Afghanistan

Afghan “Development Zones” as Vehicles for Building Institutions that Support Economic Development

Date: January 2018
Client: USAID, via Richard Scarth
Role: Team Lead and Special Economic Zones Expert

Afghanistan’s future is uncertain. The US withdrawal will leave the central government on its own to keep as much territory secure as it can, leaving other areas outside its control. Even the central government itself has serious problems with endemic corruption and waste.

When Politas was invited to develop a preliminary feasibility study for Afghanistan’s industrial parks and free zones, we went much further than any other consulting firm would. We believe zones are a chance to do more than just attract foreign investment. They are a chance to incubate good institutions that eventually transform the whole country. With good institutions, we can not only attract investment, but create a rules-based framework that supports local entrepreneurship and the emergence of a functioning and inclusive market economy. So, we formulated a strategy for how Afghanistan’s proposed special economic zones could “seed” these institutions.

Our work included a detailed institutional and policy framework for zones that would transform Afghanistan through better laws, regulations, and administration. Rather than proposing tax exemptions and other give-aways to foreign investors, we designed institutions that support organic, sustainable economic growth.

We also managed the preliminary economic impact assessment and the financial feasibility study of the zones. To do this, we launched a ground-breaking approach to feasibility studies: we not only estimated the economic impact of investment in certain sectors, but we also estimated the impact of new regulatory institutions. Recognizing that governance is the number one driver of wealth creation, we showed how economic and financial returns might result from improving the ease of doing business in zones.