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Last Updated: Tuesday, 30 March, 2004, 23:40 GMT 00:40 UK
Aid fails to boost Afghan economy
By Steve Schifferes
BBC News Online economics correspondent

Afghan farmers' children chat near a cow
Afghanistan is desperately poor - and full of children

More than two years after the expulsion of the Taliban, Afghanistan is still desperately poor - and still awaiting most of the promised aid money.

Afghanistan is one of the world's poorest countries, with a per-capital income of just $148 (81) per year.

The poor conditions in the country makes it difficult to accurately estimate the size of its economy, which is estimated by the UN at around $4bn - less than the budget of the US defence department for just one week.

And its one expanding industry - opium production, which is worth $2.3bn, or half the size of the formal economy - is not one which the West would want to encourage.

According to the UN's Human Development Index, which tries to measure not just income, but the health and education of the population, only Sierra Leone ranks lower among the world's 200-odd countries.

Life expectancy, at 50, is one of the lowest in the world, and that is despite Aids not yet having the devastating effect here as it has in Africa.

But, with little access to birth control information, it has one of the fastest growth rates of population in the world, with 43% of the population under 14.

Agriculture the key

A total of 85% of the country's 25 million people depend on agriculture for their survival.

An Afghan farmer and his daughter
Afghan agriculture must be revived
Yet despite an excellent harvest last year, millions of refugees, displaced people and even farming families still have no access to food.

Afghanistan, the world's largest opium producer, is expecting record poppy production this year, with cultivation spreading further into remote areas.

The UN Food and Agriculture Organisation is attempting to reduce dependence on opium production by offering viable alternative sources of income for small farmers and landless workers in the four main opium-growing provinces.

Aid failure

With almost no private investment, the economic future of Afghanistan is in the hands of international aid donors.

Already they contribute $67 per Afghan person (compared to $258 a head in Bosnia), one third of the total economy.

But that figure of $1.8bn is dwarfed by the $14bn dedicated to military spending by the coalition forces in the country.

No doubt improved security is vital to deliver promised aid to rural areas.

Nevertheless, the scale of the international aid effort so far has been a huge disappointment to the new government of Hamid Karzai.

They have asked for $28bn over seven years ($4bn annually) to rebuild the country - but so far have only received pledges (in principle) of $4.5bn over four years, of which only a fraction has been disbursed.

According to a leaked report from the UN Development Programme published in the Financial Times, "aid has been much lower than expected or promised. In comparison to other conflict or post-conflict situations, Afghanistan appears to have been neglected".

Iraq comparison

The UN report points out that Iraq, with about the same population, is likely to receive about ten times as much as Afghanistan, with $36bn already pledged by international donors, the majority of which ($20bn) is from the US.

But, like Iraq, one of the problems is the "absorptive capacity" of the country to manage a huge aid injection which would double the size of its economy.

The World Bank, in its analysis of post-conflict aid, points out that aid programmes can rarely achieve their aims in the first few years, because of the disruption to the infrastructure and institutions of the country means they need to be rebuild.

This problem is even greater in a country like Afghanistan, where there was little infrastructure to rebuild that wasn't destroyed by the long war and occupation by the Soviet Union - and even less institutional capability.

Weak state

Part of the problem is the weakness of the central government itself.

The government's own aid plan suggests that it will take nine years before the government can finance its own expenditure from tax revenues "with a strong revenue effort focusing on compliance and enforcement" of central government taxes - something it will not be able to do while warlords control much of the country.

And Afghanistan is asking for $6.3bn in aid paid directly to the central government - "preferably more, since budget support helps build the state and its legitimacy".

But it is precisely the central government's lack of legitimacy, and the fear of corruption, that is inhibiting the aid budget.

The government says that it plans to boost the private sector, and will keep government small yet effective; but it admits that "reconstruction objectives are heavily dependent on an efficient and effective civil service".

And it admits that the long Soviet occupation has added a "Statist" mentality that will take years for the private sector to overcome.

'Investment in stability'

There is no doubt that development aid will ultimately be more effective the $2bn spent on humanitarian assistance- and the key in the long-run is investment in human capital, such as education, which will free up the talents of the people.

But the education sector, as opposed to investment in physical infrastructure, has received relatively little Western support so far.

The government says international assistance to Afghanistan is not charity.

"It should be looked on as an investment in stability, peace-building, and development.. which will enhance regional stability, reduce the global threats of drugs and terrorism, and lower the associated defence and security costs of many nations."

But unless Western priorities change, that hope is likely to remain a pipe-dream.


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