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Economic Resilience in Afghanistan

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2012 was one of the worst winters on record in Afghanistan. The cold was taking a toll on the vulnerable and there were concerns the heavy snowfall would lead to devastating spring floods. On one of these extreme days in Kabul I saw a legless man on the side of the road, positioned on an open, makeshift wagon and using his hands to push himself through the snow. Like many Afghans, the man appeared toughened to life and adapted to his circumstances, resiliently moving forward.

Today Afghanistan as a whole must draw on its collective resilience. With the large international presence a major driver of past growth, many now worry that as the country transitions away from its dependence on aid, the economy will collapse. There are already plenty of reports of Afghan businesses shutting down and the Kabul real estate bubble (also known as the "KaBubble") about to burst.

This is an important topic that a number of panelists and I addressed recently at the U.S. Institute for Peace. Among the panelists it was clear I was the least pessimistic, and, much to the surprise of my colleagues, even optimistic at times about Afghanistan's abilities to weather the transition. What would warrant anything but pessimism?

Afghanistan's economy can adapt just as other economies long dependent on a single source of growth have adapted. Businesses can find new sources of growth, although there will certainly be job and income losses in some sectors. In Kabul's real estate sector, for instance, reduced international demand now presents an opportunity for small local businesses previously "crowded out" by international tenants. Moreover, previous profits made in the sector (where leases in the international districts have been upwards of tens of thousands a month) likely mean there is capital in the local economy available for reinvestment in other sectors.

Similarly, looking past transition, while the services sector may no longer be driven by international demand, domestic demand for a key service industry, telecommunications, is expected to continue to rise. Nearly 60 percent of the population now uses mobile phones. In 2012 Internet usage doubled when Afghan Telecom dramatically reduced internet bandwidth prices.

Additionally, it's important to understand that Afghanistan has developed new capacities over the last decade that will help with adjustment. Consider these statistics:

· 9 percent annual economic growth on average since 2002, compared to 5 to 6 percent by other poor countries

· Life-expectancy increased by 15 to 20 years

· 8 million children (of which 37 percent girls) are now in school, up from 900,000 boys in 2002

· Tripled access to electricity from 6 percent to 18 percent of the population

· Increased roads from less than 50 kilometers to thousands of kilometers, including the vital Ring Road

These hard-fought gains enable a virtuous circle of increased productive capacities, improved standards of living and, importantly for Afghanistan, improved chances for stability. As research by economist Paul Collier and others have found, if a post-conflict country can grow its economy by 10 percent a year it can reduce its risk of returning to conflict from more than 40 percent to just over 25 percent.

Finally, while it's reasonable to assess risks and opportunities, gloomy predictions may be counter productive. There is a degree of "endogeneity" at work here wherein risks to the economic system are being partially driven by the reaction of economic actors to perceptions about the future. So at a time when confidence in the country's future is fragile and investors are largely sitting on the side lines, predictions of an inevitable collapse risk becoming self-fulfilling prophesies.

The World Bank's Transition study projects that depending on what happens with agriculture, mining, and security and if aid levels decline gradually, Afghanistan can attain 6 to 7 percent annual growth after Transition. As such, the international community is helping Afghanistan mitigate any negative economic impacts from Transition while at the same time establishing a stronger foundation for sustainable and inclusive economic growth for the Transformation Decade. At the NATO and Tokyo summits in 2012 the international community committed to continue assistance to Afghanistan, with civilian assistance at or near the past decade's level through 2017. Also, USAID and other donors have re-focused our programs on the country's most promising sectors, including agriculture (from which an estimated 70 percent of Afghans make their livelihoods), trade, and mining.

The winter of 2012 was an incredible hardship for many Afghans but the feared massive spring floods never materialized. Instead, the winter's snowmelt and new agricultural capacities built over the last decade helped produce an abundant harvest that raised GDP growth to an estimated 10 percent, up from 7 percent in 2011. Like the leg-less man I saw on the street, the country showed itself resilient and moved forward.