The Pulse

Leveraging Impact Investment in Post-2014 Afghanistan

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The Pulse

Leveraging Impact Investment in Post-2014 Afghanistan

Unlocking Afghanistan’s very real potential will require significant investment.

Leveraging Impact Investment in Post-2014 Afghanistan
Credit: M. Ashraf Haidari

In complex post-conflict environments, such as Afghanistan, security and development needs are intertwined. Without addressing both at the same time, it would be hard to ensure an enabling environment for sustainable economic growth. In other words, bullets alone cannot remedy Afghanistan’s situation. In the words of the campaign of former U.S. President Bill Clinton: “The economy, stupid.” That is a fact that is even more relevant in the fight against terrorism in Afghanistan.

A large number of the Taliban foot-soldiers, who former Commander of International Security Assistance Forces (ISAF) General David Petraeus used to call “ten-dollar-a-day Taliban,” are non-ideological. They have resorted to violence in the absence of a sustainable livelihood to support themselves and their families. Many of these rental fighters can and should be weaned off the battlefield by providing them with long-term incomes. This necessitates the creation of more jobs for Afghanistan’s youthful population in urban and rural areas, leading to a lasting stability. And those jobs should be sustainable in a productive economy, since history has shown that employment created through “quick fixes,” like cash-for-work projects, has only temporarily addressed what remains Afghans’ top need and concern, even before security.

Investment Opportunities

Afghanistan has urgent need for impact investment. Some 70 percent of its 30 million people are below the age of 25, many of whom are the breadwinners of large households, with additional dependents such as war widows and children. Because Afghans begin working from an early age to support their families, they are resilient and enterprising. At a relatively young age, despite a high rate of illiteracy, they constitute a responsible, energetic, and industrious workforce. Unfortunately, they lack access to skills development opportunities, capital, and credit to grow their small or medium businesses, which largely operate in Afghanistan’s vast informal economy.

This situation provides for numerous impact investment opportunities in every sector of the Afghan economy. In June 2012, at the Delhi Investment Summit on Afghanistan, the Afghan Ministry of Commerce and Industries presented to potential investors a detailed list of “Investment Opportunities in Afghanistan,” an updated copy of which is available online. At the summit, some 320 participating business representatives were informed of 25 different markets for investment in the following sectors.

· Energy
· Minerals
· Transport
· Agriculture and agribusiness
· Small and medium industries
· ICTs, finance, health services, and construction

With the exception of a few domestic and foreign “first movers” in each of these sectors and their related markets, most markets remain under-invested. The government of Afghanistan has frequently encouraged Indian and international investors to visit Afghanistan and see for themselves the countless, highly profitable investment opportunities in the country’s “virgin” markets.

Doing Business in Afghanistan  

To flourish, businesses need security and governance, and so not surprisingly most investors want to know about the business environment in Afghanistan. Insecurity and weak governance do actually undermine business efforts and put investments at risk. Like most post-conflict countries, Afghanistan is not free of these challenges, and the Afghan government continues to confront and address them in partnership with the international community.

Despite ongoing negative news about the situation in Afghanistan, the Afghan government has made monumental gains in building the military and civilian institutions of the state, based on one of the most progressive constitutions in the region, which provides for a private sector-led economy. The World Bank’s 2013 Doing Business Index ranked Afghanistan 28 out of 185 countries when it comes to establishing a business in the country. This has been made possible by the Afghanistan Investment Support Agency (AISA), which serves as a one-stop-shop for investors, foreign and domestic, enabling them to register and establish a business in Afghanistan within a couple of weeks.

And over the past 14 years, the Afghan government has enacted a number of commercial and investment laws, including a company law, consumer protection law, competition law, partnership law, and arbitration law, among others. This legislation has streamlined many of the problems associated with Afghanistan’s former centrally planned economy. However, while these laws meet international business and investment standards, there are times when a lack of institutional capacity prevents implementation and enforcement. In an effort to attract, facilitate, and retain long-term investment, the reforms agenda of the new National Unity Government of Afghanistan has prioritized the resolution of existing bottlenecks to ensure a business-friendly environment across Afghanistan.

The Way Forward

Afghanistan is a trade hub that links the Indian subcontinent with Central Asia, the Middle East, and China, a region that includes some of the fastest growing economies in the world. Its location also makes Afghanistan a natural locus for an emerging regional network of trade routes and pipelines.

The ease of competition and the ample potential for growth in Afghanistan are relatively new developments. For the first time in decades, Afghanistan enjoys the most investment-friendly environment in the region. The people of Afghanistan see these new opportunities as a way to rebuild their homeland. They are proud of their historical tradition of commerce and cultural exchange, dating back 2000 years, to the era of the Silk Road.

With each economic opportunity that is fulfilled, the people of Afghanistan move one step closer to reconnecting with their heritage and securing a future for their country. Indian and other regional investors are welcome to play a major role in helping the Afghan people fulfill their national destiny, which is intertwined with that of India and the rest of the region.

M. Ashraf Haidari is the deputy chief of mission of the Afghan Embassy in India. He formerly served as Afghanistan’s deputy assistant national security adviser, as well as chargé d’affaires and deputy chief of mission of the Afghan Embassy in the United States.