Por MARC W. HEROLD
Department of Economics - Whittemore School of Business & Economics - University of New Hampshire

[WINZIP]

No major foreign equity investment in either the goods or the resources-producing sectors in Afghanistan has been made, notwithstanding Karzai's frantic travels abroad seeking to woo investors. This contrasts sharply with Afghanistan under the Taliban [1996-2001] when both the giant U.S. oil firm, UNOCAL, committed to building a trans-country gas pipeline and a private New Jersey-based enterprise, Telephone Systems International Inc., secured a license from the Taliban to set up an integrated, high-tech communications network costing $240 mn.[1]  The Taliban for all their faults, were able to put in place a degree of  political stability and the means to enforce contracts - after all, in one year they reduced poppy cultivation to next to nothing. Under the "non failed state" of Karzai, on the other hand, poppy production has soared. Afghanistan's share of the world heroin market rose from 12% in 2001, to 76% by 2003.[2]

To-date, direct investment has involved two cell phone companies, two air express services, three hotels, four [minor] airlines establishing links with Kabul, a Chinese importing agency, and private individuals in some restaurants [e.g., B's Place set up by an Australian[3] and the new Thai restaurant], bars [e.g., the British-owned Irish Club but recently forced to close[4]], and the like. Mini-skirted waitresses [replaced in April 2003 by dresses slit to the thigh[5]] served Tsing Tao beer to customers eating barbequed pork at the Chinese Restaurant in Kabul, opened in November 2002.[6] World Airways and Swiss Skies secured a $ 102 mn 2 1/2 year contract for bi-weekly flights between Dulles airport and Kabul, explicitly targeting the large NGO and governmental communities in Washington and Geneva as passengers.[7] The British Standard Chartered submitted a request for a license to operate a full-line commercial bank branch in Kabul, as did the state-owned National Bank of Pakistan.[8] An American investor from Florida, Stephen King, is reported to have purchased the defunct state-owned, large German-built Gulbahar cotton textile enterprise.[9] Another American investor - Marc Seidner's Permanente Corp. - has joined with Afghan Americans in a proposed vast $ 2 bn farming and forestry project in Afghanistan, which

"over the next decade...can transform vast dust-blown wastelands into rich forests, chicken and turkey farms and fruit and nut orchards that could generate about $ 6 bn a year."[10]

Minor investments from neighboring Iran and Pakistan have been made. Equity investments by Afghan expatriates have occurred given their superior knowledge about the country, a better understanding of risks involved and expectations of benefits in addition to the immediate return on investment

No manufacturing, no mining and no gas pipeline deals have been consummated.[11]

A prospective private equity investor will examine  the risk-return trade-off, being able to have equity contracts enforced, and have the ability to withdraw their stake quickly. If an institutional structure does not exist which protects the equity investor or the long-term investors, investments simply will not be forthcoming. Other factors raise the cost of conducting business in Afghanistan, including endemic corruption, bureaucratic red tape, absence of banking and legal infrastructure, etc.[12] No risk-averse foreign investor will contemplate putting in hundreds of millions of dollars to build a gas pipeline through Herat, Helmand and Kandahar provinces linking gas supplies in Turkmenistan with Pakistan. Nor will a capitalist investor spend the millions of dollars necessary to build infrastructure and develop the isolated Ainak copper deposits in Logar province.[13] 

On September 1, 2003, Taliban rebels attacked security positions guarding reconstruction of the Kabul to Kandahar highway, killing at least seven Afghan police and employees of the Louis Berger Group.[14]

The United States government operates an investment insurance facility called O.P.I.C. which has offered a $40 mn insurance coverage to Hyatt International for a planned deluxe, 205-room hotel to be built, not surprisingly, opposite the U.S. Embassy.[15] OPIC also provided a loan to The Berkeley Group/World Airways.[16] On June 16, 2003, Afghanistan joined the World Bank's Multilateral Investment Guarantee Agency [MIGA] which provided political risk insurance for investments [against exporting profits, expropriation, breach of contract, damage from war and civil disturbance].[17]  Both these schemes in effect socialize the risk of private direct foreign investment in Afghanistan.

The investments which have occurred [see Table 1 below] have been in services provision, largely in the ISAF-protected Kabul. The cell phone companies operate equipment in a half dozen major cities. Cell phone companies have small capital investments consisting mostly of towers and personnel. An Internet cafe has been set up in Kabul's Intercontinental Hotel by AWCC. Two minor-league, charter airlines have established weekly service to Kabul: World Airways/Swiss Skies from Washington and Germany's L.T.U. from Dusseldorf.  But, the weekly LTU flight has been condemned by a German pilots' group as being reckless and dangerous given mines next to Kabul runways and possible anti-aircraft rockets.[18] Azerbaijan's state-run AZAL has three flights a week joining Kabul with Baku. Iran's private airline, Mayan, began flying the Teheran-Kabul stretch twice a week with an Airbus, in May 2002. The ground fire hitting an Ariana Airlines Boeing 727 taking off on July 26, 2003, from Kabul might even discontinue those connections. As with the two express delivery companies, these stakes represent minor investment exposure within Afghanistan itself. DHL leases an old Russian Antonov-12 to fly between Kabul and Bahrain, DHL's Middle Eastern hub.  A total of about $ 120 mn has been invested, but  fully 88% of that is made up of the two investments by cell phone consortia, or 75% comes from just one source, the Aga Khan Fund .

At the handover of the ISAF command to NATO in Kabul, on August 11^th, Karzai [again] distinguished himself in imagery rather than substance.  He proclaimed

"today we have a truly international city. Today we have a city where people can come and invest....we have in this city a Thai restaurant...we have restaurants from India and China...."[19]

Yes, an international army is in Kabul without which Karzi would long be history. And yes, foreign investors have established a few restaurants, but this is a far cry from what Karzai's commerce minister, Sayed Kazemi had suggested in April when he mentioned that foreign investors were preparing to pour billions of dollars into the country. The first Chinese restaurant, The Golden Lotus, opened in Kabul in the 70's.

On the other hand, foreign aid grant disbursements to Afghanistan totaled $ 1'836 mn [January 2002 - March 2003],  which when set in relation to the country's G.D.P. estimated at $ 4'400 mn for 2002 by the Asian Development Bank, yields a very high ratio of 42% .

What also clearly emerges is that the direct investments which have been made do not require long-term capital commitments and can be quickly withdraw if necessary. Not until some semblance of stability and predictability exist in Afghanistan will foreign investment commit. Most importantly and most egregiously missing in Karzai's Afghanistan, is a legal system to enforce contracts.

In addition, the investments made cater exclusively to the urban upper middle classes [both the huge foreign expatriate community, the returned Afghan exiles, and the Karzai bureaucrats] and do little to garner mass support and political stability. The average wage in Kabul is $ 1/day.  AWCC's low-end, hand-held Nokia model sells for $ 290 and a Motorola set goes for $ 350.[20]  One hour at the new Internet cafe costs $5.  Round-trip Teheran-Kabul on Mahan Airlines costs $330. Business class round-trip Dulles-Kabul, will cost $7'500. This says much about the role of foreign investment in Afghan "reconstruction." As I and others pointed out long ago, foreign investors in non-extractive activities do not develop markets, they follow markets and they tend to produce complicated products in complicated ways in order to appropriate scarcity rents.[21]  Given the income distribution, the endemic poverty in Afghanistan and the high-risk environment, no rational investor will gamble asset exposure in Karzai's Afghanistan. 

Too risky to commit to.

Table 1.  Direct Foreign Investment in Karzai's Afghanistan