Privatizing Afghanistan

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Afghanistan's rapid transformation from a political and economic basket case into a viable democratic state has been nothing short of miraculous.

The international community, led by the United States, has contributed to the reconstruction of a beleaguered nation to the extent that there now are a democratically elected president, free media, progressive businesses, investment and civil laws plus a viable banking industry, all of which in turn have assisted in the development of a thriving private sector.

Both the government and donor nations pronounce their dedication to building a market economy. Afghanistan has emerged from an emergency situation to be confronted with a new phenomenon: Aid organizations have tapped into the financial lifeblood of private enterprise development and the government itself is competing with the private sector.

Here are five reasons why this contingent of nongovernmental organizations and government-engaged businesses have alarming long-term implications: First, the United Nations and other international organizations generally do not outsource functions critical to improving the private sector. International agencies and the United Nations (and its divisions) favor sister entities or the NGO community, or they set up parallel structures to the private sector.

Take the recent UNESCO educational TV pilot project. Rather than contracting with existing TV stations for delivery of services, they have opted to purchase all the equipment and set up duplicate structures.

Second, NGOs compete directly with the private sector. Lack of market competition, access to public funding and the ability to operate tax-free all mean that NGOs can offer products and services at highly subsidized rates, creating an anti-competitive environment for businesses that vie for the same markets.

This is rife in the media sector. The donor-nation mantra is "support free media," but rather than run their programs in existing and available free and independent media, they choose to create new subsidized media organizations, competing in a tight market. In Kabul, we have the BBC, Radio Free Europe/Radio Liberty, Kilid (NGO), VOA, AINA/Women's Radio (NGO) and others that compete directly with the commercial ARMAN FM.

Third, NGOs and International agencies absorb Afghanistan's best employees. With a ready source of funding and no need for return on equity or having to deal with other free-market exigencies, they have attracted, with large salaries, Afghanistan's best and brightest workers. The resulting drain on human resources away from the private sector and into the vast nonprofit economy has severely limited the private sector's ability to build human-resource capacity.

Fourth, international contract and grant mechanisms tend to favor NGOs. Today's NGOs — organizations funded by the international community — can undercut any business entity in Afghanistan and secure lucrative contracts that private businesses depend on. NGOs can disregard factors relating to life-and-death business issues like supply, demand and profit margins. They also have the benefit of starting with a fully geared-up infrastructure, also funded through donors, while many firms in similar areas must start from scratch.

Fifth, some government departments compete with the private sector, creating huge conflicts of interest. The role of government, as elaborated in Afghanistan's National Development Framework, is to regulate rather than compete. However, in some cases, entrepreneurial government bureaucrats develop capacity and do work that clearly competes with the private sector, in direct conflict with the government's market-economy objectives.

A few examples of such government-owned or -controlled entities include: (1) The Afghan Chambers of Commerce and Industry, which is the voice of government in business, not a voice for the private sector; (2) Afghan Film, which virtually controls matters pertaining to film and cinema; (3) Ariana Airlines: a government-run airline; (4) Afghan Tel, which, controlled by the government, also has a stake in Afghan Wireless, while other telecom entries are funded entirely by the private sector.

A four-point private-sector "affirmative action" plan is needed before public enterprise overwhelms the private, and should include: (1) favorable treatment vis-a-vis the subsidized NGOs in bidding for contracts; (2) significant outsourcing by nonprofits to local businesses; (3) more local-level salary structures for NGOs; (4) a means of limiting government involvement in business; and (5) direct flow of donor funds to the private sector, bypassing government.

Such proactive steps are absolutely necessary to overcome the powerful momentum that is pushing the Afghan economy in a non-market direction. And while a market economy is enshrined in the country's constitution and policies, it will take more than words for the private sector to be able to provide for the needs of the Afghan people.

Saad Mohseni is a director of Moby Capital Partners, a media entity in Afghanistan that includes ARMAN FM and Tolo TV. Former Rep. Don Ritter is an investor in Afghanistan and a senior adviser to an Afghan business community effort to promote investment and market-based economic policies.