Afghanistan

Jeremy Lefroy Excerpts

Thursday 17th January 2013 Westminster Hall

[Jeremy Lefroy (Stafford) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker, and to follow my hon. Friend the Member for Mid Derbyshire (Pauline Latham), who made such a passionate speech about the position of women in Afghanistan. My colleagues on the International Development Committee have covered some areas in detail, so I shall attempt to cover those that have not been touched on.

I want to focus on what our report said about the private sector and DFID’s response on that. I also want to say a few words about taxation and the increase in revenue, which has been one of the success stories in Afghanistan but still needs a lot more work. I will then conclude with some remarks about oversight for the Afghan national security forces and about this week’s comments by the UN deputy special representative, with whom we had a meeting.

As we all know, the private sector is the engine for growth, and growth is as important to Afghanistan as it is to the United Kingdom. One of the major areas of disagreement that the Government have with our report is on our comments about DFID’s approach to the private sector in Afghanistan. In many ways, I hope that we were wrong and they were right, but we had some concerns about DFID’s approach to that extremely important area.

It was difficult for us to see the work on the ground. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, we hoped to see some of the work in Bamiyan, but it just did not prove possible, so we had to take people’s word for it. I will just cover some of the areas in which DFID is involved. The first is agriculture, which is of course absolutely vital. It is a passion of mine. DFID is involved in the reduction of poppy cultivation, and therefore in the increase of the cultivation of other crops; in de-mining; in strengthening institutions focused on agriculture; in improving productivity of cereal crops through irrigation; in high-value vegetables; and, indeed, in commercial poultry. All those are essential.

One thing that we noted and wanted to bring to the attention of both DFID and the Afghan Government was the fact that many opportunities for adding value to agricultural produce do not seem to be taken up. Most agricultural produce went across the border to Pakistan in raw form and came back in processed form, thus denying Afghans the opportunity to add value, income and the employment of their own people. We want to encourage DFID to see how it can further help in adding value to agricultural produce in Afghanistan. Agriculture is of course essential and, by the end of this period in 2015, we want DFID to have made real progress in that area. I am sure that it is capable of doing so, and that the Minister will respond about what is now going on and being achieved.

DFID has a strong programme to support employment and enterprise, particularly through small and medium-sized enterprises that, realistically, as is the case in this country, will be the main generator of employment and growth in Afghanistan. DFID’s target is 20,000 jobs by the end of this period. It would be excellent if the Minister gave us feedback on how that programme is going and what it consists of. It would be a great step forward if the programme could achieve that and, indeed, even more.

Another area is good infrastructure, without which economic development is difficult at best, and impossible a lot of the time. DFID has a major programme of developing infrastructure, particularly in rural areas, with more than 1,100 km of secondary road and 1,095 of tertiary road planned. I am very pleased by that, because the emphasis is often on primary roads—asphalt or tarmac roads—that look good and are great if people are near one, but if people are even 5 km away and on an awful road, such roads do not help much to get their produce or animals to market. DFID has concentrated on that, as we saw in the Congo. DFID’s work on one road that I had the pleasure of travelling along meant that a journey that would have taken five days took two hours. It makes a huge difference. I would be pleased to hear the Minister’s comments on how the programme to develop rural road infrastructure is going.

Then there is the elephant in the room of the Afghan economy: mining. We were told that the value of minerals in Afghanistan is estimated—possibly underestimated—at $3 trillion. Their extraction would make an enormous difference not only to the Afghan economy but to Afghanistan’s tax base and therefore its public services. We were pleased to see that DFID has engaged strongly in the development of governance over mining, particularly taxation. We would be pleased to hear from the Minister what progress has been made since we were there, whether the mining industry, which was developing fast when we were there, has made further progress and whether that has resulted in an increase in revenues to the Government as well as local employment. I think that we are all hoping that we were a bit too pessimistic about DFID’s private sector programme, and that the Government are right that it is on track and will make a major contribution. I hope that we are proven wrong. That is what we would all like.

On taxation, tax revenues about a decade ago amounted to a mere 3% of a very low GDP: in effect, to nothing, which made Afghanistan completely dependent on aid. With the substantial help of DFID, that has now risen to 11%, more than in Pakistan, which was referred to in the earlier debate, where it is less than 10%. We should congratulate both the Afghan Government and DFID on their work on that. However, 11% is still a long way from where things should be.

I will make a few comments on taxation, perhaps referring a little to the earlier debate. Taxation is indeed the route out of aid, because from taxation derives the ability to pay for public services. I remember reading in the office of the Tanzanian tax inspector with whom I was having some discussions when I worked out there, “When I pay taxes, I buy civilisation.” That was pretty much the only comment made in that office with which I agreed, but it made the point that taxes are the means of acquiring schooling, health care, security and all the other goods that we take for granted.

There are various types of taxes: income-based taxes, sales tax and VAT, mineral royalties, customs duties and crop levies. Traditionally, in developing economies, the bulk of taxation has come from customs duties and crop levies, because they are easy to collect; you see something—a crop or an imported car—and you tax it. However, those are regressive taxes, in that crop levies affect smallholder farmers and tend effectively to result in a marginal income tax rate, which can often be 30%, 40% or even 50% once the cost of production has been taken into account, and customs duties tend to prevent trade, particularly exports. Concentrating on those taxes is not recommended.

The route upwards in tax collection is clearly sales taxes such as VAT and income-based taxes, whether on personal or company income. Much more needs to be done both in Afghanistan and elsewhere on the collection of corporate and personal income taxes as well as VAT. They require highly skilled and honest revenue authorities, which is where DFID comes into its own. I urge DFID to continue its support to the Afghan revenue authorities for the collection of income taxes and mineral royalties. In Burundi, we saw the tax revenue increase by a substantial amount through DFID’s involvement and the work that it is doing to promote trade and investment in east Africa. I want increased support for the revenue authorities in Afghanistan, because DFID’s work has been so successful up to now.

A final point on taxation: in any country, a follow-up is needed on the discrepancy between obvious wealth and taxes paid. We heard earlier about the fact that some of the wealthiest people in Pakistan pay no taxes. It is blindingly obvious to everybody that they should be paying taxes, yet they do not. I believe that the same is true in Afghanistan. The revenue authorities need to be able to conduct their affairs without fear or favour, and DFID should be helping them do so.

I turn to the question of the Afghan national security forces. We suggested in our report, although DFID disagreed, that there should be independent oversight. I understand why DFID disagreed—it felt that sufficient checks and balances already exist in the system, and perhaps they need to be given the opportunity to work—but we understand that the United Nations human rights report to be published next week will say something along the lines of “Conditions of detention have deteriorated” and raise concerns, particularly about Afghanistan local police groups. We understand why DFID rejected our recommendation, but can the Minister update us on whether he feels that the inspectorate of police and the other bodies put in place are proving effective, or whether the jury is still out?

In conclusion, I reiterate the comments made by several of my colleagues about the progress being made. It was an honour to go to Afghanistan. I pay great tribute to DFID’s staff there, and to all the staff of the Foreign and Commonwealth Office and the British Council whom we met, for their warmth, their hospitality and the value of the work that they do. Progress has been made. It is vital that we get the message across. So many British people, particularly our armed forces, have made huge sacrifices to bring advances that are quite apparent to the people in Afghanistan. In my county of Staffordshire, we have the 3rd Mercians, who served in Afghanistan in 2011 and will probably go out again at the end of this year. I want them to know that the work they are doing is vital to the people of Afghanistan, that by and large it is appreciated and that they will be honoured in the memory of what they have done.