unctad.org | The Institute for Cultural Diplomacy (ICD)
Statement by Mr. Petko Draganov, Deputy Secretary-General of UNCTAD
The Institute for Cultural Diplomacy (ICD)
Berlin
27 May 2010

[AS PREPARED FOR DELIVERY]

"Securing development -- saving livelihoods, as well as saving lives"

Much of the debate about Afghanistan focuses on how to stop conflict, how to save lives, and how to promote democratic governance -- for obvious reasons. As you know, the United Nations Assistance Mission in Afghanistan (UNAMA) is co-ordinating these security and recovery efforts, with 1,500 staff and more than 35 agencies, working alongside the Government of Afghanistan. However, this morning, I will try to highlight some issues related to the economic transformation that needs to occur, in order to help break the conflict and poverty cycle.

The Afghanistan National Development Strategy addresses this link, as it aims to boost private sector activity and to establish a business enabling environment. I will discuss some of the ways that UNCTAD and other members of the international community, along with donors and the private sector, can help support this goal.

Some progress has already been made, and there are signs of an economic re-wakening in Afghanistan, after the decades of conflict and economic isolation. The economy has been growing at a very high rate in fact, averaging almost 16 per cent per annum (albeit from a very low base). GDP has risen, thanks to a revival of agriculture (with exports of wheat, corn, barley, rice and wool products, including carpets) and growth in the services sector, especially construction. Substantial financial support from the international community for reconstruction has boosted national income; and sound macroeconomic policies have also helped.

However, significant obstacles remain -- not only because of the devastation wrought directly by the conflict, but also because of indirect effects, including the fact that the private sector has been virtually absent for decades. Afghanistan is a very vulnerable economy, with average national income of only $415 per capita, and it shares all of the challenges facing other land-locked Least Developed Countries. The World Bank´s Human Development Indicator ranks Afghanistan at number 181out of 182 countries (Niger being in the lowest rank).

UNCTAD has identified a number of areas where it and members of the international community can contribute to developing the private sector, helping to reduce poverty, and to boost economic growth. This is informed by our experience over nearly 50 years as the UN´s focal point for the integrated treatment of trade and development, and the inter-related areas of finance, investment and technology.

One of the first steps that is needed is to boost investment. Domestic investment will be needed - both private and public -- but it is clear that foreign investment could play an important role at this stage, given the limited availability of local resources. By establishing businesses locally, foreign investors can create jobs and bring international knowledge and skills, and open access to global markets.

Of course none of this is automatic. Foreign firms will not invest abroad without considering all the angles, and similarly, host countries would wish to ensure that the inward investment generates maximum benefits. UNCTAD´s work on Investment Policy Reviews in post-conflict settings such as Cambodia, Rwanda and Sierra Leone, among other places, showed us that Governments need to do more than put in place a transparent and efficient legal and regulatory framework - which is already a challenge. We also worked with governments to help local enterprises create beneficial linkages with the foreign investors, through small and medium-enterprise policies that encourage the transfer of knowledge and skills. This helps promote local income-generating opportunities that might not happen otherwise -- ensuring that growth is broad-based and sustainable, as benefits are shared throughout the economy. In our work in Sri Lanka, we also recommended the Government encourage the return of its sizable diaspora population - who can bring back much-needed skills and knowledge, as well as their investment capital. They are also more likely to invest than transnational corporations, in unstable settings.

One of the goals of investment is of course to boost trade. As I have indicated, Afghanistan´s trade is still mostly in the commodities sectors, and it will be important to encourage a broader base of tradable products and services that is less vulnerable to the volatilities of global commodity markets.

In this regard, I note that inter-regional trade is extremely low, and yet in many other parts of the world this has been identified as a major contributor to growth. UNCTAD research indicates that the very low levels of inter-regional trade in Sub-Saharan Africa has been a limiting factor to development in that region, compared to South East Asia where inter-regional trade is more than 50% of total trade. Local trading partners can be important sources of relevant technologies and skills, helping to build competitiveness. They can be significant markets in their own rights, as well as being a stepping stone to the global market. Regional co-operation with the construction of major infrastructure projects would also help, given the number of land-locked countries in the region, and the limited funds available domestically in most of them. Afghanistan recently became the eighth member of the South Asian Association for Regional Co-operation (SARC), and UNCTAD research and analysis on "South-South" trade, investment, and other forms of regional collaboration indicates that such integration initiatives could play a much more significant role. One of the stumbling blocks to inter-regional trade in this instance may be that countries have similar sources of competitive and comparative advantage -- and this underlines my earlier comment on the role of investment and skills transfer, to help diversify and create a more broadly based economy.

We have also been working directly with the Afghan authorities since 2004, assisting the country´s accession towards the World Trade Organisation. We have helped prepare its trade regime, and begun training trade negotiators and policy officials. Afghanistan currently has observer status at the WTO, but is entering the final stage of accession, and if all goes well, it should become a full-fledged member in a few years time. Membership is important because, for an LDC like Afghanistan, it grants privileged duty-free, quota-free access to other WTO member markets. It can also encourage FDI, by guaranteeing national treatment to foreign firms.

Trans-border trade and security are of course very inter-linked. The conflict-fueling role of trafficking of weapons, drugs or money, is well understood. Less frequently mentioned is the revenue-raising role of legitimate trade, operating through government collection of customs and excises. Even when global tariff levels are falling, this can still be vital in contexts where the informal economy is large and the formal economy small, and so there are few ways for governments to collect tax.

In Afghanistan, domestic tax revenue is at the lowest levels in the world. So I was encouraged to see a lead article on the UNAMA web-page this week, describing how customs houses in eastern Afghanistan are making extraordinary progress in collecting revenues, thanks to UNCTAD´s Automatic System of Customs Data (ASYCUDA). The Afghanistan-Pakistan border post described in this article was established in January 2006. It has been extremely effective, even though this is only one check-point along a 6000 kilometre long border. UNCTAD has worked with Afghan Customs for more than five years now, and we have implemented six border customs stations in addition to customs posts in the cities and internally. Before we introduced the computerised system, there was massive under-reporting of trade, with as few as one out of six vehicle-crossings being reported. Now, revenue collection has risen four to five-fold, to the extent that the Government collects around 50% of its total domestic revenue through customs payments.

Another advantage of the computerised system is that it has significantly speeded up the customs process. In the past, it could take 2-3 days for a goods-laden truck in Pakistan to get approval to enter Afghanistan as all the request letters and approvals had to be hand-delivered. Such transport delays significantly raise the costs of trade and discourage business. Now, transactions can be completed in 15 minutes -- helping both countries benefit more from trade. There are also spill-over benefits to land-locked neighbours, who enter Afghanistan in transit, en route to port.

Debt management.

A country in a conflict or post-conflict situation can easily find itself trapped with heavy debt burdens, leaving it insolvent and unable to pay for even the most basic re-construction -- let alone to afford the skills-upgrading, technology or structural adjustment packages that are recommended in some countries following the current global economic crisis. Afghanistan´s total level of debt is still uncertain as data is lacking; however some reports have put it at more than $3 billion. This may not sound excessive in absolute terms but in relative terms it is high, given that Afghanistan still lacks the fiscal structures, export capacity and capital markets with which to make the repayments. Even debt administration can be difficult, because documentation is destroyed or staff lack adequate training. UNCTAD has developed expertise in this very technical area over the last 25 years, through its Debt Management and Financial Assistance Programme. In Iraq, we have worked directly with the Ministry of Finance and the Central Bank, and helped put in place the transparent and reliable debt management systems that enabled them to secure more viable terms with the Paris Club of debtors. In Haiti, which shares with Afghanistan the need for economic transformation, UNCTAD recommended an immediate moratorium on all multilateral debt, to be followed as soon as possible by its cancellation. Afghanistan has benefited from significant debt relief in recent years but debt remains a major challenge and it will remain in high risk of debt distress and will need external assistance for a number of years.

Official Development Assistance - ODA

Taking a step back from Afghanistan in particular, there are important parallels in what I have been describing with the general debate about the role and impact of ODA in developing countries. UNCTAD research has shown that in most developing countries, ODA has become increasingly directed to critical social or humanitarian needs and away from investment in productive capacities and job-creating activities that are essential to long-term sustainable development. We are concerned that this trend undermines donors´ efforts to help countries reach the Millennium Development Goals by the 2015 deadline. To illustrate these concerns, we used the metaphor of ´running on two legs´ - meaning that achieving the MDGs requires linking policies for productive capacities and employment creation with policies for social-sector development. Focusing only on social or humanitarian sectors is like trying to reach the finish line on one single leg. In the Afghanistan context, the wider point remains -- an economic perspective is badly needed.

Concluding messages

I have highlighted a few examples of areas where UNCTAD and other development partners can contribute to the economic transformation efforts of the Government of Afghanistan, to complement the security and political initiatives that are under way. All of these examples are ways of boosting Afghanistan´s ´productive capacities´, meaning the ability of the Afghan economy to produce and trade a more diversified range of goods and services, of higher value-added. Through this, Afghanistan can support employment generation and economic growth. As I have indicated, there are many areas in this regard where UNCTAD and other development partners have a positive role to play.

Afghanistan is a country in distress, but it is not the only one. The lessons that we learn in Afghanistan may be applied in other countries. Vice-versa, the lessons learned in other countries can give insights to the Afghanistan context. There is no single rulebook on how to tackle these issues, because every country and every conflict is different; however there will be common threads than can be identified -- including the role of investment, fiscal and monetary policy, skills transfer, trade, and, above all, the creation of jobs and opportunities to earn income. Bringing all of these inter-dependent elements together is essential in today´s inter-dependent world.

To sum up, it is UNCTAD´s view that the long-term peace and security of Afghanistan, and perhaps also the region, will depend not only on saving lives, but also on securing livelihoods. When we save livelihoods in Afghanistan, we will also be saving future lives -- the lives of the Afghani people, and also the lives of the international peace-keepers and the development community who are working to help support peace and reconstruction.



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