Industrialization in Afghanistan

Contents:

• Introduction
• Industrialization and its importance
• Industrialization in Afghanistan
• ISI( import substitute industrialization)
• Conclusion

   Introduction

This article stresses the importance of industrialization pertinent to Afghanistan’s current situation. Subsequently it reveals Afghanistan’s background in industrialization process and is it sustainable? What are the challenges faced? Which of them could be resolved and how?  Finally to discuss ISI (import substitute industrialization) an effective way for boosting Afghanistan’s economy.

Industrialization

Industrialization is the process which a country transfer its production from a primarily or agricultural based economy to a manufacturing, mechanized and technologized economy. It is a spacious controversial area, which is always advocated by many developmental economists. However, Mostly the western sphere of the globe always strived and inclined towards industrialization and some other nations in east could be detectable too in this process. If we turn the pages of our history books towards the past , we might find industrial revolution originated in Britain in second half of 18^th century with the making of steam Machine by James watt. I will not go deep into details about industrial revolution .Thus it suffices us to know where it started and then spread to other European countries and subsequently United States. Japan was the first country to adopt industrialization.  Although it would be debatable to assert that most of these pioneers of industrialization were industrialized due to colonization, capitalist mode of development and exploitation of weak dependent nations however, that is beyond the frontiers of our article.

Industrialization is rooted in the structural mode of development whereas structural changes are highly prioritized by contemporary economist.  Industrialization avails the economy in many diverse ways such as decreasing the dependency of a country on foreign nations especially on foreign imported products. Encouraging domestic production, creating jobs, and ultimately it culminates to a high economic growth rate of a country.

Industrialization in Afghanistan

Afghanistan is a landlocked country and open economy which is mostly dependent on foreign products. However, Afghanistan is tremendously abundant in its natural resources with vibrant weather, which is adaptable to every kind of consumer and non-consumer goods production. Nevertheless, Afghanistan still comprises of some small-scale industries such as bricks, textiles, soap, furniture, shoes, fertilizer, apparel, food products, non-alcoholic beverages, mineral water, cement; handwoven carpets; natural gas, coal, copper[1].

Afghanistan is a country where agriculture plays a key role in its economy which more than 60 % of the households derive their income from agriculture [2]. Therefore, it leaves only a petty percentage for industrial production or manufacturing companies.  According to worldfactbook industrial growth has shrunk from 2.4% in 2014 to -1.9% in 2016 while data remains obscure from 2016 onwards. Notwithstanding, Many good initiatives have been taken in the past decade for instance establishment of ACIM (The Afghanistan chamber of industries and mines) in 2017 in order to support investment in the industrial sector of Afghanistan.  And the establishment of Special Economic Zones SEZs in 2015 by the President of Afghanistan under the surveillance of AAEDC (the Afghanistan Airfield Economic Development Commission) . This shall attract foreign direct investors, encourage trade between regions, and ultimately boost economic growth.[3]

To discuss the hurdles being faced in industrialization of Afghanistan, I shed some light upon major challenging obstacles below

• Insecurity: – The largest ghastly instrument, which precludes and clouds the effective path of industrialization is lack of a protected environment and security. Afghanistan as a war-wrecked country suffered horrendous man-made catastrophes such as civil wars and terrorist attacks. It is conspicuous to the minds of every person that a country without having secured geography cease to industrialize. As far as Afghanistan is concerned, Ease of doing business and investment is insignificantly low rated.

Afghanistan is ranked 173 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Afghanistan deteriorated to 173 in 2019 from 167 in 2018”[4]                                                                                                                  TradingEconomics

The only way to promote a progressive industrialized environment is to take serious action for alleviation of insecurity in Afghanistan and this shall definitely result to growth of infant-industries or engender new opportunities for citizens to create factories and businesses.

• Corruption: – Afghanistan has always been the battleground for corrupt governors there is no doubt that still it is. Corruption comes at the expense of sluggish movement of economic growth by and large economic development. According to transparency international Afghanistan scores 16 from 100 in corruption index which takes the sixth position in the corruption index 2019 after Sudan. [5] Nevertheless, while corruption remains the main insoluble problem in Afghanistan, a big revolutionary change must be taken into action.
• Bad policies for foreign aid: – you can never ask a plumber to go and fix your car’s engine ,that should be the work of a car mechanic. With wicked leaders and representatives who only selfishly think of themselves which are not at the capacity of being at their current positions; have taken delusional policies to put the aided amounts of dollars into effect. Aid comes and flows to the vicious circle, which then only result to a small percentage of growth. Capital is undoubtedly crucial to create infant-industries and manufacturing sectors in the country but if it is used unwisely it will lead to a reckless wasteful of money plus stagnation in the development process.
• Citizen’s literacy rate:- Many citizens of Afghanistan are still not ready to embrace changes be it in their ideologies, customs or norms. Of course, I would not say of those well-established and decent ones but the superstitious ones, which merely leads to backwardness. If there is not a decent and fair reformation in citizens’ thoughts, education level and ideologies; country would stop growing. We have to bear in mind that economics, politics, and culture are all intertwined. They ought to walk in parallel in a modernized and vitalized path.

The most notable way for Afghanistan to enhance its existing industries and march towards a more industrialized society is to break these shackles mentioned above which then will lead to a rapid growth of the country, There might have been more issues about failure of industrialization in Afghanistan  need to be discussed in other articles thus we stop here.

ISI (import substitute industrialization)

Almost all industrialized countries with exception of Britain adopted a structural transformation, which is called ISI (import substitute industrialization). The is advocated by many Economists around the world. This mode of growth is highly recommended in less-developed nations, which are largely importing countries being dependent on foreign products. Albeit it would be argued by some contemporary economists, that substitution of imports by domestic production is not much economically good thus encouraging to continue a modest importation. However, this case can only be workable in already developed nations but for impoverished regions, it works otherwise. The reason is because LDC ( Least developed countries ) have not grown their economy yet ,they need to increase the domestic production in order to circulate the capital within the economy and overtime the GDP of the country expands plus higher standard levels of life.

Thus, ISI works very well for poor region and it tends to replace primary or agricultural based products to advanced manufacturing goods.

“ISI involves the establishment of typically, domestically –owned firms within the less-developed economy that begin to produce for domestic consumption some of the manufactured goods currently being imported”. [6]

ISI has its first stage, which focuses on producing simple consumer non-durable goods for domestic market and these goods comprise of  clothing, shoes, building materials, furniture and so on. These primary products are dominated by importing from abroad therefore its advocated to start from these primary goods.

However, some of these industries are found in Afghanistan, which is giving hope to us but they are infant-industries.

In economics, an infant industry is the one, which is new and is at its early stages of development, needs to be protected by government against big rivals and competitors. Government can protect these industries by imposing tariffs, quotas and embargos on imported goods, which will decrease the demand for foreign goods, and increase the demand for domestically produced goods, thus this will lead to growth of these industries by and large the whole economy. This economy will abate its dependency towards other foreign countries and tends to increase its own production, employment and income level.

Afghanistan is an importing country with importing advanced and secondary manufacturing goods; therefore, ISI can be the first step towards industrialization.

It  has a current account deficit with 604.74 USD Million in the second quarter of 2019.[7]   with exports of 875.24 USD Million in 2018 and 7406.60 USD Million imports which leaves a significant gap between these two. [8].

Potential gains from ISI:

• ISI can contribute to the employment opportunities for the country and increase the labor force
• A huge transformation of labor from agricultural sector to the manufacturing sector
• Higher wages in industrial sector
• Acceleration of human capital through working with great machineries and technology
• Positive externalities; tends to boost the economic development
• Self-sufficiency in production (not ignoring of the trade with other countries)

Conclusion

Afghanistan is still less industrialized and abnormally moving forward towards development however, this does not leave us with pessimistic thoughts.

One needs to reflect upon how important is it for us to industrialize Afghanistan. A groundbreaking and comprehensive approach towards this goal is to implement ISI strategy and to vanish all those compelling obstacles.

This article discussed the main challenges faced in the process of industrialization, which only with a firm and solid decision could be removed whether, by government or citizens of the country.

ISI strategy has been always the first step towards industrialization of nations, especially underdeveloped ones that ought to adopt this paradigm. Nevertheless, ISI is not an easy way to undertake but it has complex and sophisticated instruments need be worked on.

Reference:-

1. The world factbook CIA, https://www.cia.gov/library/publications/the-world-factbook/geos/af.html
2. Unlocking the Potential of Agriculture for Afghanistan’s Growth https://www.worldbank.org/en/country/afghanistan/publication/unlocking-potential-of-agriculture-for-afghanistan-growth
3. Special economic zones/multimodal transport and logistics facilities http://recca.af/?page_id=2108
4. Ease of Doing Business in Afghanistan https://tradingeconomics.com/afghanistan/ease-of-doing-business
5. CORRUPTION PERCEPTIONS INDEX 2019 https://www.transparency.org/cpi2019?/news/feature/cpi-2019
6. Cypher & L.Dietz (2004) The Process of Economic Development, p.266
7. https://tradingeconomics.com/afghanistan/current-account
8. https://tradingeconomics.com/afghanistan/imports

 by Mohammad Abid Bahrami

Mohammad Abid Bahrami is an Economic analyst and junior researcher whose main focus is on : Economics, Politics, Philosophy, History and religion.