Crime and Corruption Undermine Afghan Investment

Like telecommunications and soft drinks, kidnapping is a growth industry in Afghanistan.



“We paid one million dollars for the life of my cousin,” said a local businessman, who said he had invested millions in the Afghan economy “for the love of my country and people”.



According to the businessman, a member of the Ahmadzai tribe who did not want to be named, his cousin was kidnapped in Kabul and held for over a month. His abductors demanded two million US dollars, and sent the hostage’s family videotapes of the victim being tortured.



“We did not pay right away - we tried to find other ways of freeing him. We asked for help from the government, but although the interior minister tried his best, he was unable to assist us. In the end we handed over one million dollars,” said the businessman.



Once the money was counted, the hostage was freed.



This is not an isolated incident. Wealthy businessmen present a tempting target to criminals, and, in Afghanistan’s lawless environment, some entrepreneurs are deciding that the risks outweigh the possible gains. Add to that Afghanistan’s notorious corruption problem, and the business climate looks desolate indeed.



“The businessmen have legitimate concerns,” said Hamidullah Farooqi, chief executive officer of the Afghanistan International Chamber of Commerce, AICC. “Lack of security is the biggest challenge that businessmen and investors face today. The current situation is intolerable for short-term investors. Long-term investors are held back by high-level corruption as well as security.”



According to Farooqi, corruption and the security situation are worse now than at any time since the fall of the Taleban nearly five years ago. This cannot help but have a negative effect on the business climate, he insisted.



A recent report issued by AICC contained the results of a poll of 3,500 businessmen and investors on their concerns. The report, called the National Business Agenda, stated, “Recently, anti-government factions have stepped up the level of violence… 2005 was the deadliest year since 2001, and 2006 looks to be even worse.”



The report added, “The recent upsurge in violence and insecurity has an obvious effect on investment in the private sector.”



But Omar Zakhailwal, administrative head of the Afghanistan Investment Support Agency, AISA, is adamant that the problems businessmen face are being blown out of proportion by the media.



“Yes, security is a problem,” he said. “But it will not be this way forever. There has been a lot of progress in the past few years.”



Interior ministry spokesman Zemarai Bashari told IWPR that his ministry will spare no effort to ensure the security of businessmen.



“The security situation is improving daily,” he said. “There are problems, but new security plans exist. I can assure all investors that good security measures will be taken to protect their property and their lives.”



The streets of Kabul are bustling with small enterprises, with car parts and building materials predominating. The mobile phone industry is booming, since most of Afghanistan’s landlines were destroyed during the decades of conflict.



Coca Cola opened a large new 25-million-dollar plant in September.



But most of the economy is still in tatters, with unemployment hovering at over 30 per cent, and there is little evidence that large-scale industry is developing inside the country.



According to Zakhailwal, close to 4.5 billion dollars have been invested in Afghanistan since the fall of the Taleban, with one-third of the amount coming just in the past year. This figure represents private investment rather than international aid, which has brought over 26 billion dollars in pledged assistance over the past four years. Over ten per cent of the commercial investment is concentrated in the telecommunications industry.



“There has been nothing like this in the history of Afghanistan,” he said. “This means the ground has been prepared. Despite all the problems, Afghanistan is a highly valued place for investment.”



Zakhailwal dismissed concerns over the kidnapping of wealthy businessmen and their relatives.



“This happens even in the most developed nations, like New York, London, and Paris. It does not create an obstacle to investment.”



The bulk of investment – over 80 per cent – comes from Afghan investors, he added. Afghanistan is still too unstable to attract big money from outside the country.



But even local investment is now at risk, according to one businessman.



“I have invested five million dollars in my company,” said Jamshaid Kohan, the managing director of Shaheen Technical Company, which imports car parts. “I could provide work for 400 people.”



Jamshaid said he had brought four Iranian partners into the business, but they fled when they saw what the situation was like.



Even though the security situation is far from ideal, Jamshaid - whose trade permit, he said, has been revoked on a technicality - believes corruption is by far his biggest concern, “Three different organisations have demanded my Mercedes as a bribe. I refused, and now my case is bogged down in the government. I have handed out over 1,000 dollars, as well as mobile phones. I cannot give more details, as my case is still in progress.”



The situation, he added, is close to intolerable, “If this keeps up, not only foreigners but Afghan investors as well will head for foreign countries.”



This is already happening, according to AICC’s Farooqi. While he does not dispute the figures given by AISA, he says investment is slowing down.



“The businesses that are opening now, such as the Coca Cola plant, are projects that were planned in 2002-03,” he said. “They are just now coming on line. But there are not many new projects in the works. No one dares to invest in Afghanistan now.”



AISA’s Zakhailwal accepts that administrative corruption as a big concern but adds that the fight against it is gaining momentum.



Afghanistan’s president, Hamed Karzai, has pledged to give full assistance to the nation’s businessmen. During the opening of the Coca Cola bottling plant on September 10, he renewed his commitment to trade and investment, which he deemed “the most important sector”.



Presidential spokesman Karim Rahimi said that, despite serious problems with security and corruption, the government was determined to honour its promises to investors.



“Opportunities for investment are getting better every day,” he said. “The government has put every effort into the fight against corruption.”



But some in the government seem less sure.



“We have been trying to combat corruption, but so far to little effect,” said Mohammad Azim Wardak, director of foreign trade at the trade ministry.



Over the past four years, his department has issued over 20,000 trade licenses, but few have been activated.



Still, things are getting better, he maintained, noting, “Over the past few years, many highways have been repaired. Mobile phones and airline companies are active, economic ties have been established with many countries, and Afghanistan now has political representation in many countries. This has made things much easier for investors.”



AISA’s Zakhailwal is also optimistic about future prospects. “I am confident that the future of Afghanistan is very bright, that there will be security and stability and that it will not always be like it is today,” he said. “We import about five billion dollars’ worth of goods yearly at present. It would be wonderful if we could make even half of those products in Afghanistan.”



Wahidullah Amani is an IWPR staff reporter in Kabul.