The statement of Dr. Mustafa Mastoor Minister of Economy on Growth & Development side event in Geneva Conference on Afghanistan- November 27, 2018

Mon, Dec 24 2018 3:22 PM

Excellencies, Colleagues, Panel Members, Friends.

After a great presentation by HE Prof Qaiumi on Pathways to growth/ I am really delighted / to present the ‘Productive Afghanistan – A Domestic Market Recapturing Strategy. (2019-2025)’ that I promised HE the president and our parliament last year for the first time and in such a technically rich forum. This strategy has focused on how to make the cost of production lower and thus the local products more competitive. This strategy is build based on Afghanization, commercialization, and industrialization concepts.

This strategy is following the Afghanistan National Peace and Development Framework (ANPDF), and Growth Strategy. Not only compliments with NES but Along with the NES, it is designed to be another implementation pillar to the PSD NPP. The Productive Afghanistan Strategy (PAS) is aimed to contribute 3.1 percentage point to the GDP Growth baseline in 2025 to make it (5.5%) ;

The Import Substitution Strategy is unapologetic in its commitment to placing Afghanistan first.

The strategy has been formulated in full coordination of my colleagues across in the government , and its macro-economic projections are tied into the growth strategy scenario framework.

While import substitution has been marginalized from development policy discourse since the 1970s, the truth is that most economies in the regions surrounding Afghanistan/ pursue an investment policy based on Import Substitution Industrialization; however to varying degrees.

Moreover, as our neighbors have similar production profiles/ and are closer to global markets,/ it is likely to be easier to offset imports than to export bulk commodities to new markets.

As a Government we remain deeply concerned about the trade,/ fiscal /and current account deficits/ and the over-reliance on imported over home produced goods/ and services. /Our trade deficit was almost US$ 7 billion last year,/ almost the same level of international assistance( civilian and military ) received./
External money flowing has allowed us to import from abroad/ while unemployment rates at home remain static at best. /Poverty rates stood at 55% in 2016/2017.

as a result of the depreciating Afghani by 60% since 2011 /still exports have not increased/ and the rising costs of imports has not stimulated increased output /at home either.Currently, our national purchasing power/ is generating jobs abroad/ while we are in dire need to generate jobs at home.
(Last week Bamyan )

While the largest percentage of imports cannot be substituted/, this strategy identified/ a select group of products that show considerable potential for substitution. Agriculture ( as has always been stressed by HE the President including this morning./ And we are confident that Substitution/ delivers growth, revenue and jobs.

Ladies and gentlemen,

Almost two decades of external support has allowed us to learn some important lessons/. Overseas development assistance has provided considerable support to my country,/ but at the same time it has created a perpetual problem of short-termism.

I am therefore delighted to put forward this strategy based around the three pillars/ Afghanization, industrialization and commercialization.
 By Afghanization /we mean investing in domestic production over foreign goods and services. /
 By Commercialization/ we mean putting in place new modalities that strengthen the competitive advantage of the private sector, /to include a gear shift /towards larger scale commercial activities/ particularly in the selected sectors mentioned in the Strategy
 And by Industrialization/ we mean improving product-space development /and economic complexity to support value addition/ and capturing the domestic markets.

We have land, excess liquidity in the banking sector/, a generation of knowledge and skill thirsty workers/ and a willing and supportive international community./ We have huge latent economic potential/, but we lack the incentives,/ modalities /and toolkit necessary to improve the economic foundation/ towards accelerated growth.

A New Incentives Package

I hereby summarize a number of the primary measures to be adopted to Boost Industrial Cluster Development:

 Adopting an ‘Afghanistan First’ policy/ at every stage of the development process;
 Contracting Afghan firms wherever possible and desirable;/ as well as encouraging joint ventures with local firms;/
 Developing local content directives and regulations;
 Overcoming weaknesses in domestic output expansion;
 Lowering the costs of production and lowering risk; and,
 Generate growth and employment at home.

(1) For A Greater Focus on Accelerating Industrialization:

We must provide more direct support/ to foster industry and manufacturing, /not just through product space and value chain development,/ but also by working with the private sector/ to improve the balance of risks to rewards, as you might have heard HE the president this morning./. I outline a few of suggested measures below:

 tax holiday for new manufacturing firms in the selected sectors/ to encourage investment;
 Value Chain development within candidate industrial clusters;
 Affordable fiscal and non-fiscal incentives;
 Improving access to finance /and more optimal financial products;
 New incentives packages including industrial parks/ and special economic zones;
 Market led skilled labor training

(2) A Quantum Shift in Large Scale Commercial Expansion:
Ladies and gentlemen,

What Impact Will it Have?

Within the context of the peace and development scenario, and in support of the ANPDF Growth Strategy,/ we expect that / the following high-level outcome and impact level goals/ to be achieved by the strategy by 2025/:

 Reduced current account deficit from -22% in 2016/ to -10%;
 Reduced imports of goods and services/ from 40.02 % of GDP in 2016 /to 35%;
 Improved trade balance from US$ -6.97 billion in 2016/ to US -5.5 billion by 2025;
 Reverses decline/ in the share of manufacturing/ from 11.31 % of GDP in 2016/ to 16% by 2025;

None of this will be easy !

Given that all successful growth involves compounding and positive multipliers/, we believe that this strategy will go a long way/ to improving the environment for investment decision making in general/, but specifically for the selected sectors/, to use donor money more wisely/, and to lay the foundation for the self-reliance from the ground up.

This strategy has been developed considering the local context ,/ mainly by Afghan experts, with the help of the World bank and EU in a period of almost one year/. Wide range of s consultations went underway for development of this strategy paper with line ministries/ including Finance/, mining,/ Agriculture,/ industry and Commerce/, Labor and Social affairs/, Central Bank/, Advisor to HE the President on Agriculture/ as well as key donors/ and private sector ( All chambers, Federations and SMEs Association included).

Twice debated in PriSEC/ and once in the Economic Sub Committee of Council of Ministers /, It has also been presented to HE the president.

It means initial comments and views were incorporated from stakeholders/ and we are now in the stage of collecting final ideas/ before we submit it to HEC and Cabinet. /And eventually your technical and financial support for its smooth implementation/ in our way towards the self reliance.

According to our plan the implementation should start in early 2019/ and with all that,/ I would like to thank you for your continued support/ and welcome you with open arms to make this visionary strategy a reality.

Thank you once again.

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