- The Washington Times - Monday, October 27, 2014

The 10th annual U.S.-Afghanistan Business Matchmaking Conference will be different from the previous nine. The looming departure of most U.S. and international troops means the Afghan economy will be challenged to grow without the security blanket and international focus provided over the past decade.

Private economists and global financial organizations such as the International Monetary Fund agree that huge question marks hang over the future of the Afghan economy, still one of the poorest in the world, as a new government in Kabul attempts to accelerate reforms while still fighting a major insurgency. Interest from donor nations is expected to fall as the international military presence cuts back, and the boost to the local economy from the huge international presence will also be gone.

Afghanistan, which averaged 11 percent growth in its nonfarm sectors from 2007 to 2011, faces revenue shortfalls that have been worsening since then: Growth last year fell to 4.2 percent and is expected to fall again this year. The revenue declines could reach $1 billion this year, economist and Afghanistan analyst William Byrd said in an interview last month with Deutsche Welle.

A survey of some 541 firms in Kabul and four other regions released in August by the Afghanistan Chamber of Commerce found a number of troubling private-sector trends: Business optimism is falling; new orders are contracting; layoffs are on the upswing; new firm registrations are down; investment in construction and real estate development — once a rare bright spot for the economy — has declined sharply. Domestic investment is down, and there are signs of rising capital flight as the drawdown nears.

“A stable economy is vital to a secure Afghanistan. Presently, however, it’s showing clear signs of hurt due to growing pessimism amidst political uncertainty and the impending transition,” according to researchers Shehzad H. Qazi and Erika Schaefer, writing in Foreign Policy.

A new IMF country survey noted that Afghanistan’s economic future “is subject to a wide range of risks — many on the downside.” The World Bank “ease of doing business” index ranked Afghanistan 164th out of 189 countries, just one slot above Syria. In the subcategory of “protecting investors,” Afghanistan came in dead last.

The country is rife with corruption and is not good at managing its money, said Anthony Cordesman, the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies.

“[The money] was very poorly controlled and spent [by the Afghan government]. There were too many purchases that were made that shouldn’t have been made,” Mr. Cordesman said.

Accentuating the positive

Don Ritter is president and CEO of the Afghan-American Chamber of Commerce (AACC) and an organizer of the Kabul business mixer to be held Tuesday in the Afghan capital. He acknowledges the country’s economy faces a major year of transition, but pushes back at the idea that the future is bleak.

With the recent election of President Ashraf Ghani Ahmadzai, a former finance minister, Mr. Ritter and others are hopeful about Afghanistan’s economic future and the country’s relationship with the U.S.

“There is a new optimism that I think can encourage companies to become involved in Afghanistan,” Mr. Ritter said.

The U.S.-Afghanistan Business Matchmaking Conference will try to encourage new business and establish commercial links between the U.S. and Afghanistan, according to the AACC.

The conference will look to put American, Canadian and Afghan business leaders together in order to network and present to one another the key areas of the economy for investment and joint ventures, Mr. Ritter said.

However, there is skepticism about how much even the most well-intentioned conferences will have on the economy. Pakistan, which continues to have a difficult relationship with its neighbor, is Afghanistan’s biggest import and export market, although the U.S. now ranks as the second-biggest import supplier for the country.

Mr. Cordesman said he does not pay attention to gatherings such as these because “they have not had a big macroeconomic effect” on the economy.

However, with a new focus on economic development and a business-friendly president, the Afghan economy could see an uptick. Mr. Ghani Ahmadzai is realistic, Mr. Cordesman said, and that could help the Afghan economy.

Ward E. Scott II, founder and managing partner of the international commercial law firm Scott Advocates LLP, based in Kabul, Afghanistan, said he was “guardedly optimistic” about U.S. firms in the Afghan economy despite the major uncertainties.

There is a great amount of brand recognition for American companies working in the Afghan market, Mr. Scott said.

“Whether it’s in retail, food franchising or services, there’s a lot of attractiveness to American brands [in Afghanistan],” Mr. Scott said.

After 9/11, most of the U.S. focus in Afghanistan was on security and political issues, but the first U.S.-Afghan business matchmaker event was organized just two years after the terror attack on New York City and the Pentagon.

Since the ouster of the Taliban regime, Afghanistan’s economy has made progress in a difficult environment, according to the CIA’s World Factbook. Much of that was spurred with help from the U.S., which funded about 60 percent of Afghanistan’s national budget, according to the Special Inspector General for Afghanistan Reconstruction.

Since 2002, the U.S. has given about $93 billion in economic and military assistance, the Congressional Research Service said in May. The U.S. budgeted an additional $6.1 billion for this year.

IMF economists say the next few years could be critical. A smooth transition and relative stability could give outside investors greater confidence, while a collapse of central control, gains by Taliban militants and continued corruption could leave the Afghan economy in worse shape than before.

“The outlook will be determined by the success of managing the economic transition from aid dependency toward a more self-sustaining economy over the ‘transformational decade’ [of] 2014-2025,” the recent IMF report stated. “Significant improvements in security could even generate a ‘peace dividend’ for [the economy] through higher activity across sectors, foreign direct investment, better regional transportation links and the return of expatriates.”

The U.S. designated Afghanistan as a major non-NATO ally in 2012, which should keep the U.S.-Afghan relationship strong after the vast bulk of American forces pull out in the coming months.

The second half of this year’s matchmaking conference will be held in Washington Dec. 9-11.

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