Occupation Economy without Occupiers

After 20 years of western occupation, Afghanistan's economy is in distress, facing a total meltdown since western aid was halted.

BERLIN/KABUL | | afghanistan

BERLIN/KABUL (Own report) - Following the West's withdrawal from Afghanistan, the United Nations seeks to supply the Afghan population with basic necessities. At yesterday's UN donor conference in Geneva, donors pledged over $1 billion in aid, with Germany promising €100 million. During its 20 years of occupation, the West was incapable of developing the Afghan economy, which remained dependent on extensive foreign payments that inflated certain sectors - such as services for western and government personnel - but did not help generate anything even remotely resembling independent production. While corrupt government officials funneled billions to Dubai in plain view of the West, poverty among the Afghan population was increasing. Already prior to the West's withdrawal, nearly half of the Afghans depended on humanitarian aid. The suspension of aid payments and the implementation of US sanctions, once the Taliban seized power, are dealing a death blow to the Afghan economy.

Dependent on Aid Payments

Afghanistan's economic situation had already been in a dire state prior to the Taliban's stunning take over. Nearly 20 years of western occupation, humanitarian aid, western development funds and western expenditures for the military were still amounting to around 43 per cent of Afghanistan’s GDP, according to the World Bank. Three-fourths of the government's expenditures were financed through aid programs.[1] The massive flows of rent kept the Afghan economy dependent: It inflated some sectors, such as services, used by western personnel, and financed by the West, while neglecting other important - especially industrial - sectors. At the same time, Afghanistan's currency, the Afghani, was overvalued by the constant flows of rent, making exports more expensive, thus more difficult, and facilitating imports. This also weakened Afghan production. The Afghan rentier economy encouraged corruption, which was not seriously challenged by western powers. The government in Kabul and the warlords ruling the provinces were able to siphon off huge sums from foreign aid payments into their own pockets.

Blatant Corruption, Abject Poverty

These sums have mounted into the billions, as analyses show. Recently, reports made headlines that ex-president Ashraf Ghani was taking huge sums of cash - allegedly well over US $100 million - with him, when he fled Kabul for the United Arab Emirates. Ghani denies it. However, the fact remains that earlier cases have come to light, wherein Afghan government functionaries have flown to Dubai with millions. According to a study published in July 2020 by the Carnegie Endowment for international Peace, headquartered in Washington, for almost two decades, billions of dollars in corruption proceeds have been funneled from Afghanistan to Dubai.[2] At the same time, the country's poverty has continued to grow. The portion of the Afghan population living below the poverty line rose from 33.7 percent in 2007 to 54.5 percent in 2016.[3] Already in July, the United Nations appealed to wealthy nations to donate additional funds for Afghanistan. Around 18 million Afghans, half of the population, are dependent on humanitarian assistance. A third of the population is undernourished; half of the children below the age of 5 are even suffering acute malnutrition.[4]

Without Salaries

The Afghan economy - which was already suffering under the worst drought catastrophes and the COVID-19 pandemic - was hit very hard in various ways by the West's departure. On the one hand, the western soldiers, the employees of aid and development organizations, as well as other personnel were certainly a significant economic factor, given the fact that they rented accommodations, used services, and other things. The funds that the West had paid for the subsistence of the - officially - approx. 300,000 Afghan soldiers were immediately lost. Even if a large portion of these troops existed only on paper, with their pay being diverted, a six-digit number of Afghans are now without salaries. In its comprehensive analysis, the Afghanistan Analysts Network (AAN) describes that many of the 420,000 state employees that the Taliban cannot pay without foreign aid are in a similar situation.[5] This has consequences for the entire service sector, which, to a large extent, is financed from their expenditures. The AAN's analysis quoted a World Bank study, explaining that most recently around 2.5 million Afghans were employed in the service sector or in the construction industry - amounting to 77 percent of all urban employees.

US Sanctions

In addition, the United States had imposed punitive measures as well as sanctions on the Taliban. Already back in August, the Biden administration had frozen Afghan currency reserves, within its access. Out of a total of US $9 billion, US $7 billion alone, are in the US Federal Reserve in the form of cash, gold or bonds, now out of Kabul's reach.[6] This applies also to other monetary assets deposited abroad. At best, the Taliban will, be able to access 0.2 percent of its foreign exchange reserves, it is reported. Moreover, because Washington is maintaining sanctions on the Taliban, all supplies to Afghanistan, particularly humanitarian aid, risk provoking US reprisals and, even though the Biden administration has declared that humanitarian aid would be exempt from sanctions, there are still reports of great uncertainty - as is the case of humanitarian aid to Iran.[7] This is particularly serious, given that Afghanistan, due to specific economic developments under western occupation, has become heavily dependent on imports. More than a quarter of the country’s requisites in rice, up to 40 percent of the ingredients for bread and more than three-quarters of its electrical current must, according to AAN, be satisfied through imports.[8]

Hunger, Flight, and Terror

The situation is highly precarious - particularly from the humanitarian perspective, but, especially from a political perspective, for the West. If the sanctions against the Taliban remain in effect and the cash inflow from the West remains at bay, would be looming. The United Nations does not exclude that as much as 97 percent of Afghanistan's population could plunge into poverty by mid-2022.[9] That would cause immense human suffering. Unimpressed, the West seeks to use its money as leverage against the Taliban. At the United Nations Afghanistan Donor Conference yesterday in Geneva, Germany's Foreign Minister Heiko Maas reiterated that Berlin would limit itself to "strictly emergency aid" for the population. All other payments will remain suspended. Should the West be speculating that by withholding the usual funds, they will induce the population to increase pressure on and possibly overthrow the Taliban, it could, according to the AAN, not only provoke a mass exodus toward Europe, but also induce the Taliban to abandon its policy of stopping terrorists - such as the Islamic State Khorasan Province (ISKP) - from attacking western targets.[10]

Struggle for Influence

Against this backdrop, the United Nations has received pledges of aid worth more than a US $1 billion. The German government has promised a contribution of up to €100 million.[11] According to UN estimates, if these payments actually arrive - which is often not the case in comparable situations - this would be able to cover the barest minimum for a while. Everything else is the subject of the exploratory talks and negotiations that are just starting, wherein the focus is not on the Afghan population, but rather on the West's attempts to exercise influence on the Kabul government.

 

[1] Hannah Duncan, Kate Clark: Afghanistan's looming economic catastrophe: What next for the Taleban and the donors? afghanistan-analysts.org 06.09.2021.

[2] Brian George: The Kabul to Dubai Pipeline: Lessons Learned From the Kabul Bank Scandal. carnegieendowment.org 07.07.2020.

[3] See also The Twenty Years' War.

[4] Afghanistan: Funding shortfall amid deepening humanitarian crisis. news.un.org 15.07.2021.

[5] Hannah Duncan, Kate Clark: Afghanistan's looming economic catastrophe: What next for the Taleban and the donors? afghanistan-analysts.org 06.09.2021.

[6] Taliban ohne Zugriff auf Devisenreserven. tagesschau.de 18.08.2021.

[7] See also Auf Zeit gespielt.

[8] Hannah Duncan, Kate Clark: Afghanistan's looming economic catastrophe: What next for the Taleban and the donors? afghanistan-analysts.org 06.09.2021.

[9] Rick Gladstone: Afghanistan is at risk of 'universal poverty' by mid-2022, U.N. warns. nytimes.com 09.09.2021.

[10] Hannah Duncan, Kate Clark: Afghanistan's looming economic catastrophe: What next for the Taleban and the donors? afghanistan-analysts.org 06.09.2021.

[11] Milliardenhilfe für Afghanistan zugesagt. Frankfurter Allgemeine Zeitung 14.09.2021.