While no one denies that Afghanistan has a chronic infrastructure problem that inhibits industry and economic activity, the government’s efforts to address this infrastructure backlog present numerous investment opportunities in itself. The growth of Afghanistan’s mobile phone networks, AWCC and Roshan, from nothing to 800,000 customers in little more than two years, for example, indicates the demand for services.
The rehabilitation and improvement of Afghanistan’s physical infrastructure is one of three key pillars of the government’s national development framework, along with investment in human capital and good governance. More than two decades of conflict, lack of investment and neglect of maintenance have taken a heavy toll on the country’s infrastructure, which in many sectors was not very well developed in the first place.
No national grid
In the areas of transport, power, communications, and water and sanitation, Afghanistan is one of the world’s most poorly endowed countries. For instance, just 6% of the population is estimated to have access to electricity, with average consumption per capita estimated at 12 kilowatt hours (kWh) per year – compared with 379kwh in India and 1650kwh in Uzbekistan. Only major cities have electricity networks as there is no national power grid. Less than 20% of the population has access to running water; and while 85% are dependent on agriculture, just 33% of the country’s eight million hectares of arable land is under irrigation, and even this is often in disrepair.
The country also lacks a communications infrastructure. When the Taliban were ousted in late 2001, the fixed-line phone network consisted of 25,000 lines in Kabul; even now, mobile phone network coverage is limited to the largest cities and sections of the main road system. And the postal system is rudimentary and unreliable.
In its medium-term economic plan, Securing Afghanistan’s Future, the government makes the case for prioritising investment in infrastructure, for its direct underpinning of growth and its role in achieving social stability. To this end, the government has identified its key infrastructure objectives, which include:
- a major focus on transport, including completing the national ring road, and building regional airports;
- investment in power generation, transmission and distribution, plus a minimal amount of public investment to lay the foundations for major private investment in the oil, gas, mining and telecoms areas;
- investment in natural resource management, including a major focus on irrigation to increase productivity of agricultural land and address flooding issues;
- ensuring that investment in urban management, particularly in the areas of water and sanitation, contribute to healthy and liveable cities.
Obstacles to achieving this include:
- a shortage of the skills needed to plan, implement, operate and manage projects ;
- regulation that is almost non-existent and, where it does exist, bears the ‘command economy’ stamp of Soviet influence;
- much of the stock is under the control of defunct public enterprises;
- infrastructure has largely been planned with little thought of cost recovery or sustainability; existing facilities lack commercial orientation or any form of financial management.
These factors have meant the response from international private sector players to infrastructure tenders has often fallen short of what is needed in terms of number of bidders; their quality and ability to work in Afghanistan; speed of response; and pricing. Security issues and the logistical challenge of sourcing materials compound these problems.
The government is addressing this within its limited means, leaning heavily on foreign technical assistance. As capacity slowly builds, obstacles are being removed. The government estimates its infrastructure investment plan will cost $13.9bn between 2004 and 2010. The goal, it says, is for major infrastructure to be financed either through concessional loans, or even via access to the international capital market; or through foreign investment via private-public partnerships.
Given the risks, it is highly unlikely Afghanistan will be tapping international capital markets soon. To attract private direct investment, mechanisms will have designed to mitigate the risks. Mobile telephony is a developing world success story because network operators can lock in revenues by using pre-paid cards. Revenues on large-scale power and water projects, however, must be underwritten either by the Afghan government – which has a relatively high default risk – or foreign development partners.
The $13.9bn is one portion of the estimated $31.8bn needed up to 2010, to raise GDP per capita to $500 by 2015, the target date for the meeting of the Millennium Development Goals. Of this, $27.6bn will be required in the form of external financing.
Infrastructure investment requirements are backloaded, reflecting the typical gestation periods for sizeable infrastructure projects. For the period 2004–2006, the government requested $5.4bn and the balance of $8bn in the period 2007–2010.
At the most recent donor conference in 2004, financial assistance of $8.2bn was pledged, undershooting the $11.9bn (including the $5.4bn infrastructure requirement) hoped for by the government for the period 2004–2006. There is no knowing for how long the pipeline of foreign funding into Afghanistan will stay open, or whether the volume of financial assistance will match the government’s requirements. It is likely some infrastructure plans will have to be pared back but there is a strong probability that financing will be available for many other projects.
Some projects are either under way or in the advanced stages of planning. Construction has started on 2323 km of ‘super corridors’, constituting a national ring road connecting Afghanistan’s major cities, and extensions to link it to neighbouring countries. This initiative is critical to foster regional trade with Iran, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan. The programme will include a national highway network, extending the super corridors to provincial capitals.
In the railways sector, the government hopes to construct links between the borders with Iran, Pakistan, Turkmenistan and Uzbekistan and the national ring road. Initially work will begin with the construction of dispatch and receiving stations at railway border terminals at Islam Qala, Torghandi, Hairatan, Spin Boldak and Torkham to handle bulk shipments from and through neighbouring countries.
New generating capacity in the power sector includes investments such as rehabilitation of existing hydroelectric plants; completion of gas turbines in Kabul; construction of new hydro plants; construction of new combined cycle capacity in Sheberghan based on natural gas; import of electric power from Uzbekistan to supplement shortfalls in domestic generation capacity, and installation of small diesel generators in various underserved localities.
Critical investments are needed in transmission – in the northern provinces to enable import of additional power to Kabul and neighbouring provinces, and in the western provinces to enable import of power from Iran to meet future demand in Herat. An intensive investment programme in distribution is critical to meet the goals of 150,000 new connections in 2005 and 2006, and some 100,000 new connections each year thereafter.