The Future of Afghanistan: Development Progress and Prospects after 2014

Written evidence submitted by the Department for International Development (DFID)

THE FUTURE OF AFGHANISTAN:

DEVELOPMENT PROGRESS AND PROSPECTS AFTER 2014

1. Introduction and Context

Afghanistan faces huge development challenges following more than 30 years of conflict. It remains one of the poorest and most fragile countries in the world and will not achieve the Millennium Development Goals by 2015. Following the Bilateral Aid Review, Britain has increased its assistance to Afghanistan and improved the effectiveness of our support.

UK aid to Afghanistan is helping to bring about significant progress. Our support has contributed to ensuring 5.8 million children are now going to school, 2.2 million of them girls. Approximately 57% of the population can now access a health facility within 1 hour’s walk compared to just 9% in 2002, and more than one in three pregnant women (36%) receive antenatal care compared to only 16% in 2003.

UK aid is also helping to generate economic growth and raise government revenue, crucial for state viability. For example, revenue collection as a proportion of GDP has grown from less than 3% - when the UK first started working with the Afghan Revenue Department - to 11% of GDP, an all-time high, in 2010/11. Tax revenue in 2010/11 was around £1.65 billion, up 26% in the previous year. In Helmand UK aid has helped construct more than 100 km of roads, improving access to markets as well as basic services. And in the last year alone more than 3,500 young Afghans have graduated from technical and vocational education programmes provided with UK support, helping to improve their employment prospects and increase economic development in the province.

The Department for International Development’s (DFID’s) vision is a more peaceful, stable and prosperous Afghanistan. Our focus is on making progress towards a viable Afghan state and a sustainable economy to reduce fragility and poverty, and achieve a lasting end to the conflict. This is a long-term agenda that will require DFID’s ongoing presence well beyond security transition at the end of 2014 when international combat troops have withdrawn from Afghanistan.

The UK Government has already made it clear that transition does not mean the end of our support for Afghanistan. The recently signed Enduring Strategic Partnership between the Governments of the UK and Afghanistan states that we will continue to have a strong relationship based on diplomacy, trade, aid and development.

The UK Government has an overarching strategy for its engagement in Afghanistan, approved by the National Security Council (NSC). The strategy has three mutually reinforcing pillars covering security, political settlement and creating a viable Afghan state. DFID leads on the ‘viable state’ pillar, which aims to improve governance and the rule of law, create a stable and growing economy, tackle corruption and increase access to basic services. We work closely with other government departments at all levels, in Afghanistan and in the UK to deliver this strategy.

2. DFID’s programme in Afghanistan

DFID’s 2011-2015 Operational Plan for Afghanistan supports delivery of the NSC strategy and focuses on:

· Improving security and political stability;

· Stimulating economic growth and job creation; and

· Helping the Afghan Government deliver basic services.

By 2015 our current target [1] is to:

· Create 200,000 new jobs for men and women;

· Provide technical and vocational education and training for 45,000 young people;

· Enable over 200,000 more children to be in school – at least 40% of them girls;

· Build or upgrade over 47 kilometres of roads in Helmand;

· Encourage at least 4.3 million Afghans (1.7m women) to vote in the 2013 local government and 2014 Presidential elections;

· Help the Afghan Government increase food grain production to six million metric tonnes;

· Help the Afghan Government improve public financial management, address corruption and strengthen delivery of basic services; and

· Reduce the impact of conflict and natural disasters through effective humanitarian aid.

DFID’s Afghanistan programme budget was increased by 40% in 2010 and will remain steady at £178 million per year up to 2014/15. The programme operates nationwide, with approximately 20% directly targeted at Helmand province. The province receives additional funds though the Conflict Pool.

DFID’s Afghanistan programme is guided by the following approaches and principles:

· In line with international commitments made at the July 2010 Kabul Conference, we are on track to ensure that up to 80% of our programme is aligned with the Government of Afghanistan’s 22 National Priority Programmes (NPPs) by July 2012. Many of them have a strong capacity building focus at national and sub-national levels – essential for state viability – and include key areas like public administration reform, strengthening public financial management and tackling corruption. They also cover crucial economic growth agendas, for example realising the potential of Afghanistan’s mineral sector, and infrastructure development;

· We are on track to channel up to 50% of our development assistance through government systems by July 2012 (another Kabul donor commitment), primarily via our contributions to the World Bank administered Afghanistan Reconstruction Trust Fund (ARTF);

· Our programme has a strong focus on private sector development. We are supporting reforms to regulatory and policy frameworks in leading economic sectors including the extractive industries and agri-business. We are also encouraging international private sector investment, including in Afghanistan’s mining sector, and access to finance for small and medium sized enterprises, including those that foster pro-poor growth;

· We recognise the need for a vibrant and effective civil society to ensure ordinary Afghans, including women and girls, can have a greater say in their lives and hold their Government to account. We recently launched a major new Afghan civil society strengthening programme, co-funded with the Nordics. We also engage international and local NGOs as implementing partners where appropriate.

3. Security transition and its impact on the Afghan economy

The security transition process, endorsed at the NATO Lisbon Summit in November 2010, has led to a greater sense of focus and prioritisation for both the Government of Afghanistan and the international community. Transition is primarily about strengthening and transferring security functions to Afghan leadership. However, transition will only work if ordinary Afghans have faith in their government, alongside hope and prospects for the future. Without this, the situation will slide back to conflict.

Addressing Afghanistan’s governance and development challenges is therefore crucial for sustainable transition. However, a recent World Bank study ("Transition in Afghanistan: Looking Beyond 2014" [1] ) starkly demonstrates the scale of the economic challenge following the military drawdown. Afghanistan is highly aid dependent – 92% of total public spending is currently financed by aid (US$ 15.7 billion), and 58% of total public spending is on security (US$ 9.9 billion). While domestic revenue is expected to increase, operating expenditure will grow much faster, from 14% of GDP now to a projected 34% of GDP by 2014/15.

As a result, the Government of Afghanistan’s fiscal gap is projected to peak in 2014/15, at around 40% of GDP. In 2021/22 the fiscal gap is still projected to be 25% of GDP. Funding this gap will be very challenging given many countries’ own fiscal constraints and already declining aid flows (eg Canada, US). There is a risk of both the security and development sectors being underfunded, with a resulting deterioration in the delivery of essential public services.

Using a favourable economic scenario, the World Bank projects economic growth rates of between 4% and 6% annually from 2011 to 2018, converging to around 3-4% beyond 2018 (down from an average growth rate of 9% between 2003/04 and 2010/11). This projected growth rate is very low in a country where more than a third of the population still lives on less than 60p per day [2] .

The World Bank report includes suggestions for both the Government of Afghanistan and the international community to mitigate the impact of transition on the economy. In particular, the Government should:

· Continue to strengthen public financial management systems and the budget process;

· Take forward essential public administration reforms and build civil service capacity; and

· Improve the business environment to encourage international investment and private sector development.

The international community should:

· Ensure a gradual and orderly, rather than abrupt, reduction of aid flows;

· Fund Afghanistan’s security in the medium term;

· Channel a much larger proportion of aid through the Afghan Government budget;

· Build the capacity of the Afghan civil service in a sustainable way; and

· Connect Afghanistan with regional and global economic markets by supporting infrastructure investments that will help trade and the mining sector.

DFID’s programme in Afghanistan already aligns well with these proposals. The UK worked closely with the Government of Afghanistan to ensure that the findings were discussed and then endorsed in principle at the Bonn Conference in December 2011. We are actively encouraging international partners to provide predictable long-term financial assistance to Afghanistan following transition in 2014. The NATO summit in Chicago in May, followed by a development conference in Tokyo in July will seek to lock down these commitments. These issues are discussed further in section 7.

4. DFID Coordination with other donors and multilateral organisations

The international community and the Government of Afghanistan are guided by the Kabul Process, a plan agreed internationally in July 2010 at the Kabul Conference. The UK is a member of the Joint Coordination and Monitoring Board (JCMB), jointly chaired by the Government of Afghanistan and the UN Assistance Mission to Afghanistan (UNAMA). The JCMB meets regularly to monitor the Kabul Process, including endorsing and assessing progress with the Government’s 22 NPPs. So far 11 have been agreed and the remainder should be endorsed in the next few months.

The UK (DFID) is the co-donor focal point for some key NPPs, including local governance (with UNAMA), agriculture (with Australia), technical and vocational training (with the EU), and the extractive industries (with the World Bank). Tasks include ensuring that NPPs are technically sound, realistic (including budgets), and take account of current and planned donor support. We have also provided technical assistance to help design key governance NPPs to accelerate progress.

In Helmand province, development efforts are well joined up and aligned with provincial government plans as well as central government policy. DFID’s senior representative leads the multi-donor Socio-Economic Development Team in the UK civilian led Provincial Reconstruction Team (PRT) which includes staff from the US, Denmark, and Estonia. DFID also works closely with the UK and US military. For example, the Specialist Team of Royal Engineers helps to implement UK-funded infrastructure projects in areas which civilians cannot access.

Most of DFID’s projects and programmes in Afghanistan are implemented in conjunction with, or through, local and international partners, including the Government of Afghanistan, bilateral donors, multilateral institutions and local organisations. This helps to improve aid effectiveness, including reducing transaction costs for the Government of Afghanistan. Key implementing partners currently include the World Bank, the Asian Development Bank, the UNDP, the British Council, and a range of humanitarian organisations.

The ARTF is the main mechanism for donors to meet their Kabul commitments to channel more aid through Afghan government systems and to fund the NPPs. It is also a highly effective way of improving donor coordination by pooling funds and ensuring regular policy dialogue with the Government of Afghanistan on key issues.

UK money channelled through the ARTF is well guarded against misuse, with all resources provided to the Government only on a reimbursement basis. Funds are transferred to the Government when it has demonstrated that actual expenditure, conforming to strict eligibility criteria, has been made. The fund is managed by the World Bank, independently monitored and internationally audited.

Examples of programmes implemented with other partners include:

· The Government of Afghanistan led District Delivery Programme, a nationwide initiative which operates in previously insecure areas. The programme works by establishing elected community councils who identify local community priorities and then work with local government institutions to deliver basic services in response to those needs. Other donors include France, Germany, Denmark and the US.

· The Afghanistan Infrastructure Trust Fund, a new multi-donor fund managed by the Asian Development Bank, which supports infrastructure investments prioritised by the Government of Afghanistan. Australia, the US and the EU are expected to join the UK and Japan soon;

· The Afghanistan Business Innovation Fund, a new UK led programme which is about to receive additional funding from Australia.

· ELECT (Enhancing Legal and Electoral Capacity for Tomorrow), a UNDP managed programme which receives support from a wide range of donors.

DFID’s international humanitarian partners in Afghanistan provide direct support to those in acute need, particularly in isolated or insecure areas. For example, we support the International Committee of the Red Cross’s (ICRC) national emergency programme. This is helping to run 7 hospitals and 11 health centres, train and equip staff in 9 clinics in conflict-affected areas, and distribute food aid and essential household items to internally displaced people (IDPs). During the Secretary of State’s last visit to Afghanistan he went to an ICRC orthopaedic centre which receives UK support and provides prosthetic limbs to children and adults wounded in conflict. In 2011 DFID provided assistance to the World Food Programme to purchase nearly 5,000 metric tonnes of high energy biscuits for distribution to schoolchildren nationwide, helping to improve school attendance and enrolment rates. DFID is currently channelling emergency drought support through UNICEF and an NGO consortium.

At the Busan High Level Forum on Aid Effectiveness in December 2011, the international community agreed a ‘New Deal’ for engagement in all fragile states [1] ,. At the request of the Government of Afghanistan, DFID (supported by the Netherlands and Denmark) has agreed to help them implement the New Deal [2] . We plan to support the development of a Government led action plan which all major donors will be asked to endorse by the end of 2012.

5. Afghanistan Conflict Pool

Alongside the DFID programme, the tri-departmental Conflict Pool (CP) supports programmes aimed at conflict prevention, stabilisation and peacekeeping. In Afghanistan, where the FCO leads and manages the CP, the allocation for 2012/13 will remain at the current level (£68.5 million). Almost 80% of Conflict Pool activities in Afghanistan are classed as Official Development Assistance (ODA) and around 60% of the programme is focused on Helmand. Assistance in Helmand is evolving, shifting away from direct delivery to provincial capacity building, in line with the transition process. CP funding to Helmand will gradually decline in line with these plans.

Around 20% of the total CP budget is allocated to governance and rule of law activities, including building Afghan capacity to deliver basic policing and justice services and supporting law enforcement programmes tackling high level narcotics and corruption offences. 

The CP has also funded some infrastructure development in Helmand, including roads, power and irrigation repairs, and building provincial capacity to maintain them. In 2012/13 the CP will co-support major improvement to the strategically important road between Sangin and Kajaki districts with the United Arab Emirates and other donors.

6. Monitoring DFID programme impact and lesson learning

DFID tracks the effectiveness of its programme in Afghanistan through a range of monitoring and evaluation systems. At NSC level Ministers and officials monitor progress against an agreed set of indicators. Regular, Afghanistan specific NSC meetings were recently instituted to provide more time for discussions.

DFID’s work forms an integral part of the FCO led UK Country Business Plan, which supports the NSC strategy. Within the British Embassy in Kabul, thematic "strands" bring together all HMG programme activity – DFID, CP and FCO funds, including in Helmand – and are monitored by the Afghan Delivery Group (ADG), chaired by the Ambassador. The ADG meets every two months and the DFID Head of Office is on the Board.

Within DFID we monitor progress with the Operational Plan annually, with a light review at the mid year stage. An Afghanistan Programme Board, chaired by the Head of Office, meets quarterly to review progress across DFIDA’s portfolio, and looks at financial issues, risk assessment, and lesson learning. At the project level we conduct Annual Reviews measuring progress against logical frameworks.

We work closely with our partners to deliver the best possible results and insist on rigorous monitoring and evaluation of all UK assistance, including partner’s controls and fiduciary risk management systems. The Independent Commission for Aid Impact report published on 22 March indicates how we can improve our work with partner organisations, and we are addressing those issues. Where we judge that our assistance is not achieving value for money we will withdraw or withhold our support. For example, in September 2011 we withdrew from the UNDP managed Afghanistan Sub-national Governance Programme (ASGP) two years early following a poor joint UNDP-donor evaluation. When the IMF programme to Afghanistan stalled following the Kabul Bank crisis in Autumn 2010, we suspended ARTF payments until a new programme was agreed in November 2011. Other donors followed our lead.

Our programme has delivered results in areas where the UK can add significant value, and provided lessons for DFID’s engagement elsewhere. For example, the Afghanistan Market Place Expansion project, which increased the volume of local procurement by the international community in Helmand, is a model that may be applied in other fragile states such as the Democratic Republic of Congo. Lessons applied in Afghanistan from experience elsewhere include a review of international support to rule of law (covering Iraq, Bosnia and the Occupied Palestinian Territories). This review informed the design of DFID’s support to the Ministry of Interior which aims to strengthen its police oversight role.

7. Future Plans and Commitments

Securing long-term financial assistance from the international community is crucial for Afghanistan’s future stability and prosperity. The international community agreed in principle at the Bonn conference to provide long term financial support to Afghanistan beyond 2014 – the "Transformation Decade"; and the Government of Afghanistan agreed to continue with vital governance and economic reforms.

the "in principle" agreements at Bonn need to be turned into firm commitments at the NATO Summit in Chicago in May, which will set out structured plans for funding the Afghan National Security Forces; and the Tokyo Development Conference in July, where the international community will make credible long-term commitments to meet Afghanistan’s non-security needs. Securing these commitments will not be straightforward given the fiscal and political constraints faced by many partners around the world.

The UK Government is actively engaged in preparations for both events, working with the Government of Afghanistan and international partners, particularly Japan, US, the World Bank and the UN. Once commitments are in place, the international community will need to agree mechanisms to channel assistance and monitor progress.

Looking beyond 2014, the Enduring Strategic Partnership signed by the UK and Afghan Governments confirms the UK’s long term development support subject to Government of Afghanistan progress with key reforms. In line with the World Bank study recommendations, DFID’s programme is expected to continue to focus on developing long term government capacity at all levels, to strengthen their public legitimacy and credibility. We also expect to continue to focus on job creation and achieving sustainable economic growth. Developing a transparent minerals sector which can attract large scale international investment will be critical for Afghanistan’s long term prosperity, and will help reduce aid dependence over time. We are heavily engaged in this work.

The UK’s development work in Helmand will evolve in line with transition. All PRTs will close by the end of 2014 in line with Government of Afghanistan’s wishes. The Helmand PRT is planning for a gradual civilian drawdown and a shift in programming. DFID’s plans sit within this framework and we expect to revert to nationally managed programmes once the PRT has closed. Helmand will continue to benefit from UK aid through our national programmes (eg. via the ARTF) and our support to the NPPs – and we will work to ensure it gets its fair share. We are actively encouraging NGOs and donors, particularly multilateral donors, to increase their work in Helmand as well. In parallel the PRT is working with the provincial government to ensure they are able to lead development efforts after 2014 and we are able to draw down resources from the central government in Kabul.

May 2012