963) as US$234,500,000 at the exchange rate
prime minister (World Bank, 1978). Daud then used). Of this total, about 75% was
Khan followed a centrally planned to be covered by foreign assistance”
economic system guided by national (USAID, 1970, p. 4).
plans. He was successful in benefiting Among the sectors for investment
from competition between the then identified in the plan, priority was given
Union of Soviet Socialist Republics to investment in irrigation and transport.
(USSR) and the United States (US) in According to the World Bank (1978), 30%
Afghanistan (Jalalazai, 2003) and of the total budget was to be allocated
translating it into assistance for towards the agriculture sector and
Afghanistan. In a pamphlet on “the irrigation works, and 25% for the
economics of competitive coexistence”, transport and communications sectors.
Franck characterised this situation as However, in practice, expenditure on
follows: “Afghanistan, once a buffer transport accounted for 50%, while only
between Russia and British India, but 13% was spent on agriculture. The three
13 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
main sources of financing for the plan Helmand Valley in south-western
were domestic revenue from taxes, Afghanistan (Franck, 1960). By 1956,
duties and profits of state companies, US$54 million had been spent on
foreign loans and grants (mostly from the irrigation and land development in the
USSR and the US) and private capital. Helmand-Arghandab Valley. Over 4,000
“Afghanistan’s position on the Afghan workers gained construction
chessboard of international relations experience, with many of them becoming
would determine from whom to ask the trained mechanics. Nevertheless, the
needed foreign support of US$167 million benefits achieved by the construction
and what terms to accept” (Franck, 1960). work in Helmand-Arghandab Valley were
Within the agriculture and irrigation not deemed satisfactory by some circles
sectors, three programmes were inside government (Franck, 1960). US
planned: protection of animals from involvement in the Helmand Valley took
diseases and crops from pests, several forms during the project
improvement of animal species and seed duration. By 1979, a total of US$136.5
varieties, and extension of areas under million was spent on the project.
cultivation. However, 90% of the money Other significant irrigation projects
allocated for agriculture development were included: the Jalalabad Irrigation
went towards investment in large Canal and its distribution canals, costing
irrigation projects. The aim was to approximately US$8 million over a five-
increase agriculture output and to year construction period; three water
facilitate the resettlement of nomads storage dams at Paltu District of
(Ministry of Planning, 1956). Katawaz, Sardeh District of Ghazni and
Significant irrigation infrastructure Kharwar District of Logar, costing
projects were included in this plan. approximately US$3 million, US$2.5
Among them was the huge Helmand- million, US$1.2 million, respectively, over
Arghandab Valley Development Project, a three-year period; the Kunduz
which started in 1946 before the first irrigation project, costing around
five-year plan was initiated and US$10.6 million over a four-year period;
continued until the USSR invasion in the irrigation project of Kokcha River,
1979. It was estimated that 40% of the costing approximately US$25 million over
water irrigation in the country came a five-year period; and the Mochalgho
from the Helmand and Arghandab rivers, water storage project, costing around
affecting two million or almost 20% of US$2 million over a five-year period
the total population at the time. In 1946, (Ministry of Planning, 1956).
the US Morrison-Knudsen construction The transport and communication
company was contracted by the Royal sectors followed agriculture and
Government of Afghanistan for US$17 irrigation in the amount of planned
million to undertake development works, investment, with around 16.1% of the
including canals, roads and dams in total funds allocated over five years for
14 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
transport and communications. At the miscellaneous expenditure. It was also
end of the five years, it was estimated planned that around 67% of the
that 1,000 km of main roads would have allocation for agriculture and irrigation
been improved and asphalted and 18,000 would go to irrigation projects; more
to 20,000 trucks and automobiles would than three quarters (79%) of the
have been imported. Moreover, it was allocation for transport and
planned that the Kandahar International communications was to go to road
Airport would be completed and that construction; and education was to be
airports would be constructed in Kabul, allocated the biggest share within the
Mazar and Herat (Ministry of Planning, social services sector, followed by public
1956). health and urban development (Ministry
However, not all projects in the plan of Planning, 1963).
were completed in the period specified. In the agriculture and irrigation
Large projects such as the Jalalabad sector, some of the projects included
Irrigation Canal, the Kabul-Thorkham were as follows: improvement of the
Road, the Kunduz Irrigation Project, the Ajmir Canal and the Chahar Dara Canal (a
Sardeh and Mochalgo water storages and remnant of the first plan), to be
several other projects were not completed in the fifth year of the second
completed within the five-year period. As plan; improvement of the Ali Abad Canal,
a result, they were later included in the to be completed in the third year of the
second five-year plan. second plan; improvement of the Kabul
Canal and ditches, to be completed in the
Second five-year plan (1963– fifth year of the second plan; and a
1967) survey of water resources in Katawaz.
The abovementioned projects were
The second five-year plan was even mostly old canals that needed
more ambitious than the first one. The improvement. In addition, the following
amount allocated for investment in the new canals and projects were envisaged:
second plan was nearly four times the the Nangarar Canal (a remnant of the
actual expenditure of the first plan. It first plan), to be completed in the fourth
was estimated that foreign assistance year of the second plan; Sardeh water
would cover around 56% (approximately storage (a remnant of the first plan), to
US$734 million) of the total costs be completed in the third year of the
(Ministry of Planning, 1963). plan; the Zard Sang irrigation system in
Of the total investment, 23.5% was Ghazni, to be completed in the fourth
allocated to agriculture and irrigation, year of the plan; and the irrigation
33.5% to industry, mining and energy, system of the upper KoKan in Heran, to
25.5% to transport and communications, be completed at the end of the second
11.2% to social services and 6.3% to plan (Ministry of Planning, 1963).
15 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
In the energy sector, the hydroelectric Of this, US$167 million had already been
dams of Naghlu, Mahipar, Arghandab and committed for the completion of
Kajaki, and electricity transmission in carryover projects. A AFN 2 billion (2% of
some areas, were included in the second all development expenditure) private
plan. Some of these projects were new investment was envisaged (Ministry of
while others were remnants of the first Planning, 1967).
plan. Moreover, in the transport and According to the progress report and
communications sector, more attention analysis of the economic situation for the
was to be paid to the many unfinished last year of the third plan (1971), the
road projects and the almost completed population of the country (excluding
Kabul and Kandahar airports. Two new nomads) grew from 13.044 million people
airports were also planned in Jalalabad in 1966 to 14.608 million people in 1971.
and Shindad (Ministry of Planning, 1963). The population capable of working (aged
15 to 60) grew from 6.41 million
Third five-year plan (1967–1971) (including 50,000 working-age school
students and 60,000 people with
In the third plan, the focus shifted disabilities) to 7.35 million (including
from investment in infrastructure to 60,000 working-age students and 70,000
projects that could yield results quickly. people with disabilities). The number of
A total investment of AFN 33 billion was people employed rose from 3.96 million
envisaged for the third plan. The sectoral (including 380,000 below 15 or above 60
distribution of investment in the third years of age) to 4.51 million people. These
plan was estimated at 32.8% for mines, statistics are based on sample surveys
industry and power, 29.5% for and several assumptions (Ministry of
agriculture and irrigation, 15.9% for Planning, 1971).
education and other social services, The data show an increase of
12.7% for transport and communications, 550,000 jobs in 1971 (the last year of the
and 9.1% for reserves. In total, the third plan) compared with five years previously
plan provided for a 32% increase in (1967). Around 20% of these jobs were
investment compared with the second created in agriculture. The Table below
plan, and an investment of US$20 million presents the sector-specific data for 1967
and AFN 14,000 million was required to and 1971.
finance the development programmes.
16 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Table 1: Distribution of labour force by sector for third five-year plan (1967–1971)
Year 1967 1971
Total number of employed
population 3,960,000 4,510,000
Employment in productive sectors
1. Agriculture 2,940,000 3,050,000
2. Industries including small
industries and handicrafts 230,000 270,000
3. Construction and geology 90,000 110,000
4. Transport and
communications 20,000 30,000
Other productive fields 60,000 80,000
Total 3,340,000 3,540,000
Employment in non-productive sectors
1. Education and health 20,000 42,000
2. Government organisations 60,000 80,000
3. Commerce 100,000 110,000
4. Other non-productive
sectors 100,000 110,000
Total 280,000 342,000
Unspecified sectors 340,000 628,000
Source: Ministry of Planning, 1971
The three five-year plans contributed road and 35,925 vehicles existed in the
greatly to the improvement of country. While employment figures
Afghanistan’s infrastructure. Although corresponding to the first two five-year
agriculture and industry were given plans are not available, based on the
priority in the formulation of the first employment figures shown in Table 1 for
two plans, in practice transport the third five-year plan, the authors
infrastructure received the most estimate a similar increase in
investment. Out of the AFN 53 billion employment, where major employment
total actual costs of the three plans, generation is likely to have been in
around AFN 18 billion (33%) was spent on agriculture and in low-skilled or
the transport sector. At the end of the unskilled jobs.
third plan, over 2,500 km of asphalted
17 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Two subsequent plans were launched family members were killed in a coup by
between 1972 and 1983: the fourth five- the communist People’s Democratic
year plan (1972–1976) and the seven-year Party of Afghanistan (PDPA) in April 1978
plan (1976/77–1983). The fourth five-year (Kakar, 1995), putting an end to the plan’s
plan was prepared but never implementation.
implemented. Mohammad Daoud Khan The Table below presents data on
overthrew the constitutional monarchy actual statistics for the first year of the
and declared Afghanistan a republic in a seven-year plan and forecast for the last
coup in July 1973 (Kakar, 1995). The new year of this plan. Similar to earlier plans,
president, Mohammad Daoud Khan the agriculture sector was forecast to
(1973–1978), prepared the first seven-year generate the largest number of
plan (1976–1983) but before the period of employment opportunities.
the plan ended, he and several of his
Table 2: Distribution of labour force by sector for seven-year plan (1976–1983)
Year 1976 1983
Total labour force 5,617,600 6,113,800
Employment level 5,275,000 6,113,800
1. In productive fields 4,560,000 5,322,500
Agriculture 4,022,000 4,477,500
Industry and mines 350,000 470,000
Other fields 188,000 375,000
2. In non-productive fields 715,000 791,300
3. Unemployed 342,600 0
Source: Ministry of Planning, 1976
Era of Soviet invasion, civil war shifted to military spending to provide
for the ongoing war.
and Taliban rule (1979–2001)
During the period 1979 to 2001, in Era of international intervention
which Afghanistan experienced the (2002–2017)
Soviet invasion and was then under
Mujahdeen and Taliban control, there are After the military intervention of the
no records of any major investments. US and NATO forces, which removed the
Rather, the focus from investment Taliban regime, a period of intensive
18 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
foreign investment in security and more than US$6.8 in 2011. ODA witnessed
development occurred in Afghanistan. a decline ever since, until it reached a
According to World Bank statistics, little over US$4.2 billion in 2015.
official development assistance (ODA) The Figure below presents data on
increased from less than US$0.5 billion in net ODA received by Afghanistan from
2001 to more than US$1.3 billion in 2002, 2000 to 2015.
with a constant increase until it reached
Figure 1: Net ODA received by Afghanistan between 2000 and 2015 (current US$)
8000
7000
6000
5000
4000
3000
2000
1000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Million US$
y = 0; R2 = #N/A
In addition to development aid, projects amounting to about US$120
Afghanistan has also been receiving million, followed by Germany, India and
foreign investment since 2003. The Pakistan. Amounting to an estimated
Afghanistan Investment Support Agency US$180 million, the telecommunications
(AISA) reports the value of investment at sector has thus far attracted the most
upwards of US$650 million from a total investment. Initially, the investment had
of 25 countries between 2002 and 2005 significant employment effects, as shown
(MIGA, 2005). According to AISA, the in Table 3.
largest investor country is Turkey, with
19 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Table 3: Investment projects in Afghanistan and employment effects (2002–2005)
Sector Investment Direct
(in US$ million) employment
Construction 389 54,800
Services 213 4,300
Industry 150 21,000
Agri-business 6.4 535
Total 758.4 80,635
Source: AISA figures reported in MIGA, 2005
In its Services Snapshot for 89%,8 while manufacturing attracted 10%
Afghanistan, the International Trade and agriculture 1% of FDI. In order to
Centre reports that net FDI inflows encourage inward FDI, the government
decreased over 2005 to 2013 (see Figure of Afghanistan focused on improving
3). The Snapshot attributes this to high infrastructure and pursued engagement
levels of corruption and the international in bilateral and multilateral trade
perception of poor governance in the agreements as well as trade-related
country. The report also highlights that, reforms in construction,
as per AISA data, over the period 2003 to telecommunications, transport and
2011 the major sector attracting FDI in logistics.
Afghanistan was the services sector at
8
This includes construction, transport, financial services
and other business services.
20 WORKING PAPER | March 2018Figure 2: Foreign direct investment (net inflows)
Source: ITC, 2014
The World Bank’s dataset for FDI, net 2001 and 2005, and then a decrease from
inflows (BoP, current US$), as far back as 2005 to 2015.
1970, also shows an increase between
Figure 3: FDI in Afghanistan between 1970 and 2016
5
4.5
4
3.5
3
% of GDP
2.5
2
1.5
1
0.5
0
-0.51960 1970 1980 1990 2000 2010 2020
Source: International Monetary Fund, International Financial Statistics and Balance of Payments databases, World Bank,
International Debt Statistics, and World Bank and OECD GDP estimates
(https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?end=2016&locations=AF&start=1970&view=chart)Investment in infrastructure and employment in Afghanistan
There is no reliable dataset available to the country is likely to have been low-
make any concrete conclusions about the skilled or unskilled. Hence, most of the
number and quality of jobs that this jobs going to Afghanis are likely to have
investment created. However, the been low-quality jobs – such as
authors speculate that as Afghanistan low/unskilled and short-term jobs, with
was emerging from a 15-year war period no training opportunities and poor
in 2002, the human capital available in working conditions.
22 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
National Unity Government and future plans
In an effort to overcome past Framework focuses on increasing yield
difficulties, the National Unity and opening markets for farmers within
Government has recently developed the agricultural sector, private sector
(2017) a number of ambitious plans and development, investment in and
frameworks to help coordinate and unify improving accountability and
development projects in the country. transparency in the extractive sector,
These plans are all guided by the energy and infrastructure development,
Afghanistan National Peace and advancing regional integration and
Development Framework (2017–2021), turning urban centres into drivers of
which is aimed at building a productive growth (ANPDF, 2017).
and broad-based economy that creates The Framework appreciates that, in
jobs. The Framework is in line with the the short term, the economy will require
country’s 2002 National Development ‘bridging’ strategies that provide jobs. For
Framework, which recognised private the longer term, the Framework
sector development as a core goal and envisages that Afghanistan will have to
sought to create jobs in the country. The begin from its comparative advantages in
first objective of this five-year labour intensive and commodity focused
Framework is to promote sustainable job activities, while building up the capital
creation to improve public welfare and infrastructure and skilled labour force
support Afghanistan’s progress towards that will allow it to move up the value
achieving the sustainable development chain. To build the requisite skill needed
goals (SDGs). The Framework document to support the economy, the government
highlights that the high growth rates of plans to invest in vocational education,
2006–2013 were mainly derived from engineering, managerial skills and the
security-related construction and service industry, and to institute reforms
services and their associated multiplier to make Afghan labour more flexible and
effects. It aims to change this through responsive. The Framework also
investment in infrastructure and highlights the need to and importance of
enabling policy reforms that can help the integrating returning migrants and IDPs,
private sector create jobs. To achieve as well as improving the quality of
economic growth and create jobs, the educational institutions.
23 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
• Reviewing licensing requirements with
Creating jobs by developing our private
the goal of eliminating unnecessary
sector9
ones;
Our goals for promoting private sector • Providing tax incentives and legal
development are: protections of investments and assets
• Building efficient and competitive to investors; and
markets; • Establishing one-stop shops offering
• Enabling small and medium-sized streamlined electronic business
enterprises (SMEs), particularly export- administration services (registration,
focused Afghan-owned firms; and licensing, customs payments) in Kabul
• Encouraging domestic and and seven hubs.
international investment.
Growing our human capital to drive
Our tools for creating an enabling economic growth10
environment for the private sector include:
Investments in this sector will:
• Assisting Afghan firms to comply with
• Prepare for future labour market needs,
ISO standards;
including labour exports;
• Making trade support services relevant
• Better align education with private
and accessible;
sector requirements;
• Advancing customs-to-customs
• Increase the current skills base; and
agreements with neighbouring
• Improve workforce quality through
countries;
investments in preventative and
• Strengthening commercial attachés in
curative health.
Afghan embassies;
• Advancing bilateral and multilateral To get there we will:
trade agreements; • Expand vocational and technical
• Strengthening the transport and education, utilising the German
logistics sector, including the apprenticeship model;
implementation of the Customs • Promote the establishment of private
Convention on International Transport skills academies;
of Goods Under Cover of TIR Carnets • Identify opportunities to absorb
(TIR Convention); returning migrants and displaced
• Promoting local procurement and populations into training programmes
allowable import substitution; and labour markets;
• Improving and systematising private • Support community-based approaches
sector survey instruments; to income generation for people with
• Supporting and building industrial disabilities;
parks and special economic zones; • Review labour policy and regulations to
increase flexibility;
9 10
Afghanistan National Peace and Development Ibid.
Framework (2017–2021)
24 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
• Invest in women’s education and about the success of the ANPDF, which
market employment; also means that there could be
• Improve the Ministry of Economy by subsequent (negative) impacts on
consolidating directorates; and achieving the employment generation
• Define a sustainable model for health envisaged in the Framework. The
system financing.
authors’ scepticism is also based on the
assessment that a lack of required skills
In partnership with the ILO, the and poor education system render the
United Nations Development Programme workforce unprepared to meet the
(UNDP) and the UN Refugee Agency development needs of the country. The
(UNHCR), Afghanistan’s government ANPDF (2017–2021) stipulates that
plans to undertake a comprehensive developing human capital is a pre-
national labour market assessment in condition for meeting the needs of the
2018 to identify the country’s skill needs country and has charted an ambitious
(RECCA, 2017). With the support of plan to develop the requisite skills and
donors such as the World Bank and the capacities. However, these plans need to
EU, the government also plans to be viewed with caution as the Ministry of
improve skills and employability through Education and the Ministry of Higher
technical and vocational education. Education, which are expected to
However, it is not clear if the two contribute to the Framework by building
initiatives will also cater for local human capital, are themselves marred by
employment needs or will only be the same capacity and corruption issues
targeted at foreign labour markets. as those of other government
As highlighted in the previous institutions. Furthermore, as mentioned
chapter, Afghanistan has a long history of previously, data to identify skill needs are
developing five-to-seven-year plans that missing and although there are plans to
are overly ambitious. Historically, there undertake a comprehensive assessment
has been little success in timely to cater for this, this data collection,
implementation of these plans, which analysis and subsequent development of
have been marred by corruption issues relevant education and skills
and underspending. As explained in a development programmes represent an
recent article assessing the newly issued enormous challenge that will require
budget for 2018 Clark (2017), efforts have time, resources and skills. These
been made to minimise corruption and initiatives are also not new or untested in
underspending issues in the budget for Afghanistan. Between 2012 and 2017, for
2018. However, given that the example, in the face of 1.7 million
preparation and passing of the improved unskilled young Afghans, there were
budget 2018 is just a starting point to plans to establish 250 vocational training
address issues such as corruption and centres for 90,000 apprentices and to
underspending, the authors are sceptical train 2,700 teachers in two teacher
25 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
training academies between 2012 and only 46,000 Afghans had completed the
2017 (Grawert and Shirzad, 2017). By 2015, training (GIZ, 2015).
26 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
Regional complexities and impact on investment in
Afghanistan
Financial support for Afghanistan has conclusion that limiting the regional
come from both donor countries approach to Pakistan and then India only
(directly and through trust funds) as well was not enough, and that other countries
as multilateral organisations. Among the (Iran, Saudi Arabia, the Central Asian
donor countries, regional players such as republics and even Russia, China and
Pakistan, India and Central Asian Turkey) have stakes in Afghanistan’s
countries, as well Saudi Arabia and Iran, stability (Harpviken and Tadjbakhsh,
have been providing assistance to 2016).
Afghanistan, especially in infrastructure The US and other mainstream
and construction. However, this is more analysts considered Afghanistan as the
so because of their own vested interests ‘heart of Asia’, placing Afghanistan at the
rather than to meet the development centre of a large pan-Asian region whose
needs of Afghanistan. These regional fate is predicated on Afghan stability.
players have also drawn in and formed However, Harpviken and Tadjbakhsh
alliances with the three global powers – (2016) challenge this perception, arguing
the US, Russia and China – which have instead that Afghanistan is situated at the
had fluctuating interests in Afghanistan margin of three regional security
and the region. These global powers complexes – South Asia, Central Asia and
reinforce the security dynamics within the Persian Gulf – each of which is
the region and get drawn into the region characterised by deep security
along existing lines of amity and enmity, contentions. In these three regional
which in turn are exacerbated by rivalries security complexes, Harpviken and
between these powers (Harpviken and Tadjbakhsh (2016) suggest the following.
Tadjbakhsh, 2016). Taking the US as an Firstly, they contend that Pakistan’s and
example, over the past decade both Bush India’s sustained engagement in
and Obama administrations have sought Afghanistan needs to be understood in
to rally governments in South Asia to the context of their foreign policy viz a
help stabilise Afghanistan, but these viz each other. Secondly, they suggest
efforts have fallen short primarily that within Central Asia, security
because of tensions between Pakistan cooperation is hampered by competition
and Afghanistan (Dasgupta, 2013). These for regional supremacy, with each
efforts have been influenced by US country seeking support from global
rivalry with China and Russia. In 2011, this powers, a dynamic reflected in their roles
strategy was replaced based on the in Afghanistan. Thirdly, they state that in
27 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
the Persian Gulf, both Iran and Saudi infrastructure projects (Harpviken and
Arabia fight for economic and political Tadjbakhsh, 2016). Realising this a few
influence, mirrored in their Afghan years later, Pakistan too has been
engagement. increasing its aid, and in May 2014 it
pledged US$500 million to help
Regional security complexes, reconstruct Afghanistan. In 2016,
Pakistan’s Minister for Planning,
economic connectivity and
Development and Reforms announced
Afghanistan that Pakistan had launched US$500
million worth of projects for
The absence of significant economic Afghanistan’s education, health and
relations between India and Pakistan is a infrastructure sectors (DAWN, 2016).
consequence of their tense relations, However, from our observations, while
affecting not only their trade but also much more is known within and outside
causing ripple effects throughout the of Afghanistan about India’s support,
larger neighbourhood (Harpviken and little is known about the development aid
Tadjbakhsh, 2016). In Afghanistan, the being provided by Pakistan to
two countries have been adopting Afghanistan.
contrasting policies. Despite the tangible Bohr and Price (2015) in their paper
benefits that trade connectivity can explain that the idea of integrating
bring, Pakistan’s policy is dominated Afghanistan’s economy more closely with
predominately by its security agenda, the rest of the region is not a new one.
which has had detrimental consequences They highlight that the New Silk Road
for trade relations between the two concept, promoted by the US since 2011,
countries. India, on the other hand, has and now by China –and involving the
not held back from exploring economic creation of a trade hub linking Central
cooperation with Afghanistan post-2001. Asia, South Asia, China and the Middle
Even as it stayed away from the post- East via Afghanistan – is its most recent
Taliban political process in Afghanistan, and high-profile incarnation. However,
India quietly offered economic and the authors describe the concept as
technical assistance almost as soon as controversial because the Central Asian
Karzai assumed leadership of the country states generally regard it as an
in 2001. In 2011, New Delhi signed a unwelcome attempt to shoehorn them
strategic partnership agreement with the into an artificially defined ‘region’ that
Karzai government, opening the door for includes Afghanistan; other regional
security cooperation between the two powers view it as a strategy by the US to
countries (Dasgupta, 2013). India now has gain a political advantage at China’s and
become Afghanistan’s fifth largest donor, Russia’s expense. Bohr and Price (2015)
pledging US$2 billion since 2001 and also caution that even if stability were to
providing aid to education, health and be achieved in Afghanistan, many
28 WORKING PAPER | March 2018Investment in infrastructure and employment in Afghanistan
obstacles to economic integration with formalised by participant states in
the Central Asian states would remain. December. However, despite such
Harpviken and Tadjbakhsh (2016), on the progress, CASA-1000 seems likely to
other hand, contend that Central Asian remain yet another US-backed project in
the region, stuck in the planning phase
states see considerable promise in
owing to an unrealistic assessment of facts
economic cooperation with Afghanistan;
on the ground. For example, in addition to
however, their ability to invest and even the usual security risks associated with
to engage in multilateral initiatives has Afghan-related infrastructure projects, it is
been limited. They conclude that donors unclear whether CASA-1000 will ever
and western-backed coordinating and receive a sufficient supply of electricity to
technical agencies “have failed to be worthwhile.
appreciate the potential of Central Asian The TAPI pipeline faces just as many
professionals and companies and major obstacles. With a projected cost of over
reconstruction contacts have US$8 billion, the project has yet to find a
solid source of funding. Security risks are a
consistently gone to European, US and
major concern, as are competing pipeline
Turkish firms” (Harpviken and
projects from Iran and Qatar, difficult
Tadjbakhsh, 2016, p. 91). terrain and the high sulphur content of
Turkmenistan’s natural gas (Bohr and
Afghanistan and central Asian states Price, 2015, pp. 21–22).
The ‘New Silk Road’ project has had
problems from the outset. Not only is Rivalry between Iran and Saudi
Central Asia one of the world’s least Arabia is evident in the way that both
integrated regions, but its two most countries engage in Afghan affairs by
important development projects – the providing economic assistance for
Central Asia–South Asia Electricity reconstruction. Iran has been a reliable
Transmission and Trade Project (CASA-
donor to Afghanistan post 2001, pledging
1000) and the proposed Turkmenistan–
US$560 million at the Tokyo Conference
Afghanistan–Pakistan–India (TAPI) natural
and US$100 million at the London
gas pipeline – have failed to materialise.
Both projects face numerous obstacles. Conference in 2006 (Harpviken and
CASA-1000, initiated in 2007, was Tadjbakhsh, 2016). The main focus of this
envisaged as a means of developing aid has been on infrastructure (roads,
electricity trade between Central and schools and hospitals) and in Herat, and
South Asian countries in cooperation with through this investment the Iranian
a number of international financial government hopes to create a buffer
institutions. zone in case the Taliban take over power
Ballooning costs have been a primary
in Kabul again. Official Saudi figures
obstacle preventing CASA-1000 from being
indicate that between 2001 and 2010, the
realised. In 2014, the World Bank Group
kingdom contributed approximately
and the Islamic Development Bank agreed
to finance the project; commitments were US$429 million to reconstruction, social
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