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Small investors struggle while Afghanistan hopes for big deals

21 October 2011
http://www.thenews.com.pk of 10/21/2011 - Afghanistan is in desperate need of investment to invigorate its tiny, fragile economy, but on top of the grave physical dangers of the decade-old war, businesses are put off by corruption, pitiful infrastructure, and a slothful bureaucracy.
Even after the billions of dollars of Western aid that have been pumped in, Afghan gross domestic product was only $15 billion last year, smaller than that of Cameroon, El Salvador and Uganda, and its jobless rate is around 30 percent. As it looks beyond the 2014 deadline for foreign combat troops to leave, the government is banking on potentially huge mining projects to bring in cash, not least to pay for the disciplined security forces it needs to prevent the country being sucked into a full-blown civil war.
But without a layer of small enterprises with the capacity to provide jobs, goods, services and taxes, the hoped-for enriching effect of big business will be severely limited. Yu Minghui, a Chinese merchant who has been trying to build a small steel plant on the outskirts of Kabul since 2003, should be welcomed with open arms. His factory will employ around 80 Afghans, and in a bright "swords into ploughshares" idea, recycle the military wreckage that decades of conflict has scattered across the country into steel wire for buildings.
Progress has been painfully slow, he says, and the Afghan authorities obstructive and money-grabbing. "To secure stable power supply alone, I had to wait two years," Yu said. "Even small matters like visa for technicians can be time-consuming, and additional money is sometimes demanded to make the whole process quicker." Lack of local manufacturing has led to a reliance on imports, which in turn discourages investment in domestic production. "Low quality products from other countries have a very bad impact on our products," said Ahmad Khalid Yarmand, manager at the Afghanistan Chamber of Commerce and Industries in the western city of Herat. "They are cheap so everyone prefers to use those products more than ours."
Foreign investment into Afghanistan has always been tiny, according to the United Nations Conference on Trade and Development (UNCTAD). Billions in aid cash is still pouring in, but foreign direct investment in 2010 was about 4 percent of that into neighboring Pakistan, and less than a tenth of Uzbekistan.
In the World Bank's 2011 'Doing Business' report, which measures how regulations affect the ease with which entrepreneurs can start and run companies, Afghanistan ranked 167 out of 183 countries, a survey which does not even include security risks. Many businessmen were unwilling to talk about the perils of working in a country where fighting kills on average more than 200 civilians every month, violence is spreading into once-peaceful areas, and traveling around swathes of the land is dangerous even for Afghans.
Some elements of Afghanistan's hostile business climate cannot be blamed purely on the war or officialdom. Landlocked and with few direct international flights, Afghanistan brings in almost all of its goods by truck from Pakistan, with tolls, bad roads and long journeys making prices expensive. Most Afghanistan-bound containers from China sail to Pakistani port Karachi, then are driven across the border.
Ye Shangqiang, a 60-year-old Chinese businessman who has sold construction and decoration products in Kabul since 2003, cited astronomical transport costs as one of the biggest obstacles to commerce. "These days, the total cost of shipping a 40-feet container from China to Kabul is as high as $20,000 due to delays and corruption," he said. Ye said the business environment has worsened since his arrival, and he was not optimistic about it improving. "If you have $100,000 investment plans here, I will say go ahead, but if you want to put down $1 million ... think twice." It will take a long time for Afghanistan to build the structures and culture that promote business, said Nicklas Norling, a fellow with the Central Asia-Caucasus Institute and Silk Road Studies Programme, a think-tank in Washington.
For the moment, getting money into the treasury is a higher priority. "Afghanistan is in urgent need of a steady income stream to pay its expenses. Only mining and natural resources exploration can accomplish this in the short term," he said. Meanwhile, aspiring steelmaker Yu struggles on with indifferent bureaucracy.