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Tuesday, 6 August 2013

Aid and Aid for Trade in Afghanistan



Afghanistan is ranked as one of the poorest countries in the world with a weak state that is barely able to govern effectively especially in the face of frequent resurges of violence by rebels (UNDP, 2011a). It is estimated that over 36% of the 29 million population of Afghanistan live below the poverty line with most of them unable to have stable access to food, water and other basic amenities (Higgins and Prowse, 2010). Historical developments that have culminated in the current situation are as follows. Power struggles that were triggered by the 1973 revolt saw a sharp reversal of much of the progress already made as far as economic development is concerned. Having enjoyed a period of relative calm and development, a 1973 coup brought down the popularly elected government with the new administration barely lasting for five years before being brought down by yet another counter-coup in 1978 led by communists (Central Intelligence Agency, 2011). The Soviet Union would later invade the country in 1979 and engage it in a destructive war that saw the Soviets dominate the country until 1989. This reign was replaced by a weak administration which would soon come under intense Taliban attacks and gave way to the Taliban in 1996. The association of Taliban with some of the world’s most wanted terrorists saw an international movement towards its destruction with a UN led force bringing to an end the reign of Taliban reintroducing democracy and setting the country on a path of economic growth (Central Intelligence Agency, 2011). Despite these measures, Afghanistan continues to be poorly developed with an economy that is largely dependent on natural resources with a GDP of about $ 27 billion which barely caters for the needs of the population (US Department of State, 2011). This prompts the country to be highly dependent on foreign aid and aid for trade to enable the country to trigger greater gains in their economy.   

The Afghanistan economy is mainly dependent on agriculture with a majority (85%) of its population largely dependent on the sector for its livelihood (Thomas, 2011). This has made the country quite prone to droughts and adverse changes in climatic conditions especially in the face of accelerated global warming. As is common with most undeveloped economies, Afghans mainly rely on natural resources as their main source of income (Thomas, 2011). This restricted source has great impediments as far as limitations and growth potential is concerned. As analysts would hold, an economy is more likely to develop when it is able to diversify away from natural sources such as agriculture and mining.

The UNDP ranks Afghanistan as one of the lowest ranked countries as far as Human Development is concerned. Whereas other bodies may look to the GDP for guidance on poverty levels, the UNDP uses the Human Development Index as a more reliable measure since it denotes a general sense of well-being among the members of the population (UNDP, 2011a). The elements used for generating the Human Development Index include life expectancy which determines a population’s capacity to live a long and healthy life; literacy levels; and purchasing power parity which determines the population’s capacity to have a decent living standard. The index is however not a comprehensive measure of the well-being of a population since it excludes such necessary measures as gender imbalance, inequality in income levels, and the level of respect for human rights and political freedoms (UNDP, 2011a). However, it may serve as a good indicator of a country’s poverty level as compared to other countries. The index is generated with 1 as the highest and 0 as the lowest. According to the 2010 HDI ranking, Afghanistan was ranked 155th out of 169 countries with a HDI index of 0.349: an indication that the country is actually among the poorest in the world (The Afghanistan Analyst, 2011). However, this is indicative of an improvement given that the country was ranked 181 out of 182 countries in the 2009 rankings (Rawa News, 2009). The HDI trend in Afghanistan is as illustrated below:

HDI Trends since 2005

Source: UNDP, 2011a 

Other measures for determining poverty levels include the multidimensional poverty index which identifies multiple deprivations in the standards of living, education and health. According to this index, individuals are classified as poor depending on the number and the degree of deprivation they experience (Grollier, 2009). According to the latest human poverty index, Afghanistan ranks among the 10 lowest countries.
The country remains under developed with the threat posed by the insurgents being the main obstacle to sustainable growth and development. Afghanistan remains one of the most dangerous countries to live in with a recent UN report stating that it is one of the most dangerous countries for a child to be born in (AusAid, 2011). This image problem makes it difficult for the country to inspire the levels of economic development necessary to pull its population out of poverty. The country is therefore forced to depend on foreign aid to meet these ends.  

The phenomenon of providing foreign aid for developing countries is widespread with much of the aid being channelled towards the financing of the budget. Aid may also be channelled to specific projects such as education, infrastructure development, poverty reduction projects and others (Higgins and Prowse, 2010). Aid for trade is more specific and is channelled towards helping countries to develop trade related skills and infrastructure (WTO, 2011). This is aimed at putting into effect certain World Trade Organisation (WTO) agreements which countries are expected to embrace in order to expand trade. The WTO plays a key role as far as aid for trade is concerned by encouraging additional aid for trade inflows from donors (bilateral, regional and multilateral donors) to support trade capacity building initiatives in developing countries; supporting improvements in the monitoring and evaluation of the aid; and encouraging greater focus on trade by having partner countries incorporate them into their mainstream strategies (WTO, 2011). In view of the fact that trade is a broad subject, aid for trade is equally varied and not easily defined. In addition to infrastructural development, technical assistance is also provided and it involves helping countries with strategy formation, negotiation skills and the implementation of the agreements arrived at (OECD, 2006). Infrastructural help involves the building of roads, telecommunication networks and sea ports. The aid for trade may also extend to cushioning countries from challenges arising from tariff reductions, declining terms of trade, or even preference erosion. 

The latest comprehensive figures as compiled by OECD relate to the year ended 2009 where Afghanistan was a recipient of about $1.7 billion. These were distributed across different levels as follows: economic infrastructure ($ 958 million); trade policy and regulations ($ 20 million); building productive capacity ($ 733 million); and trade development marker ($ 124 million) (OECD, 2011).

The sector specific allocations of aid for trade commitments 2009 according to OECD is as follows:
Sector
Proportion of Total AFT
Transport, storage
39.8%
Trade policy and regulations
3.6%
Energy generation supply
5.3%
Business, other services
4.8%
Banking and financial services
10.9%
Industry
1.5%
Agriculture, forestry, and fishing
33.4%
Minerals and mining
0.7%
Communications
0.1%
Data source: OECD, 2011
Trade policy and regulations refer to a number of issues which include provision of technical assistance to ensure clear linkages between the national agenda and trade strategies; provision of technical assistance to enable countries to adopt to the agreements reached between them and their trading partners; the provision of administrative and institutional support for regional trade groups; and help countries arrive at beneficial deals when engaging in bilateral and multilateral trade negotiations (USAID, 2011). It may also include the support for trade facilitation.
In relation to trade related infrastructure, a number of areas are considered. The most commonly focused on area include the provision of roads, telecommunication networks, and power supply to all trading groups including the poor ones (Higgins and Prowse, 2010). This helps increase the accessibility of the populations to products and services hence raising demand. It also enables the small scale producers the avenue to avail their products in the market without undue strain thereby boosting the level of trade in any given economy. The increased trade volumes also help with revenue generation which respective governments can plough back into the economy to promote further economic growth. The aid for trade could also be channelled towards the mitigation of risks associated with an ailing or an unhealthy labour force (Higgins and Prowse, 2010). The construction of storage facilities especially when it relates to agriculture has also been cited as very effective especially in countries dependent on agriculture to enable them avoid unnecessary losses caused by the price fluctuations which usually affect the food market (Thomas, 2011).

Productive capacity building is also pursued through the aid for trade and entails the promotion of a good trading environment and the support to enable the private sector identify their areas of comparative advantage and engage in increased production in order to optimise the opportunities arising (Higgins and Prowse, 2010). Under this category, the aid focuses on the creation of a healthy trading environment; supports agricultural diversification into untapped markets; supports primary producers to engage in value addition in order to reap greater benefits from trade; provides relevant education in order to boost productivity; and helps highlight the inequalities with an aim to making trade open to members of both genders. In Afghanistan, this kind of assistance has largely been experienced in industry, agriculture, forestry and the mining sectors (USAID, 2011).

Aid for trade can also be channelled towards trade related adjustments which help support countries that may be grappling with the effect of reduced revenues as a result of lower tariffs as proposed by the World Trade Organisation (Higgins and Prowse, 2010). Other support measures may include social protection measures and the stabilisation of returns from agricultural products.

The main donors of aid for Trade in Afghanistan were noted as follows:
Donor
 Amt ('000) usd
United States of America
           1,135,781.00
United Kingdom
              124,541.00
World Bank
                 72,779.00
EU Institutions
                 62,935.00
Canada
                 54,621.00
Italy
                 34,275.00
Data source: OECD, 2011
These top donors contribute over 92% of the total aid for trade received in Afghanistan (OECD, 2011).

The Australian government has also been keep to provide foreign aid to the country with its 2011-2012 estimates being at about $ 121 million and an official development assistance of $ 161 million (OECD, 2011).

Various other non governmental organisations are actively involved in various programs in Afghanistan. Many of them are focussed on improving the welfare of ordinary Afghans through provision of health assistance, education and literacy promotion programs, and provision of basic needs such as food. Some of the largest NGOs operating in Afghanistan include Oxfam, Care International, Mercy Corps, Inter Action, the Red Cross, the Red Crescent, Doctors Without Borders, and the World Food Program among others (Cookman and Wadhams, 2010). In as much as the NGOs serve specific purposes, many of them tend to serve purpose of helping to improve the welfare of the citizens through poverty alleviation through the provision of basic amenities. Other NGOs at work in Afghanistan include UN Food and Agriculture Organisation, Islamic Relief, Food for the Hungry, Actionaid, Learning for Life, AGEF, International Rescue Committee, American Councils, Marigold Fund, AfghanMark, Partners in Revitalization and Building, Afghan Technical Consultants, Afghanistan Independent Human Rights Commission and Bureau for Reconstruction and Development among others (The Afghanistan Analyst, 2011). The hundreds of NGOs operating in Afghanistan contribute significantly to the poverty alleviation agenda in the country and the achievement of the millennium development goals. In fact, the amount of funds that have flowed into the country in 2010 is estimated to stand at around $ 500 million which is almost a third of the funds that flowed in through the aid for trade by bilateral and multilateral donors (The Afghanistan Analyst, 2011).

One of the main objectives for aid for trade as advanced by the developed countries is the stabilisation of global trade for a more stable global economy (WTO, 2011). The World Trade Organisation was formed for the same objective and the institution was quick to identify disparities in economic development across countries as one of the impediments for engaging in stable trade internationally (WTO, 2011). This is why the WTO plays a pivotal role in ensuring that developing countries receive as much aid for trade as possible. The body provides technical assistance to countries to help refine their trade strategies and ensure that trade policies are enshrined in their mainstream country strategies. They also play a pivotal role in highlighting the type of assistance needed by the different countries and thereby encourage bilateral and multilateral donors to attend to such needs. Being key players in global trade, the developed countries who form the bulk of donors for the programs, view their expenditure in aid for trade to less developed countries as an investment to ensure sustained trade (Higgins and Prowse, 2010). This stabilised trade ends up benefitting the donors. In fact, analysts believe that the donor countries tend to benefit more from the aid than the beneficiary counties.

Poverty reduction has also been a main source of concern internationally and has been one of the main points of focus by the United Nations (UNDP, 2011). Trade has been cited as one of the most effective tools for reducing these poverty levels and this partly contributes to the commitment with which donors provide aid for trade.  The Aid for Trade is primarily aimed at helping developing countries to overcome barriers to trade expansion while ensuring that the poor citizens of such countries have adequate access to the trade (WTO, 2011). Analysts have in various occasions drawn clear linkages between trade, economic growth and poverty reduction. Open trade is known to trigger greater economic development which in turn contributes significantly to poverty reduction. Indeed some of the most rapidly growing economies in the world are said to be beneficiaries of more open trade between them and other countries (Higgins and Prowse, 2010). There is inadequate data on how trade impacts poverty levels and to what extent it impacts the same. However, general consensus exists among scholars who hold that countries with a relatively better developed economy tend to have lower poverty levels among their citizens.

The effectiveness of aid
Given the significant amounts of money dedicated to providing aid to developing countries, a fair share of attention goes towards ensuring that the funds provided actually achieve their intended purpose. With an increasing demand for accountability and productivity at home, donor countries have been hard pressed to ensure that the funds spent achieve the intended results (OECD, 2011a). The effectiveness of aid was amply focussed upon during the Paris declaration in March 2005 which mainly focused on how to ensure that the aid funds provided remain effective. The main areas focused on included the strengthening of cooperation between partner countries as far as development strategies and operational frameworks are concerned (The Paris Declaration on Aid Effectiveness, 2011). It also focused on the importance of ensuring that there is alignment of priorities among aid partners with a focus on systems and procedures hence helping to strengthen their capacities. The accountability of the donors and the beneficiary countries was also focused on with the need to encourage transparency and accountability duly highlighted. The cooperation between the donor countries was also viewed as useful for minimising duplications hence making the aid provided more cost effective (The Paris Declaration on Aid Effectiveness, 2011). As such, donor countries were encouraged to declare their commitment to the relevant regional groups and UN affiliates in order to avoid unnecessary duplications of donor roles. The Paris declaration also resolved to developed similar procedures for financial management, fiduciary safeguards, procurement and other measures to ease of reporting and greater accountability (OECD, 2011a).   

Some of the weaknesses that were identified at the conference that needed to be dealt with included the following: weaknesses in the beneficiary countries rendering such countries inadequate to deal with the result oriented national development strategies: failure to provide predictable commitments that would enable the partner countries to plan their course of action in advance; and insufficient delegation of authority to officers on the ground hence little chance for timely interventions whenever necessary (The Paris Declaration on Aid Effectiveness, 2011). Also cited was the insufficient integration of global programs and initiatives into beneficiary countries’ development strategies. Corruption, which happens to be a major challenge in developing countries, was also cited as a major challenge. Corruption was cited to be responsible for the erosion of public confidence and a potential impediment for the mobilisation of resources (The Paris Declaration on Aid Effectiveness, 2011). The donor countries also resolved to ensure that their aid provision is tailored to the specific requirements of the beneficiary countries. The assistance would be integrated into the country specific agendas for the reduction of poverty and the achievement of development goals (Thomas, 2011). For instance, where the beneficiary country suffers from having a weak state, significant efforts would be dedicated towards ensuring good governance practices and the practice of stronger governance.

The beneficiary countries were on the other hand required to make a number of commitments which included: to carry out diagnostic reviews that would provide donor countries with reliable assessment of systems and procedures; undertake reforms based on such assessments in a manner that ensures that that their systems satisfy the transparency and accountability thresholds; and undertake reforms that would help bring about sustainable capacity development in the countries (The Paris Declaration on Aid Effectiveness, 2011). This commitment by beneficiary states is critical in ensuring the effectiveness of the aid funds provided. This is due to the fact that they are the primary users of such funds and it is their performance that mainly determines the effectiveness with which such aid can be put to good use. Poor accountability, corruption and poor institutional capacity has been the main challenge in ensuring that the beneficiary states make optimum use of the aid funds (UNDP, 2011).    

Afghanistan may be described as a democracy albeit a rather immature democracy with comparatively less development of democratic institutions. The country has three organs of government namely the executive headed by the president, the legislature and the judiciary. The main institutions of governance in Afghanistan includes: the presidency, parliament, independent directorate of Local Governance, independent administrative Reform and Civil Commission, Special Advisory Board on Appointments, Line ministries, Provincial governor, Provincial administrative council and others (Cookman and Wadhams, 2010). Governance is devolved to provinces and to districts with the provincial and district governors being responsible for the respective levels of government.

The National Assembly is made up of elected members whose decisions are expected to be a reflection of the will of the electorate. Strong national assemblies are crucial in ensuring accountability and transparency is maintained in the conduct of government functions (Central Intelligence Agency, 2011). However, the Afghanistan national assembly is weakened by the absence of strong political parties which would be expected to act as a guide to the actions of the elected members. The parliamentary checks and balances are further weakened by the fact that a third of the upper house in the national assembly is nominated by the president with the remaining two thirds elected by the provincial councils (The Central Intelligence Agency, 2011). The immense presidential powers in determining the composition of parliament has merits as well as demerits. To start with, the influence gives the executive the upper hand in ensuring that their legislative agenda is passed without unnecessary wastage of time as is common with democracies where the process of elected members of the national assemblies is completely detached from the executive (Cookman and Wadhams, 2010). However, this appointive influence weakens the oversight role of the national assembly making it difficult to hold the government to account. In fact, numerous claims of corruption have been levelled at the government with the executive blamed for embezzling funds and frustrating any efforts to audit the use of funds allocated to them (Cookman and Wadhams, 2010). This lack of transparency relates to both the revenue allocations and the foreign aid procured from Afghanistan’s development partners. Despite the fact that the lower house tends to be more independent than the upper house, the common practice is that the members have been prone to compromise making it less effective in holding the executive to account. This too is as a result of lack of strong political parties.

The government in Afghanistan also grapples with the absence of proper structures and inadequate capacity to attend to projects in a manner that assures the achievement of the goals set (UNDP, 2011). The constant fighting by Taliban insurgents further worsens the situation with the few available government workers mainly averse to taking up assignments in perceived Taliban strongholds. With the strain on the available police force, it becomes difficult to provide adequate security for their workers. The country has also been suffering from dilapidated infrastructure which hinders service delivery for the government. With the sustained threat to national security, the construction of the infrastructure seems to be unachievable in the short term (UNDP, 2011). This phenomenon makes it difficult for the attainment of meaningful aid for trade with many of the privately run NGOs merely concentrating on initiatives focused on the alleviation of human suffering.

The Afghanistan’s Millennium Development Goals were endorsed in 2004 unlike the rest of the countries whose goals were endorsed in 2000 (UNDP, 2011). This was due to the fact that the country was still tangled up in intense fighting with the Taliban and could therefore not participate in the forums. The goals that were later endorsed in 2004 were earmarked for achievement in 2020 and comprised of 9 key goals. These goals included the following: eradication of extreme poverty and hunger; achievement of universal primary education; promotion of gender equality and the empowerment of women; reduction of child mortality rate; improvement of maternal health; the combating of prevalent diseases such as HIV/AIDS, TB and Malaria; ensuring environmental sustainability; development of a goal partnership for development; and the enhancement of security (UNDP, 2011).

A recent survey among Afghans indicated that insecurity was their main problem despite their extreme poverty conditions and ill health (The Word Bank, 2011). In accordance with this view, a lot of foreign aid has been channelled towards the suppression of the insurgents with the bulk of the aid funds forming part of the so-called ‘Afghan war’. In addition to the provision of funds, the United Nations maintains military personnel in the country to enable the stabilisation of security in the country (OECD, 2010). In addition, specific steps have been taken to strengthen the local security organs through training and provision of technical support.
Poverty eradication ranks first on the list of MDGs. Estimates reveal that about 20% of the rural population suffer chronic food shortages with a further 18% facing seasonal food shortages (the World Bank, 2011). Over 85% of the Afghan population is said to be reliant of agriculture (Thomas, 2011). This places the country at an increased risk with increasing climatic inconsistencies. However, specific steps have been taken to stabilise agricultural productivity through increased irrigation and support for value addition for agricultural products. This is practiced under the capacity building option of providing aid for trade for the less developed countries.
Regarding the achievement of literacy, progress is already been made in pursuance of this goal. The figures of students in 2003 stood at about 54% which added up to around 2.3 million students (UNDP, 2011). With the help of foreign aid, the number of students enrolled in schools has exceeded the 7 million mark, a figure much higher than at any point in the Afghan history (USAID, 2011). The programs can therefore be said to be relatively effective.

Similar efforts have been channelled towards the fight to reduce child mortality and maternal health with numerous NGOs taking up the challenge by providing health facilities in remote areas and providing funding for the affected persons to access quality health care (UNDP, 2011a). However, this goal is still largely unachieved with Afghanistan continuing to bear among the highest rates of child mortality in the world. The problem of attaining sustainable environment is compounded by the fact that the majority of the rural poor tend to rely on firewood for their energy needs. This places the already scarce Afghan vegetation and forests at risk (Thomas, 2011). The government is hard pressed to provide these rural inhabitants with alternatives that would assure environmental sustainability. The problem also relates to lack of adequate sanitation facilities and lack of clean drinking water in the urban areas (UNDP, 2011c). Significant attention has been rendered to the sanitation in urban areas especially by the privately run NGOs and agencies such as the USAID and AusAID (AusAID, 2011). However, the focus on the rural areas seems to be lacking and requires considerable attention.

Some of the tools commonly used for poverty reduction can be categorised as the use of debt relief, good governance, trade related solutions and distributional issues as well as the use of aid. As a general rule, aid tends to be less effective unless it is accompanied by some of the measures such as good governance and trade related solutions. Aid tends to become a burden to the population especially where such aid comes in form of short term or long term loans (Higgins and Prowse, 2010). This ends up adding a burden to the very people in need of aid. Debt relief may therefore be considered to be a form of aid where the budgetary allocations for servicing debt are diverted back to the needy individuals. However, this is only possible in the face of good governance. Good governance ensures that services are distributed with utmost efficiency and effectiveness and that the funds are properly allocated to deserving persons (OECD, 2006). Good governance denotes efficiency, effectiveness, accountability, and transparency. Good governance also requires that a country has infrastructural capacity to decentralise its services for ease of access to a majority of their citizens. In the absence of good governance, the providers of aid tend to be reluctant to avail their funds hence slowing down the process of poverty reduction. In the absence of sustainable programs, aid becomes largely ineffective (OECD, 2006). This is the thinking behind the use of aid for trade as an approach to help with poverty alleviation.  Good provision of aid should be accompanied by good governance and promotion of free trade especially where such aid is geared towards the building of production capacity for the recipients of the aid.

Views on Afghans development priorities and recommendations
The priorities for development for the Afghanistan government are as outlined in the 9-goal outline as contained in the millennium development goals. These goals include: eradication of extreme poverty and hunger; achievement of universal primary education; promotion of gender equality and the empowerment of women; reduction of child mortality rate; improvement of maternal health; the combating of prevalent diseases such as HIV/AIDS, TB and Malaria; ensuring environmental sustainability; development of a goal partnership for development; and the enhancement of security (UNDP, 2011a).

These goals are rather well balanced and their achievement is likely to substantially improve the lives of ordinary Afghans. However, some crucial aspects for attainment of the same seem to be missing. For instance, poverty alleviation is key but the government needed to come up with parallel development plans whose attainment would simultaneously lead to alleviation of poverty levels. The development goals seem to take the presumption that Afghanistan can only be a consuming state with little chance that they could join the supply side of the economic equation. The government should focus on trade as a tool for helping with the alleviation of poverty. It is a well acknowledged fact that trade leads to rapid economic growth which in turn helps with the uplifting of the living standards of the population. The country should embrace the promotion of international trade through the empowerment of their industries to maximise economies of scale and reap the benefits of global trade for the good of their citizens.

A closely related development agenda is the need to strengthen infrastructure for ease of movement of goods and services and communication. Without proper infrastructure, products made by the newly empowered public may not make its way to the market. Similarly, cheaper products from the international markets may not be accessible to the consumers who may not be able to afford the locally available products which may prove to be quite expensive.

As observed, the MDGs listed by Afghanistan only paint a gleam picture of what must be achieved and are lacking in the necessary aspects required to ensure that such goals are achieved in the time specified.

Aid for Trade is a term that has gained popularity since the formation of the World Trade Organisation where international focus shifted towards ensuring free trade was practiced across national borders. This focus called for freer movement of goods and services internationally and the move came with certain implications. Freer trade implied that countries were at the same level of development and this was contrary to the reality. The WTO therefore came up with proposals for countries with inadequate trade infrastructure and systems to be provided with aid in order to bring their systems at par with their more developed counterparts. Aid for trade not only focuses on infrastructure but also on technical assistance where developing countries are advised on the best strategies to embrace in order to ensure that they benefit from the benefits of increased trade.

Afghanistan is ranked as among the poorest countries in the world and has been largely dependent on foreign aid in order to achieve its development agenda. With the USA being their largest donor, the aid provisions have mainly been channelled towards ensuring that the country is stabilised through the development of relevant governance structures. The government has already achieved considerable success in relation to some of the MDGs set with the help of foreign aid. However, the focus of the policy makers seem to be narrow and in dire need of refinement. 

For more theory and case studies on: http://expertresearchers.blogspot.com/


References
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