Economic Growth

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Program Description

Background

Afghanistan ranks 173 out of 178 countries on the UNDP Human Development Index. Poverty is widespread and deeply entrenched after decades of war and under-investment – as many as 90 percent of the population is poor in some provinces. The average yearly income for Afghans is $300 per person. Sustained economic growth is critical to address not only poverty but also security and reconstruction.

The Program

USAID’s economic growth program assists the Government of the Islamic Republic of Afghanistan in developing sound economic governance and works with the private sector to stimulate investment and business opportunities.  The goal is for Afghans to generate, maintain and administer public finances in transparent and predictable ways. USAID aims to strengthen economic governance in the public sector and establish an enabling environment conductive to private sector growth, job creation, and income increase.

Specific projects include:

• FISCAL REFORMS:  USAID supports the Ministry of Finance (MoF) to create effective administrative systems, custom reforms, revenue generation, laws and regulations. These reforms generate revenue for the Government of the Islamic Republic of Afghanistan and help the country move toward self reliance. USAID support to the Ministry of Communications and Information Technology helped facilitate $700 million in telecom investment, generating almost $100 million in tax revenue. USAID administered 45 training seminars to 830 MoF staff and 110 provincial staff under the Mustofiat, title deeds and tax collection office program. USAID programs also completed and equipped six customs houses, and development of a new customs code enabled the generation of $440 million per year, surpassing the International Monetary Fund’s revenue generation goal.
• CENTRAL BANK REFORM:  USAID supports Da Afghanistan Bank (DAB) to build a sound financial system. Developing the licensing process and a new banking law has allowed establishment of 16 private banks and promoted the restructuring and eventual privatization of three state-owned banks. USAID assisted the central bank to fulfill MoF requirements by consolidating government accounts across all DAB provincial branches. This was accomplished through regular transfers of government revenue to a single Treasury account. USAID assisted 42 DAB provincial branches to modernize and improve branch operations.
• FINANCIAL SERVICES:  USAID provides expanded access to financial services in four regions of Afghanistan. The program aims to create a strong private sector foundation for a sustainable rural finance system capable of providing a range of financial services.  By the end of Fiscal Year 2007, the USAID funded project had disbursed $27 million in loans and created 62,000 jobs throughout the country.  
• LAND TITLING:  Property rights is a complex issue to address for all Afghans, including the 3.5 million refugees returning after decades of conflict. USAID helps ensure the clear transfer and documentation of land ownership for Afghan citizens in informal settlements around Kabul. The program completed aerial mapping for two pilot districts in Kabul and reorganized the records in 21 land registry offices, involving over 6.5 million legal documents representing 86 percent of property records in Afghanistan. 
• PRIVATIZATION OF STATE-OWNED ENTERPRISES:  USAID supports privatization of state-owned companies to create a viable market economy. This includes the rapid transfer of state-owned assets to the private sector and promotion of a transparent, market-based economy. Achievements include drafting changes to State Owned Enterprise (SOE) laws approved by the Government of Afghanistan, and the approval of liquidation and corporatization procedures by the State Owned Enterprise Evaluation Committee to expedite the divestiture of enterprises from state ownership.  Fifteen SOEs have been auctioned and will be ready for privatization in 2008.  Over 700 parcels/buildings nationwide will be divested in the near future.
• STRENGTHENING BUSINESS ASSOCIATIONS:  USAID strengthens business associations and has supported the Afghan International Chamber of Commerce (AICC), provincial and local business associations, and other civil society groups that foster discussions, investment, and economic development. The program opened AICC branch offices in Kandahar, Mazar-e Sharif, Herat, Kunduz and Jalalabad. Support to the Afghan Women’s Business Federation has consolidated 57 women-run business associations that provide training and business development services to women entrepreneurs.
• DEVELOPING THE PRIVATE SECTOR: To overcome the severe constraints to investment – security, electricity and basic services – USAID developed an industrial park in Kabul and is developing sites in Kandahar and Mazar-i-Sharif. USAID also provides assistance in the areas of Association Development, Business Development Services and Management Skills, Human Capacity Building, Market Information, and Public-Private Alliances Grants.  These are complemented by an increasing access to capital program that provides financial services, microfinance loans, small and medium enterprise loans, and establishes an investment fund.  A loan guarantee program, the First Loss Reserve Fund, offers banks a $20,000 loan guarantee for each ex-combatant.