EUROPEAN COMMISSION Country Strategy Paper Islamic Republic of Afghanistan 2007-2013 2 Table of Contents 1 THE POLITICAL, ECONOMIC, SOCIAL AND ENVIRONMENTAL SITUATION……………………. 7 1.1 Analysis of the political situation 7 2.2 Analysis of the economic situation including trade and social indicators 7 2.3. Analysis of the social situation………………………………………… …….9 2.4. Analysis of the environmental situation……………………………………… 9 2. AN OUTLINE OF THE POLICY AGENDA OF THE BENEFICIARY COUNTRY 2.1 The Afghanistan Compact and the interim-Afghan National Development Strategy……………………………………………………………………… 10 2.2 Political agenda 10 2.3. Economy, trade and social issues 11 2.4. Environmental Policy 12 3. AN OVERVIEW OF PAST AND ONGOING EC COOPERATION, COORDINATION AND COHERENCE 13 3.1. Political dialogue 13 3.2. Economy and Trade 13 3.3. Assistance: Achievements and lessons learned 13 3.4. Activities of other donors 17 4. THE EC RESPONSE STRATEGY (INTERVENTION SECTORS) 18 4.1. Principles 18 4.2 Rural development 19 4.3. Governance 21 4.4. Health…………………… 24 4.5. Non-focal areas 25 4.6. Cross-cutting issues 26 4.7. Implementation mechanisms 27 4.8. Regional and thematic programmes…………………………… 28 ANNEX 1 EU and EC Cooperation Objectives 29 ANNEX 2 Country Fact File Afghanistan 33 ANNEX 3 Overview of past EC Cooperation 37 ANNEX 4 Country Environmental Profile 39 ANNEX 5 Donor Matrix 40 ANNEX 6 List of Abbreviations 44 3 EXECUTIVE SUMMARY The European Commission has been present in Afghanistan since the mid 1980s, with an office in Peshawar, in western Pakistan, covering the country. ECHO had programmes in Afghanistan from the early 1990s delivering humanitarian assistance. With the fall of the Taliban, EC engagement in the country increased to make the Commission one of the largest donors in the country. The EC’s first CSP for 2003-6 was focused very much on the initial reconstruction phase, building up infrastructure and establishing new government institutions and public services. This process will continue in the new CSP period but with an increasing emphasis on strengthening the capacity of those Afghan institutions and services so they can become more self-sustaining and viable in the long run. This new CSP sets out the EC’s commitment to Afghanistan until 2013. It has been drafted against a background of an evolving political and economic scene. The Afghanistan Compact, launched at the London Conference in January 2006, provides a new political framework for cooperation between Afghanistan and the international community for the next 5 years. Complementing the Compact, the interim Afghanistan National Development Strategy (i-ANDS) prioritises the development objectives for the country for the next 5 years. The response strategy proposed in this CSP aims to strike a balance between the continuation of existing, successful programmes and new priorities in response to the changes in the country since the publication of the last CSP. There are three focal sectors: rural development; governance; and health. There are also three non-focal areas: social protection; mine action; and regional co- operation. The activities in the non focal areas directly or indirectly reinforce specific activities being pursued in the priority focal sectors. The CSP’s proposed focal areas are all priority sectors of the i-ANDS. The new CSP aims to contribute to addressing the fundamental challenges facing Afghanistan in dealing with the narcotics economy and in establishing a proper functioning rule of law. Although there will be continued support to central ministries and national programmes, there is an increased emphasis in this CSP on strengthening the rule of law and structures of government at the provincial and district level. This CSP and the accompanying indicative programmes primarily aim to create the conditions for sustainable development and poverty reduction. The immediate pressing priorities are to stabilise the country and deal with the narcotics trade; to ensure government is able to deliver services at all levels; and to establish a functioning rule of law, safeguarding basic human rights. Only from this base will the Government be in a position to address the most basic social and economic needs and pursue the Millennium Development Goals (MDGs) in the decade ahead. In line with this approach, the sectors set out in this CSP are not all explicitly directed at progress towards the MDGs but rather prioritise actions that will enable sustainable poverty reduction in the medium to long run. This is the case in the justice and rule of law programmes, for example. That said, actions in other focal sectors such as health are directly working with the Afghan authorities to achieve the MDGs. Moreover, many of the proposed programmes in this CSP aim to have an impact on poverty in the medium run, for example in the rural development sector. It should also be noted that this strategy is designed in such a way as to enable the assistance programmes to evolve over time as and when more pressing priorities are addressed. 4 Under the Development Cooperation Instrument (DCI), an indicative allocation of € 1030 million has been earmarked for Afghanistan for the period 2007-13. These resources may be supplemented by projects and programmes financed under the regional programmes and under various thematic programmes. During the period that this CSP was being drafted, in 2005, the Government was in the process of drawing up a new interim Afghan National Development Strategy (i-ANDS). The i-ANDS will serve as the overarching framework for the country’s future development agenda, prioritising and sequencing development objectives for the next 5 years. This CSP, covering the period 2007-13, is the result of an ongoing dialogue with the Afghan Government during the development of the i-ANDS. From the CSP, a new Multiannual Indicative Programme for 2007-10 will be drawn up, which will set out in more detail the EC’s development activities for the next 4 years. These activities will be aligned with the objectives of the new i-ANDS. 5 Afghanistan and Neighbouring Countries 6 7 1. THE POLITICAL, ECONOMIC, SOCIAL AND ENVIRONMENTAL SITUATION 1.1 Analysis of the political situation Afghanistan has made impressive progress since the fall of the Taliban in November 2001. The Bonn Agreement of December 2001, intended to put in place a “broad-based, gender-sensitive, multi-ethnic and fully representative government”, has been successfully implemented. Milestones in this process were the adoption of the new constitution in January 2004, presidential elections in October 2004, parliamentary and provincial elections in September 2005 and the inauguration of the new National Assembly in December 2005. However, challenges remain, with growth in the opium economy, continuing security threats, and an ever apparent potential for ethnic tensions. In particular, the narcotics trade is a primary threat to stable political development. The opium economy is spreading; and nascent state institutions are vulnerable to corruption. There is a risk of ‘state capture’ by narco-interests. Insurgents and other anti-government elements are also thought to benefit from drug trafficking activities. The narcotics trade is thus undermining both stabilisation and development efforts. Related in part to the drugs trade, the security situation remains fragile. In the south and east of the country especially the insurgency led by the Taliban and other armed groups has led to increased casualties during 2005 and 2006. The intensity of the insurgency in the south and east has been characterised by an increase in roadside bombings, burning of schools and suicide attacks (until recently unknown in Afghanistan). Killing of local officials has included reform minded senior figures, including provincial governors. The work of NGOs, indispensable to the reconstruction process is increasingly hampered; local Afghans working for international NGOs have increasingly been targeted. Some progress has been made on the demobilisation of the Afghan Militia Forces though; demobilisation was officially completed by mid-2005. However, illegal armed groups continue to pose a threat in certain parts of the country, particularly in the south. Voting patterns in the Presidential elections confirmed the importance of ethnic factors in Afghan politics: Afghanistan remains politically divided along ethnic lines. The current government is pursuing a policy to strengthen central authority. In this context, centre-periphery issues are a further potential source of conflict. If the centralising policy is to be sustainable, the regions will have to see concrete benefits in improved security and economic prosperity. Despite improvements since the fall of the Taliban, human rights in Afghanistan remain problematic. Issues concern the transitional justice process for handling human rights abuses which were committed during 23 years of warfare, women’s rights and an unreliable justice system. Tackling the human rights problem is closely related to improving the legitimacy of the government in the eyes of the electorate. Regional cooperation on security and economic issues is a prerequisite for stable and sustainable development in Afghanistan. In general terms, Afghanistan has developed constructive relations with its neighbours in recent years but continued efforts will be required to support overall stabilisation and development efforts in the country. 1.2 Analysis of the economic situation including trade and social indicators The formal economy did not perform as well as expected during 2003/04, due in large part to adverse weather conditions. However, there are still encouraging signs of growth with real GDP 8 growth at 16% in 2003/4 and 8.0% in 2004/5. Moreover, the trend is likely to continue upward with GDP growth expected at 13.6% in 2005/6 and 11% in 2006/07. This will be mainly driven by agricultural production coupled with sound macroeconomic policies. 1 The new currency introduced in late 2002 has remained stable and inflation has remained low. The Afghan Government’s efforts to increase the flow of domestic revenues to the centre have borne fruit – USD 200 million flowed to Kabul in 2003/04 and in 2004/05 domestic revenues reached USD 256 million. 2 The current estimation for 2005/6 is USD 309 million. However, there is still a long way to go before budgetary sustainability is achieved, with a core budget deficit of over USD 1 billion needing to be financed by the international community. At the Berlin Conference (spring 2004) it was projected that Afghanistan would take until 2013 to reach self-sufficiency in terms of the recurrent budget. Agriculture accounts for approximately 48% of Afghanistan’s GDP, but supports over 85% of the total population. Other important sectors are services (30% of GDP) and construction (5.0% of GDP). Construction and services benefit in part from buoyant aid-related demand but also from illegal opium-related activities. The income of Afghan poppy growers and drug traffickers was around USD 3 billion in 2005, which represents less than 10% of the final street value of the illegal drugs, but 60% of Afghanistan’s formal GDP. Cultivation has now spread to all provinces in Afghanistan, which is estimated to produce close to 90% of the world’s illicit opium. The UNODC Opium Survey 2006 reported that there is a 59% increase in opium cultivation in Afghanistan from 2005 levels. Moreover, some 70% of this increase was from one southern province alone, Hellmand. It is currently estimated that over a third of the world’s opium supply is derived from Hellmand. In recent times, parts of the south have come to represent a lack of any functioning government and rule of law. This now represents a significant challenge to the Afghan Government and NATO troops in these areas. In terms of industrial base, Afghanistan has a rudimentary manufacturing base. Most factories are located in Kabul and a few major regional cities such as Herat and Mazar-E-Sharif. These industries concentrate on traditional activities, such as carpet weaving and dried fruit production. The informal economy plays a far greater role in Afghanistan. Although reliable estimates are not easily available, there are indications that informal economic activities, including the drugs trade, may well exceed the size of the formal economy. Afghanistan runs an open trade system, is an observer to the WTO and has applied for full membership of the WTO. However, despite having extensive natural resources, including gas, oil and valuable minerals, Afghanistan’s exports remain limited and economic institutions are fragile. The country exports mainly primary products, mostly of agricultural origin. Neighbouring Pakistan is its largest trading partner. Remittances and external aid finance a large part of the current account deficit, which runs at over 10% of GDP. Afghanistan’s economy remains dependent on international aid. At the Berlin Conference in the spring of 2004, the international community pledged a total of USD 8.3 billion over the next three years. These substantial pledges meant that the annual level of financial support flowing to Afghanistan increased significantly during the period. At the London Conference in January 2006, 1 Source: 6 th Review under the Staff Monitored Program, 22 November 2005. 2 Source: IMF Country Report Nr. 04/110, April 2004. 9 an amount of some USD 10.5 billion was pledged for 2006/7 onwards (no specific year was attached to these pledges and a proportion of the pledges had been previously announced). Widespread poverty, increased opium production and trafficking and heavy reliance on external aid highlight the fragility of the current Afghan recovery. The greatest challenge remains finding a viable and sustainable replacement to the opium economy which has become so embedded in the country’s economic life and affects the society and livelihood of the people at a multitude of levels. 1.3 Analysis of the social situation The 2004 UNDP Human Development Report for Afghanistan – ‘Security with a Human Face’ – highlights the extent of country’s acute poverty. The Human Development Index ranks Afghanistan 173rd out of 178 nations in 2004. Only a few Sub-Saharan nations rank lower. Poverty is compounded by a lack of health and social services, as well as poor education and nutrition levels. Per capita income is around USD 290, the lowest in the region. Poverty is widespread. Only 23% of Afghans have access to safe water, 12% to adequate sanitation and just 6% to electricity. This situation is exacerbated by massive population movements. In the past two years 2.5 million Afghan refugees have returned to their home country, while an additional 600,000 internally displaced persons (IDPs) have moved back to their place of origin. In total, more than 5 million Afghans are living outside the country, mostly as refugees in urban areas in Pakistan and Iran. Repatriation is an ongoing process and although it is expected that a significant proportion will remain in Pakistan, returns will raise challenges in terms of sustainable reintegration and reinforcing the rural-to-urban shift in population. In terms of livelihood, migration has become a perennial part of the Afghan economy. An estimated USD 500 million in remittances are sent back each year by Afghan migrants, mostly from Iran, Pakistan and the Gulf countries. The literacy rate in Afghanistan today is one of the lowest among developing countries. Only 28.7% of Afghans over the age of 15 can read and write. Nevertheless, considerable progress has been made since the fall of the Taliban. More than 3 million students were enrolled in grades 1-12 in 2004 with a third of these being girls since 2001. That said, there is still a large imbalance in access to education between gender groups. Life expectancy in Afghanistan (44.5 years) is at least 20 years lower than in all of its neighbouring countries and 6.1 years lower than the average of the Least Developed Countries. The Maternal Mortality Rate is set at 1600 per 100,000 live births and the Infant Mortality Rate at 274 per 1000, making Afghan health indicators amongst some of the worst in the world. 1.4 Analysis of the environmental situation More than 20 years of war, a decade of drought and the unsustainable use of natural resources, which could not be checked by weak state institutions, have degraded the Afghan environment. Water shortages and deforestation are particular concerns for Afghanistan’s development. Forests, which play an important role in maintaining the retention capacity of watersheds and mitigating climatic fluctuations, have been destroyed. Logging for construction materials and firewood reduced forest cover from around 4.5% in the 1970s to between 1 and 2% today. Environmental problems concern both the countryside and the cities. Afghanistan’s economy depends on agriculture to provide livelihood for the majority of its people. There is no alternative 10 economic occupation for many of them. Water shortages, desertification and soil erosion have therefore a direct impact on their well-being. City dwellers may be sheltered to a certain degree from the economic effects of these environmental problems, but they suffer instead from air pollution, a lack of waste disposal systems and a shortage of clean water (see Annex 4: Country Environment Profile). 2. AN OUTLINE OF THE POLICY AGENDA OF THE BENEFICIARY COUNTRY 2.1. The Afghanistan Compact and the interim-Afghan National Development Strategy (i- ANDS) Even before its formal completion at the end of 2005, it was clear that the undoubted achievements of the Bonn transitional process remained fragile and uneven, and were not yet sustainable. Peace, stability and continued economic recovery in Afghanistan would therefore need further nurturing, and this would require continuing efforts both from the Afghan government and from the international community. This realisation led to the launch of a new framework for cooperation, the Afghanistan Compact, at the London Conference on 31 January/1 February 2006. The Compact establishes strategic goals for Afghanistan over the next five years in four key areas: security; governance, rule of law and human rights; economic and social development; and counter- narcotics. The Compact includes detailed benchmarks and timelines in each of these areas, as well as provisions on aid effectiveness and monitoring. During the London Conference, the Afghanistan government also launched the interim Afghan National Development Strategy (i-ANDS). The i-ANDS complements the Afghanistan Compact, providing a more detailed analysis of the development activities required in the country over the next five years. The Afghanistan Compact and the i-ANDS together provided the basis for policy planning of the both the Government of Afghanistan and the international community. The following chapters outline in more detail the goals of the Afghan government in specific policy areas. 2.2. Political agenda Amongst the main policy challenges facing the Afghan government are taking forward the difficult processes of state-building and sustainable development. After the presidential election of October 2004, parliamentary and provincial elections took place on 18 September 2005. Election-day itself was largely peaceful and passed off without major security incident. These were the first parliamentary elections in Afghanistan for 36 years and were monitored by an EU Election Observation Mission headed by Emma Bonino, MEP. The new National Assembly was inaugurated on 19 December 2005, formally closing the Bonn process. The challenge is now to establish a functioning parliamentary system from the elections. Rooting democratic institutions and attitudes firmly into the Afghan political culture is a long-term goal with a time horizon stretching way beyond the elections. [...]... background of a precarious security situation and destruction of the country s productive base over the last decade Inflation remains under control However, revenue collection amounts to only 4.5% of GDP and is one of the lowest in the world, barely covering 50% of the current operating budget Domestic revenue increase depends on the creation of a competitive formal sector, the increased capacity of the... cultivation In terms of infrastructure, the EC has made an important contribution to the regeneration of the national economy by helping to repair the roads network (€90 million) and finance the clearance of some 8 million square metres of land mines, allowing for the reconstruction of homes and properties and return of families Life expectancy and other health indicators in Afghanistan are some of the worst... range of activities in the field of counternarcotics The EC provided €15 million to the CNTF in 2005 World Bank, USAID and EC are the major contributors to the health sector in Afghanistan They are sharing among themselves the implementation of the Basic Package of Health Services Other donors active in the field of health include the ADB, which funds the delivery of the BPHS in 8 districts of 2 provinces... progress in the reconstruction of the justice system as a whole and the success of the current anti-narcotics efforts Failure in either would put into jeopardy the establishment of the rule of law and, in turn, the success of the whole state-building exercise in Afghanistan The Commission will support the strengthening of the capacity, the efficacy and the integrity of the justice system as well as... Afghan government in bringing a Basic Package of Health Services (BPHS) to ten provinces and will continue its support to the delivery of basic primary health services to the country At present EC assistance is covering some 20% of the country in terms of the provision of primary health The World Bank and US are covering similar size areas However, 25% of the Afghan population still has no access to... coverage of primary health services by the end of 2010, as set out in the i-ANDS In terms of secondary health, an Essential Package of Hospital Services (EPHS) has been defined in support of improved referral of patients between different levels of the health system in district, provincial and regional level hospitals Activities related to strengthening essential referral systems and quality of care... trafficking and spread of illicit small arms must be part of a coherent approach to security and development issues in the country The other two non-focal programmes in this CSP set out to address elements of these problems within Afghanistan and neighbouring regions Afghanistan is still the most heavily mined country in the world, with estimates suggesting some 780 sq km in the country was mined and... central objective of our national and international policies as well as our national development strategies, including poverty reduction strategies, as part of our efforts to achieve the MDGs.” 32 ANNEX 2 COUNTRY FACT FILE: AFGHANISTAN 1 Introductory statement Afghanistan is one of the least advanced economies in the world and appears close to the bottom of human development statistics The country is recovering... particularly for increasing the effectiveness of EC assistance, will be taken into account in the configuration of future BPHS programmes In the early stages of its reconstruction activities in Afghanistan, the European Commission was involved in a very wide range of sectors This was justified in the immediate post-crisis environment However, due to the presence of a host of different international actors, conditions... legitimate by its citizens, and respectful of the rule of law and human rights Historically, attempts to establish a stable state structure have failed in Afghanistan, as a result of which its rulers have been left dependent on either outside powers’ financial and material assistance or manipulation of its internal power structures Because of excessive personalisation of power and reliance on ethnic networks, . COMMISSION Country Strategy Paper Islamic Republic of Afghanistan 2007-2013 2 Table of Contents 1 THE POLITICAL,. clean water (see Annex 4: Country Environment Profile). 2. AN OUTLINE OF THE POLICY AGENDA OF THE BENEFICIARY COUNTRY 2.1. The Afghanistan Compact and