Thursday, February 02, 2012

Withdrawal symptoms hit Afghan economy

KABUL: The anticipated withdrawal of most international forces is still two years away, but Afghans who have depended on the decade-old foreign presence for their livelihood are already feeling tremors as the first troops leave and spending and aid money dries up.

So dependent is Afghanistan that in 2010, international assistance amounted to roughly 97 per cent of the country's gross domestic product, according to a World Bank estimate.

Over the last 10 years, about US$54 billion (S$68 billion) in aid and military spending poured into Afghanistan, generating thousands of jobs and producing a new wealthy elite in cities like Kabul.

The foreign money, and the end of the Taleban government, lured Afghan refugees and entrepreneurs back, and lifted important parts of the economy to unnatural highs.

But now, real estate prices, salaries, store sales and factory orders have started shrinking.

The Milli Factory is one example. It once turned out 1,500 pairs of boots a day for the Afghan security forces, paid for by the international coalition. But in the past eight months, the company has not received any new order.

As the international forces withdraw and Afghanistan is forced to pay for more of its own equipment, the government is buying Chinese and Pakistani boots - which are lower in quality but cost 15 per cent less.

The housing bubble is also deflating. A typical house used to cost US$30,000 to US$230,000 depending on size and location, but prices dropped by US$10,000 to US$50,000 last year as people worried about the pullout, though prices bounced back in December.

'The investors, they are still trying to sell their properties to collect their cash money and move their families back abroad,' said Mr Toryalai Babakarkhail, a former brick kiln operator who now runs a small real estate business.

The optimists in Kabul hope that capital investments in infrastructure, including electricity, roads and schools, will be a catalyst for private-sector enterprise.

But this rural country of 30 million people, where life expectancy is only about 45 years, will have to adjust from the boom in services and construction to something more durable and modest.

As aid is withdrawn, the World Bank forecasts that growth could fall to 5 per cent or 6 per cent for the next few years. But the slowdown could be more severe if security worsens, if Afghans cannot maintain their new infrastructure, or if the government fails to garner royalties from contracts for the country's mineral wealth.