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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
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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-
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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/articles7/28/2019 Conflict and Entrepreneurial Activity in Afghanistan
5/15
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-
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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/7/28/2019 Conflict and Entrepreneurial Activity in Afghanistan
8/15
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-
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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
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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
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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
12 201 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
7The2007-8NRVAdatasetremainsunavailableattheLmeofwriLng.
7/28/2019 Conflict and Entrepreneurial Activity in Afghanistan
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project would be one focused on under-
standing the micro-foundations of resilient
and productive economic activity across
Afghanistan.8
13 201 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
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/7/28/2019 Conflict and Entrepreneurial Activity in Afghanistan
14/15
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