Conflict and Entrepreneurial Activity in Afghanistan

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Afghanistan Public Policy Research Organization

Entrepreneurial Activity and

Conflict in Afghanistan

Saeed Parto and Matt Trevithick

April 2013


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Table of Contents

Acknowledgements 3

About the Researchers 3

About APPRO 3

Entrepreneurial Activity and Conflict in Afghanistan 4

Understanding Entrepreneurialism 6

A Brief History of the Afghan Conflict 7

Empirics and Context of Entrepreneurialism 9

Conclusion 10

References 14

2 2013 | E n t r e p r e n e u r i a l A c t i v i t y a n d C o n f l i c t i n A f g h a n i s t a n A P P R O


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Acknowledgements

About the Researchers

Saeed Parto is APPROs Director of Research. He is also a lecturer at the Faculty of Arts and

Social Sciences at Maastricht University.

Matt Trevithick, APPROs Director of Communications, edited this paper.

About APPRO

Afghanistan Public Policy Research Organization (APPRO) is an independent social research

organization promoting social and policy learning to benefit development and reconstruc-

tion efforts in Afghanistan. APPRO is registered with the Ministry of Economy (Registration

Number: 1212) as a not-for-profit, non-government organization and headquartered in Ka-

bul, Afghanistan.

APPROs mission is to measure development progress against strategic reconstruction ob-

jectives and provide insights on how to improve performance against the milestones set by

the government of Afghanistan and the international donors. APPRO is staffed by person-

nel with many years of collective experience in various facets of development and scientific

research.

APPRO takes full responsibility for all omissions and errors.

Photo Credit: Lizette Potgieter / Shutterstock.com



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Entrepreneurial Activity and

Conflict in Afghanistan

This paper is based partially on an earlier

study in 2008, the key findings of which

were presented at the UNU-WIDER work-

shop on Conflict and Entrepreneurship

held in Derry, Northern Ireland in March

2009.1This chapter supplements these

findings with additional information from

secondary sources to make a number of

contextualized observations about the re-

lationship between conflict and entrepre-

neurship, and to suggest ways forward for

creating an enabling environment for pro-

ductive entrepreneurial activity in Afghani-

stan.

Entrepreneurship is said to play a key role

in alleviating poverty and contributing to

stability, particularly in conflict situations.

Private sector development and its ex-

pected constructive role make numerous

appearances in mission statements and

programming efforts by all donor agencies

and governments engaged in international

development. There is a wealth of litera-

ture on the topic (which began to prolifer-

ate soon after the publication of Baumols

(1990) seminal work) that warns against

placing too much faith on entrepreneur-

ship in the abstract as the key to alleviating

socio-economic hardship. This literature

makes the crucial distinction between pro-

ductive, unproductive, and destructive

forms of entrepreneurship, and argues

that the form of entrepreneurship is very

much a function of the social, economic,

and political institutional landscapes. No-

where are Baumols (1990) notions of un-

productive or destructive entrepreneurship

more accurate than in conflict situations as

exemplified by Afghanistan.

Prior to the fall of the Taliban in late 2001

much of Afghanistans infrastructure and

state organizations had been destroyed by

intent or neglect of the warring factions in

the preceding two decades of conflict. Af-

ghanistan remains one of the poorest

countries in the world with an estimated

per capita income of 800 - 1,000 US dollars,

average mortality age of 47 years, highrates of infant mortality and, in many of its

provinces, a lack of anything that approxi-


1Forasummaryofthesefindings,seeCiarli,Parto,andSavona(2009),ConflictandEntrepreneurshipinAfghani-

stan,availableat:hHp://www.wider.unu.edu/publicaLons/newsleHer/arLcles.Theauthortakesfullresponsibility

forallerrorsandomissions.
http://www.wider.unu.edu/publications/newsletter/articleshttp://www.wider.unu.edu/publications/newsletter/articleshttp://www.wider.unu.edu/publications/newsletter/articleshttp://www.wider.unu.edu/publications/newsletter/articles


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mates the minimum necessary formal and

informal structures that serve as a founda-

tion for developing a severely underdevel-

oped economy.

By all accounts, progress towards moving

Afghanistan out of poverty and on to a

path of economic and socio-political recov-

ery has been slow and arduous. Ongoing

government and donor supported pro-

grams and policies are likely to have a

more significant and longer lasting impact

if they are supportive of adaptive and resil-

ient entrepreneurial activity, which is ar-

gued to be a necessary, though not entirely

sufficient, condition to begin the process of

reconstruction (Iyigun and Rodrik 2004,

UNDP 2004, Naud 2007, Parto et al. 2007).

However, a sufficiently clear picture of

what the main areas of intervention might

be is still lacking, due largely to the ab-

sence of reliable empirical evidence (and

analysis) on the current state of Afghani-

stan. There is a lack of in-depth reflection

on the peculiarities of Afghanistan as com-pared to other countries in literature on

economic reconstruction of in- and post-

conflict countries. The traditional distinc-

tion between in- and post-conflict or fragile

states does not seem to fit well in the case

of Afghanistan, which at best may be de-

scribed as a country where conflict to vary-

ing degrees has persisted since the mid-

1970s, changing over time only in intensity.

Anecdotal data attribute the lack of entre-

preneurial activity in conflict situations, a

necessary ingredient in many prescriptions

for economic recovery, to the lack of secu-

rity and the absence of even minimal infra-

structure, such as roads, electricity and

weak or inappropriate formal state institu-

tions. Anecdotal information also points to

sustained entrepreneurial activity: an ex-

amination of any major population center

or many rural areas in Afghanistan reveals

numerous cases of innovativeness, particu-

larly among the small-scale producers

across the country, engaged in businesses

that in many cases generate value added

services in a wide range of activities, from

dairy and poultry production to carpet

weaving, iron mongering, auto repair and

parts production, and carpentry.

The main aim of this paper is to unpack the

contradictory anecdotal evidence for a

multi-faceted perspective on entrepreneu-

rial activity in Afghanistan. This is done by



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contextualizing the available information

from formal analyses of quantitative data,

a practice necessary in socio-economic

analysis in general but crucial in conflict

situations where quantitative data and

analyses alone cannot sufficiently reveal

the intricacies, complexities, and contradic-

tions that tend to remain buried under

quantitative data. The paper concludes by

making a case for additional research to

add to what is known about economic ac-

tivity in Afghanistan and to expand the in-

formation base that informs decision mak-

ing on interventions designed to recon-

struct the economy.

Understanding Entrepreneurialism

In chronic conflict situations like Afghani-

stan, entrepreneurship has a tendency to

be driven by an instinct to survive. This en-

trepreneurial activity may be unproductive

or even destructive. Entrepreneurial activ-

ity in places like Afghanistan is likely to en-

tail numerous examples of rent seeking

behavior as the means through which to

earn a livelihood. From a reconstruction

and development policy perspective, it is

crucial to distinguish between the different

types of entrepreneurship a la Baumol

(1990) and nurture, through intervention,

productive economic activities more con-

sistent with reconstruction objectives. In

Afghanistan, it may be appropriate and

relevant to consider entrepreneurial activ-

ity that is unproductive, according to Bau-

mols (1990) classification, as desirable and

potentially pro-development as long as

such activity does not entail rent seeking or

illegal undertakings.

The case for including unproductive entre-

preneurial activity is made by Acs (2006),

who argues for the need to recognize that

lack of formal sector employment in a se-

verely underdeveloped country lowers the

opportunity cost of entrepreneurship until

the formal sector has had an opportunity

to grow. With a larger formal sector, entre-

preneurship rates measured by self-

employment will drop initially, only to in-

crease later when the operating environ-

ment displays signs of relative permanency

through increased stability and predictabil-

ity and therefore lower risks for those who

undertake entrepreneurial activity. At the

same time, conscious eff

ort needs to bemade to refrain from romanticizing penni-

less (Banerjee and Duflo 2007) or barefoot

entrepreneurs.



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Much of the thinking on reconstruction is

focused on the role of the state and state

agencies in facilitating or curtailing devel-

opment. As a consequence, policy inter-

vention focuses on the macro level (Chen

et al. 2007, Collier 1999, Cramer 2006).

Naud (2007) emphasizes the importance

of understanding the context of conflict

and the opportunities it offers for rent

seeking and productive entrepreneurial

activity. An in-depth understanding of the

context also allows for inferring the likeli-

hood of success for reconstruction pro-

grams in countries with fragile or failing

states. Contextual characteristics including

the type and properties of state and infor-

mal (traditional) institutions thus need to

be treated as endogenous both to house-

hold welfare and entrepreneurship.2

Empirical investigations of the issues

raised in the preceding paragraphs, how-

ever, requires reliable data, not currently

available or sufficiently reliable. Common

to many studies of entrepreneurialism is

the call for more data and the develop-

ment of complementary methodologies

that would allow practitioners to under-

stand the impact of conflict on

entrepreneurialism.3 The remainder of this

paper is an attempt to fill some of the gaps

on what is known about entrepreneurship

in Afghanistan based on quantitative data

and qualitative information currently avail-

able from a variety of sources, particularly

the micro-level research undertaken by Af-

ghanistan Public Policy Research Organiza-

tion since 2008.4 This paper, too, will con-

clude by calling for more reliable data but

extends this call to include qualitative con-

textual data and some innovative meas-

ures in collecting and utilizing data despite

the ongoing conflict.

A Brief History of the Afghan Conflict

The current Afghan boundaries were set in

1893 through a treaty with Britain as part

of an attempt by Britain to create a buffer

between its interests in India and Russias

territorial ambitions to the south. One im-

portant feature of the treaty was the split-

ting up of the Pashtun ethnic group along

the infamous Durand Line between Af-


2See,forexample,Cimoli,Dosi,Nelson,andSLglitz(2006),Parto,Ciarli,andArora(2005)andParto(2008)forex-

tensiveandcriLcaldiscussiononthisissue.

3See,forexample,BinzelandBrck(2007),JusLno(2008,2009),andBrckandSchindler(2009).

4Forexamplesofthesestudies,see:hHp://appro.org.af/publicaLons/
http://appro.org.af/publications/http://appro.org.af/publications/http://appro.org.af/publications/http://appro.org.af/publications/


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ghanistan and British India, which at the

time included the present day Pakistan.

With Pakistan emerging as a nation in 1948

to the dismay of Afghanistan, Kabul shifted

its foreign policy toward the Soviet Union

in the 1960s and 1970s and began mod-

ernizing.

A number of economic and political crises

led to a coup in 1978 and the subsequent

invasion by the Soviet Union in 1979. The

chaos and anarchy that followed the

ouster of the last remaining Sovietbacked

President, Najibullah, in 1991 lasted until

1996 when a group of largely Pashtun fun-

damentalists backed by Pakistan, Saudi

Arabia and the United Arab Emirates took

power and declared Afghanistan an Islamic

Emirate. The seeds of what became the

Taliban, however, had been sewn in the

1980s in Pakistan as part of a Cold War pol-

icy of creating formidable local resistance

to the Soviet Union in Central Asia. Thou-

sands of future Taliban soldiers attended

classes on religion and warfare at the hun-

dreds of religious schools established inthe 1980s by the fundamentalist Pakistani

military dictator, Zia Ulhaq, with approval

and financial support from his antiSoviet

sponsors.5

Once in power, the Taliban government did

little or nothing to regenerate economic

development. There are numerous ac-

counts, however, of the Taliban attempting

to destroy the economic bases of targeted

communities by systematically cleansing

Afghanistan of its antiIslamic ways and

less desirable (non-Pashtun and non-Sunni

Muslim) citizens. This destruction that was

compounded by a severe drought in sev-

eral key parts of the country, with millions

of Afghans becoming internally displaced

or migrating to neighboring Pakistan and

Iran.

Today, the economy remains largely in ru-

ins with many government services either

non-existent or not conducive to produc-

tive entrepreneurial activity. Regional war-

lords remain in power in large swathes of

the country, many of which were declared

Talibanfree soon after the fall of their

fall from power in 2001. While the threat ofan even more brutal return by the Taliban

remains a real and a major source of anxi-

ety for Afghans and non-Afghans, Afghani-


5ForadetailedandexhausLveaccountofregionalgeopoliLcscenteredonAfghanistan,seeColl(2004).


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stans major problems actually stem from

four factors: contradictory and unmoni-

tored donor funding, a weak and ineffec-

tive central government, a general and

widespread lack of security due to in-

creased criminality, and the slow emer-

gence of a sound economic base following

the return of representative government in

2001.

Empirics and Context of Entrepreneu-

rialism

The main source for conducting quantita-

tive analysis of such issues as entrepreneu-

rialism is the National Risk and Vulnerabil-

ity Assessment (NRVA) surveys of 2003,

2005, and 2007/8. These surveys are ambi-

tious in their design and appear to be

aimed at collecting as much information as

possible about as many issues as possible

in one survey. Because of this, the datasets

offer impressive breadth but insufficient

depth. Also, given the increasing level of

insecurity in many parts of the country, the

data from these surveys are increasingly

being obtained under duress and mostly in

areas deemed safe for enumerators to op-

erate, creating doubts as to the credibility,

reliability, and representativeness of the

data collected. The use of these datasets

needs to be supplemented as much as

possible with contextual data.

According to NRVA (2005), nine percent of

Afghan households undertake some form

of business activity as a source of income.6

The evidence suggests that entrepreneurial

activity is mainly a means to survival,

rather than of entrepreneurial spirit. There

seems to be a strong tendency by entre-

preneurs to adapt to ongoing conflict and

continue to operate, mainly because the

resulting funds are the main or only source

of income for the household or family.

Entrepreneurship is mainly a coping strat-

egy in Afghanistan. This is reflected in the

finding that access to resources is not re-

lated to entrepreneurial activity. Even if en-

trepreneurs use loans more for business

investment, they access loans less than

non-entrepreneurs, and not through for-

mal credit institutions. This is consistent

with risk-averse entrepreneurship, which is

not aimed primarily at pursuing opportuni-ties but at survival.

Entrepreneurial households appear to be


6ThefindingsreportedinthissecLonarebasedonCiarlietal.(2009).


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more prevalent in communities with less

clear property rights and weak local gov-

ernment structures and rule of law. A small

but significant positive relation exists be-

tween being part of a governmental body

and having a small business. These two

findings support the hypothesis on preda-

tory entrepreneurship that may or may not

be productive.

Inadequate access to markets and a lack of

adequate infrastructure have been shown

to be a major factor in deterring value add-

ing entrepreneurial activity in Afghanistan

(Parto et al. 2007). These two factors are

products of the low degree of economic

development and persistent conflict. At a

minimum, the continued inadequacy of

access to markets and infrastructure, com-

pounded by rising insecurity, is likely to

prevent the process of expansion and the

upward movement on value chains as a

key aspect of the evolution process that

characterizes most productive entrepre-

neurial activities.

Chronic conflict has generated strong in-

centives for unproductive and destructive

entrepreneurship in Afghanistan. Numer-

ous warlords and people of influence prof-

ited immensely from the conflict in the

1980s as facilitators assisting the West in

their covert, and later overt, anti-Soviet

campaign. After 2001, these same indi-

viduals became the local strongmen who

continued to exert their influence and con-

duct business by getting involved in recon-

struction projects that require local coun-

terparts and international contractors.

Corruption and nepotism are the two de-

fining features of aid contracting in Af-

ghanistan. With the massive amounts of

international aid money that have contin-

ued to pour into the country, first during

the Cold War and more recently as part of

a decade-long reconstruction program,

amassing money through illegitimate and

unproductive/destructive economic activity

is very likely to take precedence over un-

dertaking productive business activity.

Conclusion

What can be inferred from the empirical

evidence to identify entry points for inter-

vention through reconstruction and other

donor programs? As a formal nation, Af-

ghanistan was created in an unruly area

between two major powers, Britain and

Russia, with territorial ambitions in Central

10 201 3 | E n t r e p r e n e u r i a l A c t i v i t y a n d C o n f l i c t i n A f g h a n i s t a n A P P R O


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and South Asia. Like many countries in the

region, the borders of what constitutes Af-

ghanistan are lines arbitrarily dividing an-

cient communities and forcing together

unlikely neighbors. That neither of the two

regional powers ever succeeded in keeping

a foothold in the country has often been

attributed to the fierceness of Afghans in

the conduct of their guerrilla warfare

against all invaders and the apparent resil-

ience of Afghans against conquering ar-

mies. While there has been fierceness and

resilience, it is also true that much of the

country has never been under consistent

endogenous rule from above, often the

catalyst for infrastructure building and

economic development at a national level.

Afghanistan has never had fully developed

physical structures and institutions

through which a nation could be governed

and that would define a relatively coherent

whole.

Reconstruction through development aid

programs and projects in the context de-

scribed above is difficult. For reconstruc-

tion policy to meet its objectives, the im-

plementation parameters have to be

known relatively permanent. A major prob-

lem with development aid-supported poli-

cies in Afghanistan is that they are based

on models imported from elsewhere (often

from places with fully functioning states)

without adapting them to local conditions.

An example of this is the multi-faceted

market-based approach taken in the post

2001 environment to deliver services and

rebuild the nations industrial base. Nu-

merous experts working for international

donor agencies refer to the Afghan peo-

ple and the positive role to be played by

the private sector as if these were clearly

identifiable and cohesive wholes. The pri-

vatization of state-owned industries soon

after the fall of the Taliban, as a donor-

driven reconstruction policy to nurture the

entrepreneurial spirit in the private sector,

resulted in selling offnumerous state as-

sets at fire-sale prices to the already pow-

erful elite without generating revenue for

the government or inducing new value

adding economic activity (Paterson et al.

2006).

Afghanistan also has numerous unresolved

confl

icts along ethnic lines and faces manychallenges in reconstructing its economy,

not least because of extreme poverty, re-

source scarcity, and a lack of adequate

structures to support productive entrepre-



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neurial activity. This does not mean that

intervention to reconstruct the country is ill

advised. Entrepreneurial activity is largely

untouched by the ongoing conflict in Af-

ghanistan. Building on this entrepreneurial

spirit requires a clear assessment of the

entrepreneurs needs, trajectories, and

ambitions. While the information collected

through NRVA surveys is useful in provid-

ing a picture of how things have unfolded,

it is insufficient and inadequate as the ba-

sis on which to develop intervention

strategies to introduce change aimed at

supporting more productive entrepreneur-

ship. Demand assessment through dedi-

cated research in labor, raw materials, and

product markets can provide valuable in-

formation on how development aid can

bolster the ability of suppliers to meet the

demands.

Given the difficult conditions for conduct-

ing complementary population surveys on

specific aspects of entrepreneurial activity

or household behavior, the difficulty of

making survey data available in a timelymanner,and the high probability of rapid

data obsolescence due to conflict, any

analysis of the available quantitative data

sets has to be nuanced and contextualized

with other, mostly qualitative,

information.7 Given these constraints,

more attention must be paid to narrative-

based case studies of entrepreneurial ac-

tivity to contextualize and accompany for-

mal analyses based on survey data like the

NRVA. The value of intuition based on nar-

ratives collected through case studies in

territorially bounded study areas, or on

specific issues of interest, cannot be un-

derestimated or dismissed on technical /

statistical representativeness grounds in

contexts such as Afghanistan. If the goal is

to know how entrepreneurs cope and

whether they are productive, unproductive,

or destructive in conflict situations, it is im-

portant to ask entrepreneurs rather than

having to infer findings from inappropriate

surveys.

Future research will need to draw on avail-

able quantitative databases such as NRVA

or the Asia Foundations annually con-

ducted A Survey of the Afghan People

and on locally specifi

c case studies of se-lected segments of the economy for more

depth to inform economic intervention de-

cision making. The most useful research


7The2007-8NRVAdatasetremainsunavailableattheLmeofwriLng.


13/15

project would be one focused on under-

standing the micro-foundations of resilient

and productive economic activity across

Afghanistan.8


8Tothisend,APPROhasbeenadvocaLngsince2008forin-depthstudiesofthetradiLonalformsofindustrialor-

ganizaLoninAfghanistan.Thefirstofsuchstudieswascompletedin2011onthetradiLonaleconomicclustersof

erat.SlatedforpublicaLonin2013isasimilarstudyofclusteredmicroandsmall-sizedenterprisesinKabul,Par-

wan,andBalkhprovinces.
http://appro.org.af/preview/traditional-economic-clusters-and-reconstruction-in-afghanistan-the-case-of-herat/http://appro.org.af/preview/traditional-economic-clusters-and-reconstruction-in-afghanistan-the-case-of-herat/http://appro.org.af/preview/traditional-economic-clusters-and-reconstruction-in-afghanistan-the-case-of-herat/http://appro.org.af/preview/traditional-economic-clusters-and-reconstruction-in-afghanistan-the-case-of-herat/http://appro.org.af/preview/traditional-economic-clusters-and-reconstruction-in-afghanistan-the-case-of-herat/


14/15

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Conflict and Entrepreneurial Activity in Afghanistan