Afghanistan's economic boom could turn to bust when US troops pull out

As Afghans voted in the presidential run-off, an end to American contracts was spelling the end for entrepreneurs and staff

Business owners in Kabul are watching their profits drop as more people hold on to their cash (Bloomberg)

Zabi Tamanna's life was transformed by the war in Afghanistan. A few years after the American-led invasion in 2001, the Afghan photographer started a construction business. His work on US-funded military bases made him a well-to-do man by local standards, allowing him to put his sister through dental school, pay his brother's high school tuition and buy a new car.

But with American troops withdrawing and fears of violence swelling, Mr Tamanna's business is deteriorating quickly. He sold the car to get enough cash to pay his staff. "This has affected my whole family," he said. "Now, imagine a whole city like this."

For the past decade, billions of dollars in aid poured into one of the world's poorest countries, providing previously unimaginable opportunities to thousands of Afghan workers. Now, the boom is over. The Afghan economy, which had been expanding by as much as 14 per cent a year, has slumped. Growth this year is expected to be only 3.2 per cent, according to the World Bank. That slowdown reflects the declining American spending as well as apprehension about security.

President Barack Obama's announcement that US troops will leave for good by the end of 2016 has only fanned Afghan concerns, with the economy a key theme as millions of citizens returned to the polls in yesterday's election to succeed President Hamid Karzai.

More than seven million voters cast ballots for either former anti-Taliban fighter Abdullah Abdullah or ex-World Bank economist Ashraf Ghani after neither secured a majority win in April.

"People are worried. What will happen in the future?" asked Yarbaz Hamidi, a businessman who has invested $500,000 in two private hospitals in Kabul. "I am also worried. What will happen to my investments?"

Since 2002, the US Congress has appropriated $103bn to help Afghanistan to rebuild its security forces, government and economy. During the past seven years, when the bulk of the money arrived, US aid has accounted for about 75 per cent of the country's GDP, according to the special inspector general for Afghan reconstruction.

The World Bank is cautiously optimistic that Afghanistan will avoid an economic collapse. In April, it noted that the country was expected to receive about $8bn in annual foreign assistance in the coming years. Mr Obama has pledged that American aid will flow into Afghanistan for years to come.

But the World Bank says the situation remains tenuous, with projections of a 5 per cent growth rate contingent on security and the country's ability to control corruption and tap its rich mineral deposits. In a nation racked by decades of fighting, many people fear that the government will fail to maintain order. Wealthy Afghans have already started shifting assets abroad.

"If this was just peacetime, you would probably have a minor recession, but this is wartime," said Anthony Cordesman, a prominent national security analyst at the Center for Strategic and International Studies in Washington. "People panic. People protect themselves. They get out if they can. You don't loan. You don't invest. You basically wait."

"The way the investment was made in the country, it was not in an upward, efficient manner," said Mohammad Ismail Rahimi, director general of police and monitoring and evaluation for the Afghanistan National Development Strategy. He noted that the country's poverty rate has remained about 36 per cent in recent years.

Indeed, many of the US-funded reconstruction projects were hampered by theft and corruption. Auditors also have cited numerous cases of shoddy work, at times requiring projects to be halted and rebuilt from scratch. The US spending also helped to expand a small middle class in cities such as Kabul, and it enabled Afghans to help relatives and educate their children.

According to coalition officials, more than 700 bases, outposts and checkpoints have been closed or handed to the Afghan military or government since October 2011. With each closure, Afghan businessmen say, it becomes more difficult to obtain contracts.

Abdul Raziq Naderi, 28, started his cleaning business at age 22 after friends told him there was easy money to be made. Within weeks, Mr Naderi had landed a $60,000 contract providing cleaning crews for a coalition military base and went on to win an additional 12 contracts. "I had 74 employees, just as cleaners," he said. "Now all of them are jobless."

Sayed Sabir Rasooly, 27, president of a Kabul construction and logistics company, said the value of his business grew from a few thousand dollars to $3m in 2012. He bought a new house and travelled abroad. But his last coalition contract – supplying cases of Red Bull to a military and diplomatic compound near Kabul – expired last month. Now he is trying to emigrate to the US. "We have lost everything," Mr Rasooly said. "I talk to a lot of Afghan businessmen, and the situation is not good."

Ahmad Javed Entezari, who runs an electronics store at Kabul Mall, said his business has dropped by 50 per cent this year. "When the rumours started that the Americans would withdraw, people started keeping their money," he said. And at Rahmani Jewellery, owner Abaidullah Rahmani said that only women preparing for their weddings seem to be spending money. "When I talk to friends, there is no fun. There is no money. There are no contracts," he said. "There is only fear."

Washington Post