Investment Horizons: Afghanistan

Transcription

1 Benchmaking FDI Oppotunities Investment Hoizons: Afghanistan INVESTMENT HORIZONS: AFGHANISTAN 1

2 Copyight 2005 The Wold Bank Goup/MIGA 1818 H Steet, NW Washington, DC All ights eseved Manufactued in the United States of Ameica Fist pinting Apil 2005 Available online at Pinted on ecycled pape Fo moe infomation contact: MIGA Opeations 1818 H Steet, NW Washington, DC t f The mateial in this publication is copyighted. Requests fo pemission to epoduce potions of it should be sent to MIGA Opeations at the above mentioned addess. Investment Hoizons: Afghanistan, a study of foeign diect investment costs and conditions fo fou industies in Afghanistan, is pat of a lage poject funded though a gant fom the Fedeal Ministy fo Economic Coopeation and Development, Gemany (also known as BMZ - Bundesministeium fü witschaftliche Zusammenabeit und Entwicklung). The Afghan Investment Suppot Agency (AISA) was established in August 2003 with the suppot of BMZ. The Multilateal Investment Guaantee Agency (MIGA) of the Wold Bank Goup was established in 1988 to pomote the flow of pivate foeign investment to developing membe counties. MIGA offes political isk insuance coveage to eligible investos fo qualified investments in developing membe counties. MIGA also offes technical assistance pogams to develop and implement effective stategies fo attacting and etaining foeign diect investment. This hands-on technical assistance focuses on thee pimay aeas: dissemination of infomation on investment oppotunities and business opeating conditions in developing membe counties though online sevices; capacity building of the oganizations and institutions involved in the pomotion of foeign investment; and, investment facilitation activities suppoting the effots of developing counties to identify and attact investment. 2 INVESTMENT HORIZONS: AFGHANISTAN

3 Benchmaking FDI Oppotunities Investment Hoizons: Afghanistan A Study of Foeign Diect Investment Costs and Conditions in Fou Industies Apil 2005 INVESTMENT HORIZONS: AFGHANISTAN 3

4 The Multilateal Investment Guaantee Agency is not, by means of this publication, endeing accounting, business, financial, investment, legal, tax, site selection, o othe pofessional advice o sevices, and shall not be esponsible fo any loss sustained by any peson, company o oganization that elies on this publication as a substitute fo such pofessional advice o sevices. Befoe making any decision o taking any action that may affect you business, you should consult a qualified pofessional adviso. 4 INVESTMENT HORIZONS: AFGHANISTAN

5 Table of Contents Executive Summay Poject Context... 7 Summay of Findings... 8 Chapte I: Intoduction and Study Objectives Intoduction Poject Objectives Chapte II: Methodology Puposes of the Benchmaking Pogam Assumptions The EBP Model Data Gatheing The Pocess Chapte III: Results Oveview of Foeign Investment in Afghanistan Post-Conflict and County-Specific Challenges and Conclusions Inteviewee Composition Cost and Quality Conclusions by Industy Secto Obsevations Based on Data Analysis Local Vesus Foeign Investo Pespectives Appendices Appendix 1: Endnotes Appendix 2: Aconyms and Abbeviations Appendix 3: Data Definitions and Resouces Appendix 4: Tables of Findings Company Inteviews Appendix 5: Tables of Findings Local Infomation Appendix 6: Bibliogaphy INVESTMENT HORIZONS: AFGHANISTAN 5

6 6 INVESTMENT HORIZONS: AFGHANISTAN

7 Executive Summay Benchmaking in a conflict-affected county like Afghanistan is necessaily faught with methodological and logistical difficulties, and the esults ae fa moe susceptible to change than those in counties that have not ecently undegone conflict. In this sense, these findings should be seen as a snapshot, an initial baseline on Afghanistan s oad to ecovey. As such, this publication povides valuable infomation on cuent aeas of stength and oppotunity fo investment in Afghanistan. Howeve, most impotant fom the investo s point of view should not so much be the cuent situation, (which has aleady significantly impoved fom ecent yeas), but athe the dynamic movement of the county s economic and secuity ealities, and the futue oppotunities ceated fo business. As the findings make clea, and as is tue acoss many sectos, investos enteing Afghanistan now will benefit fom being fist moves in a vigin maket that is highly po-business. Poject Context The Islamic Republic of Afghanistan and its dono patnes ae making pogess in econstucting the county s infastuctue, evitalizing the economy, and ceating institutions and legal famewoks to suppot the development of a multi-ethnic state. As pat of this effot, the Multilateal Investment Guaantee Agency (MIGA) of the Wold Bank Goup, with funding fom Gemany's Fedeal Ministy fo Economic Coopeation and Development (BMZ), commissioned a study to assist the Govenment of Afghanistan and the Afghan Investment Suppot Agency (AISA) in thei effots to pomote investment. The study employed a methodology consistent with MIGA's global Entepise Benchmaking Pogam (EBP), which enables fai compaison of Afghanistan and othe counties benchmaked unde the EBP, including Afghanistan's egional neighbos. Additionally, as in its othe entepise benchmaking initiatives, MIGA hopes to povide a useful tool fo investos in tems of identifying potential investment oppotunities. The specific objectives of the Afghanistan benchmaking study wee to: (1) document the cuent costs and conditions associated with the selected industies, towad detemining Afghanistan s oveall competitiveness as a location fo investos; (2) analyze stengths, weaknesses, oppotunities, and theats (SWOT) to identify the pospects and challenges in the fou selected sectos; (3) identify the county s pesent compaative advantages and make ecommendations fo impoving the secto-specific investment climate and attacting foeign diect investment (FDI) in the coming months and yeas, and (4) set a baseline fom which impovements in the investment climate can be measued in the futue. It is expected that the esults of the study will help to claify and infom AISA s FDI pomotion stategy and maketing effots. The study aimed to examine both quantitative and qualitative factos elating to the business envionment as they stood at the paticula time of the study. Fo example, fims wee asked to epot the costs incued fo such items as land and utilities as well as to discuss peceptions of the ease of opeating in Afghanistan. As elaboated moe fully in Chapte II, the esults of the study ae based pimaily on thee souces of data: 32 fim suveys and inteviews, local souces such as utility povides and govenment agencies, and intenational souces of data. The analysis was futhe supplemented by a eview of elevant liteatue on Afghanistan s investment climate and meetings with govenment and othe stakeholdes. With input fom AISA and MIGA, fou sectos wee selected fo analysis based on INVESTMENT HORIZONS: AFGHANISTAN 7

8 an initial sense of thei viability fo attacting investment. These fou sectos ae: tanspot and logistics; food and beveage pocessing; capets and textiles; and mining. The findings ae divided into geneal obsevations that affect all sectos, as well as secto-specific conclusions. Summay of Findings The pogess made in Afghanistan since the end of majo fighting in 2002 has been maked, especially consideing the despeate and damaged state in which the county was left afte 23 yeas of wa and isolation. Theefoe, a ealistic assessment of the Afghan business climate must eflect the dynamic pace of change and pogess set against a seies of undelying ealities. This document aims to eflect both quantifiable factos and the nuances inheent in this sot of tansfomational, even paadoxical, envionment. Fo example, the county s licit Goss Domestic Poduct has gown appoximately 50 pecent in the past two yeas, and yet basic public sevices such as wate and powe ae still uneliable. Seveal multinational copoations have aleady invested in Afghanistan, but the bulk of the economy emains infomal. Theefoe, an analysis of pospects fo investment eveals challenges and significant oppotunities. The fact that a benchmaking execise can be undetaken in Afghanistan at all is emakable, and a sign of the significant pogess that has been made in the economic and secuity sphees duing the past thee yeas. It also eflects the taditionally entepeneuial spiit of the Afghan people, which emained unboken though two geneations of conflict and is futheed by the Afghan diaspoa, now etuning to the county. Although the situation emains in flux, and the study's findings may eflect vaiable opeating conditions among the suveyed companies, thee is no eason to believe the findings ae not epesentative of the cuent situation in Afghanistan in the fou subject sectos. Coss Sectoal Challenges and Pospects Impoving legal famewok fo investment Investos in Afghanistan face an evolving legal egime egading investment. Many poposed laws intended to impove the county s legal egime and suppot a moden maket economy ae in vaious stages of enactment. Fo the time being, howeve, seveal aeas of commecial activity emain pooly egulated o not egulated at all, and the judiciay has limited capacity. This contibutes to the county s oveall isk peception. Developing tax egime and low tax compliance Although the tax egime emains cumbesome and tax compliance is low, this aea is tageted fo impovement. Officially, hundeds of nuisance taxes emain on the books at the Ministy of Finance and othe govenment agencies collect a ange of licensing and pemit fees and othe quasi-tax payments. In geneal, company awaeness of tax policy and law is low. Tansitionally, the lack of tax enfocement offes the obvious benefit that many fims pay no taxes othe than customs fees. At the same time, lage fomal companies complain that the moe visible and esponsible companies ae shouldeing a dispopotionate shae of the copoate tax buden in Afghanistan. Refoms in customs administation Customs administation cuently lacks consistency and tanspaency. Investos suggest that individual povinces (some only gadually coming unde contol of the cental govenment) clea goods and collect vaious amounts of customs evenue without coodination with the cental govenment. Recent efoms have helped steamline pocesses, but investos see the need fo futhe impovements. 8 INVESTMENT HORIZONS: AFGHANISTAN

9 Developing tanspot infastuctue quality and high tanspotation costs With some notable exceptions, Afghanistan s oad netwok is in poo condition, ai feight is still limited and costly, and most goods must be shipped though Pakistan o Ian, adding anothe laye of costs, delays, and administative pocessing. This aises costs fo all fims that impot o expot, and must be an ugent govenment pioity. In that context, oppotunities fo constuction fims, engineeing companies, etc., ae geat. Complex popety maket If the consideable amount of govenment-held land is appopiately pivatized, investos in Afghanistan will have a ange of attactive investment location options. While steps ae being taken to impove the pocess, accessing govenment land cuently still seems to be a highly individualized pocess chaacteized by many individual govenment agencies owning, leasing, and selling land in a nontanspaent and inconsistent manne. The govenment owns most land in the county and the pivate popety maket woks lagely on a negotiated basis with pices ising apidly. The ability of investos to puchase o lease land is fustated by a highly nontanspaent popety maket. Title disputes ae common, pocedues fo leasing o selling land vay widely, and ecouse and judicial settlement ae difficult. Impoving capacity of the state to povide utility sevices Cetain public sevices such as wate, powe, and wastewate teatment, ae not yet geneally available. Indeed, few of the fims inteviewed elied on public electicity, waste collection, o wastewate sevices. Most oganizations ely on mobile phones, pivate wells, and geneatos fo basic utility needs. The govenment is addessing this, and in tuning to the pivate secto is ceating additional investment oppotunities. Impoving secuity The impoving secuity situation is educing instability fo investos, paticulaly non-afghan entepeneus. Gadually the entie county is being bought unde cental govenment contol, but anti-govenment foces, while significantly weakened, do continue to mount spoadic attacks in majo cities. Nonetheless, the outside peception of the secuity situation emains negative. Stengthening financial makets Seveal intenational banks and the Cental Bank povide conventional financial sevices to business, but standad financial poducts such as commecial loans and expot financing ae not yet available in Afghanistan fo domestic investos. As a esult, business finance is not fully developed and most loans seem to be infomal secto tansactions between family and fiends. Sectoal Conclusions In geneal, the stengths acoss the sectos eflect the economic landscape of a county with a po-business climate and a ange of oppotunities fo fowadlooking investos as Afghanistan egains its position as a hub between Asia, Euope, and the Middle East. The weaknesses, as expessed by investos aleady opeating in the county, ae an unvanished expession of the cuent eality that still exists afte 25 yeas of wa and civil conflict and is changing evey day. But even in the weaknesses, cuent and potential futue investos can see oppotunities. To name but one example, the inadequate oad netwok within the county and to neighboing makets epesents a pime oppotunity fo foeign and domestic companies in the engineeing and constuction fields. This oppotunity, in tun, will bing with it upsteam and downsteam business linkages in equipment leasing, cement and othe mateials, and elated business activity. INVESTMENT HORIZONS: AFGHANISTAN 9

10 Tanspot and Logistics Of the fou sectos consideed fo this study, the tanspot and logistics secto saw the lagest pesence of FDI and some unique demand-diven advantages. An analysis of the tanspot and logistics secto evealed seveal stengths and weaknesses, including: Stengths Little o no competition and fetile gound fo new ideas Because of the difficulties of Afghanistan s ecent past, investment levels ae still low and new entants in the secto face limited competition and stable demand fo innovative, new, and cost-effective sevices. Steady demand Foeign assistance, govenment demand, and pivate secto demand fo the equipment and machiney needed to undetake the county s massive econstuction pogam should continue fo yeas to come at its cuent level, theeby ceating a stable maket fo tanspot and logistics sevices. High pofit magins The logistics companies opeating in Afghanistan that wee inteviewed fo this study epoted that they had begun with a modest initial investment of only a few thousand o tens of thousands of dollas and ae making hundeds of thousands o even millions in etun. While these magins ae expected to fall ove time with inceased competition, in the inteim the tanspot and logistics secto demonstates the benefits of fist move advantage. Weaknesses Inconsistent oad conditions Only about 65 pecent of the main cicuit of highways compising the Afghan oad netwok is in good condition, and the main tansit oad fo goods to Pakistan, Afghanistan s most impotant tading patne, is in disepai. Futhemoe, many companies inteviewed expessed dismay that majo highways wee fequently closed without pio notice fo secuity puposes and emained closed fo as long as seveal days. Lack of a seapot While many pivate industy epesentatives see Afghanistan s lack of a seapot as a majo obstacle fo industy in the county, some inteviewees see the county s landlocked status as a distinct advantage. Afghanistan is dependent on the coopeation of its neighbos who do have seapots, has highe costs of tanspotation, and cannot pomise fixed delivey times to oveseas customes. Refoming customs authoity Although the Afghan customs authoity has automated many of its pocesses, the system is not fully integated and is limited in its capabilities. Also, thee ae multiple customs checks (not all of them official) once goods have enteed Afghanistan s bodes. The cuent pocedue equies that all tucks be cleaed at once fom a cetain bill of lading. Abitay ules and egulations in the Afghan countyside The cental govenment s authoity has been limited in cetain egions of the county, but is impoving. Local walods wee accustomed to imposing abitay taxes and customs chages on oveland tanspot. Undeveloped electic infastuctue and high costs Sophisticated logistics sevices equie telecommunications and inventoy management systems, and 10 INVESTMENT HORIZONS: AFGHANISTAN

11 these depend on a eliable electic infastuctue. All the logistics companies inteviewed elied on a back-up geneato fo at least some of thei opeations, and fou of the foeign companies said they eithe had no municipal powe at all o depended 100 pecent on thei own pesonal geneatos. Theefoe, electic powe costs in Afghanistan ae high. Food and Beveage Pocessing Yeas of conflict have left Afghanistan s indigenous food pocessing industy lagely devastated and today the county impots most of its pocessed food. Thee is consideable potential fo impot substitution in the secto. The following majo stengths and weaknesses wee identified in the analysis of the food and beveage pocessing secto: Stengths Fist move advantages As little is cuently poduced in Afghanistan in the food and beveage industy, companies that establish poduction o bottling opeations ae well-poised to eap geat benefits as the fist domestic supplies of thei poducts as well as lowe tanspotation costs than thei impoting competitos. Afghanistan s band name fo taditional poducts Afghanistan has seveal makets to which it has long expoted cetain poducts such as died fuits and nuts. Restoing poduction and maketing the county s taditional eputation fo quality may confe an advantage to new poduces. Poximity to low-cost aw mateials Afghanistan s aid to semiaid climate and hot summes ae paticulaly good fo cultivating a lage vaiety of fuits and vegetables that can be died, canned, o othewise pocessed. Afghanistan also has good suface wate availability as compaed to the Cental Asian Republics and Ian. This means that Afghanistan could develop lowe iigation costs as compaed to those counties. Poximity to lage makets Some of the most populous counties of the wold including China, India and Pakistan ae in close poximity to Afghanistan and constitute natual buye makets fo Afghanistan s poducts. Taditional fuit poducts aleady have an outstanding eputation in India which could, with some maketing, extend to othe food and beveage poducts. Weaknesses Tanspotation and logistics challenges Poo oads and abitay oad closings, lack of a seapot, delays at customs, and the absence of effective tansit ageements with neighboing counties all militate against the quick, inexpensive tanspot of peishable food and beveage poducts aboad and within the county. Lack of quality standads and poo envionmental conditions Thee ae, as of today, few contols in this taditional industy and thee is a geneal absence of witten standads, inspections, pice suppots, and technical assistance. Cuent tades lament elevated quantities of dust, sulphu and othe toxins in the ai and wate, a fact which has been confimed though laboatoy tests. Died fuits may equie two to thee washings, which can deteioate thei quality. The wate used to wash them is sometimes not sanitay. As the secto seeks expot makets, quality assuance will become an inceasing issue. INVESTMENT HORIZONS: AFGHANISTAN 11

12 Uneliable and expensive electic powe Voltage vaiations ( bownouts ) damage equipment and inteupt poduction pocesses, subjecting peishable food and beveage poducts to spoilage o significantly educing thei shelflife. Of the seven companies inteviewed in this industy, five had no publicly povided powe and wee incuing geneato costs, and those with powe epoted fequent bownouts. Need fo appopiate equipment and stoage facilities In the died fuit and nut secto, most poduces have not invested in equipment since the Taliban came to powe, meaning that the cuent equipment is old and obsolete in many cases. Raisin agents see a need fo moe stoage facilities to maintain aisins in a contolled envionment. This need will likely also extend to othe sectos as they ecove fom conflict. Limited financing fo small and medium-sized entepises (SMEs) Little longe-tem financing is cuently available fo SMEs in Afghanistan. Many of the companies in this industy, especially in the died fuit industy ae SMEs. Capets and Textiles As one of Afghanistan s taditional economic sectos and with its linkages to ual incomes, much govenment and pivate secto attention has been paid to evitalizing the Afghan capets and textiles secto. An analysis of the capets and textiles secto eveals some paticula stengths and weaknesses: Stengths Taditional expetise etained The capet industy is one of Afghanistan s taditional poducts and, despite the wa, entepeneus in the business suggest that a sufficient supply of the necessay skilled labo emains in the county. Intenational band etains value Although moe needs to be done, the Afghan capets and taditional textiles secto etains a geneally favoable intenational image. Capets made in Afghanistan ae consideed a taditional handicaft, eflecting a ich histoy and a ange of quality designs. While poduction quality is inconsistent, the geneally favoable image offes the secto a good basis fo impoved maketing. Pefeential tade access Handmade Afghan capets have been ganted pefeential duty fee access to the impotant United States and Euopean Union makets. This povides a picing advantage fo Afghan capets that poduces without such access will not enjoy. Non-peishability of poduct Although capets ae sensitive to humidity, they ae othewise vey easy to stoe. This means that output can be stockpiled nea to the end custome in oveseas makets fo a long time. This also confes a tansitional advantage in Afghanistan whee tanspot and stoage systems ae not well suited fo expotes of peishable poducts. Weaknesses Inability to access affodable land Many inteviewees in the capet secto suggest that finding affodable land fo waehouses and othe facilities is a majo concen. 12 INVESTMENT HORIZONS: AFGHANISTAN

13 Developing supply of aw mateials Due in pat to the devastation of local souces of wool and dyes, most inputs fo the capet industy must be impoted though Pakistan. Some fims complained of having difficulty finding egula and affodable supplies of quality dyes, wool, and othe inputs. In some cases, impoting these aw mateials simply adds tanspot and customs costs, and in othe cases the quality of impots is suspect. High tanspot costs fo a heavy poduct In addition to having to pay to impot aw mateials, capet tades also epoted that almost 100 pecent of thei output was expoted, which inceases the basic costs of the business. Capet makes suggest that shipping lage volumes of capets a elatively heavy commodity fom Afghanistan via ai is not a viable option given the high cost and limited outbound ai cago space, although aifeight costs ae beginning to become moe competitive. Shipping though Pakistan o Ian adds costs and time. Developing finishing capacity in Afghanistan At pesent, nealy all capets ae shipped as quasi-finished goods to Pakistan fo final finishing. Ove the past two decades, Afghanistan s finishing infastuctue was eithe destoyed o outmoded. This not only inceases the costs that capet selles face, it also constains the gowth of the indigenous industy and ceates oppotunities fo infingements of intellectual popety. Capet vendos indicate that one finishing facility in Maza-e-Shaif has ecently opened, but it is not clea if the factoy has the capacity to lue back a significant amount of the finishing business pesently being shipped to Peshawa. Mining The mineals secto, which is scacely functioning in Afghanistan and still lagely in public hands, offes geat potential in the mid- to long-tem. Some of the moe significant consideations include: Stengths Consideable gowth potential Afghanistan has a wide aay of known mineal esouces as well as vast aeas whee the potential is not known. Few of its eseves ae being commecialized pesently, ceating a vacuum that can be filled by pivate investment. High demand fo constuction mateials As a esult of the econstuction boom that Afghanistan is pesently undegoing, thee is significant local demand fo mineal-based constuction mateials, including paving stones, cement and cement blocks, bicks, gavel, wood, steel, sand, glass, and tile. Pesently, even basic mateials like cement ae impoted fom Pakistan and Ian, offeing geat potential fo impot substitution. Costs associated with tanspot povide advantage to locally poduced mateials Assuming mineals-based poducts such as constuction mateials can be poduced at a quality on pa with impots, the costs associated with impoting such mateials confes an advantage to companies that poduce locally. Significant unmet demand fo enegy Afghanistan s domestic enegy needs emain unmet despite significant deposits of coal. When pivatization is complete and the egulatoy egime govening pivate investment is established, demand fo locally poduced coal is estimated to be steady. INVESTMENT HORIZONS: AFGHANISTAN 13

14 Weaknesses Legal egime in pocess While a daft mining law is awaiting appoval by the Cabinet, egulations and administative pocedues ae not yet in place to goven pivate secto involvement in mining. Of paticula impotance is detemining the tax egime facing mining companies. As a esult, the Ministy of Mines and Industy has not licensed any mineals exploation, extaction, o pocessing. Existing mining is eithe state-sponsoed o illegal activity. Incomplete pivatization pocess Cetain mining esouces, including coal fo which thee is a demonstated local maket, emain in the contol of failing state-owned entepises (SOEs). Repotedly, few of the majo mines ae opeational and those that ae have lagely eveted to non-mechanized coal mining and poduction. At the same time, pivate investment in mining is not yet pemissible. The lack of pogess on pivatization not only keeps cetain assets out of pivate hands, but also sends a geneally negative signal to investos about state intusion in the mining secto. Lack of effective govenment contol ove cetain mineal-ich aeas Some of the county s most pomising aeas fo mineals exploation, paticulaly along the bode of Pakistan, emain vulneable to attack by anti-state actos. This makes investments an uncetain poposition, unless coveed by investment insuance. Shotage of skilled mining labo Industy expets suggest that Afghanistan lacks a eady supply of skilled technical and manageial wokes. Because most of the county s majo mining facilities wee outfitted with Czech and Soviet machiney, even if individuals woking in the secto ae familia with machiney, it is likely to be outmoded. This will incease stat-up costs fo new investos, as they will need to ely on moe expensive foeign labo and facto in costs fo lodging and pe diems fo enginees, machinists, and manages, until local wokes can be appopiately tained. 14 INVESTMENT HORIZONS: AFGHANISTAN

15 Chapte I: Intoduction and Study Objectives Intoduction To suppot the joint assistance effots of the Multilateal Investment Guaantee Agency (MIGA) and the Wold Bank in the Islamic Republic of Afghanistan, MIGA commissioned a study in Afghanistan unde the famewok of the Entepise Benchmaking Pogam (EBP). Funded though a gant fom Gemany's Fedeal Ministy fo Economic Coopeation and Development (BMZ), the objective of the study was to benchmak the opeating costs and conditions in Afghanistan fom the vantage point of a foeign investo. Consistent with the methodologies and appoaches developed fo the EBP, the study allows fo futue compaison of Afghanistan and its neighboing and othe counties as locations fo investment. The study was conducted in Decembe of 2004, with the facilitation and suppot of the Afghan Investment Suppot Agency (AISA). The Afghanistan benchmaking study involved conducting a total of 32 inteviews with companies opeating in fou selected sectos: tanspot and logistics; food and beveage pocessing; capets and textiles; and mining. These sectos wee chosen as a esult of input fom AISA and MIGA based on an initial sense of these sectos as viable fo attacting investment. The inteviews wee guided by a detailed suvey of investo peceptions and costs designed by MIGA unde the EBP. The eseach team conducted suveys with indigenous, Afghan expatiate and foeign investos ove a two-week peiod. As discussed in moe detail late, the esults highlight the opeating costs, constaints, and peceptions of doing business in Afghanistan. The suvey analysis is supplemented by obsevations based on a thoough eview of gemane liteatue about the business envionment in Afghanistan and numeous inteviews with othe stakeholdes, including individuals woking in the dono community and govenment in Afghanistan. This publication is oganized in five sections. The Executive Summay pesents an oveview of the study's findings. Chapte 1 summaizes the poject backgound and objectives. Chapte II explains the EBP methodology and its application in Afghanistan. Chapte III summaizes the esults of the suvey data and pesents an analysis of the stengths, weaknesses, oppotunities, and theats also called a SWOT analysis of each secto. Endnotes fo efeences to souces noted in the main text appea as Appendix 1. Appendix 2 contains a list of aconyms and abbeviations used in this publication. Appendix 3 povides backgound on data definitions and esouces. Appendix 4 pesents tables of findings deived fom infomation obtained though company inteviews. Appendix 5 pesents tables of findings deived fom data collected fom local infomation souces. Appendix 6 is the bibliogaphy fo the study. INVESTMENT HORIZONS: AFGHANISTAN 15

16 Poject Objectives The benchmaking study povides valuable data on fou sectos with good pospects fo attacting investment tanspot and logistics, food pocessing, capets and textiles, and mineals. The study also povides insights into county competitiveness and investo peceptions that can infom the Afghan Investment Suppot Agency s stategic planning pocess and policy advocacy agenda, as well as povide the basic infomation aound which sectoal investment guides can be pepaed. The objectives of the study wee as follows: To compae the competitiveness of costs and conditions associated with the selected industies which could then be used by AISA in the fomulation of its foeign diect investment (FDI) stategy and maketing effots; To use SWOT analysis to identify the stengths, weaknesses, oppotunities, and theats in the selected industies; To identify the county s compaative advantages and make ecommendations fo impoving investment climate and attacting FDI; To set a baseline fom which impovements in the investment climate can be measued. The Afghan Investment Suppot Agency the pincipal agent fo attacting and facilitating investos is faced with a challenging task given the post-conflict chaacte of the county and intense global competition fo investment. Fomally opening in August 2003, AISA is a new and elatively small agency in the ealy stages of development. In addition to pomoting investment, AISA is also tasked with egisteing investos, ceating a one-stop shop fo investment infomation and appoval, and developing industial estates. Of the 31 cuent staff membes, only eight wok in investment pomotion and thee in industial estate development. 1 Two impotant tasks facing AISA include advocacy fo administative, egulatoy and policy efom that can impove the investment climate and disseminating infomation to investos about the opeating envionment and costs. The lack of had, eliable data compaing economic oppotunities and costs in Afghanistan to othe counties has poven to be a significant obstacle to maketing the county fo investment. To help addess this baie and stimulate FDI in the county, MIGA has pogammed the benchmaking execise in sectos with good potential fo attacting investment, including among both foeign and domestic fims. (Specific ecommendations pepaed fo AISA ae not included in this publication.) 16 INVESTMENT HORIZONS: AFGHANISTAN

17 Chapte II: Methodology Puposes of the Benchmaking Pogam MIGA s EBP methodology is about competitiveness using an established set of citeia to gauge a county s ability to compete with othe sites and locations available to the investo. Fo the puposes of this execise, competitiveness is defined as a county s o egion s elative ability to attact foeign diect investment. When a company has decided to open a factoy, epesentative office, call cente o waehouse, it is faced with the need to evaluate a vaiety of sites and choose the best one. This often implies a majo investment in company esouces and the daunting task of obtaining and analyzing a vast body of infomation. Benchmaking is a tool that companies use to oganize thei eseach on factos impotant to thei investment decisions, and to assign a compaable measue of value to each bit of infomation accoding to thei own pioities. When all data is in quantitative fom, it is possible to assign scoes and ank the most attactive options. Benchmaking is especially effective in helping investos educe a long-list of potential location options to a shot-list that can optimize the investo's poject and location equiements. It is only at the shot-listing stage that detailed financial analysis, due diligence and actual site visits usually take place, as it is too costly and time-consuming to go to that level of detail at the long-list phase. Investment pomotion agencies (IPAs) ae inceasingly using a benchmaking appoach simila to that of the investo to detemine how attactive thei counties o egions ae fom the investo s viewpoint and how thei stengths and weaknesses compae to those of othe sites. Assumptions MIGA s benchmaking appoach begins with a set of assumptions to be tested in the field though empiical data. It assumes, fo example, that flexible labo egulations, a steady supply of electic powe, abundant labo, and low telecommunications costs make a site moe attactive to foeign investos. These assumptions fall unde two majo categoies: costs and quality factos. Assumption 1: Lowe costs make an investment site moe attactive. The assumption is that when eseaching a site, all othe factos being oughly equal, an investo will pefe lowe costs to highe costs. Fo instance, assuming that the education level and poductivity of the wok foce is simila in two counties, the investo will pefe the county whee labo costs ae lowe. Assumption 2: Highe quality makes an investment site moe attactive. Cost factos being equal, the benchmaking appoach assumes that highe quality of INVESTMENT HORIZONS: AFGHANISTAN 17

18 infastuctue, sevices, and wok foce ae moe attactive to the investo. Fo example, if the electic powe costs in two counties ae simila, the investo will pefe the county that expeiences fewe powe outages. The EBP Model In ode to test the initial assumptions, MIGA has developed the EBP benchmaking model. This povides a famewok that can be used by IPAs to evaluate thei counties o egions in the same way that investos do. The model attempts to captue the pespective of the investo by administeing a detailed suvey to investos aleady functioning in the county in question. The suvey obtains infomation fom these investos as to thei costs on the gound and the quality of infastuctue and sevices of that site. Fo some factos elated to quality consideations, the model calls fo investos to assign values accoding to a basic ating scale of 1 to 5 (whee 1 = poo and 5 = excellent). The model obtains infomation fom investos on cost and quality factos in the county o counties being studied, as shown in Table 2-1, below. Table 2-1: Cost and Quality Factos of the EBP Model Cost Factos Labo costs fo manages, pofessionals, technicians, skilled and unskilled labo Wage buden equied by law and customay employe benefits Telecommunications costs (land lines, mobile phones, intenet connections) Cost of electic powe, wate, waste wate teatment Cost of maintaining a back-up geneato Tanspotation costs Inteest ates available fo cedit Puchase / lease ates Quality Factos Availability of qualified local pesonnel Language skills of the local labo foce Flexibility of labo egulations Annual tunove of pesonnel Availability of local poduction inputs and equipment Efficiency of local customs administation Quality of tanspotation sevices Quality of telecommunications Reliability of electic powe and wate Quality of life factos Govenment incentives 18 INVESTMENT HORIZONS: AFGHANISTAN

19 The EBP model also povides a poject desciption fo each secto including the key poject paametes to allow the estimate of poxy opeating costs into a epesentative secto-specific cost stuctue. Key poject paametes include the numbe of staff, the size of office o site, utility consumption, and the citical location equiements. The poject desciption in the methodology enables compaisons between counties, and between cuent and futue studies, since the same poject desciption is used when a specific secto is selected fo analysis unde the EBP, no matte the geogaphic focus of the paticula study. (Fo epesentative cost stuctues in Afghanistan, see Figues 3-1, 3-2, and 3-3 in Chapte III: Results.) Futhemoe, the model identifies investment motivation factos, that is, the easons the investo decided to locate in the county o egion being benchmaked. One of the model s geatest stengths is that it allows the eseaches using the model to select a goup of industies believed to be of impotance to the county o egion being studied. It then measues the ability of the county o egion to compete fo foeign diect investment in each of those industies by taking into account the unique equiements of each industy o sevice secto and evaluating the county o egion against those equiements. Fo example, a textile dyeing factoy may equie an abundant, low-cost wate supply and a lage chemical teatment plant, wheeas a call cente equies an excellent telecommunications infastuctue. If the site being studied has abundant, low-cost wate supply but a poo telecommunications infastuctue, the model will eveal that the site is less competitive fo attacting a call cente than a textile dyeing factoy. In coodination with AISA, the eseaches chose fou industies believed to be of geat cuent and futue impotance fo Afghanistan: (a) logistics and tanspot, (b) food and beveage pocessing, (c) textiles and capets, and (d) mining. Thitytwo companies opeating in these fou industies wee inteviewed fo this study. The EBP methodology has seveal othe impotant chaacteistics that make it a valuable appoach: It measues the county s competitiveness at a specific point in time. The EBP methodology is based on the concept of captuing a "snapshot" of the investos pespective fo each of seveal specific sectos. This "snapshot" povides a baseline fo monitoing pogess. The methodology is most effective when epeated on an annual o semi-annual basis so that it can identify investment tends and eveal aeas of declining o inceasing competitiveness in a county. It selects the pimay counties and specific sectos. The selected counties and sectos ae the object of in-depth eseach into the maco, mico, quality and cost chaacteistics of thei business envionments. The eseaches may also choose "compaato" counties that have achieved a level of success in one o moe of the subject sectos. Compaisons can then be made among the pimay counties, and among the pimay and "compaato" counties. Within the EBP famewok, the data obtained in the Afghanistan study may be incopoated into futhe compaative analysis of: (1) Afghanistan and its neighboing counties, (2) Afghanistan and egional and/o global leades in the fou subject sectos, and (3) Afghanistan's business envionment at the time of the study and that at some late date. It depends both on desk eseach and on field wok, seconday souces as well as pimay souces of infomation. The methodology equies that the analysts eseach county-specific infomation in intenational seconday souces as well as obtain infomation diectly fom the investos opeating in the county and othe local souces of infomation in the county o counties to be studied. INVESTMENT HORIZONS: AFGHANISTAN 19

20 It is geogaphically limited. Conditions within a single county can vay widely, and choosing five companies fom diffeent egions, especially fo a county as lage and divese as Afghanistan, may dilute the usefulness of the data. Theefoe, the benchmaking methodology is geneally limited to a adius of 20km fom the capital city. This study was limited to fims with offices in Kabul and its suounding aea except whee companies fo the chosen sectos wee only available outside this egion. Fo example, mining activities ae caied out in aeas thoughout Afghanistan, so the consultants wee equied to inteview company epesentatives of mining companies with opeations outside Kabul. In addition, the EBP methodology can povide diect suppot to local investment pomotion agencies in the following ways: It identifies sectos whee the county o egion has a stong competitive position, elative to its competing sites, and theefoe should be pomoted; It assesses the site s stengths and weaknesses fo inwad investment in paticula sectos; It identifies key policy aeas that need impovement and should theefoe be the focus of the IPA s lobbying effots; It assists an IPA in developing secto-specific key selling messages to attact inwad investment; and It povides IPAs with specific infomation that is fequently equested by potential investos. Data Gatheing The data used fo the benchmaking model is gatheed fom thee types of souces: Company inteviews: The bulk of the infomation is gatheed though company inteviews using a suvey. The suvey equests both quantitative and qualitative infomation and identifies the motivating factos behind the investo s decision to locate at that site. Five to ten companies pe industy ae inteviewed in each county being benchmaked. Foeign investos ae usually inteviewed, but in the absence of foeign investos, local investos ae often suveyed. Pefeence is given to the leading companies in each industy. Intenational souces: Desktop eseach is used to gathe impotant data fom intenational souces such as Euomoney s County Risk Poll, Tanspaency Intenational s Couption Peception Index, and macoeconomic statistics found in the Wold Bank s Wold Development Indicatos. Local souces: Local souces such as tax specialists, eal estate agents, constuction companies, govenment ministies and utility povides povide infomation equied by the methodology such as local tax ates, typical ental and land puchase ates, and electic powe and wate costs. This infomation is ideally gatheed in-county. All data must meet thee citeia: (1) Cedibility of the souce all infomation should be fom a espected and eliable intenational o national souce and coss-checked against othe souces; (2) Compaability of the data-point acoss locations; and (3) Updateability, that is, eseaches should be able to etun to the souce afte six months o a yea to obtain cuent infomation. Fo the Afghanistan study, expatiate Afghan investment was consideed to be foeign diect investment. Given Afghanistan s post-conflict eality, FDI was not pesent in cetain sectos (e.g., capets and textiles), and in anothe secto, the 20 INVESTMENT HORIZONS: AFGHANISTAN

21 majo playes wee local investos (food pocessing). At the time of the inteviews, only in the tanspot and logistics secto was thee a numeically significant numbe of foeign investos. This was due in pat to the pesence of intenational oganizations and the militay in need of supplies. Finally, in the mining secto vey few duly egisteed companies ae opeating, given that the industy is dominated by failing state owned entepises (SOEs) and indigenous mico-entepises, so the sample size fell shot of the nom. The Pocess The fieldwok fo the Afghanistan study was conducted in mid-decembe 2004, following seven days of pepaatoy time, document eview, and coodination with AISA. Fieldwok was conducted by a team of consultants fom The Sevices Goup, Inc., in conjunction with two local consultants, who wee engaged to assist in completing the study and in gatheing equied data in Afghanistan. The field eseach yielded the following inteviews: Tanspot and logistics Twelve companies including feight fowades, ai, sea, and land tanspotation companies, small package and document delivey companies, pocuement and supply companies, and povides of waehousing and distibution sevices Food and beveage pocessing Out of the a total of seven companies inteviewed, thee wee died fuit and nut pocessos, two distilled wate bottles, one soft dink bottle, and one was a vegetable oil poduce Capets and textiles Ten capet manufactues/tades Mining Of the thee opeating mineals elated companies in Kabul, one was a mineals manufactue and two wee end-uses of locally mined mateials. In addition to company inteviews, the consultants met with numeous othe stakeholdes to gathe infomation on the geneal investment envionment, business constaints, and legal and policy issues as well as to collect documents gemane to the study. INVESTMENT HORIZONS: AFGHANISTAN 21

22 22 INVESTMENT HORIZONS: AFGHANISTAN

23 Chapte III: Results Oveview of Foeign Investment in Afghanistan The esults pesented heein ae dawn pimaily fom the data gatheed though the suvey inteviews with fims opeating in Afghanistan in the fou sectos examined. As well, seconday souces, including pevious Wold Bank and othe studies, and inteviews with a wide aay of othe stakeholdes infom the analysis. Challenges The post-taliban Govenment of Afghanistan (GoA) and its intenational patnes have made geat stides in speaheading econstuction, jump-stating the economy, esettling thee million efugees and intenally displaced pesons, and developing a policy and egulatoy famewok to suppot pivate investment. Indeed, appeciating the geat pogess made in Afghanistan in the past thee yeas equies an undestanding of the depths of the county s economic, political, and social decline duing the wa yeas. Emeging out of some 23 yeas of civil stife and isolation, Afghanistan emains one of the pooest counties among the Wold Bank s membeship. By 2002, its infastuctue and poductive assets wee lagely destoyed o degaded though neglect, moe than five million Afghans wee living as efugees aboad, 2 and a geneation had emeged with poo access to education, healthcae, and the othe essentials to pomise a healthy and poductive life. The Wold Bank estimates that seven million people emain vulneable to hunge and many odinay citizens ae dependent on humanitaian aid. With ates unning as high as 50 pecent in Kabul and even highe outside of the capital, unemployment and undeemployment emain majo poblems in Afghanistan. Goss domestic poduct (GDP) is estimated at US$4.7 billion, which tanslates to a GDP pe capita of about US$212 pe yea. 3 The Wold Bank estimates that non-dug elated GDP gowth ates, coming fom a vey low base in 2001, have isen by 45 pecent ove 2002 and Table 3-1: Afghanistan at a Glance GDP (2003) US$4.7 B GDP pe capita US$212 GDP gowth (2003) 27 % GDP by shae: Agicultue 52 % Manufactuing 26 % Sevices 22 % Inflation (2003) 5.2 % Population (2003) 22.2 M Wokfoce (2001) 11.8 M State evenues (2003) US$200 M State expenditues (2003) US$550 M Electicity consumption (2001) million kwh Licit expots (2002) US$98 M Impots (2002) US$1.007 B Male life expectancy (2003) Female life expectancy (2003) Souces: AISA, U.S. Depatment of State, Afghanistan Pofile, With much success, dono assistance has been mobilized to help etain pesonnel, estuctue institutions, and efom the policy making pocess, but the govenment is just eaching the point when it can manage basic state functions like collecting taxes and contolling its bodes. This has been accomplished in the context of nealy a quate centuy of stife and isolation duing which Afghanistan s govenment lagely lost the ability to povide public sevices. The newly econstituted govenment is still chaacteized by weak institutions, poo pesonnel pefomance, and a tendency to evet to outmoded command-and-contol style decision making, but intenal efoms have set the civil sevice on the ight path towad deliveing efficient sevices. Given this situation, thee is a widespead consensus that pivate secto-led economic gowth is citical to poviding Afghanistan with the employment and evenue base to enable the county to function without massive inflows of dono assistance. Wisely, pivate secto development was ecognized as a coe goal in INVESTMENT HORIZONS: AFGHANISTAN 23

24 The Natue of the Infomal Secto in Afghanistan One facto in Afghanistan s post-conflict tansition is the infomal natue of much of the economy. As the state s ability to egulate and monito the pivate secto collapsed duing the wa yeas, Afghans elied on a ange of infomal activities fo thei suvival. Data on the size and chaacteistics of the infomal secto ae had to gathe in any economy, but paticulaly so in as lage and ual a county as Afghanistan. Howeve, infomal secto activity can be seen in vitually all sectos of the economy, including agicultue, small-scale mining, and tading. While the Ministy of Commece and AISA have egisteed some 9,000 companies since 2002, Ministy of Finance advisos estimate that fewe than 10 pecent of companies pay income taxes and only 3,000 fims have eceived a tax identification numbe. In Afghanistan the illicit cultivation of poppies fo opium and heoin poduction epesents a lage shae of the infomal secto, accounting fo 35 pecent of national GDP by Wold Bank estimates. (continued on next page) the county s 2002 National Development Famewok (NDF). In the NDF, the govenment expessed a clea commitment to developing a competitive expot-oiented pivate secto and to adopting policies and pogams that enable the pivate secto to be the county s engine of gowth. While taditional entepeneuism is notable among Afghan fims afte yeas of opeating in exile o beyond the contol of laws and egulations, the Afghan pivate secto can be chaacteized as small in scale, lagely infomal, and unable to compete in the global maketplace. Theefoe, a cental stategy to facilitate pivate secto-led gowth is to boost fomal investment levels in post-conflict Afghanistan, including investment fom Afghan expatiates and foeignes. As seen in the columns (beginning at left), the infomal natue of Afghanistan s economy poses seveal development challenges. Pospects and Pogess Yet despite the challenges facing pivate entepise, business has come back to Afghanistan and the pace of impovements in the investment climate is notable. As GDP gowth estimates suggest, the economy is gowing apidly, albeit fom a slow pace duing the Taliban yeas. One can obseve a steady impovement in the sevices and goods available, and a few significant multinational copoations (MNCs) have an investment pesence in the county. Thee ae cuently some hidden and tansient advantages to investing in Afghanistan simply because of the failue of the govenment to collect taxes and chage fo public sevices. Fo example, few fims pay taxes except fo customs duties and most dill thei own wells. The MNCs that have invested in Afghanistan ae in the tanspot and logistics secto (DHL), food pocessing (Coca Cola), banking (Standad Chateed Bank, National Bank of Pakistan, Habib Bank Ltd., and National Bank of Punjab), touism (Hyatt Hotels and Seena Hotels), and tade (Toyota Motos and Alcatel Tade Intenational). AISA epots the value of investment at upwads of US$650 million since 2002 fom a total of 25 counties. Accoding to AISA, the lagest investo county is Tukey, with pojects amounting to about US$120 million, followed by Gemany, India, and Pakistan. Amounting to an estimated US$180 million, the telecommunications secto has thus fa attacted the most investment. 5 Table 3-2: Investment Pojects in Afghanistan Secto Investment (in US$ M) Diect Employment Constuction $389 54,800 Sevices $213 4,300 Industy $150 21,000 Ago Business $ Total $ ,635 Souce: AISA. The pimay taget goup of potential investos fo the county is the Afghan diaspoa, which has obvious cultual, family, and histoical ties. Fo the pupose of this study, Afghan diaspoa investment is consideed FDI. Indeed, many of the 24 INVESTMENT HORIZONS: AFGHANISTAN

25 Afghan expatiate entepeneus inteviewed in this study highlighted the desie to play a ole in econstuction of the county as a pimay motivation fo investing. Othe potential souces of investment ae neighboing counties inteested in tade and investment oppotunities, including India, Ian, Pakistan, Tukey, and Uzbekistan. Finally, investos fom othe counties may be inteested in exploing investment potential paticulaly if thei own govenments ae involved in the econstuction and secuity effot in Afghanistan o if they ae inteested in the fist move advantage of establishing a pesence in Afghanistan befoe significant competition. The institutional aangements govening investment have been lagely settled with the ceation of AISA and the cessation of most of the Ministy of Commece s (MoC) issuance of business licenses (usually Tade Licenses ). Accoding to AISA management, appoximately 7,000 companies wee licensed by the Ministy of Commece pio to AISA taking ove business egistation. Since its opening in 2003, 2,000 o moe fims have been licensed by AISA, and AISA is esponsible fo the enewal of the licenses that the MoC peviously issued. Post-Conflict and County-Specific Challenges and Conclusions Fom the point of view of investment pomotion, Afghanistan faces seveal challenges typical of a post-conflict county. A pimay test fo AISA and othe govenment agencies involved with pomoting the county fo investment is in ovecoming the intenational image of the county as a place of povety and violence. To do this, seveal undelying issues must be addessed. Among these ae completing the physical econstuction pocess, shifting fom a socialist mode of govenment, and ceating a viable, multi-ethnic state. These thee poblems ae simila to those faced by othe post-conflict states like Bosnia and Hezegovina and East Timo. 6 But Afghanistan faces additional challenges due to the length of the wa, the county s vast and ual chaacte, the intensity of mine-laying and bombing, insecue ual livelihoods, and continued lapses in secuity and lack of cental govenment contol ove cetain egions. The wa yeas poduced waves of efugees and intenally displaced people, disupting the chance fo a geneation to get a good education o acquie moden technical skills. The stess and pivation of the wa yeas have educed the geneal health of the Afghan people, and today life expectancy emains low (late 40s) by intenational standads. Wafae, dought, and supply chain failues disupted the ual agicultual makets that have been the taditional basis fo Afghanistan s economy, impoveishing many odinay citizens. As in many post-conflict counties, Afghanistan is facing a shotage of skilled wokes and a suplus of unskilled wokes in need of employment. Physical infastuctue has been lagely destoyed and degaded though yeas of neglect. Fo the aveage investo, this tanslates into such issues as inceased costs and delays in shipping and the necessity of puchasing a pivate geneato fo powe. In many cases, public infastuctue such as oads, bidges, powe geneation and distibution assets, and schools ae in need of extensive ehabilitation. Added to this is the pesence of a lage amount of unexploded odinance, which not only extacts a toll on the citizens, but also aises costs and isks associated with cetain economic activities. At the same time, investos in infastuctue sevices will find the oppotunities in Afghanistan potentially attactive. The Natue of the Infomal Secto in Afghanistan (continued fom pevious page) While the infomal secto tends to be highly esponsive and dynamic, infomal secto fims tend to opeate sub-optimally. Indeed, although the local maket has seen vast impovement in the vaiety and quality of goods and sevices offeed by Afghan companies in the past thee yeas, few indigenous fims ae able to compete with intenational ivals. Typically, an infomal secto entepise makes investments that ae shot-tem and highly oppotunistic, allocates scace esouces to evade egulation, and commits only limited capital and time to impove poduction quality. While infomal secto activity can be lucative, many entepeneus expeience significant fluctuations in income and tend to be vulneable to extenal shocks and pedatoy govenment officials. These chaacteizations ae consistent with Afghanistan s infomal secto, but othe poblems ae manifest as well. Investos inteviewed fo the Afghanistan study note that many companies had machiney and othe assets destoyed o stolen duing the wa yeas. The poo state of tanspot infastuctue, multiple fomal and illegal customs posts, and the absence of a functional commecial bank system aise costs and constain gowth. Although less of an issue fo the investos inteviewed in Kabul, in some pats of the county walods and othe illegal goups extot companies and tade is vulneable to bandity and illegal tolls. The wa yeas also epesent a loss in human capacity, access to intenational makets, and management innovation, futhe undemining the competitiveness of the infomal secto in Afghanistan. Souce: TSG inteviews and The Wold Bank, Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, The institutions of govenment have been econstituted but much ongoing wok needs to be done to modenize the civil sevice, which was oganized aound INVESTMENT HORIZONS: AFGHANISTAN 25

26 a command-and-contol philosophy whee the state was diectly involved in unning companies and the pivate secto was constained. Existing civil sevants tend to be of thee types. Many who have impotant institutional memoy and pactical expeience fom staying in govenment thoughout the communist and Taliban eas wee tained in obsolete management and economic systems, some stemming fom the Soviet ea, and face challenges adapting to new oles, methods, and concepts that chaacteize a moden public secto. Younge govenment staff membes, who wee educated in the post-soviet ea, while often bette educated, lack elevant expeience and ae essentially leaning on the job. Many senio manages ae Afghan etunees who bing valuable compaative expeience fom living aboad and good language and educational backgounds, but often lack diect pactical knowledge of how to opeate in Afghanistan today and have no pio govenment expeience. In addition, all govenment agencies face difficulties in etaining good staff due to low salay levels. 7 Coss Sectoal Constaints It is not supising, then, that fom a competitive point of view Afghanistan faces seveal challenges in its quest to attact inceasing levels of FDI. Although many of the following constaints ae impoving o will be impoved by efoms in pocess, cuently they affect business acoss all of the sectos studied to one degee o anothe: Legal famewok fo investment In the aftemath of the collapse of civil society, the legal egime fo FDI emains incomplete and in flux. The pocess fo enacting laws has evolved with the development of the govenment, changing fom the issuance of Pesidential decees to a moe typical pocess equiing Cabinet appoval and paliamentay atification. Pesently, thee is a significant backlog of majo pieces of legislation in the pocess of enactment. A new FDI law has been dafted, but at the time of witing it emains unofficial. Cetain industy-specific investment laws, policies, and tax egimes, including those fo mining, ae not yet complete. A host of othe laws of which investos would need to be cognizant ae also eithe incomplete, not in foce, achaic, o absent, including those fo immigation, social potection, and contact disputes. Most investos suggest that enfocing contacts is vitually impossible in Afghanistan, and the judicial system is egaded as inadequate and vulneable to couption. The many legislative changes poposed ae anticipated to geatly impove the investment climate in Afghanistan. Tax egime and compliance The tax egime emains cumbesome and tax compliance is vey low. Officially, hundeds of nuisance taxes emain on the books at the Ministy of Finance and othe govenment agencies collect a ange of licensing and pemit fees and othe quasi-tax payments. In geneal, company awaeness of tax policy and law is low. Tansitionally, the lack of tax enfocement offes the obvious benefit that many fims pay no taxes othe than customs fees. At the same time, lage fomal companies complain that the moe visible and esponsible companies ae shouldeing a dispopotionate shae of the copoate tax buden in Afghanistan. Customs administation Customs administation is factued, with individual povinces (some only tacitly unde contol of the cental govenment) cleaing goods and collecting a widely diveging amount of customs duties. Repotedly, impotes often pay customs duties moe than once, the full amount of customs evenue does not each the Teasuy, and many fims egad customs officials as a majo souce of ent seeking. Popety maket The ability of investos to puchase o lease land is fustated by a highly nontanspaent popety maket. Title disputes ae common 26 INVESTMENT HORIZONS: AFGHANISTAN

27 and pocedues fo leasing o selling land vay widely. The govenment owns most land in the county and the pivate popety maket woks lagely on a negotiated basis with pices ising apidly. Accessing govenment land seems to be a highly individualized pocess chaacteized by many individual govenment agencies owning, leasing, and selling land in a nontanspaent and inconsistent manne. While AISA is now administeing a new industial estate, the existing supply of tanspaently allocated state land does not meet demand. Fo the time being, foeign investos cannot own land in Afghanistan. Potentially, howeve, if the consideable amount of govenment held land is appopiately pivatized, investos in Afghanistan will have a ange of attactive investment location options. Utility sevices Cetain public sevices, such as wate, powe, and wastewate teatment, ae not yet available. Indeed, few of the fims inteviewed elied on public electicity, waste and wastewate sevices ae vitually unhead of, few oganizations have landlines, and most companies and individuals daw wate fom pivately dilled, unmeteed wells. Thee is a positive consequence of the collapse of state sevices, howeve. Wate costs ae low compaed to most counties whee uses must pay fo wate. Given the absence of state landline sevice, pivate fims ae offeing elatively efficient mobile phone sevices. Secuity situation The impoving secuity situation is educing instability fo investos, paticulaly non-afghan entepeneus. Gadually all the county is being bought unde cental govenment contol, but anti-govenment foces, while significantly weakened, do continue to mount spoadic attacks in majo cities. Financial makets Seveal intenational banks and the Cental Bank povide conventional financial sevices to business, but standad financial poducts such as commecial loans and expot financing ae not yet available in Afghanistan. None of the investos inteviewed, fo example, boowed fom banks and none wee awae of any banks that offe commecial loans. As a esult, business finance is constained and most loans seem to be infomal secto tansactions between family and fiends. The taditional and quasiinfomal banking system (hawala) also seves the financial needs of many odinay Afghan businesses. Infomal economy The Wold Bank estimates that Afghanistan now poduces 87 pecent of the wold s illegal opium, which, including opium pocessed into heoin and mophine, contibutes oughly one-thid of estimated total national income. 8 Such lage illegal financial flows, and the violence associated with secuing them, ceate numeous pessues on Afghan society and govenance. The opium tade also ceates maket distotions that aise fom laundeing dug poceeds, such as inflation in the pice of assets like land. Finally, the suvival of the dug tade depends on the lack of effective state contol ove teitoy and bodes, theeby undemining clean, efficient govenment. Inteviewee Composition The Afghan business landscape is unique in that many companies have only begun opeating in the last 12-month peiod. In the food and beveages secto, fo example, thee ae cuently no soft dink bottles opeating, and even bottled wate was impoted until this yea when some wate bottles began opeating on a small scale. Although the aisin and died fuit poduces have geneally been aound fo anywhee fom 30 to 60 yeas, most ceased to opeate until two to thee yeas ago, and many ae stating up slowly and have done little moe than send samples to pospective clients in Euope, the U.S., and Russia. Many capet companies fled to Pakistan duing the wa yeas and pivate secto mineals extaction emains technically illegal to date. INVESTMENT HORIZONS: AFGHANISTAN 27

28 Logistics companies ae the exception, and many companies in this secto came to Afghanistan in 2002 afte much of the majo fighting in the county had ceased. They wee able to do this because of the low initial investment and geat flexibility that they enjoy. Many of the logistics companies began functioning at full thottle while woking out of an office in a oom in a guest home o small office, and simply linked the end-use with existing ailines and independent tuckes as a full-sevice povide. Thee ae many capet and textile companies opeating in Afghanistan, and thei size, stuctue, and ange of opeations vay widely. In choosing companies to inteview, we sought fims that wee fomally egisteed, pesently expoting, and, accoding to AISA, among the lagest in the secto. Mining was the most poblematic secto because legal mining companies in the taget aeas ae vitually non-existent. The companies that do exist include a salt manufactue (mostly using salt ock mined in and impoted fom Pakistan), a constuction company with access to quaies and plans to begin poducing bick and tile, and a majo end-use of gemstones. In spite of the newness of these opeations, these entepeneus povided valuable infomation about the opeating envionment that futue investos will find in Afghanistan. They have aleady applied fo pemits, hied constuction companies, in many cases impoted thei aw mateials and sent out samples. This povides cuent infomation on impovements that have been made to the system and obstacles and constaints that still exist. Moeove, many of these investos ae not new to opeating in Afghanistan. The soft dink bottle, fo example, shaed his pespective both as a businessman who has been impoting beveages fo yeas and dealing with customs, the Ministies, and the mothe company in the United States, and as a new bottle who has had to ovecome obstacles in ode to get his bottling facility off the gound. They ae theefoe intimately familia with the ins and outs of doing business in Afghanistan fom seveal diffeent pespectives. Capet tades have a valuable pespective about the opeating conditions and quality of inputs and outputs pe- and postconflict. Cost and Quality Conclusions by Industy Secto Tanspot and Logistics Definition of the Secto. The logistics secto in Afghanistan is chaacteized by a numbe of sub-sectos that ae unique in thei focuses, facility equiements and egulatoy famewok. These sub sectos include: Small package and document handling Land, sea, and ai tanspot Povision of supplies to exempt oganizations and waehousing and distibution sevices Feight fowading, customs cleaance, and tavel agency sevices Most logistics companies in Afghanistan povide only basic sevices while only a vey few povide moe sophisticated sevices such as inventoy management and consolidation and deconsolidation. Desciption of the Industy. The logistics industy is cuently diven by two categoies of goods: those that ae commecial in natue (about 70 pecent of the total) 28 INVESTMENT HORIZONS: AFGHANISTAN

29 and exempt goods that ae being impoted duty-fee by the foeign militay, nongovenmental oganizations (NGOs), the United Nations, Wold Bank, diplomatic entities, the Intenational Secuity and Stabilization Foce, Noth Atlantic Teaty Oganization, and othe non-commecial entities. The exempt goods compise appoximately 30 pecent of the total. Ai tanspotation is obust and diven both by commecial and exempt goods. Afghan ailines such as Aiana, Kam Ai, and Pami Ai and Ianian Ailines, Mahan Ailines and Kish Ailines, all convey people and cago in and out of the county. The UN has its own fleet of aiplanes and is also active in tanspoting people and cago elated to dono pojects on a non-commecial basis. Land tanspot in Afghanistan is hampeed by difficult teain and poo oad conditions, although the govenment is making headway in impoving them. The Main Road in the southen half of Afghanistan and the Ring Road in the nothen half fom the majo netwok of highways though Afghanistan. Repais ae cuently undeway in seveal potions and the Main Road is in bette condition than that Ring Road. Of all oveland tanspotation, 60 pecent is to o fom Pakistan, yet the majo oad between the two counties (Kabul-Jalalabad-Tokham) is in poo condition. An additional 30 pecent of land tanspotation comes though the Ianian bode and a combined 10 pecent though Afghanistan s bode with the Cental Asian epublics to the noth. 9 As Afghanistan is landlocked, it depends on the Pakistani seapots of Kaachi and Gwada and the Ianian pots of Banda-e Abbas and Chah Baha fo its sea tanspotation. The tansit ageements with Ian and Pakistan ae, howeve, seveal decades old and basically inopeative. Thee is no netwok of ailoads cuently opeating thoughout Afghanistan, howeve a system of ailoads begins 10km to the south of the bode with Uzbekistan in Hayatan and 10km south of the bode with Tukmenistan in Tughondi fo tansit of goods to and fom those two counties by ail. SWOT Analysis. A SWOT analysis is extemely helpful in seeing a potential investment location fom the investo s pespective and fo identifying key maketing themes. Fo the puposes of this analysis, stengths and weaknesses efe to the advantages and disadvantages inheent to the location (Afghanistan). The govenment o pivate industy ae often able to contol, modify o impove these factos, o at least significantly influence thei outcome. Theefoe, fo example, an incomplete legal famewok fo investment o low tax compliance would fall unde the categoy of weaknesses because they ae cuently inheent disadvantages to doing business in Afghanistan, and yet ae to a lage degee within the aea contol of the govenment. Pefeential tade access to key makets would be a stength because it constitutes an inheent advantage to doing business in Afghanistan fo cetain industies, and the GoA is able to influence tade though negotiations with its patnes. This is also a potential maketing theme, as the GoA can possibly attact moe investment by making investos awae of these pefeential ageements. Fo this secto, most majo opeating costs could be captued in thee categoies to ceate a epesentative aveage cost stuctue. Popety costs, most commonly lease expenses fo a building (waehouse) and an office, epesent the lagest expense categoy. On the othe hand, oppotunities and theats efe to those extenal factos that ae outside the ealm of contol of the govenment o pivate secto in Afghanistan, and yet must be consideed when taking futue action because of thei potential impact on industy. Fo example, a gowing woldwide maket fo health and convenience foods pesents an oppotunity fo the pocessed food and beveage secto of Afghanistan. It is extenal in that thee is little that Afghanistan s govenment o pivate secto can do to influence this woldwide tend, but the tend may geatly impact Afghan industy if companies in this secto ae able to supply niche makets INVESTMENT HORIZONS: AFGHANISTAN 29

30 in the health and convenience food industy. Finally, gowing woldwide secuity concens may pesent a theat to Afghanistan s tanspot industy in the futue if it is not sufficiently equipped to meet these gowing secuity demands. Afghan Tanspot and Logistics at a Glance Railways Total extension: 24.6 km Boad gauge: 9.6 km m gauge fom Gushg (Tukmenistan) to Towaghondi; 15 km m gauge fom Temiz (Uzbekistan) to Kheyabad tansshipment point on south bank of Amu Daya (2001) Highways Total extension: 21,000 km Paved: 2,793 km Unpaved: 18,207 km (1999 est.) Wateways Total extension: 1,200 km (chiefly Amu Daya which handles vessels up to 500 DWT) Ocean Seapots None Aipots Paved unways: 10 Unpaved unways: 37 Souce: AISA. The following SWOT analysis is based pimaily on inteviews with twelve companies in the logistics and tanspot industy in Afghanistan. The inteviews poduced valuable insights into opeating conditions in Afghanistan and sometimes unanticipated esults. Fo example, while some companies viewed Afghanistan s lack of a seapot as a disadvantage because of dependence on neighboing counties and inceased delivey times, six indicated that the county s landlocked condition eithe had no impact whatsoeve on thei businesses o was actually advantageous as it obligated thei client companies to use both thei tucking and feight fowading sevices to get thei poduct to a pot. The latte said that it allowed them to do what they do best move goods and people acoss bodes at a pemium pice. Theefoe, Afghanistan s lack of a seapot is listed hee as both a weakness and an oppotunity. The following stengths and weaknesses of the Afghan logistics industy emeged fom the benchmaking execise: Stengths Little o no competition and fetile gound fo new ideas Because of the difficulties of Afghanistan s ecent past, investment levels ae still low and companies poviding logistics sevices ae enteing into the maket slowly. It is significant that of the 12 logistics companies inteviewed, only one was in existence befoe Many logistics and tanspotation povides will find vigin teitoy fo thei sevices, and companies offeing moe sophisticated logistics sevices will find especially fetile gound fo new ideas. Steady demand Foeign assistance in the fom of financing and povision of lage equipment fo impoving the infastuctue and machiney of all kinds should continue fo yeas to come at its cuent level. The volume of tanspot fo commecial goods is almost double that of the dono community and should gow as development levels incease. This means that demand fo logistics sevices should emain stable and even incease in the medium and long tem. High pofit magins The logistics companies opeating in Afghanistan that wee inteviewed fo this study epoted that they had begun with a modest initial investment of only a few thousand o tens of thousands of dollas and ae making hundeds of thousands o even millions in etun. Many function fom a hotel oom o single-oom office and ae moving vast quantities of goods with little ovehead. As conditions impove and othe tanspot and logistics companies ente the maket, these pofit magins will fall. In the medium tem, howeve, they should emain high and give poweful incentive to new entants into the maket. Quickly-developing telecommunications infastuctue Companies poviding sevices on which logistics activities depend ae quickly enteing the maket. Fo example, at least thee povides of intenet links by satellite have just ecently begun to offe thei sevices, and moe ae eady to ente the maket. This will enable logistics povides to move into moe sophisticated aeas in the nea futue. As competition in telecommunications gows, pices will dop. Inceased political stability Recent successes with the geneal elections and the pomise of continued public secto stability stengthen the foundations of a pedictable and well-functioning logistics industy. 30 INVESTMENT HORIZONS: AFGHANISTAN

31 Weaknesses Poo oads Only about 65 pecent of the main cicuit of highways compising the Afghan oad netwok is in good condition, and the main tansit oad fo goods to Pakistan, Afghanistan s most impotant tading patne, is in disepai. Abitay oad closings Many companies inteviewed expessed dismay that majo highways wee fequently closed without pio notice fo secuity puposes and emained closed fo as long as seveal days. This makes both planning and timely deliveies difficult and inceases tanspotation costs. Unloading and eloading at the bodes All goods coming into Afghanistan must be offloaded fom the tucks o containes that bought them to the bode and eloaded onto Afghan tucks. Thus, the impote incus exta costs of paying wokes fo the offloading and loading, sending anothe tuck to the bode to pick up the goods, and damages esulting in the pocess which some impotes estimate to be as high as 20 pecent of total goods. Poo condition of tucks Most tucks used in oveland tanspot in Afghanistan ae used tucks impoted fom developed counties and ae often bought in extemely poo condition. Moeove, thee is little maintenance of vehicles and spae pats ae often had to find and expensive. Theefoe, tucks often beak down en oute causing delays and inceased tanspotation costs. Illustative Customs Cleaance Challenges Impotes and logistics companies epot having difficulties in binging new poducts into the county fo which thee is no established pocedue. One thid-paty logistics (3PL) povide was pocessing the impot fom Kazakhstan of steel blocks fo a client company. As thee was no established ageement with Kazakhstan fo this paticula poduct, the shipment emained at the bode fo a month while a special pemit was being obtained fom the Ministy of Finance. The client company was equied to pay a penalty of US$2500 pe day duing the month that the shipment had been detained, and infomed the 3PL povide that it would have to assume any simila costs in the futue. Lack of a seapot Many pivate industy epesentatives see Afghanistan s lack of a seapot as a majo obstacle fo industy in the county. It means that Afghanistan is dependent on the coopeation of its neighbos that do have seapots, has highe costs of tanspotation, and cannot pomise fixed delivey times to oveseas customes. Difficulties with customs Although the Afghan customs authoity has automated many of its pocesses, the system is not integated and is faily limited in what it is able to do. Also, thee ae multiple customs checks (not all of them official) once goods have enteed Afghanistan s bodes, and the cuent pocedue equies that all tucks be cleaed at once fom a cetain bill of lading. Theefoe, if one tuck falls behind in a convoy all tucks ae held up in customs, and in Kabul they incu a customs chage of US$100 pe tuck pe day afte one day of fee stoage. Poducts fo which thee ae no established pecedents can be detained fo weeks o even months befoe special impot pemits ae obtained. Abitay ules and egulations in the Afghan countyside The cental govenment s authoity is limited in cetain egions of the county, so local walods ae accustomed to imposing abitay taxes and customs chages on oveland tanspot. Poo electic infastuctue and high costs Sophisticated logistics sevices equie eliable telecommunications and inventoy management systems, and these depend on a eliable electic infastuctue. All of the logistics companies inteviewed elied on a back-up geneato fo at least some of thei opeations, and fou of the most impotant foeign companies said they eithe had no municipal powe at all o depended 100 pecent on thei own pesonal geneato. Electic powe costs in Afghanistan ae theefoe extemely high. Unpedictable costs Cetain ates that have fixed taiff schedules in most counties the costs of fixed telephone lines and electic powe ates, fo example ae all negotiated in Afghanistan between the pivate company and a govenment functionay on a case-by-case basis. This leads to abitay costs and a lack of pedictability. This is especially tue fo telecommunications, which affects INVESTMENT HORIZONS: AFGHANISTAN 31

32 logistics and tanspot companies, because quick, eliable communications ae cucial to thei businesses. One View on Being Landlocked Difficult access to insuance fo shipments Companies inteviewed infomed the eseaches that they ae not able to obtain insuance fo thei shipments. This not only constitutes an obstacle to the development of logistics in the county, but is also a majo disadvantage to most of Afghan industy. One feight fowade who has been functioning in Afghanistan fo thee yeas said that he sees oppotunity fo Afghanistan as a land bidge, athe than as landlocked. Oppotunities Afghanistan s stategic location as a land bidge in the egion Afghanistan is stategically located between the landlocked counties to the noth Tukmenistan, Uzbekistan, and Tajikistan and the Ianian and Pakistani seapots to the south, as well as between potentially lage tading patnes such as Ian and India. Afghanistan is well-poised to become a majo tansit hub between these stategic locations. Lack of a seapot While some companies saw the lack of a seapot as being a majo disadvantage, thee of the logistics companies said that Afghanistan being landlocked has no impact whatsoeve on thei business and thee othes said that it was advantageous to them, because it gave them an oppotunity to povide tansit sevices at a pemium pice. One feight fowade who has been functioning in Afghanistan fo thee yeas said that he simply sees Afghanistan as a land bidge athe than landlocked." The equiement fo customs agent cetification Facilitatos and expeditos fo getting goods though Afghan customs ae commonly used. The new customs code which is expected fo issue in 2005 will epotedly equie all customs cleaance agents to go though a fomal, standadized taining pocess and be licensed as customs cleaance agents. Companies poviding customs cleaance sevices (among othes) that wee inteviewed expessed eluctance to invest the time and money in sending thei agents though this taining. This opens the doo to othe companies wishing to povide these sevices and willing to tain and cetify customs agents on a lage scale. Requied impovements to the tanspotation infastuctue Afghanistan s tanspotation infastuctue, especially oveland tanspotation, still beas the scas of yeas of conflict, and equies significant impovement. While constuction is cuently undeway, the scope of wok equied will mean vast oppotunities fo constuction companies fo many yeas into the futue. This need fo the impotation of constuction mateials, machiney, and equipment in tun ceates steady demand fo tanspot and logistics companies. Theats Woldwide secuity consideations The secuity situation woldwide pomises to make fee-flowing logistics moe complicated. Expots fom counties such as Afghanistan ae likely to eceive exta scutiny, theeby inceasing the delay and bueaucacy associated with tade. Pessues to modenize Woldwide advances in telecommunications, the dependency of the logistics industy on technology and eal-time infomation, and the equiements of customes will put pessue on Afghanistan to modenize its communications and logistics infastuctue. If Afghanistan is not able to do so quickly enough, gowth in Afghan logistics may suffe. Out-of-date ageements with Pakistan and Ian As a landlocked county, Afghanistan depends on the coopeation of its neighbos with seapots. The cuent 32 INVESTMENT HORIZONS: AFGHANISTAN

33 tansit ageement with Pakistan was adopted in 1965 and specific povisions have eoded to such a degee ove the yeas that they ae vitually inopeative. Ian and Afghanistan have signed a Memoandum of Undestanding on tansit, but many issues emain unesolved, such as the inability of Ianian tucks and containes aiving at Ianian sea pots to ente Afghan teitoy. Both Ian and Pakistan have a daft of poposed ageements, but neithe has been appoved no is thee a pojected date of appoval. Gowing congestion in pots and inland supply chains The ecent phenomenon of congested pots woldwide and backups along the supply chain have pesented challenges fo logistics opeatos. This may esult in inceases in oveall opeating, technology, and administative costs, and will equie a geat deal of flexibility fom Afghan logistics povides. Food and Beveage Pocessing Definition of the Secto. Cuently, the pocessed food and beveage secto in Afghanistan is limited to a small goup of companies poducing died fuits and nuts, bottled wate and vegetable oil. Soft dinks which ae impoted at the pesent time ae soon to be bottled in Afghanistan. Most othe food and beveage poducts fo consumption in the local maket ae impoted fom aboad. Desciption of the Industy. Most food and beveage poduces in Afghanistan have only ecently begun opeating. They ae eithe beginning poduction again afte a decades-long hiatus, such as in the died fuit and nut industy, o they ae meeting demand in the maket that is cuently supplied by impot poducts, such as in the bottled wate, soft dink and vegetable oil industies. The died fuit industy includes aisins, apicots, mulbeies, and plums. Nuts such as almonds and walnuts equie skilled pimay pocessing and ae theefoe included in this categoy. The died fuit and nut industy in Afghanistan is pimaily a cottage industy. Fo example, aisin tades o expotes wok though an agent who is in chage of soucing the aisins fom villages acoss the county. The aisins ae gatheed eithe in facilities close to the villages o ae bought diectly to Kabul fo cleaning. In Kabul thee ae specialized cleaning centes specifically designed fo died fuit. The facilities and equipment ae ented to the aisin tades who, fo a fixed pe-kilogam pice, bing thei own pesonnel to the centes to un the equipment and use the facilities. Once they have been cleaned, the aisins ae bought to maket eithe in Afghanistan o outside the county. Raisins dominate this industy as the lagest economic hoticultual cop in Afghanistan, its pimay expot commodity, and a taditional Afghan industy that accounted fo 60 pecent of the wold aisin maket in the 1960s and 1970s. Thee ae 32 aisin pocessing plants in all of Afghanistan, only eight of which may cuently be opeable, and among those ae some tades who have only sent samples to pospective clients aboad. The main tades and pocessos ae not in Afghanistan, but athe ae located oveseas. Afghanistan s vegetable oil demand was supplied by impots until ecently. Now, thee ae seven vegetable oil pocessos in Kunduz and one lage one in Kabul. The beveage industy has been slow to develop afte 2001, and only two wate bottles have ecently opened in Kabul. Until now, the demand fo soft dinks has been entiely met though impots, but both Coca-Cola and Pepsi ae planning on opening lage bottling plants in Afghanistan in INVESTMENT HORIZONS: AFGHANISTAN 33

34 Fo this secto, most majo opeating costs could be captued in thee categoies to ceate a epesentative aveage cost stuctue. Tanspotation costs ae excluded. Although most of the suveyed fims in this secto own thei own popeties, the stuctue assumes a difficult maket fo acquiing suitable popety, and theefoe, popety costs eflected hee ae fo the lease expenses of a factoy building. SWOT Analysis. Inteviews with seven companies in the pocessed food and beveage industy in Afghanistan thee aisin poduces, two wate bottles, a poduce of vegetable oil, and one soft dink impote (pogammed to begin bottling in 2005) evealed many unique aspects of the industy. A moe advanced industy development had been expected, especially fo the died fuit and nut industy. Raisin poduces in Afghanistan ae actually aisin tades o expotes, and most of them employ an agent who goes fom village to village soucing the aisins. Raisin poduction itself is vitually a cottage industy pefomed in pivate homes and small villages. The following stengths, weaknesses, oppotunities and theats emeged fom these inteviews: Stengths Fist Move advantages As little is cuently poduced in Afghanistan in the food and beveage industy, companies that establish poduction o bottling opeations ae well-poised to eap geat benefits as the fist domestic supplies of thei poduct as well as lowe tanspotation costs than thei competing impotes. Afghanistan s band name Afghanistan has seveal makets to which it has taditionally expoted such as Russia, Pakistan, UK, Canada, and Gemany. Even afte yeas of low expots, its died fuits and nuts still enjoy a eputation fo quality. Afghan aisin expotes ae banking on the assumption that they can eopen these makets, and indeed they have aleady begun sending containes of samples to clients in these taditional buye counties. Poximity to low-cost aw mateials Afghanistan s aid to semiaid climate and hot summes ae paticulaly good fo cultivating a lage vaiety of fuits and vegetables that can be died, canned, o othewise pocessed. Afghanistan also has good suface wate availability at 2,480 m 3 pe capita annually as compaed to the Cental Asian Republics and Ian, which have about 1,430 m 3 pe capita annually. This means that Afghanistan could develop lowe iigation costs as compaed to those counties. 10 Poximity to lage makets Some of the most populous counties of the wold including India and Pakistan ae in close poximity to Afghanistan and constitute natual buye makets fo Afghanistan s poducts. Taditional fuit poducts aleady have an outstanding eputation in India which could, with some maketing, extend to othe food and beveage poducts. Stong intenational suppot fom the Afghan diaspoa Afghans woldwide ae stategizing on how to invest fom thei home base aboad, and many have aleady taken the step of investing. Not only will they invest in the food and beveage industy, but they may also povide a eady-made buye maket fo Afghan ethnic food and beveage poducts oveseas. Taditional skills in the labo pool The died fuit and nut industy is a taditional industy in Afghanistan, and thee is still consideable know-how in the labo pool. Lage numbe of etuning Afghans Afte the yeas of conflict, Afghans ae etuning to the county in lage numbes. Although this may mean that the cuent infastuctue is unde some stain to absob this influx, thei skills gained in othe counties (how to un a business, how to poduce to intenational standads, etc.) ae now etuning to Afghanistan and will be utilized in this industy. 34 INVESTMENT HORIZONS: AFGHANISTAN

35 Weaknesses Tanspotation and logistics difficulties Poo oads and abitay oad closings, lack of a sea pot, delays at customs, local politics in the countyside, and the absence of tade and logistics ageements with neighboing counties all militate against the quick tanspot of peishable food and beveage poducts aboad and within the county. The need to unload and eload poducts fom one tuck to anothe at the bode lends itself to futhe delays and damage to the poduct. Also, only a few companies ae cuently offeing cold tanspotation sevices. Lack of govenment standads Thee ae few contols in this industy and thee is a geneal absence of witten standads, inspections, pice suppots and technical assistance. Envionmental conditions Cuent tades lament the lage quantities of dust, sulphu and othe toxins in the ai and wate, a fact which has been confimed though laboatoy tests. Died fuits can equie two to thee washings which can deteioate thei quality. Even the wate used to wash them is sometimes not sanitay. Lack of Peishable Expot Capacity The lack of a seapot is a majo obstacle to getting peishable food and beveage poducts fesh to thei buye destinations. A soft dink bottle estimated that it could save 25 pecent in total costs if Afghanistan wee not landlocked. No laboatoies fo testing and inspection Until now thee have been no laboatoies with a capacity fo testing and inspection of food and beveage poducts, much less fo issuing an intenationally-ecognized cetificate of inspection (the RAMP pogam is now funding a laboatoy to open in 2005 in the Ministy of Commece Expot Institute.) Below-standad pactices Especially the died fuit and nut industy is chaacteized by poo cultivation and havesting pactices, poo tanspotation, substandad dying pocesses, lack of both knowledge and inputs, and deficient packaging. Uneliable and expensive electic powe Voltage vaiations ( bownouts ) damage equipment and inteupt poduction pocesses subjecting peishable food and beveage poducts to spoilage o significantly educing thei shelf-life. Of the seven companies inteviewed in this industy, five had no public powe and wee incuing high geneato costs, and those with public powe epoted that bownouts wee constant duing the five days of the month when powe was available. Lack of appopiate stoage facilities Raisin agents have complained that thee ae few adequate stoage facilities to maintain aisins in a contolled envionment. Aging equipment In the died fuit and nut secto, most poduces have not invested in equipment since the Taliban came to powe, meaning that the cuent equipment is old and obsolete in many cases. No financing fo small and medium-sized entepises (SMEs) Little financing is cuently available fo SMEs in Afghanistan, and as many of the companies in this industy, especially the died fuit industy, fall into this categoy, they eceive little financial help. No Lette of Cedit (L/C) mechanism The financial industy in Afghanistan is cuently in its infancy and thee is no lette of cedit mechanism available. Theefoe, all tansactions must be done by wie tansfe, which is still vey isky in the county. Reluctance to change taditional pactices Afghanistan is one of the last gapegowing egions in the wold not to adopt the gape tellis as the foundation of its standad poduction. This coupled with the fact that fesh gapes eceive up to thee o fou times moe money fo the same weight in aisins discouages aisin poduction. INVESTMENT HORIZONS: AFGHANISTAN 35

36 Oppotunities Woldwide gowth in the oganic food secto Oganic food, both pocessed and unpocessed, is one of the fastest-gowing sectos in the food and beveage industy woldwide. The maket fo oganic fuits and vegetables has gown 65.5 pecent ove the past two yeas, and fast gowth is also pedicted fo the coming yeas. These oganic poducts can be sold at a pemium pice. Afghanistan s eliance on taditional methods of agicultue may be an asset as poduces seek to identify and develop oganic niche poducts fo expot. Woldwide gowth of convenience and pe-packaged foods Busy consume lifestyles, especially in industialized counties, ae having a majo impact on pepaed foods. Maketing focuses on messages such as ease of pepaation and new and moe convenient packaging. Within the convenience food secto, thee ae almost limitless possibilities fo filling niche makets. Woldwide gowth of pepaed ethnic foods A moe mobile woldwide population and immigation have led to a woldwide inteest in ethnic foods. These foods ae inceasingly tanspoted acoss bodes in feeze-died, fozen o vacuum-packaged fom. The Afghan diaspoa is a natual taget of Afghan ethnic food pepaed in Afghanistan fo expot. Lage and gowing local population With an estimated 28 million inhabitants, Afghanistan is, in itself, an attactive maket fo investos, and both it and its neighbos ae gowing quickly. The fact that most pocessed food and beveage items ae cuently impoted into Afghanistan to meet local demand means that thee is an enomous oppotunity in this industy fo poducing in-county. Tade ageement between Afghanistan and India In Mach 2003 these two counties signed a tade ageement in which India ganted pefeential impot duties to Afghan geen, black, golden and ed aisins (50 pecent duty instead of the usual 105 pecent MFN duty). Gowing fuit juice maket of Afghanistan - Cuently no juice poduction is taking place in Afghanistan, and yet this is the lagest and fastest gowing industy subsecto fo pocessed food in Afghanistan. Impot volumes just fo fuit juices stand at about US$20 million a yea with an estimated yealy gowth of 15 pecent. 11 Multiple oppotunities at all stages of poduction exist fo Afghan supplies, including cushing, pessing, pasteuization, filtation, filling, and packaging. The main flavos ae mango (35 pecent), sou chey (25 pecent) and apple (30 pecent) with oange, pomeganate, gape and pea compising the est. Lage wold maket fo died fuits and nuts The maket fo aisins, pistachios, almonds and walnuts woldwide is lage: US$2.2 billion o 1.3 million tons. Afghanistan is cuently only poviding 2 pecent of this woldwide maket. Theats Westen food industy makets equie pedictable delivey schedules If Afghanistan is to sell consistently to Westen makets, it must impove its logistics infastuctue and its own consistency of poduction to become moe eliable. Also, cold stoage and tanspotation ae often equied in this industy, but only one o two logistics companies in Afghanistan ae cuently poviding this sevice. Competition fom China and India China is the top poduce woldwide of fuits and vegetables with a 15 pecent and 43 pecent maket shae espectively, and India is the second poduce at 8 pecent and 10 pecent of the maket shae. 36 INVESTMENT HORIZONS: AFGHANISTAN

37 Pices and pot access in both these counties make thei poducts highly competitive. The Afghan food and beveage industy will have to compete diectly with the industies of these two counties. Lage volume supplies in Westen makets Afghan aisins ae typically puchased by agents in smalle quantities fom villages and may not be able to delive the quantities equied by Westen makets without fundamental changes in the supply chain. A satuated aisin maket The aisin maket is satuated woldwide and has emained elatively stagnant fo the last few yeas at about 400, ,000 metic tonnes a yea. Subsidies in competing counties Counties such as Ian, which will compete diectly with Afghanistan, enjoy substantial subsidies fom thei govenments, especially in the aisin industy. Moe stingent equiements fom intenational makets Both cuent and futue EU equiements make sales into the EU of lowe-quality, low-piced food and beveage poducts vey difficult. Afghanistan s food and beveage poducts may not be able to meet these inceasingly stingent standads. Even Russia, which is a taditional client maket of Afghan poducts and which had much lowe quality standads than the EU, is now tightening its equiements. Capets and Textiles Definition of the Secto. The capets and textiles secto in Afghanistan is dominated by capet weaving. While thee is some manufactue and sale of othe textiles, including items made fom cotton, wool, silk, and cashmee, this analysis is centeed on capets. Afghanistan poduces seveal types of handmade capets, including felted wool capets (namads), flat non-pile fabic woven capets (kilims), and pile and knotted capets made fom wool, silk, and cotton. Afghan ugs ae often identified by the type of design and ethnic o egional oigin. Textile poduction is lagely small-scale o, as is the case fo cashmee, mostly in unpocessed aw mateials. Desciption of the Industy. The capets and textiles secto is chaacteized by numeous deales o tades that puchase capets fom a netwok of weaves and sell to the final consume. When looking at the Afghan capets and textiles secto, it is impotant to note that thee is a clea distinction between poduces (i.e. weaves) and tades who pefom a vaiety of activities elated to capet poduction and sale. Taditionally, capet weaving in Afghanistan is consideed a means to supplement family income with numeous individuals in a family weaving a capet fo sale. The majoity of weaves ae women in ual aeas. 12 Inceasingly, capet tades will oganize these weaves and pay fo capets to be poduced unde contact accoding to a design odeed by a specific custome o accoding to a popula style. Typically, a lage capet will take between six and nine months to weave. The stuctues of the fims in the capets and textiles secto vay. Many companies ae family un businesses with numeous elatives woking in the business. Fulltime employment at the companies inteviewed anged fom 5 to 180 pesons with epoted stat-up investment between US$8,333 and US$12 million. Seveal of the companies inteviewed had an oveseas office in Pakistan to handle final pocessing and expots. Some have agents oveseas to maket Afghan capets, and othes have sales aangements with established capet shops aboad. The business INVESTMENT HORIZONS: AFGHANISTAN 37

38 is stuctued such that the highest pofit magin is closest to the end custome. Theefoe, the value of the Afghan capet industy could be inceased between two and five times if Afghan companies can finish goods in county and sell diectly to end consumes athe than going though Pakistani o othe intemediaies. Capet vendos povide a ange of inputs and sevices to the individuals who do the actual weaving. Many capet companies povide basic aw mateials, such as wool and dyes, and the desied capet design to individuals who ae unde contact to poduce a ug. Othe capet vendos will povide looms, weaving space, and othe assistance to weaves in addition to the aw mateials. Still othes meely sell finished capets and wok though middlemen to souce the ugs. Today, thee types of poduce-vendo aangements ae pevalent in Afghanistan. The most popula involves a capet tade poviding the wool, dye, and design to a weave up font and negotiating a pice fo the capet based on size and knot density. Estimates suggest that between 50 to 70 pecent of poduces wok this way and the pice paid by the capet tade to the poduce is usually between US$30 to $80 pe squae mete fo the common Chob Rang capets. 13 An estimated 20 to 30 pecent of poduces manufactue capets on cedit with a tade and ente into a pofit shaing aangement. In this system, the tade will povide the aw mateials and design, sell the capet, and then etun a potion of the poceeds afte sale. The thid type of poduce-vendo aangement is whee individual poduces ae able to finance the puchase of thei own aw mateials and may develop thei own designs. In this scenaio, the poduces make capets on thei own accod and then sell them to tades who intend to esell the capets to the end use. The Wold Bank estimates that between 10 to 20 pecent of capet poduces opeate as independent poduces. Pesently most capets ae puchased fom the weave pio to final washing and dyeing, and the capet vendo completes this pocess, usually in Pakistan due to a lack of appopiate facilities in Afghanistan. Hence, the supply chain fo Afghan capets is somewhat complex with a vast netwok of actos involved in poducing a capet. The quality of data on Afghanistan s capet secto is questionable. Pivately, some capet tades note that undeestimating the value of capet expots is common to lowe thei tax buden. Some ecent estimates suggest that capets geneated US$209 million in 2001 to 2002, down fom US$290 million in 2000 to Othes suggest that 2002 capet expots wee officially valued at US$3.4 million but pobably eached US$40 million. These data ae compaed to a wold maket fo capets of US$1.5 billion. 15 Afghanistan anks twenty-fist among global capet expotes behind egional ivals Ian, Pakistan, India, China, and Nepal. The natue and stuctue of the companies inteviewed also complicate data analysis at the fim level. Fo example, because the companies inteviewed use diffeent methods of paying supplies and weaves fo capets, cost data elated to inputs is vaiable. Similaly, since many of the fims inteviewed wee family owned companies, fomal wage ates paid to management do not fully eflect actual compensation of pofit shaing and defayed costs fo such things as the family house and food. Because most actual weaving was done off-site, the utility bills of the capet tades do not eflect the costs of any powe o wate used in the actual weaving. (See Figue 3-3.) Textile poduction in Afghanistan today is lagely a small-scale and low technology activity, but a vaiety of gaments, hats, and othe items ae made fom cashmee, cotton, silk, and wool. As with capets, a vaiety of financial aangements exist 38 INVESTMENT HORIZONS: AFGHANISTAN

39 fo seamstesses and caftspeople that poduce textiles. The most significant subsecto is cashmee, US$4.3 million of which was expoted in 2002, but most of Afghanistan s cashmee expots ae in uncombed fom fo final pocessing aboad. 16 Cotton poduction is small and inefficient by wold standads. SWOT Analysis. Inteviews with ten companies in the capets and textiles secto have supplemented seconday souces analyzing this impotant taditional economic activity in Afghanistan. Fo example, while a few companies and policymakes suggest that a lack of maketing expetise is a citical constaint, many moe fims identify poblems with finding easonably piced cago space out of Afghanistan and a lack of affodable land as pioity constaints. As in othe sectos, capet manufactues expessed a high degee of nationalism in making locating decisions. Indeed, although many of the fims inteviewed continued to opeate successfully in Pakistan duing the ecent yeas of conflict and maintain expot and distibution offices thee, most of these said that despite the cuent poblems in Afghanistan they wee highly motivated to etun to thei home county. Based on the fim inteviews and seconday souce analysis, the following stengths, weaknesses, oppotunities, and theats emeged in egad to the capets and textiles industy: Stengths Taditional expetise etained The capet industy is one of Afghanistan s taditional poducts and, despite the wa, entepeneus in the business suggest that a sufficient supply of the necessay skilled labo emains in the county. Its decentalized natue helped capet and taditional textile manufactuing suvive duing the civil wa, so weaving skills emain stong. Many of the designs used in Afghan capet making ae taditional and localized, and capet poduction tends to be a household activity that supplements family income. This poduction stuctue has enabled capet weaves to pass down knowledge of designs and techniques though family goups. Intenational band etains value Although moe needs to be done, the Afghan capets and taditional textiles secto etains a geneally favoable intenational image. Capets ae associated with Afghanistan as a taditional handicaft with a ich histoy and a ange of quality designs. While poduction quality is inconsistent, the geneally favoable image offes the secto a good basis fo impoved maketing. Pefeential tade access Handmade Afghan capets have been ganted pefeential duty fee access to the impotant US and EU makets. This povides a picing advantage fo Afghan capets that poduces without such access will not enjoy. Among the suveyed capet and textile fims, it was difficult to captue majo opeating costs because the companies inteviewed use diffeent methods of paying supplies and weaves and thei cost data elated to inputs is vaiable. The epesentative stuctue shown above eflects the industy s typical outsouced poduction. Weaves ae not consideed a payoll expense, and fomal wage ates paid to management do not fully eflect actual compensation (including pofit shaing and defayed costs fo family housing and food). In addition, utility costs ae essentially shifted to the weaves engaged in business fom thei homes. Consequently, in this stuctue the costs attibuted to popety o lease expenses ae the ovewhelming majoity of total costs. Low eliance on moden technology Paticulaly in the post-conflict envionment whee othe fims ae facing high costs to eestablish plants and machiney, in geneal capet manufactue is a low technology industy that is easy to estat at a functional level. Inceased technology notably in finishing is a constaint, but the diffuse and low technology netwok of capet poduces was one of the easons the industy was somewhat esilient duing the wa and quick to estat afte hostilities ceased. Low utility costs Fo seveal easons, Afghanistan s poo public infastuctue does not as significantly affect investos in the capet industy as in othe sectos. The majo eason is because capet manufactue is essentially outsouced to individuals and costs fo powe, wate, and telecommunications ae essentially shifted fom the capet selles to individual families. INVESTMENT HORIZONS: AFGHANISTAN 39

40 Non-peishability of poduct Although capets ae sensitive to humidity, they ae othewise vey easy to stoe. This means that output can be stockpiled nea to the end custome in oveseas makets fo a long time. Pospects fo Capets and Textiles The Afghan capets and textiles secto epesents a secto that may see stong gowth. Afghanistan possesses skilled poduces, geneally positive band image, and pefeential maket access. The study evealed many investos in the secto highly motivated to etun and eopen businesses. Weaknesses Inability to access affodable land Many inteviewees fom the capet secto suggest that finding affodable land is a majo concen. Seveal companies said that duing the wa land and poduction assets wee destoyed o seized and many poduces and expotes elocated to neighboing Pakistan. Capet manufactues have pusued seveal options fo finding land, including leasing and puchasing fom the pivate secto and leasing land fom vaious govenment agencies, but thee is a widespead consensus that access to affodable space is a significant weakness fo the secto. Insufficient supply of aw mateials Due in pat to the devastation of local souces of wool and dyes, most inputs fo the capet industy must be impoted though Pakistan. The fims inteviewed impoted an aveage of 53 pecent of thei aw mateials and 42 pecent of thei machiney. Some fims complained of having difficulty finding egula and affodable supplies of quality dyes, wool, and othe inputs. Afghanistan s cashmee subsecto is lagely eliant on impoted wool fom Ian, with only an estimated one-thid of demand being met locally. 17 In some cases, impoting these aw mateials simply adds tanspot and customs costs, and in othe cases the quality of impots is suspect. Fo example, Afghan capet makes suggest that the dyes and wool available in Pakistan ae not always of sufficient quality. Industy expets note that the oveall image of Afghan capet making has declined in the past 20 yeas due in pat to some makes using lesse quality mateials. High oad tanspot costs In addition to having to pay to impot aw mateials, the fims also epoted that almost 100 pecent of thei output was expoted. The fims inteviewed said that on aveage tanspot costs accounted fo 22 pecent of thei oveall opeating costs. Although easy to tanspot in tems of stoage and packing, capets by natue ae heavy. High ai feight tanspot costs Capet makes suggest that shipping capets fom Afghanistan via ai is not a viable option given the high cost and limited outbound ai cago space. While some capet expotes note that inceasing competition in the ailines industy is gadually loweing costs, today capet vendos suggest that between 90 to 100 pecent of thei capets ae expoted via Pakistan. Shipping though Pakistan adds costs and time and Afghanistan lacks its own seapot. Poo oad quality Only about 65 pecent of the main cicuit of highways compising the Afghan oad netwok is in good condition, and the main tansit oad fo goods to Pakistan is in disepai. Fo capet vendos, this undemines thei ability to egulaly meet delivey times. The capet makes inteviewed suggest that shipments ae delayed an aveage of 26 pecent of the time. Poo customs administation Although egaded as impoving, customs administation is still a buden to capet vendos. Most complained of delays in cleaing impots fom between fou and seven days. Seveal noted that an inwad shipment can attact customs duties moe than once. One capet vendo suggested that customs officials outinely solicit bibes. Lack of finishing capacity in Afghanistan Thee ae seveal factos that account fo why capet manufactues must pay high tanspot costs. One majo eason is that pesently almost all capets ae shipped to Pakistan fo final finishing. 40 INVESTMENT HORIZONS: AFGHANISTAN

41 Afghanistan s finishing infastuctue was eithe destoyed o outmoded ove the past two decades, compelling most poduces to ship quasi-finished goods to Pakistan fo final pocessing. This not only inceases the costs that capet selles face, it also constains the gowth of the indigenous industy and ceates oppotunities fo infingements of intellectual popety. Capet vendos indicate that one finishing facility in Maza-e-Shaif has ecently opened, but it is not clea if the factoy has the capacity to lue back a significant amount of the finishing business pesently being shipped to Peshawa. Lack of eliable powe Although the industy is not powe intensive, investos in the capets and textiles secto note that the lack of eliable public powe adds anothe cost of doing business in Afghanistan. Repotedly, the quality of powe vaies thoughout the county, but in geneal companies must puchase geneatos and fuel to ensue a eliable souce of enegy. Oppotunities Potential to impove adequate intenational image Afghanistan capets Afghanistan can help counte some of the concens of poo quality and enew geneal inteest in Afghan capets though a successful maketing campaign. Industy expets suggest that despite poduction poblems, Afghan capets etain a lagely favoable image intenationally. Sympathetic intenational county and poduct image Intenational sympathy with Afghanistan and its taditional poducts emain high. Futhe, taditional textiles and capets ae paticulaly well positioned to be sold as high end, authentic home funishing items fom a county with a ugged and somewhat mysteious image. This favoable esponse will help Afghan capet tades maket thei poducts aboad. Demand fo wool is consistent and anticipated to gow Pesently, local wool and yan poduction cannot meet local demand in Afghanistan, ceating a eady maket fo investment. Additionally, the demand fo semi-pocessed types of wool and yan exists fo entepeneus who can scou and othewise pocess wool. Demand fo finishing capacity As noted peviously, most Afghan capets ae washed, timmed, and othewise finished in Pakistan, theeby tansfeing a lot of the value added out of Afghanistan. Many inteviewees have expessed thei pefeence to complete the finishing pocesses in Afghanistan if compaable facilities existed. Impoved eliance on technology Although capet and textiles manufactuing in Afghanistan has taditionally been a low technology business, the secto could take advantage of moden machiney to incease output and impove quality. Fo example, inceased eliance on the intenet would impove maketing and sales. Binging weaves fom thei households into factoies can extend woking hous, impove skills though shaing of technical infomation and know-how among weaves, and allow fo geate monitoing of quality. The use of compute aided dafting (CAD) softwae can impove the efficiency of ceating designs and enable customes to contact with tades fo made-to-ode capets. Theats Competition fom the Afghan-Pakistani capet industy Aising fom the elocation of many capet manufactues and expotes to Pakistan duing the conflict yeas, the econstituted Afghan capet industy faces effective competition. Not only do many Afghan expotes and some weaves emain in Pakistan, Afghanistan INVESTMENT HORIZONS: AFGHANISTAN 41

42 lagely elies on Pakistan fo final pocessing and expoting. Seveal capet vendos note that pesently capets woven in Afghanistan and shipped to Pakistan fo final pocessing ae usually labeled as Pakistani poducts. This, capet makes say, impoves the image of Pakistani capets, while undemining the ability of Afghanistan to build a distinct band image fo capets. High aifeight costs and limited capacity fo cago shipment diect fom Afghanistan induce many expotes to expot though Pakistan. Additionally, seveal othe counties in the egion have well established capet industies. Competition fom the intenational capet industy Since capet designs ae highly potable, Afghan-style capets can be made anywhee whee thee ae skilled weaves. This leaves the doo open fo inceased competition fom counties with lowe labo costs and quality standads on the one hand and an established eputation fo quality fo fine capets on the othe. Ian, the wold s leading capet expoting county, is widely consideed to be the leade in poducing top quality handmade capets. Need fo impoving quality Capet makes believe that the intenational of image of Afghanistan s capets emains good, but a few noted that some poo output duing the past 23 yeas may have damaged the industy s taditional image fo quality. Some capet vendos suggest that thee emains a significant amount of infeio quality Afghan capets and othe textiles (such as silk scaves) on the maket intenationally. Mining Definition of the Secto. The mineals secto examined fo this study includes the mining, pocessing, and end use of stone and mineal esouces. Although hydocabons ae potentially impotant esouces fo Afghanistan, they ae excluded fom this analysis. In Afghanistan thee ae known deposits of a vaiety of commecially valuable mineals and metals, including beyllium, coal, chome, coppe, gold, ion, lead, manganese, nickel, salt ock, silve, uanium, and zinc. The county s known pecious and semi-pecious mineals include alabaste, amethyst, beyl, emeald, jade, lapis lazuli, quatz, uby, sapphie, and toumaline. The county also has seveal types of stone suitable fo constuction mateials, including mable. Desciption of the Industy. The mineals secto is pesently chaacteized by defunct state-owned entepises, only a few of which ae minimally opeating, numeous infomal secto mining opeations, and a few functioning end-uses such as constuction mateials poduces and stone-based handicaft atisans. To date, the Afghan mining policy emains incomplete and pivate investment in exploation and extaction is not yet legally sanctioned. At the same time, the SOEs that dominated such industies as coal have yet to be pivatized and much of the county s known commecial eseves of mineals emain unde state contol. Among the poblems facing pivatization in Afghanistan is the lack of eliable financial data to help value SOEs, exteme degadation of physical assets, and ambivalence among Afghan leades about whethe o not to divest the state of some of the best companies. As such, thee is no known foeign investment in the Afghan mining secto, although oveseas investos have expessed inteest in cement manufactuing. As seen in Table 3-3, the govenment owns seveal entepises that ae in vaying states of disepai. 42 INVESTMENT HORIZONS: AFGHANISTAN

43 Table 3-3: Status of Afghanistan s SOEs in the Mineals Secto Company Asset Desciption Likely Action Jabal Seaj Cement Ghui Cement Constuction Mateials Poduction Co. Noth Coal Co. Engineeing Reseach Co. Mines Extaction Co. Rukham Mable Co. Jangalak Co. Estimated poduction capacity of 100,000 tonnes/ yea; opeating at 10 pecent capacity now due to lack of powe; old Czech equipment; in Pawan nea Kabul. Estimated poduction capacity of 75,000 tonnes/ yea; unfinished second plant with theoetical capacity of 300,000 tonnes/yea; opeating at 50 pecent capacity; estimated cost to complete plant 2 is US$15 million; old Czech and Soviet equipment; in Baghlan. SOE makes sand and gavel, concete blocks, metalwok; and funitue. Pivate owneship aleady in metalwoking. All activities ae functioning at some level now. Fou opeating mines and two othe mines not in its contol; poducing 40,000 tonnes/yea; Czech equipment. Does well-dilling and hydological suveying; in Kabul. Metal deposit exploation and exploitation; opeational status unclea; in Kabul. Destoyed in civil wa; in Kabul. Vey limited opeations; in Kabul. Pivatization Pivatization Pivatization Pivatization Pivatization Remain unde state contol Liquidation Liquidation Souce: USAID. INVESTMENT HORIZONS: AFGHANISTAN 43

44 SWOT Analysis. Mining extaction and pocessing epesent impotant oppotunities fo Afghanistan. Not only ae thee significant estimated coal eseves, Afghanistan has commecially significant deposits of coppe and othe industial metals. The econstuction effot has ceated a boom in demand fo constuction mateials, including cement and cement blocks, bicks, gavel, wood, steel, sand, and glass. Additionally, the county has long mined semi-pecious and pecious stones and developed handicaft and constuction mateials industies based on stone poducts. Yet today, vey few pivate companies ae opeational and seveal SOEs in the secto ae not yet pivatized despite vey low levels of poductivity. Based on a limited numbe of fim inteviews and analysis of seconday souces, the following stengths, weaknesses, theats, and oppotunities emeged in egad to the mining secto: Stengths High demand fo constuction mateials As a esult of the econstuction boom that Afghanistan is pesently undegoing, thee is significant local demand fo mineal-based constuction mateials, including paving stones, cement and cement blocks, bicks, gavel, wood, steel, sand, and glass, and tile. Pesently, even basic mateials like cement ae impoted fom Pakistan and Ian, offeing geat potential fo impot substitution. Seveal local companies have aleady invested in the secto and ae expessing significant optimism about being able to find eady customes fo a vaiety of mateials. Significant unmet demand fo enegy Afghanistan s domestic enegy needs emain unmet despite significant deposits of coal. When pivatization is complete and the egulatoy egime govening pivate investment is established, it is estimated demand fo locally poduced coal will be steady. Ample unskilled labo supply While skilled engineeing and mining management labo is in shot supply in Afghanistan, industy expets suggest that labo among lowe skilled wokes is plentiful and well piced to suppot mining. Inceasing geological claity of eseves Seveal of the necessay fist steps equied to enable widespead pivate investment in mining have been made. Seveal olde studies illustating whee Afghanistan s known and pobable mineal deposits ae pesently being updated with assistance fom seveal intenational geological and mineal agencies. These studies ae being completed in pat to assist the county with fast-tacking investment attaction to the secto. Costs associated with tanspot povide advantage to locally poduced mateials Assuming mineals-based poducts such as constuction mateials can be poduced at a quality on pa with impots, the costs associated with impoting such mateials confes an advantage to companies that poduce locally. Afghan and dono policies favo local content Both the Afghan govenment and dono community geneally pefe to souce mateials locally whee available, theeby helping the local economy. Investos who can ceate the mateials pesently being impoted locally should have a pocuement advantage ove companies selling impoted mineals-based mateials. Weaknesses Incomplete legal egime While a daft law is awaiting appoval by the Cabinet, egulations and administative pocedues ae not in place to goven pivate secto involvement in mining. Of paticula impotance is detemination of the tax egime 44 INVESTMENT HORIZONS: AFGHANISTAN

45 facing mining companies. As a esult, the Ministy of Mines and Industy has not licensed any mineals exploation, extaction, o pocessing and what mining is ongoing is eithe done by the state o illegal. Incomplete pivatization pocess Cetain mining esouces, including coal fo which thee is a demonstated local maket, emain in the contol of failing SOEs. Repotedly, few of the majo mines ae opeational and those that ae have lagely eveted to non-mechanized coal mining and poduction. At the same time, pivate investment in mining is not yet pemissible. The lack of pogess on pivatization not only keeps cetain assets out of pivate hands, but also sends a geneally negative signal to investos about state intusion in the mining secto. Significant technological degadation of SOEs Most of Afghanistan s state owned mining companies have been badly damaged ove the past few yeas. One official in the Ministy of Mines and Industy conceded that the one state owned coal company that was opeational had eveted to manual mining. Although Afghanistan s mineal esouces offe pomise fo commecialization, new entants to the secto will need to impot all needed equipment and technology. Lack of effective govenment contol ove cetain mineal-ich aeas Some of the county s most pomising aeas fo mineals exploation emain in the contol of anti-state actos. It is estimated that some of the county s best mineal deposits lie along the bode of Pakistan whee local leades emain in powe, theeby making investment isky. Until the political situation is esolved, the cost of secuity can be expected to aise poduction costs in the mineals secto. Poo status of infastuctue Pehaps moe than othe sectos, mining opeations ae sensitive to the cost and availability of powe, wate, and tanspot sevices. On the whole, Afghanistan s public sevices ae poo to non-existent and although ecent impovements in the oad netwok ae impotant signs of pogess, moe needs to be done. Poo infastuctue and the inceased financial cost that this has on mining opeations will continue to put the county at a competitive disadvantage. Lack of skilled mining labo Industy expets suggest that Afghanistan lacks a eady supply of skilled technical and manageial wokes. Because most of the county s majo mining facilities wee outfitted with Czech and Soviet machiney, even if individuals woking in the secto ae familia with the machiney, it is likely to be outmoded. This will incease statup costs fo new investos, as they will need to ely on moe expensive foeign labo and facto in costs fo lodging and pe diems fo enginees, machinists, and manages until local wokes can be appopiately tained. Lack of institutional capacity to monito mining secto Beyond the obvious secuity concens, investment in the mining secto is hampeed by the lack of institutional capacity and maket-based oientation in the agencies involved. In paticula, govenment lacks the capacity to efficiently issue and monito exploation licenses, ensue opeatos meet moden envionmental standads, and audit companies activities and poduction. Unexploded odinance As a fome wa ton county, Afghanistan faces the additional poblem of unexploded odinance. Afghanistan is one of the wold s most heavily land-mined counties and the secuity pecautions equied to exploe lage tacts of land add additional costs fo mine developes. Lack of locally available finance Although infomal secto financial makets including much family lending and the hawala function in Afghanistan, the fomal banking system does not pesently offe commecial loans. Fo capital-intensive industies like mining, the lack of locally available finance may be a concen. This INVESTMENT HORIZONS: AFGHANISTAN 45

46 lack of local finance may also disadvantage investos who do not have access to foeign commecial banks. Oppotunities Mineals Secto Offes Geat Potential Given the wide vaiety of Afghanistan s known and suspected mineal eseves, including commecial metals, coal and gemstones, the secto offes geat potential in the medium to long-tem. Also, the pace and development of the secto ae lagely within the contol of the GoA; initial indications suggest that if the appopiate policy and legal egime ae instituted, intenational investo inteest will be fothcoming. Consideable gowth potential Afghanistan has a geat aay of known mineal esouces as well as vast aeas whee the potential is not known. Wold Bank pojections suggest that the annual value of Afghanistan s coal, quaies, sand, salt, gemstones, and coppe eseves could each US$253 million up fom a cuent value of US$60 million if efoms ae enacted. 18 Ability to attact foeign diect investment Afghanistan s mineal secto epesents a significant oppotunity to attact foeign diect investment. Investment in the secto fom aboad would infuse technology, capital, and expetise while ceating needed employment. Intenational expeience suggests that FDI can also ceate some beneficial spilloves fo a county like Afghanistan and ceate demand among a netwok of potential supplie fims. Potential fo impovement of the local pecious and semi-pecious stone industy Afghanistan has an established handicaft and constuction mateials industy elying on such stones as lapis lazuli and mable, but significant impovement could be made in quality, output, and maketing. As the pocessing quality of Afghanistan s mineal esouces impoves, end uses can expect to be able to impove the quality of handicaft and mateials outputs. Theats Degadation of esouces by poo infomal secto mining Despite the lack of legally sanctioned activity in the mining secto, some companies ae involved in mining today. In a few cases, companies wee ganted licenses by the Ministy of Commece pio to the aticulation of the county s daft mining law, and in othe cases, mining esouces ae being pocessed illegally. In many othe cases, small scale mining has continued fo yeas, often with poo egad fo envionmental concens and moden, efficient mining techniques. The longe mining activity continues without being effectively egulated, the moe theatened the county s mineal eseves become. Obsevations Based on Data Analysis In addition to the above-mentioned SWOT analyses, the following obsevations can be made fom the data collected by the suveys. (See also Appendix 4: Tables of Findings Company Inteviews.) Owneship Stuctue The typical owneship stuctue of the companies in each of the suveyed sectos tends to vay by secto. The tanspot and logistics secto is dominated by foeign (mostly U.S.) and joint ventue investment. Food and beveage pocessing is dominated by local Afghan investment and Afghan investment fom oveseas (especially in aisins). Capet and textile companies ae owned entiely by local Afghans, although final pocessing, maketing, and shipping to expot makets ae lagely contolled by companies in Pakistan owned by Pakistanis o Afghans. Mining opeations ae owned eithe by local Afghan companies o the Govenment of Afghanistan. 46 INVESTMENT HORIZONS: AFGHANISTAN

47 Pesonnel Tanspot and Logistics: Of the fou industies analyzed, tanspot and logistics offes the highest wages fo skilled wokes (package pocessos, inventoy management, customs agents) and unskilled wokes (dives, stevedoes) due to a combination of factos. Compaed to the othe sectos, tanspot and logistics companies ae dominated by foeign fims that tend to pay highe wages than local competitos and ae well integated into the global economy, equiing some wokes to have bette and moe moden skills. Wokes classified as pofessionals and technicians accoding to the EBP methodology ae scacely used in the industy, and the fims tend to have moe employees in senio management and lowe skilled positions. Investos indicated difficulties in finding manages, pofessionals, and technicians and to a cetain extent the language skills they need to do business with thei foeign clients. The quality of the local wok foce s ability to speak English and othe languages was ated on aveage 2.8 out of a best scoe of 5. Investos in this secto epot an aveage 50-hou wok week. Food and Beveages: The food and beveage secto epots the highest wages oveall of the fou industies and the highest technician and management pay (30 pecent highe than logistics, almost fou times highe than textiles, and almost six times highe than mining). These companies hie fewe wokes categoized by the EBP methodology as pofessionals and technicians than manages, making these fims both bottom-heavy and top-heavy oganizations. Investos indicated difficulties in finding manages, pofessionals, and technicians. One advantage fo this industy is that thee is an abundant pool of unskilled and, to a cetain extent, skilled labo available. Investos epot an aveage 51-hou wok week. Capets and Textiles: Although most of the wok in this secto is actually caied out by a vast team of capet weaves in villages, they wee not included in the employee headcount. The company management and diect employees tend to be compised of a numbe of male elatives in the same extended family. While inteviewees epoted fomal wage ates fo employees, in some cases they also noted that income fom the business went to meeting the basic housing and sustenance needs of family membe employees. Investos epot an aveage 54-hou wok week. Mining: Mining epoted the lowest wages of the fou industies studied. In spite of a lage pool of skilled labo, some positions such as technicians and machine opeatos ae difficult to fill. Mining investos indicated a bette available labo pool at all levels than the othe industies. Mining epots the highest wage buden of the sectos (suvey aveage of 45 pecent of total fim opeating costs accounted fo by salaies and benefits). This secto epots the shotest aveage wok week (44-hous pe week). Expatiate Women Woking in Afghanistan On the whole, most expatiate women woking in Afghanistan indicated that with some mino adjustments, they had no difficulties living and woking in Afghanistan. Howeve, some expatiate women may find special challenges. Accoding to one employe, the Afghan dives, deliveymen and othe lowe-level male employees who tend to have less education and exposue to Westen ideas, often show open signs of disgust fo the usual Westen office attie of female expatiate employees. Westen women almost invaiably cove thei heads with a scaf when outside. Once inside a building, they may get vaying eactions if they uncove thei heads. One logistics company told us that a female expatiate employee had esigned because the male Afghan employees wee teating he with such contempt. Employee Salaies and Benefits Acoss all sectos thee ae no state-obligated benefits whatsoeve, no social secuity system, and no etiement funds such as a pension o pivate etiement account. Howeve, employes ae often expected to cove othe benefits such as meals at the wokplace and tanspotation allowances, eithe as a diect cash gift (sometimes lumped into the salay) o though the diect povision of food and tanspotation oganized and povided by the company. The povision of these infomal benefits contibute to an investo s wage buden. The pecentage of costs associated with labo ae the highest fo the mining secto whee wages ae the lowest. INVESTMENT HORIZONS: AFGHANISTAN 47

48 Manages ae often eithe patnes in the fim, own stock in the fim, o ae paid in some combination of base salay and pofit-shaing. Unionization Accoding to both public and pivate souces, unions of the kind found in industialized counties do not exist in Afghanistan. As the pivate secto evolves, new business inteest goups ae being fomed and old, quasi-state un poduce guilds and business chambes ae in decline. Seveal souces descibed a type of woke discussion goup left ove fom the ea of Soviet influence that can be found in some companies, but these consist of nothing moe than goups of employees getting togethe to convese about Maxist theoy and woke ights. These goups do not bagain collectively with the employe o oganize activities. The status of the legal egime coveing unions and wok actions is unclea. Estimates of unemployment and undeemployment vay and ae high. This coesponds to the finding that annual tunove among fims inteviewed in the fou sectos is low, anging fom vitually 0 pecent in the mining industy to 5.4 pecent in the logistics industy. Investment and Annual Income Tanspot and Logistics: With a elatively low investment (US$67,857 was the aveage investment of the companies inteviewed), annual income, even in the fist yeas of opeation is high (US$1,018,571 was the aveage annual income fo the companies inteviewed). Food and Beveages: Infastuctue fo food and beveage pocessing equies a substantial initial investment (US$5,860,325 aveage of inteviewed companies) but has the potential fo attactive fist-entant ewads (US$13,495,072 aveage yealy income fo inteviewees). Capets and Textiles: Accoding to espondents, capets and textiles companies equie a elatively high initial investment (US$2,182,489 was the aveage of the companies inteviewed) and annual income is still low in the industy (US$283,473 aveage). Mining: The existing mining companies epot and aveage initial investment of US$122,500 and low aveage annual sales (US$11,000 aveage). Inputs and Equipment Tanspot and Logistics: Computes and othe equipment used in this secto ae typically impoted fom oveseas. Food and Beveages: In the aisin and wate bottling industies, the gapes and wate used in poduction ae of Afghan oigin. Packaging and plastic fo making the bottles fo the distilled wate come fom oveseas, as does the olive oil used to clean the aisins. A vegetable oil poduce epots that vitually all of its inputs ae impoted. Capets and Textiles: An aveage of 53 pecent of the aw mateials fo this secto ae impoted. Wool, cotton, and dyes ae souced pedominantly fom Afghanistan o Pakistan, although othe counties like Ian ae souces of aw mateials as well. Chemical dyes ae souced fom Gemany, Koea, Pakistan and othe counties. An industy aveage of 42 pecent of equipment is impoted fom oveseas. 48 INVESTMENT HORIZONS: AFGHANISTAN

49 Mining: Because Afghanistan has no functioning machine industies, mining equipment is impoted. Tanspotation of Goods Acoss all sectos ai tavel was seen as the most eliable accoding to investos, with an aveage of 74 pecent of goods aiving on time and.02 pecent loss ate. Commecial goods tend to be shipped by oad, ail and sea tanspotation, and duty exempt goods tend to use ai. Exempt goods ae not allowed to pass by oad though Ian accoding to the Ianian-Libya Sanction Act (ILSA), and logistically it makes no sense fo them to pass though the fome Soviet Republics by ail. Rathe, they eithe go though Pakistan s seapots o ae flown in. Customs Accoding to suvey esponses, it takes an aveage of nine days to clea customs at the bode of Afghanistan. All companies indicated that unofficial payments to customs officials and multiple customs checks in the county wee the nom. Telecommunications Acoss all industies only 34 pecent of all companies inteviewed had a land line and all indicated that the quality was vey low. Accoding to suveys, it takes an aveage of 116 days to get a telephone line installed, and the sevice did not extend to all sections of the Kabul metopolitan aea. Almost all companies gave mobile phone sevices a bette ating than landlines, scoing a 3.5 out a possible best scoe of 5. Intenet usage was uncommon among all fims inteviewed, and those that did have sevice indicated that it took anywhee fom a few days to a few weeks to get sevice. Thee ae cuently thee companies in Afghanistan offeing intenet access by satellite. Tanspot and Logistics: Thee out of twelve companies have a land line in this secto. Nine out of twelve have intenet access in thei offices and, as sevice povides, pedictably used the highest bandwidth ( kbps). Food and Beveages: Two out of seven food and beveage companies epoted having a land line. Only one in seven have intenet access in thei offices. Capets and Textiles: Half the companies inteviewed epot having a land line and intenet access in thei offices. Mining: One company has a land line and intenet access. Electic Powe, Wate and Sewage Infastuctue Acoss all sectos thee was little dependence on the municipal o state electic powe infastuctue. All but a few companies had thei own geneatos and almost all depended heavily on them (an aveage of 312 hous pe month). Only two companies had wate povided fom a govenment souce. The othe companies had dilled thei own wells and wee pumping the wate fo fee, puchasing wate fom someone else s well, o located nea a ive o natual souce of wate. Thee ae cuently no wastewate sevices in Kabul. INVESTMENT HORIZONS: AFGHANISTAN 49

50 Tanspot and Logistics: Eight out of twelve companies in this industy have electic powe povided fom the govenment, and these eight companies epoted that thei govenment-povided electic powe was non-functional an aveage of 372 hous a month, duing which they use a geneato. Food and Beveages: Two out of seven companies have electic powe, which is non-functional an aveage of 155 hous a month, duing which they use a geneato. Capets and Textiles: Five out of ten companies have electic powe, which is nonfunctional an aveage of 448 hous a month, duing which they use a geneato. Mining: Two of the thee companies suveyed have electic powe, which is nonfunctional an aveage of 294 hous a month. Living Conditions Acoss all sectos pesonal safety got supisingly high maks (oveall aveage of 3.3 out of a best scoe of five) not only among the Afghans inteviewed, but also among the expatiates. Costs wee consideed to be high (aveage ating of 1.9 out of a best inexpensive scoe of 5) acoss the boad, but moe so among Afghans. Othe quality of life indicatos such as schools, health cae and eceation eceived vey low scoes. Indeed, much of the county s cultual infastuctue like museums, zoos, paks, gadens, and publicly accessible palaces and monuments wee destoyed duing the wa yeas. Financing Accoding to the companies suveyed acoss all sectos, thee is cuently no pivate financing fo doing business in Afghanistan. Investos fom SMEs indicated that they ae paticulaly had-hit by the lack of financing possibilities. Mico-cedit schemes have begun to opeate in Afghanistan, but none of the investos suveyed wee awae of them. Business financing in Afghanistan tends to be infomal. Site Factos Acoss all sectos, an aveage of fou sites was consideed by the suveyed companies befoe the cuent site was chosen. Many, especially in the food pocessing, capet and mining industies indicated that they had chosen sites based on land they aleady owned. Fims in the tanspot and logistics secto tend to lease thei office o waehouse. As the food and beveage industy is dominated by Afghan companies, they tend to locate thei plants on thei own popeties. Capet and textile fims tend to lease offices, waehouses, and showooms. Many have offices in Pakistan that focus on maketing and handling expots. The mining companies inteviewed all lease office space in Kabul. Incentives Acoss all industies, vey few companies epot that incentives ae cuently offeed by the govenment. Indeed, a fiscal incentives egime is not yet opeational in Afghanistan. All exempt impots ae duty-fee, and this exemption is easy to pocess with a single fom and a lette fom the impoting oganization. 50 INVESTMENT HORIZONS: AFGHANISTAN

51 While no incentives wee epoted in the tanspot and logistics secto, some entepeneus in the food and beveage industy epoted a five-yea tax holiday and othes subsidies fo puchasing land. Similaly, some fims in the capets and textiles secto epoted that they had eceived subsidized land fom the govenment and that they have a thee to five yea copoate income tax holiday (many wee unsue about the exact numbe of yeas). No incentives wee epoted among the mining companies. Based on the inteviews, it seems appaent that the incentives offeed pesently lack coheency, consistency, and tanspaency. Motivation fo Locating in Afghanistan Acoss all industies, 33 pecent of the companies suveyed mentioned a desie to help Afghanistan, o patiotism as at least pat of the eason they ae cuently opeating thee, and 15 pecent said it was the only eason. Many native Afghans said that they had been waiting since they left in the 1970s o 1980s fo the political situation to change, and when it did between 2002 and 2003, many quickly etuned to exploe setting up opeations. Tanspot and Logistics: Only thee out of 12 companies said that cost was a motivating facto in thei investment decisions, and in all cases cost was less impotant than quality factos. Tanspotation costs and eal estate costs wee most fequently cited as being impotant. Ovewhelmingly, the quality factos outweighed cost factos, and the aspects cited as most impotant wee the geneal business envionment (especially what is peceived as a new political stability and a moe manageable bueaucacy) and access to the maket (meaning, in most cases, that the logistics companies wee thee to supply the dono, NGO, and militay oganizations with supplies). Food and Beveages: Five out of seven companies suveyed said that cost was about 50 pecent of thei eason fo locating in Afghanistan. Impotant cost factos wee eal estate and constuction costs. With espect to quality factos, the most impotant wee the geneal business envionment (political stability and lowe bueaucacy) and access to and size of the maket (the size of the local maket in the case of the wate bottles and vegetable oil and poximity to cheap aw mateials in the case of the died fuit and nut industy). Capets and Textiles: Thee out of ten inteviewed companies indicated that cost was about 50 pecent of thei eason fo being in Afghanistan. The impotance of cost factos was evenly distibuted acoss eal estate, constuction, wate, electic powe, telecommunications, wages, tanspotation costs, and tax ates. Thee wee no outstanding tends in tems of quality factos with answes being faily evenly distibuted among geneal business envionment, access to the local maket, eal estate availability and living conditions. Mining: All indicated that cost was not a facto. A single quality facto was cited access to the local maket. Afghanistan as a Landlocked County Thee wee vaying opinions on the subject of Afghanistan being landlocked. Most manufactuing companies wee of the opinion that this was puely negative, as it implied highe impot and expot costs and delays as goods wee tansfeed fom seapots to tucks o ail, and wee then equied to coss bodes. When asked to estimate thei potential savings if Afghanistan had a seapot, thee companies estimated that they would be able to save 25 pecent to 40 pecent. Howeve, the lack of a seapot ceates oppotunities fo impot substituting industies. One lage beveage poduce actually saw the lack of a seapot as an advantage, because INVESTMENT HORIZONS: AFGHANISTAN 51

52 impotes of competing poducts incu highe costs of tanspotation. Theefoe, the beveage poduce can sell its locally-poduced beveage fo a lowe pice than the impote. While some logistics companies wee of the opinion that Afghanistan s lack of a seapot was a disadvantage because of highe costs, unpedictable delivey times, and poblems with customs, othes saw it as an advantage as it obligated clients to contact them fo multiple sevices and allowed them to chage highe pices. Still othes thought it had no impact whatsoeve on thei businesses. Secuity Measues Acoss all sectos, few investos had any paid bodyguads fo themselves o thei pesonnel. Thee wee only two companies that epoted any kidnappings. One was a logistics company that epoted a tuck dive having been kidnapped in the countyside and eleased a few days late when the ansom was paid. Anothe company had a family membe kidnapped and eleased afte 17 days of diect negotiations with the kidnappes. Finally, the Afghan owne of a thid company etuned to Afghanistan afte many yeas only to find that his esidence had been taken ove by the militay. Afte extensive negotiations fo which he used a thid paty a fiend familia with all the paties involved and a lage payment, he was able to ecove his esidence. A common secuity measue was posting watchmen at factoies, offices and esidences; one company used attack dogs on the compound at night and anothe had a sophisticated closed cicuit television system which monitoed the pemises 24 hous a day. An aveage of moe than US$23,000 was spent annually on exta secuity measues (in addition to secuity guads, alam systems and any outine measues that might be taken in most pats of the wold). Howeve, 15 companies out of the 32 inteviewed epoted no extaodinay expenses fo secuity measues at all. Administative Baies Acoss all sectos a slight majoity of the companies (51 pecent) indicated that bibes ae a majo difficulty fo them. The aveage cost pe company fo bibes pe yea is a little moe than US$35,000. The entities cited most by companies wee the customs, police, national govenment and municipal govenment officials. Companies indicated that seveal yeas ago thee wee majo difficulties in knowing what the coect pocedues fo egisteing companies and paying licenses and pemits, but that in the last eight months this has become much cleae. Local Vesus Foeign Investo Pespectives Pedictably, local investos expessed significantly diffeent opinions fom those of thei foeign countepats in seveal aeas, such as (a) the availability of qualified pesonnel, (b) customs (c) living conditions, and (d) secuity measues. Local investos consistently ated qualified pesonnel (manages, pofessionals, technicians and skilled labo) as moe eadily available than did foeign investos, in pat because the local companies have an existing netwok of infomal contacts that allow them to souce quality pesonnel moe eadily than foeign companies, which have no such netwok. It is also likely that indigenous investos ae less 52 INVESTMENT HORIZONS: AFGHANISTAN

53 citical of local wokes due to compaatively limited intenational exposue to othe souces of labo. The only exception was fo unskilled labo, which was ated by all companies as abundant and available. Foeign investos indicated that they had fewe poblems getting thei goods though customs than did local investos. This has a simple explanation: Foeign companies ae typically involved in moving exempt goods though customs that by law ae given pefeential teatment at customs as long as thei documentation is complete. Local companies ae pimaily involved in tanspotation fo commecial activities, which enjoy no such benefits. Local investos pedictably ated all quality of life factos (cost of living, safety, health cae, and eceational activities) somewhat highe than foeign investos, as most wee accustomed to living in Afghanistan fo many yeas and wee natually inclined to think the best of thei county afte the yeas of conflict wee ove. Foeignes who ae accustomed to highe standads of health cae in thei home counties and a boade ange of eceational activities than ae cuently available in Afghanistan, and ae concened about safety issues gave a much lowe ating on quality of life issues than did local investos. Local investos also geneally took fewe safety pecautions than foeign investos. Some Afghans indicated that they used family membes as bodyguads, paying fo thei immediate needs (food, shelte, tanspotation, etc.) athe than paying them a set salay. Foeign investos tended to peceive a highe level of dange, and to take moe safety measues. Howeve, even those that had fomal safety measues in place and conducted egula safety audits indicated that these measues wee imposed by thei headquate offices outside the county athe than equested fom within. The opinion of local and foeign investos did not diffe significantly with espect to the quality of the infastuctue in Afghanistan (telecommunications, electic powe, wate and seweage), the ugent need fo the GoA to povide moe incentives to investos, the elative advantages and disadvantages of Afghanistan being landlocked, and the hassle of administative baies and infomal payments to thei opeations. Afghan investos fom oveseas vaied widely in thei peceptions, and they did not expess the same opinion of eithe foeign o local investos on a consistent basis. INVESTMENT HORIZONS: AFGHANISTAN 53

54 Appendix 1: Endnotes 1 AISA Needs Assessment Final Repot, MIGA, Septembe 2004, pg The Wold Bank, Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, 2004, pg. x. 3 AISA. As noted elsewhee, given the size of the infomal secto in Afghanistan, including the dug tade, and the lack of fully functioning statistical and othe data gatheing agencies, data estimates vay widely. Fo example, the US Depatment of State estimates GDP at US$4 billion. 4 The Wold Bank, Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, 2004, pg. x. 5 The Wold Bank, Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, 2004, pg The Wold Bank, MIGA s Expeience in Conflict-Affected Counties: The Case of Bosnia and Hezegovina, 2004, pgs This can be somewhat offset fo manages and agencies that successfully undego the Pioity Restuctuing and Refom pocess. 8 Byd, William and Wad, Chistophe, Dugs and Development in Afghanistan, 2004, pg Accoding to estimates fom the Afghan Association of Feight Fowades. 10 UNDP / Altai Consulting, Maket Secto Assessment in Hoticultue, August UNDP / Altai Consulting, Maket Secto Assessment in Hoticultue, August The Wold Bank, Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, 2004, pg Pain, Adam and Ali, Mohaam, Undestanding Makets in Afghanistan: A Case Study of Capets and the Andkhoy Capet Maket, pg Pain, Adam and Ali, Mohaam, Undestanding Makets in Afghanistan: A Case Study of Capets and the Andkhoy Capet Maket, pg USAID, Findings of Industy Reseach, OTF Goup pesentation to pivate secto development oundtable, USAID, Findings of Industy Reseach, OTF Goup pesentation to pivate secto development oundtable, USAID, Findings of Industy Reseach, OTF Goup pesentation to pivate secto development oundtable, The Wold Bank, Taditional Islamic State of Afghanistan: Mining as a Souce of Gowth, INVESTMENT HORIZONS: AFGHANISTAN

55 Appendix 2: Aconyms and Abbeviations AISA DFID EBP EBS FDI GOA GDP ILSA IPA Km MoC L/C MOU MIGA MNC NDF RAMP SWOT UN UNCTAD UNDP USAID Afghan Investment Suppot Agency Depatment fo Intenational Development Entepise Benchmaking Pogam Entepise Benchmaking Study foeign diect investment Govenment of Afghanistan goss domestic poduct Ianian-Libyan Sanctions Act investment pomotion agency Kilometes Ministy of Commece Lette of Cedit Memoandum(a) of Undestanding Multilateal Investment Guaantee Agency multinational copoation National Development Famewok Rebuilding Agicultual Makets Pogam stengths, weaknesses, oppotunities, and theats United Nations United Nations Confeence on Tade and Development United Nations Development Pogam United States Agency fo Intenational Development INVESTMENT HORIZONS: AFGHANISTAN 55

56 Appendix 3: Data Definitions and Resouces Oganization of Data Quantitative and qualitative data wee gatheed both though desktop eseach and field wok. The individual data points wee oganized unde geneal headings as follows: Desktop Reseach: Quantitative Data Investment costs Popety costs Utility costs Intenational tanspotation costs Sales pice of industial land; sales pice of land fo hotels; sales pice of cental city land fo office building; waehouse, office building and hotel constuction cost Class A & B office entals; lease pice fo industial site and SFB Electicity; wate; waste wate teatment; gas; telecommunications, intenet Cost of sea and ai tanspotation Desktop Reseach: Qualitative Data Geneal Business Envionment Labo conditions Access to inputs and outputs Real estate Economic, financial and political stability; doing business; bueaucacy; data tansfe and intellectual popety ules; copoate taxation Labo flexibility; woking time egulations; social climate Poximity to aw mateials; expot competitiveness; supplie / cluste netwok; size of domestic maket Availability of aable aeas, vacancy ate fo offices and industial buildings 56 INVESTMENT HORIZONS: AFGHANISTAN

57 Investo Questionnaie: Quantitative Data Labo costs Investment costs and evenue Facility costs Management; pofessional; technician; skilled; unskilled; poductivity; benefits Total investment; annual evenue Office, waehouse, o poduction facilities; land Safety measue costs Administative baie costs Cost of exta secuity guads; cost of kidnappings and ansom Cost of licenses and pemits; cost of unofficial payments Investo Questionnaie: Qualitative Data Labo conditions Labo availability Infastuctue Real estate Living Envionment Access to inputs and outputs Investment Incentives pesence of labo unions; labo tunove Management; pofessional; technical; skilled; unskilled; language poficient Ai, tain, sea and oveland tanspotation of goods; telecommunications; infomation technology; electic powe supply; wate Availability of industial and agicultual land; availability of industial buildings and office space Cost of living; safety; quality of intenational and local schools; health cae; eceational activities; housing Availability of aw mateials, equipment and components Exemption of impot duties on capital equipment and food and beveages; tax holiday; epatiation of capital; expatiate hiing; VAT and sales tax teatment INVESTMENT HORIZONS: AFGHANISTAN 57

58 Definition of Tems Sectos The logistics and tanspot industy in Afghanistan includes a wide ange of activities. Fo the pupose of this study, they wee gouped unde fou sub-secto headings as follows: Small package handling Land, sea, and ai tanspot Supply and waehousing Feight fowade Small package delivey in-county as well as documents, and occasionally lage packages. Companies which use thei own vehicles, ships o aicaft to tanspot goods. Any kind of waehousing, distibution o supply sevices, but especially those elated to poviding supplies to the militay and dono oganizations on a tax-exempt basis. Poviding feight fowading, customs cleaance, and tavel agency sevices by companies which do not have thei own vehicles, ships o aicaft. The food and beveage industy benchmaked fo this execise was esticted to pocessed foods and beveages, defined as those having undegone any tansfomation whatsoeve, such as dying, shelling (as with nuts), canning and/o bottling. Meely packaging a poduct was not consideed to be pocessing. Labo Labo costs wee detemined fo diffeent levels of positions that can be genealized ove many industies. The following designations wee used in the questionnaie: Management Pofessional Technical Skilled Unskilled Enty-level manage, mid-level manage, senio manage; excludes expatiate manages Head accountant, lawye, consultant Enginee, accounting clek, pogamme, systems analyst Data enty, custome sevice, assembly line woke with special skills Dive, janito, chambe maid, enty-level assembly line woke, famhand The tem benefits efes to any employee contibution above and beyond the egula salay. 58 INVESTMENT HORIZONS: AFGHANISTAN

59 Inputs Reseaches equested infomation as to the pecentage of aw mateials, components, and equipment and/o chemicals equied fo poduction that wee impoted as opposed to souced fom local supplies. The following definitions wee used: Raw mateials Components Equipment/chemicals Any input that has not yet undegone significant pocessing, such as aw cotton, timbe, suga, milk, steel ingots Any input that has undegone significant pocessing o tansfomation, such as yan, fabic, pecision molded plastic, o engines All machiney, computes, telephones, fetilizes, beds, table, televisions, packaging and labeling With egad to tanspotation, the eseaches diffeentiated between land tanspotation within Afghanistan o to an adjacent county ( by land ) and land tanspotation that eventually links with sea tanspotation ( by sea ). INVESTMENT HORIZONS: AFGHANISTAN 59

60 Appendix 4: Tables of Findings Company Inteviews The tables below eflect the findings fom inteviews conducted at companies duing the field wok of the study. Tables 4-2 though 4-13 pesent data in each of the fou subject sectos: logistics and tanspot; food and beveage pocessing; textiles and capets; and mining. In the logistics and tanspot secto, data is also boken down by fou sub-sectos: small package handling; ai, sea and land tanspot; supply and waehousing; and feight fowade. The fist column in these tables eflects the findings fom all fims in the logistics and tanspot secto, and subsequent columns eflect the individual sub-secto findings. Table 4-1: Top Site Selection Factos by Industy Industy Logistics and Tanspot Food and Beveage Pocessing Textiles and Capets Mining Top Site Selection Factos (in ode of impotance) Access to customes (both dono and commecial); political stability; level of bueaucatic egulations; desie to contibute to Afghanistan; tanspotation costs Desie to contibute to Afghanistan; access to and size of the local maket; access to aw mateials (especially wate); political stability; cost of eal estate; taiff level to access main maket Desie to contibute to Afghanistan; political stability; cost of eal estate; cost of living Desie to contibute to Afghanistan; access to and size of local maket; access to aw mateials; political stability Table 4-2: Labo Stuctue Aveage Numbe of Employees Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Total Management Pofessional Technical Skilled Unskilled INVESTMENT HORIZONS: AFGHANISTAN

61 Table 4-3: Availability of Qualified Labo Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Management Pofessional Technical Skilled Unskilled Requied Language Skills Availability of Language Skills English, Dai, Pashtu, Fasi, Udu, Russian, Fench, Geek, Chinese Dai, Pashtu, English, Fasi Dai, Pashtu, Udu, Tukhmen, Uzbek Dai, Pashtu, Fasi BETTER WORSE RATING 5 1 (5=Many qualified candidates, 1=Extemely difficult to find) Table 4-4: Aveage Labo Costs (Fully-loaded in US$ pe annum) Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Management 6,833 3,593 7,898 5,684 6,001 8,907 3, Pofessional 3,495 3,293 3,596 3,593 4,801 3,615 2,058 3,581 Technical 2,470 3,623 2,181 3,612 3,600 7,148 3,196 1,719 Skilled 2,732 2,184 2,700 1,723 4,272 2,466 1, Unskilled 1,927 2,151 1,780 1,662 1,626 1, INVESTMENT HORIZONS: AFGHANISTAN 61

62 Table 4-5: Othe Labo Factos Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Aveage Wok Week (hous) % Annual Tunove % Aveage Wage Buden Table 4-6: Investment, Revenue and Facilities (Aveages) Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Initial Investment (US$) Annual Revenue (US$) $67,857 $60,000 $101,250 $103,750 $157,500 $5,860,325 $2,182,489 $122,500 $1,018,571 $250,000 $795,000 $1,350,000 N/A $13,495,072 $283,473 $11,000 Land (ha) Poduction Floo (m 2 ) 1 1, , ,493 11,049 11,115 Office Space (m 2 ) , If the company had multiple sites and an office in Kabul, the size of the Kabul office and one othe site, usually the lagest, was included. 62 INVESTMENT HORIZONS: AFGHANISTAN

63 Table 4-7: Inputs and Raw Mateials Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade % Raw Mateials N/A N/A N/A N/A N/A Impoted 1 % Components N/A N/A N/A N/A N/A Impoted 1 % Equipment Impoted This only applies to the poductive sectos. 2 Equipment, computes and vehicles used in the logistics secto wee all included. Table 4-8: Expots Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade % of Poduct Expoted % By Ai % By Sea % By Land N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0 48 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Canada, Pakistan, Destination Counties N/A N/A N/A N/A N/A Gemany, UK, Switzeland Switzeland, Dubai, USA N/A INVESTMENT HORIZONS: AFGHANISTAN 63

64 Table 4-9: Tanspotation Infastuctue Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade % of goods aiving on schedule By Ai N/A 77 N/A By Sea N/A By Land % of lost goods pe annum By Ai N/A 0 N/A By Sea N/A By Land Days to Clea Customs on Enteing (aveage) INVESTMENT HORIZONS: AFGHANISTAN

65 Table 4-10: Telecommunications Infastuctue Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Land Line Sevice % With Land Lines Quality Rating N/A No. Days to Install N/A Mobile Phone Sevice Quality Rating Monthly Bill (US$) 1,155 2,967 1,440 1, Intenet Sevices Quality Rating No. Days to Install N/A Fo all quality atings above: BETTER WORSE RATING 5 1 INVESTMENT HORIZONS: AFGHANISTAN 65

66 Table 4-11: Utilities and Infastuctue Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade % with Public Electic Powe 1 Hous Blackouts / Month Hous Enegy Fluctuation / Month % with Geneato Hous / Month Geneato Used Cost pe Hou to Run Geneato 2 (US$) % with Public Wate Supply % with Public Waste Wate Teatment 4 1 Because companies had limited electic powe fom public souces, the infomation obtained about geneato use and costs is often moe illustative. 2 Diffeences due to diffeent sizes of geneatos. 3 Only a vey few companies inteviewed had wate fom a public souce; the est had dilled thei own wells fom which they wee pumping wate fee of chage. 4 Thee is epotedly no waste wate teatment sevice povided by public entities in the Kabul aea. Companies eithe have a septic tank o ae not sue what happens to thei waste wate. 66 INVESTMENT HORIZONS: AFGHANISTAN

67 Table 4-12: Land and Buildings Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Numbe of Sites Consideed Befoe Choosing Pesent Site Availability of Land / Buildings (Rating) % Puchasing Site Cost pe m 2 (US$) Land peviously belonging to ownes N/A Additional Yealy Payments to Owne 1 1 Such as maintenance costs, in addition to ental costs. Scale fo availability of land/buildings: BETTER WORSE RATING 5 1 INVESTMENT HORIZONS: AFGHANISTAN 67

68 Table 4-13: Living Conditions Logistics and Tanspot Food and Beveage Textiles and Capets Mining All Fims in Logistics & Tanspot Small Package Handling Ai, Sea, Land Tanspot Supply & Waehousing Feight Fowade Cost of Living Level of Safety Intenational Schools N/A 1.0 N/A N/A Local Schools Health Cae Receation Activities Housing Thee ae two intenational schools cuently open in Afghanistan. Most of the inteviewees wee not awae of these schools; the local investos inteviewed had thei childen in local schools, and the foeign investos wee in Afghanistan without thei families. BETTER WORSE RATING INVESTMENT HORIZONS: AFGHANISTAN

69 Appendix 5: Tables of Findings Local Infomation The tables below eflect the compiled findings fom data collected fom souces of local infomation, such as sevice povides in eal estate and feight tanspotation. Table 5-1: Land and Facility Rental and Sales Costs 1 Sale Pice (US$ pe m 2 ) Constuction Cost (US$ pe m 2 ) Leasing Rate pe annum (US$ pe m 2 ) Land Industial Land 700 N/A N/A Land fo Office Building 1450 N/A N/A Land fo Hotel 1450 N/A N/A Buildings Standad Factoy Building N/A Class A Office Building N/A Class B Office Building N/A Hotel N/A 473 N/A Waehouse N/A 287 N/A 1 The costs ae aveages of quoted costs fom seveal eal estate agents in Kabul. INVESTMENT HORIZONS: AFGHANISTAN 69

70 Table 5-2: Official Utility Costs 1 Telecommunications Cost in US$ Pe Minute Local Call 0.12 Pe Minute Intenational Call, Adjacent County 0.57 Pe Minute Intenational Call, USA 0.43 Intenet Usage Costs/month Intenet Suchages 0 Electic Powe Electic Powe Consumption pe Kwh Electic Powe Demand Costs 2 0 Wate Wate Costs (afte well is dilled) 0 1 Investos on the gound epoted that these ates ae often negotiated diectly with the utility povide, o that the utility povide simply disegads these established ates and negotiates abitay ates with the end use. 2 Whee electic powe is available, only consumption is chaged monthly. No capacity demand is declaed, no is any chaged to the use. Table 5-3: Tanspot Costs 1 To Rottedam in US$ To New Yok in US$ To Long Beach in US$ To Yokohama in US$ To Singapoe in US$ Sea Feight 20 Containe 4,250 3,900 4,350 3,350 4,100 Ai Feight Geneal Cago <45 kg (pe kg) To Amstedam Schipol (US$) To New Yok JFK (US$) To Los Angeles LAX (US$) To Tokyo Naita (US$) To Singapoe Changi (US$) Quotes ae fom Febuay INVESTMENT HORIZONS: AFGHANISTAN

71 Table 5-4: Tax Rates 1 Land Tansfe Tax Tax on Goss Sales Tax on Pofits Sokook (Tax) on Capital Invested Income Tax Pecentages 1% 2.5% 25% 1% Code Whee Found At. 34 Income Tax Law & Income Tax Manual. Ats Income Tax Manual Aticle 3 Income Tax Manual Gazette #514, 31 Asad 1361 (1982). At.3, Chap. 2, Band 5 Method of Calculation Taxpaye Selling pice o maket value Individuals, patneships and families who sell the popety Goss eceipts, egadless of pofit, befoe any deductions Pofit as detemined by the copoation s balance sheet Initial capital invested at the time of incopoation, o late on investing new capital Copoations Copoations Copoations 1 Many investos on the gound epoted that the GoA had not yet begun collecting taxes fom them, even though they had been functioning fo seveal yeas. The 10% VAT is not unifomly collected. INVESTMENT HORIZONS: AFGHANISTAN 71

72 Appendix 6: Bibliogaphy Afghan-Ameican Chambe of Commece. AICC/AACC Tageted Investment Stategy: Daft Concept Pape, Afghan-Ameican Chambe of Commece. Thoughts on Refoming Afghanistan s Tax and Public Secto Resouce Mobilization Systems/Pocedues, Afghan Investment Suppot Agency. Investing in Afghanistan, Afghan Investment Suppot Agency. Facts and Figues, Afghan Investment Suppot Agency. Investing in Afghanistan: Business Oppotunities in Constuction Mateials, Afghan Investment Suppot Agency. Investing in Afghanistan: Business Oppotunities in Capet Industy, Govenment of Afghanistan. National Development Famewok, Afghanistan s Embassy to the United States. Afghanistan: Business and Development, Afghanistan Reseach and Evaluation Unit/The Wold Bank. The A to Z Guide to Afghanistan Assistance, Afghanistan Reseach and Evaluation Unit. Undestanding Makets in Afghanistan: A Case Study of the Raisin Maket, Altai Consulting/United Nations Development Pogam. Maket Secto Assessment in Hoticultue: Pesentation fo Phases 1, 2, 3, Altai Consulting. USAID Stategy: Pivate Secto Needs Assessment, Benstom, Richad/Beaing Point. State Owned Entepises, Bollyn, Chistophe. Mineal Rich Afghanistan a Valuable Copoate Popety, Bay, John/Multilateal Investment Guaantee Agency. MIGA s Expeience in Conflict-Affected Counties: The Case of Bosnia and Hezegovina, Byd, William. Afghanistan s Reconstuction: Regional and County Context, Byd, William and Wad, Chistophe. Dugs and Development in Afghanistan, Evans, Anne, Manning, Nick, Osmani, Yasin, Tully, Anne, and Wilde, Andew/ Afghanistan Reseach and Evaluation Unit/Wold Bank. A Guide to Govenment in Afghanistan, Evans, Anne, Manning, Nick, Osmani, Yasin, Tully, Anne, and Wilde, Andew/ Afghanistan Reseach and Evaluation Unit. Subnational Administation in Afghanistan: Assessment and Recommendations fo Action, Expot.gov Afghanistan. Afghanistan Business Pime, Fahat, Fahat/The Sevices Goup, Inc./USAID. Assessment of Afghanistan s Accession to the Wold Tade Oganization, INVESTMENT HORIZONS: AFGHANISTAN

73 Kakoff, Chip/The Sevices Goup, Inc./USAID. Expot Development and Pomotion in Afghanistan: An Assessment of Constaints, Potential, and Capacity, Industial Paks Development Authoity. Investing in the Futue of Afghanistan, Liste, Saah and Kaaev, Zainiddin/ Afghanistan Reseach and Evaluation Unit. Undestanding Makets in Afghanistan: A Case Study of the Makets in Constuction Mateials, Mille, Sutheland/The Sevices Goup, Inc./USAID. Administative Baies to Tade: An Assessment of Constaints Related to Tade s Licensing and Impot/Expot Pocedues in Afghanistan, Ministy of Commece. National Pivate Secto Development Pogam, Multilateal Investment Guaantee Agency. Needs Assessment of the Afghan Investment Suppot Agency (AISA) and Investigation of Policy/Regulatoy Famewok fo Industial Estate Development, On the Fontie (OTF) Goup. Findings of Industy Reseach of Afghanistan: Pesentation to Pivate Secto Development Dono Roundtable, Ois, C. J. and Bliss, J. D./U.S. Depatment of Inteio and U.S. Geological Suvey. Mines and Mineals Occuences in Afghanistan, Pain, Adam and Ali, Mohaam/Afghanistan Reseach and Evaluation Unit. Undestanding Makets in Afghanistan: A Case Study of Capets and the Andkhoy Capet Maket, Pagma/USAID. Afghanistan Maket Reseach Tip Repot, Ritte, Don and Kazai, Mahmood. The Washington Times. Tax Policy: Impact on Investment in Afghanistan, Ritte, Don and Panjshi, Atiq. The Washington Times. Ballots ove Bullets, United Nations-Habitat. Peliminay Study of Land Tenue Related Issues in Uban Afghanistan with Special Refeence to Kabul City, USAID, Afghanistan s Intenational Tade Relations with Neighboing Counties, U.S. Depatment of State. Afghanistan Pofile, U.S. Depatment of State. Doing Business in Afghanistan: County Commecial Oveview, U.S. Tade Repesentative. United States and Afghanistan Sign Tade and Investment Famewok Ageement, U.S. Embassy of Afghanistan. Afghanistan: Business Development, Wily, Liz Alden/Afghanistan Reseach and Evaluation Unit. Land Rights in Cisis: Restoing Tenue Secuity in Afghanistan, The Wold Bank. Afghanistan: State Building, Sustaining Gowth, and Reducing Povety, The Wold Bank, Secuing Afghanistan s Futue: Accomplishments and the Stategic Path Fowad, The Wold Bank. Tansitional Islamic State of Afghanistan Emegency Customs Modenization and Tade Facilitation Poject: Technical Annex, The Wold Bank. Tansitional Islamic State of Afghanistan: Mining as a Souce of Gowth, INVESTMENT HORIZONS: AFGHANISTAN 73

74 About the Reseach Company The Sevices Goup, Inc. (TSG) is an intenational economic consulting company poviding counties and businesses with specialized advisoy sevices to facilitate business expansion. TSG assists counties in designing policies, institutions, and facilities to pomote FDI, facilitate WTO-compliant expot gowth, and stengthen national economic competitiveness. TSG also assists manufactues, industial pak developes, and investment pomotion agencies in competitive benchmaking, site selection, location development, and maketing and pomotion techniques. 74 INVESTMENT HORIZONS: AFGHANISTAN

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