The financing of the reconstruction of Germany, a country that was destroyed by war, was the original task of KfW Bankengruppe, which was known as the “Kreditanstalt für Wiederaufbau” in those days. For decades it has been the mandate of the KfW Entwicklungsbank to promote economic and social progress in developing and transition countries. When the Taliban regime fell at the end of 2010, the economic and social infrastructure of the country had been largely destroyed after 20 years of war. Since the beginning of 2002, KfW has supported the reconstruction of Afghanistan on behalf of the German government. KfW bases its work on the decades of financing experience regarding the development policy as well as on its know-how in the areas of establishing transport infrastructure, power and water supply, education, health and financial systems development.
The sums provided to finance the reconstruction are historically unique in the German development cooperation. In 2010, the German government launched a “German Development Initaitive” comprising commitments of up to 430 million euros per year until 2013 for civil reconstruction. While the main focus of Germany’s civil activities lies on the five northern provinces Balkh, Kundus, Takhar, Baghlan, and Badakhshan, Germany still supports development plans for the capital Kabul. In addition, there are contributions to national development programmes which are, while supervised by the international donor community, implemented by the Afghan government on their own responsibility.
Nowhere in the world KfW invested more than in Afghanistan. This expenditure is justified in view of the enormous challenges posed by reconstruction.
Nowhere in the world KfW invested more than in Afghanistan. This expenditure is justified in view of the enormous challenges posed by reconstruction. Despite impressive progress during the last decade, considerable investments are still required in economic infrastructure. Due to low generation capacities and a still rudimentary distribution network, the power supply network remains unsatisfactory. Only one in five inhabitants of Kabul and of the provincial capitals is connected to the drinking water supply system, which is dilapidated to a large extent. The poor transport infrastructure slows down economic development in the provinces and Afghanistan’s integration into global markets. The deficits in the field of social infrastructure (education and health sector) are similarly serious. There are not enough schools and qualified teachers to meet the demand which arises from the constantly increasing school enrolment rates. There is an urgent need to strengthen the capacities of the Afghan government regarding the provision and maintenance of public goods and services at the national, provincial and district level. KfW reacts to these challenges by supporting the expansion of energy and drinking water supply, by investing in the transport, education, and health infrastructures, by supporting the development of a viable financial sector and by advising the public administration on performing their tasks more and more under their own responsibility, among other activities. Our projects are designed to help improve the standard of living of the Afghan people and strengthening the economic and social parameters for a stable community.
With regard to the energy sector, the main focus of activities financed by KfW is on energy generation and the extension of the grid-connected power supply. In association with other donors, Germany has considerably contributed to a largely reliable power supply in Kabul and other urban centres. In the urban water supply, Germany has established itself as a leading donor. Today, over 500,000 citizens in the Afghan capital do benefit from an improved or newly established drinking water supply. Presumably by the end of 2013, another 200,000 people will be connected to the drinking water supply for the first time. The performance of the local water provider in Herat can compete with the standards of industrialised countries. Meanwhile, almost every household has been connected to the water network. KfW projects such as this one are realised in close cooperation with the Gesellschaft für Internationale Zusammenarbeit (GIZ): while KfW provides the infrastructure, GIZ supports the Afghan government in developing viable provider structures.
In the area of transport infrastructure, we are concentrating, among other things, on the expansion of roads, bridges, and markets and on the renovation of the airport in Mazar-e Sharif. These activities aim at improving regional and international transport connections particularly to the five main provinces, thus giving a boost to the economic development. Usually local workers are recruited for construction work, which means that the local population is already benefitting from the projects during the implementation phase.
Furthermore, the results of promoting private economic initiatives are impressive. For example, by entering into the partnership with selected Afghan commercial banks, KfW facilitates micro and small-scale entrepreneurs’ access to loans. With the founding of the First MicroFinanceBank (FMFB), which KfW supports financially and technically, the largest micro-finance institution of the country was established. The head office and the 34 branches in 15 provinces grant about 4,000 micro-loans per month ranging from 100 to 5,000 US dollars. Since the foundation of the bank in 2004, micro-entrepreneurs – 14 per cent of the customers are women – took out almost 200,000 loans amounting to 1,500 US dollars on average.
Another important instrument in establishing favourable parameters for the growth of entrepreneurship is a Kreditgarantiefazilität (KGF – loan guarantee facility) established by Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG), the German investment and development company, a subsidiary company of KfW. It is aimed at encouraging Afghan banks to grant loans to company founders and small and medium-sized companies. Small and medium-sized companies, which need an investment and/or an operating loan between 3,000 and 300,000 US dollars, are intended to obtain sustained access to market-rate financing which, due to the lack of legal parameters and utilisation possibilities, is not available for standard bank collateral.
Kreditgarantiefazilität was financed by the United States Agency for International Development (USAID) and BMZ. The capital made available is used to capitalise a guarantee fund, which means that the partner banks grant so-called “SME” loans to small and medium-sized enterprises (SME) and secure a part of the credit default risk via this guarantee fund. Furthermore, Kreditgarantiefazilität offers the partner banks extensive supporting assistance in the form of management consulting, support in establishing the SME loans and intensive staff training. For example, the responsible project office Afghan Credit Support Program (ACSP) successfully assisted in the establishment of departments for small and medium-sized enterprises in two banks, which are true pioneers in Afghanistan. To date, the partner banks have granted some 1,900 loans with a volume of almost 60 million US dollars to local SMEs. In the past few years alone, the borrowers were able to create more than 1,600 jobs.
KfW has increased the involvement of decision-making bodies and administration structures at district and provincial levels, thus strengthening the responsibility of the state at the local and regional level. At the national level, it offers consultancy to the German embassy regarding the donor dialog with the Afghan government in order to support the government in realizing important reforms particularly in public financing management. Thanks to extensive immediate measures, which accompany the realisation of larger infrastructure-related activities, the population is already benefitting from the start from such plans, the realisation of which takes several years. Both the involvement of the entire KfW staff and the consultants in a joint risk management system of GIZ and KfW, and the cooperation with locally well-networked non-governmental organisations, enable us to remain active even in fragile districts.
Since its establishment, KfW has supported important transformation processes in Germany and all over the world. It has always adapted its instruments to changing local conditions and requirements. In Afghanistan, a country which is characterised by armed conflicts, it faces special challenges. Nonetheless, KfW assists the Afghan government and private businesses as a competent advisor and partner on behalf of the German government, always guided by the goal of improving people’s livelihood in a more stable society. As an internationally operating development bank, KfW will in the future incorporate its experiences gained here into its activities in other crisis and transformation countries as well.
The author studied economics and social sciences of agriculture and obtained his doctorate in agriculture from the University of Bonn, Germany. In 1989, he joined KfW. He has held different positions within KfW and since 2007 he has been a member of the Management Board of the KfW Bankengruppe (KfW bank group).