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Afghanistan Struggles To Press Ahead Without Aid

Construction in Baghlan Province, Afghanistan.
Construction in Baghlan Province, Afghanistan.

On the outskirts of Kabul, life at the Omid Gardizi construction company is typical of the painful transition facing Afghanistan as the country watches billions of dollars in foreign spending dry up and the Taliban increasingly undermining the economy with outbreaks of violence.

Company owner Sayed Dilagha Mossavi says that, for years, his work depended on NATO-led forces. Now most of them have gone.

"If they're not here, no one will use this," he said of his 50-strong fleet of cranes, diggers, graders, and rollers, which he estimated cost $5 million and is now gathering dust. "The work has finished."

The company employed 25 people as of 2012, the year after the number of NATO troops in Afghanistan peaked at about 140,000. Today, three people are on the payroll.

About 13,000 foreign soldiers remain in the country, leaving Afghan government forces to battle the Taliban largely on their own. There is no official estimate for the drop in off-budget military spending and aid in 2015 from levels seen a few years ago, but the government says it is billions of dollars. The country secured a $16 billion, four-year aid program from donors in 2012.

According to World Bank data, the Afghan economy generated less than $21 billion in annual output in 2014, signifying a dramatic impact from the loss foreign aid and military spending.

Reconstruction funding from the United States, Afghanistan's biggest foreign donor, has fallen from a peak of $16.7 billion in 2010 to $6.3 billion, according to the U.S. Special Inspector General for Afghanistan Reconstruction, an oversight body.

Since NATO ended its combat operations in Afghanistan, security has worsened. The insurgency spreading to a point where the Taliban briefly seized the northern city of Kunduz in September, an incident that seriously rattled confidence in an uneasy national unity government formed after disputed 2014 elections.

Economic growth is expected to be 1.9 percent this year compared with an annual average of 9.2 percent from 2001 to 2011. According to the World Bank, domestic revenues will be equivalent to just 9.8 percent of gross domestic product.

Making matters worse, more than 150,000 Afghans have fled to Europe since the beginning of the year to escape rising unemployment and violence, while the rich have stashed billions of dollars overseas.

The country has been partly looking to big mining projects, including the $3 billion Mes Aynak copper deposit, which has stalled amid security threats and as Chinese investors and Kabul disagree over terms.

The government plans a self-sustaining economy based on 22 programs including infrastructure and agriculture, but officials concede it is underfunded and behind schedule. A senior Finance Ministry official said the assumed 10-year time frame for the transition to self-reliance was unrealistic.

"It's not an easy process; it will take time. Even after 10 years, we will only be less dependent on aid," said the official, who declined to be identified.

The Finance Ministry official acknowledged the need for more revenues, and said President Ashraf Ghani was tackling corruption and supporting the private sector.

Some businesspeople, however, say insecurity, along with graft, red tape, and government inaction, compound the problems of those trying to break away from the aid economy.

"We have not seen a single effort or initiative toward economic development," said Shakib Noori, of the Afghanistan Holding Group, a management and investment consultancy that has provided services to donors and is now trying to re-focus on the domestic economy.

He said Afghanistan should forget big projects while security is so poor and focus instead on small- and medium-sized enterprises.

"We've gone after big business and failed. We need to start small businesses for local consumption," he said.

Along with some colleagues, Noori last month opened a food shop and bakery, catering to Afghans looking for cheap, healthy lunches, with a $20,000 investment, the first of five small projects in their pipeline.

"It's very painful to transform from an almost 100 percent donor-driven bubble economy to a real one," he said. "But there are other opportunities. I know it's difficult. The license will take you a month."

Back at his yard, Mossavi said he hoped to off-load his machinery in the Gulf and Central Asia.

"Maybe I should have opened a supermarket," he said.

With reporting by Robert Birsel for Reuters