Special Inspector General for Afghanistan Reconstruction

PRIVATE SECTOR DEVELOPMENT

AND ECONOMIC GROWTH:

LESSONS FROM THE U.S. EXPERIENCE IN AFGHANISTAN

APRIL 2018
Cover photo: Traffic in Kote Sangi, on the western edge of Kabul city. (UNAMA photo by Fardin Waezi)

PAKTIKA

KHOWST

TAKHAR

BADAKHSHAN

BAGHLAN

BAMYAN

FARYAB

WARDAK

KUNAR

KUNDUZ

NURISTAN

NANGARHAR

FARAH

NIMROZ

HELMAND

KANDAHAR

URUZGAN

ZABUL

GHOR

GHAZNI

BALKH

BADGHIS

KABUL

KAPISA

PAKTIYA

LOGAR

LAGHMAN

JOWZJAN

PARWAN

SAR-E PUL

HERAT

DAYKUNDI

SAMANGAN

PANJSHIR
Private Sector Development and Economic Growth: Lessons from the U.S. 

Experience in Afghanistan is the third in a series of lessons learned reports 

issued by the Special Inspector General for Afghanistan Reconstruction. 

The report examines how the U.S. government supported private sector 

development in Afghanistan since 2001 through efforts led by the U.S. Agency 

for International Development, with additional significant roles played by the 

Departments of State, Defense, Commerce, and Treasury. 

The report provides both the chronology of U.S. government support to private 

sector development and an in-depth look at the five major areas of economic 

intervention: creating an enabling environment, providing access to finance, 

promoting investment, developing regional and international trade, and 

supporting enterprises. The report identifies lessons to inform U.S. policies 

and actions at the onset of and throughout a reconstruction and provides 

recommendations for improving private sector development efforts. These 

lessons and recommendations are relevant for ongoing work in Afghanistan, 

where the United States remains engaged in building and supporting the Afghan 

economy, and in future endeavors to rebuild other weak states emerging from 

protracted conflict. 

Our analysis highlights the difficulties of supporting economic development 

in a war-shattered country. Afghanistan’s early economic gains were largely 

due to post-conflict recovery and substantial foreign spending, and optimistic 

predictions of future progress did not reflect the nation’s economic and 

security environment, the capacity of Afghan and U.S. institutions, or the 

impact of corruption. The United States also overestimated the speed at 

which Afghanistan could transition to a Western-style market economy. The 

U.S. government’s provision of direct financial support sometimes created 

dependent enterprises and disincentives for Afghans to borrow from marketbased financial institutions. Furthermore, insufficient coordination within and 

between U.S. government civilian and military agencies often negatively affected 

the outcomes of programs. On the other hand, early foundational investments 

in the economic system, undertaken in concert with allies and international 

organizations, established the basis for the progress that did take place and 

for future development. Afghanistan’s long-term prospects may also improve 

as a result of progress in regional integration and participation in bilateral and 

multilateral trade agreements, as well as investments in human capital. 

Special Inspector General

for Afghanistan Reconstruction

2530 CRYSTAL DRIVE, ARLINGTON, VIRGINIA 22202
SIGAR began its lessons learned program in late 2014 at the urging of 

General John Allen, Ambassador Ryan Crocker, and others who had served 

in Afghanistan. The lessons learned reports comply with SIGAR’s legislative 

mandate to provide independent and objective leadership and recommendations 

to promote economy, efficiency, and effectiveness; prevent and detect fraud, 

waste, and abuse; and inform Congress and the Secretaries of State and Defense 

about reconstruction-related problems and the need for corrective action. 

Unlike other inspectors general, Congress created SIGAR as an independent 

agency, not housed within any single department. SIGAR is the only inspector 

general focused solely on the Afghanistan mission, and the only one devoted 

exclusively to reconstruction issues. While other inspectors general have 

jurisdiction over the programs and operations of their respective departments 

or agencies, SIGAR has jurisdiction over all programs and operations supported 

with U.S. reconstruction dollars, regardless of the agency involved. Because 

SIGAR has the authority to look across the entire reconstruction effort, it is 

uniquely positioned to identify and address whole-of-government lessons. 

Our lessons learned reports synthesize not only the body of work and expertise 

of SIGAR, but also that of other oversight agencies, government entities, current 

and former officials with on-the-ground experience, academic institutions, and 

independent scholars. The reports document what the U.S. government sought 

to accomplish, assess what it achieved, and evaluate the degree to which these 

efforts helped the United States reach its strategic goals in Afghanistan. They 

also provide recommendations to address the challenges stakeholders face in 

ensuring efficient, effective, and sustainable reconstruction efforts, not just in 

Afghanistan, but in future contingency operations. 

SIGAR’s Lessons Learned Program comprises subject matter experts with 

considerable experience working and living in Afghanistan, aided by a team of 

seasoned research analysts. I want to express my deepest appreciation to the 

team members who produced this report, and thank them for their dedication 

and commitment to the project. I thank Paul Fishstein, project lead; Mariam 

Jalalzada, senior research analyst; Emily Bakos, Nikolai Condee-Padunov, 

and Margaret Jacobson, research analysts; Lauren Helinski, student trainee; 

Olivia Paek, graphic designer; and Elizabeth Young, editor. In producing its 

reports, the Lessons Learned Program also uses the significant skills and 

experience found in SIGAR’s Audits, Investigations, and Research and Analysis 

directorates, and the Office of Special Projects. I thank all of the individuals 

who provided their time and effort to contribute to this report. It is truly a 

collaborative effort meant to not only identify problems, but also to learn from 

them and apply reasonable solutions to improve future reconstruction efforts. 

2530 CRYSTAL DRIVE, ARLINGTON, VIRGINIA 22202
I believe the lessons learned reports will be a key legacy of SIGAR. Through 

these reports, we hope to reach a diverse audience in the legislative and 

executive branches, at the strategic and programmatic levels, both in 

Washington and in the field. By leveraging our unique interagency mandate, 

we intend to do everything we can to make sure the lessons from the United 

States’ largest reconstruction effort are identified, acknowledged, and, most 

importantly, remembered and applied to ongoing reconstruction efforts in 

Afghanistan, as well as to future conflicts and reconstruction efforts elsewhere 

in the world. 

John F. Sopko

Special Inspector General for Afghanistan Reconstruction

Arlington, VA

April 2018

2530 CRYSTAL DRIVE, ARLINGTON, VIRGINIA 22202
TABLE OF CONTENTS | PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

EXECUTIVE SUMMARY VIII

CHAPTER 1 1

INTRODUCTION

Context: Development Aid and Security Post-9/11 4

The Case for Strengthening Afghanistan’s Economy 6

Afghanistan’s Economic Performance since 2001 6

CHAPTER 2 13

OVERVIEW OF SUPPORT TO PRIVATE 

SECTOR DEVELOPMENT

Funding Streams 13

Key Actors and Activities 16

CHAPTER 3 23

U.S. SUPPORT TO PRIVATE SECTOR 

DEVELOPMENT: 2001–2017

Afghanistan’s Economy Before 2001 23

2001–2005: Afghanistan is “Open for Business” 28

2006–2008: Ratcheting Up Assistance 39

2009–2012: The Military and Civilian Surge 43

2013–2014: Drawdown and Transition 50

2015–2017: After the Transition 54

CHAPTER 4 57

CREATING AN ENABLING ENVIRONMENT

Building Capacity in the Fiscal Sector: Revenue 59

Collection, Budget Construction, and Tax Reform

Establishing Macroeconomic Stability 63

Legal Frameworks 68

Final Points on Creating an Enabling Environment 74
TABLE OF CONTENTS | PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

CHAPTER 5 79

PROVIDING ACCESS TO FINANCE

Support to the Commercial Banking Sector 80

Provision of Direct Loans and Loan Guarantees 85

Creating Financial Institutions 87

Final Points on Providing Access to Finance 93

CHAPTER 6 97

PROMOTING INVESTMENT

Privatization and Property Rights 98

Building and Supporting Institutions 102

Industrial Parks 104

Sector-Focused Investment Promotion 107

Final Points on Investment Promotion 118

CHAPTER 7 121

PROMOTING REGIONAL AND 

INTERNATIONAL TRADE

Regional Integration and Opening to Trade 122

Pursuing WTO Accession 125

Stubborn Barriers to Trade 129

Final Points on Promoting Regional 

and International Trade 134

CHAPTER 8 137

PROVIDING DIRECT SUPPORT TO ENTERPRISES 

USAID’s Direct Support to Enterprises 140

DOD’s Support to Enterprises 147

Final Points on Support to Enterprises 160
TABLE OF CONTENTS | PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

CHAPTER 9 163

FINDINGS

CHAPTER 10 173

LESSONS

CHAPTER 11 181

CONCLUSIONS

CHAPTER 12 185

RECOMMENDATIONS

Executive Branch 185

Legislative Branch 191

APPENDICES AND ENDNOTES 193

Appendix A: Methodology 193

Appendix B: Select U.S. Government Projects 196

Appendix C: Abbreviations 198

Acknowledgments 223
ILLUSTRATIONS | PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

FIGURES

Figure 1: Agriculture and GDP Growth Rates, 2003–2016 7

Figure 2: Number of Voluntarily Returned Afghan Refugees, 2001–2016 9

Figure 3: Afghanistan's Top Trading Partners, 2016 10

Figure 4: U.S. Government Appropriations by Fiscal Year, 2002-2017 15

Figure 5: Ring Road Progress: Sections Completed, 2012 35

Figure 6: Afghanistan Mobile Cellular Subscriptions, 2002–2016 69

Figure 7: Afghanistan's Top Exports of Specific Commodities, 2012–2016 108

Figure 8: Afghanistan Imports and Exports by Type, 2016 112

Figure 9: Mapping Afghan Minerals 115

Figure 10: Map of Afghanistan Border Crossing Points and Inland Customs Depots 133

Figure 11: Afghanistan Trade Imbalance, 2002–2016 135

Figure 12: Enterprises by Business Type 138

Figure 13: Ease of Doing Business in Afghanistan, 2006–2015 139

TABLES

Table 1: USAID Projects to Support Trade 122

Table 2: A Snapshot of TFBSO Projects 153

HIGHLIGHTS

Enduring Characteristics of the Afghan Economy 24

Opium Economy 26

USAID’s Support to Road Infrastructure 34

Afghanistan Reconstruction Group 37

Sustainability 52

An Early Win: Success in Reforming and Strengthening Public Financial Management 61

U.S. Efforts to Curb or Regulate the Hawala System 66

Telecommunications 69

Afghanistan and the Extractive Industries Transparency Initiative 76

Kabul Bank Crisis 83

Challenges in Developing the Microfinance Sector 88

Sell-Off of Ghori Cement 100

The Marble Sector in Afghanistan 109

Extractives in Afghanistan 114

The Afghan Private Sector: General Characteristics and Constraints to Growth 138

Women’s Economic Participation 141
viii | EXECUTIVE SUMMARY

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

EXECUTIVE SUMMARY

This lessons learned report looks at the U.S. government’s support to private 

sector development and economic growth in Afghanistan since 2001. The report 

focuses on two main, somewhat overlapping areas of U.S. assistance: (1) support 

to economic policy and governance, and (2) support to individual firms, groups, 

and entrepreneurs. The report also touches on infrastructure, agriculture, and the 

extractive industries because of their relevance to the overall economic picture. 

U.S. officials viewed private sector development as foundational to economic 

growth, which in turn was seen as a key driver of security. The U.S. government 

saw the development of a robust economy in Afghanistan as contributing 

positively to security by (1) providing gainful employment to the young, 

unemployed men who were considered most likely to join an insurgency; 

(2) creating confidence in and legitimacy for the state; and (3) generating 

revenue that would enable the state to deliver services and prevent dependency 

on the international donor community. In the wake of the Taliban regime, a 

private-sector driven, open-market economy was seen as reinforcing electoral 

democracy, individual freedoms, women’s rights, a free media, and other 

Western values. These views were held by both the President George W. Bush 

and President Barack Obama administrations.

The U.S. strategy for and overall approach to private sector development 

remained largely the same from 2001 through 2017, although with sharp variations 

in amounts of funding and some shifts in emphasis at various stages, most 

significantly during the 2009–2012 surge years. The U.S. Agency for International 

Development (USAID) was the lead agency for these efforts, but a range of other 

U.S. institutions played a role, including the Departments of Defense, Commerce, 

Treasury, and State, the Overseas Private Investment Corporation (OPIC), the 

U.S. Trade and Development Agency, the U.S. Trade Representative, and the U.S. 

Geological Survey. The prevailing view that economic development played a role 

in security called for an expanded role for the military and therefore a need for 

interagency partnerships and civil-military coordination. 

Our report identifies 11 key findings regarding the U.S. experience with private 

sector development and economic growth:

1. Afghanistan’s significant economic gains in per capita income and growth in 

sectors such as telecommunications, transport, and construction were largely 

the result of post-conflict recovery and substantial foreign spending, and 

were therefore not sustainable. 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH 

APRIL 2018 | ix

2. Establishing the foundational elements of the economic system, including 

sound macroeconomic policies and capacity for public financial management, 

at the start of reconstruction allowed some successes and set the stage for 

future development.

3. Optimistic projections for the pace and level of progress did not reflect the 

realities of the Afghan economy and operating environment, the ongoing 

conflict, and the capacity constraints of Afghan and U.S. institutions.

4. Afghans have benefited from a more open trade policy, and future benefits 

from trade agreements and increased regional integration may continue 

to accrue; however, Afghanistan’s physical and institutional infrastructure 

and political relationships with its neighbors have limited its ability to 

become a trade hub benefiting from regional commerce and sustainable 

export markets.

5. The persistence of corruption within the Afghan government, along with 

uncertainty about and uneven enforcement of tax and regulatory policies, 

discouraged economic growth.

6. Inadequate understanding or mitigation of the relationships between corrupt 

strongmen and other powerholders limited the effectiveness of U.S. support 

to private sector development in generating broad-based economic growth.

7. Neither the Afghan government nor society was adequately prepared for the 

sudden introduction of a Western-style market economy. 

8. The U.S. government’s provision of direct financial support to enterprises 

sometimes created dependent, commercially nonviable entities, as well as 

disincentives for businesses to use local financial and technical services.

9. Insufficient coordination within and between U.S. government civilian and 

military agencies negatively affected the outcomes of programs.

10. Within U.S. government agencies, organizational factors and human 

resource policies constrained the implementation of private sector 

development projects.

11. Despite economic growth, estimated poverty, unemployment, and 

underemployment were not substantially reduced.

AFGHANISTAN’S ECONOMIC PERFORMANCE

Afghanistan’s economy grew sharply during the first decade of reconstruction, 

with the early years showing the economic recovery often seen in a post-conflict 

environment, and the later period reflecting the heavy international spending 

of the surge years. Between 2001 and 2012, per capita income increased more 

than five-fold, from $117 in 2001 to a peak of $669 in 2012, just before the runup to the 2014 drawdown of U.S. military personnel. Construction and services 

(especially communications, transport, logistics, government services, and 

financial and business services) were the strongest consistent drivers of growth 

in gross domestic product. Despite a few high-profile exceptions, foreign private 
x | EXECUTIVE SUMMARY

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

investment was limited. Domestic investment was relatively strong, especially 

during the 2009–2012 surge, but tailed off along with international spending. 

The primary impediments to investment, and private sector development more 

broadly, were related to insecurity and uncertainty, including the effects of 

institutional corruption. 

Afghan consumers benefited from an open trade policy which made imported 

consumer goods available at lower prices. However, Afghanistan’s trade 

imbalance increased consistently over the past 16 years as domestic industries 

were unable to compete in regional and world export markets, and imports outcompeted local producers in some domestic markets. Predatory or unfair trade 

practices by regional neighbors also discouraged domestic production. 

U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT 

In the first several years after 2001, the U.S. government provided limited 

support to private sector development, in part because of its reluctance to be 

involved in nation building. The United States emphasized a “light footprint” due 

to its desire to not be drawn into, or give the impression of undertaking, a longterm occupation. Moreover, with less than one month between 9/11 and the start 

of Operation Enduring Freedom, there was no time for systematic planning or 

assessing Afghanistan’s economic needs. 

Some of the initial foundational investments, undertaken in concert with 

the International Monetary Fund (IMF) and the World Bank, included the 

critical priorities of macroeconomic stabilization, institutional infrastructure 

development, monetary policy creation, banking system rehabilitation, currency 

conversion, government revenue collection, and basic economic governance. 

These efforts, which were considered successful, made early growth possible 

and set the stage for future development. 

The U.S. government also emphasized the promotion of investment, the 

privatization of the former state-owned enterprises (SOE), trade liberalization, 

lowering barriers to trade, integration with regional and world markets, and 

accession to the World Trade Organization (WTO). USAID, the lead agency for 

U.S. private sector development efforts, focused primarily on agriculture, the 

“cornerstone of recovery and a pillar of reconstruction for a sustainable future.” 

Agriculture was recognized as a crucial sector of the Afghan economy, with the 

potential for multiplier effects and linkages with other sectors. 

By the end of 2002, U.S. officials began to consider the possibility that more 

resources would be needed to stabilize Afghanistan. Meanwhile, the United 

States was increasingly preoccupied with the looming invasion of Iraq. By 2006, 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH 

APRIL 2018 | xi

it was clear Afghanistan was not a post-conflict state. As the insurgency grew 

and security deteriorated, Afghans also began to express dissatisfaction with 

their economic situation, which was further exacerbated by the 2007–2008 

global food crisis. In response, the United States and its allies increased their 

humanitarian and development assistance. U.S. agencies began a series of 

enterprise development initiatives aiming at expanding markets, developing 

a technically skilled workforce, increasing access to capital, creating jobs, 

promoting investment, and developing domestic products to become more 

competitive with imports. During this period, the Department of Defense (DOD) 

began to engage more significantly in private sector development in two key 

ways: (1) the Commander’s Emergency Response Program (CERP), which was 

intended to improve short-term security through quick-impact projects such as 

micro grants, and (2) the Afghan First procurement initiative, an explicit policy 

for contracting with Afghan companies to ensure more of the money donors 

spent on goods would remain in Afghanistan, rather than going to Pakistan, 

China, Turkey, and other countries.

In December 2009, President Obama presented a strategy intended to represent 

a break with the past and give attention and resources to what he had previously 

called “the right war.” The administration’s strategy to stem the tide of the 

insurgency included a large troop surge and its development counterpart, the 

“civilian uplift.” The surge was supported by massive increases in funding: 

Governance and development funding alone increased by 58 percent from FY 2009 

to FY 2010. However, the simultaneous announcement of the 2009 surge and the 

2011–2014 drawdown introduced a cloud of uncertainty that hung over most 

of the period. During this era of counterinsurgency, USAID came under greater 

pressure to align its programming and geographical focus with the U.S. military’s 

stabilization and counterinsurgency priorities as part of a unified U.S. response. 

DOD also increased its direct involvement in private sector development through 

CERP micro grants, strengthening the Afghan First procurement initiative, and 

introducing the Task Force for Business and Stability Operations (TFBSO) from 

Iraq. TFBSO was critical of USAID’s traditional development approach and saw 

itself as more nimble and expeditionary. 

The run-up to the 2014 transition was characterized by great uncertainty due 

to the drawdown in international forces and the upcoming Afghan presidential 

election. Economic activity declined due to a combination of reduced 

international spending and uncertainty about the political and security outlook, 

manifesting itself in a plunge in property prices, a leveling or decline in wages, 

and increased capital and human flight as Afghans sought a safe haven for their 

money and themselves. USAID shifted its focus to a few high-capital, highimpact foundational investments and the increased sustainability of economic 

growth and Afghan government institutions. 
xii | EXECUTIVE SUMMARY

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

MAIN AREAS OF INTERVENTION 

U.S. government support to private sector development and economic growth 

from 2001 through 2017 can be classified into five main areas of intervention.

Creating an Enabling Environment 

The first task related to private sector development was to create an enabling 

environment in which a dynamic, licit private sector could thrive. This 

environment included fundamentals such as establishing macroeconomic 

stability, curbing inflation, overhauling the currency, creating sound fiscal and 

monetary policies, drafting laws and regulations for a regulatory framework, 

and bolstering institutions to maintain and promote the private sector. Many 

of the solid, early successes in macroeconomic policy and public financial 

management set the stage for future gains. Ministries saw improvements in 

financial management and in revenue collection from taxes and customs. 

Enduring impediments to achieving an enabling environment were largely 

those related to a lack of good governance, including corruption and uneven 

enforcement of laws and policies, which made it more difficult to encourage 

businesses to operate in the formal sector.

Providing Access to Finance

Recognizing the importance of access to finance in promoting private sector 

investment, the U.S. government provided support to create a commercial 

banking sector and make other sources of financing available. USAID and 

Treasury implemented a range of activities that included strengthening the 

commercial banking sector, primarily through building the supervisory capacity 

of Afghanistan’s central bank, Da Afghanistan Bank (DAB), privatizing stateowned banks, and regulating the informal money service providers or hawala

dealers. Encouraging financial flows through formal institutions was intended to 

limit criminal money laundering and terrorism financing. In addition, in response 

to what was seen as the inability or unwillingness of commercial banks to reach 

the poor and rural areas of the country, the United States also supported the 

establishment of a number of non-bank, sector-specific financial institutions 

to offer loans that were attractive to micro and small enterprises and provide 

direct loans and credit guarantee schemes. 

A number of new commercial banks and newly privatized state banks began to 

provide financing to small and medium enterprises. Despite the increase in the 

number of financial institutions, however, firms consistently listed access to finance 

as one of their major challenges. Only 2 percent of Afghan firms used banks to 

finance investment, and the banking sector continued to be fragile. Larger firms 

mainly used private bank loans, while smaller firms continued to rely on other 

sources of financing, including business profits, personal savings, and private loans. 

The 2010 Kabul Bank collapse demonstrated just how fragile the banking sector 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH 

APRIL 2018 | xiii

was and the extent to which well-connected political actors could undermine DAB’s 

supervision. DAB became more aggressive in its oversight, but commercial banks 

continued to suffer from weak governance, deteriorating asset quality (especially 

an increase in nonperforming loans), and low profitability. Lending by financial 

institutions continued to be concentrated in the urban areas and a limited number 

of sectors, mainly because lending to small enterprises, especially in rural areas, 

was costly and did not generate sufficient returns. 

The U.S. expectation that some of these newly created financial institutions 

would become self-sustaining within a limited project timeframe was unrealistic. 

Today, these institutions continue to rely on external assistance, and face 

ownership, management, and operational sustainability challenges. 

Promoting Investment 

Fostering private foreign and domestic investment was another key component 

of private sector development. The U.S. government sought to promote 

investment through a variety of formal and informal means, including privatizing 

or liquidating the majority of the 65 Afghan SOEs and building industrial 

parks, which were intended to promote investment by removing a number of 

constraints facing Afghan businesses, including the lack of reliable and cheap 

power, unstable land tenure, and physical insecurity. 

Employing the value chain approach, where value is added as raw materials 

flow through production and marketing channels, the United States chose to 

support certain key sectors to make them more attractive to potential investors. 

For example, investments in the agricultural sector were intended to lead to 

production of value-added goods for domestic consumption and potentially 

for exports. 

Aside from a few high-profile exceptions, foreign direct investment was limited. 

The majority of domestic investment occurred in the construction industry, 

especially during the 2009–2012 surge, driven in part by the construction boom 

that resulted from the massive of inflows of international funding. Otherwise, 

investment was limited due primarily to ongoing uncertainty and insecurity, 

poor economic governance, and the lack of a comparative advantage in 

potential industries. 

USAID’s efforts to encourage investment in and expansion of agribusiness 

experienced some success; however, the imperfect and risky nature of 

Afghanistan’s markets, as well as the poor state of the country’s infrastructure, 

posed challenges. Smaller players, in particular, faced constraints that included 

market access, inconsistent and unfair trade practices of neighboring countries, 

the high cost of logistics and transportation, and expensive and time-consuming 
xiv | EXECUTIVE SUMMARY

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

bureaucratic procedures. The industrial parks remained underutilized, largely 

due to limited electrical power and other infrastructure. Driven by increasing 

uncertainty, much of the capital accumulated by Afghans and Afghan companies 

flowed out of the country.

Promoting Regional and International Trade

The United States promoted regional and international trade as an engine of 

growth that, along with the strengthening of high-value agriculture, would 

encourage investment and economic development. Regional integration 

was prioritized from 2002 onward in the belief that increased linkages with 

neighboring countries would create opportunities for such trade and investment, 

as well as contribute to stability through building relationships. In 2004, 

Afghanistan gained observer status in the WTO with the hope that joining 

the WTO would help Afghanistan reap the benefits of opening to trade. WTO 

accession was also seen as a positive forcing function for the country to meet 

numerous international standards that would be needed for Afghanistan to 

engage in international commerce. 

Afghanistan has seen some benefits from trade and regional integration, 

including reduced prices of consumer goods, ongoing political discussions with 

neighboring countries, and improvements in standards for health and safety. 

Long-term prospects may improve as a result of progress made by Afghanistan 

in integrating regionally and participating in bilateral and multilateral trade 

agreements. Still, the trade imbalance continues to grow as Afghan producers 

struggle to compete with more established players in protected markets, and 

neighbors engage in unfair trading practices. 

Providing Direct Support to Enterprises

The U.S. government provided direct technical and financial support to 

individual Afghan enterprises through a variety of initiatives, primarily 

implemented by USAID and DOD. These programs included the provision of 

financial assistance in the form of in-kind grants, technical assistance, and 

business development mentorship. Direct support was seen as a way to leverage 

investment; USAID applied elements of its Global Development Alliance model 

through two large-scale enterprise support initiatives that required the grant 

recipients to contribute at least half of the investment costs. 

USAID also provided support to local business associations and new or 

existing business development services (BDS) providers, which helped nascent 

companies expand using modern business methods. Given the often low levels 

of business literacy, BDS providers assisted businesses with preparing grant 

applications, developing business and management plans, and purchasing 

machinery. The U.S. military provided micro grants to rural enterprises 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH 

APRIL 2018 | xv

through CERP and required U.S. agencies to use Afghan firms’ services, to the 

extent possible, through the Afghan First procurement initiative. Starting in 

2010, TFBSO facilitated investment and business mentorship and provided 

technical and financial support to enterprises in the energy, mining, and 

indigenous industries. 

Despite some successes, direct support to enterprise programs had 

shortcomings in design, implementation, and oversight. While some companies 

used financial support and technical assistance to expand their access to 

markets, other companies that received direct grants became dependent on 

these sources of “free money,” without which they could not sustain profitable 

operations. In addition, the security environment restricted the ability of project 

managers to confirm the information provided in grant recipients’ financial and 

legal documents.

Finally, U.S. government agencies overestimated their capacity to implement 

projects. Internal constraints, such as high staff turnover and limited human 

resources relative to the volume of activities and funding they were asked to 

manage, along with external obstacles, such as Afghan government bureaucracy, 

corruption, and poor infrastructure, delayed operations, affected quality, and 

increased costs. 

LESSONS

This report identifies 12 lessons drawn from the U.S. experience with private 

sector development and economic growth in Afghanistan. 

1. It is not realistic to expect robust and sustainable economic growth in an 

insecure and uncertain environment.

2. Establishing the foundational elements of an economic system at the 

beginning of a reconstruction effort sets the stage for future success.

3. Any new economic system which represents a break with a host nation’s past 

knowledge and practice must be introduced carefully and with sufficient time 

to ensure adequate buy-in and the development of the robust institutions 

required to maintain it.

4. Spending too much money too quickly can lead to corruption and undermine 

both the host nation and the goals of the United States, while too abruptly 

reducing funding can hurt the economy. 

5. Inadequate understanding and vetting of the webs of personal, sometimes 

criminally related, networks can allow elites to control economic activity at 

the expense of open and competitive markets. 

6. Successful private sector development efforts must be nested within the 

development of the rule of law and overall good governance. 
xvi | EXECUTIVE SUMMARY

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

7. The choice of a model for economic growth must realistically 

acknowledge a country’s institutional and political environment and its 

physical endowments.

8. The provision of grants and below market rate loans can undermine 

commercial banks and other market-oriented institutions and create 

unsustainable businesses.

9. Support to businesses and government institutions needs to be tailored to 

the environment. 

10. Clear agreements on institutional roles, responsibilities, and lines of 

authority, reinforced by human resource policies that fit a post-conflict 

environment, are necessary for an effective private sector development 

strategy and for overall development. 

11. Rigorous monitoring, evaluation, and analysis, which transcend individual 

projects and programs, are necessary to understand the effectiveness of 

private sector development interventions.

12. Investments in human capital have significant returns, although it may be 

years before they are realized. 

RECOMMENDATIONS

SIGAR recommends the following actions be undertaken by the executive 

and legislative branches of the U.S. government to inform private sector 

development efforts at the onset of and throughout reconstruction efforts, and 

to institutionalize the lessons learned from the U.S. experience in Afghanistan. 

Executive Branch 

1. At the start of any major reconstruction effort, the National Security Council 

should direct the creation of an interagency working group led by USAID 

and staffed at the appropriate levels to plan and coordinate private sector 

development activities across civilian and military agencies. 

a. The interagency working group should include members from all 

agencies with a significant private sector development role and be given a 

clear mandate.

b. The interagency working group should reach consensus on the 

respective roles and responsibilities of civilian and military institutions 

in private sector development, as well as the role development plays in 

contingency operations. 

c. The interagency working group should draw on existing analysis, 

supplemented by a rapid but in-depth assessment, to outline a strategic 

approach to rebuilding the host nation economy and to anticipate the 

likely impact of U.S. funds and material resources. 

d. The interagency working group should draw from intelligence and other 

sources to understand the host nation’s political economy networks, and 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH 

APRIL 2018 | xvii

should use that information to make an informed decision regarding the 

tradeoffs and implications for who receives financial and other support. 

e. The interagency working group should take the necessary steps to 

understand the host nation’s historical and social conditions and 

traditions, and to identify and mitigate possible areas of contention, 

resistance, and circumvention. 

2. To the extent possible, State and USAID should focus market interventions 

at the industry or sector level, rather than selecting and supporting 

individual firms. 

3. USAID and State should assist the Afghan government in reviewing the 

effectiveness of all Afghanistan’s regional and bilateral trade agreements, 

especially the Afghanistan-Pakistan Transit Trade Agreement, and then 

engage with trading partners to resolve constraints to Afghan exports 

and imports. 

4. USAID officials working in private sector development should continue 

to participate in mission-wide anticorruption initiatives, and ensure these 

initiatives are reflected in technical and policy work at the ministry level. 

5. USAID should continue to closely team with a host nation’s local institutions, 

such as universities, think tanks, and business associations, to provide 

technical assistance and training tailored to the local environment and its 

modes of doing business.

6. USAID should continue to invest human, financial, and time resources in 

rigorous monitoring, evaluation, and analysis, including establishing a longterm framework that transcends individual projects. 

7. State and USAID should review human resource policies to make them 

more suitable for conflict environments, ensure continuity, and maintain 

institutional knowledge.

Legislative Branch

8. Congress may wish to consider creating a long-term private sector

development fund to reduce the pressure to use spending levels as a measure 

of progress and avoid sharp funding fluctuations during reconstruction efforts.

APRIL 2018 | 1

UNAMA photo by Fardin Waezi

CHAPTER 1

INTRODUCTION

As part of SIGAR’s analysis of the reconstruction effort in Afghanistan, this 

lessons learned report looks at the U.S. government’s support to private 

sector development and economic growth in that country since 2001. U.S. officials 

viewed private sector development as foundational to economic growth, which in 

turn was seen as a key component of security through its creation of employment, 

government revenue, and legitimacy for the new Afghan state. 

In the largest sense, almost everything can be considered as related to private 

sector development, including infrastructure, governance, and even education, 

which is part of the human capital development necessary to improve 

productivity in progressing economies. Acknowledging this breadth, our report 

focuses on two main, somewhat overlapping areas of U.S. assistance that had 

objectives directly tied to developing the private sector: 

1. Support to economic policy and governance, including developing overall 

economic policies and reforms, creating or strengthening government and 

private sector institutions, facilitating external trade, and privatizing stateowned enterprises

2. Support to individual firms, groups, and entrepreneurs, including financing 

and other material support, technical assistance and training, promotion of 

investment, promotion of regional trade, and enabling market access 
2 | INTRODUCTION

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

The report also touches on infrastructure, agriculture, and the extractive industries 

as part of the overall economic picture. At the same time, while U.S. assistance 

to other sectors, such as health and education, had components that were 

intended to support a private sector economy, for example, private hospitals and 

pharmaceutical companies, these are beyond the scope of this report.

The U.S. Agency for International Development (USAID) was the lead 

U.S. government agency for private sector development in Afghanistan. In 

addition, the Departments of Commerce, Treasury, and State, the Overseas 

Private Investment Corporation (OPIC), the U.S. Trade and Development Agency 

(USTDA), the U.S. Trade Representative (USTR), and the U.S. Geological Survey 

(USGS) played a role. The Department of Defense (DOD) supported private 

sector development primarily through the Commander’s Emergency Response 

Program (CERP) and the Task Force for Business and Stability Operations 

(TFBSO). In addition to these two programs, military contracting for bases, 

other infrastructure, and services injected billions of dollars into the economy. 

Because of the complexity of funding mechanisms, the difficulty of defining 

exactly what constitutes private sector development, and the dispersion of 

funding throughout various sector programs, it is not possible to quantify 

the percentage of total U.S. government funding that went to private sector 

development. For example, USAID supported private sector development in 

Afghanistan through a variety of economic growth and agriculture programs, 

which, as of 2017, had disbursed $1.22 billion and $2.15 billion, respectively.1

 The 

majority of USAID funding for these projects came through the congressionally 

approved Economic Support Fund (ESF). ESF funds were appropriated annually 

for programs in countries where funding for economic development could be 

justified explicitly on the basis of U.S. national interests, rather than solely 

development.2

 Funding for these USAID programs was also supplemented by 

non-ESF funds.3

DOD’s role in private sector development was supported by its own funding, 

including its obligation of more than $675 million to TFBSO.4

 Although only 

0.44 percent of the $838 million disbursed through CERP was devoted to micro 

grants, the primary CERP activity discussed in this report, additional CERP 

funds were spent on roads, culverts, bazaars, and market buildings, which 

stimulated economic activity.5

Our report identifies the following key findings: 

1. Afghanistan’s significant economic gains in per capita income and growth in 

sectors such as telecommunications, transport, and construction were largely 

the result of post-conflict recovery and substantial foreign spending, and 

were therefore not sustainable.
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 3

2. Establishing the foundational elements of the economic system, including 

sound macroeconomic policies and capacity for public financial management, 

at the start of reconstruction allowed some successes and set the stage for 

future development.

3. Optimistic projections for the pace and level of progress did not reflect the 

realities of the Afghan economy and operating environment, the ongoing 

conflict, and the capacity constraints of Afghan and U.S. institutions.

4. Afghans have benefited from a more open trade policy, and future benefits 

from trade agreements and increased regional integration may continue to 

accrue; however, Afghanistan’s physical and institutional infrastructure and 

political relationships with its neighbors have limited its ability to become a 

trade hub benefiting from regional commerce and sustainable export markets.

5. The persistence of corruption within the Afghan government, along with 

uncertainty about and uneven enforcement of tax and regulatory policies, 

discouraged economic growth.

6. Inadequate understanding or mitigation of the relationships between corrupt 

strongmen and other powerholders limited the effectiveness of U.S. support 

to private sector development in generating broad-based economic growth.

7. Neither the Afghan government nor society was adequately prepared for the 

sudden introduction of a Western-style market economy. 

8. The U.S. government’s provision of direct financial support to enterprises 

sometimes created dependent, commercially nonviable entities, as well as 

disincentives for businesses to use local financial and technical services.

9. Insufficient coordination within and between U.S. government civilian and 

military agencies negatively affected the outcomes of programs.

10. Within U.S. government agencies, organizational factors and human resource 

policies constrained the implementation of private sector development projects.

11. Despite economic growth, estimated poverty, unemployment, and 

underemployment were not substantially reduced.

The report consists of 12 chapters. The introductory chapter describes the 

post-2001 political and security environment, presents the rationale for private 

sector development investments, and provides an overview of Afghanistan’s 

economic performance from 2001 to 2017. Chapter 2 introduces the key private 

sector development actors and activities. Chapter 3 traces U.S. assistance 

chronologically, dividing the post-2001 period into five eras defined by 

funding levels and the type and intensity of specific activities. Chapters 4 

through 8 discuss in detail the U.S. government’s five major areas of economic 

intervention: creating an enabling environment, providing access to finance, 

promoting investment, developing regional and international trade, and 

supporting enterprises. Chapters 9 through 12 provide the report’s findings, 

lessons, conclusions, and recommendations for ongoing reconstruction efforts 

in Afghanistan and potential future U.S. engagements elsewhere. 

An enabling environment

is a set of interrelated 

conditions, including 

legal frameworks, 

regulations, fiscal and 

monetary policies, and 

macroeconomic stability, 

along with related 

institutions, that can 

facilitate or hinder the 

ability of businesses to 

flourish and grow.
4 | INTRODUCTION

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

CONTEXT: DEVELOPMENT AID AND SECURITY POST-9/11

Throughout modern history, the U.S. government has used foreign development 

assistance to pursue political and security goals. Even before 9/11, the United 

States and other Western nations believed that weak, fragile, or failing states 

constituted a threat to national and global security, and that economic 

development could be an instrument to stabilize those states. 

Post-9/11, this belief became more widespread and more explicitly incorporated 

into policy. The 2002 U.S. national security strategy, for example, stated that 

“America is now threatened less by conquering states than we are by failing 

ones.”6

 This belief was enlisted and employed in President George W. Bush’s 

Global War on Terror, and continued to be held throughout the President Barack 

Obama administration. In his final State of the Union address in 2016, President 

Obama noted, “In today’s world, we’re threatened less by evil empires and 

more by failing states.”7 Poor governance or slow socioeconomic development, 

hallmarks of failing states, were therefore seen as justification for the United 

States to intervene in those areas. And, while the term “stabilization” was 

often used generically, and took on different meanings over the last 16 years, 

at its core it reflected the belief that there was a positive relationship between 

economic development and stability. 

The U.S. government created new structures and processes to reflect the 

role of development in security and to enable a comprehensive or “whole of 

government” approach. In 2005, National Security Presidential Directive 44 gave 

the Department of State responsibility for the coordination of and planning 

for stability operations and established the Office of the Coordinator for 

Reconstruction and Stabilization (S/CRS) and the Policy Coordination Committee 

for Stability and Reconstruction.8

 In January 2006, the Bush administration 

created the Office of the Director of U.S. Foreign Assistance within the State 

Department to tighten the use of foreign assistance to achieve foreign policy 

objectives.9

 This U.S. government approach was mirrored by other Western 

nations that created stabilization units and by the UN’s integrated missions.10

The new emphasis on development also required expanded roles for the military 

and a need for interagency partnerships and civil-military coordination. The 

military’s role in economic development was made more explicit by the 2005 

DOD Directive 3000.05, Military Support for Stability, Security, Transition, 

and Reconstruction (SSTR) Operations, which stated that stability operations 

“America is now threatened less by conquering states 

than we are by failing ones.”

—President George W. Bush
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 5

were a “core” mission with “priority comparable to combat operations.”11

Stability operations were intended to achieve short-term objectives of 

force protection and stabilization, but also to convert short-term tactical 

success into long-term strategic success, not just by defeating threats, but by 

shaping an environment that discouraged future threats by contributing to 

economic well-being. 

Publicly, U.S. government civilian officials welcomed the opportunity to be on 

the same team as the military. In the words of former USAID Administrator Rajiv 

Shah, “USAID works side-by-side with the military [in Afghanistan], playing a 

critical role in stabilizing districts, building responsive local governance, 

improving the lives of ordinary Afghans, and—ultimately—helping to pave the 

way for American troops to return home.”12 This was especially true for USAID’s 

Office of Transition Initiatives, which historically worked in fragile and conflictprone countries that were not secure enough for long-term development 

programs. At the working level, however, development officials’ views about 

working closely with the military varied: some were positive, while some were 

more ambivalent or even negative, in large part because they saw development 

and stabilization as requiring different timeframes and approaches than security, 

albeit with some overlap.

Nongovernmental organizations (NGO) generally, although not universally, 

had even more skeptical views. While fully endorsing the belief that economic 

development led to the achievement of security goals, they were often reluctant 

to be associated with the military in the field. This was sometimes due to a 

philosophical objection to “militarizing aid” or “blurring the lines” between 

civilian and military actors, but also due to pragmatic considerations: In an 

insecure environment, visible association with the military could jeopardize 

their relations with communities or put their staff at physical risk.13

Despite the Bush administration’s wariness of nation building, Afghanistan 

provided an example of using aid to attempt to create security, an approach that 

continued under President Obama. The assumption that humanitarian and 

economic development projects contributed to the development of the state and 

to security was shared by aid agencies, government departments, NGOs, and the 

military.14 The relationship was further articulated in a 2010 speech by Secretary 

of State Hillary Clinton when she spoke of the need to better integrate the three 

Ds: defense, diplomacy, and development.15

“In today’s world, we’re threatened less by evil empires 

and more by failing states.”

—President Barack Obama

The Council on Foreign 

Relations defines nation 

building as “the process 

of establishing civic 

order and governmental 

functions in countries 

that are emerging from 

a period of war or other 

types of upheaval.”16
6 | INTRODUCTION

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

THE CASE FOR STRENGTHENING AFGHANISTAN’S ECONOMY

The U.S. government saw the development of a robust economy in Afghanistan 

as contributing positively to security through several dynamics. First, a growing 

economy would provide gainful employment to the young, unemployed 

men who were considered most likely to join an insurgency; creating jobs 

would help to draw the alleged “$10 a day Talib” away from anti-government 

activities, a view widely shared by Afghans.17 Second, a growing economy 

and rising standard of living would create confidence in and legitimacy for 

the state and therefore reduce hostility toward it. A growing economy would 

also allow the state to deliver services and programs to a population that was 

increasing in numbers and expectations, especially with the return of nearly 

two million Afghans in 2002 alone.18 U.S. government officials reasoned that if 

the Afghan government was seen as offering something better than the Taliban, 

the population would become stakeholders in the reviving state.19 Third, a 

growing and robust economy would generate revenue through direct and 

indirect taxes that would enable the government to pay its bills and, critically, 

not remain a “permanent ward of the international community.”20 Finally, the 

choice of a private-sector, open-market economy was seen as reinforcing 

electoral democracy, individual freedoms, women’s rights, a free media, and 

other Western values. Free enterprise was seen as transformational, freeing the 

country from the “dead hands” of tradition, socialism, and the Taliban.21

While the emphasis and intensity of specific policies and programs have changed 

over the past 16 years, the core belief and theory of change—that a growing 

economy contributes to stability and security—has remained constant. Still, 

there is not universal agreement on the relationship between economic growth 

and security. Research in Afghanistan and other conflict situations suggests 

that the decision to oppose and even take up arms against the state can be the 

result of a varied, complex, and often overlapping mix of factors, including poor 

governance, corruption, and predatory government; injustice; micro- or macrolevel ethnic, tribal, or factional conflicts; resistance to international military 

forces in conflict areas; scarce resources; and even aid itself.22 All of these 

factors may be exploited by insurgents, as may the sense of relative poverty that 

feeds a feeling of exclusion and grievance. 

AFGHANISTAN’S ECONOMIC PERFORMANCE SINCE 2001

Afghanistan’s post-2001 economic performance has juxtaposed sharp growth 

and expansion, yet with growth driven primarily by international spending; 

creation of great wealth, yet the persistence of grinding poverty; and, the 

shifting of the composition of the economy from agriculture to services, yet with 

the persistence of low-productivity agriculture. 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 7

GDP

Influenced significantly by high levels of donor spending and the recovery 

typically seen in post-conflict situations, Afghanistan’s GDP growth averaged at 

or near double digits for the first decade of reconstruction. Between 2001 and 

2012, per capita GDP increased more than five-fold, from $117 in 2001 to a peak 

of $669 in 2012 in the run-up to the 2014 drawdown. This included the period 

of the 2007–2012 global economic recession. Since 2012, total GDP has been 

stagnant or even falling. Moreover, per capita GDP has fallen each year since 

2012, dropping to $562 in 2016.23

Due to the volatility of weather-dependent agriculture, GDP growth varied 

greatly from year to year (see figure 1). While agriculture remained the base of 

Afghanistan’s licit, formal economy, contributing from 21 to 38 percent of value 

added to GDP, construction and services (especially communications, transport, 

logistics, government services, and financial and business services) were the 

strongest consistent driver of GDP growth through 2013.24 The significant drop 

in growth beginning in 2013, in parallel with the drawdown of coalition military 

and civilian personnel, confirmed that much of the growth was driven largely by 

the international presence. 

2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2004

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2004

Source: SIGAR analysis of data from the World Bank, “GDP growth: Afghanistan (annual % growth)” and “Agriculture, value added: Afghanistan (annual 

% growth),” data for 2003–2016, World Bank, World Development Indicators database, accessed on January 12, 2018.

AGRICULTURE AND GDP GROWTH RATES, 2003–2016

Agriculture Growth Rate

GDP Growth Rate Average GDP Growth Rate (2003–2012) 

FIGURE 1
8 | INTRODUCTION

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

Employment

According to the Afghan government’s Afghanistan Living Conditions Survey 

(ALCS), unemployment was 7.1 percent in 2008, 8.2 percent in 2012, and 

22.6 percent in 2014, the only available data points. Drawing conclusions about 

true levels of employment is difficult, in part, because data in Afghanistan are 

notoriously poor.25 For example, Afghanistan has never had a full census, and 

therefore all population numbers and percentages are estimates.26 Also, ALCS 

counted anyone who did any agricultural, nonagricultural, or occasional paid 

work for even one hour in the previous 30 days as “employed,” a situation 

that does not represent sufficient employment.27 In fact, a large majority 

of the population is underemployed, a problem considered as serious as 

unemployment.28 Furthermore, 90 percent of employment in Afghanistan 

(including day laborers and unpaid family workers) has been classified 

as “vulnerable.”29

The extent to which employment depended on international spending was 

illustrated by a 2016 International Monetary Fund (IMF) country report that 

estimated 500,000 jobs had been lost in the two years after the 2014 drawdown, 

a number roughly equivalent to the number of jobs that were created in the 

2009–2012 surge years preceding it.30 Moreover, the World Bank estimated that 

Defining Economic Terms

Informal Economy: All economic activity that is not taxed or regulated by the government. 

This includes the entire illicit economy, as well as licit, but unregistered, activity, such as 

self-employed individuals who are paid in cash.

Labor Force: The number of people in a population who have a job or are actively looking 

for a job.

Own Account Workers: Those workers who are self-employed and who have not hired 

anyone to work for them on a continuous basis.

Underemployment: The percentage of those in the labor force who are employed in jobs 

that are less than full-time, jobs that are below their education or training level, or jobs 

that are inadequate to meet their economic needs.

Unemployment: The percentage of people in the labor force who do not have jobs.

Vulnerable Employment: Own account workers and contributing family workers, including 

day laborers and informal workers, who are considered vulnerable because they are 

“more likely to lack decent working conditions, adequate social security and ‘voice’ 

through effective representation by trade unions and similar organizations.”

Source: World Bank, The Informal Sector: What Is It, Why Do We Care, and How Do We Measure It?, May 8, 2007, pp. 21–23, 27, 29; Gregory Mankiw, 

Macroeconomics, 8th Edition (New York, NY: Worth Publishers, 2012), pp. 606, 610; Merriam-Webster, “Underemployment Definition,” Merriam-Webster 

website, accessed on March 8, 2018; OECD, “Own Account Worker Definition,” OECD Glossary of Statistical Terms website, accessed on February 26, 

2018; International Labor Organization, “Vulnerable Employment Definition,” 2017.
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 9

approximately 80 percent of the jobs that had been created were informal day 

labor jobs that were not sustainable.31

The challenge of creating jobs for the existing labor force was exacerbated by 

the return of refugees from neighboring countries, especially during the early 

years of reconstruction. In 2002 alone, 1.96 million refugees voluntarily returned 

to Afghanistan.32 Returnees added to the number of people looking for work and 

needing services from the state. (See figure 2.)

Finally, with one of the highest population growth rates in the world and nearly 

half of its population under the age of 15, Afghanistan will need to add 400,000 

jobs annually just to meet the needs of labor market entrants—a situation 

described as a “socio-economic time bomb.”33

Poverty

From 2002 to around 2012, workers benefited from the substantial rise in 

wage rates and salaries for all types of work that were driven by international 

spending. Remuneration paid to office personnel and lower-skilled workers 

by international agencies and contractors was often up to 11 times the civil 

service wage rate.34 Beginning in 2014, the availability of employment and 

the wages of both office workers and casual laborers began to level off 

or decline.35

2001 200420032002 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

1.13

2.63

4.72

3.51

0

500

1,000

1,500

2,000

Source: SIGAR analysis of data from the UN High Commissioner for Refugees (UNHCR), “Returned Refugees: Afghanistan,” 2001–2016, UNHCR 

Population Statistics, accessed on February 20, 2018.

NUMBER OF VOLUNTARILY RETURNED AFGHAN REFUGEES, 2001–2016 (IN THOUSANDS)

FIGURE 2
10 | INTRODUCTION

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

Even though Afghanistan saw strong growth in GDP between 2002 and 

2012, benefits did not accrue equally to the rich and the poor, widening 

the inequality gap in the country. Poverty levels remained extremely high, 

largely due to unemployment and underemployment. Around one-third of 

the population has remained below the poverty line since at least 2007, 

when the first consistent indicators were available.36 At the same time, 

however, poverty is hard to measure because data in Afghanistan are 

notoriously inadequate.

Trade

Afghanistan’s trade imbalance increased consistently over the past 16 years 

as domestic industries were unable to compete in regional and world export 

markets and consumption fueled by the inflow of civilian and military funding 

attracted imports.37 Afghanistan reported substantial growth in imports from 

Pakistan, Iran, and China, three of Afghanistan’s largest trading partners, 

between 2008 and 2016, the only years for which Afghanistan reported trade 

data.38 Analysts attribute part of the trade imbalance to competitive advantages, 

but also to predatory or unfair trade practices by these nations, who saw 

Afghanistan as a market for their own production. Especially concerning for 

Afghanistan were the rising imports of competing products from its neighbors, 

for example, stone, carpets, dried fruits, and nuts.39 Recent transit and trade 

issues between Pakistan and Afghanistan due to political tensions reportedly 

have led to a substantial decrease in imports from Pakistan from 2016 to 2017.40

50% 40% 30% 20% 10% 0% 0% 10% 20% 30% 40% 50%

Source: SIGAR analysis of data from UN Comtrade, "Afghanistan Reported Exports and Imports by Partner (Partner Share of Market in %)," 2016, 

World Integrated Trade Solutions, UN Comtrade database, accessed March 12, 2018.

AFGHANISTAN’S TOP TRADING PARTNERS, 2016 (BY PARTNER SHARE OF MARKET)

Pakistan

India

Iran

Turkey

Iraq

European Union

United Arab Emirates

China

Kazakhstan

Russia

North America

Turkmenistan

Uzbekistan

Malaysia

Japan

47.50

38.57

3.16

2.04

1.88

1.63

1.57

0.80

0.67

0.58

0.32

0.29

0.07

0.02

0.01

18.35

2.34

19.36

1.20

0.00

1.15

3.07

16.72

9.51

2.12

1.23

5.44

6.11

4.05

3.81

Imports = Total 94.45% Exports = Total 99.10%

FIGURE 3
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 11

This has further motivated Afghanistan to strengthen its trade relationships 

with Central Asia, as illustrated by the Lapis Lazuli Route agreement signed in 

November 2017 between Afghanistan, Turkmenistan, Azerbaijan, Georgia, and 

Turkey.41 Figure 3 illustrates Afghanistan’s top trading partners in 2016 by value 

of trade.

Investment

Drawing conclusions about investment in Afghanistan is difficult due to the lack 

of precise numbers and other gaps in information. Nevertheless, it is clear that 

despite a few significant and high profile exceptions, foreign private investment 

has been limited throughout the reconstruction period. While domestic investment 

was relatively strong during the surge of 2009–2012, it subsequently declined 

and overall contributed little to economic growth.42 The primary impediments 

to investment were related to uncertainty, including the effects of institutional 

corruption.43 While private investment began ramping up in 2005, alongside the 

increased inflow of foreign spending and a higher international presence, the 

growth was short-lived. Between FY 2005 and FY 2011, private investment nearly 

tripled. However, it peaked in FY 2011 at $1.5 billion and has fallen since. Between 

FY 2011 and FY 2015, private investment dropped 24 percent.44

Insecurity vs. Uncertainty

The terms insecurity and uncertainty are often conflated to portray some level of doubt or 

vulnerability. In this report, however, insecurity and uncertainty describe two related, yet 

different, situations.

Insecurity reflects a current state of risk to direct physical safety or political stability. An 

individual, group, or region is insecure when it is vulnerable or subject to danger. In the 

case of Afghanistan, insecurity is often directly tied to the presence of insurgent groups.

Uncertainty signifies a level of unpredictability about the future, rather than an imminent 

risk. Uncertainty often refers to future risks facing individuals or groups, particularly 

economic or political risks about specific policies, for example, diminishing returns on 

investments. Uncertainty can also be tied to confusion, which makes doing business 

more difficult and complex.

APRIL 2018 | 13

UNAMA photo by Fardin Waezi

CHAPTER 2

OVERVIEW OF SUPPORT TO PRIVATE 

SECTOR DEVELOPMENT

FUNDING STREAMS

While over 60 nations helped to fund Afghanistan’s reconstruction, 

U.S. aid dwarfed all other individual country funding.45 Since FY 2002, 

the U.S. Congress has appropriated $122.09 billion in reconstruction assistance 

to Afghanistan.46 Almost immediately following 9/11, debates began about 

how much funding would be required to reconstruct Afghanistan, with little 

or no empirical basis for precise estimates. At the November 2001 Senior 

Officials Meeting (SOM) on reconstruction assistance to Afghanistan, cochaired by the United States and Japan, authorities estimated a notional 

$10 billion for funding over 10 years based on past international experience. 

This was substantially increased two months later by the $14.6 billion main 

estimate in the “Afghanistan Preliminary Needs Assessment for Recovery and 

Reconstruction” produced by the World Bank, Asian Development Bank (ADB), 

and the UN Development Program (UNDP).47 Meanwhile, according to a report 

by Radio Free Europe, Afghanistan’s Interim Authority stated in January 2002 

that reconstruction would require $45 billion over a 10-year period.48 The Tokyo 

donor’s conference that same month led to international pledges of $1.8 billion 

for 2002 and a total of $4.5 billion across a range of timeframes.49
14 | OVERVIEW OF SUPPORT TO PRIVATE SECTOR DEVELOPMENT

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Various scholars and development agencies advocated for additional funding 

and criticized the needs estimates, arguing that, on a per capita basis, 

international pledges and U.S. funding authorizations for Afghanistan were 

substantially lower than the aid allocated for other recent post-conflict states, 

such as Rwanda, Bosnia, Kosovo, and East Timor.50 While comparisons 

of absolute and per capita funding levels alone were not a sufficient basis 

for criticism given the inherent differences in the countries’ economies, 

populations, productivity, and other circumstances, some of those charged with 

overseeing the reconstruction effort criticized the estimates for their relatively 

low levels of projected funding. Furthermore, these discussions took place 

against the backdrop of planning for the invasion of Iraq and with the feeling 

that the United States had no interest in staying in Afghanistan for the long 

term—and that the low needs estimates reflected this.51

By 2003, as insecurity grew and donors became concerned that the 

reconstruction effort was faltering, more resources, primarily from the United 

States, began to flow into Afghanistan to support what would eventually be 

formalized as the counterinsurgency (COIN) strategy.52 In the years before the 

2009–2012 surge, despite growing evidence that Afghanistan and its international 

partners were unable to effectively spend the existing resources, funding levels 

continued to increase. U.S.-appropriated reconstruction funding in FY 2009 was 

$10.4 billion, and peaked in FY 2010 at $16.7 billion (see figure 4).53 Thereafter, 

development funding fell in parallel with the military drawdown that was to be 

completed in 2014. Total U.S. appropriations in 2014 for both development and 

security were only about 40 percent of their peak in 2010. Subsequent years saw 

continued reductions in U.S. appropriations.54

Total international funding levels grew substantially during the surge years 

as well. In 2007, official development assistance (ODA) increased by over 

Official Development Assistance

OECD’s Development Co-Operation Directorate calculates ODA from all OECD member 

countries. ODA includes aid provided by an official agency or government with the 

specific objective of promoting economic development and improved welfare, including 

humanitarian aid. ODA does not include funding for military equipment or services, 

antiterrorism activities, most peacekeeping efforts, and other funding directly tied to 

security or military forces.55

While ODA and U.S. appropriations are measurements of donor assistance, the two 

are not directly comparable. ODA is calculated by OECD and includes certain grants, 

loans, and technical assistance that are not included in SIGAR’s calculations of U.S. 

appropriations. ODA numbers also represent historical calculations of disbursements, 

not appropriations.
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 15

57 percent and remained at about that level through 2008. In 2009, an even larger 

influx of money began to flow into Afghanistan as donors increased ODA to over 

$6.2 billion.56

It is not possible to determine the percentage of total U.S. government funding 

that went to private sector development due to the complexity of the agencies’ 

funding mechanisms and the overlap of these and other U.S. efforts in a variety 

of cross-cutting programs. For example, USAID supported private sector 

development through a variety of economic growth and agriculture programs, 

which, as of December 31, 2017, had disbursed $1.22 billion and $2.15 billion, 

respectively.57 The majority of USAID funding for these projects came through 

the congressionally approved Economic Support Fund. ESF funds were 

appropriated annually for programs in countries where funding for economic 

development was justified on the basis of U.S. national interests, rather 

than solely on development.58 Funding for these USAID programs was also 

supplemented by non-ESF funds.59

In addition, DOD’s role in private sector development was supported by 

more than $675 million in funds obligated for TFBSO.60 And, although only 

0.44 percent of the $838 million of CERP funding was disbursed for micro 

grants, the primary CERP activity discussed in this report, additional CERP 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1.07

5.59

1.13

2.63

4.71

3.51

10.04 10.41

16.71

15.86

14.71

9.63

6.81 6.28

5.54

6.16

Security

Non-Security

$0

$5

$10

$15

$20

Source: 2002–2006 data from SIGAR Quarterly Report to the United States Congress, October 30, 2014; 2007–2017 data from SIGAR Quarterly 

Report to the United States Congress, January 30, 2018.

U.S. GOVERNMENT APPROPRIATIONS BY FISCAL YEAR, 2002–2017 ($ BILLIONS)

FIGURE 4
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SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

monies were spent on roads, culverts, bazaars, and market buildings, which 

contributed to private sector development.61

KEY ACTORS AND ACTIVITIES

U.S. Government Agencies 

Starting in 2001, U.S. government civilian agencies that contributed to private 

sector development included USAID, Treasury, Commerce, OPIC, USTDA, and 

the U.S. Trade Representative. DOD supported private sector development 

through such mechanisms as TFBSO, Afghan First, Agricultural Development 

Teams, and CERP micro grants. In addition, some DOD stabilization programs 

such as Village Stability Operations had private sector development-related 

activities. All of these efforts were intended to be part of a whole-of-government 

or integrated approach (see appendix B, Select U.S. Government Projects). 

U.S. government support to private sector development and economic growth 

can be put into two broad but overlapping and complementary categories: 

(1) overall support to creating an enabling environment, effective market 

structures, and institutions in which the private sector could thrive, and 

(2) targeted support to individual firms, entrepreneurs, and groups. Within 

those two broad categories, the U.S. government supported a wide variety 

of efforts, including reforming Afghan government institutions, laws, and 

procedures; providing technical and financial support to individual small and 

medium enterprises; encouraging businesses, which added value to primary 

commodities and products; building business associations; supporting the 

privatization or liquidation of the state-owned enterprises; strengthening the 

financial sector, including microfinance institutions; promoting foreign and 

domestic direct investment; encouraging regional trade; providing vocational 

training and education; and targeting assistance to women’s economic activities. 

These efforts were complemented by other U.S. investments in infrastructure, 

border management, and rule of law, which were critical to underpinning the 

institutional environment necessary for a market economy.

U.S. Allies

The United States and its allies, primarily the UK and Germany, were aligned in 

their view of the private sector as the main engine of development, with some 

minor policy differences, mainly concerning the extent to which the state would 

intervene in the economy. And, while the European Union didn’t focus explicitly 

on the economy, its programs in rural development, governance, and social 

protection were complementary to private sector development.62
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The UK, which in some years was Afghanistan’s second-largest bilateral donor, 

was the lead nation for counternarcotics and supported the institutional 

infrastructure for the enabling environment and economic management, 

working primarily within the ministries.63 Due to its leadership of the Lashkar 

Gah Provincial Reconstruction Team (PRT), the UK also provided significant 

support in Helmand Province, including funding for its industrial park.64 In 

2009, the UK’s Department for International Development (DFID) Supporting 

Employment and Enterprise Development (SEED) program served as an 

umbrella project that included technical assistance to the Ministry of Mines 

and Petroleum (MOMP) and Ministry of Commerce and Industry (MOCI).65 This 

assistance included support to legislation, mentoring and training, restructuring 

of institutions, and, as a new initiative, more direct assistance to enterprises 

through funding the Business Edge management and business skills training 

program and the Afghanistan Business Innovation Fund.66

Germany, which in some years was Afghanistan’s third-largest bilateral donor 

and which had a long history of private sector linkages with the country, played 

a major role in the founding of the Afghanistan Investment Support Agency 

(AISA), one of the key institutions formed post-2001, and was involved in trying 

to revive the pre-war Afghanistan Chamber of Commerce.67 Germany took 

on a larger role after 2009, especially in the north where it had a large troop 

contingent. Although supportive of private sector development, in part through 

enterprise projects similar to USAID’s, Germany took a European approach that 

envisioned a more active role for the state, which created some tension with the 

United States over the characteristics of the reborn Chamber of Commerce. 

Regional Influences

In addition to Western donor nations, the following regional neighbors had 

a significant influence on Afghanistan’s economy, both through development 

assistance and, more extensively, through commercial activities, many of which 

were motivated by the countries’ political and diplomatic aims.

The Silk Road

Named for the prominence of the silk trade at the time, the Silk Road was an historical 

network of trade routes that spanned the Eurasian continent, most significantly from 

the late BCE period to the 1400s. The territory that is now Afghanistan served as an 

important transit point between Persia (Iran), India, and China. The Silk Road has 

been invoked in modern times in endeavors aimed at strengthening trade and political 

relations between the nations of South and Central Asia. These endeavors include the 

U.S. New Silk Road initiative and China’s One Belt, One Road initiative.68
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Pakistan

Pakistan is regularly criticized by Afghan media and government officials not 

only for political intervention in Afghan affairs and maintaining Taliban safe 

havens, but also for predatory economic practices, such as product dumping and 

non-tariff barriers to trade. Because the southern port city of Karachi provides 

land-locked Afghanistan with its main access to global and regional shipping, 

Pakistan’s ability to close its borders or impose restrictions on the transport of 

goods leaves Afghanistan vulnerable. 

Pakistan is Afghanistan’s largest trading partner, although its exports to 

Afghanistan outweighed imports by a factor of 3.7 in 2016.69 The 2010 

Afghanistan-Pakistan Transit Trade Agreement (APTTA), replacing the 1965 

Afghanistan Transit Trade Agreement, has not resolved the many trade-related 

tensions between the two countries, including transshipment of goods and 

access to Pakistan’s roads for Afghan vehicles. In the second half of 2017, 

Afghanistan’s trade with Pakistan was reported to have fallen substantially, 

while trade with Iran and India grew.70

Iran

Iran has extensive commercial interests in Afghanistan, especially in the 

western province of Herat, where Iran has historically provided electricity. 

Afghanistan is an important export market for Iranian consumer goods, which 

are especially attractive to those Afghans who acquired Iranian tastes during 

years spent there after the onset of conflict in 1979.71 In 2016, Afghanistan 

reported $1.27 billion in imports from Iran, the highest in the region.72 In return, 

cash from Afghanistan was a source of hard currency for Iran during the U.S.-

backed economic sanctions. Cash remittances from the estimated 2.5 million 

Afghans currently living and working in Iran have been an important means of 

support for their households in Afghanistan. The opening of the Iranian port 

of Chabahar in December 2017 provides Afghanistan with an alternative to the 

Pakistani port of Karachi.

India

India has been both a donor nation to Afghanistan and an important regional 

economic actor. One of India’s largest economic development contributions 

was the reconstruction of the Salma Dam (now renamed the Afghan-Indian 

Friendship Dam), which was designed to generate up to 42 MW electricity 

and provide water to irrigate agricultural land in Herat.73 Indian companies 

have also done work on roads and electrical transmission lines. The option 

for the Hajigak iron mine in central Bamyan Province, Afghanistan’s second 

largest mining contract, went to an Indian consortium of private and state-run 

companies, although final contract status and actual exploitation have stalled 

due to security concerns and low world mineral prices.74 Trade between the two 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

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countries significantly increased from $20 million in 2001 to $753 million in 2016, 

of which nearly two-thirds were imports of Indian goods into Afghanistan.75

Because of the constraints of land transport across Pakistan, a growing 

percentage of exports to India travel by air, especially spices, carpets, fresh and 

dried fruit, and nuts.76 Partly because of its rivalry with Pakistan, India has been 

especially supportive of the expansion of the Iranian port of Chabahar, which 

facilitates trade with India and lessens Pakistan’s influence.77

China

China has extensive political and commercial interests in Afghanistan, with 

significant bilateral trade and investment efforts and some minor development 

assistance. Post-2001 trade has been very much skewed in China’s favor; in 2016, 

its exports to Afghanistan were valued at nearly 95 times its imports.78 China’s 

involvement in Afghanistan’s extractive industries includes the state-owned 

Metallurgical Group Corporation of China’s (MCC) winning bid to exploit the 

Aynak copper mine in Logar Province for $808 million.79 Chinese companies also 

acquired drilling rights in the Amu Darya Basin, one of the oil and gas fields in 

northern Afghanistan.80 In 2016, Afghanistan and China signed a memorandum 

of understanding for Afghanistan’s integration into China’s One Belt, One Road 

initiative, without significant practical implications to date.81

Turkey

A North Atlantic Treaty Organization (NATO) ally and coalition partner of the 

United States, Turkey sees itself as a regional power in Central Asia. It has 

commercial interests in trade, especially in northern Afghanistan, and many 

Turkish construction companies have won major contracts for reconstruction 

Fruits from the Kandahar region of Afghanistan are shipped to India with help from USAID. (USAID photo)
20 | OVERVIEW OF SUPPORT TO PRIVATE SECTOR DEVELOPMENT

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activities.82 Turkey has historically supported northern Afghan politicians, 

most notably First Vice President Abdul Rashid Dostum.83 Turkey has also 

facilitated Afghanistan’s participation in the Istanbul-based Economic 

Cooperation Organization.84

Central Asian Republics

Despite geographic proximity, Afghanistan’s economic relationships with its 

northern neighbors Tajikistan, Uzbekistan, and Turkmenistan are nowhere 

near as extensive as its other neighbors. During the Soviet period, there was 

limited official trade, and the river borders were much less permeable than the 

land borders with Pakistan or even Iran. The limited trade continues due to 

disputes over river water allocation, protectionist economic policies, and fears 

of spreading chaos and violence from Afghanistan.85 The share of imports from 

Turkmenistan and Uzbekistan are 5.4 percent and 6.1 percent, respectively, and 

Afghanistan does not have significant exports to either country.86 A number of 

regional initiatives of various strengths have been signed to foster economic 

cooperation, transport linkages, and regional trade, but the success of these 

initiatives has been limited due to security fears and countries’ perceptions of 

their own self-interest.87

Russia

Russia has kept a low profile in Afghanistan since the former Soviet Union 

ended its 1979–1989 occupation of the country. Russia helped facilitate some 

aspects of the coalition’s efforts in Afghanistan from 2001–2014, including 

training Afghan security forces, in coordination with NATO, and providing air 

and land transit for NATO forces. Russia’s primary interests in Afghanistan are 

related to concerns about potential instability in Central Asia and the flow of 

opiates from Afghanistan; more than 80 percent of heroin exports to Russia and 

Europe pass through Tajikistan.88 On the economic side, Russia contributed 

to reconstruction by writing off more than $11 billion of the debt owed by 

Afghanistan to the Soviet Union. The limited trade between the two countries 

heavily favors Russian exports, mainly for petroleum products, wood, and steel. 

Russian companies, mostly state-owned, have gained some contracts from the 

reconstruction, including lucrative transport contracts.89 As the 2014 transition 

approached, Russia increased economic ties with Afghanistan and began 

rebuilding and revitalizing some of the industrial infrastructure it built there 

during the Cold War.90

International Organizations

A substantial portion of aid and technical assistance, especially in the early 

years after 2001, came from international organizations, whose support was 

closely aligned with the U.S. strategy for economic growth and private sector 

development in the initial phases of reconstruction.
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The main objective of the IMF during the immediate post-2001 period 

was to quickly restore financial and macroeconomic stability to support 

a sustainable economic recovery. Because Afghanistan’s central bank, Da 

Afghanistan Bank (DAB), and the Afghan Ministry of Finance (MOF) had both 

essentially ceased to function by 2001, the IMF was the lead organization 

in rebuilding economic institutions and implementing macroeconomic 

policies.91 This included technical assistance programs and training for public 

sector employees.92

The World Bank focused its initial funding on “critical short-term priorities 

including education, infrastructure rehabilitation, and job creation,” seen 

as “opportunities for ‘quick wins’,” as well as “addressing urgent financial 

management and public administration needs.” Other World Bank priorities 

included investment funding for technical assistance in the financial sector, 

private sector, and infrastructure.93 The World Bank also became the 

administrator of the Afghanistan Reconstruction Trust Fund (ARTF) in 2002 

and played a major role in building the capacity of the MOF. 

The Asian Development Bank’s immediate priority post-2001 was to generate 

economic growth through the creation of employment. Longer-term priorities 

included large-scale infrastructure, gender equality, and regional trade, 

including energy. ADB acknowledged the existing constraints to private sector 

development and sought to invest in “capacity building, institution building, 

governance support, and the reform and development of the financial system.”94

The UN Development Program, meanwhile, had very few programs that 

directly contributed to private sector development. Those that did were largely 

focused on government reform and capacity building, or were primarily areaor community-based projects.95

APRIL 2018 | 23

U.S. government support to private sector development in Afghanistan from 

2001 to 2017 can be divided into five periods: (1) 2001–2005, the initial 

reconstruction efforts; (2) 2006–2008, the rise in assistance due to the fear the 

country was slipping backwards; (3) 2009–2012, the military and civilian surge, 

with accelerated spending; (4) 2013–2014, the drawdown of military forces 

and transition to Afghan government authority; and (5) 2015–2017, the posttransition years. While the general strategy of supporting a private sector, open 

economy remained constant, each of these periods was distinguished by the 

level and types of inputs, as well as by events in the larger Afghanistan context. 

After a brief history of Afghanistan’s economy and a discussion of these periods 

of U.S. government support to private sector development, we turn to the five 

main U.S. private sector development interventions—creating an enabling 

environment, providing access to finance, promoting investment, developing 

regional and international trade, and supporting enterprises—which are 

discussed in chapters 4 through 8. 

AFGHANISTAN’S ECONOMY BEFORE 2001

Prior to 1978, Afghanistan had what could be called a mixed-guided economy, 

with the agriculture, small-scale manufacturing, and trading sectors largely 

UNAMA photo by Zakarya Gulistani

CHAPTER 3

U.S. SUPPORT TO PRIVATE SECTOR 

DEVELOPMENT: 2001–2017
24 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

ENDURING CHARACTERISTICS OF THE AFGHAN ECONOMY

Aside from the devastation of years of war, Afghanistan’s post-2001 economy reflected 

several enduring characteristics: reliance on external finance, low-productivity agriculture, 

limited industry, mixed responsibilities between public and private sectors, and 

pervasive uncertainty. 

Throughout its history, Afghanistan has relied on external finance: from plunder and tribute 

during the 18th and early 19th centuries, to British “subsidies” during the 19th century, 

to foreign aid during the 20th century, especially during and after the Cold War, when 

Afghanistan used the competition between the United States and the Soviet Union to extract 

foreign assistance from both. A succession of relatively weak central Afghan governments was 

reluctant to levy and collect direct taxes, including income and corporate taxes, out of fear 

of alienating powerful elements in society. Afghanistan has therefore been called a classic 

rentier state, one that receives all or most of its revenue from the outside, either from the 

sale of its natural resources or from foreign aid.96

Even during its most prosperous period immediately prior to the breakout of conflict in 1978, 

Afghanistan relied overwhelmingly on low-productivity agriculture for its predominantly rural 

population. Most of Afghanistan’s minimal large-scale industry was owned by the state and 

financed and built by international donors. The informal agriculture, trading, and small-scale 

production sectors were mostly privately owned. With elements of both market and command 

or socialist economies, it is more accurate to call Afghanistan’s pre-1978 economic system 

mixed-guided rather than “socialist” or “Soviet-style.”

Uncertainty arose not only from a lack of confidence in the state’s ability to survive, but 

more significantly, from fear of sudden changes in policy and of predation by the state or 

its officials. As illustrated by Prime Minister Mohammad Daoud’s radical shifts on national 

ownership in the 1950s and 1960s, sudden and sharp changes in major policies, for 

example, taxation and state vs. private ownership, created a level of uncertainty that 

discouraged investment and many forms of economic risk-taking. This atmosphere, viewed as 

contributing to entrepreneurs’ preference for short-term, lower-risk trade rather than longterm production, continues today. Over time, the enduring informality of economic activity has 

been largely attributed to the desire of entrepreneurs to avoid the clutches of a predatory 

revenue collection system or, potentially more significantly, appropriation by the government 

itself or by strongmen associated with or protected by it.

Rentier State

A rentier state is one that earns most of its revenue from “renting” resources, such as 

oil and minerals, to foreign powers. Typically, only a small portion of the workforce is 

employed in the mining or other extraction of these resources and, therefore, the majority 

of the population does not benefit directly from the generation of rent. The state is the 

primary recipient of the rent revenues.

A rentier state can also be a state whose revenue streams are primarily foreign aid, 

as income is still being brought in from outside, but through bilateral or multilateral 

assistance rather than the purchase of resources.
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

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private, and the larger-scale manufacturing sector the province of the state.97

Starting in the 1930s, Afghanistan gradually modernized, especially after 

World War II, when the country built infrastructure and a few large industrial 

facilities, which were seen as symbols of modernization and were intended to 

lead to import substitution and exports. The government also tried to maintain 

influence over the economy through heavy controls and mechanisms such as 

monopsony purchases of certain agricultural products, for example, cotton 

and sugar beets, and through the shirkat system of shared ownership, although 

its effectiveness was limited, especially with respect to prices. Afghanistan 

was largely dependent on imports, but in good agricultural years, it was selfsufficient in food grains; in such years, the country also had a modest trade 

surplus from the primary commodities of cotton, animal skins, wool, natural gas, 

dried fruits, and nuts.98 Remittances from Afghan migrant workers in the Persian 

Gulf during the oil boom years of the mid- to late-1970s further contributed to a 

relatively positive economic picture.99

USAID’s first private enterprise development program in Afghanistan was 

launched in the early 1960s. While efforts to promote private investment in 

agribusiness, metals, textiles, tobacco, and furniture had limited success, the 

agency’s support to other industries, such as qarakul sheep and fertilizer supply, 

was retrospectively assessed as successful.100 This success was attributed to the 

establishment of investment laws and other legal foundations, the support given 

by key ministries for private investment, the consolidation of those ministries’ 

responsibilities, the fielding of experienced USAID technical advisors, and, 

critically, relative political stability. Institutional support for the private sector 

was fragile, however, and there remained many structural obstacles to private 

sector growth. In the end, USAID concluded that the most serious obstacle to 

growth was the government’s hostility toward private sector development after 

Mohammad Daoud returned to power in a 1973 military coup.101

The “golden era” of modest development and relative domestic tranquility 

came to a violent end with the 1978 coup, after which the Peoples’ Democratic 

Party of Afghanistan (PDPA) took the country in a more socialist direction, 

with hostility toward those who had been large landowners, businessmen, and 

capitalists, many of whom were killed or driven into exile. At the end of 1979, 

fearing that growing unrest and resistance could threaten the PDPA government, 

the Soviet army invaded Afghanistan. Subsequent armed conflict over the 

next 12 years resulted in a significant contraction of the Afghan economy.102

Markets atrophied due to destruction of infrastructure, breaks in international 

trade linkages, and the inability of farmers to produce outputs for export. 

After President Mohammad Najibullah’s fall and the ascendance of a fractious 

mujahedeen government in 1992, and then its replacement with the Taliban 

government in 1996, the economy continued its decline.

The shirkat (share) 

system was an 

arrangement in 

which a minority of 

stock (typically 40–

45 percent) was owned 

by the government, and 

the remainder was in 

private hands.

Qarakul, also known 

as Persian lamb, is a 

type of sheep valued 

for its wool and pelt, 

which were used to 

make hats and coats. 

In high demand in U.S. 

and European markets 

during the 1950s and 

1960s, qarakul became 

a less valuable product 

when international 

tastes moved away 

from animal fur.
26 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

OPIUM ECONOMY

Opium poppy is an illegal crop used to make heroin and other opiates. By value, it is 

the most important crop in the Afghan economy, generating economic activity, providing 

employment, and supporting livelihoods in many provinces across the country. While the 

share of opium in economic activity has fallen from 33 percent of total GDP in 2004 to 

16 percent of GDP in 2016, it remains the largest cash-generating industry in the country.103

From a macroeconomic perspective, opium has positive impacts on the economy by 

increasing aggregate demand and improving the overall balance of payments.104 Opium 

exports strengthen Afghanistan’s balance of payments, helping to stabilize the foreign 

exchange rate for the Afghan currency.105

In recent years, the total net export value of opium at the border has ranged from $1.5 billion 

to as much as $4 billion, in some years exceeding all other Afghan exports combined.106

The actual economic impact is much larger than this number suggests, however, considering 

the multiplier effect the industry has in other sectors, especially in rural communities. The 

majority of the farm-gate value of opium, in 2017 estimated at $1.4 billion, is spent on basic 

consumption by rural households. However, some portion of the export value also returns 

downstream to the domestic economy, further multiplying the income effects from opium 

production and increasing the opium economy’s impact on the licit economy.107

From a livelihoods perspective, opium poppy cultivation can positively impact rural 

households in a number of ways. First, it provides a significant amount of employment due 

to its high labor intensiveness. In 2017, the drug industry accounted for approximately 

590,000 full-time equivalent (FTE) on-farm jobs.108 It is estimated that poppy is as much as 

Partially eradicated opium poppy field in Badakhshan Province in May 2013. (Organization for Sustainable 

Development and Research photo)
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eight times more labor-intensive than wheat, the largest licit crop in Afghanistan.109 Opium 

additionally provides a substantial number of off-farm jobs in trade, transport, processing, 

and security for the drug industry. In poppy-growing areas, opium also has a strong multiplier 

effect, creating secondary jobs as farmers accrue capital to spend on food, medical care, 

and other consumer products.110

Opium can further improve rural livelihoods by providing increased purchasing power for 

households, allowing them to improve food quality or pay for unexpected expenses. It is 

also a convenient means of generating capital for larger purchases, providing both access to 

credit and a means to pay off debts, and as a durable store of value. Households in poppygrowing areas have been able to send children to school and finance the purchase of capital 

assets that enabled them to leave opium poppy cultivation, for example, the purchase of 

vehicles for licit transport activity.111

Because it is so labor-intensive, poppy cultivation provides substantial access to land for the 

land-poor in rural Afghanistan through sharecropping and rent, in addition to providing wage 

labor opportunities. This provides access to cash, as well as land for cultivating food crops or 

keeping some livestock for households that would otherwise not have any.112

However, even as a high-value, labor-intensive crop, poppy generates substantially higher 

income for the traders and traffickers than it does for those farmers who grow it. The yields, 

prices, and border-crossing values of opiate products fluctuate each year, but the farm-gate 

value consistently represents well less than half of the border-crossing value.113 The majority 

of rents from opiate production, therefore, are skewed away from the rural farmers and 

do not provide proportional benefits to the poor. By 2004, the majority of income went to 

traders and traffickers or to recipients of rent and protection payments, and this trend has 

continued since.114

Finally, while providing income for the landless and land-poor, and creating a multiplier effect 

for other portions of the population, opium production and trade exacts a profound cost on 

the economy due to macroeconomic volatility, insecurity, corruption, and degradation of the 

rule of law, as well as drug addiction and other health conditions. The macro effect shows the 

potential for Afghanistan to suffer from “Dutch disease,” a situation where foreign exchange 

inflows from the drug trade or a natural resource lead to an appreciation of the real exchange 

rate, making other licit sectors relatively less competitive, and thus discouraging the 

production of other goods.115

 Furthermore, the drug industry funds warlords whose militias 

undermine security efforts in order to maintain an unsettled environment in which the drug 

industry can thrive. Opium also distorts the rural economy as it impacts land prices, wage 

rates, and sharecropping rates.116
28 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

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After the removal of the Taliban in late 2001, Afghanistan found itself in a 

completely new and unfamiliar landscape. Globally, much had changed between 

1978 and 2001 and returning to the previous economic status quo was not 

an option.117 Since the fall of the Soviet Union and restructuring of much of 

Eastern Europe, the market economy had become de rigeur for the developing 

world, outside of a few exceptions such as North Korea and Cuba. In addition, 

changes in international tastes and an increasingly globalized economy 

rendered Afghanistan’s previous exports, for example, qarakul and dried fruit, 

less valuable.118

The Taliban’s removal ended the 2000 ban on opium poppy cultivation and 

subsequently reinvigorated the illicit economy. Prior to the ban, opium 

cultivation had steadily increased since the 1980s, becoming the most valuable 

crop and export for the Afghan economy.119

2001–2005: AFGHANISTAN IS “OPEN FOR BUSINESS”

In late 2001, after years of conflict and the ouster of the Taliban, Afghanistan 

began the complex and difficult transition toward peace and reconstruction. 

After a political agreement was reached in Bonn in December 2001, the next 

several months witnessed a frenetic series of meetings in Kabul, Washington, 

and other world capitals, with the United States and more than 60 other nations 

trying to assess what was needed immediately and over the longer term, 

mobilizing U.S. and international community resources, establishing their own 

physical presence in a badly destroyed Kabul, and beginning to support the 

rebuilding of fractured Afghan government institutions. Much of the larger effort 

was focused on establishing the foundations of electoral democracy. At the 

same time, the coalition military sought to eliminate what were considered the 

last remnants of the Taliban. 

During the Senior Officials Meeting of the January 2002 Tokyo conference, 

international representatives pledged $1.8 billion for 2002 and a total of 

$4.5 billion in grants for the reconstruction of Afghanistan. Donors were largely 

enthusiastic, as the international community felt a strong desire to show support 

in the wake of the tragedy of 9/11.120 Of the more than $1.8 billion disbursed in 

ODA during 2002, approximately 26.4 percent came from the United States.121

For the U.S. administration, it was “all hands on deck,” with government 

agencies feeling pressured to show what they could do or contribute, even 

where they had little or no experience in an environment such as Afghanistan. 

With less than one month between 9/11 and the start of Operation Enduring 

Freedom, there was no time for systematic planning. As one senior government 

official noted:
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The U.S. government did not engage, anywhere in any of its various 

departments and agencies, in extensive planning for a post-Taliban 

Afghanistan. There was no time, and not much incentive, to do so. Policy was 

focused on obviating the threat of another attack on the American homeland 

from al Qaeda’s sanctuary in Afghanistan. The assumption was that the 

international community would pick up the pieces after the Taliban regime 

was displaced.122

As another senior official described, “When engaged in a crisis, cabinet members 

don’t like to be excluded, so Commerce sent a representative to the field on its 

behalf. There was no group saying, ‘Here’s our overall strategy, here’s what we 

need on the ground.’ No, people just showed up.”123

In Kabul, working conditions were chaotic, with U.S. officials operating out of 

the dilapidated and overcrowded embassy with its unreliable power, heat, and 

internet connectivity, often holding meetings in the homes of Afghan officials. 

Despite the difficult conditions, there was a palpable sense of optimism about 

the future among both Afghans and foreigners.124

Laying the Foundation for a Private Sector Economy

With the encouragement of the United States and its allies, and in a break 

from modern Afghan tradition, Afghanistan adopted a market economy. 

Private sector development was included as one of the three pillars in the 

new government’s first official strategy document, the April 2002 National 

Development Framework (NDF).125

 The primacy of the private sector was made 

official in Article 10 of the 2004 constitution, which declared that “the state 

shall encourage, protect, as well as ensure the safety of capital investment and 

private enterprises in accordance with the provisions of the law and market 

economy.”126 All subsequent strategy documents affirmed the government’s 

aim of “development of an enabling environment that encourages the private 

sector to play a central role in the economic development of the country,” and 

that “government is the policy maker and regulator of the economy, not its 

competitor.”127 In the words of the chairman of the Interim Administration of 

Afghanistan, Hamid Karzai, “The state will enter into a direct managerial role 

only when social justice demands its presence.”128

To lay the foundation for a private sector-driven market economy, the United 

States and its partners recognized a number of critical priorities, including 

institutional infrastructure, monetary policy, the banking system, currency 

conversion, government revenue collection, and basic economic governance. 

As the lead development agency, USAID led the U.S. support for private sector 

development. In a series of plans, USAID outlined various interconnecting 

and linked programs and priorities, reflecting the crosscutting nature of the 

components necessary for economic growth.129 Consistently, however, the agency 
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viewed agriculture as a “cornerstone of recovery and a pillar of reconstruction for 

a sustainable future” because it was such a crucial piece of the Afghan economy, 

with the potential for multiplier effects and linkages with other sectors.130 In the 

most general sense, U.S. priorities were similar to those articulated in the NDF. 

At the same time, however, beginning in 2002, USAID was under substantial 

pressure from the U.S. National Security Council (NSC) and other agencies to 

rehabilitate the Ring Road, which led to budgetary shortfalls and forced 

defunding of other programs, including agriculture.

U.S. strategy documents from these early years emphasized the “light footprint” 

approach to reconstruction due to the desire to not get drawn into, or give the 

impression of, a “long-term [military] occupation of Afghanistan.”131 Afghans 

interpreted the light footprint to mean the United States did not intend to maintain a 

strong physical or direct monetary presence in the country for a long period of time. 

Numerous international actors were involved in helping the Afghan government 

establish macroeconomic stability and foster an enabling environment during 

this time. The overarching strategy of the international financial institutions 

reflected their recent experience in the post-conflict countries of Kosovo 

and East Timor. The IMF took the central role in identifying initial technical 

assistance needs and advising on currency and monetary policy, while the World 

Bank took the lead in carrying out reconstruction assessments, followed by 

technical assistance and institutional support. 

In November 2002, USAID launched its first post-2001 economic growth program 

in Afghanistan, the Afghanistan Economic Governance Program (AEGP), a 

$30 million program which ultimately increased to $90 million.132 The AEGP ran 

through December 2005 and was implemented by the contractor BearingPoint 

as a catch-all program for economic reform, including property rights and land 

titling.133 Reflecting the priorities outlined in USAID’s early strategy documents, 

AEGP focused on four sectors: fiscal, financial, legal and regulatory, and 

trade policy.134 Also, as was the case with most projects supporting Afghan 

institutions, AEGP included capacity building, with advisors working alongside 

Ring Road

Originally built in the 1950s, although never completely paved, Afghanistan’s 1,300-mile 

Ring Road encircles the country, connecting the primary cities of Kabul, Kandahar, Herat, 

and Mazar-e Sharif. The post-2001 rehabilitation of the road was completed except for a 

140-mile segment between Herat and Maimana in the northwest, although other sections of 

the road in the south have subsequently been damaged by insurgent activity. 
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Afghan civil servants in the ministries, with a special focus on building MOF 

capacity in budgeting, customs, and tax administration. 

The U.S. government recognized the need for an independent advocate and focal 

point for the private sector, and funded the Center for International Private 

Enterprise (CIPE) to help create a self-supporting Chamber of Commerce with 

those capabilities, rather than resurrecting the pre-1978, government-affiliated 

Chamber.135 CIPE worked with the Virginia-based Afghan-American Chamber of 

Commerce (AACC), which had been founded in 2002 to stimulate business and 

investment between the United States and Afghanistan. The core of the AACC 

was a group of U.S.-based Afghan businessmen who had formed the Afghan 

Business Council in the late 1990s.136

To promote domestic and foreign investment in Afghanistan, U.S. government 

agencies organized conferences and meetings for potential U.S. investors. In 

January 2002, OPIC hosted a conference on the involvement of U.S. private 

investors in “economic reconstruction and U.S. investment in post-Taliban 

Afghanistan,” and announced a $50 million credit line for work in Afghanistan.137

Because OPIC’s statutes precluded loans to non-U.S. companies, OPIC 

attempted to find diaspora Afghans with U.S. citizenship to receive loans or 

participate in joint ventures. The same year, Commerce formed the Afghanistan 

Investment and Reconstruction Task Force (AIRTF) as a clearinghouse of 

information for U.S. businesses trying to access NATO contracts or who might 

be willing to invest in Afghanistan.

To further support investment, in September 2003, an Afghan presidential 

directive created the Afghanistan Investment Support Agency, a new institution 

with the mission of facilitating and promoting domestic and foreign investment. 

Supported financially and technically by the German development agency 

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), AISA was 

intended to be a “one-stop shop” that would bypass government bureaucracy.138

During this time, a number of USAID programs attempted to promote 

investment. AEGP aimed to encourage domestic and foreign investment through 

the development of industrial parks, in part by helping construct facilitating 

amendments to Afghanistan’s Investment Law. In September 2004, USAID’s Land 

Titling and Economic Restructuring in Afghanistan (LTERA) sought to promote 

investment through the two primary goals of “improving land tenure security for 

millions of Afghans and assisting the Islamic Republic of Afghanistan to undertake 

a comprehensive privatization program.”139 Resolving land tenure and ownership 

issues was seen as key to encouraging economic activity; land titling was urgent, 

given the poor and unreliable land records and the fact that the first land grabs 

by strongmen were starting to take place. (See page 32.) In addition, USAID 
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viewed privatization of the state-owned enterprises as a means to promote private 

investment, especially from foreign investors willing to enter the Afghan market.140

Privatization was also seen as a means of generating revenue for the government.141

At the same time, however, most Afghans were unenthusiastic about privatization 

because they still looked to the state to be the lead economic actor. 

In 2005, another USAID project, Rebuilding Agricultural Markets Program 

(RAMP), provided a $3.8 million grant to the Afghanistan Renewal Fund (ARF), 

which was established the previous year by Afghan Capital Partners (Acap), an 

Emergence of Economic Strongmen

During the jihad (1979–1992) and mujahedeen government (1992–1996) periods, 

many of the powerful Afghan elites were displaced by a new class of strongmen who took 

advantage of the lack of rule of law to accumulate wealth and power, largely through drug 

and weapons trafficking, smuggling, extortion, and other forms of criminality. According 

to one analysis, “The large inflows of Soviet and U.S. patronage, coupled with the 

devastation that the fighting inflicted on the country’s economy, led to the emergence of 

new types of political and economic organizations typified by the commander network.”142

These “commanders” were sidelined by the Taliban; in fact, their abuses were a factor 

in the Taliban’s 1996 accession to power in Kabul. However, in the confusion that 

followed the 2001 military intervention, many of the strongmen were able to re-establish 

themselves through their relationships with coalition military forces, which relied on them 

to help overthrow the Taliban and maintain order and control. Electoral democracy and 

the market economy then created the environment in which they could launder their 

financial capital, leverage their political connections, and become businessmen. 

The accumulation of wealth and power by strongmen was further enhanced through 

“land grabbing,” or the acquisition of state land by a combination of force and quasilegal maneuvers, often with the tacit approval of government officials. In the overheated 

post-2001 economy, land in the major cities increased in value by as much as 

1,000 percent.143 The subsequent distribution of plots of land generated income and 

patronage, often along ethnic or political party lines. Many of the major strongmen 

developed shahraks (little cities, or residential communities), including the Khalid bin 

Walid development in Mazar-e Sharif built by Balkh governor Atta Muhammad Noor, and 

Aino Mina in Kandahar developed by presidential brothers Mahmoud and Ahmad Wali 

Karzai, partly through a $3 million loan from OPIC.144 According to estimates, between 

2001 and 2012, 890,000 hectares of land were stolen or usurped.145

One expert went so far as to say, “The partial conversion of Afghan strongmen into 

businessmen resembles in many ways the establishment of ‘mafia’ or organized crime 

networks which are active both in the legal and the illegal economy and are able to use 

force to protect their interests and possibly to expand.”146 A former U.S. government official 

stated, “Many of these warlords became multimillionaires overnight. They had access and 

control. Powerful people controlled access to markets, including inputs and labor markets.”147
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independent company with offices in London and Kabul. RAMP’s interest was in 

supporting direct investment in Afghan agribusiness, with the intention that the 

fund would continue to use USAID’s contribution beyond RAMP’s 2006 end date.148

Not Going According to Plan

Despite these and other early private sector development and reconstruction 

activities, there was concern among Afghans that the United States had a limited 

commitment to nation building and would therefore not devote sufficient 

financial and political resources to reconstruction, including private sector 

development, over the long term. This concern was reinforced by the shifting of 

the U.S. administration’s gaze to the looming invasion of Iraq. According to one 

senior DOD official, “Within months of the end of major combat operations [in 

Afghanistan], it was clear to me—and to others—that the U.S. government was 

losing its focus. Its attention was elsewhere, and the Afghans knew it.”149

By early 2003, however, Secretary of Defense Donald Rumsfeld, a skeptic of 

nation building, began to consider the possibility that more resources would be 

needed to stabilize Afghanistan.150 Afghan-American Zalmay Khalilzad, who had 

been a member of President Bush’s transition team at DOD and was at the time 

serving as Special Envoy for Afghanistan, agreed that a more robust “state- and 

nation-building program” was needed. Encouraged by Rumsfeld and National 

Security Advisor Condoleezza Rice, Khalilzad prepared a stepped-up U.S. 

strategy to consolidate the Afghan government’s control over the country.151 The 

strategy, Accelerating Success, was approved by President Bush in June 2003. 

Accelerating Success was designed to show quick and visible progress and to 

reduce the risks posed by expected increases in violence before the 2004 Afghan 

presidential elections. An additional motivation was the Bush administration’s 

desire to show progress to a domestic audience as the U.S. presidential election 

approached. The strategy’s “stepped-up economic development programs” 

focused on bolstering economic and financial institutions, which, it was hoped, 

would help foster progress in reconstruction.152 Specifically, Accelerating 

Success appeared to prioritize revenue collection to help ensure sustainable 

government budgets.153 The initiative was ambitious, requiring the U.S. 

government to support the reconstruction of the Kabul to Kandahar portion 

“Within months of the end of major combat operations, 

it was clear to me—and to others—that the 

U.S. government was losing its focus. Its attention was 

elsewhere, and the Afghans knew it.”

—Dov Zakheim, former DOD Comptroller
34 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

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USAID’S SUPPORT TO ROAD INFRASTRUCTURE

The stepped-up economic activities of the 2003 Accelerating Success strategy included more 

visible infrastructure projects. President Bush announced that road construction was a top 

priority and, highlighting the shared priorities of Hamid Karzai and U.S. Embassy officials, 

U.S. Ambassador Robert Finn pressed for more funds for roads.154 In 2002, Ambassador 

Finn wrote:

Because Afghanistan is so fragmented, its most immediate need—as Chairman [of the 

Interim Administration] Karzai knows—is to be knitted together and, in order to protect our 

nation’s investment and sacrifices here, to be knitted together soon. A dramatic, visible, 

hope-inspiring, and developmentally sound way to accomplish this goal is to build roads 

and bridges. . . . One poignant project would be the repair of the Kabul-Kandahar road, 

originally built by the [United States]. Chairman Karzai’s priorities should be our priorities 

as, to paraphrase [President] Bush’s recent remarks, his success is surely ours.155

Despite USAID Administrator Andrew Natsios’ skepticism over funding big infrastructure projects 

due to their high cost and “dubious economic consequences,” as well as the lack of engineering 

firms, equipment, and trained personnel to implement them, the NSC tasked USAID with the 

reconstruction of the Kabul-Kandahar portion of the Ring Road. (See figure 5.)156

In February 2004, Ambassador Khalilzad pledged to Karzai that the United States would 

pave 1,000 km of secondary roads connecting the Ring Road to regional road networks by 

the end of the year. The embassy had $100 million in funds for this through Accelerating 

Success, though the original cost estimate failed to factor in the expenses of demining and 

other required preparations. The estimate was later adjusted to $215 million, but the original 

amount had already been allocated, creating a budgetary shortfall.157

The directive to build roads created a dilemma for USAID, as the budget shortfall required 

it to revamp its priorities and slash other programs to fund the secondary roads.158 A 2004 

embassy cable reported that USAID’s RAMP would be cut by $4.5 million to support the 

roads.159 Similarly, $10 million was cut from other agricultural programs, leaving only enough 

money to fund the alternative livelihoods activity. Further, $15 million was cut from economic 

growth programs, $12.5 million from water and irrigation programs, and $8.5 million from 

democracy and governance programs, including rule of law initiatives and support for local 

government and parliament.160 Yet, even these cuts failed to fill the funding gap. Ultimately, 

USAID was forced to suspend work on the road and delay its completion.161

Administrator Natsios argued that much of the failure surrounding infrastructure construction 

stemmed from the rush to show progress on development projects that would inherently 

be slow and messy, but sustainable and completed with Afghan buy-in.162 The Bush 

administration’s desire for visible and tangible signs of progress led to a focus on “burn 

rate” at the NSC, where dollars spent and number of projects implemented became the 

benchmarks.163 The timelines for the Ring Road were unrealistic from the beginning, and 

while USAID was heavily criticized by the NSC for failing to meet deadlines, it had not been 

consulted on the deadlines or even the assigned tasks.

By 2005, despite USAID’s struggle to complete these major construction projects, 

Ambassador Ronald Neumann, as part of his plea to the U.S. government to do more to win 

the war, urged more ambitious projects, calling for an additional $600 million to connect 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

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eastern and southern provincial centers to the Ring Road via gravel roads. In his effort to 

convince Washington to allocate more funds to Afghanistan, Ambassador Neumann stated 

that “in this fight, roads are life,” and that construction of roads was the most important 

means to both extend state presence and promote economic activity.164

TURKMENISTAN

UZBEKISTAN TAJIKISTAN

PAKISTAN

IRAN

CHINA 2008

Asian Development Bank

2009

Asian Development Bank

2009

United States

Saudi Arabia

Japan 

2005

World Bank

2010

Islamic Development Bank

2004

United States

2010

Asian Development Bank

2010

Islamic Development Bank

2004

Iran FARYAB

BALKH

JOWZJAN

SAR-E PUL

BAMYAN

GHOR

BADGHIS

WARDAK

URUZGAN

ZABUL

GHAZNI

DAYKUNDI

BADAKHSHAN

BAGHLAN

KUNDUZ

NURISTAN

KUNAR

LAGHMAN

KABUL

KAPISA

LOGAR

KHOWST

NANGARHAR

PAKTIKA

HELMAND

KANDAHAR

FARAH

NIMROZ

HERAT

PARWAN

SAMANGAN

PAKTIYA

Note: Donors indicated dates.

Source: The International Institute for Strategic Studies, January 10, 2012. 

RING ROAD PROGRESS: SECTIONS COMPLETED, 2012

FIGURE 5
36 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

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of the Ring Road by December 2003 and complete construction of the Kandahar 

to Herat portion of the highway shortly thereafter.165

Also during 2003, the Afghanistan Reconstruction Group was created by the 

NSC as a flexible and “experimental” institution staffed by senior private 

sector executives who could advise both the U.S. and Afghan governments. 

The ARG was widely seen as Ambassador Khalilzad’s reaction to existing aid 

channels and institutions, which he considered cumbersome, bureaucratic, 

and slow.166

Despite the alignment of Afghan government strategy documents with the 

international community’s overall strategy and outlook, a number of contentious 

issues emerged during this period. One issue concerned the role of the state 

and whether it should be more like the United States or more of a “BritishSouth Asian, government-led concept of how services should be provided to the 

people.”167 Further, while the United States emphasized the “light state,” German 

officials stressed “the importance of combining the principles of a market 

economy with values of social responsibility.”168

A second major issue was to what extent international assistance would be 

channeled on-budget through the Afghan government or spent off-budget by 

the donors themselves. (See page 38.) To provide a mechanism to simplify 

international donor funding streams for on-budget aid so they would be easier 

for the nascent Afghan government to manage, in May 2002 the World Bankadministered Afghanistan Reconstruction Trust Fund was launched through a 

joint proposal with UNDP, ADB, and the Islamic Development Bank. Especially 

in the early years, the majority of bilateral U.S. aid was provided off-budget, 

justified in part because of the widespread assumption that Afghanistan was a 

blank slate, without any functioning and accountable institutions or capacity for 

implementation.

At a meeting convened by the German Federation of Industries in advance of 

the November 2004 Berlin Conference for donors to pledge additional support 

for private sector development, Karzai and other senior officials touted the new 

liberal trade and investment laws and the recent establishment of AISA, and 

reiterated support for the private sector in the context of Afghanistan’s trading 

history and its strategic location astride trade routes. Karzai described his vision 

as “less government, more society, and more business. We don’t want to remain 

poor; we want to get rich.”169

By the time of the Berlin Conference, however, it was clear that not all Afghan 

officials supported the same extent of reliance on the market economy. The 

government’s updated development strategy, Securing Afghanistan’s Future (SAF), 
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AFGHANISTAN RECONSTRUCTION GROUP 

The ARG was created by the NSC in 2003 to advise both the U.S. and Afghan governments. 

Characterized as “experimental,” the ARG was intended to be a flexible group that could 

mobilize expertise from inside and outside government, and assist the ambassador in 

looking at those reconstruction issues with which agencies did not have expertise.170 At its 

creation, the ARG was staffed with five senior, highly successful private sector executives with 

specialized skills and experience, along with a chief of staff and public affairs personnel.171

Over time, the ARG was generally credited with bringing in expertise from the private sector 

that could not be found in the U.S. government, as well as complementing the then-anemic 

State and USAID presence in country.172

ARG members most successfully engaged as advisors to Afghan ministers, many of whom 

had limited experience and struggled with the creation of programs and the economic 

problems that came with the transition to a market economy.173 The ARG’s value was 

generally seen at the strategic level, rather than in implementation.174 Specifically, the ARG 

focused on identifying high-level issues that were not being adequately addressed, such as 

the creation of a framework to foster private sector activity and pinpointing areas that were 

either unrealized or lacked funding. The ARG’s activities included the attempted reform of 

the national air carrier, Ariana Afghan Airlines, which the group identified as necessary for 

providing access to regional and global markets and simplifying travel for foreign investors, 

and work on the development of a national Afghan supply chain management system.175

At the same time, the ARG suffered from rivalries with other U.S. agencies, a lack of 

dedicated activity budgets, and an unclear mandate and role within the embassy. A 2005 

Government Accountability Office (GAO) audit found that the ARG suffered from the lack of 

a clear mission and “focused its efforts on criticizing USAID programs rather than providing 

constructive advice.”176 The lack of a clear demarcation of missions caused tension and 

confusion between ARG and USAID personnel, including in the economic governance sector. 

For example, ARG advisors tried to provide direction to a USAID contractor; in response, 

USAID notified its contractors that they should take guidance only from USAID.177 Rivalries 

were especially inflamed by an ARG chief of staff memo which was critical of USAID’s 

management and oversight of infrastructure.178

From the ARG’s perspective, the tension was the result of USAID and State personnel 

defending their territory against outsiders, in a response referred to by a senior ARG official 

as “the antibodies.”179 By the end of 2005, Ambassador Neumann decided that many of the 

functions of the ARG should be incorporated into normal embassy operations, obviating the 

need for an independent ARG.180 The ARG was officially disbanded in 2008.
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which contained this market-oriented approach, was presented at Berlin 

but never approved.181 Noting that “removing obstacles to private sector 

development [was] an urgent priority,” SAF reiterated the importance of trade 

liberalization and World Trade Organization (WTO) accession, developing and 

implementing trade and investment-related policies, building the capacity of 

relevant ministries, and facilitating regional transit and transportation.182 One 

analyst wrote that SAF “ignores the reality of a highly uneven playing field 

in the world economy and fails to address the fundamentals of social justice 

and existing inequalities. . . . There should be a heavier state playing a more 

interventionist role.”183

On-Budget vs. Off-Budget Assistance 

From the start of reconstruction, there was disagreement over whether international 

donor money should be provided through the Afghan government’s budget (on-budget 

assistance) or spent by the donor nations themselves on their own projects in 

Afghanistan (off-budget assistance). In its 2001 approach paper, the World Bank 

recommended that a substantial portion of on-budget international aid be channeled 

through a non-earmarked trust fund.184

In May 2002, the World Bank-administered Afghanistan Reconstruction Trust Fund was 

launched through a joint proposal of the World Bank, the UNDP, ADB, and the Islamic 

Development Bank. The idea was to simplify international donor funding streams for onbudget aid so they were easier for the nascent Afghan government to manage. The ARTF 

was also seen as a way to augment the low tax base, while simultaneously increasing 

the government’s capacity to implement its own development programming. Additional 

justification was provided several years later, when analysis suggested that funds spent 

through the government’s budget had a higher economic multiplier effect than funds 

spent by the donors on their own projects, as much of that money either left Afghanistan 

or never entered the country in the first place.185 Critics, however, worried about the 

prospect of giving Western international institutions with little experience in Afghanistan 

control over so much on-budget aid spending. Supported by 31 donors, the ARTF has 

generally been considered a success, with a 2015 independent review of evaluations 

concluding it “achieved a number of significant and concrete results.”186

In the 2006 Afghanistan Compact, donors agreed to increase the proportion of funds 

that were provided on-budget, as well as to provide more predictable and long-term 

funding. In 2010, the donors further agreed to a target of 50 percent of funding to be 

provided on-budget, with 75 percent of all funds aligned to the Afghan government’s 

priorities. From 2002 to 2017, USAID disbursed approximately $3.9 billion in on-budget 

assistance. The majority of these funds were provided to the ARTF and other multilateral 

trust funds. Approximately $660 million of the total disbursed funds went toward 

bilateral (government-to-government) assistance to Afghanistan.187
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In December 2004, Karzai appointed a new Minister of Finance, Anwar-ul Haq 

Ahadi, to replace Ashraf Ghani, who had been the driving force behind the SAF 

strategy. Ghani’s removal was due to a combination of disagreements with the 

rest of the cabinet over his vision for a modified market-oriented economy (i.e., 

tight fiscal discipline with no subsidies or price controls), as well as the generally 

strained relationships with the other ministers, who saw his aggressive reforms 

and control of the government budget as those of a “de facto prime minister.”188

In trade, 2004 began with the signing of the South Asian Free Trade Agreement 

(SAFTA) and ended with Afghanistan being granted observer status to the WTO, 

the first step toward full membership. As the end of 2005 approached, the urban 

economy, especially the construction sector, appeared to be thriving, although 

lingering Taliban elements continued to threaten areas of the south and east, 

complicating development.

2006–2008: RATCHETING UP ASSISTANCE

With the September 2005 parliamentary elections, the international community 

judged the Bonn process to have been successfully completed. Many Afghans, 

however, were not seeing the promised fruits of electoral democracy. As 

the nascent insurgency grew, security deteriorated, mainly in the south 

and the east, but occasionally in Kabul. In addition, according to the 2008 

Asia Foundation (TAF) annual perceptions survey, Afghans felt a “higher 

level of dissatisfaction with the economic situation,” and the proportion of 

respondents who said they were “less prosperous than one year ago” increased 

from 26 percent in 2006 to 36 percent in 2008. Respondents identified 

unemployment, high prices, and the poor economy as the biggest problems 

facing the country.189

Fearing that high prices resulting from the 2007–2008 global food crisis could 

further fuel anger toward the U.S.-backed Afghan government and boost 

recruitment by the Taliban, the United States and other donors increased 

their humanitarian and development assistance.190

 In September 2008, USAID 

launched the Afghanistan Vouchers for Increased Production in Agriculture 

(AVIPA) program, a $33 million voucher program to address the shortage 

of wheat, whose budget rose to $60 million as its scope expanded between 

November 2008 and May 2009.191 While initially designed to provide wheat seed 

and fertilizers to farmers in the drought-affected areas of the country, AVIPA 

shifted toward implementing agriculture-related stabilization activities—for 

example, cash for work such as clearing of irrigation canals, small grants 

for farm equipment, and provision of agriculture inputs—in the increasingly 

insecure southern provinces of Kandahar and Helmand. At the U.S. military’s 

request and in preparation for an anticipated troop surge, another five-year 
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planned agriculture project was canceled and USAID was asked to extend 

AVIPA and be ready to implement stabilization activities as part of the “clear, 

hold, and build” process.192 This was one of many instances where USAID came 

under pressure to align its efforts with the military’s short-term stabilization and 

counterinsurgency activities. 

During this time, corruption and the perceived diversion of millions of 

dollars of reconstruction money were starting to become a serious issue with 

Afghanistan’s citizens and the U.S. government. For example, 76 percent of 

respondents to the 2008 TAF survey selected “corruption” as a major problem, 

whereas the 2004 survey had not even included corruption as a choice.193 In 

2006, the United States began discussing ways to tackle corruption, although 

serious efforts were not undertaken until 2009.194

A further, related reason for Afghan dissatisfaction was the perception of an 

increasingly unequal distribution of income and wealth. As early as 2005, the 

World Bank noted that small groups of business people (mainly former jihadi 

commanders and other influential people with political connections) dominated 

trading activities and used their insider connections to acquire land, resolve 

disputes, obtain credit, and win contracts.195Afghans believed this reflected 

negatively on the central government, which was blamed for not ensuring the 

population’s welfare.

Many observers consider 2006 the tipping point when it became increasingly 

clear that Afghanistan was not a post-conflict state. Although there were 

concerns as early as 2003 that development progress was uneven and security 

conditions were deteriorating, it was not until 2006—when alarming levels of 

insecurity, insurgent activity, and poppy production could not be ignored—

when significantly more resources began to flow from the United States into 

Afghanistan in an attempt to stabilize the country. 

Setting a New Path Forward

In January 2006, the United States and its donor partners convened the 

International Conference on Afghanistan in London to reaffirm support for 

the nation and establish a path forward. Conference attendees signed the 

Afghanistan Compact, a new five-year partnership of the Afghan government 

and the international community in which security became the central 

focus, followed by governance, rule of law, economic governance, and social 

development. The economic governance and private sector development 

objectives included increasing the ratio of domestic revenue to GDP by 

8 percent over the five-year period, simplifying investment laws and regulations, 

strengthening banking supervision, and reducing transit times for imports 

and exports. Due to concerns about the spike in opium poppy cultivation, 
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counternarcotics was designated a cross-cutting issue to be addressed, in part, 

by rural development, especially the alternative livelihoods programs.196

The compact tasked the Afghan government with developing a prioritized 

and detailed national development strategy and providing regular reporting 

on the use of donor assistance.197 To meet this requirement, the Interim 

Afghanistan National Development Strategy (I-ANDS) was issued in 2006, 

followed by the full ANDS in 2008. In response to criticisms over the limited 

buy-in to previous national strategies, the ANDS was developed over two 

years through an extensive consultative process in which a total of 17,000 

individuals from government ministries, the parliament, provincial councils, 

civil society, international donors, and the private sector in all 34 provinces 

participated. The ANDS reaffirmed, albeit with greater specificity, the theme 

of the previous development strategies: Sustained economic growth depends 

on a vibrant private sector facilitated by a strong enabling environment for 

private sector growth and robust domestic and foreign investment. Although 

government officials emphasized that the ANDS was Afghanistan’s own roadmap 

for development, it also fulfilled the technical function of a Poverty Reduction 

Strategy Paper, which made Afghanistan eligible for the Heavily Indebted Poor 

Countries Initiative of the IMF and World Bank.198

The Heavily Indebted Poor Countries Initiative

Being classified a Heavily Indebted Poor Country (HIPC) allows a low-income country 

with a high and unmanageable debt burden to access the debt relief programs of the IMF 

and World Bank. A country that meets the initial HIPC eligibility criteria must establish 

sound economic policies and develop and implement a Poverty Reduction Strategy 

Paper, which outlines how a nation’s macroeconomic, structural, and social policies 

and programs will promote growth and reduce poverty. The IMF and World Bank monitor 

the HIPC’s performance and reforms, and when the country has achieved satisfactory 

progress, it becomes eligible for full debt relief.199

New Initiatives, Same Focus

During this period, the U.S. government escalated its efforts to improve the 

enabling environment, including prioritizing infrastructure in, for example, 

transportation, communications, and power generation; creating industrial parks; 

supporting land and property rights reforms; and providing financing for economic 

opportunities.200 USAID’s Economic Governance and Private Sector Strengthening 

(EGPSS) program provided support to key ministries responsible for economic 

reforms, including fiscal, financial, legal and regulatory, and trade policy. 

As part of its efforts to support small and medium businesses, U.S. agencies began 

a series of enterprise development initiatives aiming at expanding markets, 
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developing a technically skilled workforce, increasing access to capital, creating 

jobs, promoting investment, and developing domestic products to become more 

competitive with imports. In 2006, USAID started providing direct support to 

enterprises by launching the Afghanistan Small and Medium Enterprise 

Development (ASMED) project, which provided grants and technical assistance to 

new and existing businesses and business associations, through partnerships in 

which the partner had to provide at least 50 percent of the funds. Small and 

medium enterprises were envisioned to be “a major driver of Afghanistan’s 

economic development.”201 ASMED also supported business development services 

providers, which were intended to be market-oriented companies that would 

provide business advisory services to Afghan firms on a fee basis. 

During this period, DOD also began to engage more significantly in private 

sector development through two main vehicles. The Commanders Emergency 

Response Program, developed in Iraq for short-term stabilization activities and 

subsequently introduced in Afghanistan, began giving micro grants to enterprises. 

To further support Afghan businesses, the Afghan First procurement policy was 

announced by Lieutenant General Karl Eikenberry in 2006, then codified in the 

FY 2008 National Defense Authorization Act (NDAA). The policy was intended to 

create jobs and promote the Afghan economy by awarding contracts to Afghan 

companies.202 Both CERP and Afghan First were to become much more significant 

in the following years, and are discussed in the next section of this report. 

In addition to supporting individual businesses, the U.S. government also 

increased its emphasis on access to finance by supporting the establishment 

of new and expansion of existing financial institutions that could lend to small 

and medium enterprises in urban and rural areas. In 2007, for instance, OPIC 

financed the establishment of Afghan Growth Finance (AGF), a non-bank 

subsidiary of the Washington-based Small Enterprise Assistance Funds, to reach 

out to Afghan-owned companies. The same year, USAID established the Afghan 

Rural Finance Company, expecting it to become an independent self-sufficient 

financial services provider. USAID also provided support to the microfinance 

sector by providing financial and technical support to microfinance institutions 

and the Microfinance Investment Facility of Afghanistan, which was established 

under the leadership of the World Bank.

Trade was another increased area of emphasis during this time, with EGPSS 

being the first USAID project to have explicit trade-related goals: milestones to 

Small and medium enterprises were envisioned to be “a major 

driver of Afghanistan’s economic development.”

—ASMED Final Report
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APRIL 2018 | 43

WTO accession and regional integration. To support the objective of increasing 

exports, the Export Promotion Agency of Afghanistan (EPAA) was established 

in 2006, with GIZ technical and financial support, as part of the Ministry 

of Commerce and Industry. EPAA’s purpose was to help turn enterprises 

“into internationally successful operators by identifying new international 

opportunities, markets, and partner[s].”203

Although minerals were mentioned in both the U.S. and Afghan government 

strategies from 2002, early U.S. assistance in the extractives sector was 

overshadowed by other priorities. There were few major developments until 

May 2008, when the rights to exploit the copper deposits at Aynak, one of the 

world’s largest unexploited copper deposits, were granted to the Metallurgical 

Group Corporation of China for a bid of $808 million, against which, as of 

2016, MCC had only paid the first $80 million installment. MCC also committed 

to investing $2.9 billion for infrastructure over five years.204 At the time, the 

Afghan government estimated that royalties, direct and indirect taxes, and other 

fees from developing Aynak would provide more than $200 million in annual 

revenue.205 With other potential mining sites anticipated, this was seen as a test 

case for the tender process. 

2009–2012: THE MILITARY AND CIVILIAN SURGE 

With an increasing awareness that security was deteriorating and many of the 

reconstruction efforts were stalling, in 2008 the Bush administration undertook 

reviews of both military and civilian efforts.206 In December 2009, after a series 

of further reviews, President Obama presented a strategy that was intended 

to represent a break with the past and give proper attention and resources to 

what he had previously called “the right war.”207 The Obama administration’s 

strategy to stem the tide of the insurgency included a large troop surge and its 

development counterpart, the so-called “civilian uplift.” 

The surge was supported by massive increases in funding: Governance and 

development funding alone increased by 58 percent from FY 2009 to 2010, 

despite widespread reports and analysis that suggested spending at the 

previous, lower levels of funding was already problematic, in terms of both 

accountability and budget execution.208 For example, the doubling of AVIPA’s 

budget from $150 million to $300 million was done over the objections of USAID 

leadership, who were concerned that trying to spend that much money would be 

“ineffective and wasteful.”209

On top of development funding, massive construction of bases and facilities for 

the international military and the Afghan National Defense and Security Forces 

(ANDSF) also put money into the economy, especially the construction and 
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logistics sectors. At the same time, however, the simultaneous announcement of 

the 2009 surge and the 2011–2014 drawdown and transition introduced a heavy 

cloud of uncertainty that hung over most of the period.

This was also the era of counterinsurgency, which provided an intellectual 

underpinning to development efforts with its mantra of “the people are the 

prize.”210 The 2009 Integrated Civilian-Military Campaign Plan noted that 

U.S. government efforts “must focus on the people of Afghanistan” and the need 

to “shift our focus to the Afghan population.” The plan included sustainable 

jobs, agricultural markets, and cross-border access for commerce as three of its 

“transformative effects,” asserting that “significant growth in jobs can provide 

a viable alternative to violence or criminality, ‘outbid’ the Taliban, and promote 

a sense of progress.”211 More effort was made to get aid to the subnational level 

due to the belief that most development funding, regardless of sector, had not 

yet made it out of Kabul and the primary cities. 

In trying to align its programming and geographical focus with the U.S. military’s 

stabilization and counterinsurgency priorities as part of the whole-ofgovernment approach, USAID’s portfolio contained quick impact activities 

that aimed to “provide immediate employment and income in insecure areas, 

promote alternative livelihood to poppy production and insurgent activities, 

and address grievances and sources of conflict with communities.”212 Projects 

such as USAID’s ASMED, which had been started in 2006 to provide enterprisePresident Barack Obama and President Hamid Karzai sign the Strategic Partnership Agreement on May 1, 

2012. (Resolute Support photo)
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

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level support in four provinces, were directed to work in insecure districts 

throughout the country as part of the COIN strategy.

In addition to COIN, the other big policy shift during this time was the 

formulation of the Afghanistan-Pakistan (AF-PAK) concept. The creation of the 

Special Representative for Afghanistan and Pakistan (SRAP) office within State 

in 2009 and the appointment of senior diplomat Richard Holbrooke to head it 

were based on the belief that it was necessary to consider the two countries 

within one policy. The AF-PAK policy reinforced the regional focus, and the New 

Silk Road (NSR) initiative, which was articulated by Secretary of State Clinton 

in a July 2011 speech in Chennai, India, further supported it. Clinton described 

the founding principles of the NSR:

An Afghanistan firmly embedded in the economic life of a thriving South and 

Central Asia would be able to attract new sources of foreign investment and 

connect to markets abroad, including hundreds of millions of potential new 

customers in India. And, increasing trade across the region would open up 

new sources of raw material, energy, and agricultural products, creating more 

jobs in India, Pakistan, and Afghanistan.213

The NSR initiative provided the most explicit description of the U.S. regional 

vision for Afghanistan, which included reducing barriers to trade—such as poor 

infrastructure, bureaucratic hurdles, and poor border-crossing facilities—and 

upgrading trade policies so that “goods, capital, and people can flow more easily 

across borders.”214

Looking Ahead to the Transition

Because the drawdown had been announced at the same time as the surge, this 

period was also marked by the international community’s engagement with 

the Afghan government to prepare for the phased departure of international 

military forces, beginning in July 2011 and concluding at the end of 2014, when 

most international combat troops were to be out of the country. While the 

troop drawdown received the most attention, it was clear to all that civilian 

development spending would likewise be reduced. For example, while the 

USAID Afghanistan mission’s proposed budget for FY 2010 was the largest of any 

USAID country program, ever, by October 2010 mission management was told to 

prepare for “significant funding reductions for 2011.”215 These “draconian budget 

reductions” and the shift to a “transition-centric approach” were ascribed, in part, 

to U.S. domestic politics, including declining support for the Afghan conflict.216

The London and Kabul Conferences of January and July 2010, respectively, 

marked the start of a new phase during which the Afghan government was 

to incrementally assume responsibility for its own security and development 

initiatives by 2014—also the year in which the next Afghan presidential election 

was to be held.217 The Afghan government introduced a list of redesigned 
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National Priority Programs (NPP) that were intended to serve as a focused 

implementation plan for the ANDS.218

The NPPs contained the Afghan government’s first small and medium enterprise 

strategy, the Integrated Trade and Small and Medium Enterprise Support 

Facility, which was to serve as the roadmap for “strategic and sequential 

development of private sector in Afghanistan.”219 The strategy consisted of 

four components: improving the business climate, increasing trade, developing 

private enterprises, and reforming the lead ministry, the MOCI. The small and 

medium enterprise section of the Private Sector Development NPP was mainly 

informed by the small and medium enterprise strategy that was developed in 

2009, with support from the USAID ASMED project.220

The strategy identified six priority sectors—agribusiness, carpets, cashmere, 

construction materials, gemstones, and marble—based on a number of criteria, 

including labor-intensiveness, high growth potential, availability of locally 

sourced raw materials, competitiveness, and involvement of a large number 

of domestic firms.It wasn’t until 2011, however, that action plans were drafted 

to identify sector-specific bottlenecks and ways to resolve them, as well as 

proposed actions to move Afghanistan up the value chain within each sector. 

Ramping Up Trade

With the WTO negotiations and formal meetings of the working party for 

Afghanistan’s accession beginning to take place during this time, the United 

States reinforced its support for regional integration, trade liberalization, and 

increased exports by launching USAID’s first projects that specifically targeted 

international trade.221

USAID’s Trade Accession and Facilitation for Afghanistan (TAFA) project 

(November 2009 to November 2012) and its successor TAFA II (November 2012 

to August 2013) were intended to support the development of Afghanistan’s 

economy “by fulfilling the trade potential of its strategic location on the 

historic Silk Road.”222 The projects helped with trade policy liberalization 

(mainly supporting Afghan accession to the WTO), customs reform, and trade 

facilitation.223 TAFA and TAFA II assisted in this complex process by helping 

the Afghans build public institutional capacity for creating legislative reform, 

and increasing coordination and cooperation both within the government and 

between the public and private sectors.224 Specific achievements included 

helping the Afghan government to negotiate and implement a number of formal 

regional trade and transit agreements with its neighbors, including the critical 

Afghanistan-Pakistan Transit Trade Agreement, an updated version of the 1965 

Afghanistan Transit Trade Agreement, which granted land-locked Afghanistan 

the rights to import goods passing through Pakistani seaports duty-free.225
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Other U.S. Support

The U.S. government continued to build the Afghan government’s capacity to 

act as steward of the economy through USAID’s third economic governance 

program, the $92 million Economic Growth and Governance Initiative (EGGI). 

Between 2009 and 2013, EGGI’s overarching goal was to enhance the Afghan 

government’s “capacity to develop and sustain a market environment that 

supports responsible economic management and fiscal sustainability.”226 In the 

second year of the project, a critical external assessment found that EGGI’s 

work did not provide an “integrated and coherent program or policy framework” 

that would have contributed to a better functioning private sector.227 As a 

consequence, EGGI’s scope during its final two years was significantly reduced, 

and was focused mainly on helping the government generate revenue streams. 

At the same time, because strengthening customs collections increasingly 

became a priority in light of the need for the Afghan government to generate 

more revenue in anticipation of the U.S. drawdown, USAID’s TAFA project 

focused, in part, on supporting improved customs collection. 

Starting in January 2011, USAID’s Land Reform in Afghanistan (LARA) 

project continued with some of the same objectives as its predecessor project 

LTERA, focusing on improving land and property rights through various 

legal, policy, and institutional reforms. However, unlike LTERA, LARA did not 

address privatization.228

Commerce’s Afghanistan Investment and Reconstruction Task Force also 

expanded its activities in 2009 to include capacity building of government and 

private businesses from the three sectors of agribusiness, construction, and 

mining, with a special focus on the marble sector.229

Unloading freight from the Hairatan to Mazar-e Sharif railway. (Asian Development Bank photo by 

Jawad Jalali)
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In the finance sector, the 2010 collapse of Kabul Bank sent shockwaves 

through the economy and undermined faith in government institutions.230 The 

aftermath of the collapse negatively affected U.S. technical assistance and 

support to building the private sector enabling environment; for example, 

USAID prohibited working with the national bank, DAB, due to its role in Kabul 

Bank’s collapse.231

Despite this, the U.S. government continued to try to provide access to finance 

using new approaches, including USAID’s Financial Access for Investing in the 

Development of Afghanistan (FAIDA), which was begun in 2011 to help the 

commercial and microfinance sectors meet a wide range of financial needs, 

including those of micro, small, and medium enterprises.232 In 2012, USAID 

initiated a loan guarantee program for four select financial institutions under 

its Development Credit Authority model, intended to help mitigate the risks 

associated with lending to small and medium enterprises.233

DOD Involvement

During the 2009–2012 period, DOD increased its direct involvement in private 

sector development in three main ways: CERP micro grants, the Afghan First 

procurement initiative, and TFBSO.

CERP was originally developed in Iraq and introduced in Afghanistan in 2004 as 

a means of providing short-term stabilization and “walk-around” money for the 

PRTs. During the surge period, the use of CERP funds expanded from meeting 

emergency and security needs to infrastructure (including roads), agriculture, 

and incentivizing entrepreneurship and growth of small and medium enterprises. 

CERP guidelines initially prohibited funding of private businesses, but starting 

in 2009, an exception was made for micro grants.234 The 2009 guidelines set 

the ceiling for micro grants at $2,500, although greater amounts were allowed 

with approvals at progressively higher levels of command. The limits were later 

increased to allow grants greater than $30,000 with the approval of the USFOR-A 

commander.235 Micro grants were for the explicit purpose of increasing 

economic activity, particularly in areas where small businesses had suffered 

because of insurgent violence. The extremely small percentage (0.44 percent) 

of overall CERP funds that explicitly supported private sector development 

initiatives was provided through these micro grants.236

The Afghan First procurement initiative, initially announced by Lieutenant 

General Eikenberry in 2006 and formalized in the FY 2008 NDAA, was expanded 

in 2010 to boost the Afghan economy. The premise was, having DOD, State, 

and USAID, as well as other coalition partners, purchase goods and services 

locally rather than import them from Pakistan, China, Iran, Turkey, and other 

countries would keep money in the local economy and lead to the creation of 
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APRIL 2018 | 49

jobs. An additional intent of the initiative was to show that quality goods could 

be produced economically in Afghanistan.237

TFBSO was DOD’s most ambitious private sector development effort. Originally 

created in Iraq in 2006, TFBSO’s mission in Afghanistan was to “promote 

economic stabilization in order to reduce violence, enhance stability, and restore 

economic normalcy.”238 TFBSO was critical of USAID’s traditional development 

approach and saw itself as more nimble and “expeditionary.” The task force 

supported projects in seven categories: agriculture, banking, energy, indigenous 

industries, investment facilitation and business support, mining, and women’s 

advancement. The 2010 TFBSO and USGS assessment of Afghanistan’s mineral 

deposits, estimated to have a potential value of $908 billion, helped to build 

enthusiasm for the extractives sector, especially given the interest in increasing 

Afghan government revenue in the run-up to 2014.239 TFBSO was a temporary 

agency, and from 2011 onward there was uncertainty about whether it would 

be reauthorized each year, which made planning and implementation more 

challenging.240 Also beginning in 2011, TFBSO was required by Congress to submit 

an annual plan to demonstrate the successful transition of activities by 2014.

Chapter 8 of this report provides further information about TFBSO’s activities to 

promote private sector development.

Increasing Friction and Uncertainty

At the same time U.S. spending was ramping up to support the surge, a 2009 

series of media reports on how U.S. contracting practices were unwittingly 

funding the Taliban was reinforced by a report from the Commission on Wartime 

Carpet being washed at Herat Carpet Facility, a cut-and-wash facility supported by TFBSO. (SIGAR photo)
50 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

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Contracting in Iraq and Afghanistan (CWC).241 CWC noted the vulnerabilities 

that resulted from U.S. government agencies’ lack of sufficient staff and 

capacity, disparate contracting mechanisms, and weak planning and interagency 

coordination.242 As a result of this reporting, U.S. government agencies began 

extensive vetting of Afghan companies; however, despite efforts to improve 

accountability, vetting remained a challenge. A 2012 SIGAR audit found that 

because contracting authorities did not consistently use information that 

was available in various databases to vet companies for Afghan ownership, 

licensing, and past performance, not all potential bidders had access to 

contracts. In addition, the audit found that contracts might have been awarded 

to companies that were not eligible to receive U.S. funds because of their past 

questionable activities.243

The contested 2009 Afghan presidential election—after which Senator John 

Kerry and Ambassador Eikenberry stepped in to resolve the conflict between 

President Karzai and challenger Dr. Abdullah Abdullah, who each claimed 

victory—got the Afghan government’s relationship with the new Obama 

administration off to a rocky start. Tensions between the two governments 

further grew after recurring U.S. complaints about Afghan corruption, and were 

exacerbated by the increasing sense of uncertainty created by the preparations 

for the drawdown of international forces, the lingering effects of the global 

recession, and the collapse of Kabul Bank. 

In this uncertain and contentious atmosphere, the international community 

and Afghanistan agreed to a set of commitments called the Tokyo Mutual 

Accountability Framework (TMAF) at a July 2012 donor’s conference in 

Tokyo. The international community committed to $16 billion in support to 

Afghanistan for four years—less money and fewer years than the Afghan 

government had hoped, but viewed as a commitment, albeit lukewarm, from the 

international community.244

2013–2014: DRAWDOWN AND TRANSITION

As the clock ticked toward the completion of the phased drawdown of the 

international security forces by the end of 2014, Afghans felt increasing 

uncertainty, not just due to the drawdown, but also in anticipation of the 2014 

Afghan presidential elections, which were feared to be as contested as those 

in 2009. As the United States and its allies tried to instill confidence in Afghans 

about their continued commitment to the country, in part by renaming the 

International Security Assistance Force (ISAF) “Resolute Support” and referring 

to the U.S. “enduring presence,” Afghans showed their skepticism by reducing 

investment, curtailing spending, and moving their capital to safer havens outside 

the country. 
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Through most of this two-year period, economic activity declined due to a 

combination of reduced international spending and uncertainty about the 

political and security outlook. GDP growth in 2013 was 2 percent, the lowest 

since 2004, which was then followed by 1.3 percent in 2014.245 Even before 

official indicators such as GDP were issued, informal observations of a plunge 

in property prices, leveling or decline in wages, and increased capital flight

indicated a lack of confidence in the economy and confirmed the sense of 

foreboding. News reports from 2012 indicated that while real estate prices of 

large homes in Kabul were declining, villa prices in Dubai were rising as wealthy 

Afghans purchased multiple properties, often in cash.246 Analytical reports also 

indicated reductions in household discretionary spending on private schools and 

purchases of private vehicles.247

In 2014, Afghan and U.S. fears about the presidential election were realized 

when an impasse occurred similar to that which followed the 2009 election. This 

time, Dr. Abdullah and former Minister of Finance Ghani each declared himself 

the winner. The United States again stepped in to broker a political settlement 

out of fear Afghanistan could fall into civil war. A “National Unity Government” 

(NUG) was formed through the creation of an extra-constitutional position 

of Chief Executive, in which Abdullah would serve alongside Ghani, who was 

proclaimed president. 

The Run-Up to the Transition

Concern about Afghan government revenue helped invigorate U.S. interest in 

the Afghan mining sector. While extractives had earlier been recognized as a 

potential source of growth, employment, and revenue, the sector was slow to get 

going. (For more details, see Extractives in Afghanistan, page 114.) In March 2013, 

USAID awarded its only mining-specific program, the $43 million 2013–2017 

Mining Investment and Development for Afghanistan Sustainability (MIDAS) 

project, focused on helping the Afghan government build the capacity to manage 

mines throughout their lifecycle, especially through legal and regulatory reform. 

The U.S. government emphasis on “sustainability,” which was manifested, in 

part, by pressure on the Afghan government to increase taxes in order to replace 

foreign aid with another revenue stream, reinforced the existing uncertainty and 

pessimism about the drawdown that fostered a “last call” mentality. 

The U.S. government continued its support to trade and regional integration 

through USAID’s Afghanistan Trade and Revenue (ATAR) project. Similar to 

the preceding TAFA and TAFA II projects, ATAR had three components: trade 

liberalization, regional integration, and customs reform. Afghanistan’s accession to 

WTO was prioritized as a separate element because the required formal working 

party and bilateral and multilateral negotiations for accession were already 

underway. As the 2014 transition approached, ATAR’s work on strengthening 

OECD defines capital 

flight as “the transfer of 

assets denominated in 

a national currency into 

assets denominated 

in a foreign currency, 

either at home or 

abroad, in ways that 

are not part of normal 

transactions.”248

Capital flight is 

often spurred by 

political or economic 

instability, rapid 

currency devaluation, 

or the imposition 

of capital controls. 

In Afghanistan, the 

transfer of international 

donor funds by Afghan 

government officials 

and companies to 

accounts abroad 

is an example of 

capital flight.
52 | U.S. SUPPORT TO PRIVATE SECTOR DEVELOPMENT: 2001–2017

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SUSTAINABILITY

Even while the international community was applauding Afghanistan’s double-digit growth in 

GDP from 2002–2013, critics were concerned about the lack of sustainability. While some 

aid officials were keenly aware of this issue in 2001 and early strategy documents referred to 

“sustainable economic growth,” the focus on sustainability increased sharply after the 2009 

announcement of the drawdown and the 2014 transition date approached.249 

The term sustainability referred to a number of different, but related, issues. First, 

sustainability referred to the ability of the Afghan government to generate enough revenue to 

pay for its own operations, including public administration, defense, and social services, and 

not remain dependent on the international community. Activities such as customs reform and 

strengthening of the government’s tax-collection capacity received significant investments 

from the United States. While the government increased the amount of revenue it mobilized 

from domestic sources, for 2016 this accounted for only 31 percent of the resources for 

the national budget.250 Moreover, there was a tradeoff between government revenue and 

economic activity, which created decreasing returns for efforts spent tightening collection, 

potentially driving firms into noncompliance or into the informal economy. Many believe 

that the ratcheting up of collection during the last several years, largely at the behest of the 

United States and the international community, had negative effects on businesses because 

it created a climate in which predatory officials could extract additional illegal payments 

from businesses.251

Second, sustainability referred to the ability of specific project-funded institutions to continue 

to function after the completion of the project and the termination of funding. In some cases, 

institutions created with U.S. project funding were unable to sustain themselves once funding 

was reduced or withdrawn. For example, financial institutions that extended agricultural credit 

to farmers required the creation of a large administration that could not be sustained in the 

absence of funding.252 Such new donor-created institutions also had an unclear legal status, 

which raised questions about their future. Also, in a risky environment such as Afghanistan, 

donor funding was necessary to cover some significant loan defaults.

Third, and perhaps most important, sustainability referred to economic activity that would 

maintain itself after the reduction of international funding. This was an issue for both 

individual enterprises and the Afghan economy as a whole. The provision of grants or highly 

subsidized loans (which recipients often treated as grants) sometimes provided support to 

nonviable commercial enterprises that would have been unable to make it on their own. Such 

enterprises typically folded once funding was terminated or exhausted. At a higher level, the 

Afghan economy was dependent upon the massive infusion of international funds through 

aid projects, military and civilian contracting, and general spending by the international 

community. For example, 67.7 percent of the 1395 (2016/2017) Afghan core budget was 

financed through donor assistance.253 In 2016, official development assistance was valued at 

16.98 percent of GDP and 17.62 percent of final consumption expenditures, numbers that 

indicate an extremely high level of aid dependency.254
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customs revenue collection through the launch of electronic payment systems 

increasingly became a priority, as did capacity building for Customs, MOCI, 

the Ministry of Justice (MOJ), DAB, and other Afghan institutions. ATAR also 

continued TAFA’s work in persuading an historically skeptical Afghan public about 

the potential benefits of free trade and WTO accession.255

After the completion of ASMED in 2012, USAID’s main activity of grant support 

to enterprises was picked up by a follow-on five-year project, Assistance in 

Building Afghanistan by Developing Enterprises (ABADE). While somewhat 

narrower in scope than ASMED, ABADE had similar overall objectives and 

approach: increase domestic and foreign investment, stimulate employment, and 

improve sales of Afghan products through providing in-kind grants and technical 

support to enterprises. The program supported MOCI in developing three-year 

action plans for key sectors, including agribusiness, marble, gemstones and 

jewelry, construction materials, carpets, and women-owned enterprises.256

Through workshops, conferences, and one-on-one support, ABADE also 

provided assistance to firms in developing business and financial plans—in large 

part because these were necessary for applying for ABADE grants—and postaward support for a range of technical and management concerns. 

Support to economic governance continued under EGGI until August 2013. 

EGGI provided technical assistance to a number of ministries and institutions, 

focusing on managing public expenditures and revenue collection, supporting 

DAB to ensure continued monetary stability, and assisting in the promulgation 

of commercial laws and in building capacity to implement those laws and their 

related regulations. 

As the population tried to look past the 2014 election debacle, advocates for 

the private sector were encouraged by the NUG’s initial pronouncements, with 

President Ghani, a former World Bank official, emphasizing the need to get the 

economy going. In advance of the NUG’s participation in the September 2014 

London Conference on Afghanistan, co-hosted by the governments of the UK and 

Afghanistan, President Ghani met with representatives of the Afghan private sector 

who presented him with a 22-point summary of issues and proposed remedies, most 

of which spoke of the need for increased transparency and improved governance.257

Earlier that year, the Afghan government’s report on the completed ANDS 

confirmed the belief that the strategy had been unrealistic and lacked direction 

and prioritization. The report showed that fewer than half of the targeted 

private sector development outcomes had been achieved, and those that had 

were primarily in processes, such as the “creation of legal frameworks for 

the trading sector, and simplification of regulations for business licenses and 

registration.” Planned impacts, such as “percent increase in private investment” 
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or “percent GDP increase,” lacked baselines and targets and therefore could not 

be evaluated. The report also noted the marked increase in the trade deficit and 

the fact that domestic revenue could finance only 52 percent of the government’s 

operational budget, or half of what was projected in the ANDS.258 In response, 

the NUG decided the NPPs would be consolidated and reprioritized to reflect the 

new government’s priorities, including infrastructure, employment and human 

capital development, private sector development, and effective governance.259

2015–2017: AFTER THE TRANSITION

After the NUG raised hopes in late 2014 for engagement on the economy, by 

early 2015 advocates for the private sector were becoming disenchanted by the 

lack of progress, perceived micromanagement of government programs and 

contracts, and paralysis on policy and personnel appointments due to political 

maneuvering within the government.260

In addition to the NUG’s increasing internal turmoil, insurgents intensified their 

attacks, adding to the population’s concerns and creating an even more uncertain 

environment. In 2015, the security situation deteriorated significantly, with a 

19 percent increase in security incidents in the south and an intensification of 

insecurity in the north, including the seizure of 16 district centers and, temporarily, 

Kunduz City, the first provincial center lost to the Taliban.261 Given this uptick in 

insecurity, in October 2015 the United States and its NATO allies met in Brussels for 

a summit in which they pledged to revise their planned troop commitments. Soon 

after the meeting, the United States committed to maintain its troop level at 9,800 

for 2016 and retain 5,500 troops into 2017. Other NATO members followed suit by 

committing to maintain or, in the case of Germany, increase troop levels.262

In October 2016, 75 countries and 26 international organizations once again 

convened in Brussels, this time to hear the Afghan government present its 

latest strategy, the Afghanistan National Peace and Development Framework. 

Donors pledged a total of $15.2 billion in support of the government’s priorities 

until 2020.263 The strategy highlights the Afghan government’s continued 

efforts toward achieving self-reliance by pursuing improved governance, 

anticorruption, and organizational reforms.264 Acknowledging that the early 

reconstruction years’ high GDP growth rate was a result of foreign assistance, 

the Afghan government prioritized investment in agriculture, energy, and 

infrastructure as the main drivers of economic growth, jobs, and revenue. 

The need for private sector-led economic growth was reiterated by USAID’s 

three-year Afghanistan strategy developed in 2015. USAID continued to 

emphasize the need for the private sector to “become the main source of 

increases in government revenue to replace donor assistance and provide 
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resources for quality service delivery,” and focused on “promoting investment 

and growth in industries with high potential for employment and revenue 

generation.”265 The strategy continued to move away from stabilization and 

large-scale infrastructure projects and instead focused on three main objectives: 

expanding agriculture-led growth; maintaining the gains in education, health, 

and women’s empowerment; and improving the legitimacy of the Afghan 

government.266 USAID underlined its support for women by launching the 

Promoting Gender Equity in National Priority Programs Project (PROMOTE), its 

largest ever support for women’s empowerment, which contained a component 

devoted to women’s economic empowerment. Meanwhile, existing projects 

such as Agricultural Credit Enhancement, ABADE, and FAIDA continued their 

support to the private sector, and ATAR continued its technical support to trade. 

Large-scale extractive efforts, which especially in recent years had been 

assigned a major role in Afghanistan’s future, largely stalled due to insecurity, 

including in the Aynak mine region. The U.S. and Afghan governments continued 

to emphasize improving legislative and regulatory frameworks to encourage 

private sector investment in extractives, with USAID supporting the sector 

through the MIDAS project, which ended in early 2017. However, amending 

the mining law to make it more friendly to business and resistant to corrupt 

or illegal practices, one of the main indicators of the Afghan government’s 

commitment to progress in the sector, remained a source of contention between 

MOMP, the parliament, and the executive offices.267

On a positive note, in July 2016 Afghanistan officially became a full member of 

the WTO, an achievement highlighted by both the Afghan and U.S. governments. 

At the end of 2017, with increased Taliban attacks, the growing presence of the 

Islamic State, and no visible progress toward a political settlement, uncertainty 

was even more widespread than in previous years, and the economic outlook in 

Afghanistan was discouraging. As the USAID transition plan for 2015–2018 noted, 

“Despite recent regulatory improvements and increased access to finance, the 

business-enabling environment in Afghanistan is one of the worst in the world.”268

It is no surprise that in its 2017 Ease of Doing Business rankings, the World Bank 

ranked Afghanistan 183 of 190 countries, six spots lower than its rank in 2016.269

U.S. private sector development efforts can be put into the two broad categories 

of providing support to the enabling environment and to individual enterprises. 

Within those categories, the United States focused on five somewhat 

overlapping areas: creating an enabling environment, providing access to 

finance, promoting investment, developing regional and international trade, and 

supporting enterprises. The next five chapters describe each of these areas over 

the period 2001–2017.

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UNAMA photo by Fardin Waezi

CHAPTER 4

CREATING AN ENABLING ENVIRONMENT

Given the condition of the Afghan economy and government institutions 

in 2001, the first task was to create an environment in which a dynamic, 

licit private sector could thrive. The most immediate priority for the United 

States and its international partners, therefore, was creating such an enabling 

environment through the establishment of macroeconomic stability, including 

curbing inflation, overhauling the currency, creating sound fiscal and monetary 

policies, drafting laws and regulations for a regulatory framework, and 

bolstering transparent institutions to maintain and promote the private sector. 

This enabling environment was necessary to build confidence in the stability of 

the economy so businesses would establish, expand, and invest. 

Support for creating the enabling environment was primarily provided to the key 

Afghan partner institutions of Da Afghanistan Bank, the Ministry of Finance, and 

the Ministry of Commerce and Industry. In the first few years of reconstruction, 

the IMF and World Bank led this effort, with on-the-ground support from USAID, 

Treasury, DFID, and GIZ. 

Early in the reconstruction period, the U.S. government did not fully appreciate 

the threat that corruption and poor governance posed in Afghanistan. 

Counterterrorism, security, and political stability were the immediate 
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priorities.270 Concern mounted over time with the growing outcry from the 

Afghan population and as the United States realized that corruption and poor 

governance posed a threat to stability. Even then, U.S. institutional reform 

efforts were “tentative” and “stymied by lack of Afghan political commitment, 

weak capacity, and strong incentives for officials to continue to engage in 

corrupt behavior.” The imperative to maintain a positive relationship with 

President Karzai due to the need for his cooperation on the Bilateral Security 

Agreement and other, mostly security-related, issues limited the robustness with 

which the U.S. government could press for action on corruption.271

U.S. private sector development projects tried, to a varying extent, to address 

corruption and poor economic governance as an integral part of their main 

objectives. For example, as early as 2002, USAID’s AEGP identified corruption as 

a serious issue and drafted a Bribery and Official Corruption Law.272 As corruption 

began to gain profile, the 2005–2009 EGPSS listed anticorruption as one of three 

cross-cutting components.273 Many of these elements were incorporated across 

program designs, but were not always included as measured outcomes.274

USAID’s trade-related projects were based on the assumptions that formulating 

laws and regulations, streamlining licensing procedures, and automating 

customs would all contribute to reducing corruption. USAID also believed 

that trade liberalization itself would reduce opportunities for corruption.275

Similarly, LTERA and LARA assumed that improvements in land titling and 

other aspects of land administration would reduce corruption.276 Other 

anticorruption activities employed by USAID projects included support for 

bodies and institutions to address corruption and resolve disputes, technical 

assistance in public financial management, propagation of mobile money 

or electronic payment systems, awareness training, and backing public 

reporting mechanisms.277

Overall, there were some solid, early successes in macroeconomic policy and 

public financial management, but other aspects of creating and maintaining an 

enabling environment were more difficult to achieve. Enduring impediments 

to private sector development were largely those related to a lack of good 

governance, including corruption and uneven enforcement of laws and 

policies, which made it more difficult to encourage businesses to operate in the 

formal sector. 

Overall, there were some solid, early successes in 

macroeconomic policy and public financial management, 

but other aspects of creating and maintaining an enabling 

environment were more difficult to achieve.
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BUILDING CAPACITY IN THE FISCAL SECTOR: REVENUE 

COLLECTION, BUDGET CONSTRUCTION, AND TAX REFORM

Degraded from years of conflict and the effects of the mujahedeen and Taliban 

governments, the Afghan Ministry of Finance was in a state of disrepair in 2001. 

The ministry’s depleted human capital and devastated physical infrastructure 

resulted in the complete breakdown of communication between Kabul and the 

provinces, making revenue collection or transfer of funds extremely difficult. 

Moreover, customs revenue collected at key border crossings was being retained 

by regional strongmen who controlled the local administration. In part due to 

the need for a government revenue source, customs reform was prioritized 

early on, as USAID projects noted that customs revenues were an important 

component of government revenue. EGPSS had a goal of increasing customs and 

tax revenues to 49 percent of financing for the operating budget; according to 

the EGPSS final report, by 2009, 56.2 percent of the budget was being financed 

through taxes and customs, an achievement of that goal.278 Still, the Afghan 

government has been unable to meet its budgetary targets, and in 2017, a SIGAR 

report noted U.S. officials’ “concerns that approximately half of customs duties 

for Afghan FY 1393 [2014] were believed to have been stolen.”279

A more detailed discussion of tariff reform is found in chapter 7 of this report.

After the IMF’s January 2002 preliminary assessment to determine the levels and 

types of assistance needed, the World Bank and the IMF, supported by USAID 

AEGP and Treasury, along with international partners DFID and GIZ, focused on 

rebuilding the capacity of key MOF departments, beginning with the treasury, 

accounting, budget, and customs departments. These efforts met with varying 

levels of success. 

Capacity building was primarily executed through the provision of resident 

experts from various organizations, including non-civil service Afghan experts. 

Eventually, so many essential ministry functions were carried out by these wellpaid, short-term outside experts that concerns were raised about what would 

happen when this “second civil service” was withdrawn.280

Budget Construction

Beginning in January 2002, the World Bank, Treasury, and ADB resident experts 

began work on developing Afghanistan’s budgets.281 The IMF’s initial assessment 

found that while the MOF had a sound legal framework for budget formation, 

most of the legal practices had not been used for many years, primarily because 

of insufficient reporting from provinces, a lack of automation in offices, and 

lack of trained staff. The adoption in April 2002 of the April 2002–March 2003 

operating budget by the Afghan Interim Administration was therefore a huge 

feat considering the lack of financial information available. This achievement 
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in public financial management was considered one of Afghanistan’s 

early successes. 

Second Civil Service

The second civil service refers to the Afghan government employees and contractors 

who received significant salary supplements from international donor funds to perform 

ministry functions. The supplements were intended to be a temporary mechanism to 

quickly mobilize the knowledge and skills needed to manage the accelerated level of 

aid programs after 2001. While enabling the ministries to overcome the low skill levels 

of existing civil servants, the level of salary payments—up to 11 times the highest civil 

service rate—was criticized as being unsustainable after donor funding ended. The 

supplements also led to accusations that the international community was “renting,” 

rather than building capacity.282

Tax Reform

To generate sufficient revenue streams to fund the operating budget, it was 

necessary to reform the tax system. This reform needed to make compliance 

easier and taxes less subject to evasion, while simultaneously limiting any 

negative impact on economic activity.283 Tax reform was primarily supported by 

USAID’s AEGP. Working with the MOF, AEGP advisors sought to amend existing 

tax laws, including drafting legislation to bring Afghanistan up to international 

standards, and provided extensive training for MOF staff so they could 

effectively administer the new regulations. Advisors also sought to improve tax 

administration capacity and support both the private sector and government 

revenue generation.284

Between March and July 2004, a number of new taxes were put into place, 

including rental services, business receipts, and wage withholding. USAID also 

supported the development of a fixed tax schedule on money changers and the 

establishment of various tax compliance and education programs.285 An income 

tax law in 2005 attempted to encourage businesses by reducing the top marginal 

tax rate from 60 percent to 20 percent, plus an additional fixed amount of 8,750 

afghanis ($175 at the 2005 exchange rate). The law also provided certain licensebased tax privileges for the extractive industry to attract investment in the 

sector.286 In 2007, taxpayers were differentiated into small, medium, and large 

in order to make it easier for the Afghanistan Revenue Department (ARD) to 

“best manage the risks associated with the different characteristics, compliance 

behaviors, and risks to the revenue each segment presents.”287 Still, despite 

significant reforms, poor governance, confusion, and a lack of information 

regarding the tax system plagued the formal business sector. 
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AN EARLY WIN: SUCCESS IN REFORMING AND 

STRENGTHENING PUBLIC FINANCIAL MANAGEMENT

The extensive technical assistance programs aimed at reforming and strengthening various 

MOF departments showed that certain factors led to a higher likelihood of long-term 

success. A comparison of the experience in reforming the customs, accounting, and 

budget departments illustrates the distinct combination of elements that led to successful 

capacity building.

Given the importance of customs as a revenue stream, the customs department was one of 

the first MOF departments to receive capacity-building technical assistance. With USAID’s 

assistance in developing and implementing reforms, customs saw early successes as the 

tariff schedule was rebuilt, tariffs were calculated using the floating exchange rate, collection 

enforcement improved, and revenues began making their way from the provinces to Kabul, 

the latter due, in part, to some strong-arm tactics by Ambassador Khalilzad.288 USAID also 

provided training programs to increase the capacity of government officials.289 However, 

especially since 2011, corruption in the customs department “has become organized 

and pervasive,” leading to significant losses in potential revenues.290 Because the amount 

of capital involved in customs collection is so large, the inability to adequately counter 

corruption has made customs an attractive access point for capturing money as it crosses 

the border.291

In contrast to the slow erosion of progress in the customs department after initial gains, 

capacity building in the accounting department is viewed as a success. The most important 

factor in fostering this success was the decision to build upon the existing accounting 

framework that the Afghan civil servants had been using and therefore already understood. 

The gentler learning curve for building the skillsets of these employees made it easier 

for them to implement the reforms that were introduced. Furthermore, the reforms in the 

department were more technocratic than political, limiting any potential backlash from 

employees and minimizing the vulnerability to corruption.292

Like the accounting department, reforms in the budget department were also largely 

technocratic. However, budget creation was inherently political, making it difficult to 

systematically apply the reforms. In addition, the capacity in budget execution was largely 

built through bringing in third-party, non-civil servant experts. (For more details, see Second 

Civil Service, page 60.) It was therefore difficult to adequately integrate reforms into the 

existing civil service structure in an efficient and sustainable manner.293

Important factors for generating sustainable capacity in government institutions, therefore, 

included oversight of the resources that were available for potential corrupt activities (or 

taking early measures to make corruption more difficult), limiting the political exposure of 

ministries, and using or building upon existing frameworks or systems for modernization.294
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Above all else, corruption among tax officials made it more difficult and costly 

for businesses to comply, which discouraged them from participating in the 

formal economy. In many cases, the time taken up by the actual filing and paying 

of taxes was even more onerous than what was owed in the taxes themselves. A 

2008 UK review attributed a significant part of the post-2005 decrease in foreign 

and domestic private investment to a 2004 tax reform and the subsequent 

aggressive rent-seeking behavior of officials in the MOF Revenue Department’s 

Large Taxpayers’ Office, which the review labeled an “economic ‘shock’ which 

has, to a significant extent, caused a reduction and stagnation in foreign and 

domestic private investment since 2005.”295

Transparent tax collection was further complicated by revisions to the tax law 

in 2005, 2009, and again in 2015, which confused businesses and often increased 

their tax burden. For example, a lack of clear information about a 2005 tax 

holiday, intended to encourage businesses to expand their operations and join 

the formal economy, resulted in some firms improperly applying and therefore 

not qualifying, or applying when they were not eligible, with the end result being 

firms having to pay several years of back taxes to the government all at once. 

Along with the back taxes, additional “fees” were paid to officials to avoid legal 

consequences. Further, in some cases, firms followed the correct procedures 

for getting the exemption, but did so through officials who did not have the 

authority to grant it.296

Tax reforms were intended to maintain and increase government revenue 

streams, especially following the drawdown of international financing. While 

necessary for the government to generate revenue, increasing taxes on 

businesses became a double-edged sword, in effect encouraging businesses to 

remain informal and further shrinking the tax base. As discussed below, there 

were similar issues in the customs administration, where despite early and 

continued reforms to clarify customs values and procedures, corruption at the 

borders continued to encourage smuggling in order to evade payment. 

At the end of 2015, new rules increased the business receipts tax from 

2 percent to 4 percent, a move vigorously opposed by the business community, 

in part because they considered the receipts tax a form of double taxation. 

As one report noted, while “absolute levels are not high by international 

standards, compliance imposes a heavy burden for a sector where many had 

been used to paying no tax at all.”297 In 2014, the IMF also pushed heavily 

for the addition of a value added tax (VAT) in order to move some of the tax 

burden off businesses, while still generating additional revenues. While VAT 

implementation was tabled after substantial delays in negotiation, it has not 

been ruled out for the future.298

Rent-seeking is 

the practice of 

manipulating policy or 

economic conditions 

to gain profits, or 

the use of state 

resources for personal 

economic gain without 

reciprocating benefits 

to society through 

wealth creation.
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ESTABLISHING MACROECONOMIC STABILITY

The international community’s first private sector development task was 

restoring basic financial and macroeconomic stability. Over the previous 

23 years of conflict, DAB’s role had diminished to subsidizing successive 

government deficits. Taking on a Soviet-style institutional role, DAB had 

relinquished its ability to influence interest rates or inflation, and as a result 

of this and the ongoing conflict and instability, the previous decade had seen 

high levels of inflation and a rapid depreciation of the national currency, the 

afghani (AFA). By 2001, the afghani was trading at an exchange rate of between 

AFA70,000–80,000 per dollar, compared to around AFA40,000 per dollar in early 

1999.299 The first step forward, therefore, was the establishment of firm monetary 

controls to generate price stability and faith in the currency.300

Overhauling the Currency: The New Afghani

At the end of 2001, in addition to the widespread use of several foreign 

currencies, at least three versions of the afghani were circulating, including 

two warlord counterfeit currencies trading at a discount. Given the magnitude 

and importance of the issue, a steering committee of senior officials from DAB 

and the MOF, and international experts from the IMF, USAID, the German 

central bank Deutsche Bundesbank, and the UN, was established.301 With IMF 

in the lead, a number of currency models were discussed, including full or 

partial dollarization. While the latter was the choice of the IMF, the Afghan 

authorities felt that the afghani was an important symbol of national unity and 

sovereignty. They therefore chose to introduce a new version of the existing 

currency, a decision that was ultimately supported by the IMF in the interest 

Money changer in Kabul in August 2010. (Institute for Money, Technology, and Financial Inclusion photo)
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of Afghan ownership.302 The introduction of a new afghani (AFN) so quickly 

and under such extremely fluid political conditions, with the challenges 

provided by Afghanistan’s geography and poor infrastructure, and with no 

accurate knowledge of the amount of old currency in circulation, was a 

massive undertaking. 

Once the outlines of the plan were established, USAID led the media and public 

outreach campaign to inform as many Afghans as possible of the conversion 

to the new currency, relying heavily on radio broadcasts and word-of-mouth 

dissemination. The plan was for money changers to exchange their currency 

first, followed two weeks later by the general public. The exchange rate was 

set at AFA1,000 to AFN1.303 The entire conversion was envisioned as taking 

eight weeks. 

Dollarization

Dollarization occurs when a nation adopts the U.S. dollar as its official currency, thereby 

losing independence in monetary policy (because it must follow the same monetary 

policy as the U.S. Federal Reserve Bank). Dollarization is sometimes preferred in an 

economy that requires immediate stability. Under partial dollarization, sometimes 

referred to as unofficial dollarization, a nation maintains its national currency as the 

official currency, but government transactions are conducted in U.S. dollars. This requires 

the maintenance of an exchange rate pegged to the dollar and helps to protect the 

purchasing power of the national currency and maintenance of macroeconomic stability. 

Both full and partial dollarization limit the national institutions’ ability to implement 

economic policies.304

USAID was instrumental in establishing the Bagram Bank of DAB for promoting 

the new Afghan currency and processing the in-flow of the physical currency 

by the U.S. Army.305 USAID also set up an air operations unit and provided two 

helicopters and one airplane to manage the air transport of the currency to 

distribution points. The Afghan Air Force also provided assistance in the early 

stages of the currency conversion.306

On September 4, 2002, President Karzai publicly announced the conversion, 

and the actual process started one month later. Despite public uncertainty and 

some currency depreciation that required DAB to extend the conversion period 

by one month, the entire process successfully concluded in early January 2003 

without major events or financial hiccups.307 The achieved exchange rate of 

around AFN50 per dollar was seen as comforting to the population, as it had 

traditionally been in that range until the start of conflict in 1978. 
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Establishing Monetary Policy

A stable exchange rate was a key component of the macroeconomic stability 

necessary to give businesses confidence to establish themselves, expand, and 

invest. Because the money supply, inflation, and the exchange rate were all so 

closely tied in the absence of a functioning banking system, it was imperative 

that the exchange rate remain within a tight range. Allowing the currency to 

float freely would cause a lack of confidence in the currency, ultimately resulting 

in the same inflation and depreciation that occurred with the old currency. 

Afghanistan chose to implement a quasi-floating exchange rate regime, keeping 

the rate within a specified range, so DAB could pursue independent monetary 

policy and increase the economy’s ability to absorb external shocks, such as 

border closings or increases in fuel prices.308

The technical requirements for conducting independent monetary policy 

required substantial capacity development within DAB, which was constrained 

by staff who were untrained in modern monetary policy and banking, difficult 

communications with provincial branches, poor physical infrastructure, and 

the lack of a recent, accurate balance sheet. Therefore, beginning in November 

2002, USAID launched AEGP to help support IMF and World Bank initiatives 

to develop monetary policy and increase DAB’s capacity to implement it.309 To 

help ensure the successful implementation of the new monetary policy, the 

IMF and Afghan authorities agreed that DAB would remain independent and 

would maintain full control over the printing of the new currency. In turn, the 

government would maintain financial discipline and would not require DAB to 

finance any government deficit.310 The international community insisted on the 

latter stipulation to guard against runaway deficit spending.311

With an independent central bank, a floating exchange rate, and no functioning 

banking system, options for monetary policy were limited. Maintaining stability 

was further complicated by the widespread circulation of foreign currencies, 

especially the U.S. dollar, which influenced inflation and made control of the 

domestic money supply more difficult. It was imperative to establish a monetary 

policy mechanism or the massive inflows of foreign assistance would quickly 

lead to inflation and an erosion of the value of the new currency.312 Therefore, 

the IMF supported DAB in implementing a system of foreign exchange auctions 

beginning in May 2002. These auctions were open to all money changers, 

including the informal hawala traders. Measures were taken to avoid potential 

pitfalls, such as the cornering of the market by high-volume money traders. 

Auctions were held every one to two weeks for the first few years, and slightly 

less frequently to the present.313 In September 2004, DAB added daily, short-term 

capital note auctions in addition to the foreign exchange auctions to manage the 

domestic money supply.314

Hawala is an informal 

money transfer system 

found primarily in 

the Middle East and 

South Asia. Hawala 

dealers rely on 

personal networks and 

trust to move money 

both domestically 

and internationally; 

because they operate 

outside of formal, 

state-supervised 

channels, they have 

frequently been used 

by terrorists and other 

criminals to transfer or 

launder money.315
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U.S. EFFORTS TO CURB OR REGULATE 

THE HAWALA SYSTEM 

Concerns that the hawala system allowed the transfer of funds from and to criminals, 

insurgents, and terrorists drove the U.S. government to attempt to curb or regulate 

the system. 

Toward this end, advisors from Treasury’s Office of Technical Assistance worked closely with 

representatives from the IMF and World Bank to help the Afghan government develop its 

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws. Treasury 

also provided capacity-building support to newly established entities, such as the Financial 

Transactions and Reports Analysis Center of Afghanistan (FinTRACA), which was created to 

assist in combating money laundering and financing of terrorism, and the Major Crimes Task 

Force, an initiative led by the FBI to train Afghan investigators in high-level investigations of 

economic crimes, corruption, kidnapping, and organized crime.316 One aspect of the AML/CFT 

laws was the requirement that hawala dealers be licensed.

Yet, even licensing didn’t stop hawala dealers from engaging in money laundering. Two of 

the largest and most high-profile scandals associated with dealers involved New Ansari, a 

decades-old hawala that was eventually blacklisted by Treasury in 2011 for its extensive 

laundering of billions of dollars in drug money, and the Shaheen Exchange, a money service 

provider founded and run by Sherkhan Farnood.317 Farnood started the Shaheen Exchange in 

1996 after authorities in Moscow, where his previous business was based, charged him with 

illegal banking and money laundering. He managed to stay on the run until he returned to 

Kabul after the collapse of the Taliban regime to found the ill-fated Kabul Bank in 2004 and 

Money changer in Kabul in August 2010. (Institute for Money, Technology, and Financial Inclusion photo)
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plot a highly sophisticated money laundering scheme using the Shaheen Exchange.318 (For 

more details, see Kabul Bank Crisis, page 83.) 

Despite significant growth, the small and fragile formal banking sector was unable to match 

the vast reach and scale of the hawala network. Moreover, while formal banking and informal 

hawalas were two distinct systems, they often complemented each other: Hawala dealers 

maintained bank accounts, and banks used hawalas to transfer money to remote areas 

of the country. The collapse of the Kabul Bank in 2010 confirmed the fragile nature of the 

formal banking sector and reinforced the preference of Afghans to continue to use informal 

money services, such as hawalas. According to a 2016 U.S. State Department report, 

around 90 percent of financial transactions in Afghanistan were conducted through the 

hawala system.319
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LEGAL FRAMEWORKS

Because a strong, predictable, and transparent legal framework was seen 

as an important component of the enabling environment for formal private 

sector development, the United States sought to support Afghan authorities in 

developing and improving this framework. 

The Afghan government’s aspiration to join international initiatives and trade 

organizations in order to better enable international trade and investment 

was also a driving force behind the passage of many new laws, as well as 

amendments to established laws. For example, as part of the WTO accession 

process, Afghanistan passed three intellectual property laws, along with a 

number of food safety and sanitation laws to support agricultural exports.320

After the fall of the Taliban in 2001, the interim government revived the Civil 

Code of 1977 and the Commercial Code of 1955. These two codes are still in 

effect today and govern areas where new laws have yet to be created.321 The 

Constitution of Afghanistan was signed in January 2004, after which subsequent 

laws to shape the new market economy were passed; in some cases, these 

various laws contradict each other. In practice, three legal systems, including 

traditional law, sharia law, and the formal or statutory laws, exist concurrently 

within Afghanistan, and it is often unclear which ones take precedence.322

Moreover, decisions made by traditional shuras and jirgas, which may or may 

not conform to the written laws of Afghanistan, are often endorsed by agencies 

within MOJ.323

Afghanistan received assistance in drafting laws from a range of nations and 

international organizations. While Italy was designated by the Group of Eight 

(G8) Security Sector Reform process as the lead nation for the overall justice 

sector, other international partners worked on components of the sector: the 

United States tended to focus on broad (omnibus) laws, and other nations 

provided assistance in specialized areas. For example, mining and energy laws 

were supported by the World Bank and individual countries, including Norway. 

Commercial law development and awareness activities were undertaken by 

Commerce’s AIRTF using funding provided by USAID.324

 USAID is currently 

funding the Commercial Law Development Program, a four-year, $12 million 

project, with activities including establishing commercial and trade law clinics 

at Afghan universities; educating the Afghan government and businesses on 

commercial regulation, arbitration, and contract administration; and assisting 

in drafting and amending laws related to insolvency, procurement, companies, 

and minerals.325

Because there was a sense of urgency in establishing a legal framework, 

donors and international legal advisors often found it easier to adapt laws from 

A shura (Dari) or jirga

(Pashto) is a local 

council of elders and 

respected individuals 

within a community, 

convened to mediate 

conflicts and resolve 

issues. These councils 

usually deal with family 

matters, but have also 

been used to settle 

commercial disputes.
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TELECOMMUNICATIONS 

The telecommunications sector in Afghanistan is widely viewed as a success. The sector has 

grown significantly since 2001, due primarily to a combination of government initiatives, 

strong domestic demand, availability of low-cost, off-the-shelf technology, and support from 

international donors. In 2003, only one in 550 people had access to telephone service, 

and even fewer to the internet.326 By the end of 2014, 90 percent of residential areas 

had telecommunications coverage, with six active telecommunications service carriers, 

62 internet service providers, and five 3G mobile network service providers, according to 

the Afghan Telecom Regulatory Authority (ATRA).327 In 2016, the World Bank reported that 

there were 21.6 million mobile cellular subscriptions, or about 66 subscriptions for every 

100 people. (See figure 6.)328

Most of the telecommunications infrastructure, including cell phone towers, was built by the 

private sector.329

 Industry competition made mobile services more affordable and accessible, 

and cell phones are now common not only for business use, but for personal use, even in 

rural areas.

Establishment of the policy and institutional framework for telecommunications was seen as 

an immediate need early in the reconstruction effort. In 2002, the Afghan government had to 

decide between setting up a state-owned telecommunications network with a single provider 

and allowing open bidding for service contracts. Ashraf Ghani, then Minister of Finance, 

strongly supported the latter private-sector approach.330 Ghani also called on OPIC to provide 

risk guarantees to help investors, which it did. Afghanistan approved its first Global System 

for Mobile Communications (GSM) license with the Afghan Wireless Communication Company 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

10

20

30

40

50

60

70

Source: SIGAR analysis of data from the International Telecommunications Union, “Mobile cellular subscriptions: Afghanistan (per 100 people),” data 

for 2002–2016, World Bank, World Development Indicators database, accessed on February 21, 2018. 

AFGHANISTAN MOBILE CELLULAR SUBSCRIPTIONS, 2002–2016 (PER 100 PEOPLE)

66.0

0.1

FIGURE 6
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in 2002 and its second GSM license with Roshan in 2003. Roshan is now the largest mobile 

service provider in Afghanistan, with over 6.5 million subscribers.331

The 2003 Telecommunications and Internet Policy established the regulatory framework 

for the industry and created the interim governing body, the Telecom Regulatory Board 

(TRB), within the Ministry of Communications and Information Technology (MCIT). The TRB 

drafted the National Numbering Plan, the National Frequency Table, and began working on 

the Telecommunications Law. In 2005, this law was enacted and the Afghanistan Telecom 

Regulatory Authority replaced both the TRB and the State Radio Inspection Department and 

became the primary regulatory agency.332

While the Afghan government established a favorable regulatory environment, private 

investors and donors sought to create or rehabilitate technical capacity. For example, the 

World Bank’s Rehabilitation of Telecommunications Systems Project worked between 2003 

and 2006 to connect Afghanistan to neighboring countries by rebuilding the satellite earth 

station in Kabul, as well as improving transmission links.333

Since 2002, DOD has spent around $2.5 billion to support Afghan information and 

communications technology (ICT), primarily to provide networked communications support 

for the ANDSF.334 State and USAID have also supported the ICT sector through investments 

of $83 million and $44 million, respectively, with State focusing on supporting independent 

media and USAID concentrating on capacity development within the Afghan government. 

Although USAID has been working in this sector since 2001, direct ICT program support 

through State did not begin until 2010.335 The U.S. efforts in Afghan ICT as a whole were 

coordinated by U.S. Embassy Kabul, originally through the Afghanistan Reconstruction Group. 

In 2010, the ISAF Telecommunications Advisory Team assumed responsibility for coordination 

until the ISAF mission ended in 2014.336

Additional support in telecommunications development was provided by the U.S. Trade 

and Development Agency, which in 2002 funded a short-term advisor to the Ministry of 

Telecommunications to assist the ministry in drafting the telecom policy.337 USTDA also 

conducted feasibility studies and provided policy advice that, in the agency’s 2005 and 

2009 annual reports, was identified as critical to designing and implementing subsequent 

projects, including establishing a national satellite network, microwave communications 

systems, and the fiber optic ring network, discussed below.338

The Afghan government envisions the country functioning as a data and telecommunications 

transit hub for Central Asia, a digital analogue of the Silk Road. In 2017, the government 

was closing out a project to establish a fiber optic ring network along the Ring Road, called 

the Optic Fiber Cable Backbone Ring Project. The fiber optic ring network, which will serve 

as the backbone of the telecommunications sector when fully completed, was launched in 

2006 with support from the World Bank. While the initial phases of the project are complete 

and most of the network has been installed, with 25 of 34 provincial capitals connected 

to the backbone, not all of it is operational. Security issues delayed completion of portions 

of the network, especially between Herat and Maimana.339

 The remaining nine provincial 

capitals will be connected under a follow-on project called Digital Central Asia-South Asia, 
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also supported by the World Bank, which will install fiber optic cable alongside the planned 

Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline.340

Some private telecom companies worry that the sector’s success will result in the “golden 

goose effect.” The sector has been one of the largest tax contributors to the Afghan 

government, accounting for about 45 percent of the revenue from the Large Taxpayer Offices 

in 2010–2011 and a significant part of the government’s total revenue.341 In 2015, a 

presidential decree levied an additional 10 percent telecom provider service tax, which 

affected the purchase of top-up cards and other services for mobile phone users.342

According to MOF, these new taxes provided a 21 percent boost to the national budget.343 Yet, 

telecom providers already paid mandatory annual fees, business receipt taxes, and frequency 

spectrum fees, with a total tax burden of 25 percent.344 Because the Afghan government had 

only a small pool of properly licensed and regulated industries from which it could extract 

taxes, the telecom companies believed that, in such a target-poor environment, the industry 

was being unfairly squeezed to generate revenue for the government.345

Man with multiple mobile phones in Balkh Province in August 2010. (Institute for Money, Technology, and 

Financial Inclusion photo)
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other countries and draw from international experience in formulating new 

laws for Afghanistan, rather than going through the typically long process of 

development and approval.346 This urgency, specifically in enacting commercial 

laws, can be seen in the adoption of the Banking Law in 2003, even before 

the new constitution. At the time, the 1994 Law on Money and Banking had 

been in effect since the mujahedeen government, and many of DAB’s outlined 

objectives, responsibilities, and powers were ill-defined and outdated.347 Given 

the moribund state of the commercial banking sector and acknowledging the 

critical role financial institutions play in economic growth, Afghan authorities, 

with support from USAID, the IMF, and DFID, sought to improve financial sector 

laws so the commercial banking sector could expand. 

Many laws were promulgated in advance of the first parliamentary elections in 

September 2005, with the worry that enacting legislation would likely become 

more complicated once a sitting parliament was in place. By the end of 2005, 

a number of new or updated laws were awaiting examination and approval by 

the relevant ministries, including an industrial parks decree and laws on private 

investment, procurement, and business organizations.348 The customs code and 

the first hydrocarbon and minerals extraction laws governing the provision of 

mine and quarry licenses were also passed around the same time.349 USAID’s 

AEGP specifically focused on the Ministry of Commerce and Industry to help 

it establish a regulatory environment that was competitive for private sector 

growth and commerce, based on free market principles.350

The first legislation regarding competition policy for a specific sector was 

the Telecommunications Law, supported by USAID AEGP and presented to 

President Karzai’s cabinet in August 2005. The law sought to assist the rapidly 

developing telecommunications sector, historically a government monopoly, 

by including provisions for foreign and domestic private investment and 

eliminating unnecessary regulations and bureaucratic procedures.351 The 

telecommunications sector was widely considered one of Afghanistan’s success 

stories, in part because of these initial steps. 

While the pace of establishing the new legal environment was rapid, the 

environment remains today a work very much in progress. Laws drafted by 

foreigners, albeit with some Afghan involvement, reflected a wide range of 

legal ideas and concepts, some of which conflicted with local precedent and 

tradition.352

 As noted above, one of the recurring complaints about the laws 

and regulations introduced in Afghanistan in the early years was they were 

imported from elsewhere by Western experts and advisors who failed to 

adequately take into consideration Afghan norms and traditions. In some 

cases, mullahs in the Wolesi Jirga objected to certain laws because they were 

claimed to be in violation of sharia law.353 In late 2017, for example, there was 

The 249-seat Wolesi 

Jirga, or House of the 

People, is the lower 

house of Afghanistan’s 

National Assembly. It 

plays a more important 

role in making laws 

than the 102-seat 

Meshrano Jirga, or 

House of Elders, which 

is the upper house of 

the assembly.
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a debate in the Afghan parliament about introducing a law to formally 

establish a legal foundation for an Islamic banking system, either in tandem 

with the current conventional banking system or potentially as 

a replacement.354

Similar discussions took place, in part, because there was little engagement or 

open debate about commercial laws and their compliance with sharia before the 

laws were passed. At the same time, sharia was subject to wide interpretation 

in Afghanistan. The failure of Western advisors to build a good understanding 

and knowledge of sharia and its application in Afghanistan prevented them 

from addressing sharia-related barriers and objections to some private sector 

development projects and activities upfront.355

The arbitration and mediation laws, a set of laws which attempted to establish 

a legal mechanism for dispute resolution outside of court, were an especially 

poor fit for Afghanistan. Based on international experience with alternative 

dispute resolution, these laws were intended to assist foreign investors. 

However, the laws inadequately considered the existence of shuras and jirgas, 

which held a position of power and respect within Afghan society that the 

formal court system lacked. When President Karzai signed the laws into effect in 

January 2007 while the parliament was in recess, he reinforced the widespread 

perception that laws were being brought in from foreign experts without 

engaging or consulting with the Afghan people.356

A dearth of legal experts and lawyers within Afghanistan, coupled with an inept 

or corrupt court system, made resolving legal conflicts and reforming laws 

especially difficult.357 Many Afghan laws are poorly understood today, even 

among judges, lawyers, and legal professionals.358 A study funded by GIZ found 

that most medium-sized business owners were aware of the existence of key 

commercial laws and appreciated their importance, but few understood their 

contents.359

 Furthermore, many of the laws were not accompanied by any plan 

to build or modify the institutions necessary to apply them.360

The greatest challenge, however, has been the enforcement of new laws. 

Afghanistan’s weak judicial system has meant that even the best-crafted 

laws, unless uniformly and fairly enforced, can be manipulated by powerful 

individuals and business elites, who use their connections and access to 

information to circumvent taxes, regulations, and other legal requirements.361

This same advantage has been used against smaller and less well-connected 

businesses to suppress competition.362 Additionally, many of the new laws and 

regulations contradicted the laws which were still technically on the books from 

previous administrations, thereby offering officials the choice of which laws 

to enforce.
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In some cases, the strengthening of government institutions made corruption 

more likely. One donor-funded review noted, “Administrative fees, permits, and 

licenses at the national and subnational levels of governance have increased, 

many of them unsanctioned, misapplied, or illegal.” For example, the review 

stated that trucks carrying melons from northern Mazar-e Sharif to markets 

south of the mountains could be stopped and illegally taxed up to 20 times, and 

concluded that “an inherently weak institutional setting, such as currently exists 

within the Afghan government, cannot prevent ‘informal’ taxes and corruption.”363

A further legal issue that contributed to large foreign corporations’ reluctance 

to invest was the lack of a proper and transparent land registration system.364

Despite U.S. government recognition of the problem and assistance in land 

titling going back to 2002, according to a recently published SIGAR audit of the 

U.S. government’s land reform initiatives, Afghanistan’s land administration 

remains “an ad hoc system of overlapping formal and informal approaches 

to land titling and transfer, with the formal approach mainly based on paper 

documents that may be registered by multiple institutions.”365 Corruption 

remains endemic in land administration, partly because of a judiciary system 

that is perceived by Afghans as one of the country’s most corrupt institutions.366

FINAL POINTS ON CREATING AN ENABLING ENVIRONMENT 

Creating a positive enabling environment that fostered confidence in the private 

sector was the first economic development priority of the U.S. government after 

2001. Stabilization of the economy through the currency overhaul, creation of 

fiscal and monetary policies, and the establishment of a sound legal framework 

were all taken on within the first year of reconstruction, and were largely 

successful. The currency overhaul was effective in generating confidence in 

the new currency, as well as in the future of the economy for the population 

as a whole. Concurrently, the establishment of monetary policy without a 

functioning banking system was an impressive feat. Similarly, the establishment 

of fiscal policy, specifically regarding budget construction and public financial 

management, was an important success that helped to foster confidence. With 

President Ghani serving at the time as the Minister of Finance, the ministry 

overall was considered successful in building its capacity and was critical for 

the success of the Afghan government, as well as the economy. In all of these 

areas, USAID and Treasury followed the lead expert institutions, the IMF and 

World Bank, and contributed to success by providing substantial financial, 

technical, and political support. 

However, despite incremental successes, the sound enabling environment of 

laws, regulations, and institutions has not yet been fully achieved. The biggest 

issue has been the failure to instill transparency and accountability in the wide 
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range of Afghan government institutions that are responsible for supporting 

private sector development and whose lack of cooperation discouraged firms 

and entrepreneurs. Rather, corruption has been a hallmark of and a major 

constraint to private sector development. Of the 50 Afghan firms surveyed for 

this report (see appendix A, Methodology), 39 firms or 78 percent of total 

respondents considered tax administration to be difficult, specifically citing long 

delays, cumbersome and confusing procedures, and corruption.367 According to 

one respondent, “A corrupt and inefficient government is a bigger problem or 

threat to the private sector than the Taliban.”368

While the U.S. government backed a number of general anticorruption activities, 

its primary anticorruption focus was on procurement, contracting, and general 

misuse of U.S. funds, especially as they were linked to terrorism, international 

crime, and drugs. Less attention was placed on the types of corruption and 

poor economic governance that posed a constraint to Afghan firms and private 

sector development.

In many cases, the fixes to corruption were of a technical nature, such as 

electronic payment and accounting systems, and depended on the commitment 

of government officials to make them effective; yet, U.S. officials often lacked 

the ability to exert sufficient leverage on individuals and institutions to reduce 

corruption, especially when it existed beyond their immediate counterpart.369

For example, U.S. officials pushed Afghanistan to adopt the Extractive 

Industries Transparency Initiative (EITI) standards, which it did in 2010 as 

part of its candidacy for membership; however, the 2014 mining law passed 

by Parliament removed many of the conditions suggested by MIDAS and the 

international advisors, and therefore had weaknesses that were likely to “fuel 

conflict and corruption instead of development.”370

A further issue has been the reform of the tax system, a daunting challenge 

anywhere, but especially in an environment where individuals and businesses 

were not used to paying any taxes at all. While policy improvements have 

been positive, implementation has been uneven due to bureaucratic issues, 

corruption, and poor governance. There have also been tensions between 

different objectives, such as increasing revenue collection while encouraging 

economic activity. For example, the pressure from the international community 

to step up tax collection as the 2014 drawdown approached created an 

opportunity for corrupt officials to extract additional payments from businesses.

“A corrupt and inefficient government is a bigger problem 

or threat to the private sector than the Taliban.” 

—International telecommunications executive
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AFGHANISTAN AND THE EXTRACTIVE INDUSTRIES 

TRANSPARENCY INITIATIVE

Afghanistan’s estimated $1 trillion in unexploited mineral resources is considered to have 

the potential to drive inclusive economic growth and generate revenue for the government. It 

also has the potential to develop into a classic case of the “resource curse,” where a country 

becomes dependent upon a nonrenewable resource at the expense of wider growth and 

the development of other industries, making the economy volatile and leading to greater 

inequality. The deciding factor between these two paths rests largely on whether the Afghan 

government can manage and regulate the sector for transparency and sustainability, or if 

weak institutions will allow strongmen, corrupt politicians, and unscrupulous domestic and 

foreign companies to exploit these resources solely for their own gains. To attempt to put 

Afghanistan on the former path, Afghanistan’s leaders and civil society groups are working to 

join the EITI, a voluntary global standard for the governance of mining, oil, and gas.371

Managing extractives in Afghanistan has been difficult, and many contracts have been mired 

in corruption and controversy. The contracting process for Mes Aynak, one of the largest 

untapped copper deposits in the world and Afghanistan’s first major mining tender, is a good 

example. The $2.9 billion contract, the largest single foreign investment in Afghanistan to 

date, was awarded to the Metallurgical Group Corporation of China in 2008 after a short 

bidding process. A year later, the Minister of Mines, Mohammad Ibrahim Adel, was accused 

of accepting a $30 million bribe to favor MCC over its competitors.372 As a minister, Adel 

was immune from investigation at the time and has since retired, and the issue remains 

unresolved. Poor or nonexistent recordkeeping of the tender process within MOMP, and the 

ministry’s refusal to release the Aynak contract document to the public until 2015, only 

furthered public suspicion.373 Further, in the years after the award of the Aynak contract, other 

mining contracts have been awarded to close relatives of politicians and government officials, 

in spite of prohibitions outlined in the 2009 Minerals Law.374 For example, the contract for 

the Ghori cement factory was awarded to the brothers of prominent politicians. (For more 

details, see Sell-Off of Ghori Cement, page 100.)

The major mining sites of Mes Aynak in Logar Province and Hajigak in Bamyan Province are 

part of the National Resource Corridors Program, which is a plan to develop the mines in 

tandem with their supporting infrastructure, including roads and railways, which will in turn 

generate and support other local economic activity.375 However, this is a process that will 

require significant foreign private investment and effort from the Afghan government to plan 

and implement. Currently, both mining sites have been in limbo for several years due to a 

combination of insecurity and the fall in international commodity prices. 

In addition to the two major mining sites of Mes Aynak and Hajigak, Afghanistan has 

extensive smaller or artisanal mining activity, which has the potential to create wealth and 

employment. However, medium and small mines continue to experience “industrial-scale 

looting” by strongmen and well-connected individuals.376

In becoming a candidate for EITI in 2010, Afghanistan signaled its commitment to design and 

implement a transparency process that includes requiring companies to disclose beneficial 

ownership (any person or entity holding 10 percent or more of company shares), provide 
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notice of all payments made by 

companies to the government, 

publish revenues from extractives, 

allow independent audits of all 

payments, and involve civil-society 

actors as part of a national-level 

Multi-Stakeholder Group to assist 

with designing and monitoring the 

process.377 These requirements 

are designed to prevent or expose 

common methods of political 

deal-making, corruption, and illegal 

exploitation of mineral resources.

The Multi-Stakeholder Group, which is composed of government, industry, and civil society 

representatives, commissions regular reports to monitor progress and track government 

revenue and payment data.378 The EITI International Secretariat reviews these reports, and 

appoints an independent validator to confirm that sufficient progress is being made, after 

which Afghanistan will gain full admission into EITI. Afghanistan did not make sufficient 

progress to achieve EITI compliance in 2013 or 2014, and remains a candidate for full 

admission after its last assessment on November 1, 2017.379

While the United States withdrew from EITI in November 2017, it remains a “supporting 

country” and will continue to promote the initiative internationally through State and 

USAID.380 Afghanistan continues to receive significant assistance from the World Bank in 

implementing EITI.

Afghanistan’s Finance Minister speaks at a conference on 

the Afghanistan Extractive Industries Transparency Initiative in 

Kabul in July 2012. (UNAMA photo by Fardin Waezi)

APRIL 2018 | 79

Asian Development Bank photo

CHAPTER 5

PROVIDING ACCESS TO FINANCE

Early on, the U.S. government recognized the importance of access to finance 

as a critical factor in promoting private sector investment. It also recognized 

that a private sector economy required different types of government financial 

institutions than existed before 1978. The U.S. government provided support to 

create a formal commercial banking sector in order to promote private sector 

activity, but also to encourage the channeling of financial flows through formal 

institutions to limit criminal money laundering and terrorism financing. (For 

more details, see U.S. Efforts to Curb or Regulate the Hawala System, page 66.) 

In addition, in response to what was seen as the inability or unwillingness of 

commercial banks to reach the poor and rural areas, the United States also 

supported the emergence of a number of non-bank, sector-specific financial 

institutions, enabling them to offer loans that were attractive to micro and small 

enterprises that might be less interested in traditional loans for a variety of 

reasons, including short grace periods, high interest rates, the borrower’s lack of 

collateral, and distrust for loans that weren’t sharia-compliant. 

USAID and Treasury both supported the banking sector by building the 

supervisory capacity of DAB, while USAID and OPIC helped to establish sectorspecific financial institutions, such as Afghan Growth Finance, Agriculture 

Development Fund (ADF), and Afghanistan Rural Finance Company (ARFC). 

Sharia-compliant loans 

are loans that are 

made in accordance 

with Islamic law. 

These loans include 

prohibitions on 

excessive interest 

and risk taking, 

overcharging for 

commodities at 

times of scarcity, and 

the manipulation 

of markets.
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Additionally, through the provision of direct loans and credit guarantee 

schemes, as well as technical assistance, the U.S. government sought to increase 

financial institutions’ lending capacity to smaller and riskier enterprises. 

Results of these efforts have been mixed. While U.S. and other donors’ 

regulatory and policy advice, as well as consistent support to DAB in the 

supervision and regulation of commercial banks, contributed to privatization 

of state banks and emergence of a number of commercial banks that provided 

financing to small and medium enterprises, the Kabul Bank debacle, one of 

the world’s largest banking sector failures, demonstrated just how fragile the 

banking sector was and continues to be. Moreover, finance continues to be a 

constraint; reporting from the World Bank in 2014 highlighted that small and 

medium enterprises remained “chronically financially underserved,” with only 

2 percent of Afghan firms using banks to finance investment and only a few 

banks providing specialized financing to these enterprises.381

SUPPORT TO THE COMMERCIAL BANKING SECTOR

The U.S. government recognized that the lack of formal sources of finance at 

reasonable rates was a serious constraint to business development. In early 

2002, Afghanistan’s financial system consisted solely of the central bank, two 

state-owned commercial banks, and four state-owned development banks, each 

of which had essentially ceased operations and could not perform the functions 

required to support a modern, market economy.382

In order to encourage commercial lending, USAID provided support to the 

banking sector, starting in 2002 with the Afghanistan Economic Growth Program, 

followed by Economic Growth and Private Sector Strengthening in 2007 and 

Economic Governance and Growth Initiative in 2009. A major component of 

these projects was supporting DAB in the modernization of procedures and laws, 

setting up payment and transfer systems, strengthening its provincial presence, 

and allowing supervision and risk management of commercial banks and other 

financial institutions by supporting the establishment and strengthening of 

DAB’s Financial Supervision Department (FSD). Established in 2002, the FSD 

received continuous technical support from USAID, as well as the IMF and World 

Bank, to improve its supervision of a rapidly growing banking sector.383 By 2008, 

the banking sector had grown to include 15 licensed commercial banks, with 

58 percent growth in deposits and 84 percent growth in loans.384 The banking 

sector had also started becoming profitable due to increases in both interest and 

noninterest incomes, the latter including fees and other service charges.385

Despite, or perhaps because of, its significant growth, the banking sector 

continued to be fragile. In 2009, one year before the Kabul Bank collapse, an 
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IMF analysis of the banking sector found a wide variety of risk-taking behavior 

among commercial banks. Private domestic banks that were rated poorly 

on international measures of performance and risk exposure had taken on 

excessive credit risk through substantial domestic lending, while foreign banks 

that had higher ratings than Afghan banks did not lend in Afghanistan at all. 

Afghan banks were more willing than foreign banks to lend in the local market 

because of greater familiarity with the business environment, clients, and loan 

repayment enforcement mechanisms that included personal mediation, issuance 

of warnings against becoming “blacklisted with the bank,” and application of 

extrajudicial and “nonconventional” enforcement methods. While the IMF report 

didn’t elaborate on these methods, it noted that in at least one bank, one-third of 

the employees were guards and security staff.390

In response to commercial banks’ risk-taking behavior, in 2008 DAB tightened 

reserve requirements to ensure commercial banks had sufficient liquidity.391

 At 

the same time, the IMF reported that DAB’s supervisory and onsite monitoring 

Afghanistan Renewal Fund

In the first few years of reconstruction, there was a great deal of enthusiasm for 

encouraging investment opportunities through finance, but not always with the best 

understanding of what was required in the Afghan market. One early example was 

the Afghanistan Renewal Fund, established in 2004 by Afghan Capital Partners, an 

independent company with offices in London and Kabul. According to the President 

Bush archives, “The United States has established the Afghanistan Renewal Fund, the 

first venture capital fund in Afghanistan specifically targeting small and medium-sized 

enterprises, and supported the stimulation of economic growth by creating a venture 

capital fund and separate loan guarantee program for ex-combatants in order to 

stimulate local private sector development and create sustainable employment.”386

ARF planned to raise $20 million in investment funds and attract private investment. In 

2005, USAID’s RAMP provided a $3.8 million grant to ARF to support direct investment 

in agribusinesses along the value chain, with the intention that the fund would continue 

past RAMP’s end date and generate “market-based returns.”387 An additional $16 million 

was obtained from ADB, OPIC, the UK-government owned investment fund CDC Group, 

and “high net-worth private investors.”388

The Acap Partners’ final report to RAMP in 2006 listed 164 potential investment 

opportunities that were investigated, but provides no indication that any actual 

investments were made. The final report noted difficulties in making investments, such 

as lack of credible business plans, management and financial skills, and certainty to 

investors on tax policy and protection of assets, as well as “few service and production 

industry enterprises with greater expansion potential.”389 The fund appears to have closed 

by 2008.
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had significantly improved, including doubling the frequency of onsite 

examinations.392 EGGI project reports also highlighted improvements in DAB’s 

supervisory services, noting that the department could “conduct onsite 

examination at all commercial banks to verify financial data and assess banks’ 

safe and sound operations.”393 Further, the EGGI project highlighted other 

achievements, such as various amendments to banking laws, especially those 

related to corporate governance, including prevention of excessive shareholder 

involvement in bank management.394

However, despite eight years of consistent U.S. and other international support 

to DAB and positive progress reports, the Kabul Bank crisis in 2010 revealed 

DAB’s limited capacity for supervising commercial banks and the extent to which 

political actors could undermine the economy. While EGGI reported that the 

project had achieved the objectives of its banking sector activities, it also noted 

that “progress on legislative and regulatory initiatives was dependent on political 

and policy factors outside control of the sponsoring institutions.”395 Furthermore, 

the project report highlighted factors that may have contributed to the 2010 Kabul 

Bank collapse. For example, in 2008 USAID and the Afghan government together 

decided to stop donor program advisors from accompanying DAB’s FSD staff 

in performing onsite supervision at commercial banks. This was problematic 

because the FSD staff had limited experience in oversight, and USAID personnel 

couldn’t detect the nature of the fraud at Kabul Bank through FSD’s written 

reports alone.396 Further, a SIGAR audit in 2014 confirmed that FSD hadn’t 

conducted rigorous checks of the bank’s shareholders, adding that the department 

also hadn’t conducted any onsite monitoring of Kabul Bank for its first two and 

one-half years of operation, had failed to impose and collect fines for the bank’s 

failure to maintain required reserves, and didn’t ensure that the bank’s branches 

had the legal permits to operate.397

The fallout from the Kabul Bank collapse included a March 2011 Afghan 

presidential directive that U.S. advisors were no longer welcome at DAB.398

Therefore, the USAID EGGI project was re-scoped to focus mainly on public 

financial management, and all U.S. agencies, including USAID, Treasury, 

and State, either limited or stopped their work with DAB.399

 While there was 

widespread criticism of USAID’s DAB support both officially and in the media, 

DAB senior officials later lauded USAID and other donors’ overall efforts in the 

Despite eight years of consistent U.S. and other international 

support to DAB and positive progress reports, the Kabul Bank 

crisis in 2010 revealed DAB’s limited capacity for 

supervising commercial banks and the extent to which 

political actors could undermine the economy.
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KABUL BANK CRISIS

Prior to its collapse in 2010, Kabul Bank 

was the largest banking service provider in 

Afghanistan. Its failure, and the subsequent 

$825 million bailout by the Afghan government, 

represented approximately 5 to 6 percent 

of GDP, making it one of the largest banking 

failures in the world, relative to GDP.400

Kabul Bank was established in 2004, a year 

after DAB was resurrected and several crucial 

banking laws were enacted. It later emerged 

that there were fundamental problems with 

Kabul Bank supervision and regulation 

due to DAB’s lack of capacity and political 

influence surrounding the bank. Kabul Bank’s 

shareholders’ and supervisors’ personal, 

financial, and criminal backgrounds weren’t 

thoroughly reviewed by DAB or vetted through 

the Ministry of Interior as part of the license 

application review process. Moreover, DAB 

didn’t conduct any onsite examinations until 

2007, two and one-half years after Kabul Bank 

started operations.401

Kabul Bank established a sophisticated and fraudulent embezzlement system based on 

dual financial records: one set of records was to satisfy regulators and the other was to 

keep track of the real distribution of bank funds. Through this system, the bank provided 

funds to proxy borrowers and fabricated company documents and financial statements. The 

ultimate beneficiaries of this fraudulent system were large shareholders, related companies 

and individuals, and politically connected individuals. Over 92 percent of the bank’s loans, 

or approximately $861 million, were given to 19 related parties, consisting of companies 

and individuals.402 The bank also misappropriated funds through non-loan disbursements 

that included excessive expenses, investments in related businesses, fake capital injections, 

advanced payments of salaries and rent, salaries paid to nonexistent employees, inflated 

costs for assets and payments for fake assets, unjustifiable bonuses, and political 

contributions, including to President Karzai’s re-election campaign.403

While DAB officials conducted regular and special examinations of Kabul Bank between 

2007 and 2010, during which they consistently raised concerns about the bank’s violations 

related to governance, loan files, and promotional incentives, they couldn’t detect the extent 

of the fraud. Even the external audit reports of Kabul Bank didn’t raise any red flags.404

In February 2010, a Washington Post article accused the bank of fraudulent lending 

practices, with loans to major shareholders that included the brothers of President Karzai, 

the Vice President, and many others, some of whom had purchased property in Dubai and 

Customers seek to withdraw money from Kabul 

Bank after large-scale corruption allegations in 

September 2010. (Agence France Presse photo 

by Massoud Hossaini)
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SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

registered it under the bank chairman’s name.405 Additionally, the bank chairman and CEO 

had created hundreds of fake companies to which loans were granted. The loans were then 

transferred to individuals in Afghanistan through Shaheen Exchange in Dubai, a money 

transfer company owned by the bank’s shareholders. The bank’s chairman and CEO were 

actively using its funds in violation of Afghan banking laws. Activities such as the bank’s 

purchase of property in Dubai and the purchase and running of Afghan businesses by bank 

officials and board members were illegal. For example, Pamir Airways was a domestic airline 

that was owned and operated by the bank’s chairman. The airline’s license was revoked in 

2011 following an air crash that killed 44 passengers. The investigation revealed that the 

plane’s registration had been forged to avoid safety inspections.406

In July 2010, as the result of a rift between bank chairman Sherkhan Farnood and CEO 

Khalilullah Ferozi, the chairman exposed the fraudulent activities of the bank to the U.S. 

Embassy, which eventually resulted in the firing of both executives. By then, the bank’s 

customer base had ballooned to one million Afghans, with a total of $1.3 billion in deposits. 

At the same time, the bank maintained an alarming loan to deposit ratio of 70 percent, 

which meant more than $900 million of its deposits were committed to mostly fraudulent 

loans.407 The news of the firing of the bank’s officials caused widespread panic among 

Afghans, who rushed to withdraw almost $500 million of the bank’s funds in a span of only 

a few days. DAB had to intervene as a lender of last resort to secure deposits and avoid a 

larger crisis.408

The New Kabul Bank was established in 2011 to inherit the “good assets”—those acquired 

legally by Kabul Bank—while the Kabul Bank Receivership inherited the “bad assets”—those 

that were acquired through fraudulent transactions. The receivership’s activities faced 

delays because of meddling and intimidation from politically connected figures. Since the 

establishment of the receivership, other than the imprisonment of the bank’s chairman and 

CEO, and despite presidential decrees offering incentives such as reduced prison time or 

interest rates, the recovery of funds, indictment, and imprisonment of other large debtors with 

political connections have been very slow. At one point in November 2015, news broke about 

the bank’s CEO becoming a major contributor to an Afghan government land development 

project. However, given the public attention and outcry, a few days later President Ghani 

declared the contract null and the CEO was reportedly back in prison. The Afghan government 

continues to find it challenging to recover money from debtors, especially from the chairman 

and CEO, because their assets are hidden under other people’s names.409

Most of the recovery of Kabul Bank’s funds so far has come from small debtors, many of 

whom were Kabul Bank employees who had received salary advances or had legal debts. 

The large debtors have yet to repay all of their debt, despite having legally binding contracts 

with the receivership to do so.410 In March 2016, the Afghan government approached SIGAR 

for help in detecting and retrieving the bank’s assets from foreign countries. An Afghan 

presidential decree directed Afghan authorities to cooperate with and provide documents to 

SIGAR to assist with the Afghan government’s ongoing investigation of the bank.411
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modernization of the banking sector, stating, “In 2002, we didn’t have formal 

financial systems. There are now 16 banks, mainly private sector. If we didn’t 

have the assistance from USAID, we couldn’t have developed the framework for 

private sector banks.”412

The Kabul Bank crisis served as a wakeup call for international donors, leading 

to the World Bank’s audit of commercial banks and IMF’s decision to make the 

continuation of its Extended Credit Facility program (a mechanism through 

which IMF provides low-income countries with financing assistance) conditional 

on the Afghan government’s willingness to reform the banking sector. The 

IMF also supported DAB’s attempts to consolidate and revise banking laws to 

strengthen corporate governance structures, regulate capital requirements, and 

enhance bank supervision. 

However, according to a 2016 IMF report, the banking sector continued to face 

critical challenges, such as weak governance, deteriorating asset quality, and 

low profitability.413 While lending rates across the sector increased slightly in 

2015, the quality of loan portfolios deteriorated, as was evidenced by a 7 percent 

rise in the proportion of nonperforming loans against total gross loans.414 This 

was especially problematic because 60 percent of the nonperforming loans were 

attributed to only two private banks. These two banks combined also issued 

the lion’s share (48 percent) of overall loans.415 Despite DAB’s efforts, bank 

loans were mostly concentrated in Kabul and in a few sectors such as services, 

construction, and mortgages, despite the knowledge that inadequate geographic 

and sectoral diversification can expose banks to risk in the event of crisis.416

PROVISION OF DIRECT LOANS AND LOAN GUARANTEES 

In addition to supporting the commercial banking sector, USAID and OPIC 

worked to make finance available to Afghan and U.S. firms through direct loans 

and loan guarantees. 

Direct Loans

To encourage foreign direct investment and support U.S. investors interested in 

doing business in Afghanistan, OPIC, the U.S. government’s development finance 

institution, began Afghanistan operations in 2002 by establishing a $50 million line 

of credit to “support economic reconstruction and U.S. investment in post-Taliban 

Afghanistan.”417 OPIC provided direct loans and political risk insurance to U.S. 

investors, many of whom were Afghan-Americans.418 By 2013, OPIC’s Afghanistan 

portfolio had grown to $252 million, including loans ranging from $35,000 to $60 

million provided to companies investing in hotel and housing construction, beverage 

production, agriculture and food security, renewable energy, and small and medium 

enterprise credit.419As discussed below, OPIC also provided debt financing for the 

Political risk insurance 

protects investors, 

firms, and other 

entities against 

financial loss due 

to events such as 

political violence or 

unrest, government 

expropriation, 

sovereign debt default, 

and inability to 

convert currency.
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establishment of Afghan Growth Finance, a small non-bank financial institution that 

provided loans and business advisory services to Afghan-owned businesses.420

OPIC’s financing of companies had mixed results. In 2004, OPIC gave a 

$9.2 million loan to Afghanistan Beverage Industry to help set up the company, 

which then became the main provider of bottled water to the U.S. military and, 

later, the manufacturer and distributor of Pepsi products in Afghanistan.421 In 

2009, OPIC provided $15 million in financing for the expansion of the Insurance 

Corporation of Afghanistan, the country’s first private insurance company that 

provides various types of insurance to Afghan and foreign clients.422 These were 

both considered successful ventures.

However, other OPIC loans did not fare as well. In 2016, SIGAR highlighted 

problems with two construction projects run by a consortium of four companies 

that had received around $85 million in OPIC loans, one of the highest amounts 

among OPIC’s borrowers in Afghanistan.423 The loans, which were disbursed 

on an incremental basis, were for the construction of a hotel and adjacent 

apartment building in close proximity to the U.S. Embassy in Kabul. In late 2017, 

both structures were incomplete and uninhabitable, with no obvious prospect 

of ever being completed. The developers presented OPIC with documents 

making false claims about the construction progress and completion dates, and 

continued to receive loan disbursements because OPIC didn’t have an onsite 

monitor to verify those claims and instead relied on the recipient’s information, 

which was “blatantly false and unrealistic.”424

Another recent case of non-repayment of an OPIC loan involved another 

company that obtained a $15.8 million loan in 2010 for the development and 

operation of a marble mine in western Afghanistan. (For more details, see 

Marble Sector in Afghanistan, page 109.) A June 2017 indictment for “allegedly 

defrauding” OPIC stated the company had made false statements about its 

ability to repay the loan.425

Loan Guarantees

OPIC began providing loan guarantees to U.S. investors in Afghanistan as 

early as 2002, when Ashraf Ghani, then Minister of Finance, requested OPIC 

provide a $20 million loan guarantee to encourage private investment in the 

telecom sector, which it did. Although the guarantee was never called upon, it 

encouraged private companies to invest in the sector.426

In addition to OPIC, in 2012 USAID also started providing loan guarantees to 

commercial and microfinance banks through its Development Credit Authority 

(DCA), a legislative authority that allows USAID to make direct loans and issue 

partial loan guarantees to private financial institutions.427 USAID initiated the DCA 

A loan guarantee 

covers a share of the 

default risk associated 

with credit given 

to a borrower. The 

guarantee encourages 

a financial institution 

to make loans to 

borrowers who are 

perceived as highrisk or who have 

insufficient collateral. 

One objective of 

loan guarantees in 

Afghanistan was to 

increase small and 

medium enterprises’ 

access to finance.
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model with an eight-year, $10.3 million loan portfolio guarantee to the commercial 

Afghanistan International Bank (AIB). This guarantee sought to mitigate risk for 

AIB and allow it to expand its lending capacity to offer longer-term loans to small 

and medium enterprises. As of 2017, AIB’s lending under the program has been 

limited to only seven loans, or 26 percent of the total loan the bank could make 

under the DCA guarantee. Moreover, some of the borrowers defaulted on their 

loans, which led to USAID bearing the cost of a little over $100,000.428

In 2014, USAID extended the loan guarantee program to three microfinance 

institutions: Oxus, FINCA Afghanistan, and First MicroFinance Bank Afghanistan.429

The purpose of this program was to help the microfinance institutions secure loans 

from larger lenders, which would be used for onward lending to micro and small 

businesses. To date, none of the microfinance institutions have extended any loans 

under this guarantee.430 While it is too early to evaluate the results of the DCA 

efforts, Afghan central bank officials have favored such credit guarantee initiatives, 

rather than USAID projects providing loans directly to enterprises.431

CREATING FINANCIAL INSTITUTIONS

In order to increase access to finance for businesses not served by commercial 

banks, the U.S. government supported the creation of independent private or 

government-owned financial institutions, including Afghanistan Rural Finance 

Company and Afghan Growth Finance. The United States also provided financial 

and technical support to the microfinance sector to improve its ability to lend to 

small and medium enterprises. Although Afghan commercial banks increased in 

number and capacity in the years after 2001, they preferred to operate in major 

urban areas such as Kabul, Herat, and Balkh Provinces, and to provide credit 

mainly to sectors such as trade, mining, manufacturing, communication, and 

services, with lower-risk trade dominating the loans.432

Commercial banks globally tend to remain reluctant to engage in rural finance 

because the remoteness of clients, coupled with poor infrastructure and banks’ 

limited outreach, making delivery of services and monitoring of clients more 

costly and challenging.433 In addition, commercial banks are reluctant to provide 

finance in the agriculture sector because of its perceived high risks and costs. 

Banks also tend to cater to medium and larger businesses that possess forms 

of collateral that smaller firms can’t provide. According to a former USAID 

implementing partner official, this was no different in Afghanistan, where 

relatively few banks could support rural financing.434 This was partly because, 

unlike non-bank financial institutions, commercial banks were subject to DAB’s 

stricter capital and credit requirements. While the microfinance and non-bank 

financial institutions served as alternative sources of credit for small and 

medium enterprises, they continued to struggle to achieve self-sufficiency.
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CHALLENGES IN DEVELOPING THE MICROFINANCE SECTOR

The need to develop the microfinance sector was based on the assumption that Afghans, 

especially women and those living in rural areas, had limited or no access to credit at 

reasonable rates and terms of payment, and that this was a binding constraint to the 

expansion or initiation of small-scale enterprises that would allow borrowers to raise their 

incomes and contribute to economic growth. In 2002, it was estimated that over one million 

Afghan households had an unmet demand for microcredit.435 In 2003, the World Bank 

established the Microfinance Investment Support Facility for Afghanistan (MISFA) to serve as 

an apex funding and capacity-building institution that would subsidize, regulate, and support 

the expansion and sustainability of the microfinance sector in Afghanistan. Most funding to 

MISFA has come through the Afghanistan Reconstruction Trust Fund, a financing instrument 

for the Afghan government that is funded by multiple donors, including USAID.436

In addition to USAID’s contribution to the ARTF to finance development priorities of the Afghan 

government, the agency also provided additional targeted technical and financial support to 

MISFA and its affiliated Afghanistan Microfinance Association and microfinance institutions (MFI), 

through a series of rural financing initiatives. Starting in 2003, USAID funded the Rebuilding 

Agriculture Markets Program, which provided some support to microfinance institutions as part of 

its development of rural finance services, and which was followed by Afghanistan Rural Investment 

and Enterprise Strengthening (ARIES) in 2007. USAID’s more recent financing initiative, Financial 

Access for Investing in the Development of Afghanistan was launched in 2011. Promoting 

enterprise lending through the provision of funding to MISFA for onward lending purposes, with the 

ultimate goal of increasing MFI borrowers, was a major part of these projects.437

The microfinance sector experienced rapid growth between 2003 and 2008, increasing from 

four MFIs and 12,000 clients to 15 MFIs and around 450,000 clients.438 However, this rapid 

expansion was followed by a repayment crisis that resulted in a decline in the growth and 

quality of loan portfolios.439 In 2009, a World Bank-commissioned investigation of one of the 

MFIs found evidence of data manipulation by the MFI in order to conceal financial losses and 

misappropriation of funds.440 Given the mismanagement and increasing skepticism about the 

microfinance sector expressed in some independent analyses and MISFA’s own assessment, 

MISFA began a consolidation and reform process. As a result, the number of MFIs shrunk to 

only seven, after the disestablishment or consolidation of MFIs that were not performing well.441

A number of factors contributed to the MFIs’ decline. First, a combination of environmental and 

external factors, including the 2007 drought, deteriorating security, and rising inflation, reduced 

clients’ ability to repay loans or take new loans. Second, the MFIs had to bear increasingly higher 

service delivery and operating costs because of these issues, as well as the low population 

density of the MFI-targeted areas. Third, partly due to the small number of staff and their limited 

capacity, the MFIs struggled to develop an in-depth understanding of existing alternative sources 

of credit, including the extensive hawala system and other sources, including relatives, colleagues, 

friends, wealthy villagers, shopkeepers, traders, and large landowners.442 Finally, the MFIs strived to 

balance their dual mission of serving the poor while becoming financially sustainable. Unlike the 

commercial banking sector, the microfinance institutions’ mandate required them to be concerned 

about their operational sustainability and their clients’ livelihoods—an emphasis that resulted in 

dropouts and negative perceptions of the MFIs. In some cases, households had to borrow from an 

informal credit source, often their relatives, to repay a loan taken from the MFI.443
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Afghan Growth Finance

In 2007, the Washington-based investment management group Small Enterprise 

Assistance Funds (SEAF), in partnership with OPIC, established Afghan Growth 

Finance, one of the first non-bank private financial institutions in Afghanistan 

that specifically targeted small and medium enterprises. Because OPIC was 

statutorily limited to providing financing and political risk insurance to U.S. 

companies only, establishing the AGF as an intermediary financial services 

provider allowed OPIC to indirectly support non-U.S. investors in Afghanistan.444

As a for-profit private company wholly owned by SEAF, AGF worked primarily 

with more established companies that were selected after an assessment of their 

annual turnover, future growth prospects, and management capacity, and which 

had a sustainable business model focused on consumer products and services 

that met local demand and could compete with imports. These clients included 

an ice cream manufacturer, a pharmaceutical company, and construction 

material manufacturers. 

AGF differentiated itself from other non-bank financial institutions in that it 

predominantly provided long-term capital financing, as opposed to short-term 

working capital. It also sought to reduce the burden of debt servicing by working 

closely with its borrowers and by having flexible and fluid loan structures.445

In 2010, AGF received financial support from USAID to expand its operations 

and presence beyond Kabul by establishing satellite offices in Herat and 

Balkh Provinces. By 2015, AGF had made a total investment of $46 million 

in 24 enterprises.446

 According to AGF, this low number of clients and loans 

demonstrated a cautious investment strategy and careful consideration of 

the company’s limited management capacity to maximize the effectiveness 

of its capital and minimize incidents of nonpayment—a sensible approach in 

the uncertain Afghan environment. AGF believed it had to be disciplined and 

cautious in its investments because, as a private company, it had to receive 

sufficient revenue to pay its investors and its operating costs.447

According to a senior AGF official, AGF generally did not rely on the corrupt 

and time-consuming Afghan commercial courts or legal system to resolve 

disputes or enforce contracts. Instead, AGF took various preventive measures to 

ensure companies did not default on their loans, including conducting extensive 

company and market assessments and forming close relationships with the 

company by providing management and operational support.448 These measures 

did not mean, however, that AGF clients never defaulted on their loans. In 2014, 

for example, AGF had to take legal action against four companies that did.449 At 

the same time, AGF senior management claimed it had fewer nonperforming 

loans than other financial institutions and, despite all the risks associated with 

business operations in Afghanistan, the number of such loans was low.450
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Afghanistan Rural Finance Company 

In order to serve rural small and medium enterprises in the agriculture sector 

that would otherwise be unable to access credit, in 2007, USAID’s ARIES project 

supported the establishment of the Afghanistan Rural Finance Company. ARFC, 

owned by ACDI/VOCA, a Washington-based nonprofit, had planned to provide 

conventional and sharia-compliant loans ranging from $20,000 to $1 million. 

Within two years, USAID reported ARFC’s success in surpassing its target, 

having provided 87 loans worth a total of $20.5 million.451

However, following the completion of the ARIES project in 2009, ARFC 

struggled with a myriad of problems that were common among the financial 

institutions set up by donors, such as complex ownership structures and serious 

challenges with repayment. These problems were confirmed by a 2012 report 

of the USAID FAIDA project, which was tasked as part of its banking sector 

support activities with conducting an assessment of ARFC’s financial status and 

developing a set of options for FAIDA and ACDI/VOCA’s future relationship. The 

assessment report highlighted a number of ARFC’s challenges in repayments, 

ownership, and management, as well as in profitability and sustainability. The 

report noted that, in 2010, facing serious difficulties in recouping money from its 

borrowers and increasing numbers of nonperforming loans, ARFC was forced 

to restructure. The company began cleaning up its loan portfolio by writing off 

loans that were in default, including 22 loans worth $7.3 million. For a company 

with an initial capital investment of $18 million from the ARIES project, this was 

a significant loss.452

Further, based on its experience with larger loans, ARFC reduced its maximum 

loan size from $2 million to $500,000, targeting smaller enterprises. As the 

assessment report highlighted, lending to small and medium enterprises was 

risky in Afghanistan, as these enterprises didn’t have sufficient management 

capacity, often were not financially stable, and did not always have a reliable 

market for their products. Despite these shortcomings, lending to small 

enterprises could be profitable mainly because there were so many more of 

them, resulting in a higher demand for loans.453 In 2011, after years of being 

managed by the company owner ACDI/VOCA, the management of ARFC was 

handed over to an Afghan team.454

Despite the changes in its lending structure and management, ARFC continued 

to struggle with nonperforming loans. The 2012 FAIDA assessment report 

noted ARFC’s serious capacity constraints and limited future prospects for 

profitability, and concluded that the company could not sustain operations 

without external support, even if it reduced expenses. The report suggested 

the company explore merging or partnering with another financial institution; 

however, given ARFC’s significant number of nonperforming loans, ARFC has 
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not been able to find a potential partner from among those it approached. 

Another option suggested by the report was for FAIDA or ACDI/VOCA to assist 

the company in recouping as much money as it could from its outstanding loans, 

and then let the company phase out and close its operations. Other than some 

technical advice, USAID’s FAIDA project did not commit to any further financial 

support to the company after 2017, when the project ended.455

Agriculture Development Fund

In 2010, USAID embarked on setting up an Afghan government-owned financial 

institution that would provide credit exclusively to farmers and businesses in 

the agriculture sector. The agency launched the Agriculture Credit Enhancement 

(ACE) program for the primary purpose of creating the Agriculture Development 

Fund. While the Afghan government had operated an Agriculture Development 

Bank in the 1970s, it was highly subsidized and mainly channeled inputs to 

farmers. In contrast, USAID envisioned ADF specializing in lending and becoming 

a proactive and self-sufficient institution that would identify and select existing 

businesses in the agriculture sector that were eligible for loans and had the 

potential for profit. According to a former Ministry of Agriculture, Irrigation, and 

Livestock (MAIL) minister who was also an ADF board member, banks such as 

ADF are essential for agriculture sector development as they provide affordable 

loans to farmers with limited collateral based on their specific needs for long 

term and seasonal loans.456 ADF’s business strategy included the provision of both 

operating capital and capital investments in agro-processing.457

Farmer with potatoes at the end of the harvest season in Bamyan Province in April 2017. (USAID photo)
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Initially, ADF was designed to serve as a credit wholesaler, providing credit 

through other financial institutions. However, because the commercial banks 

were unwilling to engage in the volatile agriculture sector, the program had to 

focus on using MFIs and nonfinancial institutions, such as farmers’ associations, 

for on-lending. Because these institutions didn’t have lending capacity, ADF 

created credit management units to work closely with each of the institutions 

that received funding from ADF.458

By 2016, ADF had disbursed $60.7 million in loans to more than 31,000 borrowers, 

with the majority of loans provided to three types of enterprises: agribusinesses, 

cooperatives, and producer groups. Borrowers used the money to modernize 

agriculture practices, such as building processing facilities and procuring 

machinery and equipment. By the time the first round of support from the ACE 

program ended in 2015, ADF had maintained a recovery rate of 95 percent.459

ADF was lauded for making agricultural credit available to many farmers in the 

rural areas. However, it continued to be a fragile, donor-dependent entity that 

was far from reaching operational self-sufficiency, which is defined as generating 

sufficient income to cover operating expenses other than losses. ADF’s excellent 

loan recovery rate would have been almost impossible to maintain in the absence 

of the external support that paid the staff who were tasked with client follow-up. 

Despite its successes, ADF also faced challenges. Toward the end of the first 

round of the ACE project in 2015, ADF had to write off four loans valued at 

more than $480,000.460 The ADF final evaluation report noted a deliberate refusal 

by some defaulters to pay ADF loans, although it didn’t elaborate on the reasons 

behind the refusal.461 Nevertheless, lack of enforcement mechanisms and 

deficient rule of law made it challenging for ADF to obtain repayment. 

In 2016, at the request of the Ministry of Agriculture, Irrigation, and Livestock, 

USAID extended its support under a second project, ACE II, in order to guide the 

transition of ADF to a sustainable, stand-alone agriculture financial institution by 

strengthening its management systems and governance structure.462 

The size and legal status of ADF were challenges highlighted at the end of 

the first round of the ACE program. The program evaluation noted that since 

its inception, ADF had grown in size and capability, mainly because it had to 

build an in-house capacity to seek out clients and partners, assess their creditworthiness, and determine their absorptive capacity before lending to them. 

Also, in the absence of the other financial intermediaries with which USAID 

had originally planned to partner, ADF had to assume the responsibility for all 

aspects of providing credit. ADF therefore became a large structure with 63 fulltime employees, which was impossible to sustain in the absence of additional 
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donor support. And, as the number of ADF clients increased, managing a large 

portfolio of small borrowers also caused an increase in administrative costs, 

which had to be offset either by continuing external support or raising the 

interest rate, which would defeat the purpose of ADF as an entity intended to 

be a cheaper source of credit.463 Furthermore, the ACE project was not required 

by USAID to develop a business plan for ADF to demonstrate the appropriate 

portfolio size and loan pricing required for its sustainability.464

The evaluation report’s concern about ADF’s legal status noted that although it was 

created by a presidential decree as an independent, non-bank financial intermediary, 

and was guided by a set of bylaws and managed by a high council, the governance 

structure of ADF and its related tax payment responsibilities wasn’t clear, which is 

why strengthening that structure became a major focus of ACE II.465

Additionally, ADF found it difficult to attract borrowers, perhaps due to the 

prevalent culture of dependency on grants or “free money,” as opposed to loans 

that had to be paid back. In its efforts to entice enterprises to apply for ADF 

loans and under pressure to show success by giving out more loans, ADF cut 

interest rates and offered grants as an incentive.466 The evaluation report noted 

that each loan recipient who was interviewed for the report expected some form 

of grant. Some of these clients had received multiple grants from various USAID 

projects because of the availability of grants.467

FINAL POINTS ON PROVIDING ACCESS TO FINANCE 

The U.S. government’s efforts to increase access to formal sources of finance 

were seen as crucial in encouraging domestic and foreign investment and 

in increasing small and medium enterprise lending by non-bank financial 

institutions. However, the Kabul Bank crisis highlighted the challenges of 

financial sector reforms and the limitations of international donors’ efforts, 

including those of the United States and its decade-long support to build DAB’s 

supervisory capacity. It also highlighted the unreliability of project-generated 

information, including reports that consistently noted the successful completion 

of tasks. Moreover, the Kabul Bank crisis further eroded Afghans’ confidence in 

formal financial institutions, as evidenced by the continued widespread use of 

the informal hawala system. 

After the Kabul Bank collapse, the U.S. government reduced its engagement 

with DAB and focused on creating new and strengthening existing financial 

institutions for the purpose of making financing more available to small and 

medium enterprises. While the financial institutions provided much needed 

financing, the U.S. expectation that these institutions would become selfsustaining was unrealistic. The U.S. experience showed that setting up financial 
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institutions with unclear ownership and management mechanisms could have 

serious implications later. Additionally, while the main objective for creating 

these financial institutions was to provide alternative financing sources to firms 

not served by commercial banks, they remained concentrated in urban areas 

serving larger businesses. As was the case with the microfinance experience, 

financial institutions could not afford to effectively administer loans to and 

ensure repayment from a large number of smaller and rural enterprises with 

limited collateral in uncertain environments.

Financial institutions such as ARFC and ADF continue to be dependent on 

donor assistance due to operational sustainability challenges. ADF was intended 

to become an independent financial institution by early 2018, the year in which 

its supporting project, ACE II, was scheduled to end. However, in the second 

half of 2017, USAID reported that “political uncertainty about the future of 

the ADF, given MAIL and [the government of Afghanistan’s] determination to 

re-launch an Agricultural Credit Bank, has diverted High Council attention from 

its responsibilities to manage and to oversee the ADF, resulting in insufficient 

guidance and supervision.” Furthermore, this organizational uncertainty 

Field Story #1: Poultry Farm in Herat Province 

Easy access to grants and subsidized loans does not always lead to profitable 

businesses. In 2011, a poultry farm in Herat Province started a hatchery business with 

the owner’s own contribution of $1.1 million and a $254,000 ASMED grant. The ASMED 

grant was used to purchase hatching machinery and an initial batch of breeder chickens 

imported from the Netherlands. The owner anticipated that, with this support, he would 

be able to increase his employees from 18 to 50.468

 The owner also expected that once 

the first batch of chickens stopped laying eggs, ASMED would provide him with more 

chickens; he submitted a request for this to the project, but was rejected. Unable to 

operate on imported eggs from Pakistan, which proved to be costly and inefficient, he 

had to close the hatchery arm of his poultry business in 2013. 

The same year, the owner applied for an ADF loan to purchase broiler chicks and feed for 

the purpose of reselling the chicks in Herat’s local market. He could sustain operations 

for another year but had to entirely shut down the business in 2014 for a variety of 

reasons, including reduced demand as a result of political uncertainty and fierce 

competition from Pakistani imports. To repay the ADF loan, the owner had to sell some of 

his property. 

The owner’s next investment plan was to purchase chickens from Herat markets, then 

sort and package them for sale in Kabul, where he believed the demand would be higher. 

While this shows the resiliency of some entrepreneurs, it is also an indication that 

easy access to free or subsidized financial support may create businesses that are not 

feasible in the long run.469
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also delayed the management transition intended to “reinvigorate ADF” and 

distracted the High Council from focusing on issues that were key to the 

sustainability of ADF.470

Similarly, after 10 years of operation and multiple restructuring efforts, ARFC is 

exploring options to merge with another company because it cannot operate 

independently. Other institutions such as AGF that mainly rely on their own 

revenue and have to ensure they remain profitable, continue to limit themselves 

to maintaining only a small portfolio of borrowers, a prudent choice given the 

volatile and unpredictable market conditions. 

While the provision of direct loans encouraged some U.S. companies to invest 

in Afghanistan, in some cases insufficient onsite monitoring and overreliance 

on information provided by borrowers led to nonpayment of loans and failed 

investments. The U.S. government also complemented its direct loans with 

the provision of loan guarantee schemes, which are viewed by international 

financial institutions as an important additional method to encourage investment 

in developing countries. However, USAID’s long-term loan guarantees to four 

financial institutions in Afghanistan have not yet resulted in increased lending to 

small and medium enterprises.

More importantly, U.S. government programs to strengthen the private sector 

highlighted an apparent paradox. While constraints to financing were one of the 

most pressing problems mentioned by firms in all major surveys, there seemed 

to be a low demand for loans, despite high rates of participation in projectsupported matchmaking events. There was less interest in actually applying 

for loans, as was evidenced by the low number of applications submitted. As 

discussed in chapter 8, this low loan application rate was partly because some 

firms or entrepreneurs had grown accustomed to receiving grants or “free 

money,” with no requirement for repayment and minimum accountability and 

legal repercussions. Attempts by financial institutions such as ADF to incentivize 

borrowers by offering grants in return for a loan not only exacerbated that 

culture of dependency, but also may have made it more difficult for other 

financial institutions to lend. On the one hand, businesses were given free 

capital; on the other hand, some of the same businesses were encouraged to 

apply for a loan by USAID projects that were supporting financial institutions.

While the provision of direct loans encouraged some 

U.S. companies to invest in Afghanistan, in some cases 

insufficient onsite monitoring and overreliance on 

information provided by borrowers led to nonpayment 

of loans and failed investments.

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World Bank photo by Abbas Farzami

CHAPTER 6

PROMOTING INVESTMENT

The U.S. government saw fostering private foreign and domestic investment 

as the cornerstone of both economic growth and private sector 

development, especially in a developing transitional economy with limited state 

resources and a need for increased productivity. USAID’s 2002 Afghanistan 

Recovery and Reconstruction Strategy acknowledged this, noting that “trade 

and investment [are] drivers of sustainable economic growth.”471 The strategy’s 

main intent was to create a desirable investment climate through physical and 

institutional infrastructure and legal frameworks, in addition to creation of an 

investment support institution; clarification of property rights; and privatization 

of state-owned enterprises. 

The U.S. government additionally sought to promote investment through a variety of 

formal and informal means, including a number of USAID projects, DOD’s TFBSO, 

and other ad hoc efforts. Most economic growth and agriculture projects sponsored 

investment “road shows” and business matchmaking events to establish direct 

contact between Afghan and U.S. or other international companies. Encouraging 

investment by Afghanistan’s neighbors was part of the push for regional integration. 

While there were some achievements, investment failed to sustain itself due to the 

lack of success of some of the means, but more fundamentally, because ongoing 

insecurity and uncertainty made Afghanistan an unattractive place to invest.
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PRIVATIZATION AND PROPERTY RIGHTS

One of the most important, early initiatives of U.S. support to private sector 

development was the privatization or liquidation of the majority of the 

65 Afghan SOEs, which were considered moribund and inefficient. Assuming 

that enterprises owned by the state would become more productive if 

owned and operated by private companies that were subject to competition, 

the privatization of these SOEs was seen as a means to promote private 

investment, especially from foreign investors willing to enter the Afghan market. 

Privatization was also envisioned as generating revenue for the government 

and, at the same time, as a means to limit opportunities for corrupt activities by 

government officials and well-connected business owners.472 With all of these 

factors in mind, DFID, GIZ, and USAID launched privatization-focused programs 

in Afghanistan early in the reconstruction period.473

Privatization was one of the two primary goals of the USAID Land Titling and 

Economic Restructuring in Afghanistan program launched in 2004.474 Firms and 

entrepreneurs consistently reported the availability of titled land as one of the 

most serious constraints to economic activity. Privatization of the SOEs was not, 

however, on many Afghans’ list of urgent priorities. The LTERA program consisted 

of a group of advisors from Emerging Markets Group, housed within the MOF 

and several other Afghan government institutions.475 Because the majority of 

the SOEs were degraded due to more than two decades of conflict, neglect, and 

plunder, many state assets were underutilized; LTERA sought to have the Afghan 

government sell these assets to the private sector for industrial and commercial 

purposes. As the SOEs were historically one of the few sources of employment in 

the formal sector, the program was also tasked with developing a “social safety 

net program” to ease the transition to private sector or other employment for 

the more than 14,000 SOE personnel (55 percent of the estimated 25,406 total 

employees) who were to be laid off during the process. LTERA reported that 

1,380 former employees received a total of $1.7 million in severance payments.476

Disposal of the SOEs faced a number of challenges, starting with establishing 

rightful ownership, which was far from straightforward due to the oftenconflicting ownership deeds, many of dubious legitimacy, which had been issued 

by successive governments. Because in many cases the most valuable component 

of the SOEs’ assets was land, it was also necessary to implement land titling 

programs to formalize property rights and validate land records for settlements. 

While these two issues were rightly recognized as linked, the rush to privatization 

often happened before land ownership was clarified. And, because of the complex 

ownership issues, questions arose as to how the assets should be valued.

The government of Afghanistan was officially committed to privatization; 

however, because the process was controversial and political support was 
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minimal, progress was slow.477 In 2005, the Afghan government finally adopted a 

privatization program, but its single-page guiding document lacked the needed 

details.478 That same year, the cabinet approved the amendment of the existing 

SOE law granting the MOF authority to divest.479 This was done in advance of 

the election of the parliament, whose members’ interests were expected to 

complicate any reforms. After convening in early 2006, the parliament further 

slowed the process by conducting drawn-out reviews of amendments to the 

enabling laws, including an additional clause stipulating that members would 

have to approve any proposals to liquidate SOEs.480

USAID reported a few success stories from the privatization program. For 

example, the old headquarters of the Industrial Development Bank was sold 

to a company that imported computer hardware and software and employed 

more than twice the number of people who had been employed by the bank. 

The program completion report also noted that the assets from the Power 

Construction Enterprise were transferred to the national electric company, 

Da Afghanistan Brishna Sherkat, which was subsequently corporatized and 

regarded as one of the successes in restructuring government institutions.481

While all but nine of the 65 SOEs that existed in 2002 were eventually privatized 

or liquidated, much of the liquidation of publicly owned assets consisted of 

selling the land and assets, often to individuals with connections to government 

officials.482 The fact that many formerly productive assets were liquidated and 

land was sold for nonindustrial purposes exacerbated the sentiment in the 

population that the free market economy as being practiced in Afghanistan 

Machinery at Herat Textile Company in Herat in May 2011. (USAID Afghanistan photo)
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SELL-OFF OF GHORI CEMENT

For many Afghans, the disposition of the Ghori cement factory in Pul-e Khumri in northern 

Afghanistan was emblematic of much that went wrong with post-2001 private sector 

development: degradation of formerly productive state assets, backroom deals among an 

inner circle of officials, failed promises of the extractives sector, and opportunities lost to 

rival Pakistan.

The original Ghori cement factory was built in 1962. During the 1980s, a second plant was 

partially built alongside it, although never completed due to ongoing conflict. In addition to 

producing cement, the complex included mines that produced the coal used to power the 

kilns. Degraded, but still partially functioning in the years after 2001, the factory was on the 

list of 65 SOEs to be disposed of.

In 2005, at the request of the Afghan government, USTDA provided a grant to MOMP to fund 

a feasibility study for Afghanistan’s cement sector. The study forecast that, with ongoing and 

planned reconstruction projects, the consumption of cement would rise by an average annual 

rate of 5.8 percent between 2005 and 2020.483 With Afghanistan having no significant 

cement production of its own, the study produced a strategy that focused on the revitalization 

of the Ghori plant. 

Ghori was selected for revitalization because other pre-1978 plants to the south of the 

11,000 foot high Salang Pass did not have sufficient proximity to raw materials (limestone) 

and fuel (coal), and were also considered vulnerable to competition from Pakistan and Iran, 

which were in the process of aggressively expanding their own production capacity. Moreover, 

in addition to the 800 workers in Pul-e Khumri with cement plant experience, the population 

of the area had relatively greater familiarity with industrial processes due to the location of 

several factories there before 1978.484

During and after the factory’s privatization in 2006, a number of irregularities were identified, 

including: (1) provisions in the tender document that favored the Afghan Investment Company 

(AIC) associated with Mahmoud Karzai and Sherkhan Farnood, the brother of President 

Karzai and the head of Kabul Bank, respectively; (2) lack of any stipulated penalties for 

noncompliance with contract terms; (3) intervention by Mahmoud Karzai and the brother of 

former Vice President Marshall Fahim who had allied to win the contract; and (4) intervention 

by President Karzai. At least one former MOMP official claimed MOMP awarded the contract 

to AIC two days in advance of issuing the government’s tender. According to the NGO Integrity 

Watch Afghanistan, “Some of the favors granted to AIC border on flagrant violation of even the 

most basic standards.” There were also allegations that the previous minister of MOMP was 

fired from his job because he raised questions about the AIC bid.485

Since its privatization, the factory has not delivered on promises to turn around the former 

SOE, modernize the factory and the affiliated coal mines (which are now unable to provide 

enough coal to run the factory), complete the second plant and build a third plant and new 

power station, and create thousands of local jobs with significant amenities and benefits.486

Mahmoud Karzai sold his shares in 2011, supposedly to repay loans to the defunct Kabul 

Bank. He blames the government for not attracting foreign investors, for not taking action 
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against Pakistan for dumping subsidized cement in the Afghan market and obstructing the 

transit of needed equipment, and for actively trying to sabotage the private sector. For their 

part, government officials claim that Karzai and other investors lost interest and moved their 

resources to invest in Dubai real estate. In February 2017, the government canceled the 

contract with the operators and announced plans for international tender due to allegations 

of unauthorized changes in ownership and $3.5 million in unpaid royalty taxes, allegations 

which are, in turn, claimed to be politically motivated.487

As the only significant cement factory in Afghanistan, Ghori should have been well placed 

to capitalize on the huge demand for cement, which can be produced almost completely 

with local inputs, during the boom years of reconstruction. Yet, between 2002 and 2012, 

Afghanistan imported on average four million tons of cement per year, most of which 

came from Pakistan. At its peak in 2011 before the drawdown, Afghanistan was importing 

$243.63 million in cement from Pakistan alone.488

According to the USTDA-funded study’s development impact analysis, the benefits of building 

the cement manufacturing sector would be “both broad and profound” and “difficult to 

overestimate.” Direct and indirect impacts would be increased supply of cement and that 

“Afghanistan will no longer be subject to complete domination of its cement market by 

international suppliers,” improved quality, more stable pricing, impetus for the domestic coal 

sector, job creation and skills development, both in the manufacturing sector as well as in 

management, and new downstream commerce and industries, especially in construction, 

transport, and local business.489

According to the lead consultant: 

If you were in Afghanistan, you could see that building materials were going to be a highly 

desirable commodity. You could see this coming. The construction materials sector should 

have been huge. This was a tremendous opportunity, because skills would be required to 

sustain operations, including downstream and ready-mix. Trades and skills would then follow 

from developing the cement industry. There would be great employment creation; this stuff 

is extremely labor intensive. Cement was low-hanging fruit. That was an opportunity that was 

lost and never should have been wasted. The lift would have been endless.490

Ghori cement factory in Pul-e Khumri in September 2005. (Box International Consulting photo)
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only benefited well-connected individuals. Therefore, privatization not only 

fell short on achieving the goals of reallocating whatever productive assets 

existed within the SOEs and generating the anticipated investment in productive 

ventures, but also fostered corruption through resource capture, rather than 

limiting possibilities for corruption by government officials. According to a 

later analysis, “The privatization of SOEs came before any major business 

environment reform. . . . [After privatization,] the enterprises still did not 

generate activity and most were liquidated.”491

The LTERA final evaluation acknowledged the process had gone more slowly 

than expected, and certain issues, including proper valuation of the SOEs’ land 

and clarification of land titles, had to be resolved in order for privatization to 

proceed in a way that benefited the state.492 A 2009 USAID internal audit drew 

similar conclusions about the protracted nature of the process—that it was 

due, in part, to the lack of clarity on valuation of assets and legal status. It also 

appeared the government was focused primarily on maximizing the revenue it 

would receive from privatization, which meant other objectives, such as creating 

working industrial assets that would generate employment, were secondary. 

Additionally, the audit noted the lack of capacity within the MOF’s State Owned 

Enterprise Department, which was responsible for all aspects of the process, 

and drew the conclusion that “USAID investment in privatization was not always 

successful.”493 The follow-on LARA project concentrated only on land reform, 

and did not continue LTERA’s work on privatization.494

BUILDING AND SUPPORTING INSTITUTIONS

The U.S. government and other donor nations provided support for the creation 

and reform of various agencies and institutions which were intended to play a 

role in encouraging domestic and international investment. 

In September 2003, the Afghan government established the Afghanistan 

Investment Support Agency to help facilitate foreign investment and business. 

This was done with assistance from German GIZ, which provided support 

for creating the institution, writing procedures, completing construction, 

providing equipment, and fronting many of the initial costs for creation 

and maintenance.495 Previous bureaucratic processes for investment were 

cumbersome and subject to rent-seeking by officials, so AISA was presented as a 

“one-stop shop” to assist would-be investors in securing necessary licenses and 

permits and provide information on opportunities, standards and regulations, 

and acquisition and leasing of land.496

 As an additional motivation for firms to 

register with AISA, U.S. and other international agencies made registration a 

requirement to be eligible to bid on contracts. In addition to its central office in 

Kabul, AISA maintained regional offices in five key provinces. Between 2003 and 
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

2005, AISA reported approximately $1.3 billion in investments.497 However, this 

figure is taken from the original registration form and only some portion of these 

intended investments actually occurred; AISA had no capacity to monitor and 

track those intended investments to see which had been fulfilled.498

During its first several years, AISA was hailed as a great success for helping firms 

register, although that was apart from its intended mission of facilitating and 

encouraging investment, especially from overseas. Later, allegations of corruption 

within the agency became widespread, ultimately leading to the July 2012 

mass resignation of a group of officials in protest.499 In recent years, AISA was 

revitalized, and in April 2016 it was named the best investment promotion agency 

in Central Asia at the Annual Investment Meeting sponsored by the UAE.500

Despite this recognition, however, the same month, after a protracted discussion, 

AISA was folded into the Ministry of Commerce and Industry.501

With USAID funding, the Center for International Private Enterprise joined with 

the Afghan-American Chamber of Commerce to try to create a truly independent 

Chamber of Commerce, which would be able to support itself by selling services 

to its members and would encourage investment. In 2001, there were two 

chambers, each with its own constituency of traders or producers, with diverging 

interests and the inability to speak with one voice. The highly bureaucratic 

pre-1978 Afghanistan Chamber of Commerce and Industry (ACCI) was linked to 

MOCI, and had little private sector involvement. CIPE tried to push the moribund 

ACCI to play a more proactive role in supporting and advocating for the private 

sector as a chamber would do in the United States. At the same time, however, 

German GIZ was providing financial and technical support to the state-affiliated 

chamber, and U.S. and German views diverged on what a chamber should look 

like. The resulting uncertainty about who would represent the interests of the 

private sector detracted from the effectiveness of the chamber.502

The Virginia-based Afghan-American Chamber of Commerce was founded in 

2002 as a Section 501(c)(3) organization with the mission of “improving and 

strengthening business relationships and trade among Afghan- and Americanowned businesses” and promoting “the ideals of a market economy in 

Afghanistan free from corruption in which U.S., Afghan, and other businesses 

can operate successfully.”503 Originally partly funded by USAID through CIPE, 

its main activity has been organizing an annual matchmaking conference in 

Washington, but it has also sponsored or participated in trade shows and 

conferences in Kabul, Dubai, and elsewhere. 

The UK’s DFID provided funding for the Afghanistan Investment Climate Facility 

(Harakat), whose mission was to “remove and reduce barriers to doing business 

by providing grant funds to government, civil society, and the private sector 
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in order to increase or create opportunities for investment in Afghanistan.” 

Harakat provided guidance and funding for practical research across a range 

of areas, including business development services and government regulations. 

It also served as a link between Afghanistan’s business community, Afghan 

government institutions, and international donors. At the end of 2015, Harakat 

was renamed the Harakat Investment Climate Organization and launched a new 

strategy intended to take it through the next seven years.504

INDUSTRIAL PARKS

Industrial parks were intended to promote investment by removing a number of 

constraints facing Afghan businesses, including the lack of reliable and cheap 

power, unstable land tenure, and physical insecurity. The parks were also touted 

by USAID’s AEGP, the World Bank, and others as a way of stimulating domestic 

and foreign direct investment. Technical assistance provided by AEGP resident 

advisors helped construct amendments to Afghanistan’s Investment Law, which 

“provided further incentives for the industrial park concept.” These incentives 

included: (1) depreciation of machinery by 25 percent per year, (2) the ability 

to carry losses forward, and (3) a two-year period for taking profits out of 

Afghanistan.505 The latter incentive was intended to reassure firms they would be 

protected from potential Afghan government attempts to appropriate their profits.

Starting in 2003, USAID funded the development of three industrial parks (Bagrami 

near Kabul, Gorimar in Balkh Province, and Shorandam in Kandahar) which were 

intended to be transferred to AISA oversight. The $10 million initial contract with 

the firm Technologists Inc. was increased to $21.1 million when power generation 

and other infrastructure were added to the scope.506 In 2005, USAID also funded 

an industrial park in Helmand Province, which was taken over by DFID two years 

later as part of its overall assistance to Helmand, although support for the park 

was terminated in 2013. The World Bank also worked with AISA in 2005 to form 

two industrial parks, in Kabul and Jalalabad, although this support was terminated 

in 2011. The PRTs, notably the U.S.-led PRT in Jalalabad, also contributed to 

development of industrial parks. As of mid-2017, there were nine operational 

industrial parks in Afghanistan, including several pre-2001 state-owned industrial 

properties, with an additional ten under construction and six planned.507

The results from the parks have been mixed. A 2013 assessment report for LARA 

noted that “of all the parks funded and sought to be developed in Afghanistan, 

the Bagrami industrial park in Kabul is ultimately the sole going industrial 

concern.”508 A 2012 assessment by the Adam Smith Institute documented the 

sorry state of the other industrial parks, noting inactivity, deterioration, land 

grabbing by powerholders, and some parks that existed in name only.509 Plots 

have remained empty or have been purchased by speculators. Work on the 
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physical infrastructure remains incomplete, as do, critically, hookups to public 

power. Further, the inability to deter speculators from buying up plots that 

would be used for some other activity and unavailable for active businesses was 

another shortcoming of the parks.510

The parks were insufficient to attract investment due to a number of factors, some 

of them institutional. USAID supported the 2007 formation of AISA’s Industrial 

Parks Development Department (IPDD) in order to give AISA the capacity to 

manage the parks, as well as to provide justification for taking the management 

away from the ineffective MOCI. Yet, “the establishment of a functionally separate 

government structure still failed to address the real issues developing sufficient 

park [capacity] and resulted in years of stagnation within the sector.”511 The main 

problem was the competition between MOCI and AISA’s IPDD over which agency 

had authority. Donors’ attempts to reconcile or merge these two institutions met 

with little success. As one report noted, “A palpable lack of will within . . . the 

Afghan government to change the status quo in how [the] government handled 

industrial park development resulted in inaction that has been detrimental to both 

the sector and Afghan manufacturers.”512 In November 2012, the cabinet decided 

to transfer all MOCI industrial assets to AISA. Despite an ambitious two-month 

transfer period, the mechanisms remained “under process” for years. In the 

meantime, MOCI Industrial Parks Department staff continued to allocate plots of 

land for future parks, which ended up not furthering development aims but rather 

went to speculators or for other uses.513

Plots have remained empty or have been purchased by speculators. 

Work on the physical infrastructure remains incomplete, as do, 

critically, hookups to public power.

Main entrance to Shorandam Industrial Park in Kandahar in June 2014. (SIGAR photo)
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Another institutional factor that contributed to the parks’ lower than expected 

performance was the lack of laws and contract and regulatory mechanisms to 

ensure agreements were enforced, and that individual owners weren’t vulnerable 

when other owners decamped or failed to meet their obligations. In the older parks, 

some of the land parcels were occupied by squatters or were under ownership 

dispute, as land title documents given out by successive governments were 

inaccurate, invalid, or outright fraudulent, a widespread and pervasive problem in 

post-2001 Afghanistan. Obtaining titles and fulfilling other legal requirements also 

required a significant amount of business owners’ time, which didn’t allow a quick 

response to time-sensitive investment opportunities.514 A 2015 report attributed 

the poor functioning to “the lack of business prospects in the general economy 

and corruption,” and noted that independent management of each park by its own 

beneficiaries would “place the interest of beneficiaries above all else and avoid 

corruption and bureaucracy that comes from government maintenance.”515

In theory, the plots were distributed free or sold at a nominal price in order to 

encourage investment. However, would-be users faced significant additional costs. 

Power was the most common problem, despite being a primary reason for building 

industrial parks in the first place. In some cases, the delay or ultimate lack of a 

connection to central power required the use of expensive diesel generators, the 

shared costs of which were excessive for most firms and which would have made 

their products less competitive with imports. Also, the plots were simply pieces 

of land, and companies were often not in a position to construct the buildings 

required to run an enterprise.516 Moreover, there was no viable mechanism for 

adequately covering maintenance on common facilities and equipment, especially 

over the long term. This was partly due to a lack of trust among business owners 

that discouraged putting money into a fund for the future, and partly because 

owners were operating on thin margins and could not afford it.517

Unlike in the booming residential and commercial property sectors, private 

sector developers were absent from the industrial property sector due to the 

perceived poor profit margins and the costs and headaches of developing and 

maintaining facilities. To encourage the involvement of the private sector, 

the World Bank designed its park in Jalalabad as a public-private partnership 

which would be self-sustaining. To justify the use of public money and to 

guard against land speculation, the World Bank proposed that prospective 

purchasers document their commitment to create a certain number of jobs and 

procure goods and services locally, commitments that would be monitored after 

purchase.518 Yet, according to one analysis of the Jalalabad park, “The attention 

has not resulted in an established, economically viable park.”519

Clearly, the industrial parks have not reached the level of functionality that 

was originally planned. In addition, the question remains as to whether the 
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

parks could have addressed the fundamental issues of Afghan competitiveness 

if they had succeeded. However, even in cities where the current parks are 

mostly empty, for example, Mazar-e Sharif, there is enthusiasm for developing 

additional ones, as they create construction activities and the potential for 

individuals to benefit from the sale of plots within the industrial park. 

In 2015, discussions were held on the possibility of using abandoned coalition 

military bases as economic assets to encourage investment, similar to the 

industrial park model. These discussions ended, in part, because the U.S. 

military presence was extended beyond 2016 and the most attractive bases were 

no longer available for consideration. 

SECTOR-FOCUSED INVESTMENT PROMOTION 

The U.S. government recognized early on that a key to Afghanistan’s economic 

growth would be adding value to historically low-value agriculture and other 

primary commodities such as fruit, wool, and marble. This would lead to 

production of value-added goods for domestic consumption and potentially for 

exports. Rather than using state resources as had been the case prior to 2001, the 

United States aimed to attract domestic and foreign investment for processing, 

packaging, and other elements that added value to basic commodities. 

The United States chose to support certain key sectors in order to make them 

more attractive to potential investors by improving the enabling environment 

and increasing financial returns on investment in various stages of the chain. 

Although these sectors were not specifically included in Afghan national 

strategies until 2010, the U.S. government provided significant support through 

a variety of its agriculture and enterprise development projects. Acknowledging 

the significance of the agriculture sector, which provides one-quarter of GDP 

and employs 40 percent of the national workforce, USAID has supported the 

sector since 2002 by implementing 68 projects of varying scale and emphasis, 

worth more than $2.3 billion.520 USAID’s agriculture-led economic growth model 

addressed a number of related areas, including food security, agricultural 

productivity, market and value chain linkages, improved government services to 

the agriculture sector, gender issues, and water and watershed management. 

USAID employed a value chain model which aimed to increase the productivity, 

processing, and sales of higher-value agricultural products, for example, moving 

from raw wool to carpets, raw cashmere to yarn, fruits to preserves, or rough 

marble block to finished slabs. For many of these commodities, value was being 

added in Pakistan, which was a missed opportunity for Afghanistan to generate 

income for processors and to reinforce its national brand. In the agriculture 

sector, USAID’s projects aimed to strengthen linkages between farmers, input 

A value chain is “the 

value-creating flow 

of a good from raw 

materials, production, 

commercialization, 

and ultimately delivery 

to end-users or 

consumers.”521
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suppliers, processors, and the Afghan government by focusing on various 

elements of the value chain, such as improving irrigation infrastructure, building 

farm to market roads, improving seed distribution, providing loan capital, and 

helping develop export markets. 

As seen in figure 7, Afghanistan’s most valuable exports between 2012 and 2016 

were carpets and agricultural goods.

In the production stage of an agriculture value chain, for example, USAID 

promoted investment in input supplies, commercial farms, orchards, and 

green houses. In the processing stage, the agency encouraged investment in 

cold storage facilities and food processing and packaging. USAID’s support to 

agribusiness included technical and financial assistance in the form of in-kind 

grants for equipment, inputs, training, marketing, and market linkages.522

USAID’s efforts to encourage investment in and expansion of agribusiness 

experienced some success. A 2015 assessment of USAID-supported 

agribusinesses, for example, showed that some businesses (59 percent) were 

still operational and profitable, especially medium and large enterprises with 

0

20

40

60

80

100

2012 2013 2014 2015 2016

Carpets and Rugs Asafetida (Hing) Almonds Sesame Seeds Coal

Raisins Licorice Root Pistachios Dried Figs Wool

Animal Skins

Note: Similar commodities were grouped together for the purposes of comparison. For example, wool includes fibers from both sheep and goats, and 

animal skin includes skins from cows, goats, qarakul, and sheep.

Source: SIGAR analysis of compiled data reported by the Central Statistics Organization, “Exports by Countries & Commodities,” data for Fiscal Year 

1391 to 1395 (2012–2016), accessed on March 12, 2018.

AFGHANISTAN’S TOP EXPORTS OF SPECIFIC COMMODITIES, 2012–2016 ($ MILLIONS)

FIGURE 7
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THE MARBLE SECTOR IN AFGHANISTAN 

Afghanistan’s significant mineral wealth includes numerous high-quality marble deposits, 

which have been targeted by both Afghan government and international development partners 

as a potential source of exports. Marble is a specialty product in which Afghanistan has an 

advantage in terms of the aesthetic quality of its raw product, if not its price or quantity. As 

noted during his presidential campaign, Ashraf Ghani saw marble as a key component of his 

vision of creating in Afghanistan “one of the biggest construction industries in the region.”523

In 2016, the UN Commodity Trade Statistics Database (Comtrade) reported that 

Afghanistan exported $5.3 million worth of marble, all in rough block form. Most of these 

exports ($3 million) went to Pakistan, followed by Iran and China, at $1.3 million and 

$567,000, respectively. These numbers do not capture mineral smuggling or exports that 

circumvented customs.524

Getting the marble out of the ground and into the market has been a challenge. Quarrying 

marble is capital-intensive and requires specialized, expensive equipment, such as drills 

and diamond wire saws, to produce quality blocks for processing. Without this technology, 

many quarry operators rely on black powder explosives, which damage the stone and result 

in significant waste and reduction in the value of the product.525 In addition to difficulties 

in extraction, the industry suffers from smuggling and border corruption, illegal mining 

operations, lack of facilities to produce finished marble products, and competition with lowerpriced marble from Pakistan.526

The U.S. government supported the marble industry in Afghanistan through programs led by 

Commerce, USAID, and OPIC. For example, both Commerce and USAID sponsored Afghan 

marble industry delegations at international trade shows. USAID provided grants, specialized 

equipment, and technical support to marble firms. The Equity Capital Mining Group (ECM), 

founded in 2006 by brothers Nasim and Adam Doost, opened its $6 million Doost Marble 

Worker with finished marble slabs in Herat in April 2010. (USAID Afghanistan photo)
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Plant in 2011 in Herat with a $15.8 million loan from OPIC and additional support from 

USAID and other international donors.527

 The plant was equipped with modern machinery 

to process marble into slabs and tiles. While the Doost brothers produced quality marble 

and secured trade partnerships with other countries, they made limited profits. Poor roads 

and infrastructure, problems with fuel, and numerous regulatory barriers burdened the 

company.528 While Doost Marble was lauded as a success, it later became defunct.529 In 

June 2017, one of the brothers was indicted in the United States on a number of criminal 

charges related to obtaining and later defaulting on the $15.8 million OPIC loan for 

improving the plant, with charges including major fraud, making false statements on the loan 

application, and money laundering.530

Afghanistan has only limited facilities to process and finish marble slabs and other products. 

Until recently, many, if not most, Afghan mining firms exported marble blocks to Pakistan 

and Iran for processing. Afghanistan’s domestic market for marble is satisfied by cheaper 

Pakistani products, some of which are re-imports of the stone from Afghan quarries. To 

encourage more value added within Afghanistan’s borders, early in his presidency, Ashraf 

Ghani issued an executive order that banned the export of unprocessed minerals, requiring 

them to be processed within Afghanistan.531 Although many firms had called for protectionist 

measures, this directive hurt business for firms without processing equipment. A 2016 

change in mining laws and regulations was similarly disruptive, delaying or suspending many 

contracts and creating confusion over whether existing contracts and extraction rights were 

still valid.532

While the legal marble industry has struggled, illegal mining and trafficking in minerals 

has become a big business. Illegal mining is prevalent across Afghanistan, and the Taliban 

control especially lucrative marble reserves in Helmand and Badakhshan Provinces.533 From 

these provinces, marble is smuggled into Pakistan, along with other contraband. Marble, like 

other bulky resources, including talc and coal, is smuggled by the ton on trucks, with little 

interference from customs or law enforcement.534 Illegal mining operations are profitable, 

despite producing inferior products, because operators are able to use low-wage, unskilled 

labor while circumventing taxes, royalties, and costly environmental and safety regulations.535

Afghanistan’s marble resources could potentially create jobs and drive growth, but the 

environment is currently not conducive to legitimate mining companies that seek to produce 

quality marble at competitive prices.536

 Nonetheless, China is currently negotiating trade 

deals for Afghan marble, among other Afghan products, as it pursues its One Belt, One Road 

initiative to build trade and transit infrastructure across Asia.537
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

20 or more employees, while the rest (41 percent), which mainly included 

small and micro enterprises with fewer than 20 employees, had either gone 

out of business or were on the brink of closing down.538 Regardless of size, 

some agribusinesses, such as cold storage facilities, failed because they were 

“prohibitively expensive” and, due to high electricity costs, were “extremely 

hard to run at a profit.”539 With private investors reluctant to invest, many cold 

storage units were built by donors but couldn’t continue to be operational, 

despite receiving good quality machinery and equipment.540

The 2015 assessment further pointed to a combination of factors that 

positively affected the performance of the USAID-supported agribusinesses. 

These factors included the existence of the enterprises prior to USAID’s 

intervention, local demand and linkages to stable markets, and competent and 

experienced management. The imperfect and risky nature of Afghanistan’s 

markets posed challenges to businesses, especially smaller players.541

Traders continued to struggle with market access, inconsistent and unfair 

trade practices of neighboring countries, and the high cost of logistics and 

transportation.542 Projects weren’t able to address the considerable problems 

smaller enterprises faced with exports, including border-crossing procedures, 

required documentation, and inspections that caused delays and losses. 

However, some large firms or traders, such as those in the poultry sector, with 

sufficient economies of scale, were better positioned to sustain operations and 

be competitive.543

However, the 2015 assessment concluded there were many factors within 

USAID’s control that determined the success of the agribusinesses it 

Display of fruit juice from USAID-supported enterprise in Kabul in October 2011. (USAID photo)
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SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

supported, particularly the selection of the business itself, the focused areas of 

intervention, carrying out vigorous feasibility studies, and the ability to deliver 

quality equipment to the business.544

As seen in figure 8, in 2016 the majority of Afghanistan’s exports were raw 

materials, while the majority of imports were intermediate or consumer goods. 

This suggests Afghanistan still lacked the ability to turn raw materials into 

goods ready for purchase.

The sector-focused approach was also part USAID’s non-agricultural programs 

such as ASMED, which incorporated a value chain model as early as 2007. 

ASMED supported the Afghan government in identifying and selecting 

six sectors—construction, marble, carpets, gemstones, agribusiness, and 

handicrafts—and developed value chain strategies for each sector.545 ASMED’s 

value chain and sector-focused approach was short-lived, however. In 2010, 

as part of the increased emphasis on COIN, the project expanded to ISAFdesignated key terrain districts, areas that suffered from insecurity and weak 

physical and economic infrastructure and were therefore challenging places 

for enterprises to thrive.546 Partly as a result of this shift, ASMED supported 

enterprises that were not necessarily part of any specific sector or value chain.547

While the value chain approach for key sector development has been perceived 

as effective by USAID and international donors in other settings, in Afghanistan it 

$0 $500 $1,000 $1,500 $2,000

Source: SIGAR analysis of data from UN Comtrade, “Afghanistan Exports and Imports by Type (Value and Product Share),” data for 2016, World 

Integrated Trade Solutions, accessed on March 12, 2018.

AFGHANISTAN IMPORTS AND EXPORTS BY TYPE, 2016 ($ THOUSANDS)

408.97

70.14

3.80

Imports

Exports

1,757.81

1,013.54

727.41

692.96

 Raw Materials

 Capital Goods

 Consumer Goods

 Intermediate Goods

FIGURE 8
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has had mixed success. Evaluation reports of some agriculture projects criticized 

USAID’s value chain approach, noting that instead of an integrated intervention, 

the value chain activities remained “a combination of infrastructure projects, cash 

for work, and agricultural projects,” failing to develop the value chains beyond the 

farm level or address poor linkages between various value chain elements, such as 

farmers, processors, and buyers.548

Similarly, ASMED’s approach to the development of key sectors was also 

criticized by the project’s final evaluation report, noting that the sector-led 

approach was implemented “rather casually,” with activities informally assumed 

by existing staff who, with the exception of those working in the marble sector, 

had no particular sector expertise.549

Other U.S. government bodies also adopted variations on a sector-focused 

approach to encourage investment, including DOD’s TFBSO, which promoted 

investment in the energy and minerals sectors by conducting geological 

assessments and providing technical and financial assistance to relevant 

technical Afghan ministries and private companies. (For more details, see 

Extractives in Afghanistan, page 114.)

The U.S. Commerce Department’s Afghanistan Investment and Reconstruction 

Task Force also adopted a sector-focused model to encourage investment 

in the priority sectors of Afghanistan: dried fruits and nuts, carpets, and 

mining, with particular emphasis on marble and gemstones. AIRTF created 

Dried fruit and nuts in Kabul bazaar in April 2012. (Mariam Jalalzada photo)
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EXTRACTIVES IN AFGHANISTAN 

Often touted as Afghanistan’s greatest economic hope for the future, minerals offer an 

industry that could be more valuable than opium poppy. Many hope the extractives sector 

can create jobs, replace foreign aid as a revenue source for the government, and build 

needed physical infrastructure. 

However, the sector has been slow to take off. Reasons for this include the precedence of other 

reconstruction priorities, the continued absence of required Afghan institutions and laws, poor 

transportation infrastructure, lack of access to electricity, and overall insecurity and uncertainty. 

Interest in developing the sector has come in waves. The momentum to tender and award 

major contracts, especially to foreign firms, was often followed by minimal attention and, in the 

case of signed contracts, a lack of follow-through to begin exploration and extraction. Foreign 

investments, in particular, have lagged due to the uncertainty created by a weak regulatory and 

legal environment and, since 2015, persistently low international commodity prices. 

Afghanistan’s mineral deposits—most notably copper, iron, gold, chromite, lithium, talc, marble, 

and semi-precious stones, including lapis lazuli—were initially surveyed by Soviet geologists during 

the 1970s. Mining has been a part of Afghanistan’s development strategies since the 2002 

National Development Framework, but was largely overshadowed by other priorities, specifically 

agriculture and critical infrastructure, including water, energy, and telecommunications. The NDF 

included mining with the energy and telecommunications development sub-programs under 

“Physical Reconstruction and Natural Resources” due to their similar regulatory requirements, 

but mining itself was not one of the six most urgent priority programs.550 While commodities such 

as cement and energy, including coal and natural gas, were in great demand during the early 

reconstruction period, mining for export was considered an aspiration for the future.

The need to establish a regulatory environment for minerals was affirmed in subsequent 

national development strategies as a critical first step in attracting private investment to the 

sector.551 Work to establish this environment, however, was slow. The Afghan government did 

not adopt the first minerals law until 2005, and several later iterations attempted to resolve 

ambiguity and add safeguards against fraud and corruption. The most recent law, enacted in 

2014, still lacks supporting regulations and implementation plans, in large part because a 

number of the conditions of the law are being contested by interested parties.552

Although the U.S. Geological Survey was tasked in 2002 with identifying natural resources 

and their potential contribution to Afghanistan reconstruction, it did not begin work within 

Afghanistan until 2004.553 The surviving Soviet surveys, recovered in 2004 by USGS 

and returning Afghan Geological Survey employees, provided a basis for aerial surveys 

conducted that year with support from USAID. Additional surveys were completed in 2006 

(see figure 9).554 Yet, these surveys did not capture the wider attention of the U.S. or Afghan 

governments until TFBSO began its minerals program in 2009.555 This was, in part, because 

the United States did not yet consider the conditions right for mining. According to an advisor 

at MOMP in 2004, “When I attempted to attract USAID funding for the Afghan mining sector 

to complement World Bank and ADB funding, I was told by the USAID manager that mining 

was not on the U.S. agenda. The U.S. Embassy was more interested in TAPI. No one at USAID 

understood the mining issues; no one in the U.S. government was demonstrably aware of or 

interested in assisting the mining sector.”556
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In 2010, TFBSO estimated the potential value of the country’s mineral deposits at 

$908 billion, a figure which was rounded upward to $1 trillion and widely cited.557 Also in 

2010, Afghanistan joined the Extractive Industries Transparency Initiative as a candidate (For 

more details, see Afghanistan and the Extractive Industries Transparency Initiative, page 76.) 

The next year, USGS and TFBSO completed an extensive survey of Afghanistan’s mineral 

deposits using sophisticated hyperspectral technology, making Afghanistan the only country 

in the world that has been completely mapped geologically.558

The first major mining sites targeted by the Afghan government and its international 

supporters were the Mes Aynak copper deposits south of Kabul and the Hajigak iron ore 

deposits in Bamyan Province. With support from the World Bank, Mes Aynak was tendered in 

2007 and awarded to the Metallurgical Group Corporation of China in 2008. Extraction has 

been delayed by insecurity, but also by low international commodity prices, the complexity of 

planning operations, debate over how to document and preserve a Buddhist archaeological 

site situated above the copper deposits, and the need to relocate local communities. 

The contract contains unusually high royalty payments, as well as extensive commitments 

by MCC for construction of supporting infrastructure, including roads, power plants, and 

training institutions. Some observers feel MCC is content to wait to begin extraction, with the 

intention to eventually renegotiate the contract.559 The Hajigak iron mine tender was released 

in 2010, but, although two Indian companies were selected the following year, an agreement 

remains elusive due, in part, to regional politics.560

Source: USGS, “Geologic and Mineral Resource Map of Afghanistan,” USGS website, accessed on April 4, 2018.

MAPPING AFGHAN MINERALS 

The full-size version of the U.S. Geological Survey’s “Geologic and 

Mineral Resource Map of Afghanistan” measures more than four 

feet by six feet, and displays the locations of nearly 150 types of 

mineral deposits with swathes of color.

The USGS compiled the map from its own work and from other 

sources, including Soviet General Staff data sheets. 

The map shows some of the more significant minerals, including 

lapis lazuli, emeralds, limestone, marble, granite, coal, copper, 

and iron. 

FIGURE 9
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The Afghan government’s 2012 Towards Self-Reliance strategy estimated that by 2020, 

minerals and hydrocarbons would contribute $650 million annually to government revenue, 

and that by 2025, that number would rise to $1.7 billion annually.561 These lofty projections, 

which did not foresee an imminent drop in international mineral prices and assumed a more 

permissive security environment, were factored into IMF and Afghan government forecasts 

for long-term economic growth, which failed to materialize. Mining revenues in 2016 

were reported as $20 million, which accounted for only 0.3 percent of the government of 

Afghanistan’s $6.5 billion national budget that year.562

The current environment for private investment in extractives remains unpromising due to a 

combination of several factors: limited Afghan government capacity, involvement of corrupt 

powerholders, low world commodity prices, political instability, and insecurity.

In 2015 and 2016, two SIGAR audits found the Ministry of Mines and Petroleum still 

lacked the capacity to tender, award, and manage contracts for resource exploitation.563 A 

recent Afghanistan Research and Evaluation Unit (AREU) analysis of Afghanistan’s mining 

governance was also critical of the slow pace of reforms and the limited improvements in 

the regulatory environment, noting MOMP had “lost most of its capacity that it had acquired 

in the last 10 years.”564 The report also highlighted how the sector had increasingly become 

attractive to “political heavyweights and insurgents” in recent years.565

This low ministerial capacity remains, despite U.S. assistance totaling about $488 million.566

For example, TFBSO’s $51 million minerals support program assisted MOMP with the 

demarcation, prioritization, and marketing of mineral areas of interest and the provision 

of technical, legal, and financial advice to establish international criteria for tender, bid 

evaluations, and contract award.567 While TFBSO’s work, especially in collaboration with the 

USGS, is still regarded favorably within the MOMP, a recent audit by SIGAR found that these 

successes were not transferred to a following project by USAID, and that the four major 

mining tenders shepherded under the program have yet to be awarded.568

At Afghanistan International Marble Conference in Herat in May 2011. (USAID photo)
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

Similarly, USAID’s only mining-specific program, the $38.7 million 2013–2017 Mining 

Investment and Development for Afghanistan Sustainability project, focused on helping the 

Afghan government build the capacity to conduct geological exploration and manage mines 

throughout their lifecycle, develop a “pipeline” of minerals projects, reform the legal and 

regulatory environment, and provide training to strengthen the private sector.569 According to 

a final evaluation of the program, MIDAS was able to provide some useful training and legal 

assistance to MOMP. However, only a few of the project objectives were achieved because of 

changing priorities and personnel at MOMP, to which MIDAS was not able to adapt, and the 

Afghan government’s inability to pass a “workable” replacement of the 2014 minerals law.570

Optimistic projections by Afghan and U.S. governments consistently underestimated the time 

and costs, both in terms of capital and political will, required to get the mining industry 

going, while overestimating revenue projections despite low international demand. The hope 

is that private sector investment will bring money and infrastructure, but investment might not 

come given low commodity prices and the high risk presented in Afghanistan. International 

mining companies are unwilling to commit risk capital in Afghanistan when it is more efficient 

and profitable to mine elsewhere.571

Optimism was further tempered by the limited capacity of the Afghan government to manage 

and control the mining areas and the entrenched corruption in the sector. Illegal mining is 

conducted by local residents and smugglers, insurgents and other armed groups, and even 

some parliamentarians, who use their political connections to obtain and abuse mining 

contracts.572 The Afghan government estimates it loses $300 million in revenues annually 

from illegal mining.573 More alarmingly, reports have indicated that, after drugs, minerals are 

the Taliban’s second largest source of income.574

A 2016 report by corruption watchdog Global Witness warns that the “battle for the lapis 

mines [in Badakhshan] is set to intensify and further destabilize the country, as well as fund 

extremism.”575 Although Afghanistan banned the mining of lapis lazuli in 2015, exploitation 

continues, with local police and politicians benefiting from illegal extraction and export. The 

report proposed that Afghanistan’s lapis lazuli be categorized as a “conflict mineral,” and 

criticized the Afghan government and its international partners for not making the protection 

of minerals their “first-order priority.”576

President Ghani included MOMP as one of the top three corrupt ministries in his 2016 

anticorruption strategy priority list.577 In November 2016, Ghani ordered two substantial 

changes to minerals contracting procedures, requiring contracts to be routed through the 

presidential office and shifting tendering duties to the National Procurement Authority instead 

of MOMP.578

 By adding a new review and approval process, these anticorruption measures 

have created confusion and further delays in an already slow process.579

In September 2017, MOMP released a Roadmap for Reform that identified major weaknesses 

in the extractives sector and presented a framework to address them.580 The U.S. government 

is currently supporting the ministry’s reform and a “market transition” for the sector through 

interagency agreements with Commerce’s Commercial Law Development Program and 

the USGS.581
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“excellence centers” for the marble and carpet industries, in coordination with 

the MOMP and the Export Promotion Agency of Afghanistan, respectively. (For 

more details, see Marble Sector in Afghanistan, page 109.) The main objective 

of these centers was to build human capital and promote domestic production 

and exports in these sectors through training programs and facilitating the 

participation of businesses at international trade fairs.582

During the 2009 surge period, AIRTF’s engagement expanded to include 

activities to enhance bilateral commercial cooperation through capacity 

building, business matchmaking, trade fairs for Afghan products, trade 

missions for U.S. and Afghan businesses in both countries, and other forms of 

business promotion.583

AIRTF also created business hubs in four provinces, collocated with the offices 

of the Afghanistan Chamber of Commerce and Industry. These hubs were 

created to provide multimedia services, including video-teleconferencing, and 

training to local chamber of commerce members to create opportunities for 

Afghan companies to conduct business with their counterparts in the United 

States and other regional trading partners.584 Since no external evaluation of 

AIRTF was ever conducted, its efficacy and contributions to investment in the 

sectors it supported cannot be determined. 

As with the Afghanistan Reconstruction Group and TFBSO, there were some 

rivalries and tensions with USAID and State over private sector development 

roles and responsibilities, which contributed to a lack of support for AIRTF 

within the U.S. Embassy. Although AIRTF ceased operations around the same 

time the embassy was going through a “normalization” process to reduce 

the number of people and the overall footprint in preparation for the U.S. 

2014 drawdown, the lack of support was seen as a contributing factor to 

its termination.585 

FINAL POINTS ON INVESTMENT PROMOTION

Encouraging domestic and foreign private investment was a key component of 

the U.S. government approach to private sector development in Afghanistan. 

Despite a multi-faceted approach, these efforts, including those focusing on 

the Afghan diaspora, fell short.586 Aside from a few high-profile exceptions, 

foreign direct investment was limited. The main area for investment was the 

construction industry, where, especially during 2009–2012, large amounts of 

foreign funding for civilian and military infrastructure projects became available 

through contracts to local firms, which were then able to take advantage of 

the property and building boom.587 However, this tailed off when international 

spending began trending down around 2012, and some of the engineering and 
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

construction capacity was deployed elsewhere in the region. Investment in the 

manufacturing and service sectors, meanwhile, was negligible from the very 

beginning, as was investment in agriculture, due in part to the lack of a clear, 

long-term strategy for developing the sectors. In early 2004, the head of AISA 

reported with disappointment that less than 1 percent of intended investment 

was in agriculture, the sector on which Afghanistan was most dependent.588

Instead, funding went to small-scale projects with limited investment and little 

to no long-term benefit.589

Investment was limited for a variety of reasons, primarily uncertainty, insecurity, 

poor economic governance, and the lack of a comparative advantage in potential 

industries. Notwithstanding attempts to address constraints such as power, land 

tenure, and lack of information about opportunities, Afghanistan was simply not 

an attractive place to invest. The development of land, often on a speculative 

basis, was the main result of many of the privatized SOEs, not reuse of or 

reinvestment of their productive assets. 

The 2010 announcement of the 2014 NATO troop drawdown heightened the 

sense of uncertainty, exacerbated the reluctance to invest, and spurred an 

increase in capital flight. For example, as a percentage of GDP, in 2015 estimated 

gross domestic investment was less than 20 percent, down from nearly 

45 percent in 2005.590 Afghans’ recollection of past events, including above all the 

country’s history of prolonged conflict and instability, likely further heightened 

the effects of uncertainty. 

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Resolute Support photo

CHAPTER 7

PROMOTING REGIONAL AND 

INTERNATIONAL TRADE

The United States and international community viewed regional and 

international trade as an engine of growth that, coupled with the market 

economy and strengthening of high-value agriculture, could become part of 

a virtuous circle, and therefore it received substantial attention during the 

reconstruction effort. While certain initiatives were successful in achieving, or 

at least working toward, their specific goals, trade outcomes indicate the trade 

initiatives did not result in actual gains to productivity or an improvement in 

Afghanistan’s trade balance. Although the overarching strategy to promote 

exports and integrate Afghanistan into regional and world markets was 

reasonable and in line with prevailing development theory, the realities of warshattered infrastructure, corruption and poor governance in customs, and an 

inability to rapidly increase productivity and make Afghan goods competitive 

while rapidly reducing trade barriers ultimately hindered success.

Given the informal nature of much of the Afghan economy, all trade data must 

be taken as approximate. Afghanistan did not start reporting on this data until 

2008, and through 2014, over half of all imports and exports that were reported 

were not classified as to type. Moreover, the data do not include the large 

volume of goods consistently smuggled across the border. Still, it is apparent 

that trade has not been the driver of growth that was originally anticipated. 
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USAID’s first, post-2001 economic growth project, AEGP, had trade-specific 

goals. Between 2002 and 2017, four USAID projects directly or indirectly 

targeted international trade (see table 1). In 2002, USAID had already identified 

horticulture and livestock as areas in which Afghanistan would have a potential 

comparative advantage and which would allow the country to export valueadded products to global markets.591 In its 2005 five-year strategy, USAID 

emphasized increasing productivity of livestock as an important component of 

accelerating market-led growth in agriculture.592

REGIONAL INTEGRATION AND OPENING TO TRADE

Regional integration was prioritized from 2002 onward in the belief that 

increased regional linkages could create opportunities for trade and investment, 

generate revenue for the government through taxes, and lead to greater 

stability and security. The South Asian Free Trade Agreement was ultimately 

signed in 2007 when Afghanistan became the eighth member of the South 

Asian Association for Regional Cooperation (SAARC).593 Establishing a trade 

relationship with SAARC nations, including Pakistan and India, was considered 

the first entry point into regional integration.594 SAFTA was fully implemented 

in August 2011.595 SAFTA was especially important because Pakistan and India 

TABLE 1

USAID PROJECTS TO SUPPORT TRADE

Project Project Dates Project Overview Trade-Specific Goals

Afghanistan Economic 

Growth Project

2002–2005 Catch-all economic growth program aligned 

with USAID’s Recovery and Reconstruction 

Strategy for Afghanistan and the National 

Development Framework. Supported 

customs reform and strengthened DAB 

operations, the legal and regulatory sector, 

and trade policy.

Developed policy papers to define the 

mission of MOCI. Encouraged regional and 

global integration, as well as specific trade 

initiatives.

Economic Growth 

and Private Sector 

Strengthening

2005–2009 Assisted in structuring and implementing 

a legislative, fiscal, regulatory, and 

institutional framework. Provided technical 

assistance to MOF, MOCI, DAB, and various 

other ministries and institutions.

Supported MOCI and reform in 

international and regional trade 

agreements, reaching milestones for WTO 

accession, and public outreach for trade.

Trade Accession 

and Facilitation for 

Afghanistan 

2009–2013 Supported the development of 

Afghanistan’s economy “by fulfilling the 

trade potential of its strategic location on 

the historic Silk Route.” The program also 

offered direct support to enterprises that 

were either currently exporting or producing 

high-value goods with export potential.

Promoted trade policy liberalization for 

WTO accession and regional integration, 

the introduction of the customs electronic 

payment system, and trade facilitation 

through direct support to enterprises. 

Afghanistan Trade 

and Revenue 

2013–2018 Intended to support Afghanistan “in 

realizing its full potential in the global 

trading market.” 

Sought trade liberalization and WTO 

accession, regional integration, and 

customs reform. Also continued 

implementation of the customs electronic 

payment system and encouraged public 

awareness of WTO accession.

Source: Bearing Point, Completion Report: Afghanistan Economic Governance Program (AEGP), prepared under contract for USAID, December 2005, 

pp. 8–10; Deloitte, Completion Report: Afghanistan Economic Growth and Private Sector Strengthening (EGPSS) Project, October 2010, pp. 24–25; 

Chemonics International Inc., Final Report: Trade Accession and Facilitation for Afghanistan (TAFA), prepared under contract for USAID, August 31, 2013, pp. 

1–2; Chemonics International Inc., Afghanistan Trade and Revenue Project: Annual Report Nov. 7 2013 – Nov. 6 2014, prepared under contract for USAID, 

February 14, 2015, pp. 7–8.
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were the two largest importers of Afghan goods, and a trade agreement further 

lowering barriers to trade with these economies was seen as beneficial for 

Afghanistan.596 In total, Afghanistan has signed more than 30 bilateral trade and 

investment agreements since 2002.597 These agreements, combined with the 2004 

customs reform package, made Afghanistan one of the most open economies in 

the region.598 The wider region, however, has remained relatively closed.

Regional integration was intended to foster trade relationships with neighbors, 

lower barriers to trade, and ease WTO accession for Afghanistan. Regional 

integration was actively prioritized as a way to promote export opportunities 

and increase foreign market access for Afghan firms, while also lowering prices 

for consumers and simultaneously increasing competition and investment.599

USAID assisted in this complex process by helping the Afghan government 

negotiate and implement formal regional trade agreements (RTA) with its 

neighbors, build public institutional capacity for creating supportive legislative 

reforms, and increase coordination and cooperation both within the government 

and between the public and private sectors.600

TAFA and TAFA II were instrumental in supporting the Afghan government in 

negotiating and ratifying a number of RTAs, including SAFTA, the AfghanistanPakistan Transit Trade Agreement, the Cross-Border Transport of Persons, 

Vehicles, and Goods Agreement, and the South Asian Agreement on Trade in 

Service. TAFA and TAFA II also conducted benefits studies for other RTAs.601

Subsequently, ATAR helped facilitate and implement RTAs, such as SAFTA and 

APTTA, which had been ratified with TAFA support.602

In 2009, USTDA launched the Regional Infrastructure and Trade Initiative in 

South Asia, which, while primarily focused on western Pakistan, was also 

intended to benefit Afghanistan in resolving complications in transportation 

logistics and trade. USTDA, in coordination with the State Department, was also 

active in assisting with regional integration across South Asia.603 The U.S. Trade 

Representative also highlighted regional integration, making the New Silk Road 

an important talking point in its 2011 annual Trade and Investment Framework 

Agreement (TIFA) meeting. The New Silk Road initiative envisioned “an 

international network of economic and transit connections,” which would help 

“link and integrate Afghanistan with its neighbors and regional” partners.604

The goal of a TIFA is to “provide strategic frameworks and principles for dialogue on trade 

and investment issues between the United States and the other parties to the TIFA.”605

Afghanistan signed a TIFA with support from the U.S. Trade Representative in 2004. The 

TIFA council meets annually with senior government officials, particularly in the MOF.
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SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Inexpensive imports had some important welfare benefits and increased 

consumption of select consumer products and commodities. However, 

Afghanistan’s rapid integration into regional and global markets also had 

adverse effects on domestic producers as inexpensive imports flooded 

markets, such as in Herat.606 This occurred due to regional neighbors’ relative 

comparative advantages and more developed industries, their unfair trade 

practices such as border closures and dumping, and their export subsidies and 

other protective measures.607

 These conditions led to a skeptical view of free 

trade by many Afghans.608

Afghan Government and Regional Efforts at Integration

Since 2005, the Afghan government, specifically the Ministry of Foreign Affairs 

(MOFA), has prioritized and taken more of a lead in pushing for regional 

integration. In December 2005, Kabul hosted the first Regional Economic 

Cooperation Conference on Afghanistan (RECCA), which was attended by 

delegates from 11 Central and South Asian countries.609 There have since 

been seven RECCA conferences, with the most recent held in Ashgabat, 

Turkmenistan, in 2017. Each conference has focused on developing economic 

cooperation, integration, stability, and investment within the region.610

RECCA is a semi-annual conference held, rotationally, in the 11 participating Central and 

South Asian countries. An Afghan-led process, RECCA conferences serve as a political 

platform to promote economic cooperation, integration, and implementation of trade, 

transit, and transmission agreements.611

The continued negotiations on the Central Asia-South Asia Electricity 

Transmission and Trade project (CASA-1000) are important not only for the 

potential benefits for regional integration, but also for increased government 

revenues and job creation in Afghanistan. While news sources pointed to 

continued obstacles and difficulties, ground breaking for CASA-1000 took place 

in Dushanbe, Tajikistan, in May 2016, and construction is anticipated to begin in 

Afghanistan in early 2018.612

CASA-1000 aims to provide the means for the export of electricity from Tajikistan and the 

Kyrgyz Republic into Pakistan and Afghanistan during summer surpluses in the producing 

countries. Afghanistan has the option of consuming its portion of the transmitted 

electricity or re-exporting it to Pakistan.613

In February 2018, officials met in Herat to mark the inauguration of construction 

of the long-delayed Turkmenistan-Afghanistan-Pakistan-India pipeline, which 

had been under discussion since the 1990s. While TAPI has been touted as 

having the potential to improve regional relationships through mutually 

beneficial integration, concerns remain regarding security along the Afghan 
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

section of the pipeline, as well as where the funds will come from to pay for 

construction.614 In February 2018, the Taliban reiterated earlier promises to 

support the safeguarding of both TAPI and CASA 1000.615

TAPI is a proposed 1,100-mile natural gas pipeline. It was conceived in the 1990s as a 

way to provide a steady supply of natural gas from Turkmenistan to Afghanistan, Pakistan, 

and India.616

Likely due, in part, to the ongoing contentious relationship with Pakistan, 

Afghanistan has recently been more actively pursuing trade relationships with 

other regional partners, especially India.617 In 2016, after years of negotiations, 

India, Iran, and Afghanistan signed a trilateral agreement through which India 

would invest in further developing Iran’s Chabahar port. The expanded port 

was inaugurated at the end of 2017, allowing India to trade more easily with 

Afghanistan and bypass the Pakistani port of Karachi.618

Launched in May 2017, the India-Afghanistan Air Freight Corridor allows 

Afghanistan to export goods more easily to India and circumvent the many 

difficulties of land routes and border crossings. These goods include carpets, 

saffron, and dried fruit and nuts. The Afghan government, along with ACCI and 

USAID, are working to make customs clearance procedures at Afghanistan’s 

airports faster, simpler, and less expensive. According to an ACCI vice chairman, 

Afghanistan exported over 1,000 tons of goods between the opening of the air 

corridor and January 2018.619 USAID supported developing the air corridor 

through the ATAR project.620

In November 2017, Afghanistan and five other countries signed the Lapis Lazuli 

Corridor agreement, which seeks to create a system of road, rail, and maritime 

transport routes to move Afghan goods to Europe via Turkmenistan, Azerbaijan, 

Georgia, and Turkey.621 Pakistan announced its intention to join the corridor 

agreement later that month.622

The hope is that these agreements will increase market access and export 

potential for Afghan firms. Trade between Afghanistan and India has increased 

over the last few years, and India became Afghanistan’s most important export 

market in 2017, following the significant reduction in trade with Pakistan.623

PURSUING WTO ACCESSION

The United States, other international donors, some aid organizations, and 

a number of senior Afghan officials viewed joining the WTO as a way for 

Afghanistan to reap the benefits of opening to trade. Many believed WTO 

accession could provide Afghanistan with specific advantages and benefits, 
126 | PROMOTING REGIONAL AND INTERNATIONAL TRADE 

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

including nondiscriminatory access to global markets for Afghan exports, 

control over unfair treatment through the WTO dispute resolution processes, 

access to WTO grants, and WTO-sponsored capacity-building initiatives.624

Pursuing WTO accession also acted as a positive forcing function for 

Afghan firms to adopt efficiencies and abide by international quality and 

health standards.625

Afghanistan’s official entrance into the WTO on July 29, 2016, was the 

culmination of a process that began in 2003. Under USAID’s AEGP project, an 

inter-ministerial group was created to hold preliminary talks with the WTO. 

However, because of complications in the division of tasks between MOFA 

and MOCI, the process was delayed. After Afghanistan gained WTO observer 

status in December 2004, accession was given additional support by the EGPSS 

program, which included in its goals the achievement of the milestones required 

for full WTO membership. While the TAFA programs primarily supported WTO 

accession through increasing trade liberalization and regional integration, the 

ATAR program specifically prioritized WTO accession because, by 2013, formal 

negotiations and meetings of the WTO working party had already begun.626

ATAR also tried to alter historically skeptical Afghan public opinion and create 

domestic support for Afghanistan’s WTO accession by raising awareness of 

potential benefits from free trade and WTO membership.627 USAID and ATAR 

project officials were aware of public perceptions and overall skepticism of 

WTO accession specifically, and on an open trade regime more generally, among 

the Afghan population and businesses. While a 2010 TAFA public opinion survey 

indicated that the majority of Afghans viewed trade positively—in theory—and 

understood the potential benefits of an open economy, many cited corruption 

and a lack of government support as reasons why Afghanistan’s economy 

was not actually functioning under the conditions necessary to reap these 

benefits.628 Many also believed the government was not fulfilling its role with 

regard to trade, and blamed the government for poor tariff structures, lack of 

opportunities, and continued corruption leading to smuggling.629

 Because of 

the behind-the-border trade barriers and other market distortions, including 

predatory trade practices by neighbors, many Afghans felt the government 

should be doing more to support and promote domestic producers.630

Other U.S. agencies also took an interest in Afghanistan’s WTO status. In 2014, 

the U.S. Trade Representative visited Afghanistan for the annual TIFA meeting 

and signed a bilateral market access agreement, including tariff schedules, 

bringing Afghanistan further into the multilateral trading system and closer to 

WTO accession.631 In 2016, the Trade Representative noted optimistically that 

WTO membership would “facilitate deeper engagement on regional connectivity 

and economic cooperation.”632
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

Upon taking office in 2014, President Ghani tried to dispel skepticism by 

insisting that WTO accession would “serve as a catalyst for domestic reforms 

and transformation to an effective and functioning market economy that 

attracts investment, creates jobs, and improves the welfare of the people of 

Afghanistan.”633 Amid concerns that “the benefits of World Trade Organization 

membership [could] come at a substantial cost,” Ghani’s rhetoric exacerbated 

feelings that the government was not providing adequate support for its 

businesses and people.634

Anticipated Benefits of WTO Accession

As is common elsewhere in the world, WTO accession was controversial in 

Afghanistan. The only available academic study of the potential economic 

effects of Afghanistan joining the WTO was produced in 2016 and used a 

simulation methodology to tentatively project that WTO accession would have 

mixed consequences. With the required tariff reductions, accession would have 

a negative effect on government revenue, but a positive effect on consumers 

and general welfare. However, due to inefficient domestic production, some 

important sectors would be hurt. The study also noted the challenge of 

establishing institutions capable of managing a “rule based trading system.”635

Proponents of accession noted that Afghanistan would benefit from WTO’s 

“special and differential treatment provisions,” such as “protection of trade 

interests by other members,” flexibility of commitments, use of policy 

instruments, transitional time periods, and access to technical assistance. These 

provisions also included efforts aimed at increasing trade opportunities for 

least-developed countries and encouraged developed WTO member nations 

to safeguard the interests of least-developed countries (LDC) members.636

The provisions were written in order to ease the transition for LDCs into free 

trade, protect nascent industries in the short term, and provide a buffer for 

global competition. 

However, in 2016, Afghanistan was not yet in a position to fully benefit from 

these provisions. First, while WTO accession and trade liberalization were 

pursued in tandem with the promotion of certain agricultural products and 

extractive industries in the hopes that both would be developed enough to begin 

exporting by 2018, changing conditions inhibited their growth. Second, the WTO 

WTO accession would “serve as a catalyst for domestic 

reforms and transformation to an effective and functioning 

market economy that attracts investment, creates jobs, and 

improves the welfare of the people of Afghanistan.” 

—Afghan President Ashraf Ghani
128 | PROMOTING REGIONAL AND INTERNATIONAL TRADE 

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

LDC provisions expire on July 1, 2021, at the latest. While these deadlines have 

been extended twice previously, and could be further extended, WTO members’ 

governments are expected to work toward compliance.637 Even if Afghan 

producers are able to develop Afghan goods for export in the future, they will 

not receive the full 10 years’ benefit from the LDC provisions that were intended 

to help nascent industries. Finally, Afghanistan continued to suffer from a lack 

of proper infrastructure and relied on capacity building and technical assistance 

to negotiate regional agreements and its accession to the WTO. This indicates 

that trade policy implementation should have been more flexible, allowing 

adequate time for industries with a potential comparative advantage to grow, 

relevant government institutions to mature, and sustainable infrastructure 

to develop.

WTO Accession: Global Experiences 

While the international community generally supported the idea of Afghanistan’s 

accession to the WTO, there was a clear divide between those who believed WTO 

membership would bolster economic growth and those who feared that rushed trade 

liberalization would bring more harm than good. Afghan proponents of accession, who 

were in the minority of Afghans, saw the accession process as having additional benefits, 

such as forcing the country to reform, upgrade, and modernize its processes and 

institutions, including export certification, to meet international quality standards; this, 

in turn, would make the country more competitive and attractive to foreign investment. 

Opponents, on the other hand, claimed that rapid and further opening of Afghanistan to 

unrestricted trade would hurt Afghan companies and reduce jobs. 

While some Afghans were open to the possibility of benefits from trade, the pace 

of lowering barriers to trade and seeking WTO accession was concerning because 

the necessary improvements in infrastructure, productivity, and value added would 

take time. As certain economists have noted, benefits from increased trade can be 

better “facilitated through a more gradual approach in [least-developed countries], 

with increasing degrees of import liberalization coupled to an industrial policy that 

strengthens local productive capacity.”638

At the international level, the relative benefits and drawbacks of accession to the WTO, 

which required, among other things, the elimination of most tariffs, is controversial. 

While conventional economic theory maintains that all countries gain from trade, 

studies indicate that there can be certain negative consequences for least-developed 

countries. The benefits of free trade do not necessarily accrue to the poor, and therefore 

can exacerbate income inequality, rather than promoting broad-based growth.639

LDCs cannot always compete in key sectors on the global market and often lack the 

capacity necessary to negotiate and implement trade agreements.640 As a result, LDCs 

do not always see the anticipated benefits of accession and can sometimes suffer 

consequences in income distribution and market access.641
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

In sum, if extractive industries become productive and are able to develop with 

protections offered through the LDC provisions, then Afghanistan may more 

clearly benefit from WTO accession in the coming years. Without developed 

industry, however, it is unlikely it will be able to compete in global, or even 

regional, markets once the LDC provisions expire. While some benefits from 

accession still exist, certain international trade specialists have suggested LDCs 

may be better off postponing accession until their government capacity and 

markets are better developed.642 While post-2001 Afghanistan had become one 

of the most open economies in the region, WTO negotiations encouraged the 

lifting of non-tariff barriers and further lowering of tariffs to be more consistent 

with WTO rules.643 One analysis noted, “The narrowing policy space derived 

from membership in the WTO . . . continues to curtail independent state action 

in addressing the simultaneous challenges of economic, social, and human 

development, despite the special provisions for [LDCs].”644

At the same time, WTO accession had the positive effect of forcing Afghan firms 

to seek efficiencies and meet international standards for quality and health 

that they might otherwise not have sought. It also provided Afghanistan with 

a platform through which it could air grievances about unfair trade practices, 

although legal recourse only applies to other WTO members. As a WTO member, 

Afghanistan is also allowed to apply anti-dumping and countervailing duties 

to protect against predatory dumping and domestic subsidization, as well as 

temporarily exceed WTO-bound tariff rates in case of sudden and excessive 

imports.645 It will take years after accession for these impacts to be fully felt, 

however, and financial benefits will only accrue in the future.

STUBBORN BARRIERS TO TRADE

The largest inhibitor to growth in export markets has been the lack of 

substantial progress in product diversification, value-added processing, 

production scalability, and quality control across all sectors. However, other 

factors, such as government capacity and infrastructure, lack of productivity, 

and difficulties with customs reform, have posed stubborn obstacles to trade 

and made it difficult for Afghan producers to export. 

Government Capacity and Infrastructure Development 

Despite significant U.S. and international effort to build the capacity and 

infrastructure of the Afghan government, as related to trade, success has been 

constrained to date by factors such as high staff turnover, insecurity, poor 

maintenance of facilities, and corruption. 

As the initial catch-all economic development program, USAID’s AEGP provided 

only indirect support for trade, targeting its efforts toward building the capacity 
130 | PROMOTING REGIONAL AND INTERNATIONAL TRADE 

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

of the Ministry of Commerce and Industry, which was responsible for the 

formulation and implementation of policy regarding international trade.646 AEGP 

staff helped with reforming MOCI’s existing component institutions, including 

disbanding the Department of Domestic Trade, providing technical assistance 

to the Department of International Trade, Department of Export Promotion, 

and various other MOCI departments, and advising on business license 

reform. Specifically, AEGP staff helped draft the MOCI mission and strategic 

goals, which called for the ministry to seek opportunities to liberalize trade, 

increase exports and imports, maximize benefits of preferential market access 

agreements for Afghan exporters, strengthen transit agreements, and develop 

policies and programs to facilitate trade.647 Following AEGP, USAID programs 

continued to work on building the capacity of MOCI.

TAFA government capacity building focused primarily on increasing the 

ministries’ knowledge of regional trade agreements and improving negotiation 

skills for the WTO accession negotiations.648

 Much of TAFA’s focus, however, 

was on improving the capacity of businesses through facilitating participation in 

business exhibitions, and providing training on marketing, exporting, and other 

relevant topics for business owners.649

Unlike TAFA, and in light of the reduced U.S. presence starting in late 2013, 

ATAR took a slightly more hands-off approach, focusing only on building 

Afghan institutions’ capacity to conduct negotiations, draft legislation, institute 

the necessary reforms to enhance the trade regime, and join the WTO. ATAR 

personnel reported that successes were, in part, due to the improvements in 

MOCI capacity that had taken place in previous years.650

Lack of institutional capacity discouraged the development of some of the 

key capabilities needed to support the expansion of exports. For example, the 

Ministry of Agriculture and Animal Husbandry lacked the means and capacity 

to build or maintain facilities for grading agricultural products and conducting 

basic phytosanitary inspections.

651 Without the necessary certifications for 

international food safety organizations, certain Afghan agricultural products 

were valued lower than those of neighboring countries or could not be exported. 

Despite significant efforts to improve it, poor infrastructure continued to inhibit 

businesses’ abilities to compete through 2017. For example, an October 2016 

SIGAR audit of Afghanistan paved road infrastructure estimated that more 

than half the roads in Afghanistan that had been constructed with U.S. funding 

required serious rehabilitation and suffered from a lack of maintenance.652

This meant that the implicit costs to trade for Afghan companies across 

sectors remained high, and the poor quality of roads impacted their ability to 

move goods across the border. For example, in addition to roads, the lack of 

Phytosanitary 

inspection is the 

process of verifying 

that agricultural 

products are free of 

harmful pests and plant 

diseases, a requirement 

for export to many 

countries and regions 

around the world.
APRIL 2018 | 131

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

infrastructure for the carpet industry resulted in much of the value being added 

in neighboring Pakistan. In some cases, wool was imported into Afghanistan, 

carpets were woven and then transported to Pakistan for cutting and washing, 

and the finished rugs were exported with a Pakistani label, undermining the 

Afghan brand and removing important sources of income and employment.653

Productivity and Trade Facilitation

To complement the projects that targeted international trade, such as TAFA 

and ATAR, USAID had a number of agricultural projects that aimed to increase 

productivity and value added for Afghan products that could potentially be 

exported. These projects addressed productivity in the agriculture sector and 

value chain linkages with direct and indirect support to agribusiness producers, 

processors, and traders. As WTO accession was ramping up, however, the 

TAFA projects worked directly with firms already exporting Afghan goods, 

including agricultural products, in an effort to increase the firms’ external 

market access. This included identifying companies producing high-value goods 

and forming relationships between these companies and potential international 

buyers. The 2013 TAFA final report specifically identified marble and saffron as 

potential exports.654

ATAR, the follow-on project to TAFA, gave less direct support to enterprises 

in favor of capacity building. This meant it did not work hand in hand with 

individual companies as its predecessor did. Trade facilitation efforts, therefore, 

focused on increasing the capacity of MOCI to help exporters expand their 

markets.655 Both TAFA and ATAR supported MOCI’s Export Promotion Agency 

of Afghanistan through capacity building and support. The EPAA is a MOCI 

executive agency created in 2006 with the support of GIZ. The agency’s mission 

includes “assisting exporters and producers of export goods to overcome 

bottlenecks in order to achieve higher levels of export performance and foreign 

exchange earnings.”656 Even a fully functional MOCI and EPAA might not 

have made a substantial difference, given the uncompetitive nature of Afghan 

products and the other challenges facing exporters. 

Difficulties in Customs Reform

The U.S. government and other international donors emphasized customs 

reform in an effort to enable the Afghan private sector to more efficiently 

explore regional markets while simultaneously increasing customs revenue for 

the Afghan government.657 Based on an early IMF recommendation, the MOF 

revised customs law to streamline and reduce tariff rates to make procedures 

more efficient for traders. In 2002, there were 25 tariff bands, with rates ranging 

from 7 to 150 percent across 888 tariff headings, which was well outside of 

international best practices and a source of significant confusion.658 In 2004, the 

Afghan government, supported primarily by DFID resident experts and a USAID 
132 | PROMOTING REGIONAL AND INTERNATIONAL TRADE 

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

expert provided through AEGP, passed a new customs reform package that 

reduced the number of tariff bands from 25, ranging from 7 to 150 percent, to 6, 

with assigned rates of 2.5, 4, 5, 8, 10, and 16 percent. This reform lowered tariff 

rates considerably across the board and made Afghanistan one of the most open 

economies in the region.659 EGPSS built on this work, primarily training officials 

in tariff valuation and classification.660

Under the TAFA project, USAID continued to work toward improving customs 

laws, streamlining customs procedures, removing redundant steps at six border 

crossings, implementing the Automated System for Customs Data (ASYCUDA), 

and instituting an electronic payment (e-payment) system. The ASYCUDA and 

e-payment systems were intended to reduce opportunities for corruption at 

border crossings by eliminating cash-based transactions between traders and 

customs officers.661

 The effort was continued under the ATAR project, which 

specifically worked to improve customs administration by supporting the 

Afghan Customs Department (ACD) and DAB in launching e-payments at two 

border crossings.662 ATAR also included an outreach component to educate 

traders on the new e-payment system.

However, these efforts have had limited impact, for reasons that go beyond the 

narrow technical improvements. According to a 2014 SIGAR audit of Afghan 

customs, “The future of customs revenues as a stable source of income for 

the Afghan government remains unclear” due to issues with customs data and 

persistent corruption.663 As of 2015, ASYCUDA had been implemented at 11 of 

17 inland customs depots and seven of 11 border crossing points (see figure 10), 

but electrical outages, connectivity problems, and limited oversight meant that 

customs officials were often entering inaccurate information and that trade data 

remained unreliable.664 The audit further noted, “Corruption impacts all levels 

of the customs process and is the biggest problem affecting Afghan customs 

processes and revenues.”665 As the New York Times reported in 2014, based on a 

candid interview with a customs official:

Border guards pocket a small fee for opening the gate, but that is just 

the start. Businessmen and customs officials collude to fake invoices and 

manipulate packing lists. Quantity, weight, contents, country of origin—

almost every piece of information can be altered to slash the customs bill, 

often by up to 70 percent.666

Businesses continued to report that customs officials used their own discretion 

in both valuation and inspection procedures, leading to delays and perpetuating 

corruption.667 They also reported further delays due to poor infrastructure, 

unnecessary bureaucratic processes, and occasional closing of border crossings 

due to regional disputes.668 According to the World Bank’s Ease of Doing 

Business (EODB) indicators, the estimated time to import and export has risen 

since 2012.669

 While the TAFA programs were successful in reducing the number 
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PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

of processing steps at nine inland customs depots and the Kabul International 

Airport, which together account for 98 percent of total customs revenues, delays 

remained.670 Much of this increased import and export time was likely due to 

issues and delays in documentary compliance and domestic transport, two of 

the factors included in the EODB indicators.671

The 2014 SIGAR audit therefore recommended that, following the completion 

of WTO accession, the ATAR project should focus on reducing discrepancies in 

customs data and increasing the focus on anticorruption measures, including 

continued rollout and effective use of the ASYCUDA and e-payment systems.672

In 2017, however, SIGAR published a report concluding that both TAFA and 

ATAR failed to achieve their goals of implementing the e-payment system. 

The report noted that the system had not been implemented at the majority of 

border crossings and was “unused at most of the locations where it [had] been 

implemented.”673 While ATAR targeted increasing the percentage of customs 

PAKISTAN

IRAN

TURKMENISTAN

UZBEKISTAN

TAJIKISTAN CHINA

INDIA

Faryab

Badghis

Jowzjan

Herat

Badakhshan

Kunduz

Balkh

Sar-e Pul

Farah

Nimroz

Helmand

Kandahar

Bamyan

Uruzgan

Ghor

Daykundi

Paktika

Khowst

Zabul

Ghazni

Paktiya

Logar

Baghlan

Wardak

Parwan

Samangan

Kunar

Nuristan

Nangarhar

Kabul

Kapisa

Laghman

Panjshir

Takhar

Note: The Afghanistan Customs Department lists 11 border crossing points on its website, but shows 12 border crossing points on the same page, as 

reected in the map above.

Source: UN Conference on Trade and Development, “Afghanistan Implementation Map,” ASYCUDA website, January 2015, accessed on February 22, 

2018; Government of Afghanistan, Afghanistan Customs Department (ACD), “Inland Customs Depots and Border Crossing Sites,” ACD website, 

accessed on February 22, 2018.

MAP OF AFGHANISTAN BORDER CROSSING POINTS AND INLAND CUSTOMS DEPOTS

Inland customs depots

Customs border crossing points

Sites where ASYCUDA has been implemented

FIGURE 10
134 | PROMOTING REGIONAL AND INTERNATIONAL TRADE 

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

revenues collected through the e-payment system to 75 percent, in 2016 

e-payments accounted for less than 1 percent of customs duties collected.674

In its response to SIGAR’s report, USAID noted difficulties in software and 

connectivity between DAB, commercial banks, and the Afghan Customs 

Department; the severe lack of political will to move away from the cashbased system; involvement of DAB in areas where commercial banks should 

be operating; and capacity issues hindering use of the e-payment system. In 

addition to these significant obstacles, corrupt actors benefited from the lax 

regulatory controls of the cash-based system and therefore encouraged its 

continued use.675

FINAL POINTS ON PROMOTING REGIONAL 

AND INTERNATIONAL TRADE

Despite the country’s opening to trade and encouragement of exports, 

Afghanistan’s trade imbalance has continued to grow steadily since 2002, 

with imports tripling by 2015, while exports remained stagnant and low (see 

figure 11). Trade has not been the engine of growth and employment the 

U.S. government assumed it would. Unfortunately, it seems unlikely that the 

trade balance will start to improve in the coming years as export markets 

remain slow to develop and Afghanistan has not greatly increased its industry 

or value added to productive sectors, such as agriculture. 

Given these disappointing trade outcomes over the past decade and a half, a 

number of important conclusions regarding programs, implementation, and 

realities of the Afghan economic and business climate become evident. First, 

Afghanistan might have benefited from a more delayed accession to the WTO. 

While there were certainly benefits to accession, including a political platform 

for negotiations, a legal framework for disputes, and a forcing function for 

international best practices, Afghan firms and industries might have been better 

able to take advantage of the LDC provisions if they had had more time to 

develop. Temporary protection of potentially exportable industries might have 

allowed for more Afghan firms to compete in regional markets and ultimately 

benefit from the increased competition as state support slowly dwindled. 

Trade policy implementation and accession processes should therefore have 

been more flexible, recognizing that Afghanistan would benefit more if certain 

domestic milestones were first met. Also, trade facilitation efforts were not 

sufficient by themselves to increase Afghan traders’ ability to export; more 

Afghan firms and industries might have been better able to 

take advantage of the LDC provisions if they had 

had more time to develop.
APRIL 2018 | 135

PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

time and attention was needed to grow export markets and facilitate trade 

at the various chokepoints. Furthermore, corruption at border crossings is 

still rampant, and it has hindered growth in trade, in addition to dampening 

necessary government revenues. The implementation of the ASYCUDA and 

e-payment systems encountered significant challenges and has failed to 

significantly reduce corruption or increase revenues. 

Still, WTO accession and opening to trade produced benefits for Afghanistan. 

For consumers, lower trade barriers meant cheaper consumer goods, which can 

lead to increases in consumption and standard of living. For producers, WTO 

accession acted as a forcing function, pushing industries to achieve certain 

health and sanitation standards. Membership also provided a platform for trade 

negotiation, and a legal means to apply countervailing tariffs against unfair trade 

practices from member countries. Since Afghanistan only joined the WTO in 

2016, the impacts on producers and the economy will continue to be seen over 

the next decade, when more financial benefits may also accrue.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$0

$2

$4

$6

$8

$10

$1.34

$9.54

$1.34

$2.70

Source: SIGAR analysis of data from the World Bank, “Imports of goods and services: Afghanistan (current US$)” and “Exports of goods and services: 

Afghanistan (current US$),” data for 2002–2016, World Bank, World Development Indicators database, accessed on January 12, 2018.

AFGHANISTAN TRADE IMBALANCE, 2002–2016 ($ BILLIONS)

Trade Imbalance

Imports

Exports

FIGURE 11

APRIL 2018 | 137

UNAMA photo by Fardin Waezi

CHAPTER 8

PROVIDING DIRECT SUPPORT 

TO ENTERPRISES 

From the start of the reconstruction effort, the U.S. government focused on 

building an enabling environment that would support the creation or expansion 

of firms. From 2006, however, the United States began to place greater emphasis 

on direct support to individual enterprises. In part, this was because some of the 

basic economic infrastructure had been put in place, but also because much more 

was known about the characteristics of the Afghan private sector from a number 

of surveys that had been done in urban areas. These surveys identified obstacles 

to development: the lack of cheap and reliable power, insecure land tenure, lack of 

clarity about government policies, and, relatedly, widespread corruption. 

While the Afghan and U.S. governments acknowledged the existence of these 

obstacles and viewed developing enterprises as critical to overall economic 

development, neither government had a specific long-term enterprise 

development strategy that would guide programming in the field. USAID, as 

part of the U.S. whole-of-government approach, at times was directed to align 

its programming more with the military’s stabilization and counterinsurgency 

objectives, and less on long-term private sector development. This was most 

significant during the surge period. However, the shift in the agency’s strategy 

from short-term stabilization to long-term activities starting in 2011 didn’t lead to 

any major shifts in design and implementation of projects in the field. 
138 | PROVIDING DIRECT SUPPORT TO ENTERPRISES

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

THE AFGHAN PRIVATE SECTOR: GENERAL CHARACTERISTICS 

AND CONSTRAINTS TO GROWTH 

The majority (90 percent) of Afghan private sector activities have historically been informal, 

with only slightly more than 5 percent of households earning an income from industrial 

activities.676 A survey conducted by the Afghan Central Statistics Office in 2009 highlighted 

that 90 percent of enterprises in Afghanistan were small (five or fewer workers), new (less 

than four years old), and had a single owner. Additionally, the majority (70 percent) of the 

enterprises were rural, with trade and repair being the dominant business type (29 percent), 

followed by manufacturing (22 percent), accommodations and food (10 percent), and 

other services (27 percent) (see figure 12). The survey also found that more than half 

of enterprises had received some form of international donor support, including loans 

and subsidies.677

While many of the critical elements of the enabling environment for the private sector—for 

example, registration policies and mechanisms, money transfer systems, and banking 

laws—were put in place after 2001, some of the major constraints have largely remained 

unchanged. These constraints, as highlighted in three enterprise perception surveys 

conducted by the World Bank and the Center for International Private Enterprise between 

2005 and 2014, include security, lack of infrastructure, limited access to electricity and 

factors of production (land, labor, and capital), corruption, lack of policy enforcement, 

government regulations (especially taxes, customs, and trade regulations), and crime and 

Accommodation and Food

10.4%

Mining and Quarrying

0.1%

Electricity, Gas, Water Supply

3.3%

Construction

1.2%

Information and Communication

1.0%

Real Estate

0.4%

Trade and Repair

29.2%

Manufacturing

22.0%

Education

0.3% 

Health and Social Work

4.9% Transport and Storage

0.3% 

Other Services

27.0%

Source: Asian Development Bank and Central Statistics Organization Afghanistan, “Integrated Business Enterprise Survey in Afghanistan 2009,” 2009.

ENTERPRISES BY BUSINESS TYPE

FIGURE 12
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 139

theft. While the significance of these obstacles varied by year and size of enterprise, they 

were consistently seen as factors that adversely affected the growth of the private sector.678

These difficulties are also reflected in the World Bank’s Ease of Doing Business indicators, as 

shown in figure 13. These indicators measure regulations, enforcement, and how they affect 

standard business operations. On the positive side, it is relatively easy to open a business in 

Afghanistan and the country ranks just above the regional average for South Asia (even after 

a lower score for 2018) at 107 out of 190 total economies represented in the EODB studies. 

Afghanistan also saw marked improvements in access to credit and steady improvements in 

registering property between 2008 and 2010. However, Afghanistan has low scores in getting 

electricity (omitted from the graph because of lack of data before 2010) and enforcing 

contracts. Trading across borders remains one of the nation’s poorest performance areas.679

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0

20

40

60

80

100

Note: The “distance to frontier” measures a country's economic performance relative to the “frontier,” or the best performance observed across 

economies. An economy’s distance to frontier is shown on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the 

frontier. Data after 2015 are omitted because they are not comparable to previous scores due to a change in EODB methodology.

Source: SIGAR analysis of data from World Bank, “Ease of Doing Business Indicators: Afghanistan (Distance to Frontier ratings),” data for 

2006–2015, World Bank Historical Data Sets and Trends Data, accessed on December 1, 2017.

EASE OF DOING BUSINESS IN AFGHANISTAN: DISTANCE TO FRONTIER FOR SELECT INDICATORS, 2006–2015

Paying Taxes

Starting a Business

Getting Credit

Registering Property

Enforcing Contracts

Trading Across Borders

FIGURE 13
140 | PROVIDING DIRECT SUPPORT TO ENTERPRISES

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Although the Afghan government devised a small-medium enterprise strategy in 

2009 and introduced new National Priority Programs to consolidate private sector 

development activities, the NPPs remained scattered and underfunded. Despite 

this lack of strategic direction—but with an acknowledgment of enterprises 

being vital to employment creation and, therefore, an important element in 

counterinsurgency efforts and increasing domestic revenue—the U.S. government 

increased direct support to enterprises by launching a number of initiatives.

USAID’S DIRECT SUPPORT TO ENTERPRISES

In addition to its support to building the enabling environment for private 

sector development, USAID also provided direct technical and financial 

support to local enterprises through a variety of initiatives. While this chapter 

of the report covers only the USAID Economic Growth Office’s two largescale programs specifically designed to provide direct support to enterprises, 

the agency also supported enterprises, including agribusinesses, through 

many of its other projects, especially agriculture and alternative livelihoods 

(counternarcotics) projects.

In 2006, after determining that access to capital and limited business 

development skills at the enterprise level were two of the most important 

obstacles to growth for businesses, USAID launched the first of two projects 

which provided financial and technical assistance to individual entrepreneurs 

to set up new or expand existing enterprises. The Afghanistan Small and 

Medium Enterprise Development project, a $114 million effort implemented by 

Development Alternatives Incorporated from 2006 to 2012, and the Assistance 

in Building Afghanistan by Developing Enterprises project, implemented by 

Chemonics from 2012 to 2017, had similar aims and approaches, although those 

evolved over time. 

Both projects aimed to support individual enterprises, with the overall 

objectives of increasing domestic and foreign investment, stimulating 

employment, and increasing the sales of Afghan products. ASMED also 

supported business associations and nonprofit organizations, while ABADE 

worked more closely with Afghan technical ministries, such as MOCI. 

Forming Investment Alliances 

USAID’s two main enterprise-support projects both used elements of the 

agency’s Global Development Alliance (GDA) model, created in 2001 as 

part of efforts to strengthen the private sector in developing countries, to 

form partnerships with enterprises. The model, which specifies “publicprivate alliances,” requires prospective partners to match or exceed 

USAID’s investment.680
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WOMEN’S ECONOMIC PARTICIPATION 

Promoting women’s rights has been a visible part of the U.S. reconstruction effort in 

Afghanistan since 2001. All major U.S. and Afghan government strategies from 2002 through 

2017 emphasized the importance of women’s social, political, and economic participation in 

the overall development of Afghanistan. While some progress has been made, especially in 

improving measured maternal mortality rates and female literacy, women still face significant 

barriers to economic participation, including lack of human and financial capital, insecurity, 

corruption, inadequate access to domestic and international markets, lack of demand for 

products, and social barriers to their participation in public spheres.681

From the start, the U.S. government sought to promote women’s rights in Afghanistan, partly 

as a response to the oppression women faced under the Taliban. In the following years, 

women’s rights were consistently included as part of the broader U.S.-led reconstruction 

agenda, along with democracy and civil liberties. The U.S. government’s programs for women’s 

economic empowerment have been a mix of initiatives that were either embedded within 

larger development programs, for example, in agriculture, rule of law, education, and health, 

or programs that were designed specifically for women. USAID, for example, promoted 

women’s participation in rural income-generating activities, including backyard poultry 

farms, food processing, and beekeeping, as part of its projects in the agriculture sector, and 

supported individuals or associations of women-owned businesses through its enterprise 

development projects. The agency also provided support to microfinance institutions to 

increase women’s access to finance.682 The agency’s ABADE and other projects supported 

initiatives to provide alternative workplace models for women, including working from home, 

offsite services, or all-women facilities, and trained more than 200 women in business skills, 

including information and communications technology, business systems, marketing, and 

advertising.683

Similarly, DOD’s TFBSO supported women’s involvement in ICT and local industries, such 

as carpet weaving and jewelry making. TFBSO also financed the construction of a Center 

for Afghan Women’s Economic Development at the American University of Afghanistan as 

a platform for public and private coordination of efforts to advance women’s roles in the 

private sector.684

In 2015, USAID launched its largest ($280 million) gender program in the world: the 

Promoting Gender Equity in National Priority Programs Project, or PROMOTE. The five-year 

program aims to educate, train, and enable Afghan women to participate more fully in 

politics, civil society, and the private sector, with one of its four components being “Women in 

the Economy.”685

Despite significant support to Afghan women, neither the amount of funding that went to 

women-specific activities nor the impact of these programs on women’s status can be 

precisely determined. A 2014 SIGAR audit report highlighted the lack of a comprehensive 

analysis of the gains claimed as a result of these programs. The report also noted that, 

while more than $64.8 million had been spent on projects, programs, and initiatives to 

support Afghan women between 2011 and 2013, that amount doesn’t reflect the full extent 
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of U.S. efforts, mainly because agencies lacked effective mechanisms for tracking funding 

associated with these programs.686

While the impact of U.S. government activities on Afghan women’s status cannot be 

measured, some measurable progress has been made in women’s participation in the 

formal economy, especially in the urban areas. For example, a 2013 survey conducted by 

Building Markets of 1,424 women, including female enterprise owners and employees, along 

with women and men from the business community and government institutions across the 

country, found that the majority of respondents had entered the public sphere (either as an 

employee, government official, or business owner) in the last decade.687

At the same time, however, a synthesis report by AREU found that economic participation 

of women hasn’t seen any significant improvement, and women continue to be at the lower 

end of value chains and lack access to many resources that would allow them to upgrade 

their skills and incomes.688 Importantly, the AREU report highlighted that donor-funded 

projects tended to focus on occupational training and neglected to support the higher parts 

of the value chain, such as post-harvest processing, marketing, and sales—issues that were 

identified as major obstacles by women in the 2013 survey.689

Women working in a garment factory in Kabul in January 2014. (Asian Development Bank photo by 

Jawad Jalali)
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Both projects tried various ways to select partners. ASMED initially took a sectordriven approach using the value chain model. Based on sector assessments 

conducted in 2007 and 2008, ASMED selected six sectors—construction, marble, 

carpets, gemstones, agribusiness, and handicrafts—and developed value chain 

strategies for each. In assessing these sectors, ASMED reported that businesses 

failed to thrive because of their inability to reach markets, their limited access 

to suppliers and inputs, and the absence of other players in the market to take 

a product through all the value-adding steps of processing or manufacturing.690

Therefore, ASMED recognized the need to focus on supporting complete value 

chains in each sector to create growth on a larger scale. 

However, ASMED’s implementation of this sector-driven value chain model was 

criticized by the project’s evaluation, which noted that the project’s approach to 

development of key sectors was implemented “rather casually,” with activities 

informally assumed by existing staff who, with the exception of those in the 

marble sector, had no particular sector expertise. While the project’s work plan 

listed a number of broad interventions along various value chains, the project 

didn’t develop action plans that would guide prioritization and implementation 

of these activities.691

ASMED’s sector-driven approach was short-lived. In 2010, ASMED was 

restructured to align better with the COIN approach by selecting enterprises in 

the military-designated key terrain districts, where security, infrastructure, and 

the overall business climate were poor. The project no longer required partners 

be part of priority sectors or value chains at all.692

Similar to ASMED’s revised strategy, ABADE didn’t follow a value chain or 

sector-led approach, but focused on individual enterprises selected based on 

a determination of the businesses’ prospects for expansion, productivity, and 

job creation. To assess the feasibility of these businesses, ABADE relied on 

business plans and financial reviews, as well as the knowledge and analysis 

of the business owners themselves.693 While ASMED was not specific about 

the size of their partner enterprises, ABADE focused specifically on small 

enterprises, defined by the project as enterprises with fewer than 50 employees 

and total annual revenue of less than $3 million, and medium enterprises, with 

50–300 employees and total revenue between $3–15 million. To support women’s 

business development, however, ABADE also accommodated micro enterprises 

of fewer than 10 employees and annual revenue up to $100,000 that were owned 

or operated by women or employed more women than men. 

Because ABADE attempted to be more selective in choosing its partners, the 

process took several months to a year or even longer, as project personnel 

had to “hold the hand” of each applicant through the application, feasibility 
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assessment, skills training, and machinery and equipment purchase.694 One 

ABADE senior official noted:

When we started ABADE, we were overly optimistic. Practice showed that 

developing a full application request and getting all approvals for even the 

smallest partners took months. . . . The process of supplying companies 

[with machinery and other equipment] sometimes took months. For bigger 

companies, it could take years. The longest was three and one-half years.695

As the U.S. government became more concerned about how its funds were 

potentially being diverted to Taliban elements, in 2010 the selection and 

approval process was further slowed by a requirement that U.S. government 

agencies vet Afghan companies. In 2011, the USAID mission in Afghanistan 

created a new vetting support unit to annually vet non-U.S. contractors to 

ensure “neither USAID funds nor USAID-funded activities” provided support 

to “prohibited parties,” defined as an individual or entity that supported 

terrorist activities. The vetting information collected by the vetting unit was 

forwarded to USAID staff in Washington for a final decision.696 This process 

caused considerable delays in the first year of the project. When the threshold 

for vetting contracts was lowered from $150,000 to $25,000 in January 2013, 

the understaffed vetting support unit was overwhelmed, resulting in a process 

that could take more than nine months.697 According to an ABADE official, 

vetting was a fairly new concept and previously was rarely needed because of 

the relatively high threshold; under the new requirements, “everybody was still 

learning.”698

 While vetting was essential to ensure funds were not diverted, the 

requirement to vet almost 300 partners and their associated vendors was a huge 

task. It was only in 2015 that USAID increased the number of personnel in its 

vetting unit, which shortened the response time from months to weeks.699

Leveraging Private Sector Investment 

ASMED and ABADE reported that the majority of their Afghan partners 

exceeded the target of 50 percent of total investment by providing 60 percent. 

ASMED reported helping create 1,300 new enterprises and leveraging 

over $94 million in private sector investment for new firms.700 As of mid2017, ABADE had more than doubled that, reporting around $257.4 million 

(86 percent) in partner contributions, with ABADE’s contribution being only 

$40.7 million (14 percent).701

ABADE partner contributions were mostly in the form of land, assets, or 

operating capital. To verify the accuracy of the reported value of these 

contributions, ABADE conducted ad hoc site visits and analyses of the market 

value of the relevant assets and in-kind contributions. For example, to verify 

the value of land contributed by a partner, the ABADE team would assess 

the value of the existing land or facilities in the neighborhood to confirm the 

value range of the partner’s contributed land. However, verification of this 
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information was problematic for several reasons. Partner contributions were 

documented by the partners themselves, and it was not always possible to 

verify due, in part, to the implementing partner’s inability to conduct regular 

onsite visits and cross-check references provided by the alliance partners. 

Relatedly, verification of information on the value of in-kind contributions by 

enterprises is difficult, given that Afghanistan doesn’t have official systems for 

land registration or price benchmarks and that there are mutual incentives for 

grantees and donors to overstate values. Finding the time to verify numbers 

reported by partners was especially challenging, as staff came under pressure 

to quickly form partnerships in order to spend the allocated budget and thereby 

show progress.702

ASMED’s mid-term audit highlighted the unreliability of data on contributions, 

noting that data for performance indicators were not reliable and “therefore 

not useful in managing for results or credible reporting.”703 ABADE’s mid-term 

evaluation did not examine the value of the partner contributions to confirm 

whether they reflected the true value, but did caution that ABADE should ensure 

that the partner contributions were not inflated.704 According to an implementing 

partner official: 

You do your best with what you have. For the new partner contributions, 

we did request and receive copies of invoices and purchase agreements or 

contracts so we would verify the actual amounts invested by the partners. 

For pre-existing partner land, facilities, or equipment, partners rarely had 

any kind of financial documentation to indicate their value. We therefore did 

some research on the price ranges of local land and buildings and, from our 

own equipment procurement efforts, we were aware of possible price ranges 

of various types of equipment. We therefore could only do best estimates for 

partners’ existing contributions. We don’t know if the numbers were exact. 

You can say that these numbers were more indicative, than exact.705

Post-Award Support To Partners 

Given low levels of business literacy and the complicated and bureaucratic 

grant application process, ABADE organized conferences and workshops 

and offered one-on-one assistance to provide information about the program 

and assist enterprises in developing business and financial plans. ABADE 

also provided post-award support that included training on industry-specific 

technical skills, operating machinery, accounting, public relations, marketing, 

health and safety, and hygiene and sanitation. In some cases, ABADE also 

facilitated access to finance by assisting growing firms with their financial 

management processes and offering referrals to loan providers.706

While the technical support provided by ASMED and ABADE helped companies 

develop plans and improve management systems, often these actions were more 

to fulfill the requirements of the project than to address the real business needs 
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of the company. A business owner in Kabul with experience in working with 

various donor projects in the private sector noted: 

At the least, [donors] created a culture and promoted appreciation and value 

for using better financial systems by the private sector companies. But even 

that utilization of better financial systems was mainly to attract donor money. 

For example, if a company wanted to apply for a grant, they were required 

to have proper financial reporting systems in place. These companies hired 

consultants to develop the system just to get the grant. The emphasis was not 

so much on the profitability and sustainability of the business, but more on 

how to fulfill a donor’s requirement.707

Once approved, the partners faced additional delays in receiving equipment and 

services because of the long and complicated process of sourcing, purchasing, 

and importing machinery from overseas. While some of the partners found 

the approval process to be appropriate and not excessive, others found the 

delays frustrating; some partners even had to withdraw because machinery 

had become obsolete by the time of its delivery.708 Some of ABADE’s partners 

also found it challenging and costly to complete all the necessary paperwork 

and other procedures, and some found the process too time-consuming, and 

so dropped out of the program. Nevertheless, while many recipients of ABADE 

grants criticized the procurement process and the associated delays, they 

reported increasing sales and were grateful for the machinery and equipment 

that helped them expand their businesses.709

Strengthening Business Associations

One of ASMED’s major components was supporting hundreds of new and 

existing local business associations to build their capacity to access national 

and international markets, secure financing, and advocate for changes in the 

business enabling environment on behalf of their members. However, according 

to a survey in 2009, while many firms knew of business associations and 

the benefits they could provide, relatively few actually participated. Around 

three-fourths of members were either occasionally or never in contact with 

business associations or chambers of commerce. One explanation for this 

was that nearly half of the members reported not receiving any services from 

these associations.710 Therefore, after three years of supporting local business 

associations, ASMED recognized that expecting associations to perform 

strategic planning and advocacy was “overly ambitious” and concluded that 

“support to associations in a broad sense did not significantly improve their 

services to members or their sustainability, and did not result in tangible benefits 

to [small and medium enterprises]” and therefore discontinued its support.711

Learning from this experience, ABADE did not support business associations. 

Support to Business Development Services

In addition to business associations, ASMED also supported new or existing 

business development services (BDS) providers. The intent of ASMED’s support 
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to BDS providers was that small firms could avail themselves of BDS expertise 

and advice to plan their expansion or diversification. ASMED viewed its BDS 

support as a success because it had “transformed these companies from 

first generation donor-driven operations limited to providing basic business 

management services, to capable independent market actors able to provide 

[small and medium enterprises] with innovative and valuable services.” The 

project claimed it had increased the client base of its 50 supported providers by 

118 percent.712

 The ASMED evaluation report, however, questioned this claim by 

stating that many of the local BDS providers could only deliver business-related 

training and produce basic business plans, but weren’t capable of providing the 

high-quality, credible, actionable, insightful, and fairly priced services domestic 

enterprises were seeking.713

A BDS provider is an entity that provides services ranging from training, consulting, and 

advisory services on a fee basis to marketing assistance, business linkage promotion, 

and information technology development and transfer.714

The realities of the Afghan business environment and structure of Afghan 

enterprises also limited the possibilities for the BDS providers to become 

self-sufficient. The majority of local enterprises were small-scale, informal, or 

unregistered, and had insufficient levels of business literacy to understand or 

articulate their real needs and how to graduate to the next level of enterprise size 

and sophistication. This limited understanding of business needs on the demand 

side, combined with the low quality of services provided on the supply side, led to 

enterprises’ negative perceptions and unwillingness to purchase such services.715

By its third year, ASMED realized that enterprises were unwilling to pay for 

BDS because they didn’t see the value, couldn’t afford it, or could get similar 

services for free, often through other donor projects.716 In most cases, the clients 

of the BDS providers were firms that paid for the services with USAID or other 

donor funds that were dedicated for that purpose. As those funds dried up, most 

BDS providers were unable to continue to find paying clients and the providers 

ceased operations; for example, by 2012, of the 12 BDS providers that had been 

established in Mazar-e Sharif, only two could be located.717

DOD’S SUPPORT TO ENTERPRISES

The U.S. military provided support to private sector development in three main 

ways: CERP micro grants, the Afghan First procurement policy, and TFBSO. 

With the adoption of COIN and the elevation of stability operations to an equal 

status with combat operations, the U.S. government attempted to improve the 

unity of effort of various U.S. agencies, which was viewed as critical to the 

effectiveness of stability operations.718
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Commander’s Emergency Response Program

Originally introduced in Afghanistan from Iraq in 2004, CERP was viewed as an 

“excellent enabler of winning hearts and minds,” allowing military commanders 

“to respond to urgent humanitarian relief and reconstruction requirements 

within their areas of responsibility” by carrying out programs that would 

“immediately assist the people of Afghanistan.”719

The U.S. military’s rationale for the program included the belief that the 

resources civilian agencies could mobilize were inadequate to the task at 

hand and that those agencies, especially USAID, were unable to execute 

reconstruction activities in insecure environments. Given the military’s ability 

to operate in non-permissive environments, and to quickly and efficiently deploy 

resources there, military officials believed they were better suited to meet the 

most pressing needs of the local communities.720

CERP funds were used by various military units for a wide range of projects that 

included agriculture, infrastructure (including roads), transportation, power, 

and telecommunications. A very small percentage of CERP funds was also used 

in the form of micro grants to businesses to incentivize entrepreneurship. The 

881 projects labeled as micro grants totaled $6.5 million, or only 0.44 percent 

of total CERP disbursements.721 Additional CERP projects, such as marketing 

assistance, construction of roads and culverts, and refurbishment of bazaars 

Women’s Empowerment Coordinator for Agricultural Development Team examines a bee hive in Kapisa 

Province in July 2010. (U.S. Army photo)
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and market buildings were complementary activities that stimulated the 

local economy.722

The program initially prohibited funding of private businesses, but starting in 

2009, an exception was made for micro grants.723 According to CERP guidelines, 

a micro grant was financial assistance provided in kind, cash, or both, with 

a value of less than $2,500, given to disadvantaged entrepreneurs engaged 

in small and micro business activities, who lacked “independent wealth or 

were otherwise unable to access sufficient business credit at commercially 

reasonable terms.”724 The 2009 guidelines initially set the limits for micro grants 

at less than $2,500, although greater amounts were allowed with approval from 

progressively higher levels of command. The limits were later increased to allow 

grants greater than $30,000 with the approval of the USFOR-A commander.725

The intent of the micro grants was to increase economic activity, particularly 

in areas where small businesses had suffered because of insurgent violence. 

The micro grant program expanded the flexibility of CERP and authorized 

commanders to provide cash, equipment, tools, or other material support to 

small businesses that lacked available credit or financial resources.

The process of awarding micro grants to businesses was deliberately bureaucratic 

to ensure appropriate use of CERP funds. The process required approvals from 

senior officers, who were typically PRT commanders, in addition to vetting the 

businesses in close consultation with the district government officials and followup assessments of the businesses. However, the officers could only monitor the 

process within the short timeframe of their tours, which were typically 

9–12 months. Also, the inclusion of Afghan government officials in the selection 

process didn’t ensure the appropriate use of funds, but instead created an 

opportunity for corrupt officials to demand payment in return for their approval.726

The use of micro grants paralleled an overall increase in small-scale CERP 

projects because of the perceived failure of large-scale ones. Some members of 

Congress had grown increasingly skeptical of CERP’s large-scale infrastructure 

projects and believed CERP was not well designed for such projects because 

they were largely “unsustainable and led to waste, fraud, and abuse.” The 

members felt CERP should focus on quick and small projects, with an emphasis 

on military, not development, objectives, and not turn into a “development 

bank.”727 CERP projects were subject to additional criticism for the lack of 

evidence that they were successful in promoting even short-term stabilization.728

Partly because of the way CERP was structured 

and administered, it is hard to find evidence 

of the effectiveness of micro grants.
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Partly because of the way CERP was structured and administered, it is hard to 

find evidence of the effectiveness of micro grants. Some civil affairs officers who 

were skeptical of micro grant effectiveness noted they didn’t use micro grants 

for various reasons, including the cumbersome and slow bureaucratic process 

for approvals, “no mechanism for follow-up” due to lack of project turnover to 

the government, and “no way to create metrics of effectiveness.”729 While not 

specifically assessing micro grants, multiple assessments—by GAO in 2009, U.S. 

Army Audit Agency in 2010, and SIGAR in 2018—consistently reported there 

were limited metrics or means by which CERP’s overall effectiveness could 

have been determined, and where there were established metrics, data weren’t 

collected from the field consistently.730

In the absence of sufficient data, an assessment of CERP’s effectiveness by 

RAND in 2016 used proxy measures, including nighttime light data, and found 

a statistically significant correlation between CERP projects and economic 

activity in the area.731 However, the report also cautioned that the study design 

didn’t allow RAND to provide any clear insights about CERP’s effectiveness, 

and cautioned that such cause and effect relationships in complex operating 

environments like Afghanistan are difficult “due to the range of actors and 

developments and their interactions that can affect local conditions.”732 One 

of the factors not listed in the RAND report is the presence of military forces, 

which can have a significant impact on economic activity. For example, a 2012 

empirical study found that entrepreneurship and economic opportunities 

in high-conflict Afghan villages tended to increase merely as a result of the 

foreign military’s presence, which created a demand for goods and services and 

therefore contributed to increased economic activity.733

Delivering financial support to small businesses without an effective mechanism 

for monitoring the selection, implementation, and impact, especially when a 

do-no-harm analysis of CERP wasn’t conducted to assess how interventions 

might have generated unintended consequences such as grievances, can prove 

to be counterproductive, as it promotes a culture of dependency and distortion 

in the market.734

Afghan First

First launched in 2006 and expanded during the 2009–2012 surge period, the 

Afghan First procurement initiative was an explicit policy for how the military 

should contract with local companies to stimulate the economy. The impetus 

for this initiative originally came from the Peace Dividend Trust (PDT), 

funded primarily by Canada, and its “Afghan Marketplace,” which tried to 

link international buyers of goods and services with Afghan sellers through 

an online directory of businesses. PDT also provided technical assistance to 

Afghan businesses in Kabul, Mazar-e Sharif, Jalalabad, and Kandahar to increase 
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their ability to win contracts.735 Initiated and subsequently codified in the 

FY 2008 NDAA with the purpose of infusing money into the local economy, the 

Afghan First policy was expanded beyond DOD when the 2009 Supplemental 

Appropriations Act stipulated that State and USAID could award Economic 

Support Funds to Afghan entities with limited competition.736

The main rationale behind the Afghan First policy was that much of the money 

donors spent on goods in Afghanistan went to Pakistan, China, Turkey, and other 

countries where the purchased items were produced. Therefore, the initiative 

aimed at having Afghan companies make as many of the products the United 

States and its coalition partners were buying as possible, instead of importing 

them from other countries. This way, more money stayed in the country and more 

jobs were created. The U.S. government also wanted to prove that quality goods 

could be made in Afghanistan at reasonable prices. As part of the Afghan First 

initiative, U.S. agencies worked with Afghan businesses to help them improve the 

quality of their products and develop the business management skills to eventually 

compete in the commercial and international markets.737

While the official policy was solidified in 2009, there were previous, similar 

efforts. In 2006, the Afghan Beverage Industries, the company that produced 

Cristal Water, was the first Afghan company to win a contract to supply bottled 

water to the U.S. military. In 2016, the company signed a bottling agreement with 

PepsiCo Inc. to manufacture and distribute PepsiCo products in Afghanistan.738

This contract allowed the company to sustain and diversify its operations 

Workers at the Kabul Milli Trading Company factory assemble combat boots for the Afghan National Army in 

Kabul in September 2010. (U.S. Air Force photo)
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beyond only bottled water, for which the demand came mainly from the foreign 

military and civilian presence. 

Between 2008 and 2011, U.S. government agencies reported awarding 

$654.4 million in contracts directly to 214 Afghan companies. The majority of 

the contracts were in construction, followed by commodities and services.739

While in theory this represented money going into the Afghan economy, Afghan 

First’s impact on employment cannot be assessed because of the lack of a 

suitable methodology, accurate data from the field, and standard definitions 

of employment.740

In 2009, shortly before U.S. spending peaked, concerns began to surface about 

where the money was going. The 2009 report of the Commission on Wartime 

Contracting and media reports of U.S. contracting practices that unwittingly 

funded the Taliban led to increasing concerns about contract oversight.741 Making 

contracting “commanders’ business,” the COIN Contracting Guidance issued in 

2010 by USFOR-A and ISAF Commander General David Petraeus directed military 

and civilian personnel of NATO, ISAF, and USFOR-A to hire Afghans first, buy 

Afghan products, and build Afghan capacity, but also highlighted the necessity 

of establishing systems and standard databases to ensure contracts were not 

awarded to malign actors.742 Also in 2010, the U.S. Embassy established an Afghan 

First Working Group to coordinate U.S. and international military and civilian 

efforts in implementing the Afghan First policy. The same year, DOD established 

a vendor vetting cell, mainly vetting contracts equal to or greater than $100,000. 

However, the cell didn’t routinely vet subcontractors, even when their contracts 

exceeded that threshold.743

Despite consistent efforts to improve contracting and accountability, vendor 

vetting remained a challenge. A SIGAR audit conducted in 2012 found 

U.S. contracting authorities used various methods of announcing contract 

opportunities, instead of a single repository. They also did not consistently use 

information available in various databases to vet Afghan companies for Afghan 

ownership, licensing, and past performance. As a result, access by Afghan 

companies might have been limited and contracts might have been awarded to 

companies that were not eligible.744

Task Force for Business and Stability Operations

DOD’s most direct and large-scale engagement with the private sector in 

Afghanistan was through TFBSO, which was created by DOD in Iraq in 2006 

and expanded to Afghanistan in 2010. While TFBSO was initially conceived 

as a group of “expeditionary” business specialists intended to improve DOD’s 

contracting practices and facilitate contracts with local vendors in Iraq, by 

2010 it had expanded to take on a broader economic stabilization role, with 
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TFBSO’s mission in Afghanistan ended in December 2014, concurrent with the 

security transition and withdrawal of U.S. troops. Between 2010 and 2014, TFBSO 

obligated more than $675 million for various projects in agriculture, banking, 

investment facilitation and business support, indigenous industries, energy, 

mining, and women’s advancement.748 While TFBSO implemented large-scale 

projects in natural gas and the extractive industry, this report focuses on their 

direct support to private enterprises that took place under TFBSO-defined project 

categories of investment facilitation and business support and indigenous 

industries, as highlighted in table 2. 

the mission to “promote economic stabilization in order to reduce violence, 

enhance stability, and restore economic normalcy” in Afghanistan.745 A former 

TFBSO senior official noted that TFBSO was critical of USAID’s “development 

approach” to the private sector, such as providing grants, and viewed its role as 

a “bridge to the private sector” or “a private equity firm,” by promoting private 

sector investments in key sectors, such as cashmere and natural gas.746

TABLE 2

A SNAPSHOT OF TFBSO PROJECTS

Programs Value ($ MILLION) Description

Energy Projects $112.4 Hydrocarbon exploration and production, expanding Afghanistan’s 

natural gas assets

Mining Projects 89.2 A geological survey, technical training, and business tender support 

and promotion

Investment Facilitation and Business 

Support 63.5 Investment facilitation, business incubation, and business acceleration

Indigenous Industries 16.2 Carpets, cashmere, gemstones, and jewelry

Agriculture Projects 15.3 Capacity building and infrastructure development, support for two 

agricultural colleges

Banking Projects 13.6 Training in finance and international standards of banking

Women’s Advancement 6.1 Vocational training center for women, Center for Women’s 

Economic Development

Note: Shaded cells indicate areas discussed in detail in this report.

Source: SIGAR analysis of TFBSO documents obtained from DOD, contract administration offices that supported TFBSO, and TFBSO former contractors. 

Expeditionary Economics

Common usage of the term “expeditionary economics” arose from a 2010 Foreign 

Affairs article that called for the military to actively engage in private sector development 

in conflict environments as “part of any successful three-legged strategy of invasion, 

stabilization or pacification, and economic reconstruction.”747

 This approach advocated a 

dominant role for the military because, as the best-resourced institution, it could quickly 

deploy and get results in non-permissive environments. Advocacy for expeditionary 

economics often contains implicit and explicit criticisms of traditional U.S. aid programs, 

which are seen as sluggish, ineffective, top-down, and not sufficiently focused on the 

task at hand: stability.
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Investment Facilitation and Business Support

One of TFBSO’s initiatives was to facilitate private investment in Afghanistan 

by identifying promising small and medium enterprises that were vetted and 

assessed to be commercially viable, then presenting them to potential investors 

and financial institutions. Serving as an intermediary, TFBSO sought to reduce 

transaction costs and assist with negotiations by facilitating meetings and 

conducting market and feasibility studies. For example, the task force facilitated 

around $5 million of investment in small and medium enterprises.749 It also 

facilitated loans from domestic and international financial institutions to Afghan 

companies, including a local media company and an ice cream factory in Herat. 

TFBSO also organized multiple visits to Afghanistan for foreign investors 

and assisted a natural gas producer by facilitating negotiations between the 

Afghan government and foreign financiers, including the International Finance 

Corporation and a U.S.-based investor.750

Field Story #2: The IT Startups 

TFBSO’s technical support helped young Afghan entrepreneurs set up small IT companies 

in Herat. However, some of these companies found it challenging to generate revenue in 

the absence of any external support. 

One IT startup provided webhosting services to local businesses in Herat. TFBSO provided 

the company with office space at the Herat incubator and mentored the company’s 

founder in business and marketing planning, financial tracking, and project management. 

TFBSO introduced the founder to a U.S. investor, but the hoped-for investment did not 

materialize. The founder also participated in an exposure trip to the United States that 

was facilitated by TFBSO, after which he opened another small IT company that provided 

digital marketing services. The company trained and then hired Herat University’s IT 

graduates as interns, who received a small monthly stipend from a USAID project. 

However, despite this extensive training, financial infusion, and opening of doors to 

potential backers, deteriorating security and lackluster demand made it challenging for 

the startup to remain profitable without outside support.751

Another IT startup, founded by an Afghan woman with assistance from TFBSO, gained 

international recognition for the woman’s pioneering work in the technology sector. 

However, the company’s promising start and involvement in a range of activities, including 

software development, IT support, and building network and internet facilities inside 

businesses, was later reduced to developing one educational software product. Some 

of the reasons for this dwindling operation were the cumbersome bureaucracy of Afghan 

government contracting, a threatening environment for women-run businesses, and the 

departure of key staff.752 When the company couldn’t generate revenue through sales, 

the owner had to resort to creating a nonprofit organization to raise funds to provide 

mentoring for other aspiring female entrepreneurs.753
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Another TFBSO initiative aimed at developing the commercial information 

technology (IT) sector by creating an IT incubator in Herat, where TFBSO 

believed there were a number of “experienced computer scientists.” The goal 

was to turn Herat into the “Bangalore of Afghanistan” by identifying promising 

Afghan startups and providing them with support, such as office space, internet 

access, and business advisory and consulting services, as well as connecting 

these companies with U.S. and international investors.754

After a TFBSO internal analysis of its program and its increasing familiarity 

with and adaptation to the realities of Afghanistan, it expanded the recipients 

of its business advisory services to include not only IT startups, but also 

more mature small to medium enterprises from other sectors, such as food 

processing, light manufacturing, and chemicals. The IT incubator was renamed 

as business accelerator.755 TFBSO reported that by the close of the program 

in 2014, 62 entrepreneurs and 13 companies (out of 34) graduated from the 

business accelerator.756 Some of the beneficiaries believed the initial support 

and networking services were beneficial, but others said TFBSO’s consultants 

provided Western-based marketing advice that could not be applied to 

traditional Afghan markets.757

The business accelerator was eventually dissolved in 2014, concurrent with the 

closure of TFBSO. By this time, TFBSO had awarded American University of 

Afghanistan with two grants to create and manage Business Innovation Hubs 

in Kabul and Herat. The hubs were to continue the business advisory program 

begun with the Herat incubator effort.758 By partnering with AUAF, the TFBSO 

team aimed to improve the long-term financial stability of the hubs and ensure 

their continuity after TFBSO’s termination. However, despite the introduction of 

a fee for formerly free advisory services, the hubs were unable to become selfsufficient, because of insufficient demand and staff who weren’t qualified.759

Indigenous Industries

In addition to providing business consulting services, TFBSO supported 

enterprises in the carpet, cashmere, food processing, and artisanal products 

sectors. To promote potential exports, TFBSO facilitated the visits of 

international companies and investors to Afghan companies, organized 

international trade shows, promoted Afghan-made products, and established 

processing centers. For example, TFBSO, with support from a worldwide carpet 

trade show organizer, held an International Carpet Design Competition to 

inspire students and young designers to create modern designs using traditional 

weaving techniques. TFBSO also facilitated partnerships of 15 international 

companies with Afghan carpet weavers and distributors to produce their 

designs.760 One of TFBSO’s successful projects included the construction of a 

facility in Herat to cut and wash carpets, turning them into finished products 
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that could be sold for higher prices in international markets. Today, this 

company continues to be operational, employs between 12 and 30 people, and 

plans to expand services to meet increasing demand.761

However, another TFBSO project that established a carpet hub in Istanbul 

failed to deliver on its goals, which included training Afghans in carpet washing 

and finishing, and identifying and developing export routes for Afghan carpets. 

Similarly, in another TFBSO project that supported the participation of Afghan 

producers of carpets, cashmere, and jewelry in approximately 16 trade shows, 

it was unclear whether the trade shows resulted in increased sales of the 

Afghan products.762

TFBSO’s Overall Effectiveness

TFBSO’s support to enterprises in different sectors may have contributed to 

creating jobs, increased exports, and improved skills. However, as a January 

2018 SIGAR audit report highlighted, TFBSO suffered from major shortcomings 

with the overall program design, implementation, and oversight. TFBSO’s 

problems included poor record keeping; no clear articulation of mission and 

objectives; inconsistent coordination with U.S. and Afghan agencies; poor 

planning, contracting, and oversight; and insufficient planning to hand over 

completed or ongoing projects to other agencies.763

Because TFBSO didn’t consistently collect data and develop objective 

performance measures to monitor progress, it is not possible to assess TFBSO’s 

claims of job and revenue creation. A 2014 DOD-commissioned “economic impact 

assessment” projected that the combined effects of TFBSO projects alone would 

double Afghanistan’s GDP by 2025.764 However, that assessment was viewed by 

RAND as limited by TFBSO’s failure to collect performance data from the start.765

In addition to these problems, TFBSO suffered from funding uncertainty during 

its initial years. Immediately after TFBSO was introduced to Afghanistan in 

2010, State challenged TFBSO’s authority to use Title 10 (military) funding for 

its programs, arguing that its development and foreign assistance activities 

fell under State’s purview. While Congress resolved the issue in the FY 2011 

NDAA by authorizing TFBSO to use Title 10 funding, DOD interpreted the 

NDAA as requiring TFBSO to shut down and transfer its remaining projects and 

assets to State by end of 2011. TFBSO’s founding director, operating under the 

assumption that TFBSO was “basically going away,” resigned, followed at about 

the same time by much of TFBSO’s senior leadership, eliminating much of the 

agency’s institutional knowledge and experience.766

While the belief that the agency would have to shut down as early as 2011 

was based on a misunderstanding of the NDAA, Congress required TFBSO to 
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prepare annual transition plans highlighting that all projects would transition 

to an Afghan ministry, private business, or other U.S. government agency by 

2014. These plans were unrealistic in their assumptions about TFBSO’s ability to 

either hand over or complete projects by that date.767

TFBSO was often not well-informed of intra- and inter-ministerial politics, 

parliamentary politics, and local or tribal politics. The task force consistently 

underestimated how Afghanistan’s bureaucracy could cause significant delays. 

Although TFBSO conducted a country-wide assessment to identify development 

opportunities prior to its operation in Afghanistan, there was limited pre-award 

planning for individual projects. TFBSO also suffered from rivalries and 

generally poor relations with other U.S. development institutions. Officials 

from USAID, State, the embassy, and TFBSO all stated that coordination 

meetings were casual and brief and had eventually fallen apart by the time 

TFBSO activities concluded in 2014. According to these officials, TFBSO’s 

perception was that it didn’t have to coordinate with other U.S. government 

agencies and chose not to share information with USAID on multiple occasions. 

As a SIGAR audit found, “One senior TFBSO official stated that the task force 

viewed coordination with the embassy officials as a ‘courtesy’ rather than 

a requirement, and that they answered to the DOD chain of command, not 

the ambassador.”768

A 2018 SIGAR audit report assessed TFBSO’s 35 discrete projects as incomplete, 

partially complete, or mostly to fully complete, based on SIGAR’s determination 

of the extent contract deliverables were completed. While a number of TFBSO 

projects were well planned, scoped, and managed, they amounted to only 

Restaurant supported by TFBSO and ABADE in Herat in April 2016. (SIGAR photo by Mariam Jalalzada)
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Field Story #3: The Cashmere Farm

In 2009, cashmere was recognized by the Afghan government for its potential to create 

sustainable jobs and contribute to high-value exports. At that time, the two largest producers 

of cashmere were China and Mongolia, with Afghanistan the third-largest producer at 

6 percent of global cashmere production. Afghanistan had 7.8 million cashmere-producing 

goats, but only 30 percent of them were harvested. Furthermore, Afghan cashmere was of an 

inferior quality and much of the exported Afghan cashmere was unprocessed, commanding 

a lower price in international markets. The Afghan government’s plan for the cashmere sector 

was to move the industry up the value chain, increase processing of raw cashmere, enable 

producers to obtain higher prices for the raw fiber, create sustainable jobs, and reduce the 

cost of inputs for the carpet and textile sector.769 While the majority of the cashmere goats 

were in Herat and Badakhshan Provinces, most of their wool was exported from Herat. 

Recognizing the importance of the cashmere sector, TFBSO primarily focused on creating 

a breeding farm to produce high-quality, light-colored cashmere that was in high 

demand in international markets. At the same time, TFBSO planned to add value to local 

processing and increase the return on exported cashmere by introducing new breeding 

and husbandry techniques to improve goat herds, harvesting, cleaning, and spinning 

activities, and connecting Afghan producers with international buyers. TFBSO predicted 

that, with these interventions, Afghanistan could increase its output of raw cashmere 

fiber by 1,000 tons annually, adding an estimated $13.5 million revenue to exports 

per year. TFBSO also anticipated that half of Afghanistan’s raw cashmere fiber could be 

domestically processed, rather than shipped abroad in its raw, low-value state.770

For this purpose, TFBSO obligated $2.3 million to Colorado State University (CSU) in 

2013 to create a sustainable cashmere-producing farm of 2,000 goats in Herat. Some 

of these goats were flown in from Chianti, Italy, to breed with the native stock. The farm 

was intended to become the source of high-quality cashmere for the processing centers 

that had been established in Herat, with support from USAID-funded projects. Once 

completed, the farm was to be handed over to a private company. 

In 2015, CSU reported that it had completed construction, breeding, and training at 

the farm and laboratory. After failing to reach agreement with the Afghan Cashmere 

Manufacturers Association, the university located another Afghan company, the Noor Agro 

Group, willing to take over operations and management. The university was ultimately 

unable to facilitate a required memorandum of understanding between the Ministry of 

Agriculture, Irrigation, and Livestock and the Noor Agro Group, putting the sustainability 

of the farm at risk, especially given the high cost of maintenance of the farm. This is an 

indication that TFBSO did not take sufficient measures to ensure a handover agreement 

was in place prior to setting up the farm. 

When SIGAR’s lessons learned team visited the goat farm in April 2016, the facilities 

appeared to be in operation. In a subsequent visit one year later, SIGAR auditors found 

the farm abandoned and stripped of all animals and equipment. MAIL officials told SIGAR 

they were not in contact with the Noor Agro Group and did not know what it had done with 

the facility.771
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$70 million, or 22 percent of the total TFBSO direct costs.772 Among the projects 

assessed as having mostly to fully achieved their contract deliverables was the 

Amu Darya and Western Afghan-Tajik Basin seismic reflection survey, which 

was lauded by an Afghan government senior official as TFBSO’s most useful 

contribution. The official believed that this type of technical survey provided 

critical information and helped the Afghan government in its investment 

promotion efforts.773

 TFBSO also removed landmines near hydrocarbon wells in 

the Amu Darya Basin that opened opportunities for public-private investment. 

Other TFBSO components that were assessed as mostly or fully achieving 

their contract deliverables were the construction of a building to house the 

Agriculture College of Herat, a compressed natural gas station in Mazar-e Sharif, 

and a carpet cut-and-wash facility in Herat, all of which remain operational.774

However, the sustainability of some of the partially successful TFBSO projects, 

such as the Women’s Economic Center and Business Innovation Hubs, are 

questionable. These projects depend heavily on external aid and often do not 

have sufficiently qualified staff to provide competitive and professional services 

to private sector clients. 

Some TFBSO projects, such as the cashmere farm in Herat and a pomegranate 

cold storage facility in Kandahar, have either disappeared or weren’t constructed 

at all. Other projects, such as an industrial site west of Mazar-e Sharif that 

included the establishment of a sophisticated glass manufacturing plant, remain 

incomplete. The industrial site hasn’t attracted any intended investment, and 

the glass plant is unable to manufacture glass, primarily because it depends on a 

gas supply that was supposed to become available as a result of another TFBSO 

project to rehabilitate a nearby natural gas pipeline. However, TFBSO could not 

finish the pipeline before its disestablishment in 2014, and the company, after a 

series of discussions with MOMP, was not able to negotiate access to a reliable 

source of gas, which is required for the glass-making processes. A secondary 

plant, intended to finish the manufactured glass, was established with partial 

support from ABADE, and in 2016 was using imported glass while construction 

of the main plant awaited resolution of the natural gas connection.775

The recent SIGAR audit of TFBSO recommended that, if DOD or Congress 

authorized another TFBSO-like entity to develop the private sector, the entity 

should, among other things, have a defined mandate with clear objectives and 

measurable outcomes and develop a management system that can effectively 

track project progress, expenditures, and results.776 In addition to adopting 

effective project management mechanisms, DOD’s development initiative should 

also aim to complement, not compete with, other U.S. government projects. 

While TFBSO didn’t fully coordinate with other U.S. agencies, and at times even 

avoided collaboration, some of TFBSO projects however, helped its beneficiaries 
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seek assistance from other U.S. government-supported initiatives. For example, 

TFBSO’s IT incubator consultants, who provided business development advice 

to entrepreneurs, also helped develop applications for USAID’s ABADE grants. 

Similarly, TFBSO’s consultants, as part of their investment facilitation, helped 

secure loans from OPIC. However, in other areas, such as the cashmere and 

carpet sectors in which various USAID projects had previously provided 

support, TFBSO did not adequately coordinate with USAID or other agencies to 

ensure the sustainability of its facilities, including the cashmere farm in Herat 

and the carpet hub in Istanbul. 

FINAL POINTS ON SUPPORT TO ENTERPRISES

The U.S. government’s decision to provide support to individual enterprises was 

based on the belief that local companies needed direct financial and technical 

assistance to expand in the formal economy, access external markets, and 

mitigate risk. External factors, such as political insecurity and uncertainty, weak 

commercial rule of law and contract enforcement mechanisms, bureaucratic 

and opaque tax and customs processes, costly and unreliable transportation, 

and limited availability of power, land, and capital constrained the performance 

of the private sector. In addition, in some cases, the way the U.S. government 

support was designed and implemented limited the impact of that support and 

promoted dependency. 

Many companies that received direct grants became dependent on these sources 

of “free money.” Some enterprises received support from both ASMED and 

ABADE, or from other projects such as DFID’s Afghanistan Business Innovation 

Hub. Of a sample of 55 enterprises, 30 had received a grant from two or three 

projects funded by the same or different donors. At least six enterprises had 

received support from four or more projects.777 In one example, a salt producer 

in Mazar-e Sharif was connected to the city power supply with support 

from ASMED, then received technical training from the World Bank’s New 

Market Development program, that also facilitated its ISO certification. In the 

meantime, the company was waiting for ABADE-supported machinery to arrive. 

The company, faced with fierce competition from imported salt, expressed the 

need for better marketing and outreach, for which it anticipated even more 

donor assistance.778

Agencies overestimated their capacity to implement projects, especially within 

the aggressive timeframes often required by Washington. Internal obstacles, 

such as limited capacity and high staff turnover, along with external obstacles, 

Many companies that received direct grants became 

dependent on these sources of “free money.”
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such as government bureaucracy, corruption, and poor infrastructure, delayed 

operations, affected quality, hurt timeliness, and increased the cost of service 

delivery. Hands-on work with partner enterprises in evaluating their situation 

and developing their financial and technical capacities, as well as in purchasing, 

importing, and delivering equipment, was extremely time-consuming. Moreover, 

project staff often lacked the appropriate technical capacity and knowledge of 

the complicated local environment and its traditional ways of doing business, 

which resulted in delays and misallocation of resources. The project cycle, in 

which typically the first year was spent in start-up and the third year was spent 

in closing down, left limited time for actual implementation.

Finally, partly due to the security environment, U.S. agencies and their 

implementing partners were unable to obtain adequate and reliable information 

on partner firms. Aggressive vetting starting in 2010 was driven mainly by the 

military’s concern that funding was reaching the insurgency and not by a need to 

verify the accuracy of information reported by companies. Documents such as 

registration, tax filings, basic accounting statements, and business development 

plans were prepared solely to obtain donor grants, and there was no way 

to verify their accuracy. After the process of financial and technical service 

delivery was complete, projects typically didn’t have the means to adequately 

track the recipients’ performance, especially after the project ended. Local 

companies that received U.S. technical and financial support rarely faced any 

legal or financial repercussions for forging documents or providing inaccurate 

financial information about their businesses.

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This report described U.S. government support to private sector development 

and economic growth in the context of the overall reconstruction effort 

in Afghanistan from 2001 to 2017, examining in depth the five main areas 

of economic intervention. Our analysis yielded the following Afghanistanspecific findings.

1. Afghanistan’s significant economic gains in per capita income 

and growth in sectors such as telecommunications, transport, and 

construction were largely the result of post-conflict recovery and 

substantial foreign spending, and were therefore not sustainable. 

Despite double-digit growth in GDP, an increase in per capita income in the 

first decade of reconstruction, and the robust expansion of sectors such as 

telecommunications, construction, and transport, reductions in growth in 

the run-up to and after the 2014 political and security transition confirmed 

the lack of sustainability of an economy largely dependent upon the 

presence of international military and civilian personnel and money. 

A number of factors limited progress in a country trying to rebuild its 

shattered economy. Above all else, uncertainty and insecurity discouraged 

economic activity, including domestic and foreign investment, trade 

Hand in Hand International photo

CHAPTER 9

FINDINGS
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expansion, and formalization of the informal economy. Moreover, 

corruption in Afghan government institutions, weak regulatory and contract 

enforcement mechanisms, and changing administrative and tax policies 

posed significant challenges for private sector growth. While physical 

infrastructure, such as electricity and telecommunications, has improved 

since 2005, private sector growth continued to be inhibited by limited 

access to factors of production, including land, capital, and labor, and by 

poor infrastructure, such as roads. 

Significant U.S. and other donor investment in economic governance 

contributed to the Afghan government’s commendable progress in tax 

collection and expenditure management. However, foreign aid still 

financed more than 67 percent of Afghanistan’s budget expenditures in 

2016.779 Progress on increasing exports and attracting domestic and foreign 

investment was also limited. Even the most cautious projections for 

post-2014 GDP growth were based on highly optimistic assumptions for 

both security and the expansion of the extractive industries, none of which 

has been realized. 

2. Establishing the foundational elements of the economic system,

including sound macroeconomic policies and capacity for public 

financial management, at the start of reconstruction allowed some 

successes and set the stage for future development.

Early investments in the foundational elements of the economic system 

enabled many of the successes that did take place and set the stage for 

future development. These necessary building blocks included the creation 

of the new currency, establishment of instruments for currency and 

exchange rate management, reform of tax and customs policies, agreements 

to avoid deficit spending, and establishment of an effective system for 

public financial management, along with institutional reforms and laws that 

reduce structural and procedural bottlenecks to private investment. 

3. Optimistic projections for the pace and level of progress did not reflect

the realities of the Afghan economy and operating environment, 

the ongoing conflict, and the capacity constraints of Afghan and 

U.S. institutions.

Afghanistan was not the post-conflict country it was labeled in 2001. At 

that time, aid officials assumed a positive trajectory of progress and did not 

anticipate the lingering Taliban elements would regroup and grow into an 

insurgency that kept the country in a state of insecurity and uncertainty, 

which was not an environment in which the private sector or stable 

government institutions could be developed. Economic activities were also 

affected by shortcomings in other parts of the overall state-building agenda 
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on which private sector development was dependent, most seriously, rule 

of law. 

Moreover, U.S. officials’ optimistic expectations for the pace and level of 

progress did not always reflect the realities of the Afghan economy and the 

operating environment, nor the capacity constraints of both Afghan and 

U.S. institutions. This led to overly ambitious targets and unrealistically 

short timeframes for projects and results. 

4. Afghans have benefited from a more open trade policy, and future 

benefits from trade agreements and increased regional integration may 

continue to accrue; however, Afghanistan’s physical and institutional 

infrastructure and political relationships with its neighbors have 

limited its ability to become a trade hub benefiting from regional 

commerce and sustainable export markets.

From the start, the United States and its Afghan partners had a vision 

of Afghanistan as a trade hub benefiting from regional commerce and 

exports, and encouraged trade liberalization and regional integration 

through agreements intended to lower barriers to trade. Unfortunately, 

however, given the country’s situation, as well as slow progress in 

increasing productivity, adding value, and removing barriers to competition, 

Afghanistan has not fully benefited from trade as intended. 

Instead, the value of imports has more than tripled, while the value of 

exports has seen no substantial change. Afghanistan’s imports in 2017 

outweighed its exports by a ratio of seven to one due to factors such as 

poor trade governance, institutional dysfunction, poor infrastructure, low 

productivity, low levels of human capital, and low value added.780

Afghanistan’s poor trade performance is the consequence of a number of 

factors that make production noncompetitive and increase implicit and 

explicit costs for both exporters and importers. Specifically:

a. Infant industries, especially in a conflict-affected environment such as 

Afghanistan, require time and support to develop and compete in regional 

and world markets.

b. Bureaucratic processes for imports and exports, especially related to 

customs, have worsened over time, as have the costs of corruption. 

Despite reforms and technical assistance, corruption at all levels of the 

customs process leads to delays and raises the costs of goods and services. 

c. The inability of the state to provide key capabilities, including grading, 

certification, and phytosanitary inspection, has likewise hurt exports. 
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d. Poor physical infrastructure, especially roads and power, raises costs 

for transport, production, and storage, and discourages investment in 

activities dependent on them. 

e. Predatory or unfair trade practices by neighboring economies hurt 

Afghanistan’s already struggling regional competitiveness and dampened 

exports. Rather than becoming destinations for Afghan exports, Iran and 

Pakistan saw Afghanistan as a market for their own production. Border 

closings and insistence on transshipment of goods have not been offset by 

the signing of the Afghanistan-Pakistan Transit Trade Agreement in 2010. 

Substantial trade with the Central Asian republics remains constrained by 

geography, history, mutual suspicion, and their fear of “pollution” from the 

narcotics and violence prevalent in Afghanistan.781

f. A combination of the 2003 tariff reform and the movement away from 

the old inflated currency and artificially low exchange rate for tariff 

calculations raised the price of goods, including intermediary goods, 

which made Afghanistan’s products even less competitive. 

5. The persistence of corruption within the Afghan government, along

with uncertainty about and uneven enforcement of tax and regulatory 

policies, discouraged economic growth.

Despite investments by USAID, Treasury, and other development partners, 

well-documented corruption, along with cumbersome administrative 

processes and uncertainty about government tax and other policies, 

continued to pose obstacles to investment, business expansion, and 

collection of revenues by the government. Fear of government regulatory 

and tax-collecting institutions reinforced Afghan firms’ historical inclination 

to stay informal and small rather than risk expanding, hampering both 

government revenues and private investment. The opportunities for rentseeking were additionally enhanced by archaic regulations and vague and 

contradictory policies. Corruption exacerbated the constraint to growth most 

consistently reported by private enterprises: the lack of clear, titled land. 

Especially as the 2014 drawdown approached, the government responded 

to increasing international pressure for revenue generation by stepping 

up tax collection, increasing taxes on businesses, and improving customs 

collection, all of which provoked negative reactions among companies and 

created an opportunity for corrupt officials to extract additional payments 

from businesses. It is not surprising that, in its 2017 Ease of Doing 

Business rankings, the World Bank ranked Afghanistan number 183 out of 

190 countries. 
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6. Inadequate understanding or mitigation of the relationships between

corrupt strongmen and other powerholders limited the effectiveness of 

U.S. support to private sector development in generating broad-based 

economic growth.

While less well documented than corruption, the influence exerted by 

the political economy networks established during several decades of 

conflict, war, and dislocation had significant negative effects on private 

sector development. Many of the business elite who dominated the Afghan 

market were strongly connected to political power, enabling them to 

access contracts, tax exemptions, trading security, and money-laundering 

channels.782 There is evidence, especially from the transport, logistics, 

private security, and extractive sectors, of how politically connected 

strongmen acted, sometimes violently, to quash competition and gain 

benefits for themselves.783

These strongmen and their networks exerted undue influence over assets 

such as land and also affected the outcomes and perceptions of the 

disposition of the state-owned enterprises, as former state assets often 

went to a small group of players. Such capture was almost inevitable given 

the rush to privatize and the weak state of Afghanistan’s institutions, a 

phenomenon consistent with other international experiences.784

7. Neither the Afghan government nor society was adequately prepared

for the sudden introduction of a Western-style market economy. 

The introduction of a market economy and the opening of the Afghan 

economy to the world helped create opportunities and entrepreneurial 

dynamism, especially for a new generation of mostly urban Afghans. At the 

same time, these changes imposed a massive change on Afghan government 

and society, which was accustomed to the state taking a direct rather 

than stewardship role in economic activities and which was inadequately 

prepared for the rapid transition. This new order was not welcomed by 

many in the Afghan civil service, leading to obstruction and derailment of 

initiatives intended to strengthen the enabling environment for business. 

Many Afghans, including those in the private sector itself, did not fully 

understand the functioning of a market economy and the respective roles 

played by the private sector and the state. Due to this common lack of 

understanding and uneven enforcement of market principles, the market 

economy was conflated with unfair competition, monopolization of markets 

by politically well-connected firms, unfair trade practices by regional 

neighbors, and administrative corruption. 
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Some critics claim that the haste with which the market economy was 

pursued hampered success in competing in the regional or international 

market. As one critic noted, “The restrictive monetary and fiscal framework, 

in conjunction with a dogmatic belief of the economic authorities and their 

foreign supporters in trade liberalization, privatization, and private sector–

led development, severely restricted the role of the state in reactivating 

investment and employment.”785 When disillusionment set in, even President 

Karzai disavowed the system he had previously praised, stating, “I think we 

went toward a free market economy in too much of a hurry as it was what 

the West wanted. It was our biggest mistake.”786

Because of its ambivalence toward the market economy, the Afghan 

government had a hard time articulating and implementing an effective 

overall private sector development strategy as part of its economic reforms 

or even identifying a single counterpart institution with which U.S. agencies 

could work. 

8. The U.S. government’s provision of direct financial support to 

enterprises sometimes created dependent, commercially nonviable 

entities, as well as disincentives for businesses to use local financial 

and technical services. 

Many recipients of grants and subsidized loans reported the financial 

resources had helped them with their businesses. Some businesses came 

to expect continued financial and technical support, however, which led to 

the creation of dependencies. In other cases, grants from donor projects, 

which were essentially “free money,” created ambiguity, confusion, or 

false expectations.

Some grants and technical assistance also ended up supporting businesses 

that were not commercially viable because their products or services 

weren’t in high demand or they couldn’t compete with cheap imports. These 

businesses survived only by obtaining support from other donor projects. The 

availability of such sources of funding contributed to “pop-up businesses” 

and the creation of a class of “grantpreneurs” who kept their businesses 

afloat through a succession of grants from different donors and projects. 

9. Insufficient coordination within and between U.S. government civilian 

and military agencies negatively affected the outcomes of programs.

The Afghanistan reconstruction was the first in which military institutions 

played such a central role in development activities, especially during the 

height of the COIN era. The level of civilian-military coordination varied 

over time, and was most extensive during the surge period, when USAID 

was drawn into stabilization activities. 
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Coordination within the U.S. government departments and agencies 

responsible for private sector development was sometimes problematic. 

According to former DOD Comptroller Dov Zakheim: 

The Pentagon remains a stove-piped operation in which each major 

agency, department, or even branch of the Office of the Secretary 

jealously guards what it considers to be its two most valuable 

resources: money and information. . . . If parts of DOD are reluctant to 

work in a collegial manner among themselves, what can be expected 

when DOD is asked to work alongside other departments?787

Civil-military coordination was made more difficult by institutional and 

cultural differences. Personnel often had very different views of their own 

roles and missions, and lacked understanding of or confidence in the other’s 

expertise and capabilities. Part of the impetus for military involvement 

came from the belief within DOD that USAID was not nimble or capable 

enough to effectively support private sector development in an insecure 

environment. At the senior level, many held the belief that “USAID is simply 

not up to the job. . . . USAID’s limitations resulted in greater pressure on the 

military to take on more reconstruction work.”788

Nangarhar, Incorporated, the Jalalabad PRT’s plan for “jump-starting” 

the economy of the region, criticized USAID for focusing on long-term 

development to the exclusion of counterinsurgency, which, ironically, 

mirrored the criticism of the military levied by USAID: the military 

was focused on short-term aims rather than long-term development.789

According to the document: 

Although the [United States] is fighting a counterinsurgency campaign 

in Afghanistan as part of the War on Terrorism, USAID (the primary 

U.S. development agency operating there), is focused on ‘developing 

Afghanistan.’  . . . USAID’s objective of ‘developing Afghanistan’ can 

move forward in many ways and does not always contribute to the 

kind of effects desired in a COIN environment. Department of Defense 

doctrine indicates ‘reinforcing success,’ while agencies such as USAID 

typically go where the need is greatest, sometimes for short-term 

gain at the expense of long-lasting effects that strike at the heart 

of insurgencies.790

In some cases, civilian personnel and implementing partners were reluctant 

to be associated with military counterparts out of fear that a visible 

association with the military could compromise their security or activities. 

On the one hand, civilian personnel were sometimes reluctant to share 

too much planning information with the military, which was alienating 

to the PRT military personnel. On the other hand, especially in insecure 

areas, USAID personnel at PRTs often felt subservient and beholden to 

the commander’s priorities due to his or her control of transportation and 

therefore mobility. 
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10. Within U.S. government agencies, organizational factors and human 

resource policies constrained the implementation of private sector 

development projects. 

Capacity and organizational constraints within U.S. institutions were often 

at odds with their program and overall objectives. While some of these 

constraints were inherent to the Afghanistan environment, others were 

the consequences of policy. This was especially true during the surge, for 

example, when aid officials struggled to fill field positions.

The major human resource constraint was short tours of duty (typically 

less than one year for civilian and military positions) and the resultant staff 

turnover rates. The short civilian tours meant that agencies had to do more 

frequent recruiting from an increasingly limited pool of qualified applicants, 

raising the probability of delayed activities when positions were not filled. 

This also meant that positions were sometimes staffed with personnel who 

were unqualified and consequently ineffective in their work. In that regard, 

this was most evident from 2010 to 2012 during the height of the civilian 

and military surge.791 The most important consequence of short tours, 

however, was the lack of continuity and institutional memory. Ambassador 

Neumann reflected the views of many officials when he said, “If we could 

do one thing, it would be to lengthen tours, at least for senior personnel.”792

A further human resources constraint was the low institutional tolerance 

for risk that precluded allowing development personnel to leave their 

offices and bases to monitor projects and assess general conditions. As 

the insurgency spread and security deteriorated, these constraints became 

more serious as mobility restrictions limited the ability to implement and 

monitor programs in conflict areas.

11. Despite economic growth, estimated poverty, unemployment, and 

underemployment were not substantially reduced.

The United States and the international community followed a core theory 

of change that economic growth would help reduce poverty, increase 

employment, and enhance overall well-being for the population, thus 

contributing to stability and security. While poverty is hard to measure, it 

has been persistent. Based on available data, the double-digit GDP growth 

throughout the first decade of reconstruction did not translate to better 

living standards for a substantial majority of the population. Post-2001 

returns have primarily gone to those with assets, such as land, financial 

capital, and social capital. The challenge of providing employment and 

social services for the population was also made worse by the repatriation 

of over six million Afghans from Pakistan and Iran, nearly two million in 

2002 alone. This would have been a challenge for most governments, let 
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alone one trying to rebuild a shattered state and economy. The World Bank 

estimated that had growth been more equally shared among the population, 

poverty could have been reduced by up to 4.4 percent.793

In large part due to contracting and management incentives, U.S. and other 

economic programs focused on outputs rather than outcomes, measuring 

success in the number of jobs created, regardless of their stability, and 

other discrete measurable outputs. A 2012 UN International Labour 

Organization report noted there was too much creation of casual and shortterm jobs, and there were poor linkages between training and capacitybuilding programs on the supply side and job creation and the labor market 

on the demand side. The ILO also noted that underemployment was a larger 

problem than unemployment; given the loose definition of employment, 

almost everyone was employed. The ILO classified more than 90 percent 

of jobs in Afghanistan as “vulnerable employment,” a situation likely to 

worsen given the country’s young population and high growth rate.794

In a broader sense, there was no overarching mechanism for targeting 

endemic poverty. The lack of focus on poverty alleviation was not just a 

characteristic of U.S. assistance, though; it has also been cited as a critique 

of the strategy documents of the Afghan government. The ANDS, for 

example, specifies targeting growth “where the income and livelihoods of 

the poorest rise faster than the average growth of the economy;” yet, this 

has not been achieved, nor is it clear that it was even attempted.795

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UNAMA photo by Zakarya Gulistani

CHAPTER 10

LESSONS

The following lessons are drawn from the U.S. experience promoting 

sustainable private sector development and economic growth in Afghanistan, 

but have a more universal application to development work currently being done 

in Afghanistan and elsewhere, as well as to future contingency operations. 

1. It is not realistic to expect robust and sustainable economic growth in

an insecure and uncertain environment.

Although in early 2002 Afghanistan was considered a post-conflict nation, 

by 2006 it had become apparent that it was not, and today it remains a 

country very much in conflict. In retrospect, it was unrealistic to expect 

sustainable economic growth in an environment in which an insurgency 

and other forms of insecurity and uncertainty were increasingly present. 

In addition, as uncertainty in the business climate also came from poor 

governance and rule of law, the shortcomings in support to private sector 

development and in creating a thriving economy were at least in part 

related to the negative trends in the larger state-building enterprise and the 

inability to achieve a political settlement. An unrealistic view of what was 

possible in a conflict environment encouraged the setting of unrealistic 

goals, which in turn resulted in inefficient use of resources in projects 

which did not deliver on their objectives. 
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2. Establishing the foundational elements of an economic system at the

beginning of a reconstruction effort sets the stage for future success.

In Afghanistan, the early investments in the foundational elements of 

the economic system enabled many of the successes that did take place 

and set the stage for future development. Depending on conditions and 

needs, foundational elements can include the stabilization of the currency, 

strengthening of monetary policy and instruments, reform of tax and 

customs policies, agreements on levels of government spending, and the 

development of an effective system for budgeting and public financial 

management. Institutional reforms and laws that reduce structural and 

procedural bottlenecks to private investment and ensure property rights 

should be undertaken concurrently with these other foundational efforts. 

Another important foundational element is establishing mechanisms that 

make corruption more difficult, such as oversight of resources that are 

available for potential corrupt activities. 

3. Any new economic system which represents a break with a host

nation’s past knowledge and practice must be introduced carefully and 

with sufficient time to ensure adequate buy-in and development of the 

robust institutions required to maintain it.

The U.S. government sought to encourage the development of a robust, 

private sector-driven, open market economy with open external trade, with 

the Afghan government acting as a steward for the economy, rather than the 

lead. This was a sensible policy choice given the new Afghan state’s limited 

resources, the tradition of trade, and general economic principles. However, 

Afghanistan’s market economy was rolled out quickly and without adequate 

groundwork among key stakeholders, including mid-level officials and 

the citizenry. 

While at the highest level the U.S. and Afghan governments agreed on 

the desirability of a private sector-led development model, reforms were 

designed and formulated by a small, largely Western-educated, Afghan 

technical team working closely with U.S. and other foreign advisors. 

Mid-level government officials, as well as the population at large, did not 

adequately understand the concept of the free market economy and the 

respective roles played by the state and the private sector. Due to this lack 

of understanding, as well as weak enforcement of laws and regulations that 

were often not well understood, the market economy was conflated with 

unfair competition, monopolization of markets by politically well-connected 

strongmen, unfair trade practices by regional neighbors, and predatory 

corruption. As a consequence, there was limited buy-in and no national 

consensus. Opposing interests within the bureaucracy and ambivalence 
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toward the market economy resulted in the lack of an effective overall 

private sector development strategy.

4. Spending too much money too quickly can lead to corruption and

undermine both the host nation and the goals of the United States, 

while too abruptly reducing funding can hurt the economy. 

While Afghanistan reconstruction was under-resourced at the start, there 

is evidence that at other times, such as during the 2009–2012 surge, the 

U.S. government tried to spend too much money, too quickly. This was 

sometimes due to policy decisions made by senior officials in Washington, 

often despite the concerns of aid officials in the field. Moreover, the 

complicated funding mechanisms, starting with the appropriations process, 

tended to create delays in money actually reaching the field. It might 

have been more effective to have less money per year over the course 

of more years, and to relax the pressure to spend—the “burn rate”—as 

a metric for commitment, progress, or engagement. Doing so could have 

reduced opportunities for corruption and may have contributed to creating 

more confidence in the future, something that is often lacking in a postconflict environment. 

Similarly, the steep reduction in funding at the tail end of the surge was 

counterproductive. The 2014 drawdown was foreseen several years in 

advance, but the potential negative impacts of the reduction in money were 

officially downplayed, even if they were anticipated by aid officials. 

5. Inadequate understanding and vetting of the webs of personal,

sometimes criminally related, networks can allow elites to control 

economic activity at the expense of open and competitive markets. 

The technical and financial assistance provided to Afghan institutions and 

firms relied mainly on Western technocratic models that often failed to 

adequately consider how powerful Afghan social groups and institutions 

influenced public policy and the functioning of markets. Especially in the 

early, chaotic days of the reconstruction, some individuals and groups 

developed “special relationships” with military and civilian institutions 

that provided them with political support and legitimization and in turn 

enabled them to receive multiple contracts, grants, and loans for projects. 

Because these groups and their influences were often opaque to outsiders, 

strongmen were able to establish themselves in the economic realm 

and exert a negative effect on competition and access to markets; this 

reinforced patronage networks and discouraged new firms. 

Similarly, because of insufficient understanding of or interest in mitigating 

the networks of well-connected individuals, privatization of the state-
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owned enterprises not only failed to generate the investment in productive 

ventures that was the main rationale for privatization, it also fostered 

corruption by enabling the capture of resources by those individuals and 

allied government officials. These networks limited the strengthening and 

reform of government institutions that were meant to ensure a fair enabling 

environment for the private sector. The examples of the Kabul Bank 

collapse and the Ghori cement factory disposition illustrated how political 

forces can overwhelm institutions and established processes. Furthermore, 

the implicit toleration of corruption and often unintentional U.S. support 

for corrupt officials undermined support for private sector development 

initiatives from the Afghan population.

6. Successful private sector development efforts must be nested within 

the development of the rule of law and overall good governance. 

Private sector development cannot be seen as isolated from the 

development of the rule of law and good governance; they go hand in hand. 

Perhaps as much as the unstable political and security situation, weak 

and corrupt institutions were a source of uncertainty that discouraged 

economic activity. Corrupt practices by strongmen, predatory government 

officials, unreformed courts, and other institutions were consistently 

identified as the most significant factors discouraging economic activity. 

Many U.S. officials recognized these factors; however, they were either 

unable to do anything about them or else security or political objectives 

took precedence. 

7. The choice of a model for economic growth must realistically

acknowledge a country’s institutional and political environment and its 

physical endowments.

Considering the significant physical and institutional challenges facing 

Afghanistan, as well as the high levels of uncertainty, the quick lowering 

of barriers to trade was likely to have some negative consequences. 

While U.S. government officials understood Afghanistan’s disadvantages 

in infrastructure, human capital, geography, and weak institutions, 

interventions were insufficient to enable the country to overcome them and 

ramp up production to meet domestic needs. The quick opening of borders 

and reduction in other barriers to trade without simultaneous support to 

domestic industries essentially allowed imports to flood into the country 

from regional neighbors. A more flexible, pragmatic approach with greater 

allowances for promoting priority Afghan sectors might have allowed more 

competition and domestic production for the internal market, eventually 

allowing Afghanistan to become more open and able to compete in regional 

and global markets. 
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8. The provision of grants and below market rate loans can undermine

commercial banks and other market-oriented institutions and create 

unsustainable businesses.

While provision of finance allowed economic activity, grant programs 

sometimes acted as “free money” for unprofitable enterprises, which 

then expected continued financial or technical support and led to firms 

making investment decisions that were not economically viable or 

sustainable. Many firms stopped operations or went into “hibernation” once 

funding stopped. 

Grant and loan programs created disincentives for firms to borrow 

from market-based financial institutions. While some of these market 

interventions may have been justified on perceived pragmatic grounds of 

wanting to jump start enterprises, continuing support without adequate 

reference to performance was inconsistent with the market principles the 

United States espoused and with the policy advice it was dispensing to the 

Afghan government. 

9. Support to businesses and government institutions needs to be

tailored to the environment. 

Much of the enterprise-level support was not well suited to the Afghan 

environment. Especially in the early years after 2001, projects and 

approaches were often imported from other recent post-conflict countries, 

such as Kosovo, with minimal adjustments for Afghanistan. Especially 

outside of the major cities, most of the private sector in Afghanistan 

remained in the nascent stage, with business operations conducted at a 

traditional level. 

The business development service firms that were created, trained, and 

supported by USAID projects were expected to become self-sufficient 

by providing the same services to other firms on a fee basis; however, 

they were unable to sustain themselves due to low demand from Afghan 

businesses. Small Afghan companies did not have a tradition of using these 

specialized services, while larger firms didn’t trust the quality and expertise 

of these newly created providers.796 Despite the translation of materials into 

local languages, much of the content and logic of business development 

services, executive coaching, and the technical advice provided to firms 

relied heavily on a Western model of professional services that was often 

mismatched to the environment and did not fit well with the needs and 

operating styles of Afghan small enterprises, especially in rural areas. 

Senior technical experts often lacked experience in Afghanistan or even 

in post-conflict or developing economies, and therefore were unable to 

provide effective guidance and support.
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Technical innovations such as computerized customs management and 

sophisticated bank monitoring had the potential to improve the efficiency of 

government institutions, but were insufficient in themselves to resolve one 

of the most fundamental constraint to private sector development: ensuring 

a reasonably facilitating, minimally corrupt, enabling environment. 

10. Clear agreements on institutional roles, responsibilities, and lines of

authority, reinforced by human resource policies that fit a post-conflict 

environment, are necessary for an effective private sector development 

strategy and for overall development. 

While U.S. officials were in overall agreement on a private sector-led 

development model at the strategic level, different views at the more 

tactical and operational levels, combined with unclear mandates and 

competing institutions’ inter- and even intra-institutional rivalries, made it 

more difficult to translate that model into results. This was especially true 

between civilian and military agencies, where the lack of understanding and 

appreciation of competencies across civil-military lines fueled rivalries and 

reduced agencies’ ability to work harmoniously. Coordination mechanisms 

were developed over time, but particularly in the immediate post-2001 

period, there was often no space, time, or incentive for agencies or even 

projects funded by the same agencies to work together. Frictions were 

further exacerbated during the 2009–2012 surge period by the pressure to 

spend funds. 

Human resource policies, especially short tours of duty and security 

restrictions that limited mobility, impeded the ability of U.S. government 

personnel to implement and monitor projects, as well as constrained 

understanding of the environment and building relationships with local 

partners. Motivated personnel were hamstrung by strict security protocols, 

even in the early years when there were objectively fewer risks. 

11. Rigorous monitoring, evaluation, and analysis—which transcend

individual projects and programs—are necessary to understand the 

effectiveness of private sector development interventions. 

Assessing the effectiveness of private sector development support in 

generating economic growth, including whether that support led to 

increased stability, was extremely challenging. This is partly because, in 

the complex and data-poor environment of Afghanistan, outcomes were 

the result of numerous factors, all of which could be changing at one time. 

Moreover, the security environment and its effects on the mobility of field 

staff made rigorous monitoring and evaluation a challenge. While the 

information base is much better now than in 2001, partly because agencies 
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invested in improved technologies and varied methods, monitoring and 

evaluation remains a challenge in the Afghan environment.

Most private sector development-related monitoring and evaluation was 

tied to specific projects and therefore didn’t capture the long-term or 

lagged impact, especially where there was a change in the contractor 

or NGO implementing an activity. This not only limited understanding 

of effectiveness, but also encouraged aid officials and implementing 

agencies to focus resources on outputs that could be counted within a 

project period. 

12. Investments in human capital have significant returns, although it

may be years before they are realized. 

In both the public and private sectors, the combination of available 

opportunities and the training and educational opportunities provided by 

the United States and its international partners led to increased human 

capital and institutional capacity. Capacity building was imperfect, but 

it yielded results. Today, a class of young, mostly urban, entrepreneurs, 

including some who went to the United States and elsewhere for higher 

education, are able to use these skills and techniques in higher-end 

private enterprises. In addition, one positive outcome of an otherwise 

often corrupt system of subcontracting in development projects was the 

burgeoning business capacity of some of the participating companies. While 

individuals benefited, the full, long-term return for Afghanistan awaits the 

establishment of peace and stability. 

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The preceding analysis discussed U.S. support to private sector development 

and economic growth from 2001–2017. It highlighted the difficulties of 

promoting economic development in a war-shattered economy, but also noted 

some of the successes. 

Afghanistan’s early economic gains were largely due to an immediate postconflict recovery and the large infusion of foreign spending, and therefore 

were not sustainable at those initial levels. Early optimism was deflated by the 

fact that Afghanistan turned out not to be a post-conflict nation, after all. At 

the same time, the U.S. government’s initial efforts to set up basic economic 

infrastructure, laws, and policies—undertaken in concert with allies and 

international organizations—helped set the stage for the progress that did 

take place. Successes included building Afghan government capacity in public 

financial and macroeconomic management, the dynamic growth of sectors such 

as telecommunications and construction, and Afghanistan’s accession to the 

World Trade Organization. The opening of the Afghan economy to the world, 

as well as the building of human capital in a new generation of mostly urban 

Afghans, provided opportunities for young entrepreneurs. 

UNAMA photo by Fardin Waezi

CHAPTER 11

CONCLUSIONS
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The U.S. government helped to build institutions that supported private sector 

growth, although it overestimated the speed at which Afghanistan could 

transition to a Western-style market economy with sustainable and accountable 

institutions that were not under the influence of corrupt strongmen. Rapid 

opening up to trade allowed Afghan consumers access to cheaper imported 

goods, but the opening of the country’s borders before Afghan goods were 

competitive with imports hurt domestic producers. 

Sharp changes in funding levels and spending too much money during some 

periods encouraged corruption and complicated the challenges of coordination 

within and between U.S. agencies. In some cases, the U.S. government’s 

provision of direct financial support kept non-viable Afghan enterprises afloat. 

Above all else, the private sector needed stability and certainty to develop, and 

the overall absence of these factors limited foreign and direct investment. It 

would have been very difficult for robust and sustainable economic growth to 

take root in an environment with such pervasive uncertainty. 

Based on the preceding analysis, SIGAR identified recommendations for the 

executive and legislative branches that can inform support to private sector 

development in Afghanistan and other nations. 


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All country situations are different, and future interventions may involve 

countries with stronger institutions, higher levels of human capital, and a 

more diverse economy. Nevertheless, certain broad recommendations can be 

drawn from the Afghanistan experience. 

EXECUTIVE BRANCH

1. At the start of any major reconstruction effort, the National Security 

Council should direct the creation of an interagency working group 

led by USAID and staffed at the appropriate levels to plan and 

coordinate private sector development activities across civilian and 

military agencies. 

a. The interagency working group should include members from all 

agencies with a significant private sector development role and 

be given a clear mandate.

The working group should comprise personnel from USAID, State,

DOD, Commerce, Agriculture, Treasury, Trade and Development 

Agency, and other technical agencies, as appropriate. It should 

have a clear administrative mandate, with defined responsibilities 

USAID photo

CHAPTER 12

RECOMMENDATIONS
186 | RECOMMENDATIONS

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

and accountability mechanisms. The group should have access to 

sufficient technical expertise and local knowledge to provide sound 

programmatic advice, and should include staff who will maintain their 

involvement over as long a period as possible. 

b. The interagency working group should reach consensus on the 

respective roles and responsibilities of civilian and military 

institutions in private sector development, as well as the role 

development plays in contingency operations. 

At the start of a contingency operation or at an inflection point in

an ongoing one, key civilian and military institutions should reach 

consensus on what conditions and in what ways economic growth 

can contribute to stability and what the institutions’ respective roles 

will be. There is a gulf in understanding between civilian and military 

institutions, partly the result of cultural and functional differences. 

Working together under the right direction and mandate would provide 

an opportunity for bridging this gulf. If the military is to continue to 

play a role in development, a clearer mutual understanding will reduce 

the probability that either DOD or USAID—or other civilian agencies—

will be asked to take on tasks for which it is not well suited. This will 

also help to set realistic limits on what investments in private sector 

development are expected to achieve in stabilization. The respective 

roles, responsibilities, and projected achievements will be specific to 

each contingency operation. Furthermore, if the military is going to 

have a CERP-like program, USAID or other development professionals 

should be formally incorporated into the planning and implementation 

of its activities. 

c. The interagency working group should draw on existing analysis, 

supplemented by a rapid but in-depth assessment, to outline a 

strategic approach to rebuilding the host nation economy and to 

anticipate the likely impact of U.S. funds and material resources. 

One initial task would be to oversee a comprehensive economic

assessment of the host nation’s economy and then to devise a 

unified private sector development approach in which the roles of 

and expectations from relevant agencies are clearly defined, so that 

agencies complement each other’s work and do not duplicate efforts. 

This approach would help to set realistic projections and evaluate the 

capacity of the host nation to absorb aid and other financial flows. 

Massive international spending transformed the Afghan economy, 

including by producing negative side effects. While an operation of a 

similar scale is unlikely in the foreseeable future, even smaller amounts 
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of money can affect a national or regional economy through wage and 

price inflation and other dynamics. Because more is not always better, 

an initial comprehensive assessment of the macro economy and the 

state of the private sector would allow more strategic planning of types 

of policies and programs, as well as identifying where levels of funding 

are likely to have negative consequences in order to try to mitigate 

those effects. Resisting the inevitable pressure to spend large amounts 

of money at the start of operations will pay dividends in higher-quality 

programming over time. 

d. The interagency working group should draw from intelligence and 

other sources to understand the host nation’s political economy 

networks, and should use that information to make an informed 

decision regarding the tradeoffs and implications for who 

receives financial and other support. 

The provision of financial resources to local partners on the ground can 

have long-term consequences, both in terms of creating or reinforcing 

economic power, as well as in the broader distribution of political 

power. Short-term relationships of convenience can lead to unintended 

long-term consequences of market power and lack of equity. Some of 

the anticompetitive and antisocial behavior in Afghanistan might have 

been reduced by not empowering strongmen, or at least by negotiating 

limits on them. At the same time, there will inevitably be unpalatable 

tradeoffs to achieve political and security aims. 

e. The interagency working group should take the necessary steps 

to understand the host nation’s historical and social conditions 

and traditions, and to identify and mitigate possible areas of 

contention, resistance, and circumvention. 

The adoption of conventional free markets or other principles should 

be tempered by consideration of pragmatic and well thought-out 

mechanisms that provide domestic firms a reasonably level playing 

field. Post-conflict or conflict-affected countries such as Afghanistan 

almost by definition suffer from inherited disadvantages. Above all 

else, pragmatism toward long-term objectives and a realistic roadmap 

for moving toward a market economy, rather than adherence to 

ideology, should be the guiding principle. 

2. To the extent possible, State and USAID should focus market 

interventions at the industry or sector level, rather than selecting 

and supporting individual firms. 

While enterprise-level support can be provided for strategic considerations 

or to target the poor or disadvantaged groups, it is more effective to 
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SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

create incentives at the industry or sector level. Instruments can include 

tax breaks, temporary tariffs on imports, and subsides on electricity or 

other inputs. 

USAID should eliminate or reduce its use of grants and below-market loans 

to enterprises, which sets up perverse incentives and dependency. Instead, 

the agency should increase funding for market-oriented, flexible models, 

such as loan guarantees to private commercial banks. Mechanisms such 

as loan guarantees may be more effective in eliciting more market-driven 

enterprises. USAID programs should tolerate greater risk to encourage 

innovation with different approaches to private sector development.

As risk reduction is key to encouraging domestic and foreign investment 

in an uncertain post-conflict environment, USAID, State, DOD, and OPIC 

should more explicitly address the need to mitigate risk and uncertainty. 

Although USAID (through its grants) and OPIC (through its financing 

support) did aim to mitigate risk, additional mechanisms, such as 

companies that would provide war and disaster insurance, should be 

explored, as should the experience of institutions such as Afghan Growth 

Finance. Where possible, USAID or other financing entities should partner 

with a local, established financial institution that has an understanding 

of local market dynamics, as well as the ability to assess and verify the 

eligibility of the borrower and regularly monitor performance. 

3. USAID and State should assist the Afghan government in reviewing

the effectiveness of all Afghanistan’s regional and bilateral trade 

agreements, especially the Afghanistan-Pakistan Transit Trade 

Agreement, and then engage with trading partners to resolve 

constraints to Afghan exports and imports. 

Afghanistan adopted an open economy, but leaders in the Afghan private 

sector accused Pakistan and Iran of product-dumping and other unfair trade 

practices. The U.S. government should examine the veracity of these claims 

and, as appropriate, support the Afghan government in pursuing diplomacy, 

policies, and programs to mitigate them. The National Unity Government 

has belatedly looked to domestic demand creation through import substitution to support strategic sectors; the U.S. government should assist the 

Afghan government in promoting labor-intensive and value-chain investment, which could eventually lead to increased exports, in accordance with 

its National Peace and Development Framework. 

The U.S. government should support the Afghan government technically 

and diplomatically in its attempt to use WTO-allowed tariffs to promote 
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domestic production for internal consumption and export in areas of 

comparative advantage and consistent with good economic policy. 

4. USAID officials working in private sector development should continue 

to participate in mission-wide anticorruption initiatives, and ensure 

these initiatives are reflected in technical and policy work at the 

ministry level. 

Private sector development and good governance go hand in hand. The 

simple existence of laws and regulations is insufficient; it is how they are 

implemented by the courts, government officials, and police that matters. 

Addressing corruption may be inconvenient in the short term, as it may 

challenge strongmen who have economic interests and on whom the United 

States is dependent for political and security objectives, but doing so has 

long-term benefits. Early attention to anticorruption is crucial; leaving it 

until later risks that it will become entrenched. Addressing corruption and 

promoting transparency will increase the return on significant investments 

that are made in building and strengthening institutions. For projects that 

provide technical and financial support to key ministries, such as MOCI and 

MOF, USAID should require proof that they have taken proactive measures 

to tackle corruption in taxes, certification, and other regulatory processes. 

All project staff should be held accountable for anticorruption measures 

within their projects. 

5. USAID should continue to closely team with a host nation’s 

local institutions, such as universities, think tanks, and business 

associations, to provide technical assistance and training tailored to 

the local environment and its modes of doing business.

“Tailored to the local environment” does not mean simply translating 

curricula and training materials into local languages. Rather, international 

best practices need to be filtered, modified, and presented in accordance 

with local knowledge and perspectives. In Afghanistan, many of the 

training manuals and other technical material were primarily a translation 

of theories and concepts applicable to more advanced economic 

systems. Many Afghan businesses simply were not able to translate their 

marketing and business plan development training into medium or longterm sales and marketing strategies. USAID and other agencies should 

support the development of material that reflects the unique constraints 

and opportunities of the recipient market. The desire for speed in 

implementation should not be an excuse to skip the sometimes timeconsuming process of local consultation. 
190 | RECOMMENDATIONS

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

6. USAID should continue to invest human, financial, and time resources

in rigorous monitoring, evaluation, and analysis, including establishing 

a long-term framework that transcends individual projects. 

USAID should devise a framework for evaluation that allows the U.S. 

government to fully understand the long-term outcomes of projects and 

programs, allowing for the inherent lag in impact. It is impossible to 

evaluate impact at the end of a project when the ultimate impact may 

be several months or even years down the road. As a consequence, 

programming often focuses on outputs rather than outcomes. A mechanism 

should be found that overcomes the fact that money for evaluation typically 

ends when the project does. Assessments typically take place at the start of 

a follow-on or new project, mainly to set baseline numbers; instead, these 

assessments should occur earlier, perhaps as part of the evaluation of the 

previous project, when they can inform the design, implementation strategy, 

and timeframe of the next one. USAID should be prepared to advocate 

for taking sufficient time to plan rigorous monitoring and evaluation, 

which may be difficult at the start of an intervention when there is intense 

pressure to “do.” Finally, USAID should find technical solutions for cases 

where it is not able to physically monitor projects, rather than relying on 

third-party monitoring. 

7. State and USAID should review human resource policies to make

them more suitable for conflict environments, ensure continuity, and 

maintain institutional knowledge.

Current human resource policies acknowledge the personal stress of being 

posted in a conflict environment and attempt to mitigate this stress with 

short tour lengths; at the same time, however, it is widely accepted that 

short tours have an impact on effectiveness. In a complex contingency 

operation such as in Afghanistan, one-year tours of duty in the field are 

inadequate, especially at the senior level. While balancing considerations 

of effects on families and market competition for skills, policies should be 

reviewed and revised to eliminate or mitigate short tours of duty and the 

annual mass transfer of personnel. Agencies should consider a three to fiveyear period of commitment, although only some of that time would be spent 

in country. Additional regional and language study preparation time should 

be built into schedules. A pool of dedicated and experienced personnel 

using the “Afghan Hands” model should be considered. 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 191

LEGISLATIVE BRANCH

8. Congress may wish to consider creating a long-term private sector

development fund to reduce the pressure to use spending levels as 

a measure of progress and avoid sharp funding fluctuations during 

reconstruction efforts.

For economic growth and private sector development initiatives that 

require long-term engagement, Congress may wish to consider creating a 

long-term fund. The way in which funding is currently appropriated and 

obligated creates uncertainty among implementing agencies and the host 

country. Although it would still be subject to periodic consultation between 

Congress and executive agencies, a long-term fund would allow U.S. 

government agencies and their host nation counterparts to plan the volume 

and pace of spending based on careful examination of local conditions 

and the capacity of U.S. and host-country institutions to responsibly 

implement programs. This would also help avoid the funding droughts 

and floods agencies experienced at various times during the Afghanistan 

reconstruction effort, which made implementation difficult. The fund 

would guarantee a predictable stream of support and potentially ease the 

pressure on the implementing agencies to spend quickly, which often led to 

inefficiency and waste, as well as assure recipient local institutions of an 

enduring source of support. 

APRIL 2018 | 193

APPENDIX A: METHODOLOGY

SIGAR conducts its lessons learned program under the authority of Public 

Law 110-181 and the Inspector General Act of 1978, as amended, and 

in accordance with the Council of the Inspectors General on Integrity and 

Efficiency’s Quality Standards for Federal Offices of Inspector General. 

These standards require that we carry out our work with integrity, objectivity, 

and independence, and provide information that is factually accurate and 

reliable. SIGAR’s lessons learned reports are broad in scope and based on 

a range of source materials; to meet the required standards, the reports 

are subject to extensive review by subject matter experts and relevant U.S. 

government agencies.

Looking at the effectiveness of U.S. government support to private sector 

development and economic growth in Afghanistan posed significant research 

challenges. First and foremost, it was difficult to isolate the influences of 

policies and programs from larger dynamics, primarily uncertainty and 

insecurity. Second, due to the broad nature of what could be considered private 

sector development, the research team focused on a select subset of activities 

that fit certain criteria, including those that represented a significant amount of 

SIGAR Seal

APPENDICES AND ENDNOTES
194 | APPENDICES

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

U.S. government funds. Third, it was often difficult to separate perceptions from 

reality, especially given the countervailing influences of the pervasive narrative 

of failure on the one hand and the pressure for good news and success stories 

on the other. Finally, Afghanistan was a data-poor environment that lacked 

reliable, hard economic data, especially at the subnational or sectoral level. 

To prepare this report, the lessons learned research team consulted a wide 

array of publicly available sources. Government agency documents from 

DOD, State, USAID, GAO, Congressional Research Service, and congressional 

committees included strategies, program and policy documents, cables, 

project documentation (e.g., assessments, design papers, progress reports, 

evaluations), statistical reports, audits, and other reports. The research team 

also benefited from SIGAR’s access to material that is not publicly available, 

including a range of unclassified documents provided by U.S. government 

agencies; no classified material was used in the preparation of this report. The 

team also drew from SIGAR’s own work, as embodied in its quarterly reports 

to Congress, investigations, audits, inspections, and special project reports. 

Finally, the team reviewed non-U.S. government documents, including policy 

and strategy documents and analysis produced by the Afghan government, 

economic reporting from multilateral institutions, think tank and academic 

analysis, books, statistical databases, journal articles, international conference 

documentation, media reports, web sites, and unpublished reports. 

The research team interviewed more than 90 individuals with direct involvement 

in or knowledge of U.S. government efforts in private sector development, 

including current and former U.S. civilian and military personnel; current 

and former Afghan government officials; current and former international 

and multilateral aid officials; experts from academia, think tanks, and NGOs; 

contractors and implementing agency personnel; individuals from Afghan 

private sector firms and business associations; and Afghan entrepreneurs. 

Interviews were primarily conducted using prepared, semi-structured 

instruments and, in most cases, by two or more team members who compared 

written notes upon completion. Due, in part, to the sensitive nature of the topic, 

particularly for those persons still working in the U.S. or Afghan governments, 

most of the interviewees wished to remain anonymous. Therefore, to preserve 

anonymity, interview citations often cite, for example, a “senior U.S. official” 

or “senior USAID official.” Interviews were conducted in person or by phone in 

Washington, Boston, New York City, and Afghanistan. Documentary research 

was performed in SIGAR’s offices in Arlington, Virginia.

In April and May 2016, the research team conducted fieldwork in Kabul and 

the primary cities in the major economic zones of Afghanistan. Separate, 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 195

semi-structured interview instruments were developed for the several types 

of respondents: Afghan government officials, U.S. government implementing 

partners, private sector firms and entrepreneurs, and trade associations. 

Instruments were modified according to the area of experience and knowledge 

of each respondent. In addition to key informant interviews conducted in 

Kabul, Mazar-e Sharif, and Herat, a survey was conducted of 59 firms in 

Kabul, Kandahar, Herat, Mazar-e Sharif, and Jalalabad. Informants and firms 

were chosen based on their experience or affiliation with U.S. government 

private sector development programs, including those who were government 

counterparts on key projects or who had received grants, loans, or other support 

from a U.S. project or program. A local consulting firm was contracted to 

identify consultants and surveyors, select interviewees and set up appointments, 

assist with interviews, conduct the survey, perform initial analysis, consolidate 

and tabulate findings, and manage logistics. 

The report underwent an extensive process of peer and agency review. First, 

we sought formal feedback on a draft of the full report from eight subject 

matter experts, including Americans and Afghans, all of whom had substantial 

experience working on private sector development in Afghanistan. These 

reviewers provided significant, detailed comments on the report, which we 

incorporated, as possible. We also held informal consultations with other 

experts on specific aspects or sections of the report. 

USAID, OPIC, USTDA, USTR, and the Departments of Defense, State, 

Commerce, and Treasury were then asked to review and comment on the draft 

report. We received helpful and substantive comments from USAID, State, 

and Defense, and briefer responses from Treasury, Commerce, and USTDA. 

In addition, we met with USAID, State, USTDA, and Treasury representatives 

to receive their feedback on the report firsthand. After revising the report 

in response to agencies’ concerns and insights, we shared a near-final draft 

with USAID. We incorporated agencies’ comments where appropriate, but the 

analysis, conclusions, and recommendations of this report remain SIGAR’s own. 
196 | APPENDICES

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

APPENDIX B: SELECT U.S. GOVERNMENT PROJECTS

U.S. DEPARTMENT OF DEFENSE

Project Title Start Date End Date Appropriated ($) Obligated ($)

Cumulative Disbursements 

through 2015 ($)

Task Force for Business and 

Stability Operations (TFBSO) 2009 2014 $822,850,000 N/A N/A

Commander’s Emergency 

Response Program (CERP) 2004 Ongoing 3,689,370,000 $2,658,877,936 $837,913,634

Of CERP, micro grants 2009 2015 6,549,533 3,722,196

Note: Numbers have been rounded. Obligations and disbursements for TFBSO were unavailable. TFBSO was authorized to conduct a 90-day assessment 

of economic development opportunities in Afghanistan in 2009, but did not began operations in Afghanistan until 2010. To determine the number and 

disbursement amounts for the micro grants, we analyzed project and funding data from CERP annual fourth-quarter reports to Congress from FY 2004 

through FY 2015. We consolidated the data into a single, aggregated dataset that joined project information with expenditure data current as of the date 

on which the report was sent to Congress. We understand that obligation and disbursement data may have changed after the quarterly reports were 

provided to Congress, but, in coordination with OUSD-P on a separate CERP project, have decided to use the information provided to Congress in mandatory quarterly reporting only. We used the consolidated CERP dataset to identify 881 projects described as micro grants by conducting keyword searches 

of project titles and descriptions.

Source: SIGAR, Quarterly Report to the United States Congress, January 30, 2018, p. 226; U.S. Department of the Army, Money as a Weapon System 

in Afghanistan, Commander’s Emergency Response Program (CERP) SOP, U.S. Forces–Afghanistan Publication 1-06, December 2009, p. 45; DOD, 

“Commander’s Emergency Response Program (CERP),” Financial Management Regulation 7000.14-R, Volume 12, Chapter 27, January 2009, p. 8; SIGAR 

analysis of CERP data from DOD, OUSD-P, in response to SIGAR data calls, January 2014, April 2014, and July 2015; SIGAR, DOD Task Force for Business 

and Stability Operations, SIGAR 18-19-AR, January 2018, p. 1.

U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT (IN CHRONOLOGICAL ORDER)

Project Title

Implementer 

(Prime) Start Date End Date

Total Estimated 

Cost ($)

Cumulative 

Disbursements as of 

12/31/2017 ($)

Afghanistan Economic 

Governance Program (AEGP) BearingPoint, Inc. 11/7/2002 12/15/2005 $94,496,057 $94,495,834 

Rebuilding Agricultural Markets 

Program (RAMP)

Chemonics 

International Inc. 7/3/2003 09/30/2006 142,334,207 142,268,021 

Initial Natural Resources 

Assessments

U.S. Geological 

Survey (USGS) 3/24/2004 09/30/2005 5,000,000 4,996,078 

Promoting Sustainable Private 

Sector Development

Center for 

International 

Private Enterprise 

(CIPE)

4/29/2004 04/28/2007 5,991,233 5,991,233 

Afghanistan National Innovation 

and Competitiveness Program

On The Frontier 

(OTF) Group 7/1/2004 08/31/2006 5,791,089 5,750,414 

Land Titling and Economic 

Restructuring in Afghanistan 

(LTERA)

Emerging Markets 

Group (EMG) 9/15/2004 09/29/2009 56,328,775 55,496,124 

Afghanistan Trade and 

Commercial Law Assessment 

under Business Climate Legal 

and Institutional Reform Project 

Booz Allen 

Hamilton 9/30/2004 09/12/2007 450,000 450,000 

Economic Governance and 

Private Sector Strengthening 

(EGPSS) 

Deloitte Consulting 

LLP 9/26/2005 09/30/2009 79,379,622 78,388,908 

Afghanistan Rural Investment 

and Enterprise Strengthening 

(ARIES)

Academy for 

Educational 

Development

09/16/2006 12/31/2009 99,999,219 99,131,992

Afghanistan Small and Medium 

Enterprise Development 

(ASMED)

Development 

Alternatives Inc. 

(DAI)

10/26/2006 11/30/2012 114,003,159 113,435,323 

Afghanistan Treasury Advisors U.S. Department of 

Treasury 1/15/2007 06/30/2011 4,287,540 3,381,637 

Continued on the next page
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 197

Project Title

Implementer 

(Prime) Start Date End Date

Total Estimated 

Cost ($)

Cumulative 

Disbursements as of 

12/31/2017 ($)

Afghanistan Vouchers for 

Increased Production in 

Agriculture (AVIPA)

International Relief 

and Development 

(IRD)

9/1/2008 04/22/2013 469,701,416 469,421,481 

Incentives Driving Economic 

Alternatives-North, East, and 

West (IDEA–NEW)

Development 

Alternatives Inc. 3/2/2009 09/30/2015 159,878,589 156,427,449 

Economic Growth and 

Governance Initiative (EGGI)

Deloitte Consulting 

LLP 8/15/2009 08/31/2013 92,371,523 81,961,362 

Trade Access and Facilitation for 

Afghanistan (TAFA)

Chemonics 

International Inc. 11/18/2009 11/15/2012 63,962,156 63,962,156 

Agricultural Credit Enhancement 

(ACE) 

Development 

Alternatives Inc. 7/15/2010 02/25/2015 75,175,296 73,548,101 

Land Reform in Afghanistan 

(LARA) Tetra Tech, Inc. 1/30/2011 11/02/2014 41,800,000 41,159,733 

Financial Access for Investing in 

the Development of Afghanistan 

(FAIDA)

Chemonics 

International Inc. 2/7/2011 02/05/2017 112,706,532 111,707,001 

Commercial Law Development 

Program (CLDP)

U.S. Department of 

Commerce 9/10/2012 03/31/2015 4,894,260 4,894,260 

Assistance in Building 

Afghanistan by Developing 

Enterprises (ABADE)

Volunteers for 

Economic Growth 

Alliance (VEGA)

10/16/2012 07/15/2018 104,997,656 104,949,972 

Trade Access and Facilitation for 

Afghanistan II (TAFA II)

Chemonics 

International Inc. 10/16/2012 08/31/2013 19,791,053 19,271,038

Mining Investment and 

Development for Afghanistan 

Sustainability (MIDAS)

ECC Water and 

Power LLC 3/31/2013 03/31/2017 38,718,320 34,105,674 

Afghanistan Trade and Revenue 

Project (ATAR)

Chemonics 

International Inc. 11/7/2013 02/28/2018 77,754,266 73,910,183 

Commercial Law Development 

Program (CLDP)

U.S. Department of 

Commerce 3/1/2014 09/30/2019 13,000,000 8,179,161 

Agricultural Credit Enhancement 

II (ACE II)

Development 

Alternatives Inc. 6/24/2015 06/23/2018 18,234,849 10,763,682 

PROMOTE— Women in the 

Economy (WIE)

Development 

Alternatives Inc. 7/1/2015 06/30/2019 71,571,543 25,392,990 

Extractive Technical Assistance 

by USGS

U.S. Geological 

Survey 1/1/2018 12/31/2022 18,226,206 N/A

Source: SIGAR analysis of detailed USAID Pipeline Report dated December 31, 2017.

U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT (IN CHRONOLOGICAL ORDER) (CONTINUED)
198 | APPENDICES

SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

Acronym Definition

AACC Afghan-American Chamber of Commerce

ABADE Assistance in Building Afghanistan by 

Developing Enterprises

Acap Afghan Capital Partners

ACCI Afghanistan Chamber of Commerce and 

Industry

ACD Afghan Customs Department

ACE Agricultural Credit Enhancement

ADB Asian Development Bank

ADF Agriculture Development Fund

AEGP Afghanistan Economic Governance Program

AFA Afghani (pre-September 2002 currency)

AFN Afghani (post-September 2002 currency)

AF-PAK Afghanistan-Pakistan

AGF Afghan Growth Finance

AIB Afghanistan International Bank

AIC Afghan Investment Company

AIRTF Afghanistan Investment and Reconstruction 

Task Force

AISA Afghanistan Investment Support Agency

ALCS Afghanistan Living Conditions Survey

AML Anti-Money Laundering

ANDS Afghanistan National Development Strategy

ANDSF Afghan National Defense and Security Forces

APTTA Afghanistan-Pakistan Transit Trade Agreement

ARD Afghanistan Revenue Department

AREU Afghanistan Research and Evaluation Unit

ARF Afghanistan Renewal Fund

ARFC Afghanistan Rural Finance Company

ARIES Afghanistan Rural Investment and Enterprise 

Strengthening

ARTF Afghanistan Reconstruction Trust Fund

ASMED Afghanistan Small and Medium Enterprise 

Development

ASYCUDA Automated System for Customs Data

ATAR Afghanistan Trade and Revenue

ATRA Afghan Telecom Regulatory Authority

AVIPA Afghanistan Vouchers for Increased Production 

in Agriculture

Continued on the next page

Acronym Definition

BDS Business Development Services

CASA-1000 Central Asia-South Asia Electricity Transmission 

and Trade

CERP Commander’s Emergency Response Program

CFT Combatting the Financing of Terrorism

CIPE Center for International Private Enterprise

COIN Counterinsurgency

Comtrade UN Commodity Trade Statistics Database

CSU Colorado State University

CWC Commission on Wartime Contracting in Iraq 

and Afghanistan

DAB Da Afghanistan Bank

DCA Development Credit Authority

DFID UK Department for International Development

DOD U.S. Department of Defense

ECM Equity Capital Mining Group

EGGI Economic Growth and Governance Initiative

EGPSS Economic Governance and Private Sector 

Strengthening

EITI Extractive Industries Transparency Initiative

EODB Ease of Doing Business

EPAA Export Promotion Agency of Afghanistan

E-Payment Electronic Payment

ESF Economic Support Fund

FAIDA Financial Access for Investing in the 

Development of Afghanistan

FinTRACA Financial Transactions and Reports Analysis 

Center of Afghanistan

FSD Financial Supervision Department

FTE Full-time Equivalent

FY Fiscal Year

G8 Group of Eight

GAO U.S. Government Accountability Office

GDA Global Development Alliance

GIZ Gesellschaft für Internationale Zusammenarbeit

GSM Global System for Mobile Communications

HIPC Heavily Indebted Poor Country

I-ANDS Interim Afghanistan National Development 

Strategy

Continued on the next page

APPENDIX C: ABBREVIATIONS 
PRIVATE SECTOR DEVELOPMENT AND ECONOMIC GROWTH

APRIL 2018 | 199

Acronym Definition

ICT Information and Communications Technology

IDEA-NEW Incentives Driving Economic Alternatives–North, 

East, and West

ILO UN International Labor Organization

IMF International Monetary Fund

IPDD Industrial Parks Development Department

IRD International Relief and Development

ISAF International Security Assistance Force

IT Information Technology

LARA Land Reform in Afghanistan

LDC Least-Developed Country

LTERA Land Tilting and Economic Restructuring in 

Afghanistan

MAIL Ministry of Agriculture, Irrigation, and Livestock

MCC Metallurgical Group Corporation of China

MCIT Ministry of Communications and Information 

Technology

MFI Microfinance Institution

MIDAS Mining Investment and Development for 

Afghanistan Sustainability

MISFA Microfinance Investment Support Facility for 

Afghanistan

MOCI Ministry of Commerce and Industry

MOF Ministry of Finance

MOFA Ministry of Foreign Affairs

MOJ Ministry of Justice

MOMP Ministry of Mines and Petroleum

NATO North Atlantic Treaty Organization

NDAA National Defense Authorization Act

NDF National Development Framework

NGO Nongovernmental Organization

NPP National Priority Program

NSC U.S. National Security Council

NSR New Silk Road

NUG National Unity Government

ODA Official Development Assistance

OPIC Overseas Private Investment Corporation

PDPA Peoples' Democratic Party of Afghanistan

PDT Peace Dividend Trust

Continued on the next page

Acronym Definition

PROMOTE Promoting Gender Equity in National Priority 

Programs

PRT Provincial Reconstruction Team

RAMP Rebuilding Agricultural Markets Program

RECCA Regional Economic Cooperation Conference on 

Afghanistan

RTA Regional Trade Agreement

S/CRS State/Office of the Coordinator for 

Reconstruction and Stabilization

SAARC South Asian Association for Regional 

Cooperation

SAF Securing Afghanistan’s Future

SAFTA South Asian Free Trade Agreement

SEAF Small Enterprise Assistance Funds

SEED Supporting Employment and Enterprise 

Development

SOE State-Owned Enterprise

SOM Senior Officials Meeting

SRAP Special Representative for Afghanistan and 

Pakistan

TAF The Asia Foundation

TAFA Trade Accession and Facilitation for 

Afghanistan

TAPI Turkmenistan-Afghanistan-Pakistan-India 

(Pipeline)

TFBSO Task Force for Business and Stability 

Operations

TIFA Trade and Investment Framework Agreement

TMAF Tokyo Mutual Accountability Framework

TRB Telecom Regulatory Board

UNDP UN Development Program

USAID U.S. Agency for International Development

USFOR-A U.S. Forces–Afghanistan

USGS U.S. Geological Survey

USTDA U.S. Trade and Development Agency

USTR U.S. Trade Representative

VAT Value Added Tax

WTO World Trade Organization

VAT Value Added Tax

WTO World Trade Organization
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

200 | ENDNOTES

1. SIGAR, Quarterly Report to the United States 

Congress, January 30, 2018, p. 169.

2. U.S. Department of State and USAID, U.S. 

Foreign Assistance Reference Guide, January 

2005, p. 6.

3. USAID, response to SIGAR data call, January 17, 

2018.

4. SIGAR, DOD Task Force for Business and 

Stability Operations: $675 Million in Spending 

Led to Mixed Results, Waste, and Unsustained 

Projects, SIGAR 18-19-AR, January 2018, p. i.

5. SIGAR analysis of CERP data from DOD, 

Office of Undersecretary of Defense for Policy 

(OUSD-P), in response to SIGAR data calls, 

January 2014, April 2014, and July 2015. To 

determine the number and disbursement amounts 

for the micro grants we analyzed project and 

funding data from CERP annual fourth-quarter 

reports to Congress from fiscal year (FY) 2004 

through FY 2015. We consolidated the data into 

a single, aggregated dataset that joined project 

information with expenditure data current as 

of the date on which the report was issued to 

Congress. We understand that obligation and 

disbursement data may have changed after the 

quarterly reports were issued to Congress, but, in 

coordination with OUSD-P on a separate CERP 

project, have decided to use the information 

provided to Congress in mandatory quarterly 

reporting only. We used the consolidated CERP 

dataset to identify 881 projects described as 

micro grants, by conducting keyword searches of 

project titles and descriptions. 

6. The White House, The National Security 

Strategy of the United States of America, 

September 2002, p. 1. 

7. Barack Obama, “State of the Union Address,” 

Washington, DC, January 13, 2016.

8. The White House, National Security Presidential 

Directive/NSPD 44, December 2005, pp. 2–5.

9. Secretary of State Condoleezza Rice, “Remarks 

on Foreign Assistance,” Washington, DC, U.S. 

Department of State archive website, January 19, 

2006, p. 1.

10. For example, the UK created its Stabilisation 

Unit and Germany its Department for Crisis 

Prevention, Stabilisation, and Conflict 

Reconstruction. Espen Barth Eide, Anja 

Therese Kaspersen, Randolph Kent, and Karen 

von Hippel, Report on Integrated Missions: 

Practical Perspectives and Recommendations,

Independent Study for the Expanded UN ECHA 

Core Group, May 2005, pp. 5–7.

11. U.S. Department of Defense (DOD), Directive 

3000.05: Military Support for Stability, 

Security, Transition, and Reconstruction 

(SSTR) Operations, November 28, 2005, p. 2.

12. Rajiv Shah, “Testimony before the Commission 

on Wartime Contracting in Iraq and Afghanistan,” 

Washington, DC, April 1, 2011. 

13. Antonio Donini, Afghanistan: Humanitarianism 

under Threat, Feinstein International Center, 

Tufts University, March 2009, pp. 2, 7. 

14. Paul Fishstein and Andrew Wilder, Winning Hearts 

and Minds? Examining the Relationship between 

Aid and Security in Afghanistan, Feinstein 

International Center, Tufts University, p. 2.

15. Secretary of State Hillary Rodham Clinton, “On 

Development in the 21st Century,” remarks at the 

Center for Global Development, Washington, DC, 

January 6, 2010. 

16. Council on Foreign Relations (CFR), “NationBuilding Backgrounder,” CFR website, February 

7, 2005, accessed on August 1, 2017.

17. Human Rights Watch, The “Ten-Dollar Talib” and 

Women’s Rights: Afghan Women and the Risks of 

Reintegration and Reconciliation, Human Rights 

Watch, July 2010, p. 7; David Miliband, “The army 

alone cannot defeat this Taliban insurgency,” The 

Independent, February 25, 2009; Fishstein and 

Wilder, Winning Hearts and Minds?, p. 34. 

18. SIGAR analysis of data from the UN High 

Commissioner for Refugees (UNHCR), “Returned 

Refugees: Afghanistan,” data for 2001–2016, 

UNHCR Population Statistics database, accessed 

on February 20, 2018; David Turton and Peter 

Marsden, Taking Refugees for a Ride? The 

politics of refugee return to Afghanistan, 

Afghanistan Research and Evaluation Unit 

(AREU), December 2002, pp. 29–30.

19. DOD, United States Government Integrated 

Civilian-Military Campaign Plan for Support to 

Afghanistan, Revision 1, February 2011, p. 20. 

20. John Dowdy and Andrew Erdmann, “Private 

Sector Development in Afghanistan: The Doubly 

Missing Middle,” in American Interests in 

South Asia: Building a Grand Strategy in 

Afghanistan, Pakistan, and India (Washington, 

DC: The Aspen Institute, 2011), p. 109.

21. Paul Fishstein and Murtaza Edries Amiryar, 

Afghan Economic Policy, Institutions, and 

Society Since 2001, United States Institute of 

Peace (USIP), October 2015, p. 7. 

22. Eli Berman et al., “Do Working Men Rebel? 

Insurgency and Unemployment in Afghanistan, 

Iraq, and the Philippines,” Journal of Conflict 

Resolution, vol. 55, no. 4 (2011), p. 496; Sarah 

Ladbury, Testing Hypotheses on Radicalisation 

in Afghanistan: Why Do Men Join the Taliban 

and Hizb-i Islami? How Much Do Local 

Communities Support Them?, Department for 

International Development (DFID), August 2009, 

pp. 4–6; Nathan Nunn and Nancy Qian, Aiding 

Conflict: The Impact of U.S. Food Aid on Civil 

War, National Bureau of Economic Research 

Working Paper Series, January 2012, p. 28.

23. SIGAR analysis of data from the World Bank, 

“Per capita GDP: Afghanistan (current US$),” 

data for 2001, 2012, 2016, World Bank, World 

Development Indicators database, accessed on 

January 12, 2018.

24. SIGAR analysis of data from the World Bank, 

“Agriculture, value added (% of GDP),” data for 

2002–2016, World Bank, World Development 

Indicators database, accessed on January 12, 

2018; Richard Hogg et al., Afghanistan in 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 201

Transition: Looking beyond 2014, World Bank, 

2013, p. 5.

25. Government of Afghanistan, Central Statistics 

Office (CSO), National Risk and Vulnerability 

Assessment 2007/8: A Profile of Afghanistan, 

2009, p. iv; Government of Afghanistan, CSO, 

National Risk and Vulnerability Assessment 

2011–2012 (Afghanistan Living Conditions 

Survey), 2012, p. ii; Government of Afghanistan, 

CSO, Afghanistan Living Conditions Survey 

2013–2014: National Risk and Vulnerability 

Assessment, 2014, p. ii; Samuel Hall Consulting, 

Time to Move to Sustainable Jobs: Study on the 

State of Employment in Afghanistan, prepared 

under contract for the International Labor 

Organization (ILO), May 2012, p. 6.

26. SIGAR, Quarterly Report to the United States 

Congress, January 30, 2014, pp. 113–114.

27. DFID, DFID Afghanistan Data Quality 

Assessment of the National Risk and 

Vulnerability Assessment (NRVA) Survey 2007–

2008, December 2010, pp. 60–61; Government 

of Afghanistan, CSO, 2007–2008 NRVA Survey 

Manual, p. 31.

28. Hogg et al., Afghanistan in Transition, p. 8; 

Samuel Hall Consulting, Time to Move to 

Sustainable Jobs, ILO, p. 10.

29. Samuel Hall Consulting, Time to Move to 

Sustainable Jobs, ILO, pp. 10–11.

30. IMF, Islamic Repubic of Afghanistan: Request 

for a Three-Year Arrangement Under the 

Extended Credit Facility, IMF Country 

Report No. 16/252, July 2016, p. 4; World Bank, 

Afghanistan Poverty Status Update, October 

2015, p. 33.

31. World Bank, 2015 Afghanistan Poverty Status 

Update, p. 33.

32. SIGAR analysis of data from the UNHCR,

“Returned Refugees: Afghanistan,” data for 2001–

2016, UNHCR Population Statistics database, 

accessed on February 20, 2018.

33. Samuel Hall Consulting, Time to Move to 

Sustainable Jobs, ILO, pp. 10, 32.

34. Inder Sud and John O. Rankin, Afghanistan: A 

Synthesis Paper of Lessons from Ten Years of 

Aid, World Bank, January 24, 2013, p. 6.

35. SIGAR analysis of data provided by World Food 

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36. Government of Afghanistan, CSO, Afghanistan 

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pp. 106, 109.

37. SIGAR analysis of data from the World Bank, 

“Imports of goods and services (current US$)” 

and “Exports of goods and services (current 

US$),” data for 2003–2016, World Bank, World 

Development Indicators database, accessed on 

January 12, 2018.

38. SIGAR analysis of data from UN Comtrade, 

“Afghanistan Imports and Exports of all 

Commodities by Trade Partner (value in US$),” 

data for 2008–2016, World Bank, World Integrated 

Trade Solutions, accessed on February 9, 2018.

39. SIGAR analysis of data from UN Comtrade, 

“Pakistan Exports to Afghanistan by HS 

Classification (value in US$),” data for 2003–

2011, and “Iran Exports to Afghanistan by HS 

Classification (value in US$),” data for 2002–2006, 

2010–2011, World Bank, World Integrated Trade 

Solutions, accessed on February 9, 2018.

40. The Nation, “Imports from Pakistan to 

Afghanistan drop by 80pc,” January 1, 2018; 

Arwin Rahi, “A Counterproductive AfghanPakistan Border Closure,” The Diplomat, March 

20, 2017.

41. Shoaib Ahmand Rahim, “The Geopolitics of the 

Lapis Lazuli Corridor,” The Diplomat, December 

22, 2017.

42. SIGAR analysis of data from the World Bank, 

“Foreign Direct Investment (% of GDP)” and 

“Net investment in non-financial assets (% of 

GDP),” data for 2003–2016, World Bank, World 

Development Indicators database, accessed on 

January 12, 2018; Ajmal Shams, “Afghanistan 

at the Crossroads,” The Diplomat, January 28, 

2015; World Bank, Islamic State of Afghanistan: 

Pathways to Inclusive Growth, March 2014, p. 28.

43. Jake Cusack and Erik Malmstrom, Bactrian 

Gold: Challenges and Hope for Private-Sector 

Development in Afghanistan, Kauffman 

Foundation Research Series: Expeditionary 

Economics, February 2011, p. 7; Deutsche Welle, 

“Six ways corruption undermines Afghanistan,” 

April 26, 2014.

44. SIGAR analysis of data from select IMF country 

reports, “Selected Economic Indicators: Private 

investment (percent of GDP),” data for 2002–

2015, published in reports from 2004–2016 based 

on Afghan authorities and IMF staff estimates.

45. SIGAR analysis of data from the OECD, “Aid 

(ODA): Total Net Disbursements to Afghanistan,” 

data for 2002–2016, OECD.stat database, 

accessed on February 22, 2018.

46. SIGAR, Quarterly Report, January 30, 2018, 

p. 234.

47. USAID, 2001 Afghanistan Economic Recovery 

Plan, Senior Officials Meeting (SOM) on 

Reconstruction Assistance to Afghanistan, 

November 20, 2001, p. 2; UNDP, World 

Bank Group, and Asian Development Bank, 

Afghanistan Preliminary Needs Assessment 

for Recovery and Reconstruction, January 2002, 

p. 58.

48. Ron Synovitz, “Afghanistan: EU Puzzled by 

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Europe, January 14, 2002.

49. IMF, Islamic State of Afghanistan: Rebuilding a 

Macroeconomic Framework for Reconstruction 

and Growth, IMF Country Report No. 03/299, 

September 2003, p. 7.

50. Dimitri G. Demekas, Jimmy McHugh, and 

Theodora Kosma, The Economics of Post 

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CARE International, Rebuilding Afghanistan: 

A Little Less Talk, a Lot More Action, October 

1, 2002, p. 2, including endnote 5; Michael 

E. O’Hanlon, “The Aid and Reconstruction 

Agenda for Afghanistan,” Brookings Institution, 

December 19, 2001.
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

202 | ENDNOTES

51. Dov S. Zakheim, A Vulcan’s Tale: How the 

Bush Administration Mismanaged the 

Reconstruction of Afghanistan (Washington, 

DC: Brookings Institution Press, 2011), p. 168; 

Joseph R. Biden, “A Commitment to Afghan 

Security,” Boston Globe Archives, June 28, 2002; 

Paul Wolfowitz, “Using Special Forces on ‘Our 

Side’ of the Line,” Memo to Secretary Rumsfeld, 

September 23, 2001, pp. 2–3.

52. Former DOD official, SIGAR interview, October 

19, 2015. 

53. SIGAR, Quarterly Report, January 30, 2018, 

pp. 234–235; USAID official, SIGAR interview, 

December 3, 2015.

54. SIGAR, Quarterly Report, January 30, 2018, 

pp. 234–235; SIGAR analysis of data from the 

OECD, “Aid (ODA): Total Net Disbursements 

to Afghanistan,” data for 2002–2016, OECD.stat 

database, accessed on February 22, 2018.

55. OECD, “Official development assistance: 

definition and coverage,” OECD website, 

accessed on March 8, 2018.

56. SIGAR analysis of data from the OECD, “Aid 

(ODA): Total Net Disbursements to Afghanistan,” 

data for 2002–2016, OECD.stat database, 

accessed on February 22, 2018.

57. SIGAR, Quarterly Report, January 30, 2018, 

p. 169.

58. U.S. Department of State and USAID, U.S. 

Foreign Assistance Reference Guide, January 

2005, p. 6; SIGAR, Quarterly Report, January 30, 

2018, p. 74.

59. USAID, response to SIGAR data call, January 17, 

2018.

60. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. i.

61. SIGAR analysis of CERP data from DOD OUSD-P, 

in response to SIGAR data calls, January 2014, 

April 2014, and July 2015.

62. Peter Davis, Private Sector Development 

Programmes in Afghanistan: A Desk-Study,

Swedish Institute for Public Administration, June 

2013, p. 5.

63. SIGAR analysis of data from the OECD, “Aid 

(ODA): Total Net Disbursements to Afghanistan,” 

data for 2002–2016, OECD.stat database, 

accessed on February 22, 2018.

64. Emma Graham-Harrison, “UK leaves its Helmand 

project—like its roads, clinics and bridges—

unfinished,” The Guardian, February 27, 2014; 

Richard Scarth, Hisar I Shai, Rodat, Jalalabad: 

Assessment of the Industrial Park’s Potential 

and Considerations to take into Account to 

Assist in its Successful Implementation, Tetra 

Tech ARD under contract with USAID, February 

2013, p. 18.

65. Formerly the Ministry of Mines and Industry 

and Ministry of Commerce, respectively. Coffey 

International, Scoping the Need for Improved 

Access to Funding, Advisory Support and 

Business Skills Development for SMEs in 

Afghanistan, report to DFID, September 2014, 

pp. 42, 49.

66. Coffey International, Scoping the Need for 

Improved Access, DFID, p. 73.

67. SIGAR analysis of data from the OECD, “Aid 

(ODA): Total Net Disbursements to Afghanistan,” 

data for 2002–2016, OECD.stat database, 

accessed on February 22, 2018; Reinhard Palm, 

with Sebastian Kessing, Shafic Gawhari, and 

Suleman Fatimie, “Reforming the business 

environment in Afghanistan: Institutional reforms 

first,” paper presented at the International 

Conference on Reforming the Business 

Environment, November 29–December 1, 2005, 

Cairo, Egypt, p. 3; Altai Consulting, “Challenges 

Presented by the Legal and Regulatory 

Framework Governing Private For-Profit 

Activity,” background paper prepared for the 

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68. UNESCO, “About the Silk Road,” UNESCO 

website, accessed on March 16, 2018; James 

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on Foreign Relations, May 22, 2015; Bloomberg 

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69. SIGAR analysis of data from UN Comtrade, 

“Pakistan Exports and Imports to/from 

Afghanistan (value in US$),” data for 2016, World 

Bank, World Integrated Trade Solutions, accessed 

on January 17, 2018.

70. Pakistan Afghanistan Joint Chamber of 

Commerce and Industry, “Pak-Afghan Transit 

Trade Decline to $1.6 Billion: Junaid Makda,” 

press release, December 29, 2017; The Express 

Tribune, “Afghanistan trade with Pakistan falls, 

but grows with Iran,” November 11, 2017.

71. Zabihullah Jahanmal, “Iran Named Afghanistan’s 

Largest Trade Partner in 2016: ACCI,” TOLOnews, 

April 9, 2017.

72. SIGAR analysis of data from UN Comtrade, 

“Afghanistan Exports and Imports to/from all 

countries: Imports from Iran (value in US$),” data 

for 2016, World Bank, World Integrated Trade 

Solutions, accessed on February 9, 2018.

73. Praveen Swami, “At Afghan dam inauguration, 

PM promises: India will not forget you,” Indian 

Express, June 5, 2016.

74. The Hindu, “SAIL-led consortium to submit final 

bid for Afghan Hajigak mine,” November 9, 2016; 

Rajesh Kumar Singh, “SAIL-led consortium to 

cut spend on Afghan iron ore mine,” LiveMint, 

November 11, 2013. 

75. SIGAR analysis of data from UN Comtrade, “India 

Exports and Imports to/from Afghanistan (value 

in US$),” data for 2001–2016, World Bank, World 

Integrated Trade Solutions, accessed on February 

9, 2018.

76. Hindustan Times, “India Afghanistan launch 

second air corridor linking Kabul and Mumbai,” 

December 27, 2017.

77. Ayaz Gul, “Indian Wheat Makes History, Arriving 

in Afghanistan Via Iran,” VOA, November 11, 

2017.
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 203

78. SIGAR analysis of data from UN Comtrade, 

“China Exports and Imports to/from Afghanistan 

(value in US$),” data for 2016, World Bank, World 

Integrated Trade Solutions, accessed on February 

9, 2018.

79. Javed Noorani, Aynak: A concession for change, 

Integrity Watch Afghanistan, November 2013, 

p. 3; Government of Afghanistan, MOMP, 

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Mines Extracting (Aynak),” MOMP website, 

accessed on December 8, 2017.

80. SIGAR, Afghanistan’s Mineral, Oil, and Gas 

Industries: Unless U.S. Agencies Act Soon to 

Sustain Investments Made, $488 Million in 

Funding is at Risk, SIGAR 15-55-AR, April 2015, 

p. 26.

81. Ahmad Bilal Khalil, “Linking Afghanistan to 

China’s Belt and Road,” The Diplomat, April 24, 

2017.

82. Kamila Aliyeva, “Turkish companies ready 

to participate in TAPI pipeline,” AzerNews, 

February 14, 2018; Government of Afghanistan, 

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MOFA website, accessed on March 12, 2018.

83. Masood Saifullah, “Is Turkey’s Erdogan seeking 

a leading role in Afghanistan?,” Deutsche Welle, 

June 7, 2017.

84. Economic Cooperation Organization, “Member 

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85. UN Economic and Social Commission for 

Asia and the Pacific (UNESCAP), Afghanistan 

and Central Asia: Strengthening Trade and 

Economic Ties, March 27, 2015, p. 6; Ramon 

Collado, “Water War in Central Asia: The Water 

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November 30, 2015; Ekaterina Stepanova, 

Russia’s Concerns Relating to Afghanistan and 

the Broader Region in the Context of the US/

NATO Withdrawal, Centre For International 

Affairs, Barcelona, June 2013, p. 4.

86. SIGAR analysis of data from UN Comtrade, 

“Afghanistan Exports and Imports to/from all 

countries: Imports from Turkmenistan (value 

in US$) and Imports from Uzbekistan (value 

in US$),” data for 2016, World Bank, World 

Integrated Trade Solutions, accessed on February 

9, 2018.

87. UNESCAP, Strengthening Trade and Economic 

Ties, p. 7.

88. Stepanova, Russia’s Concerns Relating to 

Afghanistan, pp. 5–9, 10–16; Joshua Kocera, “The 

Narcostate,” Politico, March/April 2014. 

89. Stepanova, Russia’s Concerns Relating to 

Afghanistan, p. 6.

90. Richard Weitz, “Moscow’s Afghan Endgame,” The 

Diplomat, June 24, 2014.

91. Adam Bennett et. al., Reconstructing 

Afghanistan, IMF, 2005, p. 2; IMF, Islamic State 

of Afghanistan: Report on Recent Economic 

Developments and Prospects, and the Role of 

the Fund in the Reconstruction Process, IMF 

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92. IMF, Islamic Republic of Afghanistan: 2005 

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the Staff Monitored Program, IMF Country 

Report No. 06/113, March 2006, p. 32; IMF, 

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93. World Bank, Afghanistan Transitional Support 

Strategy, Report No. 25440 AF, February 14, 2003, 

p. i.

94. Asian Development Bank, Initial Country 

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95. UN Development Program, Assessment of 

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May 2009, pp. 69, 134.

96. Barnett R. Rubin, “State, Tribe, and the 

International System: From Gunpowder Empire 

to the Cold War,” in The Fragmentation of 

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in the International System, Second Edition 

(New Haven, CT: Yale University Press, 2002), 

pp. 48–49, 62–66.

97. Maxwell J. Fry, “Chapter 3: A Fragmented 

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Finance, and the Critical Constraints 

to Economic Development (Leiden, The 

Netherlands: E. J. Brill, 1974), p. 45

98. Fry, “A Fragmented Economy,” pp. 49–53 ; 

Richard F. Nyrop and Donald M. Seekins, eds., 

Afghanistan: A Country Study, American 

University, 1986, pp. 144–145, 149–152.

99. Nyrop and Seekins, Afghanistan: A Country 

Study, p. 152.

100. Devres Inc., Retrospective Review of U.S. 

Assistance to Afghanistan: 1950–1979, prepared 

under contract for USAID, October 31, 1988, 

pp. 71–75.

101. Devres, Retrospective Review of U.S. Assistance 

to Afghanistan: 1950–1979, USAID, p. 75. 

102. Stephane Guimbert, Structure and Performance 

of the Afghan Economy, SASPR working paper 

no. 30861, World Bank, p. 2. 

103. UN Office on Drugs and Crime (UNODC), 

Sustainable Development in an Opium 

Production Environment: Afghanistan Opium 

Survey Report, May 2017, p. 11; Byrd and Ward, 

Afghanistan’s Opium Drug Economy, p. 26; 

William Byrd and David Mansfield, Afghanistan’s 

Opium Economy: An Agriculture, Livelihoods 

and Governance Perspective, a report prepared 

for the World Bank Afghanistan Agriculture 

Sector Review, June 23, 2014, p. ii. These 

numbers reflect the border export value of opium 

as a percent of GDP.

104. Byrd and Ward, Afghanistan’s Opium Drug 

Economy, pp. 34, 85; Byrd and Mansfield, 

Afghanistan’s Opium Economy, p. 6.

105. Byrd and Ward, Afghanistan’s Opium Drug 

Economy, p. 30.

106. SIGAR, “Testimony Before the Senate Caucus 

on International Narcotics Control: Future 

U.S. Counternarcotics Efforts in Afghanistan,” 

January 15, 2014, p. 4; UNODC, May 2017 

Afghanistan Opium Survey Report, p. 11; Byrd 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

204 | ENDNOTES

and Mansfield, Afghanistan’s Opium Economy, 

pp. 5–6. 

107. William Byrd, Disease or Symptom? 

Afghanistan’s Bourgeoning Opium Economy in 

2017, November 2017, p. 1; Byrd and Mansfield, 

Afghanistan’s Opium Economy, pp. 5–6, 

including note 9.

108. SIGAR, “Testimony Before the Senate Caucus on 

International Narcotics Control,” p. 13; William 

Byrd, Disease or Symptom? Afghanistan’s 

Bourgeoning Opium Economy in 2017, 

November 2017, p. 1; Byrd and Mansfield, 

Afghanistan’s Opium Economy, pp. ii, iv, v.

109. Byrd and Ward, Afghanistan’s Opium Drug 

Economy, pp. 3, 16.

110. Byrd and Mansfield, Afghanistan’s Opium 

Economy, pp. 5–6.

111. Byrd and Mansfield, Afghanistan’s Opium 

Economy, p. 6; Byrd and Ward, Afghanistan’s 

Opium Drug Economy, pp. 15–16.

112. Byrd and Mansfield, Afghanistan’s Opium 

Economy, p. 6.

113. UNODC, Afghanistan Opium Survey 2004, 

November 2004, p. 1; UNODC, Afghanistan 

Opium Survey 2006, October 2006, p. 1; UNODC,

Afghanistan Opium Survey 2010, December 

2010, p. 7; UNODC, Afghanistan Opium Survey 

2012, May 2013, p. 13; UNODC, Afghanistan 

Opium Survey 2014: Socio-Economic Analysis, 

March 2015, p. 8.

114. UNODC, Afghanistan Opium Survey 2004, p. 6; 

UNODC, Afghanistan Opium Survey 2006, p. 8; 

UNODC, Afghanistan Opium Survey 2010, p. 7; 

UNODC, Afghanistan Opium Survey 2012, 

p. 67; UNODC, Afghanistan Opium Survey 

2014: Socio-Economic Analysis, p. 23; Byrd 

and Mansfield, Afghanistan’s Opium Economy, 

pp. iii, 11, 33.

115. Byrd and Ward, Afghanistan’s Opium 

Drug Economy, p. 34; Byrd and Mansfield, 

Afghanistan’s Opium Economy, p. ii.

116. Byrd and Ward, Afghanistan’s Opium Drug 

Economy, p. 35.

117. William Byrd, Responding To Afghanistan’s 

Development Challenge: An Assessment Of 

Experience During 2002–2007 and Issues and 

Priorities for the Future, World Bank Working 

Paper Series, 2007, pp. 1–2.

118. Byrd, Responding To Afghanistan’s Development 

Challenge, pp. 1, 3.

119. William Byrd and Christopher Ward, 

Afghanistan’s Opium Drug Economy, World 

Bank, December 2004.

120. IMF, September 2003 Country Report, No. 03/299, 

p. 7; Afghanistan Freedom Support Act of 2002: 

Hearing before the Committee on International 

Relations House of Representatives, 107th 

Congress, Second Session, p. 22 (March 14, 2002) 

(prepared statement of the Honorable Andrew 

S. Natsios, Administrator, U.S. Agency for 

International Development).

121. SIGAR analysis of data from the OECD, “Aid 

(ODA): Total Net Disbursements to Afghanistan,” 

data for 2002–2016, OECD stat database, 

accessed on February 22, 2018.

122. Zakheim, A Vulcan’s Tale, p. 3.

123. Former USAID senior official, SIGAR interview, 

December 2, 2015.

124. Griff Witte, “Rise of the Warlords,” review of 

The Punishment of Virtue, by Sarah Chayes, 

Washington Post, September 17, 2006.

125. Afghan Interim Authority, “National Development 

Framework. DRAFT: For consultation, Version 2,” 

April 2002, p. 8.

126. Government of Afghanistan, Constitution of the 

Islamic Republic of Afghanistan, January 2004.

127. Government of Afghanistan, Afghanistan 

National Development Strategy 2008–2013: A 

Strategy for Security, Governance, Economic 

Growth and Poverty Reduction, pp. 7, 73.

128. Government of Japan, “Statement of H. E. Hamid 

Karzai, Chairman of the Interim Administration 

of Afghanistan: A Vision for Afghanistan,” 

ReliefWeb, January 25, 2002, accessed on 

February 28, 2018.

129. USAID, Afghanistan Economic Recovery 

Plan: 2001 SOM, pp. 2, 4; USAID, Afghanistan 

Economic Recovery Plan: USAID Concept Paper, 

2002, p. 2; USAID, Afghanistan Recovery and 

Reconstruction Strategy, 2002, p. 2.

130. USAID, 2002 Afghanistan Recovery and 

Reconstruction Strategy, p. 1.

131. Wolfowitz, “Using Special Forces on ‘Our Side’ of 

the Line,” pp. 2–3.

132. Bearing Point, Completion Report: Afghanistan 

Economic Governance Program (AEGP), 

prepared under contract for USAID, December 

2005, p. 11.

133. Bearing Point, AEGP Completion Report, USAID, 

pp. 8, 10, 131.

134. USAID, Afghanistan Economic Recovery Plan: 

2001 SOM, p. 4; Bearing Point, AEGP Completion 

Report, USAID, p 8.

135. Altai Consulting, “Challenges Presented by the 

Legal and Regulatory Framework Governing 

Private For-Profit Activity,” p. 60; former staff 

from the Center for International Private 

Enterprise in Afghanistan, SIGAR interview, 

December 30, 2015. 

136. Former member of the Afghan-American 

Chamber of Commerce, SIGAR interview, 

November 2017. 

137. Overseas Private Investment Corporation (OPIC), 

Annual Report: Delivering On the Promise, 

2002, pp. 2, 12.

138. Palm et al., Reforming the business environment 

in Afghanistan, p. 15.

139. Emerging Markets Group, Completion Report: 

Land Titling and Economic Reconstruction in 

Afghanistan (LTERA) 2004–2009, prepared 

under contract for USAID, September 29, 2009, 

p. 7.

140. World Bank, The Investment Climate in 

Afghanistan: Exploiting Opportunities in an 

Uncertain Environment, December 2005, p. 7.

141. Anna Paterson and James Blewett with Asif 

Karimi, Putting the Cart Before the Horse? 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 205

Privatisation and Economic Reform in 

Afghanistan, AREU, November 2006, p. 7; World 

Bank, 2005 Investment Climate Report, p. 7.

142. Matthieu Aikins, Contracting the Commanders: 

Transition and the Political Economy of 

Afghanistan’s Private Security Industry, 

Center on International Cooperation, New York 

University, October 2012, p. 6.

143. Liz Alden Wily, Land, People, and the State in 

Afghanistan: 2002–2012, AREU, February 2013, 

p. 8.

144. James Palmer, “For sale: luxury villa with 

balcony, pool and Taliban death threat,” The 

Guardian, September 11, 2008. 

145. “List of Grabbed Lands and Restituted Lands 

in 34 Provinces in Jeribs,” Afghanistan Land 

Authority, June 2012, cited in Wily, Land, People, 

and the State in Afghanistan: 2002–2012, 

AREU, February 2013, p. 88. 

146. Antonio Giustozzi, “War and Peace Economies 

of Afghanistan’s Strongmen,” International 

Peacekeeping, vol.14, no.1 (January 2007), p. 81.

147. Academic and former U.S. government official, 

SIGAR interview, November 2015.

148. Chemonics International Inc., ACAP Partners 

Afghanistan Renewal Final Report: Report for 

RAMP–CLIN 0003-JO# 39-ACAP, prepared 

under contract for USAID, June 2006, p. 3.

149. Zakheim, A Vulcan’s Tale, p. 213.

150. Donald Rumsfeld, “Status of Road Network in 

Afghanistan,” memo to National Security Advisor 

Stephen Hadley, The Rumsfeld Papers, October 

20, 2006, p.1; Zalmay Khalilzad, The Envoy: From 

Kabul to the White House, My Journey Through 

a Turbulent World (New York, NY: St. Martin’s 

Press, 2016), p. 179.

151. Khalilzad, The Envoy, pp. 179–180.

152. Khalilzad, The Envoy, p. 179.

153. The White House, “Accelerating Success in

Afghanistan in 2004: An Assessment,” memo to the 

National Security Council, January 18, 2005, p. 9.

154. U.S. Embassy Kabul, “Infrastructure Repair in 

Afghanistan,” Kabul 000486 cable, April 2, 2002; 

Andrew Natsios, “Memorandum: Afghanistan 

Reconstruction,” April 3, 2002; The White House, 

“Joint Statement on Road Construction in 

Afghanistan,” September 12, 2002.

155. U.S. Embassy Kabul, “Infrastructure Repair in 

Afghanistan,” Kabul 000486 cable, April 2, 2002.

156. Andrew Natsios, “Memorandum: Afghanistan 

Reconstruction,” April 3, 2002; Frederick 

Schieck, “Memorandum: Road Reconstruction in 

Afghanistan,” September 2002.

157. U.S. Embassy Kabul, “Status of Afghanistan 

Secondary Roads Reconstruction,” Kabul 

000375 cable, June 6, 2004; DOD, “Secondary 

Roads: Background,” Andrew Natsios Archives, 

Georgetown University Library, 2004, p. 1.

158. Schieck, “Memorandum: Road Reconstruction in 

Afghanistan,” September 2002.

159. U.S. Embassy Kabul, “Reprogramming USAID 

Funds for Provincial Roads,” Kabul 001575 cable, 

May 29, 2004.

160. U.S. Embassy Kabul, “Serious Financing Shortfall 

for Afghanistan Infrastructure Projects,” Kabul 

cable, September 20, 2004.

161. DOD, “Secondary Roads: Background,” p. 1.

162. Andrew Natsios, The Clash of the CounterBureacracy and Development, Center for Global 

Development, July 2010, pp. 8–9.

163. The White House, “Accelerating Success in 

Afghanistan in 2004,” pp. 1–3; former NSC official, 

SIGAR interview, October 1, 2014.

164. U.S. Embassy Kabul, “Afghanistan: Where We 

Stand and What We Need,” Kabul 003863 cable, 

August 29, 2006, pp. 1–2, 5.

165. The White House, “Accelerating Success in 

Afghanistan in 2004,” pp. 3, 10; The White House, 

“Joint Statement on Road Construction in 

Afghanistan by the President of the United States, 

the Prime Minister of Japan, and the Foreign 

Minister of Saudi Arabia,” September 12, 2002.

166. Former official in the Afghanistan Reconstruction 

Group, SIGAR interview, November 28, 2017; U.S. 

Embassy Kabul, “Afghanistan Reconstruction 

Group’s Chief of Staff Out-Brief Report,” Kabul 

002137 cable, July 13, 2004.

167. Former USAID senior official, SIGAR interview, 

December 2015.

168. State, “Afghanistan: Private Sector Meeting, 

March 30, 2004,” Berlin 001284 cable, April 4, 

2004. 

169. State, “Afghanistan: Private Sector Meeting, 

March 30, 2004,” Berlin 001284 cable, April 4, 

2004.

170. U.S. Embassy Kabul, “Afghanistan 

Reconstruction Group’s Role in Afghanistan 

Reconstruction,” Kabul 001230 cable, May 1, 

2004; U.S. Embassy Kabul, “Right-Sizing Embassy 

Kabul,” Kabul 000532 cable, February 27, 2004.

171. U.S. Embassy Kabul, “Afghanistan 

Reconstruction Group’s Role in Afghanistan 

Reconstruction,” 2004.

172. USAID implementing partner official, SIGAR 

interview, October 2017.

173. Beth Cole and Cristina Parajon, The Afghanistan 

Reconstruction Group: An Experiment with 

Future Potential, USIP website, published on 

September 12, 2006, accessed on February 

8, 2018.

174. Cole and Parajon, The Afghanistan 

Reconstruction Group. 

175. U.S. Embassy Kabul, “Afghanistan 

Reconstruction Group’s Role in Afghanistan 

Reconstruction,” 2004.

176. Government Accountability Office (GAO), 

Afghanistan Reconstruction: Despite Some 

Progress, Deteriorating Security and Other 

Obstacles Continue to Threaten Achievement of 

U.S. Goals, July 28, 2005, p. 51.

177. GAO, Afghanistan Reconstruction, p. 51.

178. Jack Bell, “Assessment of the USAID Program 

in Afghanistan,” ed. Mark Ward, Andrew Natsios 

Archives, Georgetown University Library, 2004, 

pp. 2–8.

179. Former official in the Afghanistan Reconstruction 

Group, SIGAR interview, December 15, 2015.
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

206 | ENDNOTES

180. Former official in the Afghanistan Reconstruction 

Group, SIGAR interview, December 15, 2015.

181. Government of Afghanistan et al., “Securing 

Afghanistan’s Future,” from the International 

Conference in Berlin, March 31–April 1, 2004; 

Government of Afghanistan et al., “Berlin 

Declaration,” from the International Conference 

in Berlin, March 31–April 1, 2004, p. 2; Del 

Castillo, Guilty Party, p. 191.

182. Government of Afghanistan et al., “Securing 

Afghanistan’s Future,” p. 11.

183. Graciana Del Castillo, Rebuilding War Torn 

States: The Challenge of Post-Conflict Economic 

Reconstruction (Oxford: Oxford University, 

2008), p. 346, note 10. 

184. World Bank, Afghanistan World Bank Approach 

Paper, November 2001, p. 15.

185. Hogg et al., Afghanistan in Transition, pp. 2–3. 

186. Adam Pain and Peter Jensen, Review of 

Afghanistan Reconstruction Trust Fund, ARTF, 

Internal and External Studies and Evaluations 

in Afghanistan, Swedish International 

Development Cooperation Agency, June 2015, 

p. 6. A 2011 SIGAR audit raised concerns about 

the management and oversight of the fund. 

See SIGAR, The World Bank and the Afghan 

Government Have Established Mechanisms to 

Monitor and Account for Funds Contributed 

to the Afghanistan Reconstruction Trust Fund, 

but Some Limitations and Challenges Should 

Be Addressed, SIGAR 11-14-AR, July 2011. 

SIGAR will be issuing a follow-up report during 

April 2018. 

187. SIGAR, Quarterly Report, January 30, 2018, p. 65.

188. Del Castillo, Guilty Party, pp. 138, 182–183, 

190–191; George Packer, “Afghanistan’s Theoristin-Chief: President Ashraf Ghani is an expert on 

failed states. Can he save his own from collapse?” 

The New Yorker, July 4, 2016.

189. The Asia Foundation, Afghanistan in 2008: A 

Survey of the Afghan People, 2008, p. 39.

190. World Bank, Project paper on a proposed 

emergency additional financing grant under 

the food price crisis response (FPCR) trust fund 

in the amount of US$ 8.0 million equivalent to 

the Islamic Republic of Afghanistan for the food 

crisis response project, World Bank, 2008, p. 2; 

Matthew Pennington, “Food crisis leaves many 

Afghans desperate,” NBC News, May 2, 2008; 

Carlotta Gall, “War and Drought Threaten Afghan 

Food Supply,” New York Times, September 

18, 2008; Soraya Sarhaddi Nelson, “Failing 

Wheat Crop Causes Afghan Food Crisis,” NPR, 

September 11, 2008.

191. International Relief and Development (IRD), 

Afghanistan Vouchers for Increased Production 

in Agriculture (AVIPA) Plus: Final Report 

September 1, 2008–November 15, 2011,

prepared under contract for USAID, n.d., p. 1.

192. USAID Office of Inspector General, Audit Of 

USAID/Afghanistan’s Afghanistan Vouchers For 

Increased Production in Agriculture (AVIPA) 

Program, Audit Report No. 5-306-10-008-P, April 

20, 2010, p. 3.

193. The Asia Foundation, 2008 Survey of the Afghan 

People, p. 59.

194. SIGAR, Corruption in Conflict: Lessons from the 

U.S. Experience in Afghanistan, SIGAR 16-58-

LL, September 2016, p. 31.

195. World Bank, 2005 Investment Climate Report, 

p. v. 

196. Government of Afghanistan, The Afghanistan 

Compact, February 1, 2006, pp. 1, 4, 12.

197. Government of Afghanistan, The Afghanistan 

Compact, p. 13.

198. Government of Afghanistan, Afghanistan 

National Development Strategy 2008–2013, 

pp. 2–3.

199. IMF, “Factsheet: Debt Relief Under the Heavily 

Indebted Poor Countries (HIPC) Initiative,” IMF 

website, November 3, 2017.

200. U.S. Embassy Kabul, Mission Performance Plan 

FY 2006: U.S. Mission to Afghanistan, April 12, 

2004, p. 7. 

201. Development Alternatives Inc. (DAI), 

Afghanistan Small and Medium Enterprise 

Development Project (ASMED) Final Report, 

prepared under contract with USAID, November 

30, 2011, p. 3.

202. SIGAR, Afghan First Initiative Has Placed Work 

with Afghan Companies, But Is Affected by 

Inconsistent Contract Solicitation and Vetting, 

and Employment Data Is Limited, 12-6-AR, 

January 31, 2012, p. 2. 

203. Herve Nicolle, Commercial Law Needs 

Assessment, survey commissioned by the 

Gesellschaft für Internationale Zusammenarbeit, 

Samuel Hall Consulting, 2011, p. 44. 

204. SIGAR, Afghanistan’s Oil, Gas, and Minerals 

Industries: $488 Million in U.S. Efforts Show 

Limited Progress Overall, and Challenges 

Prevent Further Investment and Growth, 

SIGAR 16-11-AR, p. 13; Javed Noorani, 

Aynak: A Concession for Change, Integrity 

Watch Afghanistan, November 2013, pp. viii, 

3; Government of Afghanistan, MOMP, 

“Comparative Table of Bidding Companies for 

Mines Extracting (Aynak),” MOMP website, 

accessed on December 8, 2017.

205. Michael Stanley and Ekaterina Mikhaylova, Case 

Study: The Aynak Copper Deposit, Afghanistan, 

World Bank, Extractive Industries for 

Development Series #22, September 2011, p. 41.

206. The Atlantic Council of the United States 

International Security Program, “Saving 

Afghanistan: An Appeal and Plan for Urgent 

Action,”January 2008, p. 3.

207. Barack Obama, “Remarks by the President in 

Address to the Nation on the Way Forward in 

Afghanistan and Pakistan,” speech at West Point, 

December 1, 2009; Steven Simon, “Can the Right 

War Be Won? Defining American Interests in 

Afghanistan,” Foreign Affairs, July/August 2009, 

p. 2.

208. SIGAR, Quarterly Report, January 30, 2016, 

p. 186.

209. Senior USAID official, SIGAR interview, 

November 23, 2016; SIGAR, Stabilization: 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 207

Lessons from the U.S. Experience in 

Afghanistan, forthcoming May 2018.

210. ISAF, “COMISAF Counterinsurgency (COIN) 

Contracting Guidance issued by COMISAF/CDR 

USFOR-A,” press release, November 10, 2009; 

Adam Brookes, “US seeks new Afghanistan 

direction,” BBC, March 27, 2009.

211. DOD, U.S. Government Integrated CivilianMilitary Campaign Plan for Support to 

Afghanistan, pp. ii, 3, 10. 

212. USAID, The USAID/Afghanistan Plan for 

Transition 2015–2018, January 6, 2016, p. 4. 

213. Secretary of State Clinton, “Remarks on India and 

the United States,” July 20, 2011.

214. Secretary of State Clinton, “Remarks on India and 

the United States,” July 20, 2011.

215. John Acree, “Stabilization Success in 

Afghanistan: The Challenges Within,” PRISM, vol. 

4, no. 1 (2014), p. 103.

216. John Acree, “Stabilization Success in 

Afghanistan: The Challenges Within,” p. 104. 

217. Government of Afghanistan, Kabul International 

Conference Communiqué, July 2010; Radio Free 

Europe/Radio Liberty, “London Meeting On 

Future Of Afghan War,” January 28, 2010. 

218. Government of Afghanistan, Kabul International 

Conference Communiqué, 2010, pp. 1, 5.

219. Government of Afghanistan, MOCI, Integrated 

Trade And SME Support Facility: Private Sector 

Development Cluster National Priority Program 

Proposal, 2010, pp. 1–6, 21. 

220. Government of Afghanistan, MOCI, Afghanistan 

SME Development Strategy, December 16, 2009.

221. WTO, “Accession: Afghanistan’s Timeline,” WTO 

website, accessed on March 23, 2018.

222. Chemonics, Final Report: Trade Accession and 

Facilitation for Afghanistan (TAFA), prepared 

under contract for USAID, August 31, 2013, p. 1.

223. Chemonics, TAFA Final Report USAID, pp. 1–2.

224. Chemonics, TAFA Final Report USAID, pp. 7–29.

225. Chemonics, TAFA Final Report USAID, pp. 4, 

23–29. 

226. Deloitte Consulting LLP, Final Report: Economic 

Growth and Governance Initiative (EGGI), 

prepared under contract for USAID, November 

2013, p. 5.

227. Checchi and Company Consulting Inc, 

Rapid Assessment of Economic Growth and 

Governance Initiative (EGGI): Final Report, 

prepared under contract for USAID, February 

2011, p. 48

228. Checchi, Final Performance Evaluation 

(October-November 2014): Land Reform in 

Afghanistan (LARA) Project, prepared under 

contract for USAID, November 2014, p. 27.

229. Former Department of Commerce official, SIGAR 

interview, December 16, 2015.

230. SIGAR, Corruption in Conflict, 16-58-LL, 

September 2016, pp. 44–45.

231. Deloitte, EGGI Final Report, USAID, p. 6.

232. Checchi, FAIDA Final Performance Evaluation,

prepared under contract for USAID, July 2015, 

p. 1.

233. USAID, “Development Credit Authority (DCA) 

Overview,” USAID website, accessed on 

September 25, 2017.

234. U.S. Department of the Army, Money as a 

Weapon System Afghanistan (MAAWS-A), 

Commander’s Emergency Response Program 

(CERP) SOP, U.S. Forces–Afghanistan 

Publication 1–06, December 2009, p. 45.

235. Department of Army, December 2009 MAAWS-A, 

CERP SOP, pp. 46; Department of Army, March 

2012 MAAWS-A, CERP SOP, p. 108. 

236. Department of Army, December 2009 MAAWS, 

CERP SOP, p. 45; SIGAR analysis of CERP data 

from DOD OUSD-P, in response to SIGAR data 

calls, January 2014, April 2014, and July 2015. 

237. National Defense Authorization Act for Fiscal 

Year 2008, Pub. L. No. 110-181 (January 28, 2008), 

p. 266.

238. TFBSO, Task Force for Business and Stability 

Operations FY 2011 Report on Activities, 

December 2011, p. 1.

239. TFBSO, FY 2011 Report on Activities in 

Afghanistan, p. 2; James Risen, “U.S. Identifies 

Vast Mineral Riches in Afghanistan,” New York 

Times, June 13, 2010.

240. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR. 

241. Aram Roston, “How the U.S. Funds the Taliban,” 

The Nation, November 11, 2009; Jean Mackenzie, 

“Is the U.S. military funding both sides of 

the Afghan war?,” The Groundtruth Project, 

September 9, 2009. 

242. Commission on Wartime Contracting in Iraq 

and Afghanistan, At What Cost? Contingency 

Contracting in Iraq and Afghanistan: Interim 

Report to Congress, June 2009, pp. 2–3. 

243. SIGAR, Afghan First Initiative, 12-6-AR, p. 14.

244. Tokyo Mutual Accountability Framework 

(TMAF), The Tokyo Declaration Partnership for 

Self-Reliance in Afghanistan From Transition 

to Transformation, Tokoyo Conference 

Declaration, July 8, 2012, pp. 1, 5. 

245. SIGAR analysis of data from the World Bank, “GDP 

growth: Afghanistan (annual % growth)” data 

for 2003–2016, World Bank, World Development 

Indicators database, accessed on January 12, 2018. 

Note: Numbers have been rounded.

246. Eltaf Najafizada, “Afghans Start to Take the 

Money and Run,” Bloomberg, July 12, 2012; 

Praveen Menon and Matthew Green, “Insight: 

Afghans seek shelter in Dubai ahead of pullout,” 

Reuters, September 12, 2012.

247. Paul Fishstein, with Islamuddin Amaki and 

Mohammed Qaasim, Balkh’s Economy in 

Transition, AREU, August 2013, p. 46. 

248. OECD, “Capital Flight Definition,” OECD 

Glossary of Statistical Terms website, last 

updated on February 4, 2004, accessed on March 

23, 2018.

249. USAID, 2002 Afghanistan Recovery and 

Reconstruction Strategy, p. 1; USAID, USAID/

Afghanistan Strategic Plan 2005–2010, 

May 2005, p. 3; U.S. State and USAID, 

2011–2016 Strategic Plan Addendum for the 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

208 | ENDNOTES

U.S. Department of State and U.S. Agency 

for International Development; USAID, 

Administrator’s Sustainability Guidance for 

USAID in Afghanistan, June 2011. 

250. Government of Afghanistan, MOF, 1395 National 

Budget, p. 78.

251. International ICT industry executive, SIGAR 

interview, April 23, 2016.

252. Checchi, Final Evaluation: Agricultural Credit 

Enhancement (ACE) Program, prepared under 

contract for USAID, May 2015, p. 19.

253. SIGAR analysis of Government of Afghanistan, 

MOF, 1395 National Budget, p. 78

254. SIGAR analysis of Government of Afghanistan, 

MOF, 1395 National Budget, p. 78; OECD, “Net 

ODA (Indicator),” data for 2001–2017; World 

Bank, World Development Indicators: GDP at 

Current Prices 2014, World Bank Databank.

255. Chemonics, Afghanistan Trade and Revenue 

(ATAR) Project: Annual Report Nov. 7 2013–Nov. 

6 2014, prepared under contract for USAID, 

February 14, 2015, pp. 12–13, 31–32; Chemonics, 

Knowledge, Attitude, and Practice (KAP) Survey 

of Afghanistan towards Trade: Final Survey 

Report, prepared under contract for USAID, 

October 2010, pp. 4–5; William Byrd, Responding 

To Afghanistan’s Development Challenge: An 

Assessment Of Experience During 2002–2007 

and Issues and Priorities for the Future, 

World Bank Working Paper Series, 2007, p. 13; 

Fishstein and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, p. 12. 

256. USAID, Fact Sheet: Assistance in Building 

Afghanistan by Developing Enterprises 

(ABADE), USAID website, September 2015.

257. Afghanistan Chamber of Commerce and 

Industries and Harakat Afghanistan Investment 

Climate Facility, Eleven Private Sector Priorities 

for Reform Presented to the London Conference, 

December 4, 2014

258. Government of Afghanistan, ANDS 2008–2013, 

June 2014, pp. 3–4, 21, 22.

259. Government of Afghanistan, Realizing Selfreliance: Commitments to reforms and renewed 

partnership, December 2014, p. 15.

260. Antonio Giustozzi and Ali Mohammad Ali, “The 

National Unity Government and the Re-Shaping 

of Political Coalitions in Afghanistan,” Center for 

Research and Policy Analysis, January 2018.

261. UN General Assembly and UN Security 

Council, The Situation in Afghanistan and 

its Implications for International Peace and 

Security, Report of the Secretary-General, 

December 10, 2015, pp. 1, 5. 

262. UN, The Situation in Afghanistan, pp. 4–5. 

263. Government of Afghanistan and the International 

Community, Partnership for Prosperity 

and Peace, Communiqué from the Brussels 

Conference on Afghanistan, October 4–5, 2016, 

pp. 1–2, 5. 

264. Government of Afghanistan, Afghanistan 

National Peace and Development Framework 

2017–2021, p. 2. 

265. USAID, The USAID/Afghanistan Plan for 

Transition 2015–2018, January 6, 2016, pp. 3, 9.

266. USAID, The USAID/Afghanistan Plan for 

Transition 2015–2018, p. 3.

267. Government of Afghanistan, MOF, Self-reliance 

through Mutual Accountability Framework 

(SMAF) Status Report, July 2017; ECC Water 

& Power LLC, USAID Mining Investment 

and Development for Afghan Sustainability 

(MIDAS) Final Report, January 31, 2017, 

pp. 18–19.

268. USAID, The USAID/Afghanistan Plan for 

Transition 2015–2018, p. 7.

269. World Bank, Doing Business in 2017: Equal 

Opportunity for All, Economy Profile, 

Afghanistan, 2017, p. 8.

270. SIGAR, Corruption in Conflict, 16-58-LL, p. 21.

271. SIGAR, Corruption in Conflict, 16-58-LL, p. 26.

272. Bearing Point, AEGP Completion Report, USAID, 

pp. 76, 129.

273. Deloitte, Afghanistan Economic Growth and 

Private Sector Strengthening (EGPSS) Project 

September 2005–September 2009, prepared 

under contract for USAID, pp. 6–7.

274. In the AEGP work plan, corruption was 

mentioned only once, as a reason behind the 

new tax structure recommendation. Bearing 

Point, Economic Governance in Afghanistan 

Project Workplan November 2002–December 

2003, prepared under contract for USAID, 

January 2002, p. 15; under EGGI, there was only 

one measurable outcome related to corruption: 

“[government of Afghanistan] officials receiving 

[U.S. government]-funded anticorruption 

training.” USAID, EGGI Year 4 Performance 

Monitoring Plan, n.d., p. 1; corruption was 

not included as a performance indicator in 

the EGPSS PMP. Bearing Point, Performance 

Monitoring Plan: Economic Governance and 

Private Sector Strengthening (EGPSS) Project, 

prepared under contract for USAID, August 2006.

275. Chemonics, ATAR Annual Report November 

2013–November 2014, USAID, pp. 12, 13, 31–32; 

Chemonics, TAFA Final Report, USAID, pp. 5, 30.

276. Tetra Tech ARD, Land Reform in Afghanistan 

(LARA) Project Final Report, prepared under 

contract for USAID. November 2014, pp. 47, 52.

277. SIGAR analysis of select USAID project 

documents: Bearing Point, AEGP Completion 

Report, USAID, 2005; Deloitte, EGPSS Project, 

USAID, 2010; Deloitte, EGGI Final Report, 

USAID, 2013; Chemonics, Financial Access for 

Investing in the Development of Afghanistan 

(FAIDA) Final Report, 2017; DAI, ACE Program 

Final Report, USAID, 2015; DAI, ASMED Final 

Report, USAID, 2012; Volunteers for Economic 

Growth Alliance (VEGA), Assistance in Building 

Afghanistan by Developing Enterprises 

(ABADE) FY 2016 Annual Report, USAID, 

2016; Chemonics, TAFA Final Report, USAID; 

Chemonics, ATAR Annual Report November 

2013–November 2014, USAID, 2015; Emerging 

Markets Group, LTERA Completion Report,

USAID, 2009; Tetra Tech ARD, LARA Final 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 209

Report, USAID, 2014; ECC Water & Power LLC, 

Mining Investment and Development for Afghan 

Sustainability (MIDAS) Final Report, USAID, 

2017.

278. Deloitte, EGPSS Project, USAID, p. 49.

279. SIGAR, USAID’s ATAR Program has Failed to 

Achieve Goals for Implementation of E-Payment 

System to Collect Customs Revenues, SIGAR 17-

61-SP, August 2017, p. 4.

280. Hogg et al., Afghanistan in Transition, p. 101.

281. IMF, October 2002 Country Report, No. 02/219, 

p. 35.

282. World Bank, Afghanistan Country Program 

Evaluation, 2002–2011: Evaluation of the World 

Bank Group Program, 2013, pp. 198–201.

283. Vito Tanzi and Howell Zee, “Tax Policy for 

Developing Coutnries,” IMF, Economic Issues, 

vol. 27 (2001), p. 1.

284. Bearing Point, AEGP Completion Report, USAID, 

pp. 21, 26.

285. Bearing Point, AEGP Completion Report, USAID, 

pp. 21–23.

286. Government of Afghanistan, MOF Department of 

Revenue, “Unofficial Translation of the Income 

Tax Law 2005,” as published in Official Gazette 

number 867, 2005, pp. 2, 33–34; IMF, October 

2002 Country Report, No. 02/219, p. 44.

287. Government of Afghanistan, MOF, “Large 

Taxpayers,” Afghanistan Revenue Department 

website, December 10, 2014, accessed on 

December 20, 2017. 

288. Bearing Point, AEGP Completion Report, USAID, 

p. 176; IMF, March 2006 Country Report, No. 

06/113, p. 7; Steve Coll, Directorate S: The C.I.A. 

and America’s Secret Wars in Afghanistan and 

Pakistan (New York, NY: Penguin Press, 2018), 

p. 194. 

289. Bearing Point, AEGP Completion Report, USAID, 

pp.176, 179.

290. William Byrd, “Macroeconomic and Public 

Financial Management in Afghanistan,” in State 

Strengthening in Afghanistan (Washington, DC: 

United States Institute of Peace, 2016), p. 87.

291. Byrd, “Macroeconomic and Public Financial 

Management in Afghanistan,” p. 87.

292. Byrd, “Macroeconomic and Public Financial 

Management in Afghanistan,” pp. 87–88.

293. Byrd, “Macroeconomic and Public Financial 

Management in Afghanistan,” p. 88.

294. Byrd, “Macroeconomic and Public Financial 

Management in Afghanistan,” pp. 91, 94–95.

295. Sultan Barakat et. al., Understanding 

Afghanistan: Synthesis Report, DFID and 

the Recovery and Development Consortium, 

November 2008, p. 38.

296. World Bank, Doing Business in South Asia, 

2007, p. 17.

297. James Mackenzie, “Afghan businesses feel 

squeeze from government tax drive,” Reuters, 

January 9, 2017.

298. IMF, July 2016 Country Report, No. 16/252, p. 54.

299. IMF, October 2002 Country Report, No. 02/219, 

p. 13.

300. IMF, October 2002 Country Report, No. 02/219, 

p. 14.

301. IMF, September 2003 Country Report, No. 03/299, 

p. 100.

302. IMF, October 2002 Country Report, No. 02/219, 

pp. 6, 15.

303. IMF, September 2003 Country Report, No. 03/299, 

pp. 100–101.

304. Myriam Quispe-Agnoli, Costs and Benefits of 

Dollarization, Federal Reserve Bank of Atlanta, 

March 4, 2002, pp. 2, 4.

305. Bearing Point, AEGP Completion Report, USAID, 

p. 59.

306. IMF, September 2003 Country Report, No. 03/299, 

p. 100.

307. IMF, September 2003 Country Report, No. 03/299, 

p. 101.

308. IMF, September 2003 Country Report, No. 03/299, 

pp. 103, 106. 

309. Bearing Point, AEGP Completion Report, USAID, 

p. 59.

310. IMF, September 2003 Country Report, No. 03/299, 

p. 103.

311. IMF, September 2003 Country Report, No. 03/299, 

pp. 11, 47, 131; William A. Byrd, What Can Be 

Done to Revive Afghanistan’s Economy?, USIP, 

February 2016, pp. 8–9.

312. IMF, September 2003 Country Report, No. 03/299, 

pp. 106–107.

313. IMF, September 2003 Country Report, No. 03/299, 

p. 108.

314. IMF, Islamic State of Afghanistan: Fifth Review 

Under the Three-Year Arrangement Under the 

Poverty Reduction and Growth Facility and 

Request for Waiver of Performance Criteria, and 

Rephasing and Extension of the Arrangement,

IMF Country Report No. 09/135, April 2009, 

Informational Annex, p. 3.

315. Samuel Munzele Maimbo, The Money Exchange 

Dealers of Kabul: A Study of Hawala System 

in Afghanistan, World Bank Working Paper no. 

13, 2003, pp. 3, 5, 8; David C. Faith, “The Hawala 

System,” Global Security Studies, vol. 2, issue 1 

(2011), pp. 24–25.

316. Treasury response to SIGAR data call, 2011; 

Treasury, Office of Technical Assistance, Current 

Comprehensive Project Report, March 31, 2017, 

p. 1; FBI, “Mission Afghanistan Part 2: The Major 

Crimes Task Force,” April 22, 2011; FinTRACA, 

“Overview,” FinTRACA website, accessed on 

March 23, 2018.

317. Treasury, “Treasury Designates New Ansari 

Money Exchange,” press release, February 18, 

2011, accessed on October 11, 2017.

318. Joshua Partlow, A Kingdom of Their Own: The 

Family Karzai and the Afghan Disaster (New 

York, NY: Knopf Doubleday Publishing Group, 

2016), pp. 166–167.

319. State, Bureau of International Narcotics and 

Law Enforcement Affairs, 2016 International 

Narcotics Control Strategy Report, Volume II: 

Money Laundering and Financial Crimes, 

March 2016, p. 58.
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

210 | ENDNOTES

320. Chemonics, Afghanistan Trade and Revenue 

(ATAR) Project Quarterly Report January–

March 2016, prepared under contract for USAID, 

April 30, 2016, p. 10.

321. Eli Sugarman et al., An Introduction to 

Commercial Law of Afghanistan, 2nd ed. 

(Stanford, CA: Stanford Law School, Afghanistan 

Legal Education Project, 2011), p. 70.

322. State, Bureau of Economic and Business Affairs, 

Afghanistan Investment Climate Statement 

2017, web version, 2017.

323. Booz Allen Hamilton, Afghanistan’s Agenda 

For Action: Developing The Trade & Business 

Environment, prepared under contract for 

USAID, Business Climate Legal and Institutional 

Reform (BizCLIR) Project, August 2007, p. 73.

324. Commerce, Iraq and Afghanistan Investment 

and Reconstruction Task Force: FY 2014 

Afghanistan Program Report, 2014, p. 1. 

325. USAID, Fact Sheet: Commercial Law 

Development Program Overview, USAID 

website, October 2016. 

326. Government of Afghanistan, MCIT, 

Telecommunications and Internet Policy, 

November 2003, p. 3.

327. Government of Afghanistan, ATRA, “Telecom 

Statistics,” ATRA website, published on March 

2017, accessed on December 1, 2017; Government 

of Afghanistan, MCIT, “Telecom’s Sector Recent 

Achievements,” MCIT website, accessed 

December 15, 2017; SIGAR, Afghanistan’s 

Information and Communications Technology 

Sector: U.S. Agencies Obligated over $2.6 Billion 

to the Sector, but the Full Scope of U.S. Efforts is 

Unknown, SIGAR 16-46-AR, July 2016, p. 2.

328. SIGAR analysis of data from the International 

Telecommunications Union, “Mobile cellular 

subscriptions: Afghanistan (number of 

subscriptions),” data for 2016, World Bank, World 

Development Indicators database, accessed on 

September 14, 2017.

329. Javid Hamdard, The State of 

Telecommunications and Internet in 

Afghanistan: Six Years Later (2006–2012), 

prepared under contract for USAID, March 2012, 

p. 10.

330. Former aid official and current think tank 

executive, SIGAR interview, December 17, 2015.

331. Roshan, “About Roshan,” Roshan website, 

accessed on July 6, 2017.

332. Javid Hamdard, The State of 

Telecommunications and Internet in 

Afghanistan, p. 14; Bhavna Bhatia and Neeraj 

Gupta, Transforming Telecoms in Afghanistan, 

Gridlines report, World Bank, 2006, p. 2.

333. Bhatia and Gupta, Transforming Telecoms, p. 2; 

World Bank, The World Bank in Afghanistan: 

Country Update, April 2007, p. 10.

334. SIGAR, Afghanistan’s ICT Sector, SIGAR 16-46-

AR, p. 3.

335. SIGAR, Afghanistan’s ICT Sector, SIGAR 16-46-

AR, pp. 4–5.

336. SIGAR, Afghanistan’s ICT Sector, SIGAR 16-46-

AR, p. 7.

337. USTDA, 2002 Annual Report: Expanding 

Capacity for Global Development, 2002, p. 15.

338. USTDA, 2005 Annual Report: Building 

Prosperity Through Partnership, 2005; USTDA, 

2009 Annual Report, 2009, p. 18.

339. Government of Afghanistan, MCIT, “Presentation 

by MCIT on Afghan Fiber Optic Ring,” slideshow 

presented at the International Conference on 

“Practical steps towards a knowledge-based 

economy,” UN Special Programme for the 

Economies of Central Asia (SPECA) Project, 7th 

Session, Dushanbe, Tajikistan, June 2015.

340. Abid Amiri, “Kabul’s Plan to Realize Afghanistan’s 

Geographic Dividend,” The Diplomat, December 

5, 2017; Jose M. Cabal, Environmental and 

Social Management Framework for Digital 

CASA Afghanistan Project, commissioned by 

MCIT, May 2017, p. 27.

341. Hogg et al., Afghanistan in Transition, World 

Bank, p. 83.

342. President of the Government of Afghanistan, 

Legislative Decree with Regards to Approving 

Telecommunication Service Charge Law, 2015.

343. Government of Afghanistan, MOF, Annual Macro 

Fiscal Report 1394, 2016, p. 20.

344. Kristina Shevory, “Once a Bright Spot, Afghan 

Telecoms Face Unsustainable Losses,” New York 

Times, April 8, 2016.

345. International ICT industry executive, SIGAR 

interview, April 23, 2016; Shevory, “Afghan 

Telecoms Face Unsustainable Losses.”

346. Booz Allen Hamilton, Agenda For Action, USAID, 

pp. 4–5.

347. IMF, September 2003 Country Report, No. 03/299, 

pp. 117–119.

348. Bearing Point, AEGP Completion Report, USAID, 

pp. 129–30.

349. Paterson and Blewett, Putting the Cart Before 

the Horse, p. 10.

350. Bearing Point, AEGP Completion Report, USAID, 

p. 164.

351. Bearing Point, AEGP Completion Report, USAID, 

pp. 114–15.

352. Booz Allen Hamilton, Agenda For Action, USAID, 

pp. 4–6, 13–20, 31. 

353. Booz Allen Hamilton, Agenda For Action, USAID, 

p. 5.

354. Zarmina Mohammadi, “Islamic Banking System 

Could Boost Country’s Economy,” TOLOnews, 

September 19, 2017; Chemonics International, 

Financial Access for Investing in the 

Development of Afghanistan (FAIDA): Quarterly 

Report January 1–March 31, 2016, prepared 

under contract for USAID, March 2016, p. 47.

355. Booz Allen Hamilton, Agenda For Action, USAID, 

pp. 16.

356. Booz Allen Hamilton, Agenda For Action, USAID, 

p. 4; Michael Leach, “Afghanistan’s Commercial 

Law Sector: Past, Present, Future,” prepared 

for GIZ under the Promotion of the Rule of Law 

Project, September 22, 2010, pp. 34–36.

357. Nicolle, Commercial Law Needs Assessment, 

GIZ, p. 54.
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 211

358. Booz Allen Hamilton, Agenda For Action, USAID, 

p. 18.

359. Nicolle, Commercial Law Needs Assessment, 

GIZ, pp. 59–60.

360. Nicolle, Commercial Law Needs Assessment, 

GIZ, p. 10.

361. Fishstein and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, p. 6; 

Sarah Lister and Adam Pain, Trading In Power: 

The Politics of “Free” Markets in Afghanistan, 

AREU, June 2004, pp. 3–4.

362. Lister and Pain, Trading In Power, AREU, 

pp. 3–4.

363. Barakat et. al., Understanding Afghanistan, 

p. 38.

364. SIGAR, Land Reform in Afghanistan: Full 

Impact and Sustainability of $42.1 million 

USAID Program is Unknown, SIGAR 17-27-AR, 

February 6, 2017, p. 3.

365. SIGAR, Land Reform in Afghanistan, 17-27-AR, 

p. 3.

366. Integrity Watch Afghanistan, National 

Corruption Survey 2016: Afghan Perceptions 

and Experiences of Corruption, December 8, 

2016, pp. 27–28.

367. SIGAR analysis of businesses’ responses to 

surveys conducted during field research in 

Afghanistan, April 2016. For more information, 

see appendix A, Methodology.

368. International telecommunications industry 

executive, SIGAR interview, April 23, 2016.

369. SIGAR, Corruption in Conflict, 16-58-LL, p. 52.

370. Global Witness, “Gaps in new Afghan mining law 

pose a threat to stability,” press release, August 

19, 2014; SIGAR, Corruption in Conflict, 16-58-

LL, p. 55.

371. EITI, “Afghanistan Overview,” EITI Afghanistan 

website, accessed on February 26, 2018.

372. Joshua Partlow, “Afghan minister accused of 

taking bribe,” Washington Post, November 18, 

2009.

373. Michael Stanley and Ekaterina Mikhaylova, 

Case Study: The Aynak Copper Deposit, 

Afghanistan, World Bank, Extractive Industries 

for Development Series no. 22, September 

2011, p. 60; James R. Yeager, The Aynak Copper 

Tender: Implications for Afghanistan and 

the West (Tucson, AZ: Skyline Laboratory and 

Assayers, October 2009), p. 35. 

374. Javed Noorani, The Plunderers of Hope? Political 

Economy of Five Major Mines In Afghanistan, 

Integrity Watch Afghanistan, December 2015, p. 2.

375. Government of Afghanistan, MOMP, “Afghanistan 

Resource Corridors Program (ARCP) Fact 

Sheet,” MOMP website, accessed on December 

5, 2017; Gary McMahon, Brandon Tracy, and 

World Bank Oil, Gas and Mining (SEGOM), 

The Afghanistan Mining Sector as a Driver of 

Sustainable Growth: Benefits and Opportunities 

for Large-Scale Mining, World Bank, February 

22, 2011, p. 4.

376. William Byrd and Javed Noorani, IndustrialScale Looting of Afghanistan’s Mineral 

Resources, USIP, June 2017. 

377. EITI, “Afghanistan Overview,” EITI Afghanistan 

website, accessed February 26, 2018.

378. Government of Afghanistan, MOMP, “Extractive 

Industries Transparency Initiative,” MOMP 

website, accessed on December 15, 2017; 

Afghanistan EITI, Annual Activity Report 2016, 

December 2016, p. 4.

379. EITI, “Afghanistan Overview: Validation,” EITI 

Afghanistan website, accessed on February 26, 

2018.

380. Gregory Gould, Director of the Office of Natural 

Resources Revenue, U.S. Department of Interior, 

“Letter to Mr. Fredrik Reinfeldt, Chair of EITI 

Board,” November 2, 2017.

381. World Bank, Pathways to Inclusive Growth, 

p. 96; World Bank, Country Highlights: 

Afghanistan, 2014, p. 2. 

382. IMF, September 2003 Country Report, No. 

03/299, pp. 116–117.

383. Bearing Point, AEGP Completion Report, USAID, 

p. 97.

384. Jelena Pavlovic and Joshua Charap, Development 

of the Commercial Banking System in 

Afghanistan: Risks and Rewards, IMF Working 

Paper WP/09/150, July 2009, p. 9.

385. Da Afghanistan Bank, Annual Economic and 

Statistical Report (2007–2008), August 2008, 

p. 37.

386. The White House, “U.S. Commitment to 

Afghanistan,” White House archives website, 

accessed on February 2017. 

387. Chemonics, ACAP Partners Afghanistan 

Renewal Final Report, pp. 2, 4. 

388. Chemonics, ACAP Partners Afghanistan 

Renewal Final Report, pp. 2, 9. 

389. Chemonics, ACAP Partners Afghanistan 

Renewal Final Report, pp. 8–9.

390. Pavlovic and Charap, Development of the 

Commercial Banking System in Afghanistan, 

pp. 18–20.

391. IMF, April 2009 Country report, No. 09/135, p. 7. 

392. IMF, April 2009 Country report, No. 09/135, p. 7. 

393. Deloitte, Annual Report: Economic Growth & 

Governance Initiative (EGGI), prepared under 

contract for USAID, September 30, 2010, p. 21.

394. Deloitte, EGGI 2010 Annual Report, USAID, 

pp. 19, 23. 

395. Deloitte, EGGI Final Report, USAID, p. 54.

396. Deloitte, EGGI Final Report, USAID, pp. 59–60.

397. SIGAR, Afghanistan’s Banking Sector: 

The Central Bank’s Capacity to Regulate 

Commercial Banks Remains Weak, SIGAR 14-16-

AR, January 2014, p. 4.

398. SIGAR, Afghanistan’s Banking Sector, 14-16-AR, 

January 2014, pp. 6–7.

399. Deloitte, EGGI Final Report, USAID, pp. 6–7.

400. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Report of the Public 

Inquiry into the Kabul Bank Crisis, November 

15, 2012, p. 2; Grant McLeod, Responding to 

Corruption and the Kabul Bank Collapse, USIP, 

December 2016, p. 2.
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

212 | ENDNOTES

401. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Public Inquiry into 

the Kabul Bank Crisis, p. 10.

402. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Public Inquiry into 

the Kabul Bank Crisis, p. 9. 

403. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Public Inquiry into 

the Kabul Bank Crisis, p. 9; McLeod, Responding 

to Corruption and the Kabul Bank Collapse, p. 3.

404. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Public Inquiry into 

the Kabul Bank Crisis, p. 11.

405. Andrew Higgins, “In Afghanistan, signs of crony 

capitalism,” Washington Post, February 22, 2010. 

406. Tina Søreide and Aled Williams, Corruption, 

Grabbing and Development: Real World 

Challenges (Northampton, MA: Edward Elgar, 

2014), p. 179.

407. McLeod, Responding to Corruption and the 

Kabul Bank Collapse, p. 5.

408. Independent Joint Anti-Corruption Monitoring 

And Evaluation Committee, Public Inquiry 

into the Kabul Bank Crisis, p. 12; McLeod, 

Responding to Corruption and the Kabul Bank 

Collapse, p. 2.

409. McLeod, Responding to Corruption and the 

Kabul Bank Collapse, pp. 9–10

410. McLeod, Responding to Corruption and the 

Kabul Bank Collapse, pp. 7–10.

411. The Government of Afghanistan, Office of the 

President, Presidential Decree, Serial Number 

2726, March 19, 2016; SIGAR, Quarterly Report, 

January 30, 2017, p. 158. 

412. USAID Office of Inspector General, Review 

of USAID/Afghanistan’s Bank Supervision 

Assistance Activities and the Kabul Bank 

Crisis, Report No. F-306-11-003-S, March 

16, 2011, p. 5; Ernesto Londono and Rajiv 

Chandrasekaran, “U.S. advisers didn’t report 

early signs of trouble at Kabul Bank, probe finds,” 

Washington Post, March 15, 2011; Senior DAB 

official, SIGAR interview, April 9, 2016.

413. IMF, Islamic Republic Of Afghanistan Second 

Review of the Staff-Monitored Program, IMF 

Country Report No. 16/120, May 2016, p. 5.

414. DAB, Annual Bulletin–FY 1392, January 2014, 

p. 80; DAB, Annual Bulletin–FY 1394, 2015, 

p. 86. 

415. DAB, Annual Bulletin–FY 1394, p. 86.

416. DAB, Annual Bulletin–FY 1394, pp. 84–85. 

417. OPIC, Annual Report: Delivering On the 

Promise, 2002, p. 2.

418. OPIC, 2002 Annual Report, pp. 12–13.

419. OPIC, Annual Reports from 2003–2014.

420. OPIC, Congressional Budget Justification FY 

2013, 2013, p. 8.

421. OPIC, Congressional Budget Justification FY 

2013, p. 8; OPIC, Annual Report: Delivering On 

the Promise, 2007, p. 27. 

422. OPIC, 2009 Annual Report, p. 13.

423. SIGAR, Abandonment of OPIC projects in Kabul, 

SIGAR 17-13 SP, November 14, 2016, p. 1.

424. SIGAR, Abandonment of OPIC projects in Kabul, 

17-13 SP, pp. 7, 4.

425. U.S. Department of Justice (DOJ), “Former 

Owner of Marble Mining Company in Afghanistan 

Indicted for Allegedly Defrauding U.S. 

Government Agency and Defaulting on a $15.8 

Million Loan,” press release, June 16, 2017.

426. Former aid official and current think tank 

employee, SIGAR interview, December 2015.

427. USAID, ADS Chapter 249: Development Credit 

Authority, p. 4. 

428. SIGAR analysis of data from USAID, “Cumulative 

Utilization Percentage” and “Claims (US$),” 

Primary Target Segment: SME, data for 2012–

2020, Development Credit Authority (DCA): 

Guarantee Utilization and Claims, accessed on 

February 28, 2018.

429. USAID, “Development Credit Authority (DCA) 

Overview”, USAID website, accessed on 

September 25, 2017. 

430. SIGAR analysis of data from USAID, “Cumulative 

Utilization,” Primary Target Segment: Micro, data 

for 2014–2020, Development Credit Authority 

(DCA): Guarantee Utilization and Claims, 

accessed on February 28, 2018.

431. Senior DAB official, interview by SIGAR, April 9, 

2016.

432. DAB, Annual Bulletin–FY 1394, pp. 83–85.

433. Klaus Maure, “Where is the Risk? Is Agricultural 

Banking Really More Difficult than Other 

Sectors?,” in Finance For Food: Towards New 

Agriculture and Rural Finance, ed. Doris Kohn 

(Frankfurt: Springer Berlin Heidelberg, 2014), 

p. 139. 

434. Former USAID implementing partner official, 

SIGAR interview, July 29, 2016.

435. Microfinance Investment Support Facility for 

Afghanistan (MISFA), Microfinance: Making a 

difference in Afghanistan, August 2008, p. 1. 

436. Martin Greeley, “Aid Effectiveness and 

Microfinance: Lessons from Afghanistan,” in Aid 

That Works: Successful Development in Fragile 

States, ed. James Manor (Washington, DC: World 

Bank, 2007), pp. 231–232.

437. Academy for Educational Development 

(AED), Agriculture, Rural Investment and 

Enterprise Strengthening (ARIES) Program 

in Afghanistan: Final Report September 30, 

2006–December 31, 2009, prepared under 

contract for USAID, p. 5; ACDI/VOCA, Taking 

Stock Of USAID’s Rural And Agricultural 

Finance Initiatives, prepared under contract 

for USAID, March 2012, p. 8; Chemonics, FAIDA 

Performance Management Plan, prepared 

under contract for USAID, January 11, 2011, p. 1; 

Checchi, FAIDA Final Performance Evaluation,

prepared under contract with USAID, July 2015, 

p. 25.

438. MISFA, Microfinance: Making a difference in 

Afghanistan, 2008, pp. 1–2.

439. International Finance Corporation (IFC), 

Developing a Housing Microfinance Product: 

The First Microfinance Bank’s Experience in 

Afghanistan, n.d., p. 8.
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 213

440. World Bank Group, Integrity Vice Presidency, 

Expanding Microfinance Outreach, p. 5.

441. MISFA, MISFA Annual Report: Microfinance 

in Afghanistan, 2011, pp. 9, 15; World Bank, 

Afghanistan Country Program Evaluation, 

2002–2011: Evaluation of the World Bank 

Group Program, 2013, p. 87.

442. MISFA, MISFA Annual Report, 2011, pp. 12, 15.

443. Paula Kantor and Erna Anderson, Building a 

Viable Microfinance Sector in Afghanistan, 

January 2010, pp. 3–4.

444. Senior OPIC official, SIGAR interview, February 

5, 2016. 

445. Senior Afghan Growth Finance official, SIGAR 

interview, June 21, 2017. 

446. Small Enterprise Assistance Funds, Afghan 

Growth Finance (AGF), Expansion of SEAFAGF in Afghanistan: Final Performance Report, 

prepared under contract with USAID, November 

14, 2015, pp. 3, 5.

447. Senior Afghan Growth Finance official, SIGAR 

interview, June 21, 2017.

448. Senior Afghan Growth Finance official, SIGAR 

interview, June 21, 2017.

449. Small Enterprise Assistance Funds, AGF, 

Expansion of SEAF-AGF in Afghanistan: Final 

Performance Report, USAID, p. 10. 

450. Senior Afghan Growth Finance official, SIGAR 

interview, June 21, 2017. 

451. AED, ARIES Final Report September 30, 2006–

December 31, 2009, USAID, pp. 4, 6.

452. Chemonics, Institutional Assessment of Afghan 

Rural Finance Company, prepared under 

contract for USAID, January 2012, p. 5.

453. Chemonics, Institutional Assessment of Afghan 

Rural Finance Company, USAID, p. 6.

454. Chemonics, Institutional Assessment of Afghan 

Rural Finance Company, USAID, p. 5.

455. Chemonics, Institutional Assessment of 

Afghan Rural Finance Company, USAID; 

Chemonics, Financial Access for Investing in 

the Development of Afghanistan (FAIDA): Final 

Report, prepared under contract for USAID, 

February 5, 2017, p. 1.

456. Former Minister of Agriculture, Irrigation, and 

Livestock, SIGAR interview, April 20, 2016. 

457. DAI, Final Report: Agriculture Credit 

Enhancement (ACE) Program, prepared under 

contract for USAID, February 2015, p. 11.

458. DAI, ACE Final Report, USAID, pp. 13–14.

459. Checchi, ACE Final Evaluation, USAID, p. 23. 

460. USAID response to SIGAR data call, July 2016.

461. Checchi, ACE Final Evaluation, USAID, p. 25. 

462. USAID, Agriculture Credit Enhancement 

Program (ACE) II Contract Order No. AID-306-

BC-15-00005, p. 8.

463. Checchi, ACE Final Evaluation, USAID, p. 19.

464. Comment on peer review draft by former USAID 

implementing partner official, June 29, 2016; 

former USAID implementing partner official, 

SIGAR interview, July 29, 2016. 

465. Checchi, ACE Final Evaluation, USAID, p. 24.

466. Former USAID implementing partner official, 

SIGAR interview, June 29, 2016. 

467. Checchi, ACE Final Evaluation, USAID, p. 12.

468. Checchi, Final Evaluation: Afghanistan Small 

and Medium Enterprise Development Project 

(ASMED), prepared under contract for USAID, 

July 2011, p. 16.

469. Poultry farm owner in Herat, SIGAR interview, 

April 2016. 

470. DAI, Agriculture Credit Enhancement II (ACEII) Program: Annual Report No. 2 June 23, 

2016–June 22, 2017, prepared under contract 

with USAID, July 2017, p. 11.

471. USAID, 2002 Afghanistan Recovery and 

Reconstruction Strategy, p. 15.

472. Emerging Markets Group, LTERA Completion 

Report, USAID, p. 54.

473. Paterson and Blewett, Putting the Cart Before 

the Horse, pp. 1, 5, footnote 10.

474. Emerging Markets Group, LTERA Completion 

Report, USAID, p. 1.

475. ARD Inc., Land Privatization and Land 

Titling in Afghanistan: Evaluation of the Land 

Component of the USAID-Funded Afghanistan 

State Owned Enterprise Privatization, Excess 

Land Privatization and Land Titling Activity, 

prepared under contract for USAID, April 2006, 

p. 54.

476. Emerging Markets Group, LTERA Completion 

Report, USAID, pp. 54, 68; Paterson and Blewett, 

Putting the Cart Before the Horse, p. 14.

477. Paterson and Blewett, Putting the Cart Before 

the Horse, pp. 16–17.

478. Paterson and Blewett, Putting the Cart Before 

the Horse, p. 5.

479. Paterson and Blewett, Putting the Cart Before 

the Horse, p. 6.

480. Emerging Markets Group, LTERA Completion 

Report, USAID, p. 69.

481. Emerging Markets Group, LTERA Completion 

Report, USAID, p. 70.

482. Paterson and Blewett, Putting the Cart Before 

the Horse, p. 5. This number is from the list 

used by the MOF SOE Department. There was 

a substantial lack of clarity on what enterprises 

were completely state-owned, as the history 

of SOEs was complicated by periods of 

centralization and mixed ownership. Fishstein 

and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, p. 6.

483. Box International Consulting, L.P., Feasibility 

Study for the Afghanistan Cement Sector Final 

Report, for the MOMP, funded by USTDA, August 

2006, volume I, chapter II, pp. 1–2. 

484. Box International, Feasibility Study for the 

Afghanistan Cement Sector, volume I, chapter I, 

pp. 42, 59.

485. Mir Sediq Zaliq, “A Loss-Making Cash Cow,” 

Afghanistan Today, June 7, 2011; Integrity Watch 

Afghanistan, The Plunderers of Hope? Political 

economy of five major mines in Afghanistan, 

2015, p. 16.

486. Zaliq, “A Loss-Making Cash Cow,” Afghanistan 

Today, June 7, 2011. 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

214 | ENDNOTES

487. James Mackenzie and Hamid Shalizi, “Major 

Afghan cement contract cancelled in investment 

setback,” Reuters, February 10, 2017. 

488. SIGAR analysis of data from UN Comtrade, 

“Pakistan Exports to Afghanistan by HS 

Classification (value in US$),” data for 2003–2013, 

World Bank, World Integrated Trade Solutions, 

accessed on February 9, 2018.

489. Box International, Feasibility Study for the 

Afghanistan Cement Sector, volume II, chapter V, 

p. 2. 

490. Tom Box, SIGAR interview, February 14, 2018. 

491. Samuel Hall Consulting, “Special Economic 

Zones in Afghanistan: a New Business Economic 

Deal for 2020?,” commissioned by Harakat, 2015, 

p. 23.

492. ARD Inc., Land Privatization and Land Titling 

in Afghanistan, USAID, p. iv. 

493. USAID Office of Inspector General, Audit 

of USAID/Afghanistan’s Land Titling and 

Economic Restruction in Afghanistan Project, 

USAID OIG, June 8, 2009, p. 11.

494. Checchi, Final Performance Evaluation 

(October–November 2014): Land Reform in 

Afghanistan (LARA) Project, prepared under 

contract for USAID, p. 1.

495. Palm et al., Reforming the business environment 

in Afghanistan, p. 15, 18.

496. World Bank, Afghanistan: State Building, 

Sustaining Growth, and Reducing Poverty, 

February 2005, p. 82.

497. Paterson and Blewett, Putting the Cart Before 

the Horse, pp. 1–2, note 1.

498. Paterson and Blewett, Putting the Cart Before 

the Horse, pp. 1–2, note 1.

499. TOLOnews, “Former AISA Officials Call for 

Corruption Reform,” July 29, 2012. 

500. Wadsam, “Afghanistan wins AIM 2016 Investment 

Award,” April 12, 2016. 

501. TOLOnews, “Ghani Orders Merging Of AISA With 

MoCI,” April 6, 2016. 

502. Altai, “Challenges Presented by the Legal and 

Regulatory Framework Governing Private ForProfit Activity,” pp. 60, 64, endnote 11.

503. Afghan-American Chamber of Commerce, “About 

Us,” Afghan-American Chamber of Commerce 

website, accessed on October 6, 2017.

504. Harakat, Annual Report 2015, n.d., pp. 2, 11, 

13; “Homepage,” Harakat website, accessed on 

March 8, 2018. 

505. Bearing Point, AEGP Completion Report, USAID, 

p. 155.

506. SIGAR, Bagrami Industrial Park: Lack of 

Adherence to Contract Requirements Left this 

$5.2 Million Park without Aqeuate Water Supply 

and Sewer Collection and Treatment Systems, 

16-48-IP, July 2016, p. 1. 

507. Government of Afghanistan, Office of the 

Senior Economic Advisor, “Industrial Parks in 

Afghanistan,” presentation from the Office of the 

Economic Advisor website, accessed on March 6, 

2018, p. 5.

508. Richard Scarth, Hisar i Shahi, Rodat, Jalalabad, 

p. 18. 

509. Scarth, Hisar i Shahi, Rodat, Jalalabad, p. 16.

510. Scarth, Hisar I Shai, Rodat, Jalalabad, p. 16. 

511. Scarth, Hisar i Shahi, Rodat, Jalalabad, 

pp. 16–17.

512. Scarth, Hisar i Shahi, Rodat, Jalalabad, p. 16.

513. Scarth, Hisar i Shahi, Rodat, Jalalabad, 

pp. 16–17.

514. International property consultant, email to 

SIGAR, March 2018.

515. Samuel Hall Consulting, “Special Economic 

Zones in Afghanistan,” Harakat, p. 23.

516. International property consultant, email to 

SIGAR, March 2018.

517. International property consultant, email to 

SIGAR, March 2018.

518. Scarth, Hisar i Shahi, Rodat, Jalalabad, pp. 6, 7, 

10.

519. Scarth, Hisar i Shahi, Rodat, Jalalabad, p. 6. 

520. USAID, response to SIGAR data call, January 17, 

2018.

521. Chemonics, Value Chains and the Cluster 

Approach: Transforming Relationships to 

Increase Competitiveness and Focus on End 

Markets, prepared under contract for USAID, 

October 2008, p. 2. 

522. Checchi, Agribusiness Sustainability 

Assessment, prepared under contract for USAID, 

January 2016, pp. 2, 9, 17. 

523. Sune Engel Rasmussen, “Ashraf Ghani’s 

Struggle,” Foreign Policy, September 29, 2014.

524. SIGAR analysis of data from UN Comtrade, 

“Afghanistan reported exports: marble, 

travertine, and other building stone (value in 

US$),” data for 2015–2016, World Bank, World 

Integrated Trade Solutions, accessed on February 

15, 2018.

525. USAID, “Marble is a hard business,” press 

release, September 19, 2011; Paul Lamoureux, 

Afghanistan Marble and Granite, prepared with 

funds from USAID Small & Medium Enterprise 

Development Program, August 12, 2008, p. 12.

526. NATO, “Afghanistan’s heart of marble,” press 

release, July 6, 2012.

527. USAID, “New Marble-Processing Facility 

Inaugurated at Marble Conference Opening,” 

press release, May 25, 2011; Karine M. Renaud, 

The Mineral Industry of Afghanistan, USGS, 

May 2015, p. 4.

528. NATO, “Afghanistan’s heart of marble,” press 

release, July 6, 2012.

529. Melissa L. Skorka, “Afghanistan’s untold success 

story,” Foreign Policy, October 22, 2013.

530. DOJ, Office of Public Affairs, “Former Owner of 

Marble Mining Company in Afghanistan Indicted 

for Allegedly Defrauding U.S. Government 

Agency and Defaulting on a $15.8 Million Loan,” 

press release, June 16, 2017.

531. ECC Water & Power LLC, MIDAS Quarterly 

Report 1 January–31 March 2015, prepared 

under contract for USAID, April 29, 2015, pp. 9, 

14; Jawed Ziaratjayee, “Herat Mines’ Income Falls 

by 50 Percent,” TOLOnews, February 22, 2017. 

532. Pajhwok Afghan News, “Only marble factory in 

Kunar at standstill,” March 17, 2017; International 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 215

Crisis Group, The Future of the National Unity 

Government, p. 9.

533. Sune Engel Rasmussen, “Afghan government 

money reaching Taliban through marble trade,” 

The Guardian, June 3, 2016.

534. Noor Zahid, “Report: Militant Groups in 

Afghanistan Get Rich Off Mineral Smuggling,”

VOA, February 1, 2017; Javed Noorani and Lien 

De Brouckere, A Balancing Act for Extractive 

Sector Governance, AREU, May 2016, p. 5; 

Byrd and Noorani, Industrial-Scale Looting of 

Afghanistan’s Mineral Resources, p. 11.

535. USAID OEG, response to SIGAR data call, 

December 10, 2017.

536. USAID OEG, response to SIGAR data call, 

December 10, 2017.

537. Yao Jing, “BRF Promotes Win-win Cooperation 

for China and Afghanistan,” Daily Outlook 

Afghanistan, May 13, 2017.

538. Checchi, Agribusiness Sustainability 

Assessment, USAID, pp. 17–23. The assessment 

report assessed only 47 enterprises, 

acknowledging that results cannot be 

generalized. Profitability and operations were 

used as measures of success, which included 

management, human and physical resources, 

links to markets, contribution to the local 

economy, and support to women’s engagement in 

agriculture value chains.

539. Checchi, Agribusiness Sustainability 

Assessment, USAID, p. 18.

540. Checchi, Agribusiness Sustainability 

Assessment, USAID, p. 38. 

541. Checchi, Agribusiness Sustainability 

Assessment, USAID, pp. 52–57.

542. Checchi, Evaluation Report for Alternative 

Development Program (ADP) Southern Region 

January 11–April 19, 2010, n.d., prepared under 

contract for USAID, p. 19.

543. Checchi, Agribusiness Sustainability 

Assessment, USAID, p. 33; Checchi, Performance 

Evaluation of the Incentives Driving Economic 

Alternatives–North, East, and West Program 

(IDEA–NEW): Final Report, prepared under 

contract for USAID, April 2015, p. 11; Anna 

Paterson, Going to Market: Trade and Traders in 

Six Afghan Sectors, AREU, June 2006, p. 9.

544. Checchi, Agribusiness Sustainability 

Assessment, USAID, p. 60.

545. DAI, Afghanistan Small and Medium Enterprise 

Development (ASMED) Final Report, prepared 

under contract for USAID, November 30, 2012, 

p. 4; Checchi, ASMED Final Evaluation, USAID, 

p. 22. 

546. DAI, ASMED Final Report, USAID, p. 1. 

547. USAID, Amendment of Solicitation/Modification 

of Contract, Contract #306-C-00-07-00503-00, 

Modification #15, Oct 11, 2010, p. 3; DAI, ASMED 

Final Report, USAID, p. 17.

548. Checchi, Impact Evaluation: RAMP October 

23–November 30, 2007, prepared under contract 

for USAID, n.d., p. 29; Checchi, ADP Evaluation 

Report: Southern Region, USAID, p. 22; Checchi, 

ADP Evaluation Report: Northern Region,

USAID, p. 13.

549. Checchi, ASMED Final Evaluation, USAID, 

p. 22. 

550. Government of Afghanistan, National 

Development Framework, draft, April 2002, 

pp. 25, 29–31; Government of Afghanistan, 

Executive Summary and National Priority 

Projects, October 12, 2002, p. 2.

551. Government of Afghanistan, Afghanistan 

National Development Strategy (Interim),

summary report, January 24, 2006, p. 19; 

Government of Afghanistan, The Afghanistan 

Compact, February 1, 2006, p. 9; Government of 

Afghanistan, Afghanistan National Development 

Strategy 2008–2013, p. 105.

552. Karine M. Renaud, The Mineral Industry of 

Afghanistan, USGS, May 2015, p. 2; Checchi, 

Final Performance Evaluation of Mining 

Investment and Development for Afghan 

Sustainability (MIDAS) 2012–2017, prepared 

under contract for USAID, August 2017, pp. 5, 8.

553. USGS, Preliminary Mineral Resource 

Assessment of Selected Mineral Deposit 

Types in Afghanistan, 2007, p. 1; USGS, U.S. 

Geological Survey Afghanistan Project Products, 

administrative report, September 2014, p. 69.

554. USGS, “Airborne Geophysical Surveys,” USGS 

Projects in Afghanistan website, accessed on 

February 5, 2018.

555. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 27.

556. Former advisor to MOMP, SIGAR interview, June 

5, 2017.

557. DOD, Task Force for Business and Stability 

Operations (TFBSO) Report on Activities in 

Afghanistan, Fiscal Year 2011, December 16, 

2011, p. 2; James Risen, “U.S. Identifies Vast 

Mineral Riches in Afghanistan,” New York Times, 

June 13, 2010.

558. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2012, n.d., p. 6. 

559. Javed Noorani, Aynak: A concession for change, 

Integrity Watch Afghanistan, November 2013, 

pp. vii, ix, 13; Mohsin Amin, “The Story Behind 

China’s Long-Stalled Mine in Afghanistan,” The 

Diplomat, January 7, 2017.

560. Wadsam, “No contract was signed with the 

Indian consortium on Hajigak mine: Afghan 

Mines Minister,” May 26, 2015.

561. Government of Afghanistan, Towards 

Self-Reliance: Strategic Vision for the 

Transformation Decade, July 8, 2012, p. 9.

562. Checchi, Final Performance Evaluation of 

MIDAS, USAID, p. 29; SIGAR, Quarterly Report, 

April 30, 2016, p. 169.

563. SIGAR, Afghanistan’s Mineral, Oil, and Gas 

Industries, 15-55-AR, p. 3; SIGAR, Afghanistan’s 

Oil, Gas, and Minerals Industries, 16-11-AR, 

p. 15.

564. Javed Noorani and Najibullah Ziar, Mining 

Governance: An Effective Extractive Industries 

Revenue Collection System for Afghanistan, 

AREU, May 2017, p. 2.
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

216 | ENDNOTES

565. Noorani and Ziar, Mining Governance, May 2017, 

p. 2. 

566. SIGAR, Afghanistan’s Oil, Gas, and Minerals 

Industries, 16-11-AR, p. 1.

567. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 24; DOD, 

TFBSO Report on Activities in Afghanistan 

Fiscal Year 2014, January 2015, p. 5; Vestige 

Consulting LLC, Economic Impact Assessment, 

Task Force for Business & Stability Operations 

(TFBSO) in Afghanistan, prepared under 

contract for TFBSO, November 2014, pp. 66–83.

568. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, pp. 14, 25.

569. USAID, response to SIGAR data call, January 17, 

2018.

570. Checchi, Final Performance Evaluation of 

MIDAS, USAID, pp. 7–8.

571. DOD OUSD-P, response to SIGAR data call, 

January 15, 2018.

572. Byrd and Noorani, Industrial-Scale Looting of 

Afghanistan’s Mineral Resources, pp. 5–6, 8, 9.

573. Government of Afghanistan, Afghanistan 

National Peace and Development Framework 

(ANPDF) 2017 to 2021, October 4, 2016, p. 23.

574. Global Witness, War in the Treasury of the 

People: Afghanistan, Lapis Lazuli and the 

Battle for Mineral Wealth, June 2016, p. 6.

575. Associated Press, “Watchdog: Afghanistan’s Lapis 

Lazuli is a ‘Conflict Mineral’,” VOA News, June 6, 

2016.

576. Global Witness, War in the Treasury of the 

People, p. 6.

577. TOLOnews, “Ghani Labels Corruption a National 

Shame, Vows Robust Action to Fight Trend,” May 

5, 2016; Pablo Valverde, “President Ghani puts 

mining reform at heart of the government’s anticorruption efforts,” press release, EITI, May 7, 

2016.

578. ECC Water & Power LLC, MIDAS Final Report, 

pp. 18–19.

579. International Crisis Group, Afghanistan: The 

Future of the National Unity Government, April 

10, 2017, p. 9.

580. Government of Afghanistan, MOMP, Roadmap for 

Reform, December 2017, pp. 10–18.

581. USAID Office of Economic Growth (OEG), 

response to SIGAR data call, December 10, 2017.

582. Commerce, Iraq and Afghanistan Investment 

and Reconstruction Task Force: FY 2014 

Afghanistan Program Report, 2014, pp. 7, 8, 15. 

583. Commerce, Iraq and Afghanistan Investment 

and Reconstruction Task Force: FY 2014 

Afghanistan Program Report, pp. 3–4. 

584. Commerce, Iraq and Afghanistan Investment 

and Reconstruction Task Force: FY 2014 

Afghanistan Program Report, p. 3. 

585. Former Commerce official, SIGAR interview, 

December 16, 2015; Commerce, Iraq and 

Afghanistan Investment and Reconstruction 

Task Force: FY 2014 Afghanistan Program 

Report, p. 22.

586. World Bank, Pathways to Inclusive Growth, 

p. 17.

587. Paterson, Going to Market, p. 6.

588. State, “Afghanistan: Private Sector Meeting, 

March 30, 2004,” Berlin 001284 cable, April 4, 

2004.

589. Ajmal Shams, “Afghanistan at the Crossroads,” 

The Diplomat, January 28, 2015.

590. IMF, Islamic Republic of Afghanistan: Fourth 

Review Under the Three-Year Arrangement 

Under the Poverty Reduction and Growth 

Facility and Request for Waiver of Performance 

Criterion, IMF Country Report No. 08/229, July 

2008, p. 19; IMF, May 2016 Country Report, No. 

16/120, p. 20.

591. USAID, 2002 Afghanistan Recovery and 

Reconstruction Strategy, pp. 4–5.

592. USAID, USAID/Afghanistan Strategic Plan 

2005–2010, pp. 16, 19.

593. Dawn, “Afghanistan inducted as 8th member: 

14th Saarc summit begins,” April 4, 2007.

594. Bearing Point, AEGP Completion Report, USAID, 

p. 141.

595. Chemonics, Afghanistan Trade and Revenue 

(ATAR) Project Year 2 Annual Report, prepared 

under contract for USAID, 2015, p. 24.

596. SIGAR analysis of data from UN Comtrade, 

“Afghanistan Exports and Imports to/from all 

countries: Exports to Pakistan (value in US$) and 

Exports to India (value in US$),” data for 2008, 

World Bank, World Integrated Trade Solutions, 

accessed on February 9, 2018; Bearing Point, 

AEGP Completion Report, USAID, p. 142.

597. Commerce, International Trade Administration, 

“Afghanistan: Trade Agreements,” export.gov 

website, last published on April 4, 2016, accessed 

on March 2, 2018.

598. Byrd, Responding To Afghanistan’s Development 

Challenge, pp. 12–13; IMF, September 2003 

Country Report, No. 03/299, p. 84.

599. Bearing Point, AEGP Completion Report, USAID, 

p. 142.

600. Chemonics, TAFA Final Report, USAID, pp. 1, 5, 

8, 14. 

601. Chemonics, TAFA Final Report, USAID, pp. 23–

26.

602. Chemonics, ATAR Year 2 Annual Report, USAID, 

pp. 24, 27.

603. USTDA, 2009 Annual Report, p. 5.

604. USTR, “2011 United States-Afghanistan Trade 

and Investment Framework Agreement (TIFA) 

Council Meeting,” press release, 2011.

605. USTR, “Trade and Investment Framework 

Agreements,” USTR website, accessed on March 

2, 2018.

606. Shahpoor Saber, “Foreign Imports Killing Off 

Afghan Industry,” Institute for War and Peace 

Reporting, June 14, 2011.

607. Mirwais Parsa, “Why Pakistan and Afghanistan 

Should Keep Trade Away from Politics,” Fair 

Observer, November 10, 2017; TOLOnews, “ACCI 

Warns of Iran Dumping Iron, Hurting Domestic 

Industry,” April 18, 2015; Iran Times, “Islamic 

Republic has highest import tariffs in world,”

n.d.; Australian Government, Australian Trade 

and Investment Commission, “Iran Tariffs and 
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 217

Regulations,” Australian Trade and Investment 

Commission website, accessed on March 9, 2018; 

Commerce, International Trade Administration, 

“Pakistan: Import Tariffs,” export.gov website, 

last updated on August 17, 2017, accessed on 

March 2, 2018.

608. Chemonics, KAP Survey of Afghanistan 

Towards Trade, USAID, pp. 4–5; Byrd, 

Responding To Afghanistan’s Development 

Challenge, p. 13; Fishstein and Amiryar, Afghan 

Economic Policy, Institutions, and Society 

Since 2001, p. 12.

609. RECCA, “About Us,” RECCA website, accessed 

on December 14, 2017; RECCA, “RECCA I: Kabul 

Declaration on Regional Economic Cooperation,” 

December 4–5, 2005, p. 1.

610. RECCA, “About Us,” RECCA website, accessed 

on December 14, 2017.

611. RECCA, “About Us,” RECCA website, accessed 

on December 14, 2017.

612. Casey Michel, “Did Afghanistan Just Drop Out 

of CASA-1000?,” The Diplomat, June 18, 2016; 

Catherine Putz, “Indian Companies to Begin 

CASA-1000 Construction in Afghanistan,” The 

Diplomat, December 12, 2017; Asia-Plus, “CASA1000 Power Project Inaugurated in Tajikistan,” 

May 12, 2016.

613. CASA-1000, “List of Frequently Asked Questions,” 

CASA-1000 website, June 6, 2011, pp. 1, 3.

614. Bruce Pannier, “Afghan TAPI Construction Kicks 

Off, But Pipeline Questions Still Unresolved,” 

Radio Free Europe/Radio Liberty, February 23, 

2018.

615. Catherine Putz, “TAPI Moves into Afghanistan, 

Taliban Promises to Protect the Project,” The 

Diplomat, February 27, 2018.

616. Government of Afghanistan, MOMP, 

“Turkmenistan-Afghanistan-Pakistan-India (TAPI) 

Pipeline,” MOMP website, accessed on December 

14, 2017.

617. Vanda Felbab-Brown, “Pakistan’s Relations 

with Afghanistan and Implications for Regional 

Politics,” Brookings Institution, May 14, 2015; 

Arwin Rahi, “A Counterproductive AfghanPakistan Border Closure,” The Diplomat, March 

20, 2017.

618. BBC News, “India and Iran sign ‘historic’ 

Chabahar port deal,” May 23, 2016; Sarah Watson, 

“Does India’s Chabahar Deal Make Sense?” The 

Diplomat, May 24, 2017.

619. USAID, “Afghan Exports Set to Soar as USAID 

Supports Afghan Government Opening of OneStop Shop at Hamid Karzai International Airport,” 

press release, January 25, 2018.

620. Chemonics, ATAR Project Quarterly Report 

April–June 2017, prepared under contract for 

USAID, July 31, 2017, p. 8.

621. Shoaib Ahmand Rahim, “The Geopolitics of the 

Lapis Lazuli Corridor,” The Diplomat, December 

22, 2017.

622. Dawn, “Pakistan joins Ashgabat Agreement, 

Lapis Lazuli Corridor,” November 26, 2016.

623. Sudha Ramachandran, “Iran’s Chabahar 

Port Empowers India-Afghanistan Trade at 

Pakistan’s Expense,” The Central Asia-Caucasus 

Analytical Articles, January 10, 2018.

624. Fishstein and Amiryar, Afghan Economic 

Policy, Institutions, and Society Since 2001, 

p. 12; Madeleine Dale, “Eight Ways World 

Trade Organization Membership Will Benefit 

Afghanistan,” Chemonics blog, February 3, 

2016; David Jolly, “Afghanistan Hopes WTO 

Membership Can Reboot Its Battered Economy,” 

New York Times, December 9, 2015; WTO, 

“Afghanistan WTO accession package ready 

for formal adoption in Nairobi,” press release, 

November 11, 2015.

625. WTO Committee on Trade and Development, 

Special and Differential Treatment Provisions 

in WTO Agreements and Decisions, Note by the 

Secretariat, World Trade Organization, June 14, 

2013, pp. 26–35.

626. WTO, “Accession: Afghanistan’s Timeline,” WTO 

website, accessed on March 2, 2018; Bearing 

Point, AEGP Completion Report, USAID, 

p. 154; Deloitte, EGPSS Project, USAID, p. 24; 

Chemonics, TAFA Final Report, USAID, p. 1; 

Chemonics, ATAR Project Quarterly Report 

April–June 2017, USAID, p. 6. 

627. Chemonics, ATAR Project Quarterly Report 

April–June 2017, USAID, pp. 50–51; Chemonics, 

KAP Survey of Afghanistan Towards 

Trade, USAID, pp. 4–5; Byrd, Responding To 

Afghanistan’s Development Challenge, p. 13; 

Fishstein and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, p. 12. 

628. Chemonics, KAP Survey of Afghanistan 

Towards Trade, USAID, p. 4.

629. Chemonics, KAP Survey of Afghanistan 

Towards Trade, USAID, p. 5; Byrd, Responding 

To Afghanistan’s Development Challenge, p. 13; 

Fishstein and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, p. 12.

630. Byrd, Responding To Afghanistan’s Development 

Challenge, p. 13; Fishstein and Amiryar, Afghan 

Economic Policy, Institutions, and Society 

Since 2001, p. 12.

631. USTR, “United States and Afghanistan Sign 

Market Access Agreement,” press release, 

January 2014.

632. USTR, “Statement by Ambassador Michael 

Froman on Afghanistan’s Accession to the WTO,” 

press release, July 2016.

633. WTO, “Afghanistan WTO accession package 

ready for formal adoption in Nairobi,” press 

release, November 11, 2015.

634. Fishstein and Amiryar, Afghan Economic Policy, 

Institutions, and Society Since 2001, pp. 7, 

10, 12; David Jolly, “Afghanistan Hopes WTO 

Membership Can Reboot Its Battered Economy, 

New York Times, December 9, 2015.

635. Ahmed Shah Mobariz, “WTO Accession of 

Afghanistan: Costs, Benefits and Post-Accession 

Challenges,” South Asia Economic Journal, vol. 

17 (2016), pp. 56, 69–70. 

636. Madeleine Dale, “Eight Ways World Trade 

Organization Membership Will Benefit 

Afghanistan,” Chemonics blog, February 3, 2016; 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

218 | ENDNOTES

WTO Committee on Trade and Development, 

Special and Differential Treatment Provisions 

in WTO Agreements and Decisions, p. 4.

637. WTO Committee on Trade and Development, 

Special and Differential Treatment Provisions 

in WTO Agreements and Decisions, June 14, 

2013, especially p. 118; WTO Committee on Trade 

and Development, Special and Differential 

Treatment for Least-Developed Countries, Note 

by the Secretariat, October 5, 2005.

638. Daniel Flentø and Stefano Ponte, “LeastDeveloped Countries in a World of Global Value 

Chains: Are WTO Trade Negotiations Helping?” 

World Development, vol. 94 (2017), p. 368.

639. Nina Pavcnik, Benefits and Costs of Free Trade 

for Less Developed Countries, College de France, 

November 5, 2009, p. 3.

640. Robert Hunter-Wade, “Why free trade has costs 

for developing countries,” Financial Times, 

August 10, 2005; Yash Tandon, “Technical 

Assistance as Political Instrument,” in The 

Reality of Trade: The WTO and Developing 

Countries (Ottawa, Ontario: The North South 

Institute, 2002), p. 62.

641. Chantal Blouin, “Introduction,” in The Reality 

of Trade: The WTO and Developing Countries 

(Ottawa, Ontario: The North South Institute, 

2002), p. 1.

642. Robert Hunter-Wade, “Why free trade has costs 

for developing countries,” Financial Times, 

August 10, 2005; Pranav Kumar, “Impact of the 

Uruguay Round on the Multilateral Trading 

System,” in The Reality of Trade: The WTO and 

Developing Countries (Ottawa, Ontario: The 

North South Institute, 2002), p. 12; Yash Tandon, 

“Technical Assistance as Political Instrument,” 

in The Reality of Trade (Ottawa, Ontario: 

The North South Institute, 2002), p. 71; Santo 

Dodaro, “Comparative Advantage, Trade and 

Growth, Export-Led Growth Revisited,” World 

Development, vol. 19, no. 9 (1991), pp. 1156, 1162.

643. Mobariz, “WTO Accession of Afghanistan: 

Costs, Benefits and Post-Accession Challenges,” 

pp. 53–54, 64.

644. Flentø and Ponte, “Least-Developed Countries in 

a World of Global Value Chains,” p. 367.

645. Abdul Safir Sahar, “Three Questions with Safir 

Sahar on Afghanistan’s Accession to the World 

Trade Organization,” Chemonics website, 

October 5, 2017.

646. Bearing Point, AEGP Completion Report, USAID, 

p. 143.

647. Government of Afghanistan, “About the Ministry 

of Commerce and Industry,” MOCI website, 

accessed on December 14, 2017; Bearing Point, 

AEGP Completion Report, USAID, pp. 140, 148.

648. Chemonics, TAFA Final Report, USAID, p. 5.

649. Chemonics, TAFA Final Report, USAID, pp. 6, 42, 

50.

650. Chemonics, ATAR Annual Report November 

2013–November 2014, USAID, pp. 8, 74.

651. Paterson, Going to Market, p. 39. 

652. SIGAR, Afghanistan’s Road Infrastructure: 

Sustainment Challenges and Lack of Repairs 

Put U.S. Investment at Risk, SIGAR 17-11-AR, 

October 2016, p. 6.

653. USAID, ABADE Implementing the SME Strategy: 

An Updated Action Plan for Developing 

Afghanistan’s Carpet Sector October 2013–

September 2016, pp. 2, 6. 

654. Chemonics, TAFA Final Report, USAID, p. 42.

655. Chemonics, ATAR Year 2 Annual Report, USAID, 

p. 32.

656. Devex, “Export Promotion Agency of Afghanistan 

(EPAA),” Devex website, December 2017.

657. Chemonics, TAFA Final Report, USAID, p. 30.

658. IMF, October 2002 Country report, No. 02/219, 

p. 33; IMF, September 2003 Country Report, No. 

03/299, pp. 83–84.

659. Byrd, Responding To Afghanistan’s Development 

Challenge, pp. 12–13; IMF, Islamic State of 

Afghanistan: 2004 Article IV Consultation 

and Second Review Under the Staff-Monitored 

Program, IMF Country Report No. 05/33, 

February 2005, p. 9; Bearing Point, AEGP 

Completion Report, USAID, p. 15; World Bank, 

Doing Business in South Asia, 2007, pp. 17–18.

660. Deloitte, EGPSS Project, USAID, p. 11.

661. Chemonics, TAFA Final Report, USAID, pp. 30–

31, 37, 60.

662. Chemonics, ATAR Annual Report November 

2013–November 2014, USAID, p. 12.

663. SIGAR, Afghan Customs: U.S. Programs Have 

Had Some Successes, but Challenges Will Limit 

Customs Reveue as a Sustainable Source of 

Income for Afghanistan, 14-47-AR, April 15, 2014, 

p. 15.

664. UN Conference on Trade and Development, 

“Afghanistan Implementation Map,” ASYCUDA 

website, published on January 2015, accessed 

on February 21, 2018; ACD, “Inland Customs 

Depots and Border Crossing Sites,” ACD website, 

accessed on February 22, 2018; SIGAR, USAID’s 

Afghanistan Trade and Revenue Program has 

Failed to Achieve Goals, 17-61-SP, p. 6; SIGAR, 

Afghan Customs, 14-47-AR, pp. 10–11.

665. SIGAR, Afghan Customs, 14-47-AR, p. 13.

666. Declan Walsh, “At Afghan Border, Graft Is Part 

of the Bargain,” New York Times, November 11, 

2014.

667. World Bank, Doing Business in South Asia, 

2007, pp. 17–18.

668. Paterson, Going to Market, p. 9.

669. SIGAR analysis of data from the World Bank, 

“Time to import (days)” and “Time to export 

(days),” data for 2012–2014, World Bank, World 

Development Indicators database, accessed on 

January 12, 2018.

670. SIGAR, Afghan Customs, 14-47-AR, p. 6.

671. World Bank, Doing Business in 2016: 

Measuring Regulatory Quality and Efficiency, 

Economy Profile Afghanistan, 2016, p. 65.

672. SIGAR, Afghan Customs, 14-47-AR, p. 16.

673. SIGAR, USAID’s Afghanistan Trade and Revenue 

Program has Failed to Achieve Goals, 17-61-SP, 

p. 10.
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 219

674. SIGAR, USAID’s Afghanistan Trade and Revenue 

Program has Failed to Achieve Goals, 17-61-SP, 

p. 8.

675. SIGAR, USAID’s Afghanistan Trade and Revenue 

Program has Failed to Achieve Goals, 17-61-SP, 

pp. 8–9.

676. World Bank, 2005 Investment Climate Report, 

p. ii; World Bank, The Afghanistan Investment 

Climate in 2008: Growth Despite Poor 

Governance, Weak Factor Markets, and Lack 

of Innovation, Finance and Private Sector 

Development Unit, South Asian Region, World 

Bank, August 2009, pp. 6–8.

677. ADB and Afghanistan CSO, Integrated Business 

Enterprise Survey 2009, Asian Development 

Bank, 2009, pp. ix, 8.

678. World Bank, 2005 Investment Climate Report; 

World Bank, 2008 Afghanistan Investment 

Climate Report; National Endowment for 

Democracy, Center for International Private 

Enterprise, Afghan Business Attitudes on 

the Economy, Government, and Business 

Organizations, 2009–2010 Afghan Business 

Survey Final Report, n.d. 

679. World Bank, Doing Business 2018: Afghanistan, 

2018; SIGAR analysis of data from the World 

Bank, “Ease of Doing Business Indicators: 

Afghanistan (rankings and distance to frontier 

ratings),” data for 2004–2018, World Bank 

Historical Data Sets and Trends Data, accessed 

on December 1, 2017. 

680. Brookings Institution, USAID’s Public-Private 

Partnerships: A Data Picture and Review of 

Business Engagement, Global Economy and 

Development Working Paper 94, February 2016, 

p. 4.

681. Afghanistan CSO, Ministry of Public Health, 

and ICF, Afghanistan Demographic and Health 

Survey 2015, January 2017; Ainsley Butler and 

Kate McGuinness, Afghan Women’s Economic 

Participation: 2013 Report, Building Markets, 

2013, p. 39; Lena Ganesh, Women’s Economic 

Empowerment in Afghanistan, 2002–2012: 

Information Mapping and Situational Analysis, 

AREU, November 2013, p. 29.

682. Checchi, RAMP Impact Evaluation, USAID, 

p. 31; DAI, ASMED Final Report, USAID; VEGA, 

ABADE FY 2016 Annual Report, USAID, October 

30, 2016.

683. USAID, Fact Sheet: Assistance in Building 

Afghanistan by Developing Enterprises 

(ABADE), USAID website, October 2016.

684. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2014, pp. 4, 9, 12.

685. SIGAR, Quarterly Report, January 30, 2017, 

p. 145; USAID, “Promote,” USAID Afghanistan 

website, last updated February 21, 2018.

686. SIGAR, Afghan Women: Comprehensive 

Assessments Needed to Determine and Measure 

DOD, State, and USAID Progress, SIGAR 15-24-

AR, December 2014, p. 5.

687. Butler and McGuinness, Afghan Women’s 

Economic Participation, p. 7.

688. Ganesh, Women’s Economic Empowerment, 

p. 36.

689. Ganesh, Women’s Economic Empowerment, 

p. 29. 

690. DAI, ASMED Final Report, USAID, p. 14; 

Checchi, Final Report Evaluation of USAID’s 

Afghanistan Small and Medium Enterprise 

Development Project (ASMED), prepared under 

contract for USAID, July 2011, p. 21.

691. Checchi, ASMED Final Evaluation, USAID, 

p. 22.

692. Checchi, ASMED Final Evaluation, USAID, 

pp. 1–2; DAI, ASMED Final Report, USAID, p. 1.

693. Senior USAID implementing partner official, 

SIGAR interview, April 14, 2016. 

694. Senior USAID implementing partner official, 

SIGAR interview, June 9, 2017. 

695. Senior USAID implementing partner official, 

SIGAR interview, June 9, 2017. 

696. USAID Mission for Afghanistan, National 

Security Screening (non-U.S. Party Vetting), 

Mission Order Number 201.05, July 8, 2013, p. 2. 

697. SIGAR, Contracting with the Enemy: State and 

USAID Need Stronger Authority to Terminate 

Contracts When Enemy Affiliations Are 

Identified, SIGAR 13-14-AR, July 2013, p. 3.

698. Senior USAID implementing partner official, 

SIGAR interview, June 9, 2017. 

699. VEGA, ABADE FY 2016 Annual Report, USAID, 

pp. 6–7; Senior USAID implementing partner 

official, SIGAR interview, June 9, 2017. 

700. DAI, ASMED Final Report, USAID, p. 1.

701. VEGA, ABADE FY 2016 Annual Report, USAID, 

p. 9. 

702. Senior USAID implementing partner official, 

SIGAR interview, October 5, 2017.

703. USAID Office of Inspector General, Audit Of 

USAID/Afghanistan’s Small And Medium 

Enterprise Development Activity, Audit Report 

No. 5-306-08-006-P, June 23, 2008, p. 4.

704. Checchi, Mid-term Performance Evaluation 

Report: Assistance in Building Afghanistan 

By Developing Enterprises (ABADE), prepared 

under contract for USAID, December 2014, 

pp. 12, 15. 

705. Senior USAID implementing partner official, 

SIGAR interview, June 9, 2017. 

706. VEGA, ABADE FY 2016 Annual Report, USAID, 

pp. 1, 16.

707. Business owner based in Kabul, SIGAR interview, 

April 12, 2016. 

708. Based on interviews conducted by SIGAR in 

April 2016 with: plastic products producer in 

Herat, dry fruit processor in Kabul, producer and 

importer of medicine and medical equipment 

in Herat, ice cream company in Herat, animal 

feed production company in Herat, cashmere 

and dried fruit processor in Herat, handicraft 

and carpet weaving company in Nangarhar, salt 

production company in Mazar, food processor in 

Mazar, trading company in Mazar.

709. Based on interviews conducted by SIGAR in April 

2016, with these companies: cashmere and dried 

fruit producer in Herat, ice cream factory owner 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

220 | ENDNOTES

in Herat, fruit and vegetable processor in Kabul, 

plastic rug producer in Jalalabad, carpet weaver 

in Kabul.

710. Center for International Private Enterprises 

(CIPE) and Charney Research, Afghan Business 

Attitudes on the Economy, Government, and 

Business Organizations: 2009–2010 Afghan 

Business Survey Final Report, 2010, p. 27.

711. DAI, ASMED Final Report, USAID, pp. 13–14, 34.

712. DAI, ASMED Final Report, USAID, p. 32.

713. Checchi, ASMED Final Evaluation, USAID, 

p. 10.

714. Committee of Donor Agencies for Small 

Enterprise Development, Business Development 

Services for Small Enterprises: Guiding 

Principles for Donor Intervention, February 

2001, p. 1.

715. Checchi, ASMED Final Evaluation, USAID, 

p. 10. 

716. DAI, ASMED Final Report, USAID, p. 13.

717. Paul Fishstein with Islamuddin Amaki and 

Mohammed Qaasim, Balkh’s Economy in 

Transition, AREU, 2013, p. 28. 

718. Department of Army, Stability Operations, Field 

Manual 3-07, October 2008, p. vi. 

719. Department of Army, May 2009 MAAWS-A, 

CERP SOP, p. 12; Emergency Supplemental 

Appropriations Act for Defense and for the 

Reconstruction of Iraq and Afghanistan, 2004, 

Pub. L. No. 108-106, 117 Stat. 1209 (2003).

720. RAND Corporation, Investing in the Fight: 

Assessing the Use of the Commander’s 

Emergency Response Program (CERP) in 

Afghanistan, 2016, p. 3.

721. SIGAR analysis of CERP data from DOD, 

Office of Undersecretary of Defense for Policy 

(OUSD-P), in response to SIGAR data calls, 

January 2014, April 2014, and July 2015.

722. Department of Army, May 2009 MAAWS-A, 

CERP SOP, p. 146.

723. Department of Army, December 2009 MAAWS-A, 

CERP SOP, p. 82.

724. Department of Army, December 2009 MAAWS-A, 

CERP SOP, p. 46.

Department of Army, May 2009 MAAWS-A, 

CERP SOP, p. 113. 

725. Department of Army, May 2009 MAAWS-A, 

CERP SOP, p. 113; Department of Army, March 

2012 MAAWS-A, CERP SOP, p. 108; U.S. 

Department of Army, February 2011 MAAWS-A, 

CERP SOP, p. 151. 

726. Civil Affairs officer, based in Kandahar between 

2011 and 2012, SIGAR interview, January 27, 

2016; Seth G. Jones, Counterinsurgency in 

Afghanistan, RAND, National Defense Research 

Institute, 2008, p. 107; Carlos Hernandorena, 

“Chapter 5: U.S. Provincial Reconstruction 

Teams in Afghanistan, 2003–2006: Obstacles To 

Interagency Cooperation,” in Interagency and 

Counterinsurgency Warfare: Stability, Security, 

Transition, and Reconstruction Roles, ed. Dr. 

Joseph R. Cerami and Mr. Jay W. Boggs (Carlisle, 

PA: Strategic Studies Institute, U.S. Army War 

College, 2007), p. 139.

727. RAND, Investing in the Fight, pp. 50–51.

728. U.S. Army Audit Agency, Commander’s 

Emergency Response Program, U.S. ForcesAfghanistan, Audit Report: A-2011-0020-ALL, 

November 16, 2010, pp. 2, 7; Renard, Sexton, 

Aid, Insurgency, and the Pivotal Role of 

Control: Evidence from Afghanistan, New York 

University, April 21, 2015, p. 17. 

729. Civil Affairs officer who served in multiple 

provinces between 2012–2014, SIGAR interview, 

January 21, 2016; Civil Affairs officer who served 

in Khowst in 2009–2010, SIGAR interview, 

January 28, 2016.

730. GAO, Actions Needed to Improve Oversight and 

Interagency Coordination for the Commander’s 

Emergency Response Program in Afghanistan, 

Report to Congressional Committee, GAO-09-

615, May 2009; U.S. Army Audit Agency, CERP 

U.S. Forces-Afghanistan, A-2011-0020-ALL, p. 9; 

SIGAR, Commander’s Emergency Response 

Program: DOD Has Not Determined the Full 

Extent to Which Its Program and Projects 

Have Achieved Their Objectives and Goals in 

Afghanistan, forthcoming in April 2018.

731. RAND, Investing in the Fight, p. 176. 

732. RAND, Investing in the Fight, pp. 12–13.

733. Tommaso Ciarli, Chiara Kofol, and Carlo Menon, 

Business as Unusual. An Explanation of the 

Increase of Private Economic Activity in HighConflict Areas in Afghanistan, Spatial Economic 

Research Center (SERC), July 2015, p. 24. 

734. Center for Global Development, “The 

Commander’s Emergency Response Program in 

Afghanistan: Five Practical Recommendations,” 

September 2011. 

735. Peace Dividend Trust, $pending the Development 

Dollar Twice: The Local Economic Impact of 

Procurement in Afghanistan, July 2009, pp. 1–2.

736. National Defense Authorization Act for 

Fiscal Year 2008, Pub. L. No. 110-181 (2008); 

Supplemental Appropriations Act 2009, Pub. L. 

No. 111-32, Section 1102 (2009).

737. Major Darren W. Rhyne, Afghan First: Building a 

Stable Economy Through Strategic Acquisition, 

Defense Acquisition University, May 2011, p. 7. 

738. The Nation, “PepsiCo signs agreement with 

Afghanistan Industries to manufacture beverages 

in Afghanistan,” May 2, 2016.

739. SIGAR, Afghan First Initiative, 12-6-AR, p. 3.

740. SIGAR, Afghan First Initiative, 12-6-AR, p. 13.

741. Aram Roston, “How the U.S. funds the Taliban,” 

The Nation, November 11, 2009; Jean Mackenzie, 

“Is the U.S. military funding both sides of 

the Afghan war,” The Groundtruth Project, 

September 9, 2009. 

742. ISAF, “COMISAF Counterinsurgency (COIN) 

Contracting Guidance issued by COMISAF/

CDR USFOR-A,” press release, September 8, 

2010; Commission on Wartime Contracting in 

Iraq and Afghanistan, Interim Report: At What 

Cost? Contingency Contracting in Iraq and 

Afghanistan, June 2009, p. 2.
ECONOMIC GROWTH AND PRIVATE SECTOR DEVELOPMENT

APRIL 2018 | 221

743. GAO, Afghanistan: U.S. Efforts to Vet Non-U.S. 

Vendors Need Improvement, GAO-11-355, June 

2011, p. 13.

744. SIGAR, Afghan First Initiative, 12-6-AR, p. 4; 

GAO, U.S. Efforts to Vet Non-U.S. Vendors Need 

Improvement, GAO-11-355, p. 23.

745. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2011, p. 1; SIGAR, 

DOD Task Force for Business and Stability 

Operations, 18-19-AR, p. 3

746. Former senior TFBSO official, SIGAR interview, 

November 18, 2015. 

747. Carl J. Schramm, “Expeditionary Economics: 

Spurring Growth After Conflicts and Disasters,” 

Foreign Affairs, May 2010. 

748. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 1. 

749. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 52.

750. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2014, pp. 9–10.

751. IT services company owner in Herat, SIGAR 

interview, April 2016.

752. IT services company owner in Herat, SIGAR 

interview, April 2016, and email to SIGAR, 

November 16, 2016. 

753. IT services company owner in Herat, email to 

SIGAR, November 16, 2016; Matthew Reynolds, 

“No limits: How Roya Mahboob fights inequality 

with education,” The Wired, November 3, 2016.

754. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2011, p. 9; Gautam 

Gandhi, “India Journal: Afghanistan’s Herat, a 

New Bangalore?” Wall Street Journal, August 30, 

2011.

755. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2013, December 

2013, p. 12; RAND Corporation, Task Force for 

Business and Stability Operations (TFBSO): 

Lessons from Afghanistan, 2016, p. 46.

756. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2014, p. 9.

757. IT services companies in Herat, SIGAR interview, 

November 10, 2016; restaurant owner, SIGAR 

interview, November 6, 2016.

758. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2013, p. 12.

759. Former incubator participants and business 

owners, SIGAR interview, 2016; AUAF senior 

officials, SIGAR interview, November 2016; 

RAND Corporation, Task Force for Business and 

Stability Operations (TFBSO): Lessons from 

Afghanis.

760. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2014, p. 12.

761. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 66. 

762. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 60. 

763. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, pp. 3–14.

764. Vestige Consulting, Economic Impact 

Assessment: TFBSO, p. 16.

765. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 7.

766. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 11.

767. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 11. 

768. GAO, DOD Task Force for Business and 

Stability Operations: Actions Needed to 

Establish Project Management Guidelines and 

Enhance Information Sharing, GAO-11-715, 

July 29, 2011, pp. 12–13; SIGAR, Afghanistan’s 

Mineral, Oil, and Gas Industries, 15-55-AR, 

pp. 9–10; SIGAR, DOD Task Force for Business 

and Stability Operations, 18-19-AR, p. 13.

769. Government of Afghanistan, MOCI, 

Implementing the SME Strategy: Actions Plan 

for developing the Cashmere Sector, February 

2011, p. 7.

770. DOD, TFBSO Report on Activities in 

Afghanistan Fiscal Year 2013, p.16; APLF Ltd., 

“Cashmere industry in Afghanistan: On the 

frontier,” APLF Ltd. website, September 23, 2013, 

accessed on March 23, 2018. 

771. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 62.

772. In cases where deliverables could be objectively 

measured, SIGAR determined that a project was 

mostly to fully complete if roughly 75 percent 

or more deliverables were achieved, incomplete 

if they achieved roughly 25 percent or less 

of their deliverables, and partially if they fell 

somewhere in between. SIGAR, DOD Task Force 

for Business and Stability Operations, 18-19-AR, 

p. 24.

773. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 7; senior 

advisor to President Ghani, SIGAR interview, 

February 2018. 

774. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, pp. 27–28.

775. TFBSO, Jade Glass Project Overview: 

Performance Work Statement (PWS) for 

Industrial Zone Development, 2012, p. 22; senior 

Yasmin Ara official, SIGAR interview, February 3, 

2017. 

776. SIGAR, DOD Task Force for Business and 

Stability Operations, 18-19-AR, p. 35.

777. SIGAR analysis of businesses’ responses to 

surveys conducted during field research in 

Afghanistan, April 2016. For more information, 

see appendix A, Methodology. 

778. Salt producer in Mazar, SIGAR interview, April 

2016.

779. Government of Afghanistan, MOF, 1395 National 

Budget, p. 78.

780. SIGAR analysis of data from the World Bank, 

“Imports of goods and services (current US$)” 

and “Exports of goods and services (current 

US$),” data for 2016, World Bank, World 

Development Indicators database, accessed on 

January 12, 2018.

781. Ekaterina Stepanova, Russia’s Concerns, p. 4.

782. Holly Ritchie, Beyond the Value Chain 

Model: Deconstructing Institutions Key to 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

222 | ENDNOTES

Understanding Afghan Markets, Afghanistan 

Analysts Network, 2012, p. 3.

783. Rep. John F. Tierney, Warlord, Inc.: Extortion 

and Corruption Along the U.S. Supply Chain 

in Afghanistan, Subcommittee on National 

Security and Foreign Affairs, Committee 

on Oversight and Government Reform, U.S. 

House of Representatives, June 2010, p. 21; 

Matthieu Aikins, Contracting the Commanders: 

Transition and the Political Economy of 

Afghanistan’s Private Security Industry, 

Center on International Cooperation, New York 

University, October 2012, p. 6; Aram Roston, 

“How the U.S. funds the Taliban,” The Nation, 

November 11, 2009.

784. Christopher Cramer, “Trajectories of 

Accumulation Through War and Peace,” 

Heterodox Economics Seminary and 

International Initiative for Promoting Political 

Economy, February 19, 2008, p. 11. 

785. Graciana Del Castillo, “Afghanistan’s Misguided 

Economy,” Boston Review, 2014, p. 3.

786. TOLOnews, “Karzai Hopeful For A Better 

Future,” September 3, 2015. 

787. Zakheim, A Vulcan’s Tale, p. 146. 

788. Zakheim, A Vulcan’s Tale, pp. 181–82.

789. David K. Spencer, “Afghanistan’s Nangarhar 

Incorporated—A Model for Interagency Success,” 

Military Review, vol. lxxxix, no. 4 (2009), p. 36.

790. Spencer, “Afghanistan’s Nangarhar Incorporated,” 

p. 39.

791. Peter Erickson et al., Lessons from the U.S. 

Civilian Surge in Afghanistan, 2009–2014, 

Woodrow Wilson School of Public & International 

Affairs, January 2016, p. i. 

792. Ambassador Ronald E. Neumann, former U.S. 

Ambassador to Afghanistan, SIGAR interview, 

October 27, 2015. 

793. World Bank, 2015 Afghanistan Poverty Status 

Update, p. 6.

794. Samuel Hall Consulting, Time to Move to 

Sustainable Jobs, ILO, pp. 10–11. 

795. Paula Kantor and Adam Pain, Delivering 

on Poverty Reduction: Focusing ANDS 

Implementation on Pro-Poor Outcomes, 

AREU, January 2009, pp. 3–4; Government of 

Afghanistan, Afghanistan National Development 

Strategy 2008–2013, p. 36.

796. Checchi, ASMED Final Evaluation, USAID, 

pp. 10–11.
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APRIL 2018 | 223

ACKNOWLEDGMENTS

SIGAR acknowledges the invaluable contributions to this report from a number 

of individuals. 

We thank Malyar Sadeq Azad, journalist; Frances Z. Brown, fellow at Carnegie 

Endowment for International Peace; Kim Corthell, former acting director of 

SIGAR’s Lessons Learned Program; David Garner, former advisor to the Ministry 

of Mines and Petroleum; David Katz, former State Department senior advisor; 

Michael Leach, international legal consultant; David Mansfield, senior fellow at 

London School of Economics and Political Science; Richard Scarth, chartered 

real estate surveyor and advisor on industrial park development; Scott Worden, 

former director of SIGAR’s Lessons Learned Program and current director of 

Afghanistan and Central Asia Programs at the U.S. Institute of Peace; and a 

number of people who wished to remain anonymous. 

We thank the following peer reviewers, several of whom also provided 

comments throughout the review process: Nematullah Bizhan, research fellow 

at Blavatnik School of Government, Oxford University, and former Deputy 

Minister of Youth; William Byrd, senior expert on Afghanistan at the U.S. 

Institute of Peace; Matiullah Faeeq, former director general of the Financial 

Supervision Department, da Afghanistan Bank; Richard Ghiasy, researcher and 

project manager at the Stockholm International Peace Research Institute; Steve 

Landrigan, independent consultant; Richard Ponzio, director of the Just Security 

2020 program at the Stimson Center; Mary Beth Theisen, consultant in private 

sector development; and Mary Louise Vitelli, President, Vitelli and Associates.  

We thank Murtaza Edries and Pearl Horizon Consulting, which assisted in the 

design of the Lessons Learned Program’s field research, helped identify key 

informants, participated in interviews, conducted a survey of Afghan firms, 

and analyzed the survey results. We also thank the Afghanistan Research and 

Evaluation Unit for providing logistical and office support during our field visit. 

In addition, we thank the more than 90 individuals who gave generously of their 

time and insights during formal interviews and follow-up conversations. 

Finally, we are grateful to all those who provided written and in-person 

comments on the draft report, especially those in the USAID Office of 

Afghanistan and Pakistan Affairs, the Departments of State, Defense, and 

Commerce, and USTDA. 
SPECIAL INSPECTOR GENERAL FOR AFGHANISTAN RECONSTRUCTION

224 | ACKNOWLEDGEMENTS

Report Staff

Emily Bakos, Research Analyst 

Nikolai Condee-Padunov, Research Analyst

Paul Fishstein, Lead Analyst and Team Leader

Lauren Helinski, Student Trainee

Margaret Jacobson, Research Analyst

Mariam Jalalzada, Senior Research Analyst

Olivia Paek, Senior Visual Information Specialist

Joseph Windrem, Lessons Learned Program Director

Elizabeth Young, Editor
The National Defense Authorization Act for FY 2008 (P.L. 110-181) 

established the Special Inspector General for Afghanistan 

Reconstruction (SIGAR).

SIGAR’s oversight mission, as defined by the legislation, is to provide for the 

independent and objective 

• conduct and supervision of audits and investigations relating to the programs 

and operations funded with amounts appropriated or otherwise made available 

for the reconstruction of Afghanistan.

• leadership and coordination of, and recommendations on, policies designed 

to promote economy, efficiency, and effectiveness in the administration of the 

programs and operations, and to prevent and detect waste, fraud, and abuse 

in such programs and operations.

• means of keeping the Secretary of State and the Secretary of Defense fully 

and currently informed about problems and deficiencies relating to the 

administration of such programs and operation and the necessity for and 

progress on corrective action.

Afghanistan reconstruction includes any major contract, grant, agreement, 

or other funding mechanism entered into by any department or agency of the 

U.S. government that involves the use of amounts appropriated or otherwise made 

available for the reconstruction of Afghanistan. 

As required by the National Defense Authorization Act for FY 2018 (P.L. 115-91), 

this report has been prepared in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General on 

Integrity and Efficiency.

Source: P.L. 110-181, “National Defense Authorization Act for FY 2008,” January 28, 2008; P.L. 115-91,”National 

Defense Authorization Act for FY 2018,” December 12, 2017.
SIGAR

SPECIAL INSPECTOR GENERAL

FOR AFGHANISTAN RECONSTRUCTION

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Arlington, VA 22202

www.sigar.mil

FRAUD, WASTE, OR ABUSE MAY BE REPORTED TO SIGAR’S HOTLINE

By phone: Afghanistan

Cell: 0700107300

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All voicemail is in English and answered during business hours.

By fax: 703-601-4065

By email: sigar.hotline@mail.mil

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SIGAR-18-38-LL