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The Afghan Economy II: Implementing Reconstruction and Development Strategies. Army Human Terrain Team Ft. Leavenworth, Kansas October 14, 2008 Dr. Robert E. Looney relooney@nps.edu. Outline I. Introduction
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The Afghan Economy II: Implementing Reconstruction and Development Strategies Army Human Terrain Team Ft. Leavenworth, Kansas October 14, 2008 Dr. Robert E. Looney relooney@nps.edu
Outline I • Introduction • Current Problems – Need for Increased Assistance • Contrasts with the Taliban Regime -- Regional Opinion Surveys • Afghan Development Strategy -- Implementation • Overview • Security, Governance, Development • Sequencing of Progress • U.S. Financial Aid to Afghanistan • Past Patterns of Aid • Current Allocations • Problems Associated with Aid • Afghan Attitudes Towards Aid
Outline II • Elements of a Localized Strategy • Key Obstacles • The Poppy/Opium Economy • The Informal/Shadow Economy • The Insurgency/Warlords • Strategy Objectives • The Afghan Opium Business • History and Evolution • Patterns of Production • Structure of the Industry • The Karzai Administration’s Anti-Drug Policies • Challenges Presented by Opium • Opium and the Taliban • Afghan Attitudes Towards the Opium Business
Outline III • Questions • Break • Underlying Forces – Evolution of the Economy • Informal Equilibrium • Moving to Formal Equilibrium • Evolving Informal Equilibrium • Opium and Vicious Circles • Breaking Out of the Vicious Circle • Consolidation of the Drug Industry
Outline IV • The U.S. Contribution to Afghan Development • Commanders Emergency Response Program (CERP) • Program Overview • Philosophy • Implementation • Difficulties • Lessons Learned • Provincial Reconstruction Teams (PRTs) • History and Overview • PRT Models in Afghanistan • U.S. PRTs – Operations • Program Emphasis • Typical Activities • Summary -- Suggestions for the Army, HT Teams
Introduction • Many experts believe that increasing financial assistance and accelerating reconstruction would do more to improve the security situation than intensified anti-Taliban combat. As noted earlier: • Afghanistan's economy and society are still fragile after decades of warfare left well over 1 million dead, 700,000 widowed and orphaned, and about 1 million Afghan children born and raised in refugee camps outside Afghanistan. • Around 4 million Afghan refugees have returned, with up to 3 million remaining outside Afghanistan. • U.S. and Afghan officials see the growth in narcotics trafficking as a product of an Afghan economy ravaged by war and lack of investment. • To date, U.S. and coalition efforts have produced mixed results with many Afghanis, but not all, feeling better off than under the Taliban.
More Prosperous than Under the Taliban? Source: The Asia Foundation, Afghanistan in 2007
Development Strategy: Overview • The Afghanistan National Development Strategy (ANDS) lays out the long-term comprehensive plan for Afghanistan's economic and social development • The strategy's aim is to promote growth, support the development of democratic processes and institutions, and reduce poverty • ANDS serves as the key document for World Bank and International Monetary Fund efforts to assess the country’s poverty reduction strategy • Its underlying assumption is that broad-based and sustainable economic growth is driven by private-sector market-oriented initiatives. • Key economic “enablers” such as roads, power, education, health care, rule of law, sound macroeconomic policy and security are critical for creating conditions for success • Effectively implementing ANDS will require significant long-term donor financing and political support.
Progress in Stages Source: Anthony Cordesman, The Afghan-Pakistan War: A Status Report, CSIS, July 3, 2008, p. 17
U.S. Financial Aid to Afghanistan • During the 1990s, the United States became the largest single provider of assistance to Afghanistan. • Although no US aid went directly to the Taliban, funds continued to be provided to Afghanistan through relief organizations. • Between 1985 and 1994, the U.S. had a cross-border aid program for Afghanistan, implemented by USAID personnel based in Pakistan. • Due to the difficulty of administering this program, there was no USAID mission for Afghanistan from the end of FY1994 until the reopening of the U.S. Embassy in Afghanistan in late 2001. • With the funds already appropriated for FY2008, since FY 2002, the U.S. has provided over $12.5 billion in reconstruction, aid and training.
North-South Competition for Aid • Aid has become the cause of friction between northern and southern Afghanistan. • Northern leaders claim that the south's larger number of PRTs shows the region receives the lion’s share of reconstruction aid • While modest successes have been achieved in the north, insecurity hampers relief and reconstruction efforts in the south. • Hundreds of documented attacks on southern schools and educators show that aid provided to the south often spurs violence • The north claims that resources from aid projects intended to combat Taliban influence in the south often end up financing the extremists’ efforts against the government and NATO • Northern leaders argue that additional resources would be better spent in their region • Aid projects in the north are less likely to be disrupted or destroyed • The north's relative peace means that more development money can be spent to greater effect
Elements of a Localized Strategy I • While aid plays a critical role in the economy’s reconstruction and recovery, the security situation dictates a specific role and strategy for the government • Activegovernment substitutes for the lack of markets • Government focus should be on establishing an institutional framework that will allow markets to develop and grow • The security situation and shrinking budgets also dictate a strategy that is coordinated and consistent with U.S. counterinsurgency strategy • The primary focus should be on using aid-related funding as a tool to bring about stability, rather than long- or medium-term growth. • This focus implies a bottom-up approach, rather than the traditional top-down strategy
Elements of a Localized Strategy II • To deal with the insurgency, it is critical to address the way projects, programs and policies impact and interact with: • The eradication of the poppy-opium economy • The transformation or dissolution of the informal/shadow economy, • The pacification insurgency/warlords • The object of policy is to create positive linkages and feed-back loops between these elements and the economy, so as to create virtuous circles of growth and development • A key objective in any economic strategy is overcoming the corrosive forces associated with the country’s narcotics production and trade.
The Afghan Opium Business I • Afghanistan’s opium poppy economy is fairly recent • In the 1980s and 1990s, competing factions financed their war efforts with narcotics revenues. During the Soviet occupation, the absence of a central government in mujahedeen areas allowed poppy cultivation to amplify a cycle of increasing criminal activity, arms smuggling and private armies • After seizing power in 1996, the Taliban taxed and often appropriated established production and trafficking rings. Opium poppy production doubled from 1996-99 and financed much of the regime's operations. • In an effort to garner international recognition, the Taliban banned opium poppy cultivation in 2000. Cultivation reached a record high after the regime was deposed in 2001, largely because prices increased ten-fold following the ban.
The Afghan Opium Business II • Afghanistan's opium business is an uncoordinated, competitive industry, not an organized effort in which all facets of trade are controlled by several cartels (like the cocaine trade in Colombia) • Afghan opium poppies are cultivated are small family farms • Makeshift laboratories convert raw opium into a morphine base, white heroin, or one of three grades of brown heroin, which are sold to foreign traders • Afghan drug lords maintain their operations by buying off government officials, retaining private armies and posing more authority than the government • While Afghanistan's opium business is comparatively rudimentary, the country’s limited economic output amplifies the significance of poppy cultivation
The Afghan Opium Business III • The Karzai administration considers opium poppy cultivation the greatest threat facing the country • In 2004, Kabul ordered provincial governors to eradicate opium poppy fields. • The newly established anti-narcotics ministry simultaneously conducted separate eradication campaigns. • However gains in curbing cultivation have not been matched by breaking up trafficking rings – the police and judiciary have only imprisoned a few mid level traffickers • Reports of government collusion – mostly involving Interior Ministry officials – continue to raise questions about government capacity to realize its rhetoric about clamping down on narcotics. • As a result, opium production has exploded in recent years with the country now producing over 90% of world output. • There have also been dramatic shifts in production to more unstable areas in the country, largely in the south.
Afghan Opium Production by Metric Tons as a Percent of Global Production Afghan Index: Tracking Variables of Reconstruction & Security in Post-9/11 Afghanistan, Brookings Institution September 23, 2008, p. 20.
The Opium Challenge • Opium remains a significant challenge for Afghanistan and the international community. • Secretary of Defense Gates has noted (December 11, 2007) “The drug trade continues to threaten the foundations of Afghan society and the young government of Afghanistan • The narcotics trade dissuades work and investment in legitimate, activities, provides the insurgents with a lucrative source of funding and contributes heavily to heroin addiction in Central Asia, Europe and increasingly East Africa. • Poverty alleviation is the most prevalent reason given for opium poppy cultivation • There is a considerable income differential that favors opium poppy cultivation over other more traditional crops
Opium and the Taliban • As documented in Jane’s Terrorism and Security Monitor (September 12, 2007) there are a number of significant links between opium and the Taliban • Sheik Omar reversed his opposition to drugs, emphasizing instead protection of local economy • 53% of opium is grown in Helmand Province generating $528 million in 2007 • The Taliban is present in all 13 districts of Helmand, controlling six • In these six districts there are as many as 60 Taliban labs • The Taliban's 10% tax on opium raised $30-$40 million a year • 80% of farming families in Helmand grow opium, with 35% of income originating from this crop • Production has had its most dramatic increase in Helmand
U.S. Counter-Narcotics Strategies • U.S. counter-narcotics policy in Afghanistan has varied from tolerating with the drug situation to advocating it complete eradication. Success has been limited due to a number of adverse side-effects • Counternarcotics policies compromise intelligence gathering, alienate rural populations, and allow local renegade elites successfully to agitate against the central government • Among the three most common counternarcotics strategies – eradication, interdiction and alternative development – eradication poses potentially disastrous risks for Afghanistan’s political stabilization and economic reconstruction, while interdiction greatly complicates counterterrorism objectives • The obstacles to achieving successful alternative development are considerable • A fourth, softer strategy toward the drug dealers—amnesty—also risks serious negative repercussions
Poppies and Development • Much effort recently has focused on USAID’s Alternative Development and Agriculture (ADAG) programs, which aim at creating licit alternatives to poppy production by promoting and accelerating rural development. • ADAG programs are depend on cooperation from the Afghani government, civil society, organizations, the private sector, other donors, PRTs and the U.S. military to coordinate actions • Their goals are to increase commercial agriculture opportunities, improve agricultural productivity, create rural employment, and improve family incomes and well being • Improved job opportunities and incomes provide significant alternatives to poppy production • These programs can be strengthened by appealing to a strong sense that poppy cultivation is counter to Islamic teachings
Questions -- Break • Questions? • Next: • Underlying Forces • The U.S. Contribution to Development • Summing-up – Suggestions for the Army
The Informal Equilibrium I • The economic overview and the assessment of Afghanistan's opium business suggest that: • Little progress will be made in reconstruction and development without an integration of the different elements of Afghanistan’s development agenda: security; reconstruction; economic growth; governance; state building and counter-narcotics • The World Bank found that the “vicious circle” or low-level “informal equilibrium" that developed during the conflict years is still in play • This "informal equilibrium" captures most of the discussion so far. • It summarizes the key factors keeping Afghanistan poor, dominated by the informal sector, weakly governed with a lack of rule of law and subject to chronic insecurity • More importantly it outlines a comprehensive strategy for Afghanistan achieving sustained development and growth
The Informal Equilibrium II • As noted in the overview, an informal equilibrium developed during the conflict period: • Since the failed state could not ensure security, local powers (warlords) took over this role • They further undermined rule of law and had limited incentives to provide public goods • Instead, they often developed profitable illegal activities to pay for their armed forces • Entrepreneurs had little incentive to become formal and, as a result, did not pay taxes • As a result, the government was not able to acquire resources to provide security and other services • Thus this vicious circle was self-perpetuating and created a strong constituency hostile to a stronger central government
Moving to Formal Equilibrium I • In order to shift Afghanistan from an informal to a formal equilibrium conducive to medium-term economic growth and state building: • The government must build its capacity to provide public goods and enforce the rule of law • Increased government capacity changes the incentives for private businesses so that some choose to move into the formal sector • More formal sector activity results in higher tax revenues, which enable the government to build further capacity, creating additional incentives to go formal, etc. • Warlords are removed from play as their militias are disarmed, their soldiers are drawn into the formal sector, and they are forced to operate through legitimate political and economic channels
Moving to Formal Equilibrium II • External assistance can provide the government with additional resources to help it strengthen the rule of law, provide pubic services, and enhance its ability to collect tax revenues • Foreign investment can facilitate formalization and private sector development • The informal sector can become a source of entrepreneurs and businesses that move into the formal sector.
Evolving Informal Equilibrium I • Although improved macroeconomic stability and rising domestic revenues suggest progress in moving to a formal equilibrium, the dynamic trends are not universally positive – windows of opportunity have been missed. • The environment for formalization has not improved as markedly as expected, with only moderate private sector development • Relatively little aid has supported state-building, since most is channeled outside the national budget where it provided no help in building sustainable government capacity • The insurgency is undermining state-building and formalization by shifting attention toward short-term, conflict-related issues. • While it may have been realistic in early stages to effectively remove warlords, this has become increasingly difficult over time • Warlords and commanders in many cases have successfully entered politics • This fact has undermined efforts to build the rule of law
Evolving Informal Equilibrium II • Progress is threatened by an evolving equilibrium in which elements of state-building and economic formalization are getting off-track • Evolving political patterns show former warlords, commanders, and conflict-generated political groupings playing a very important role • Linkages are forming between parts of the state and some politicians and the consolidating drug industry • The insurgency continues to expand • Aid is delivered without sufficient coordination and often achieves disappointing results • State-building in this context risks being distorted by corruption, counterproductive political practices, and interest groups formed during the conflict
Vicious Circles • A key element in this evolution are changes in the drug industry the began between 2001-2003: • A vicious circle involving the opium economy, warlords, and insecurity developed and strengthened • In this situation, payments from the drug industry strengthened warlords, who in turn, undermined the state • Drug related corruption also directly undermined the state • In return for payments, warlord militias helped provide the enabling environment (often including armed protection) for the opium economy to operate. • The weak government was unable to provide genuine security or rule of law • The result was the maintenance of an environment in which the opium economy could continue to thrive as an illegal activity
Breaking out of the Vicious Circle I • Because insufficient improvements have been achieved in the broader strategic level, both opium and its adverse impacts on state-building and development have worsened. • The transformation of warlords into politicians working in the governmental sphere has allowed drug interests to compromise parts of agencies like the Ministry of Interior and Police • The triangle of drug interests, their political sponsors and parts of the government suggest that counter-narcotics efforts have actually contributed to drug industry consolidation • Security forces, most notably the police, are in fact facilitating activities of the drug industry rather than countering it
Breaking Out of the Vicious Circle II • The vicious circle suggests that a multi-faceted strategic framework is required to effectively address the opium economy and the problems it poses for the country’s development: • Counter-narcotics efforts (narrowly construed) alone are unlikely to succeed given the mutually reinforcing factors at work. • The broader strategic framework needed to complement and support direct counter-narcotics efforts includes: • Curbing warlords’ powers by stopping payments and other support to them • DDR (disarmament, demobilization and reintegration) to take away the warlords' militias and force them into cooperation with the government
Consolidation of the Drug Industry • Unfortunately, the Afghanistan dynamics appear to be moving more towards a consolidation of unstable elements • The emerging political patterns may well be detrimental to state building • The insurgency is continuing, expanding in some respects and distracting attention from the boarder and longer term development agenda and distorting priorities • The drug industry continues to fuel corruption and to undermine important parts of the Government • Widespread and apparently growing petty as well as larger-scale corruption is seriously harming the Government’s credibility and legitimacy in the eyes of the people. • There is discontent about the slow progress in reconstruction • Any of these trends individually would be worrisome, but taken as a whole they raise serious concerns about Afghanistan’s future path and prospects.
