Good morning.
I am pleased to be here today to discuss some of the lessons learned during the 12-year reconstruction effort in Afghanistan. This is a fitting venue since for almost 70 years the Middle East Institute has dedicated itself to the critical mission of being an unbiased source of information and analysis on the Middle East and South Asia. The Middle East Institute’s commitment to objectivity, intellectual rigor, and public service has helped provide both policymakers and the public with critical knowledge of, and first-hand encounters with, the peoples of the Middle East.
I want to thank the Institute’s President, Ambassador Wendy Chamberlin, and the Institute’s chairman of the board, Richard Clarke, for inviting me here today to play a small role in your organizations’ important mission. I also want to thank Dr. Marvin Weinbaum, the Director of the Center for Pakistan Studies, for his leadership and highly respected, non-partisan work on Afghanistan and its neighboring countries.
The United States government has provided over $103 billion to build up the Afghan government and its security forces, bolster Afghanistan’s economy, and improve the Afghan quality of life. To put that figure in context – that is more money than we have spent on reconstruction for any one country in the history of the United States – more than we spent on Germany or the United Kingdom during the Marshall Plan. We are spending more money this year on reconstruction in Afghanistan than we do for the next THREE countries combined –Israel, Egypt, and Pakistan.
Many people believe that at the end of this year America’s longest war and our involvement in Afghanistan will come to an end. By December, perhaps a few thousand U.S. troops will remain in Afghanistan. Yet, despite the drawdown of U.S. and Coalition forces, our mission there is far from over. With almost $18 billion appropriated but not yet spent in the pipeline and probably another $6 to $10 billion promised annually for years to come, Afghanistan reconstruction should still be relevant to every U.S. taxpayer and policy maker.
The Office of the Special Inspector General for Afghanistan Reconstruction, or SIGAR, was established in 2008 to protect this enormous American investment. Since then, it has developed a large body of work focused on U.S. reconstruction efforts in Afghanistan. This work has involved every facet of SIGAR’s organization and has been communicated through more than 118 audit and inspection reports, 23 quarterly reports to Congress, 19 congressional testimonies, many special publications, and hundreds of criminal investigations.
Taken individually, these efforts provide specific examples of how various U.S. projects were planned, implemented, and overseen. They also highlight concrete instances of waste, fraud, and abuse. Taken as a whole these reports, as well as those of my colleagues at the GAO and other Inspectors General, reveal broader lessons about what has worked and what has not—lessons that can be used to strengthen and improve the U.S. government’s continued efforts in Afghanistan and inform future contingency operations.
I want to talk today about some of these lessons - - four in particular - - that are especially relevant to this year of transition:
- First, we must consider a country’s ability to sustain the assistance we provide.
- Second, reconstruction in conflict zone is inherently risky. That risk must be properly mitigated, largely through aggressive management and oversight.
- Third, all reconstruction efforts must have clearly articulated goals and a sound way to measure their progress toward those goals.
- Fourth, we must consider how to ensure a country’s long-term economic self-sufficiency so that it does not remain dependent on foreign assistance.
Let me start with the first lesson - reconstruction programs must take into account the recipient country’s ability to operate and sustain the assistance we provide.
With a per capita gross domestic product of only $687, Afghanistan is one of the world’s poorest countries. The work of SIGAR and others has shown that the sheer size of the U.S. government’s reconstruction effort has placed both a financial and operational burden on the Afghan economy that it simply cannot manage by itself. The $103 billion that the U.S. government has already committed to rebuild Afghanistan is noteworthy when compared to other U.S. foreign aid investments, but it is staggering when considered in the context of Afghanistan’s economy. For instance, Afghanistan’s GDP in 2012 was approximately $20 billion. That same year U.S. reconstruction funding amounted to $15 billion – 75% of Afghanistan’s GDP. Remember this does not even include the U.S.’s war fighting expenses.
In addition, sustaining this assistance will overwhelm the Afghan government’s budget. Last year, the government of Afghanistan raised nearly $2 billion. Next year, it hopes to raise $2.4 billion, although recent reports we have received make even that goal doubtful. Unfortunately, its budget is approximately $7.6 billion. Without donor contributions, the Afghan government will not be able to meet most of this shortfall, which will have serious consequences.
For example, the latest independent assessment by the Center for Naval Analysis concludes that the Afghan National Security Forces will require a force of 373,000, which is significantly larger than current plans. This would cost roughly $5 to $6 billion per year. At these levels, if the Afghan government were to dedicate all of its domestic revenue toward sustaining the Afghan army and police, it still could only pay for about a third of the cost. Moreover, all other costs—from paying civil servants to maintaining all roads, schools, hospitals and other non-military infrastructure—would also have to come from international donors.
While paying for Afghanistan’s security forces will be challenging, the cost of ongoing non-military development aid is also contributing to the country’s growing fiscal gap. Each new development project that the U.S. and other international donors fund increases overall operation and maintenance costs, adding pressure to Afghanistan’s operating budget.
For example, in the energy sector, the problem of planning and implementing programs without considering the cost and feasibility of sustaining them is strikingly evident. SIGAR’s work indicates that the Afghans cannot afford to pay for much of the electricity that the U.S. reconstruction effort has managed to turn on.
In January 2010, SIGAR issued an audit report on USAID’s efforts to build the 105 megawatt Kabul Power Plant. The Afghan government had committed to commercializing the operations to cover fuel costs and operation and maintenance expenses within one year of its creation. However, that didn’t happen. SIGAR found that the Afghan government would likely require assistance to cover these expenses for several years after the plant’s completion.
In July 2012, SIGAR issued a report on the Afghanistan Infrastructure Fund, which provides funding for large-scale infrastructure projects jointly managed and implemented by USAID and the U.S. Forces-Afghanistan, or USFOR-A. Many of these projects are in the energy sector and include such significant initiatives as two high voltage transmission networks and the Kandahar Bridging Solution, which provides fuel, operation, and maintenance for U.S.-supported diesel generators in Kandahar.
SIGAR found that, although USAID and USFOR-A prepared sustainment plans for these projects, the plans did not include any analysis of the costs of sustaining them. It is questionable whether the Afghan entities charged with financing these projects can afford them. Unless the U.S. government or other international donors keep subsidizing fuel for the generators, starting in 2015, thousands of homes and businesses in Kandahar will no longer have power.
In the interim, to help offset the gap in power generation, U.S. and Afghan official have developed a “bridging solution to the bridging solution.” Under their draft proposal, Afghans living in Kandahar will obtain power through a new solar power plant and a hydro-electric turbine at Dahla Dam. Although I commend USAID and Afghan officials for trying to develop a solution to the energy shortfall, I am deeply concerned these two projects, if successful, will only add to the country’s fiscal sustainability challenges.
Apart from possibly obtaining short-term gratitude for foreign donors’ reconstruction efforts, there would seem to be little benefit in setting up projects or programs that the Afghans cannot or will not sustain once international forces depart and international aid declines.
The second key lesson should be obvious to everyone – Reconstruction in a conflict-ridden state is inherently risky and that risk must be properly mitigated.
As one of the world’s most impoverished, insecure, and corrupt countries, Afghanistan presents extraordinary challenges to those committed to helping it address its very serious problems. The U.S. and other donors must not only worry about the safety of all those who work in Afghanistan on their behalf; they must take every possible step to safeguard the funds their governments have entrusted to them from waste, fraud, and abuse.
As the U.S. and coalition troops draw down, security requirements have put and will continue to put some key reconstruction projects off-limits. For example, take the Kajaki Dam. U.S. Marines withdrew from Kajaki in 2013, making it almost impossible for any U.S. government employee to visit regularly. Last year, SIGAR determined that no more than 20 percent of Afghanistan will be accessible to U.S. civilian management and oversight personnel by the end of the transition—a nearly 50 percent decrease since 2009. It is possible that even that estimate may turn out to be too generous. The question is, how do we mitigate the risk created by this inability to “kick the tires” of reconstruction programs and projects?
The security requirements are already affecting management and oversight of numerous other large and small projects. Last month, SIGAR issued an inspection report on Camp Monitor, an Afghan National Army base, largely built by USFOR-A. When SIGAR inspectors visited the site, they found that the contractor had run out of funds and the work was unfinished. As a result, the camp was unusable.
Moreover, because the camp’s location would soon be inaccessible to U.S. personnel, USFOR-A had trouble finding a new contractor to complete the work. As a result, in November 2013, the Combined Security Transition Command, Afghanistan (CSTC-A) gave $1.2 million directly to the Ministry of Defense to complete construction of Camp Monitor. At this point, CSTC-A’s oversight of the project essentially ceased. CSTC-A said that once funds are “donated” to the Afghan government, the Afghans may use those funds without further coordination with the U.S. Department of Defense.
SIGAR strongly disagrees with the notion that once funds have been committed as direct assistance, the U.S. government’s stewardship over those funds ends. Thankfully, USFOR-A overruled CSTC-A and agreed to help minimize the risks by continuing to engage the Afghan government until construction is complete. I commend Major General Colt, and USFOR-A, for their commitment to monitoring this project.
This example highlights the need to mitigate the inherent risks of on-budget assistance where funds go to the Afghan ministries directly. We must ensure that the Afghan government entities receiving these funds have the capability to manage and account for the money. The U.S. government and other donors must place more controls and conditions on continued assistance and there must be real consequences for failing to enact the reforms needed to mitigate the risks of operating in a conflict zone. Ultimately, this means we and our allies must have the courage to risk saying “no” to the Afghans if adequate safeguards cannot be implemented.
Let me give you an example of what happens when we don’t get this right. In late 2013 the Afghans began using a hospital built by the U.S. military in Parwan Province. SIGAR inspected this hospital last November and found that the water, sewer, electrical, and heating systems were incomplete and in need of repairs. In fact there was no clean water. Newborn babies were being washed in river water. Each room of the hospital had only one light bulb. The roof leaked causing mold and mildew. It other words, the hospital lacked some of the most basic necessities of a viable medical facility. Either no one had visited the hospital or some in the U.S. military had a very strange idea of what constitutes a functioning medical facility. This was a serious failure in oversight.
There are many excuses for inadequate oversight and failing to mitigate the risks of working in a war zone: lack of security tops the list. Then there is the high turnover of U.S. military and civilian personnel, and the lack of an integrated system to track reconstruction projects across agencies. Ultimately though, the biggest cause of inadequate oversight in Afghanistan may well be a lack of commitment. Despite promises and statements to the media and Congress, oversight is still not viewed as mission critical by some bureaucrats responsible for carrying out this important mission and protecting our tax dollars.
The third lesson is that a large reconstruction effort must have clearly articulated goals and a sound way to measure progress toward those goals.
Taking a strategic approach to program design helps ensure that a program is based on a sound plan that can achieve results that matter. Unfortunately, there appears to be a gap between policy makers in Washington, and some in Kabul, and those who implement our policies in Afghanistan. Strategic plans must be linked to individual projects. When they are not, agencies risk working at counter-purposes, spending money on frivolous endeavors, or failing to coordinate efforts in order to maximize impact.
While it is widely acknowledged that strategic planning is a must, SIGAR has repeatedly found that it has often been ignored. For example, after many years of reconstruction efforts, SIGAR noted that the U.S. government never articulated a clear anticorruption strategy in Afghanistan. Last year, SIGAR reported that U.S. anticorruption activities in Afghanistan were still not guided by a comprehensive strategy.
The importance of clearly connecting program goals, objectives, and outputs was underscored most notably in correspondence between SIGAR and USAID and the Departments of State and Defense last year. SIGAR asked each agency to provide information on what it considered to be the 10 most and 10 least successful of its projects or programs for the reconstruction of Afghanistan. Each agency provided anecdotes of successful programs and cited general improvements within Afghanistan. However, none could show how any of its programs had directly contributed to these positive outcomes.
In the face of shrinking budgets and new mission directives, we need to be able to identify programs that are no longer helping us achieve our goals. The clock is ticking. If we are going to protect the taxpayers, we need a reliable way to show exactly how the money being spent is making the difference we set out to make.
This leads me to the final lesson I want to discuss to today. For every large reconstruction effort we must have a plan to help ensure a country’s economic self-sufficiency.
One of the overarching goals of reconstruction must be to develop the foundation for a viable economy. In time, foreign aid will be reduced and Afghanistan will assume full control over its future. However, the U.S. and international donors have not put enough emphasis on this key objective. To steal a phrase from the military, it has not been “mission critical.”
It will likely be many years until Afghanistan can generate enough revenue to support the kind of government and security forces the United States and its allies have helped it build over the last twelve years.
Most experts agree that Afghanistan must start using its own natural resources—such as copper, iron-ore, oil, and gas—to generate income. Although the extractives sector has contributed less than 2% to the country’s GDP to date, according to some estimates, there may be over a trillion dollars of mineral deposits in Afghanistan. However, Afghanistan lacks the capacity to fully develop this key sector. SIGAR has long cautioned that substantial revenues from natural resources may not be realized any time soon because of the considerable infrastructure investment required.
In addition, a new minerals law is needed to protect Afghan resources, encourage investors, and align regulations to international best practices. The Task Force for Business Stability Operations, or TFBSO, previously warned that without legislative reform that includes linking investor exploration with extraction rights, and institutes a formal and fixed royalty rate, many companies will not bid on new tenders. SIGAR is currently conducting an audit focused on the extent to which TFBSO and USAID programs met their goals to develop Afghanistan’s extractives industry and the challenges to creating a stable and lasting source of revenue.
However, revenue collection in Afghanistan brings its own challenges. We must ensure that the Afghan government can actually collect the revenue it generates. For example, U.S. officials have told SIGAR that corruption is the biggest issue affecting Afghan customs processes and revenues. During my visit to Afghanistan this quarter, I toured the forward operating base at the Torkham Gate Border Crossing on the border with Pakistan. About 80% of Afghanistan’s customs revenues are reportedly collected at this crossing. I was told that when U.S. mentors and observers are not present, revenue collection falls. This was not encouraging, especially as the crossing will soon be outside the reach of U.S. personnel because the U.S. military will no longer be able to provide escort to the area.
If we are serious about ensuring Afghanistan’s economic self-sufficiency, the U.S. government needs reassess access to this location and other areas critical for revenue generation. We need to manage the drawdown and transition so we place our remaining resources in the most critical areas to ensure revenue collection at the border or the mines goes to the Afghan government and not corrupt officials.
As such, Afghanistan must also get its financial house in order to handle the hoped-for economic activity from mining by making its banking sector more reliable. The 2010 collapse of the largest private bank in Afghanistan, the Kabul Bank, exemplifies this point. It shows how the patronage system and the failure to prosecute people guilty of gross fraud and abuse is undermining the Afghan economy and putting future development efforts at risk. Individuals and companies associated with the bank stole about $935 million, largely through fraudulent loans. Afghanistan’s central bank covered the losses, which were equivalent to more than half of the government’s entire revenue in 2010 and about 5% of the country’s GDP at the time.
About 92% of the $935 million stolen went to 19 individuals and companies. Sadly, it has been reported that the Afghan Attorney General’s Office deliberately dragged out its investigation of those involved. It did little to recover funds or bring the main culprits to justice. It is likely that much of this money left Afghanistan and will now be difficult to recover.
To make matters worse, the Financial Action Task Force, or FATF, an inter-governmental body that sets the standards required to combat money laundering, terrorist financing, and other threats, recently downgraded Afghanistan’s status. It said Afghanistan has not made enough progress on addressing its anti-money laundering deficiencies. If Afghanistan does not show sufficient improvement, such as passing internationally-acceptable anti-money laundering legislation, FATF could blacklist the country at its next meeting in June, joining only nine other countries on that list. This could affect Afghanistan’s banking relationships around the world and hinder international aid and investment going through Afghan banks. This could be devastating to Afghanistan’s fragile banking sector and its overall economy.
For a long time, the Afghan government has not taken this issue seriously. Getting this right is critical to Afghanistan’s economic future. The longer it takes to establish a trustworthy banking sector, functioning customs houses, and a viable mining sector, the longer Afghanistan will need to rely on the international community for financial assistance.
Conclusion
Before closing, I want to acknowledge that implementing, managing, and overseeing reconstruction programs in Afghanistan is uniquely challenging. No government or agency will do it perfectly, but based on SIGAR’s work it is clear the U.S. government can and should do a better job. If heeded, these lessons discussed today can help guide future reconstruction efforts and provide more robust stewardship of U.S. funds.
In conclusion we must:
- Confront sustainability challenges,
- Address and mitigate the risks of working in a conflict zone through aggressive oversight,
- Develop clear goals and honestly measure our progress against them,
- Ensure that long-term economic self-sufficiency is a key part of our reconstruction efforts.
Applying these four lessons will help ensure meaningful and long-lasting benefits for the people of Afghanistan and U.S. interests abroad.
With the military drawdown coming to a close, it is time to stop, reassess, and make sure we are doing the most good with the time and resources we have remaining. The alternatives are simply not acceptable—not to us, not to our partners, and certainly not to the Afghans.
Thank you for having me. I’m happy to take your questions…