economic implications of the kabul conference

8/4/2019 Economic Implications of the Kabul Conference

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Issue 07/10 01 October 2010

AFGHANISTAN

Economic Implications of the July 2010 Kabul Conference

Steven A. ZyckEconomic Development Knowledge Manager

[email protected]

This document analyses the economic implications of the July 2010 Kabul Conference. Furtherinformation is available atwww.cimicweb.org.1Hyperlinks to original source material arehighlighted in blue and underlined in the text.

With media attention following the 20 July 2010 Kabul International Conference onAfghanistan (the Kabul Conference) focused mainly on the political and security implicationsof the meeting, which involved more than76 world leaders, the economic and infrastructure-related implications have received less scrutiny. Yet a review of the Communiqu, which

codified the agreements establishedat the Conference, reflects a range ofpotential economic effects. Thecommercial ramifications of the eventwere also recognised by the

Afghanistan Chamber of Commerceand Industries (ACCI), whichreleased a statement regarding theprivate sectors expectations for theConference. Key outcomes of theConference are noted belowalongside a detailed description andanalysis of their implications for

Afghanistans economy and the mainstakeholders engaged in thecountrys development.

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Afghan President Hamid Karzai with world leadersat the 20 July Kabul Conference UNAMA, 2010
mailto:[email protected]:[email protected]://www.cimicweb.org/http://www.cimicweb.org/http://www.cimicweb.org/http://www.mfa.gov.af/kabul-conference.asphttp://www.mfa.gov.af/kabul-conference.asphttp://www.mfa.gov.af/Kabul%20Conference%20List%20of%20Participants.xlshttp://www.mfa.gov.af/Kabul%20Conference%20List%20of%20Participants.xlshttp://www.mfa.gov.af/Kabul%20Conference%20List%20of%20Participants.xlshttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.acci.org.af/http://www.acci.org.af/http://www.acci.org.af/http://www.acci.org.af/PR/Private%20Sector's%20Expectations%20from%20Kabul%20Conference.pdfhttp://www.acci.org.af/PR/Private%20Sector's%20Expectations%20from%20Kabul%20Conference.pdfhttps://www.cimicweb.org/survey/Lists/AFG_Infra_20100308/NewForm.aspx?Source=https%3A%2F%2Fkm%2Ecimicweb%2Eorghttps://www.cimicweb.org/survey/Lists/AFG_Infra_20100308/NewForm.aspx?Source=https%3A%2F%2Fkm%2Ecimicweb%2Eorghttp://unama.unmissions.org/default.aspx?/http://unama.unmissions.org/default.aspx?/http://unama.unmissions.org/default.aspx?/http://unama.unmissions.org/default.aspx?/https://www.cimicweb.org/survey/Lists/AFG_Infra_20100308/NewForm.aspx?Source=https%3A%2F%2Fkm%2Ecimicweb%2Eorghttp://www.acci.org.af/PR/Private%20Sector's%20Expectations%20from%20Kabul%20Conference.pdfhttp://www.acci.org.af/http://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.mfa.gov.af/Kabul%20Conference%20List%20of%20Participants.xlshttp://www.mfa.gov.af/kabul-conference.asphttp://www.cimicweb.org/http://www.cimicweb.org/mailto:[email protected]


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1. Government-Owned Development Spending and National Priority Programmes Among the highest-profile announcements made at the conference was the conditionalagreement of the international donor community to provide at least halfof all developmentspending through the Government of the Islamic Republic of Afghanistan (GIRoA). Afghangovernment ownership was also emphasised as part of the agreement. The Zurich-basedInternational Relations and Security Network (ISN) noted that 80 percent of donor moneywould be devoted to government-preferred projects, particularly the 23 national priorityprogrammes (NPPs) announced by the government on 08 July 2010. If implemented asoutlined in the Kabul Conference Communiqu, the shifting of donor spending to the Afghangovernment and its NPPs would represent a significant sectoral shift in development financingtowards economic development and infrastructure (see Figure 1).

Figure 1: Potential Increase in Economic Development Support

21.09%

35.00%

47.50%

30.36%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

Agriculture & Rural

Development

Economic & Infrastructure

Development

Pre-Kabul Conference Post-Kabul Conference Source: Pre-Kabul Conference data was collected from the Donor AssistanceDatabase; Post-Kabul Conference data, which is an approximation and does notreflect actual donor commitments or disbursements, is based upon the July 2010

Prioritisation and Implementation Plan of the Afghanistan National DevelopmentStrategy (ANDS), Volume 1, p. 46.

PercentageofODA

to

Afghanistan

(bySector)
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Consider, for instance, that economically-relevant sectors such as agriculture, ruraldevelopment, private-sector development, trade, transport and energy have received onlyslightly more than half (51.45%) of international, non-security assistance disbursed within

Afghanistan since 2003, according to the countrys Donor Assistance Database (DAD).However, theAfghan governments most recent developmentplan, which is focused upon theaforementioned NPPs, requires USD 8 billion in international assistance for social andeconomic development between 2010 and 2013. Of this USD 8 billion requested by the Afghangovernment, which was tentatively endorsed at the Kabul Conference, USD 2.8 billion wasidentified for agriculture and rural development while a further USD 3.8 billion was set asidefor economic and infrastructure development. The combined USD 6.6 billion for these twocategories comprises at least three-quarters of all future, non-security assistance for

Afghanistan. Put another way, Afghanistan could be poised to receive previouslyunprecedented levels of assistance for economic development and infrastructure while other

sectors may be in a less advantageous position.

Figure 2: The Afghan Governments Core Development Budget and Record of Execution

Source: Data on the value of the GIRoA CDB was extracted from the 1388 National Budget ofAfghanistan. Figures for execution (spending) of the CDB can be found in the documentAfghanistans

National Budgetproduced by the information-sharing portal,Harmonieweb.

41%

54%54%

43%

38%

-

500

1,000

1,500

2,000

2,500

2005/6 (1384) 2006/7 (1385) 2007/8 (1386) 2008/9 (1387) 2009/10 (1388)

Fiscal Year (Solar Year)

USD

Millions,

Valueat

Disbursement

0%

10%

20%

30%

40%

50%

60%

GIRA Core Deve lopment Budget (CDB) % of CDB Spent/Executed
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1.1 Spending Increased Government-Owned Development Assistance

Perhaps one of the larger challenges, however, will be the execution (spending) of fundsentrusted to the Afghan government for economic development and infrastructure (see Figure2). With theWorld Banknoting that the Afghan government was able to spend (or execute)only 38% of its donor-provided development budget in FY2009/10, analysts wonder how

Afghan authorities will be able to effectively deal with more substantial resources.

While the GIRoA has been, following up on the Kabul Conference, tasked with implementingits Public Financial ManagementRoadmapof 14 July 2010 which is intended to increase thegovernments budget execution this roadmap appears to be reliant upon hasteneddecentralisation and streamlined procurement to increase budget execution. Close monitoringwill be required to ensure that funds are allocated by donors for the NPPs, that funds are

spent by the Afghan government in an effective way and, finally, that funds are allocated toeconomic development and infrastructure as envisioned within the ANDSs Prioritisation andImplementation Planand at the Kabul Conference.

2. Preventing Corruption and Improving Public Financial ManagementIncreasing levels of foreign aid being channelled through the Afghan government poses notonly opportunities for economic development but also challenges related tocorruption, whichwas another major topic discussed at the Kabul Conference. The Conference Communiqulisted the following goals to be pursued by the Afghan government:

The establishment of a legal basis for the Major Crimes Task Force (MCTF) and the Anti-Corruption Tribunal/Special Courts within a year;

The preparation and submission of an Audit Lawwhich includes formal authority for theMoF to conduct internal audits of all government agencies;

The conduct of a review, within six months, of Afghan laws to ensure they are compliantwith the United Nations Convention Against Corruption (UNCAC);

The adoption and implementation of policies related to bulk cash transfers to preventlarge-scale movement of capital outside of Afghanistan; and

The formation, within three months, of a Joint Monitoring and Evaluation Committee(JMEC) with a full secretariat to monitor the use of government resources.

As a whole, these commitments suggest an ambitious and largely institutional response tocorruption along with the strengthening of the operating environment for private-sectoractivity. As with the realignment of donor and government spending in favour of economicdevelopment and infrastructure, the key question concerns implementation. How fully, howeffectively and how quickly will the anti-corruption reforms noted above be implemented, and
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what difference are they likely to have upon investment and private-sector activity withinAfghanistan?

3. Integrated Regional Infrastructure and Economic CooperationIndeed, communicating economic opportunities within Afghanistan throughout the region willbe particularly important if progress is to be made on regional economic and infrastructureintegration. Increased cooperation between Afghanistan and its neighbours was emphasisedthroughout the Kabul Conference. As a sign of their commitment to this goal, Afghanistan andPakistan signed a Transit Trade Agreement in Islamabad the day prior to the KabulConference. Subsequent progress on this goal appears to have been reached with the signingof a Gas Pipeline Framework Agreement involving Turkmenistan, Afghanistan, Pakistan and

India on 20 September 2010in the Turkmen capital, Ashgabat. Since the Kabul Conference,bilateral meetings and agreements on the Turkmenistan-Afghanistan-Pakistan-India (TAPI)pipeline have taken place between Turkmen and Afghan officials, the presidents ofTurkmenistan and Pakistan and Indian and Turkmenleaders.

In addition to trade agreements, the ConferenceCommuniquemphasised the importance ofregional infrastructure networks as a means of fostering economic cooperation andintegration. An Infrastructure Trust Fund (ITF) combining resources from the World Bank andthe Asian Development Bank (ADB) was endorsed by participants at the Kabul Conference.Roads linking a number of major towns and cities within the region Abadan and ChaharBahar to Herat, Zaranj to Delaram, Gwadar to Kandahar, Hairatan to Mazar-e Sharif andTorkham to Jalalabad were specifically noted, as was the need to increase infrastructure toenable energy production, transmission and distribution. Despite such aspirations, theconference included few firm commitments on regional infrastructure systems; instead, the

Afghan government encouraged both multilateral organizations and bilateral partners topromote such projects, as stated in the Communiqu. However, the question of whether ornot such encouragement will lead to tangible cooperation remains to be seen. Recent newsreportshave been disparaging about the prospects for the TAPI pipeline, in particular, giventhe legacy ofdifficult regional relations, particularly within South Asia, and the rising levels ofinsecurity throughout Afghanistan.

4. The Role of Economics in Security and StabilisationIn addition to these overtly economic issues, a range of security concerns touched upon otherareas such as livelihoods, growth and fiscal sustainability. Of particular importance is the

Afghanistan Peace and Reconciliation Programme (APRP), which will involve a substantialfocus upon livelihood-orientated reintegration support for insurgency-linked combatants whoaccept amnesty/reconciliation offers. The Kabul Conference confirmed the internationalcommunitys support for reconciliation activities. WhileNew York Timesrecently reported thatUSD 250 million is needed to assist former insurgent fighters with reintegration, only a fractionof this amount has thus far been contributed by donors, who are waiting for the GIRoA to set
http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/world/44-pak-afghan-reach-consensus-over-transit-trade-fa-05http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/world/44-pak-afghan-reach-consensus-over-transit-trade-fa-05http://www.reuters.com/article/idUSSGE68J0JT20100920http://www.reuters.com/article/idUSSGE68J0JT20100920http://www.reuters.com/article/idUSSGE68J0JT20100920http://www.reuters.com/article/idUSSGE68J0JT20100920http://www.businessweek.com/ap/financialnews/D9HUGF3G0.htmhttp://www.businessweek.com/ap/financialnews/D9HUGF3G0.htmhttp://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/44-pakistan-denies-giving-gilgit-baltistan-to-china-fa-08http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/44-pakistan-denies-giving-gilgit-baltistan-to-china-fa-08http://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.adb.org/media/Articles/2007/12178-afghanistan-roads-projects/http://www.adb.org/media/Articles/2007/12178-afghanistan-roads-projects/http://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://en.cumhuriyet.com/?hn=169352http://en.cumhuriyet.com/?hn=169352http://en.cumhuriyet.com/?hn=169352http://www.sipri.org/blogs/Afghanistan/Afghan%20Peace%20and%20Reconciliation%20Programme-%20draft-%20Apr%2010%20.pdfhttp://www.sipri.org/blogs/Afghanistan/Afghan%20Peace%20and%20Reconciliation%20Programme-%20draft-%20Apr%2010%20.pdfhttp://www.sipri.org/blogs/Afghanistan/Afghan%20Peace%20and%20Reconciliation%20Programme-%20draft-%20Apr%2010%20.pdfhttp://aan-afghanistan.com/uploads/2010_AAN_Golden_Surrender.pdfhttp://aan-afghanistan.com/uploads/2010_AAN_Golden_Surrender.pdfhttp://www.nytimes.com/2010/09/07/world/asia/07taliban.html?ref=world&pagewanted=printhttp://www.nytimes.com/2010/09/07/world/asia/07taliban.html?ref=world&pagewanted=printhttp://www.nytimes.com/2010/09/07/world/asia/07taliban.html?ref=world&pagewanted=printhttp://www.nytimes.com/2010/09/07/world/asia/07taliban.html?ref=world&pagewanted=printhttp://aan-afghanistan.com/uploads/2010_AAN_Golden_Surrender.pdfhttp://www.sipri.org/blogs/Afghanistan/Afghan%20Peace%20and%20Reconciliation%20Programme-%20draft-%20Apr%2010%20.pdfhttp://en.cumhuriyet.com/?hn=169352http://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.adb.org/media/Articles/2007/12178-afghanistan-roads-projects/http://president.gov.af/Contents/72/Documents/2038/Communique%20-%20Kabul%20International%20Conference%20on%20Afghanistan%20-%2020%20July%202010.pdfhttp://www.rferl.org/content/TAPI_An_Idea_Whose_Time_Hasnt_Quite_Yet_Come/2157793.htmlhttp://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/44-pakistan-denies-giving-gilgit-baltistan-to-china-fa-08http://www.businessweek.com/ap/financialnews/D9HUGF3G0.htmhttp://www.reuters.com/article/idUSSGE68J0JT20100920http://www.reuters.com/article/idUSSGE68J0JT20100920http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/world/44-pak-afghan-reach-consensus-over-transit-trade-fa-05


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the parameters for reconciliation initiatives before disbursing funds. Again, as with all of thetopics discussed above, the ultimate implications remain unclear, though monitoring of thesituation including donor contributions, the governments strategy and implementation ofany reintegration support for insurgent fighters will remain necessary over the course of thecoming months.

Finally, thenarcotics tradewas highlighted during the Kabul Conference as a source of capitalfor the insurgency, and participants were careful to highlight strategies which would reducepoppy cultivation in the manner least likely to increase rural poverty in Afghanistan. Whileeradicationwas mentioned as one option for tackling the drug trade, more attention was paidto post-harvest forms of intervention such as interdiction and the control of precursorchemicals(which are used in processing raw poppies into heroine and other opiates). Such astrategy would be well aligned with the Afghan governments previously discussed plan to

increase financial support for agriculture and rural development.

5. ConclusionWhile it is not prudent or credible to suggest that the Kabul Conference has had any definitiveimpact upon economic development and infrastructure in Afghanistan, positive messages wereconveyed. Greater Afghan government ownership of development assistance seems likely toresult in further attention to and financing for economic growth and infrastructure.Furthermore, the high-profile nature of the conference has, indeed, spurred progress on arange of regional initiatives from the TAPINatural Gas Pipeline Project to the resurrection ofdecades-old, Russian-funded development projects in Afghanistan at theSecond QuadrilateralSummit between Afghanistan, Pakistan, Russia and Tajikistan. Nevertheless, the degree towhich commitments made in Kabul and elsewhere will translate into action and intoeconomic growth and improved security remains to be seen.

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