Herat Firms in Trouble

The shutters have come down for the last time at the Sadiqi Cake and Biscuit Baking Company in the western city of Herat, bordering Iran. It is the same at Sultani Steel, the Zuhori Battery plant and the Sadiqi soft drinks firm.

The shutters have come down for the last time at the Sadiqi Cake and Biscuit Baking Company in the western city of Herat, bordering Iran. It is the same at Sultani Steel, the Zuhori Battery plant and the Sadiqi soft drinks firm .

These companies are not alone. About ten businesses have closed within the past year while others say they are close to bankruptcy. The crisis is curbing the optimism that saw more than 50 firms spring up after the fall of the Taleban regime in 2001.

Entrepreneurs blame the state subsidies received by their competitors in Iran and the government in Kabul for failing to protect them.

Mohammad Tahir Sadiqi told IWPR he invested 150,000 US dollars last year to set up his bakery firm. The staff of 16 produced four cartons of baked products weighing a total of ten kilogrammes every day.

"When we started production, one Iranian carton of the same items cost 36 dollars, and we marketed ours at the same price. But later, the Iranians cut their prices to 32 dollars, which we had to match in order to compete," said Sadiqi.

"Then our competitors started selling at 24 dollars, and with every 50 cartons sold they’d give one free. We couldn’t continue any more."

Sadiqi said he had sold his two houses in Kabul and Herat to try to rescue the company, but had failed.

"Iranian importers have taken control of Afghanistan's markets, especially in Herat," he said.

Sadiqi said he complained to the deputy governor of Herat province, who, he says, replied, “If we interfere, the Iranians will get upset."

For Ghulam Qadir Akbar, chairman of the local chamber of commerce, the problem is that the free market has come to Afghanistan too quickly.

"Although the free market system is a modern process… in Afghanistan it will prevent local businessmen from investing because they cannot compete with foreigners," said Akbar. “That’s why I say this process is ahead of its time.”

Some 500 workers, often the sole breadwinners in a large families, have been thrown out of their jobs in the past year by the failure of local firms, with each worker losing a salary of between 80 and 200 dollars a month, he said.

Akbar blamed the finance ministry for setting import tariffs on imported goods too low, and said local businessmen need government support if they are to survive.

"If Afghanistan’s industrial class does not get support and customs duties are not increased … this will bring about the bankruptcy of more domestic companies," he warned.

Mohammad Azim Wardak, in charge of foreign trade at the Afghan commerce ministry, was also critical of the level of customs duties, which he said needed a fresh look.

"There are lots of defects in the customs law, which the finance ministry approved without anyone seeking the opinion of the commerce ministry or Afghan businessmen. It needs to be reviewed in some cases," said Wardak.

But Aziz Shams, press officer at the finance ministry, said a delegation from the chambers of commerce was present when the customs law was drawn up.

One of the companies now threatened with closure is Khwaja Abdullah Ansari, an aluminium-smelting firm set up with an initial investment of 400,000 dollars. The company processes 500 kilos of aluminium a day into pressure cookers, pots and pans and other items.

But the same items are now pouring in from Iran and Pakistan and being sold for less than the Afghan-made ones on the local market.

Ansari director Shah Mahmood Ahmadi accused Tehran of subsidising its exports.

"The government of Iran has pledged to cover 20 per cent of the total export costs of those firms able to export to Afghanistan. If they can get a 20 per cent subsidy for their exports, we can’t compete with them,” he said.

If Kabul does not act soon to raise customs levies, the aluminium company will have to close its doors and all 30 workers will lose their jobs.

Economic analyst Hamidullah Farooqi argues that the problems experienced in Herat and elsewhere are a normal by-product of a free market.

"If producers cannot manufacture cheaply they will fail, and investors will put their money wherever businesses can produce at low cost," he said.

Farooqi said it would be a mistake for the government to interfere in the workings of the free market, but added that it could at least ensure that local manufacturers are able to obtain raw materials at reasonable prices.

Back at the deserted bakery, Sadiqi said he had remained in Afghanistan throughout 25 years of devastating war, but now he had no money left to invest and was unable even to earn enough to feed his family.

"When my life and that of my family was in danger, I did not emigrate, but now, at the age of 65, I have decided to get out,” he said bitterly. “I’ll find a job washing dogs in some European country."

Mohammad Jawad Sharifzada and Abdul Baseer Saeed are IWPR staff reporters in Kabul.