Business & Investment in Afghanistan

…the Heart of Asia

 

Following five years of rebuilding efforts, Afghanistan has finally begun to see the fruits of development in major cities -- largely in part of the initiative of the private sector. The Afghanistan Investment Support Agency (AISA), as a “one-stop shop” for foreign and domestic investment licensing, reports that 754 foreign companies from 25 countries have registered investments valuing at $1.3 billion in various industrial sectors in including telecommunications, transportation and logistics, food processing, banking, tourism and trade. Of this, 70 have been registered from the U.S., totaling $75 million in investment.

Turkey is, by far, the largest foreign investor in Afghanistan followed by Germany, India and Pakistan. In terms of industrial sectors, telecommunication is the biggest success story, experiencing phenomenal growth and revolutionizing how business is done in Afghanistan.

TELECOMMUNICATION

Afghan Wireless inaugurated GSM services in Kabul in April 2002. Since then, the company has invested a total of $75 million and employs 800. In late 2003 Afghan Wireless completed a $14 million upgrade of its switching platform to accommodate accelerating demand, utilizing a 100,000-line Siemens switching platform that replaced smaller switches from the U.S. vendor, Tecor. Afghan Wireless is 80 percent owned by Telecommunications Systems International (TSI) of the United States and 20 percent by the Afghan Ministry of Communications.

Roshan began operations in July 2003 with an initial capital base of $55 million and plans a total investment of $120 million. They provide coverage in Kabul, Herat, Kandahar, Mazar-i-Sharif, Jalalabad and Kunduz. Roshan secured about 60,000 subscribers in the first six months of operations and subsequently split a market of 662,500 subscribers with Afghan Wireless. Roshan is a consortium, with a 51 percent stake by the Aga Khan Foundation for Economic Development. Other shareholders include Monaco Telecom International (35 percent); MCT, a U.S. telecom holding company with networks in Central Asia (9 percent); and, Alcatel (5 percent).

Areeba Afghanistan, the third private cell-phone company in Afghanistan launched its services in Kabul, Mazar-i-Sharif, Kandahar and Jalalabad in July 2006 with an investment of $140 million. The International Finance Corporation (IFC) of the World Bank has a $45 million stake. The company is wholly owned and managed by Investcom, an international provider of telecommunications services listed on the London and Dubai stock exchanges. Areeba Afghanistan plans to build a nationwide cellular network that will provide mobile services throughout Afghanistan. The mobile license awarded to Areeba Afghanistan requires the company to provide 50 percent coverage of Kabul within six months of commencing operation and 80 percent coverage of certain other major cities within the first year of operation.

The Afghan Ministry of Communications announced that a fourth company in the name of Etisalat would also start operating shortly.

FOOD PROCESSING

Coca-Cola returned to Afghanistan after a 15-year absence with an investment of $25 million on a bottling plant and a water-purification facility. The company also had to build a separate facility to produce the carbon dioxide gas needed to make the drink carbonated and generate its own power for the 60,000 square meter plant. Habib Gulzar International, the franchisee of Coca-Cola in Afghanistan, expects to create 600 jobs, with the possibility of generating 8,000 more in allied industries. Afghan-made Coca-Cola, Fanta and Sprite began distribution in early 2006, servicing even regional markets in Central Asia and cost marginally less than Coca-Cola imported from Pakistan and Iran.

HOTELS

Tourism Promotion Services (Afghanistan) Ltd., a subsidiary of the Aga Khan Fund for Economic Development (AKFED), invested $27.8 million (with a $7 million loan component from the International Finance Corporation) to establish the Kabul Serena Hotel by completely renovating and expanding the old Kabul Hotel which was originally built in the 1930s. Serena Hotels operates the five-star 160-room hotel.

BANKING

Da Afghanistan Bank has licensed 12 commercial banks to date. Out of twelve, seven banks are full-fledged commercial banks and the remaining five are branches of foreign banks. The full-fledged commercial banks include: Bank-e-Millie Afghan or National Bank (parastatal bank); Pashtany Tejarati Bank or Pashtany Commercial Bank (parastatal bank); Export Promotion Bank (parastatal bank); First Microfinance Bank (an Aga Khan/IFC joint venture); Kabul Bank (a solely Afghan-owned bank); Afghanistan International Bank (an ING-affiliated enterprise with American equity); and, Arian Bank (joint venture of Bank-e-Mille “National Bank” of Iran and Bank-e-Saderat “Export Bank” of Iran). The branches of foreign banks include: Standard Chartered Bank (UK); National Bank of Pakistan (Pakistan); Habib Bank Limited (Pakistan); Punjab National Bank of India (India); and Bank Alfalah Limited (Pakistan). There is a small number of non-bank financial institutions (11 micro-finance institutions, one credit union and one leasing company), but these institutions meet only a small fraction of credit needs. There are no credit bureaus or credit rating agencies.

Standard Chartered Bank of the United Kingdom opened for business in Afghanistan in January 2004 with an initial investment of $1.5 million. They are one of the pioneering banks in Afghanistan that have introduced modern banking facilities to the country. They aim to roll out full service facilities, including automatic teller machines, internet banking and cash management services in all 32 provinces. Currently, they cater to more than 3,500 customers including both corporate and retail clients.

The First Micro-Finance Bank of Afghanistan, with a total investment is $3 million, is a full-service financial institution providing both credit and savings products. It is the first commercially sustainable micro-finance institution in Afghanistan contributing to the development of micro-finance as a viable and attractive commercial activity, and providing financial services to the poor and underserved. The Aga Khan Fund for Economic Development (AKFED) is majority shareholder with the IFC taking a shareholding of 25 percent.

MINERALS AND MINING

Afghanistan’s mining industry offers a wealth of possibilities for the prospective investor, yet this lucrative sector is often overlooked by the global investment community. Although recent studies by the United States Geological Survey have determined that Afghanistan’s resource base is significantly greater than previously understood, the country’s mining sector remain virtually untouched.

TRANSPORTATION AND LOGISTICS

DHL & FedEx have both begun operations since 2002. FedEx is represented in Afghanistan by a nominated Service Contractor, Afghan Express Ltd., servicing Kabul, Kandahar and Herat.

CONSTRUCTION

The Ministry of Mines and Industry announced in July 2006 that four new private cement factories would be established in the next three years to help fulfill 50 percent of Afghanistan’s cement requirements of as much as eight million tons per year. Two of the four have already been granted licenses: InvestCom and Safi Brothers. InvestCom, slated to be the biggest private cement factory, will be established in Pul-i-Khumri in two years and will have a daily production output of 7,000 metric tons. Safi Brothers will be established in Herat and will have a daily production output of 3,500 metric tons. The Ministry of Mines and Industry will award the remaining two licenses to operate in Herat, Baghlan, Kandahar, Nangarhar and Bamyan to companies with a minimum investment of $140 million.

INVESTING IN AFGHANISTAN: WHERE DO OPPORTUNITIES LIE?

In addition to AISA’s services to companies, AISA also does worldwide Investment Promotion “road shows”, traveling to major cities to educate the public on investment opportunities in the country. In October 2005, AISA and the Embassy of Afghanistan in Washington, DC, organized Investing in Afghanistan…the Heart of Asia, the first ever investment promotion tour in the United States. The second annual North American tour is now scheduled to take place October 29 – November 10, 2006 covering the cities of Washington, DC, New York, Des Moines, Los Angeles and Toronto.

Another major achievement has been the creation of the Afghanistan Reconstruction and Development Service (ARDS), which handles procurement of Afghan Government funded projects. Companies from around the world are welcome to register with the ARDS to be placed on supplier lists and to receive procurement and project notices. This open and transparent online system has made offering goods and services for Afghan Government funded projects much easier.

The Afghan Government has also worked with USAID to establish three new industrial parks. These parks will offer power, water, sewer and road connections that will allow investors to establish factories, plants and offices. Lease inquiries can be made to the Industrial Parks Development Authority (IPDA) within AISA.

For additional information, please go to: www.afghanistan.business-gateways.com

REASONS TO INVEST IN AFGHANISTAN

As many companies who have already started projects in Afghanistan have discovered, there are many business opportunities in Afghanistan. Although there are many contracting opportunities, investing in Afghanistan and its people is highly encouraged and will lead to the creation of additional opportunities. You may ask yourself, why invest in Afghanistan? Some of the major reasons include that Afghanistan provides:

- One of the lowest custom tariffs in the region

- Streamlined procedures for business registration through AISA

- Low tax rates

- Low labor costs

- A growing domestic consumer market

- An opportunity to create employment for women

- An eager and committed work force

 

Some of the key sectors for investment include:

- Agriculture and agro processing

- Architectural, construction and engineering services

- Building and construction materials

- Power generation and transmission

- Oil and gas exploration

- Telecommunications

- Food processing

- Manufacturing

- Textiles and carpets

- Education services

- Consumer electronics

- Transportation

- Equipment and machinery sales and leasing

- Irrigation technology

- Leather and leather processing

- Precious and semi-precious stones

- Marble and other industrial stones

- Chemical and pharmaceutical products

LAWS

The Afghan government has been extremely proactive in passing laws since 2001. Among them are the

Anti-Money Laundering Law

Central Bank Law

Environmental Act

Hydrocarbons Law

Income Tax Law

Insurance Law

Insurance Amendment

Investment Law

Minerals Law

Tax Incentives for Investors

CONCLUSION

With increasing stability and increasing investments in roads, railways and air routes, entrepreneurs can trade not only with Afghanistan, but also with Central and South Asia. Already, goods are flowing from Central to South Asia, from India to Iran and back.

Thus, by investing in Afghanistan, you are not only accessing a market of 25 million, but a market of 150 million just in the areas immediately surrounding Afghanistan.

The country’s developmental challenges are many, but they are not insurmountable.

Security in some areas, lack of clarity regarding administrative structure, and lack of information are just some of the challenges that businesses may face. However, for those who are patient, have a long-term plan and vision, and work with Afghans to create partnerships, there are many opportunities for successful enterprises and investments in Afghanistan.

By creating jobs and new business opportunities, it gives the citizens of Afghanistan hope for their future. Thus, your investment is not only a business venture, but also an investment in regional and world stability.