Managing Afghanistan's nascent industrial base will be critical as the nation attempts to build a modern economy that is increasingly less dependent on foreign aid. Today, there is great room for optimism as Afghanistan moves toward the post-transition period. Despite having a GDP that was made up almost entirely of outside aid in 2011 and 2012, certain industries -- including the Afghan telecommunications, agricultural, and mining sectors -- have begun to demonstrate remarkable growth and potential, leading to the vital stability needed for a viable, diversified marketplace.
Experts estimate that Afghanistan holds deposits of $1 trillion to $3 trillion of oil, gas, gold, copper, iron ore, and other natural resources. Of this subset, perhaps the most intriguing is the country's marble industry, which is further along in its exploitation than other areas, and whose emergence is an instructive success story on seeding enterprise in the war zone. As commodity cycles turn, prices increase, and large-scale resource extraction projects scale up, Afghanistan is focusing on the industry as an anchor for the development of its resource corridor. According to the Afghanistan Investment and Support Agency, the Afghan marble industry has expanded by 60 percent since 2008, a growth that has positives effects on other industries as well.
Economic considerations aside, Afghanistan's post-2014 future will be heavily tied to its security situation. In geostrategic hot spots around the world, counterinsurgency experts have long argued that adequate development and economic prosperity follow security. But if there is a successful strategy that upends this conventional wisdom, it may lie in western Afghanistan, where the development of the nation's multi-billion dollar mining industry is growing the economy and consequently forcing improvements in the security sector. In essence, as businesses have begun to flourish, despite the lack of fully settled security, Afghans have moved swiftly against nefarious actors to ensure that they do not impact the flow of marble and revenue generation.
Ultimately, an economy is built out through trade, not aid, as growth and new jobs are the most sustainable way to raise living standards. With increasing exports across Europe and Asia, the Afghan marble sector already earns at least $15 million per year and remains the top marble producer in the region. If present maturation trends hold, the marble sector could generate nearly $700 million in exports by 2018.
Over the last five years, other sectors have also demonstrated robust growth: the Afghan media, health, and agriculture sectors (dry fruits and seeds, which surpassed carpets as Afghanistan's primary export) have all shown impressive development. However, these areas rely to a significant extent on the funds available from foreign aid, and subsequently have not generated sizable, sustainable profits that maximize the sectors' full potential. Conversely, certain large-scale mining activities have turned a profit relatively quickly and have continued to expand at a dynamic rate, especially as innovative Afghan companies increasingly access a burgeoning global market for the nation's rare, world-class materials.
Since 2008, Afghans have sharply focused on the country's export capacity to meet the rise in international demand for high-end stone. Since its introduction to the global market, Afghan white stone, a marble noted for its unusually rich quality and rainbow color, has been actively sought by some of the world's wealthiest buyers -- industry insiders -- who are engaged in a continuous price war for the most expensive marble products. By increasing its share in this highly competitive market, Afghanistan is already carving out broader regional economic relevance, with the World Bank concluding that "in a scenario with higher investment in mining development, growth could increase to 6.9 per cent on average until 2025, and fiscal revenues could reach 2-4 percent of GDP in the early 2020s, depending on the number and scale of the exploited mines and the pace of their development." The potential earnings from the mining trade are therefore poised to become an important source of fiscal revenue, as well as a vehicle for creating jobs, developing infrastructure, and ensuring national economic growth. The key remains strategic management and investment.
The largest marble producer in Afghanistan, Equality Capital Management (ECM), founded in 2006 by Nasim and Adam Doost, has implemented a successful framework for foreign direct investment and economic growth. In Herat province, located in western Afghanistan, ECM has secured multi-million dollar commitments from leading international firms by offering an exclusive right to its top-grade marble, in exchange for modern production machinery, mining refinement technology, and technical support from geology and engineering experts. As a result of this business model and efficient management, ECM has helped bring the Afghan mining sector in line with international standards, while also using public-private partnerships to improve infrastructure, power reliability, and access to deepwater ports that are crucial to making the industry competitive.
The effects of these improvements have been clear. Since ECM's introduction of Afghan marble to some of the world's top stone importers in 2008, it has become a highly sought commodity -- a global-luxury good competing with Carrara marble, an Italian stone generally recognized as one of the finest in the world. Consequently, ECM's current portfolio boasts foreign buyers from a vast lineup of nations, including China, India, Italy, Indonesia, Russia, Saudi Arabia, Turkey, Turkmenistan, and the United Arab Emirates, among others. Afghan stone is increasingly used in prestigious construction projects across the world, such as the building of China's St. Regis Shenzhen, a premier five-star international hotel, and in the new headquarters of Margraf Industria Marmi Vicentini, a century-old firm and the fourth largest marble exporter in the world with ties to some of the world's most distinguished architecture.
Because not all foreign companies are keen to enter an unproven market in a war zone, Afghan leadership in cultivating joint ventures to share risks and costs in regions fraught with danger has been critical to the industry's growth. The combination of security operations and economic growth sprouting from these marble-for-security deals, in which Afghan business owners provide marble to the Afghan government in exchange for hard security guarantees, has created challenges for the insurgency. Pursuing this course, "the Afghan National Army has taken the lead and a more active approach to secur[ing] the marble mines, checkpoints, and transit routes over the last six months," notes a senior U.S. military official of Regional Command West. As a result of such deals, in order to guard the industry's growth, the Ministry of Interior and the Afghan National Security Forces have become more responsive, reinstating the flow of commerce hindered by illicit activity and constraining the insurgency in key zones.
Given the improved security, the growth of the marble industry has created an impressive spillover effect. As noted by Mansour Rahimi, the head of the Herat Marble Union, the number of Afghan-run small-to-medium-size marble enterprises in Herat province alone has increased from four to over 40, and the number of quarries contracted with the government has grown from two to 12, a rate that Adam Doost predicts "will generate 40,000 jobs ...over the next five years in this region." In fact, many of the relatively smaller businesses working beside ECM recently established the Marble Union to help capitalize on opportunities and solve challenges facing the industry due to this growth.
The size and sophistication of the mining industry, and the direct work of Afghans themselves as owners, have made the Herat marble industry a model for Afghan businesses in other regions and industries, such as barite, gold, limestone, lithium, tin, and even oil and gas. Acknowledging this influence, a group of Lashkar Gah onyx dealers from Helmand province in southern Afghanistan recently toured several Herat manufacturing facilities and met with the Doost brothers and Marble Union leaders to learn from their successes. The timing of these study tours is crucial, as the Helmand business leaders are currently introducing their highly prized onyx to the global market for the first time. Afghans' direct participation in these industries is absolutely essential for long-lasting economic growth and stabilization in the region.
Despite this success, fundamental obstacles to developing the mining sector remain. Procuring stable investment and credit facilities for businesses, repairing and updating antiquated technology and infrastructure, and improving the structure and application of mining laws all remain significant challenges. To be sure, no "one-size-fits-all" solution can guide business development and the next generation of entrepreneurs who are leading the way in mining and other growth enterprises in Afghanistan. Businesses throughout the nation need more robust trade opportunities and strong partnerships with foreign investors, since the marble sector is capital intensive and driven by a technological skill base, one which is still in its relative infancy in Afghanistan. Nonetheless, drawing on the Afghan marble industry leaders' blueprint for facilitating foreign direct investment and modern technology has already provided practical steps for up-and-coming Afghan business leaders to take as they seek to achieve transformative results.
In essence, understanding why the marble-for-security model works is especially relevant to the economics implicit in counterinsurgency operations across Afghanistan and other strategic zones. Actively seeking ways to identify, study, and apply the lessons learned from the reality of the war zone -- specifically how economics are incentivizing Afghan leaders to turn against the insurgency and drive hard security and stability guarantees -- can effectively help improve growth and stabilization successes across multiple industries throughout Afghanistan for decades to come.
Melissa L. Skorka is a Counterinsurgency Advisor for the Commanding General's Advisory and Assistance Team in Afghanistan.
BEHROUZ MEHRI/AFP/Getty Images
On the 12th anniversary of the 9/11 terrorist attacks, the ongoing Syrian crisis dominated international headlines. Even in the United States, fewer anniversary memorial events were held to remember the victims of that tragic day. But in Afghanistan, it was a different day and a different story.
Last Wednesday, Afghans poured out by the hundreds onto streets across the country, celebrating the victory of its national football team in the 2013 South Asian Football Federation Championship. Every celebrating Afghan man, woman, and child was filled with unprecedented excitement, joy, and hope. The jubilant cheers of the crowds waving the tri-color Afghan flag were deafening, and it felt as if Afghans had been waiting for more than three decades to unleash their collective joy as a nation. Indeed, the Afghan people have been repeatedly denied any chance of celebrating what they could accomplish in peacetime after years of conflict and devastation.
Although peace has yet to prevail across Afghanistan, many Afghans recalled that Kabul's Ghazi Stadium - one of the places where they were celebrating - had been used by the Taliban as an execution ground 12 years ago. But since then, Afghanistan has made great strides in sports, actively participating in regional and international tournaments, including the Summer Olympic Games, where Rohullah Nikpai won his (and the country's) first and second bronze medals in men's Taekwondo in Beijing and London.
These dramatic successes, within such a short amount of time, have boosted the morale and ambitions of all Afghan youth, participating in all sports. They are now training even harder with a firm determination to achieve more victories for Afghanistan in upcoming tournaments. In these efforts, they have the full backing, not only of their families and friends, but their government as well.
Afghan President Hamid Karzai, for example, personally followed the recent football matches in South Asia, and encouraged the national team to win for its country. For the championship match between Afghanistan and India, he sent a senior official delegation -- comprised of the ministers of education, finance, and rural rehabilitation and development, as well as Afghanistan's non-resident ambassador to Nepal -- to support the team. President Karzai also spoke by phone to the team's coach, giving them encouragement; personally received the team at the Kabul International Airport upon their return to the country; and awarded the team medals of recognition, as well as financial tokens of appreciation.
Indeed, the credit of victory goes not only to the football players, but also to all those involved with the team's effort. Afghans everywhere closely followed the championship series and appreciated the unity of effort and purpose which its football team and their victory demonstrated. As Khalid Sadat, a Kabul fruit seller, told the Washington Post: "After 30 years of war, the world thinks of Afghanistan as only having wars and violence. Today, we are showing that our young men can become world champions."
However, these visible gains on the sports field fade when Afghans look at their overall achievements during the past 12 years. It is unfortunate that domestic and international media mostly focus on sensational news, at the cost of many ongoing positive developments in every sector across Afghanistan. Such imbalanced, one-sided reporting effectively strengthens the terror campaign being waged by the Taliban, as well as their destructive propaganda, which is focused on creating an environment of fear and alarm as coalition combat forces prepare to withdraw at the end of next year.
Facts which are seldom reported by the mainstream press include:
All of this is helping the country maintain a 10% growth rate, and is creating access to employment for the first time in countless years.
But these and many other achievements are works in progress and works at risk. Therefore, it is essential for the international community to stay the course in Afghanistan. The country's gains over the past 12 years should be consolidated by implementing win-win objectives that have been outlined at the Bonn, Chicago, and Tokyo conferences, as well as through regional initiatives like the Istanbul Process. In effect, winning or losing in Afghanistan depends squarely on whether its allies and friends will actually deliver on the commitments they have made or the strategic partnership agreements they have signed.
Of course, the implications of winning are clear: a sovereign Afghanistan at peace internally and within the region can only prosper and aid economic cooperation and stability. We live in a world that is increasingly interdependent and where zero-sum designs have proven to be failures and disasters. Sincere, results-oriented cooperation is the call of all people in the region and beyond. As the recent victory of Afghanistan's national football team has shown, the Afghan people can succeed. They just need a much reinvigorated partnership with the international community to translate their shared 12-year gains into national, sustainable, institutionalized peace, pluralism, and prosperity.
Wais Ahmad Barmak is Afghanistan's Minister of Rural Rehabilitation and Development.
M. Ashraf Haidari is Afghanistan's deputy ambassador to India.
PRAKASH MATHEMA/AFP/Getty Images
In complex post-conflict environments such as Afghanistan, security and development needs are intertwined. Without addressing both at the same time, it would be hard to ensure an environment that enables sustainable economic growth. In other words, bullets alone cannot remedy Afghanistan's current situation. In fact, as former U.S. President Bill Clinton once said, "it's the economy stupid," something that is even more relevant in the fight against terrorism in Afghanistan.
Terrorism in the country is fueled by a large number of Taliban foot soldiers former ISAF Commander General David Petraeus used to call "ten-dollar-a-day Taliban." They are non-ideological, but have resorted to violence in the absence of a sustainable livelihood that supports themselves and their families. Many of these rental fighters can and should be weaned off the battlefield with an alternate long-term income.
Hence, it is the creation of more jobs for Afghanistan's youthful population in urban and rural areas that can ensure durable stability in the country. But those jobs should be sustainable in a productive economy, since the lessons learned so far demonstrate that employment created through "quick fixes," like cash-for-work projects, has only temporarily addressed what remains Afghans' top need and concern. In the final analysis, short-term job creation measures are sure to fail-unless they are geared towards promoting and facilitating sustainable income generation in the Afghan economy.
Around 70% of Afghanistan's 35 million citizens are below the age of 25, a vast majority of whom are the breadwinners of large households that include war widows and children. Given the personal experience of this author, because Afghans begin working from an early age to support their families, they are resilient and enterprising. And despite a high rate of illiteracy, they constitute a responsible, energetic, and industrious workforce. Unfortunately, they lack access to skill development opportunities, capital, and credit to grow the small- and medium-sized businesses that make up Afghanistan's vast informal economy.
This situation provides for numerous investment opportunities in every sector in Afghanistan. During last June's Delhi Investment Summit on Afghanistan, for example, the Afghan Ministry of Commerce and Industries presented potential investors with a detailed list of investment opportunities in Afghanistan. These investors, representing 320 international businesses, were informed of investment opportunities in the agriculture, construction, energy, finance, health services, information and communication technologies, minerals, small- and medium-sized industry, and transportation sectors.
However, with the exception of a few domestic and foreign "first movers" in each of these sectors and their related markets, most of the Afghan markets remain under-invested. The government of Afghanistan frequently encourages regional and international investors to visit Afghanistan and see for themselves the countless, highly profitable investment opportunities that exist.
Last November, during his state visit to India, President Hamid Karzai also encouraged the Indian business community to explore investment opportunities in Afghanistan. Meeting with a group of business leaders in Mumbai, he even promised to roll out a red carpet for major Indian firms, if they made moves to enter Afghanistan's virgin markets.
However, most investors are genuinely concerned about the overall business environment in Afghanistan, as security and governance are two of the key enablers for any business to flourish. Insecurity and weak governance undermine business efforts and put investments at risk; and like most post-conflict countries, Afghanistan is not free of these challenges. But the country continues to confront and address them, in partnership with the international community.
Despite sensationally negative news reports on Afghanistan, the country has made monumental gains in building the civilian and military institutions of the state, which are based on one of the most progressive constitutions in the region. The Afghan Constitution also provides for a private sector-led economy.
In January, the World Bank welcomed Afghanistan's 2012 double-digit growth rate of 11 percent, and listed the country as the fasted growing economy in South Asia in its Global Economic Prospects report. Moreover, the World Bank's Doing Business Index for 2013 ranks Afghanistan 28 out of 185 countries in establishing a business in the country. These positive rankings have been made possible by the work of the Afghanistan Investment Support Agency, which serves as a one-stop-shop for investors, both foreign and domestic, enabling the easy registration and establishment of a business in Afghanistan within a couple of weeks.
Over the past 12 years, Afghanistan has also enacted a number of commercial and investment laws, including a company law, a consumer protection law, a competition law, a partnership law, and an arbitration law. These laws have streamlined many of the problems associated with Afghanistan's former central-planned economy. However, there are times when a lack of institutional capacity prevents the Afghan government from implementing and enforcing these laws, which meet international business and investment standards. But these bottlenecks can be addressed through Afghan business consulting firms or joint ventures with successful, reliable Afghan firms that have local investment experience.
As for security, there are only a handful of districts in Afghanistan where it is hard to do business. Most of the country is secure, and open for business and investment. Domestic and foreign investors have prospered in provinces throughout the country, including Balkh, Herat, Kabul, Kandahar, and Nangarhar.
Besides vast investment opportunities inside the country, Afghanistan serves as a gateway to a region that includes some of the fastest growing economies in the world. This makes the country a natural trading hub that connects the Indian subcontinent with Central Asia, the Middle East, and China, markets that include over 50 million consumers. Also, its central location makes Afghanistan a natural locus for an emerging regional network of trade routes and pipelines.
The ease of competition and the ample potential for growth in Afghanistan are relatively new developments. For the first time in decades, Afghanistan enjoys the most investment-friendly environment in the region. Afghans see these new opportunities as a way to rebuild their homeland. They are proud of their long, 2000-year history as a commerce and cultural exchange.
With each economic opportunity that is fulfilled, the people of Afghanistan move one step closer to reconnecting with their heritage and securing a good future for their country. Afghan and foreign investors can play a major role in helping the Afghan people fulfill their national destiny.
M. Ashraf Haidari is the deputy chief of mission of the Afghan Embassy in India. He formerly served as Afghanistan's deputy assistant national security adviser, as well as deputy chief of mission of the Afghan Embassy in the United States.
Noorullah Shirzada/AFP/Getty Images
The Taliban office in Doha is officially open for business, though it is unclear when now-stalled talks will begin. President Obama and officials in his administration have been quick to dampen expectations that peace is at hand -- or even in immediate sight -- which has proved wise given the current anger from Afghans over the way in which the Taliban office opened.
"This is an important first step towards reconciliation, although it is a very early step," President Obama said during a bilateral meeting with French President Francoise Hollande. "We anticipate there will be a lot of bumps in the road." A senior government official echoed those words, stressing to reporters that everyone needed to "be realistic. This is a new development, a potentially significant development. But peace is not at hand."
The United States has long spoken about winding down the war in Afghanistan and bringing its longest war to what the president has called a "responsible end." The 2009 announcement of an American troop "surge" in Afghanistan was accompanied by a drawdown timeline. But as the Iraq example suggests, the United States is better at withdrawing on schedule than withdrawing while leaving peace in its wake. Sectarian violence is surging in Iraq and as National Public Radio noted Tuesday morning, many analysts place the blame for the skyrocketing death count and rising insecurity on an America that washed its hands too soon of a country whose leader it had toppled.
America has vowed it will not "abandon" Afghanistan, including the country's women, with the president promising that the United States would "stand by" Afghans during the country's political and security transitions. A presidential election is scheduled for next April and already questions have surfaced about voter fraud and the willingness of Afghan President Hamid Karzai to transition himself out of office.
Alongside the political transition is the pressing question of what, exactly, the economic transition will bring. The past decade of economic openness has transformed a slew of sectors in a country that was largely isolated from the global economy just twelve years ago. While many in the U.S. think of Afghanistan as simply an aid-dependent basket case, green shoots abound.
The telecommunications sector is booming in a nation that counts nearly two-thirds of its population under the age of 25. Three-quarters of the country is covered by mobile networks and one in two Afghans say they have access to a mobile phone. The Afghan government notes that "over a period of five years from 2002 to 2007, there was tenfold increase in the telephone subscriptions, indicating an annual growth rate of about 60 percent." Media is thriving and the country now counts more than 70 television stations, with radio remaining an information staple in a country that counted the BBC and Voice of America as it news mainstays before 2001.
While the technology sector is very much in its infancy, technology start-ups are found in Kabul, Herat and the north, and 3G reached Afghanistan in 2012. Social networking is especially popular among urban twenty-somethings, with the country now home to roughly 400,000 Facebook users who talk and hang out online in ways they never could in person.
On the natural resources front in this mineral-rich country, Afghanistan has been doling out contracts to foreign firms, even as security has blocked some from advancing. The China National Petroleum Corporation (CNPC) is now developing the Amu Darya oil basin in the north of the country and the Atlantic noted that "an American chemical company and a consortium of diaspora Afghans are seeking to build refineries to service CNPC's extraction activities, as well as expected future extractors."
As the fountain of aid slows to a trickle, however, Afghanistan faces a funding cliff of daunting proportions. The World Bank estimated that in 2011 the country's foreign aid tally was the same size as its GDP, $15.7 billion. Since then, the economy has expanded with an outstanding harvest season and the start of mining activities, leading GDP to climb from 7.8 percent to nearly 12 percent. But the question of what 2014 means for the Afghan economy looms large -- and remains largely overlooked by many outside Afghanistan.
Harvard University tried to change that recently by convening a group of entrepreneurs, diplomats, and security types to harvest ideas for developing a "job-creating infrastructure," but scant attention has been paid to economics, despite its intimate relationship with security. The World Bank, among others, has cautioned that the "political and security uncertainties of the transition period are likely to take a toll on business confidence."
The political uncertainty ahead, and the funding cliff to come, has left Afghanistan's economic future filled with question marks. While the world pledged continued economic support for the country at the Tokyo conference in July 2012, actual funding levels remain unclear. And as the world's attention wanes, making sure these dollars reach Afghan coffers should be a priority for all those who have invested a decade of blood and treasure in the country.
In last year's vice presidential debate, Vice President Joe Biden told America "we are leaving in 2014, period, and in the process, we're going to be saving over the next 10 years another $800 billion. We've been in this war for over a decade. The primary objective is almost completed. Now all we're doing is putting the Kabul government in a position to be able to maintain their own security. It's their responsibility, not America's."
This week's news makes clear that, like it or not, America remains very much in the center of bringing a lasting peace to Afghanistan. And while the United States may want to shed its Afghanistan obligations -- including its commitment to supporting the Afghan economy -- those who care about Afghanistan's security, and America's, will want to make certain the green shoots get tended.
Gayle Tzemach Lemmon is a fellow at the Council on Foreign Relations and the author of The Dressmaker of Khair Khana.
MUNIR UZ ZAMAN/AFP/GettyImages
Pakistan's new government takes office this week, and optimism is in the air.
Pundits point to the Pakistan Muslim League-Nawaz's (PML-N) resounding election victory on May 11, and suggest it will use this mandate to implement critically necessary policy reforms. Presumptive prime minister Nawaz Sharif, observers insist, is more mellow and mature than he was during his previous terms as prime minister. They cite his post-election conciliatory moves-from a visit to the hospital bed of political rival Imran Khan to an invitation to Indian Prime Minister Manmohan Singh to attend Sharif's swearing-in ceremony.
Some of this optimism is warranted. But let's be realistic: despite Pakistan's political transition, the nation's troubling structural realities-from reform-resistant vested interests to state-sponsored support for militancy-remain entrenched. We should therefore keep our expectations in check, and hope for relatively modest achievements from Islamabad's new leadership. These include improving the economy, stabilizing civil-military ties, and maintaining adequate relations with India and the United States. Success, however, will hinge on four unpredictable factors.
Wildcard #1: Tax reform
Sharif appears determined to address Pakistan's sinking economy and debt-driven energy crisis. The PML-N's election manifesto depicts "economic revival" as a chief concern, and in recent days PML-N officials have said they hope to phase out costly subsidies and institute energy pricing reforms.
The question, however, is if the party can truly engineer an economic recovery. The answer will depend on Pakistan's ability to secure new revenue sources-and expanding the national tax base is a much-needed step (according to one recent report, only 768,000 Pakistanis-0.57 percent of the population-paid income tax last year).
Given its dire economic straits, Pakistan is likely to request a fresh loan from the International Monetary Fund (IMF)-and the IMF will probably condition future lending on tax reform. How much political capital is Sharif willing to expend to produce this long-elusive outcome? How hard will Sharif, who has made a fortune in the sugar industry, push back against entrenched agricultural interests that resist tax reform?
Recent comments by Sartaj Aziz, a former finance minister and top PML-N official, raise additional questions. Aziz said the PML-N isn't yet ready to approach the IMF, and will instead focus on its own economic recovery efforts. Optimists may interpret this to mean the government will use the next few months to implement reforms before going to the Fund. Pessimists, however, may conclude that Islamabad simply wants to go it alone-a troubling prospect for a country with dwindling reserves that, if needed, could cover only five weeks of imports.
Wildcard #2: Pervez Musharraf
The man who overthrew Sharif in a 1999 military coup is now under house arrest outside Islamabad. What Sharif chooses to do with Musharraf will help shape the trajectory of the premier's volatile relationship with the institution that once ousted him.
In 1997, Sharif won an election by a wide margin-and promptly used this mandate to challenge the military's authority. Some may fear he'll use his latest large mandate to again undercut the military-not necessarily by challenging its authority directly, but by taking a sharply anti-military position on a key policy issue. One possibility could be pushing for more reconciliation with India than the military is willing to sanction.
However, early indications suggest the two sides are ready to bury the hatchet. Sharif is blaming Musharraf personally, not the military as a whole, for the events of 1999. One week after the election, Sharif held a three-hour meeting with General Ashfaq Kayani-and the army chief pledged full cooperation on all of the issues that Sharif wants to tackle. Soon thereafter, the Finance Ministry released budgetary projections for the next fiscal year. Strikingly, defense services funding allocations were 15 percent higher than those in this year's budget.
So does this all portend smooth sailing for civil-military relations? Not necessarily. The army wants Musharraf out of Pakistan, and Sharif has reportedly informed Kayani that he'd like Musharraf gone before taking office. However, the PML-N announced last week that it plans to try Musharraf for treason-a prospect that would anger the army, which is already displeased about its former leader's detention. It's still possible a deal will be brokered that sends Musharraf back into exile-and perhaps one is already in the works: This week, rumors abounded that he will visit his ailing mother in Dubai. Yet if a trial does take place, Sharif's relations with the military could again be plunged into crisis.
Wildcard #3: Extremism in Punjab
Militancy in Pakistan's most populous province threatens prospects for better ties with India-and the economic benefits that would arise from rapprochement.
Sharif desires improved relations with New Delhi-and trade normalization is a prime objective. Economists estimate that normalization would increase bilateral trade from less than $3 billion to $40 billion. It would also bring much-needed relief to Pakistan's free-falling, revenue-starved economy by placing at Pakistan's disposal, literally next door, one of the world's largest and fastest-growing markets.
Such a tantalizing vision, however, could be shattered by militancy in Punjab. This province, which borders India, is the PML-N's stronghold-and a bastion for anti-India militant groups, including Lashkar-e-Taiba (LeT), which orchestrated the 2008 Mumbai terror attacks. Some, like Jaish-e-Mohammad (JeM), are based in southern Punjab. Others, like Harakat-ul-Mujahedeen, have a strong presence in Rawalpindi, the city that hosts Pakistan's military headquarters. LeT leader Hafiz Saeed lives free in Lahore.
Neither Sharif nor his brother Shahbaz-the last chief minister of Punjab's provincial government, which the PML-N has run for years-has dealt with this problem. During the recent election season, the PML-N chose cooperation over confrontation. Punjab's law minister campaigned with the leader of one sectarian extremist group, while rumors abounded of a PML-N electoral alliance with another.
Encouragingly, Sharif promises to be tough on anti-India militants-he has vowed to ban speeches that "incite jihad" against India, and specifically singled out Saeed's. Yet questions remain about his actual willingness to target these actors (some Indian analysts allege-without elaboration-family "links" to the LeT), much less his ability to do so (Pakistan's security establishment has long regarded these anti-India groups as strategic assets). Ultimately, Sharif's ability to boost ties with India will depend on the extent to which he confronts the militants who wish to destroy it.
Wildcard #4: The provincial government of Khyber Pakhtunkhwa (KP)
This province, which abuts the militancy-ravaged tribal areas bordering Afghanistan, will be governed by Imran Khan's Pakistan Tehreek-e-Insaf (PTI) party. The PTI stridently opposes U.S. drone strikes, and favors non-military solutions to extremism, including peace negotiations with the Pakistan Taliban (TTP). The PTI's ability to stabilize this volatile region, just across the border from where the United States is fighting a war, will bear heavily on Islamabad's relations with Washington.
Sharif's relations with the United States have been relatively friendly since the 1990s, when as premier he worked closely with Bill Clinton (photographs of the two leaders adorn the walls of Sharif's Lahore mansion). Though Sharif's campaign rhetoric featured sharp criticism of drones and the U.S. war on terror, his post-election comments about Washington have been cordial. Last week, during an appearance with James Dobbins, the new U.S. special envoy for Afghanistan and Pakistan, Sharif said the two nations would work "in complete cooperation to curb terrorism."
KP's PTI-led government, however, could jeopardize this goodwill. If it engages the TTP, the latter could enjoy more freedom of movement in KP-affording it greater opportunities to target the NATO supply vehicles that pass through the province, and to intensify its cross-border attacks on U.S. troops in Afghanistan. Such a prospect would pose a conundrum for Sharif, who wants a workable relationship with Washington yet also shares the PTI's desire to talk to the Taliban. Would Sharif, to protect his relations with Washington, pressure the PTI to change course? Or would he honor the party's engage-the-TTP position, and throw his support behind the PTI?
Either way, the PTI will be tested immediately. Last week, after the TTP's top deputy was killed in a drone strike, the organization withdrew its offer of talks with Islamabad and threatened new attacks. The PTI's response to stepped-up violence will have major ramifications for American efforts in Afghanistan-and also for Pakistan, which receives billions of dollars of U.S. aid.
There's reason to believe Pakistan's new government can kickstart the economy, peacefully coexist with the military, improve relations with New Delhi, and cooperate with Washington. Yet it's important to acknowledge the spoilers that could sabotage each of these prospective success stories. Pakistan, after all, remains a troubled country where soaring hopes are often sorely dashed.
Ultimately, by keeping our expectations about Islamabad's new leadership in check, we set ourselves up for less disappointment-while also allowing for the possibility of being pleasantly surprised.
Michael Kugelman is the senior program associate for South Asia at the Woodrow Wilson International Center for Scholars. He is available at firstname.lastname@example.org or on Twitter @michaelkugelman.
AAMIR QURESHI/AFP/Getty Images
Americans are not alone in worrying that their
economic futures are headed in the wrong direction. Afghans, too, fear that the
next several years will bring a business tailspin that will see recent
gains eked out by small and medium companies dissolve amid security woes and a
sharp pullback in international largesse and, of course, foreign forces.
The "light of a new day" may be "on the horizon," as President Obama announced this May from Bagram Air Base, but Afghan entrepreneurs want to make sure their start-ups survive the changes that will accompany whatever comes next. This Thursday 50 such business-owners, 12 women among them, will gather at an investment conference in New Delhi hosted by the Confederation of Indian Industries with support from the Confederation of Women Entrepreneurs in India (CWEI).
The goal is to promote private sector investment in Afghan firms that will increasingly be seen as growth anchors for their country going forward. Companies descending on India this week in search of dollars range from big mining entities to smaller but growing entities including software, carpet-making, and media ventures. Outside Afghanistan few may think of the war-plagued nation as a small-business or start-up hub, but the resourcefulness of the dogged entrepreneurs I have covered these past seven years matches that of any I have interviewed in other countries, rich or poor. Afghan businessmen and women will need every bit of this determination as they confront the uncertainty of the coming years. And it is in America's and NATO's interests that they succeed.
As President Obama noted at Bagram, "Americans are tired of war," and the military intervention in Afghanistan has plunged to new depths of unpopularity in the latest public opinion polls. But economic development is critical to promoting stability and U.S. security interests, and it is essential to making the President's laudable idea of bringing a "responsible end" to America's longest war more than just empty words. Research shows that negative economic shocks of five percent can increase the risk of a civil war by 50 percent in fragile environments . Bolstering entrepreneurs, particularly those running small- and medium-size enterprises, is part of fostering lasting growth that is in both Afghanistan and America's best interest.
Despite remaining on the list of the world's poorest nations, Afghanistan has logged economic successes and macroeconomic stability on which to build. The country's GDP has more than tripled in the last decade, averaging around nine percent a year, with notable gains in infrastructure, telecommunications, and financial and business services. The Ministry of Communications recently began awarding 3G licenses to cellular phone companies and internet usage is expected to climb as technology improves and prices drop. Mobile phone penetration has leapt from less than one percent in 2001 to well above 60 percent today.
And business growth has not been limited to large
firms. Small companies have cropped up across sectors, creating
desperately needed jobs in a country whose unemployment rate is estimated
at well above forty
percent. The non-governmental organization Building Markets,
which ran a business matchmaking service that helped Afghan firms learn of and
apply for international contracts, counted 3,400 companies in its business
database in 2008. By 2012 that number had climbed to 8,300, with nearly
300 owned by women. According to the World Bank's
"Doing Business" report, Afghanistan ranks 30th among 183 economies
when it comes to the ease of starting a business, requiring four procedures and
seven days to register a firm. Training programs such as the
International Finance Corporation's "Business Edge," Goldman Sachs' "10,000
Women," and Bpeace's "Fast Runners" now work with entrepreneurs seeking
management and marketing training. And Afghan export promotion officials
proudly point to recent wins marketing their carpets and dried fruits and nuts
to consumers in Europe and the Middle East.
Yet bad news and economic question marks threaten to swamp the small steps forward. In 2010, Afghanistan's economy received nearly the same amount in foreign aid as it counted in GDP, and the assistance tsunami, often routed around the rickety central government rather than through it, has hardly helped to bolster the country's already weak institutions. Graft remains rampant: Afghanistan shared the next-to-last spot with Myanmar in Transparency International's 2011 "Corruption Perceptions Index." Meanwhile, the trade deficit looks to top $6 billion and fiscal health remains shaky at best, with estimates suggesting government revenues will cover only 60 percent of the Afghan operating budget in 2013.
President Obama pledged in the Strategic Partnership Agreement he signed with Afghanistan's President Hamid Karzai that the United States "shall help strengthen Afghanistan's economic foundation and support sustainable development." This promise was not made simply because America is a benevolent power, but because an economically stable and increasingly prosperous Afghanistan connected to the world is good for the United States. It will soon be up to Congress to decide how much continued economic aid and development assistance to offer Afghanistan, and the temptation will be great to follow the Iraq example of ever-smaller requests met by even smaller authorizations. But shoving Afghanistan off the economic edge would be both short-sighted and counter-productive. As the World Bank noted recently, "international experience and Afghanistan's own history show that an abrupt cutoff in aid can lead to fiscal crisis, loss of control over the security sector, collapse of political authority, and possibly civil war."
America may be drawing down troops and withdrawing militarily from Afghanistan, but the Afghan entrepreneurs gathering this week in India remain worthy of U.S. support and investment. They are allies in the American quest to bring "sustainable stability" to a country and a region that desperately need it.
Gayle Tzemach Lemmon is a fellow at the Council on Foreign Relations and the author of The Dressmaker of Khair Khana.
Last week, Afghan president Hamid Karzai surprised U.S. and coalition officials by announcing the creation of a special tribunal and prosecutor to seek redress for the almost two year old Kabul Bank scandal. And earlier this month, the Afghan House of Representatives rejected the proposed federal budget in part because of the allocation of U.S. $80 million to Kabul Bank. Already, the Central Bank has poured $450 million into the beleaguered bank after it lost almost a billion dollars in the 2010 financial scandal. This money has been traced to interest-free loans given to Mahmoud Karzai, brother of President Karzai, to buy shares in the bank itself, and also to former CEO Khalil Frozi, who used bank funds to finance the President's 2009 election campaign.
Though Afghan authorities arrested Frozi and Kabul Bank founder Sherkhan Farnood approximately nine months after the crisis, it was recently reported that neither can be found in their jail cells, and both are collecting rent from tenants occupying Dubai villas bought with illegally obtained loans. A year after the debacle, only 10% of the missing money had been recovered.
Kabul Bank is more than a symbol of the pervasive corruption plaguing Afghanistan's government, it is the largest private financial institution in the country and an integral piece of infrastructure that has direct consequences for the country's security and financial stability. If Afghanistan is to have any chance at a legitimate economy and stable future, it will need an efficient and trustworthy financial system.
In particular, Kabul Bank is a conduit for government payments to Afghan soldiers, police, and teachers. The United States aims to reduce American troop presence by 2013 and shift security duties to the Afghan military and police force. Absolutely vital to a "successful" drawdown is the establishment of a reliable and transparent payment system. The rampant corruption plaguing Kabul Bank shows that traditional banking systems may not be suitable for the Afghan economy at all. However, the United States Agency for International Development (USAID) is working with Afghan companies to provide an alternate solution - mobile money.
In the past year, mobile phone-based money transfers have taken off in Afghanistan. Three out of the four largest mobile network operators now offer mobile money services, two of which were launched in the last six months. Roshan, the telecommunication company that deployed the country's first mobile money product in 2008, M-Paisa ("paisa" meaning money in Dari), has grown to 1.2 million registered customers that can receive salaries, pay bills, and make domestic financial transactions over their mobile phones. Last month, the company announced a partnership with Western Union to allow these customers to receive transfers from around the world directly to their mobile phones.
USAID has made mobile money central to Afghanistan's financial development. According to USAID, while less than five percent of Afghans have access to a bank account, more than 60 percent of the population has access to a mobile phone. To accelerate the pace of its development, USAID has allocated more than $2 million to mobile network operators as part of its Mobile Money Innovation Grant Fund, and spearheaded the forming of the Afghan Mobile Money Operators Association. Currently, there are five USAID mobile phone payment projects underway, which range from the payments of teacher stipends to police force salaries, and 14 more mobile transfer projects in planning, according to a USAID official who spoke off-the-record. With the scaling of mobile money, an estimated $60 million annually could be retrieved that had been lost to corruption and fees.
Although promising, mobile money is not entirely immune to the harsh realities on the ground. In 2009, the Afghan government worked with Roshan to pilot a mobile phone-based salary payment system to 54 officers of the Afghan National Police Force who had previously received cash from their superiors. When the policemen took their SIM cards to the local M-Paisa offices to directly collect their entire salaries, they thought they had received a 36 percent raise, while what they were really seeing was a full salary untouched by crooked officials, according to a U.S. Air Force Colonel overseeing the project.
However, a confidential State Department cable released by Wikileaks revealed that a corrupt Afghan commander, frustrated that he was no longer able to skim off the top, fraudulently registered phones and collected his officers' salaries. In a separate incident, the same commander ordered subordinates to handover their SIM cards and attempted to retrieve the salaries himself. Though the local M-Paisa employee refused to hand over the salaries to the commander, he was forced to go into hiding for fear of retribution. Despite direct reports to the Ministry of Interior and pressure from the U.S. Government, no one has been prosecuted.
The ability to efficiently pay Afghanistan's security apparatus is critical to any post-war strategy, especially in the face of a U.S. drawdown and the ousting of private security firms. It is especially important for USAID efforts because $899 million worth of development programs they administer are in jeopardy without a functioning security force, according to a recent letter from Steven Trent, the acting Special Inspector General for Afghanistan Reconstruction. Though USAID says this claim is exaggerated, it still highlights the significance of dealing with the systemic corruption within Afghanistan's financial system and in particular Kabul Bank, given its central role in government payments to soldiers.
Despite the importance of anti-corruption measures to security efforts, a clear disconnect between Afghan and U.S. officials gives reason to believe that Karzai's recent announcement to prosecute those involved in the Kabul Bank crisis will not amount to much. As Afghans rushed to withdraw $800 million in deposits in the two weeks following the scandal's breaking, Mahmoud Karzai insisted the bank was stable and not in danger of collapse while simultaneously asking the U.S. Treasury for monetary help in averting a crisis. When the U.S. refused a direct injection of capital, President Karzai publicly blamed the collapse on a lack of foreign technical support rather than the illegal activities of the bank's leadership. A few months later, he banned U.S. government advisers from working with the country's central bank, as they attempted to assist Afghan officials in regulating the financial system and tracking foreign aid, both of which were conditions for releasing $1.8 billion of donor funds.
While the ideal situation for USAID is an end to corruption's hold on financial infrastructure, the reality is that they are working within a delicate political climate. According to a NYT/CBS News poll released this month, almost 70% of American respondents want an end to U.S. military efforts in Afghanistan. With this dramatic fall in American public opinion and election year politics putting the focus on a swift withdrawal of U.S. troops and transition to Afghan forces, the Obama administration is loath to engage in a battle with the Karzai government over corruption that is almost guaranteed to fail. Yet there are still ways for USAID to recognize the restraints of corruption and push forward; one of the promising solutions involves integrating mobile money to build a stronger financial system and more transparent post-transition payment system.
After all, the reality is also this: the results of development projects will have significant bearing on America's legacy in a country where it has spent over 10 years, half a trillion dollars, and countless lives. USAID's success, and ultimately that of the entire U.S. mission in Afghanistan, will depend on our ability to acknowledge that "success" is not an all or nothing proposition. Corruption exists but that doesn't mean that the development community cannot adapt to work within its confinements.
Anjana Ravi is a Research Associate with the New America Foundation's Global Assets Project, where Eric Tyler is a Program Associate.
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Whipsawed by a long-drawn U.S.-led military operation and a decade of erratic international economic assistance, Afghanistan is in shambles. With economic development always considered secondary to security concerns, little has been done in the past decade to establish a sustainable Afghan economy. While the international community has tried to generate a steady flow of aid, the Afghan government is still unable to cater to the population's basic needs. Moreover, the little economy we have seen evolve in Afghanistan since 2001 is predominantly based on the international security presence. The bulk of Afghanistan's gross domestic product (GDP) stems from international aid, and the impending 2014 deadline for the withdrawal of international combat troops will be accompanied by a parallel reduction in aid money. Thus, as the tide of war recedes, a large chunk of the economy will also disappear, posing an increasing threat to stability. The country's current economic trajectory beyond 2014 is fraught with corruption and uncertainty. However, despite the dire situation, Afghanistan's economic transition has received only minor policy attention, with the focus remaining on the ongoing security transition. Thus the question remains: How will Afghanistan sustain its economy beyond 2014?
The decrease in foreign assistance is like to cause today's economic bubble to burst, potentially plunging the country into an economic recession. And if the security environment further deteriorates, the country could face full economic collapse. A financing gap of 25 percent of GDP by 2022 due to increased military and non-military spending by the Afghan government further puts Afghanistan's economic stability at risk. While the international donor community can help to prevent a total collapse of the economy by decreasing aid gradually, the key to a prosperous Afghanistan is to invest in the long-term economic advantages the country has to offer.
One such advantage may lie in Afghanistan's geographic location. The New Silk Road strategy, often promoted by the United States, aims at linking Afghanistan with its South and Central Asian neighbors, transforming the country into a nucleus for regional trade. Focus should also be placed on rebuilding the oil and gas pipeline running from Turkmenistan through Afghanistan and on to Pakistan and India. If done right, these initiatives might enable Afghanistan to attract increased foreign investment, connect the country to foreign markets, and promote growth, gradually reducing its dependence on foreign aid. However, the key to such a scenario lies in Afghanistan's relations with regional players, in particular Pakistan. Given its location, Pakistan is expected to serve as the main transit route for Afghan exports and access to the port cities of Gwadar and Karachi will remain crucial to Afghanistan's development. However, a volatile relationship with its eastern neighbor could mean a precarious dependency for Afghanistan.
Another potential economic trigger may be found in Afghanistan's untapped mineral reserves, ostensibly valued in the trillions of dollars. Based on cautiously optimistic assumptions by the World Bank, the iron ore project at Hajigak and copper mine at Aynak could deliver $2 to $3 billion to the extractive industry, with each deposit potentially generating over half a billion dollars in government revenue in just a few years. The mining industry may appear at first glance to be a potential panacea for the Afghan economy, but it will take decades before the country can reap the benefits of such a project. The Afghan mineral reserves require significant investments in infrastructure, and more importantly, effective and accountable governance that can efficiently and transparently manage revenues. Furthermore, in 2010, of the total $17 billion government expenditure, only $1.9 billion of the spending were drawn from Afghanistan's own sources of revenue; the rest: foreign assistance. Hence, besides the projected tax revenues and some foreign aid, even if mineral resources did manage to generate the estimated revenue, the Afghan budget would still face an annual deficit of $7 billion.
Rebuilding after more than a decade of conflict must also involve encouraging growth in Afghanistan's nascent private sector, a sector that has been stifled to some degree by the international donor presence. In a "donor drunk" economy, there are a large number of foreign, private NGOs, which dominate the private sector and make entry into it difficult for Afghan organizations. Although some of these private entities are effective development organizations at the grassroots level, many carry a negative perception among the Afghan people, who see the ubiquitous "briefcase NGOs" as money-making mechanisms for the people involved. Meanwhile, the influx of foreign money and employers has also artificially inflated labor costs for low-skilled workers over the past years, and has made Afghanistan an attractive venue for external laborers from neighboring countries such as Pakistan. However, as the flow of aid dwindles, those who have been paid hefty salaries over much of the past decade for low-skilled work for foreign entities may now prove more affordable to Afghan businesses, and will also open up more jobs for Afghan workers. While the initial transition phase from a military focused economy to a regular one will be difficult, it will leave room for a more long-term, sustainable economy to develop.
Regardless of Afghanistan's many potential sources of revenue, any real progress will be limited without the long-term support of the international community. While the West's future commitment to Afghanistan is vague at best, the increasing number of strategic partnerships with key allies signals a willingness by certain powers to remain involved in shaping Afghanistan's future beyond 2014. In the past week, Afghanistan has signed strategic partnership agreements with key European allies such as the UK, France, and Italy that ensure an enduring commitment and cooperation with Afghanistan in key areas, including economy, security, and governance. While only time will tell if the West really will stay committed to Afghanistan, this week's agreements are at least a step in the right direction.
Similarly, any future foreign aid funneled by the West to the Afghan government is effectively futile without properly addressing the raging corruption and lack of transparency and accountability in public finances. As the world's second most corrupt nation, any failure by the West and the Afghan government in tackling this menace in the so-called "transformation decade" would mean repeating and wasting yet another inefficient ten years of international assistance.
Today, as U.S. and NATO troops prepare to assume a lighter military presence, many Afghans fear a serious economic downturn when foreign aid and spending recede, leaving Afghanistan with little or nothing to fall back on. It is still uncertain if and how the Afghan government will function after 2014 without an open-ended $8 to $10 billion yearly commitment from the United States and Europe. However, responsibility for a stable and secure Afghanistan ultimately rests with the Afghans themselves, and there is still a sense of optimism among the Afghan people about the future of their country. The Afghan government, for its part, must foster transparency and accountability in public finances drawn from foreign aid, and work to cut leaks that enable corruption. If these reforms and the myriad of other challenges go unaddressed, the hard work and accomplishments of the past decade could easily unravel and ultimately lead to an even more troubled Afghanistan than we have seen in the past ten years.
Javid Ahmad, a native of Kabul, is Program Coordinator with the Asia Program of the German Marshall Fund of the United States in Washington, DC. Louise Langeby is a Program Associate with the German Marshall Fund of the United States in Brussels. The views reflected here are their own.
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Editor's note: This is Part II of a two-part seriesfocusing on aid provision in conflict zones. The first installment can be foundhere.
Ehsan Entezar's Afghanistan 101, dryly academic though its language tends to be, is nevertheless anilluminating guide to the Afghanistan today. As a scholar born, raised, and educated in Afghanistanbefore obtaining his doctorate in the UnitedStates, Entezar lends the insight of a native son inilluminating the realities of Afghan culture and society, and by doing so,providing some sharp clues as to the likely efficacy of the aid programs thatare allegedly "building" Afghanistan.
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By Peter Bergen and Sameer Lalwani
The top American commander in Afghanistan, Gen. Stanley A. McChrystal, is right to warn that efforts to rebuild that country depend on winning the “struggle to gain the support of the people.” And few issues do more to stoke the resentment of ordinary Afghans than the tens of billions of dollars of foreign aid from which they have seen little or no benefit. They see legions of Westerners sitting in the backs of S.U.V.’s clogging the streets of Kabul and ask themselves what exactly those foreigners have done to improve their daily lives.
Eight years after the fall of the Taliban, Afghanistan remains one of the poorest countries in the world. And by some estimates 40 percent of international aid leaves the Afghan economy as quickly as it comes in -- going to pay Western security contractors, maintain back offices in the West and pay Western-style salaries, benefits and vacations -- while as little as 20 percent of that aid reaches its intended recipients. Compounding this problem, the salaries of imported civilian workers are orders of magnitude higher than those of their Afghan peers. Some employees of the United States Agency for International Development, for instance, earn more than 300 times the monthly pay of an Afghan teacher.
Yes, when it comes to large-scale projects like building roads and hospitals, Western contractors have to take the lead because Afghan companies are years away from having enough experience. But there is a way for the Afghan government to recoup some of the billions of dollars of aid flowing to those contractors and being recycled back to the West: tax it.
Foreign contractors and corporations working in Afghanistan do not pay income taxes there; and if they do pay taxes at all, it is to their home governments. America and its European allies could easily give up claims on taxes from their citizens working in Afghanistan and instead condition contracts so that the workers and the companies that employ them pay Afghan taxes. The loss in tax revenue suffered by Western countries would be trivial compared to the good will this would engender among Afghans. Right now the government’s tax revenues total a paltry $300 million. Taxing foreign technical assistance alone -- an estimated $1.6 billion annually -- could double this revenue.
And this would require little sacrifice from the 70,000 or so foreigners working in Afghanistan. Afghan taxes are quite low, with the highest bracket set at 20 percent, while technical advisers from Western development agencies can earn $9,000 to $22,000 per month and private contractors can earn even more. With Western unemployment rates high, it is unlikely that having to pay a relatively paltry amount of tax to Afghanistan would deter contractors or corporations from taking on lucrative work there.
To read the rest, visit the New York Times, where this was originally published.
Peter Bergen is a senior fellow at the New America Foundation. Sameer Lalwani is a research fellow there.
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