Business Opportunities in Afghanistan
by Allison Thompson, Freelance Writer for the Western Pennsylvania International Business Newsletter

Afghanistan is in the midst of a fundamental political, economic, and social transition following nearly 23 years of war and upheaval. A significant international effort to reconstruct Afghanistan is currently under way, led by the United States and other international donors. Substantial short-term opportunities for U.S. firms are linked to the donor reconstruction effort. U.S. firms are advised to monitor programs established by international financial institutions such as the World Bank and the Asian Development Bank as well as projects that may be established by the U.S. government's $1.2 billion acceleration program.

Limited Afghan purchasing power will hinder large scale U.S. exports to this country for the foreseeable future, although there will be niche markets for specific products. The nascent commercial banking system, and the lack of proper telecommunications, developed transport links, and a functioning legal system make this a difficult market, but one with substantial opportunities for U.S. business. Business infrastructure, while virtually non-existent in Afghanistan, is improving rapidly. In September 2002, President Hamid Karzai signed his country’s new “Law on Domestic and Foreign Private Investment in Afghanistan,” allowing, among other things, 100% foreign ownership, full transferability of profits outside of the country, international dispute resolution mechanisms, and stream-lined investment licensing procedures. Since the passage of the investment law, over 5,700 investment licenses have been approved. In September 2003, Afghanistan’s Ministry of Commerce inaugurated the Afghan Investment Support Agency (AISA), a “one-stop shop” for foreign investors to receive necessary documents and other information for establishing a business venture. The Afghan government has considered privatization of state industry and the development of oil, gas, and precious and semi-precious stones to attract foreign investors, but progress in these areas has been limited.

Transportation is a major obstacle to increased commerce in this landlocked country and is a major element of the reconstruction effort. Transportation is very difficult, given the basic absence of road and rail infrastructure, with only 15 miles of railroad and less than 2,000 miles of paved roads at the beginning of the reconstruction efforts. During the anarchic period of the 1980s and 1990s, the nation’s phone lines were excavated by fighters digging trenches and often stripped for copper by scavengers. There are just 12,000 functioning telephones in Kabul, a city of nearly two million. The Ministry of Communications has moved aggressively to improve communications services throughout the country.

Business development in Afghanistan is not easy for those with little international trade experience. Basic tools of doing business – from telecommunications to local staff to a decent hotel room – are in short supply and only now beginning to make the steep climb to international standards. Decision-making in the Afghan government is slow, bureaucratic, and at times non-transparent. Given the transient security situation throughout the country, insurance companies are very hesitant to issue coverage for cargoes consigned to or transiting Afghanistan. Political violence remains a general concern and needs to be factored into each business case.

Strong local knowledge is a vital part of business development in Afghanistan. It is important to know the players, their relationships with the government and throughout the country, and their ability to do business with U.S. firms. Formal distribution and sales channels as known in the west do not exist in Afghanistan. Establishing an office remains more of an art than a procedure, and market-savvy Afghans can help with the bureaucratic registration process. The U.S. Department of Commerce strongly advises, however, that before U.S. companies align their business interests too closely with anyone purporting to serve as a conduit to the Afghan government, they check with the U.S. Embassy’s Economic Section to review the bona fides of the individual in question.

The United States is spearheading the reconstruction effort and is the largest donor of humanitarian and development assistance to Afghanistan. The U.S. government’s commitment of an additional $1.2 billion to accelerate Afghan reconstruction efforts will bolster new and existing public and private sector reconstruction programs. Businesses interested in seeking business opportunities in Afghanistan in 2003 and 2004 should consider this recently inaugurated acceleration policy as an indication that the U.S. and the international community is committed to the long-term prosperity and stability of Afghanistan.

Since October 2001, the United States has provided well over $1.8 billion in mostly humanitarian assistance to Afghanistan through the U.S. Agency for International Development (USAID). USAID has taken a leading role in the reconstruction effort, focusing on immediate relief including provision of food aid, wool blankets and quilts, shelter kits, and winterized tents. As part of rehabilitation and reconstruction efforts, USAID focuses on health clinics and basic health services, school construction and education programs, revitalizing agricultural through irrigation systems, farm-to-market roads, market centers, and better technology, and infrastructure, including the Kabul-Kandahar-Herat highway. USAID is also funding programs that enhance the central government's credibility and provide it with the tools and technical assistance to govern effectively.

To facilitate U.S. company participation in the Afghanistan reconstruction effort, the U.S. Department of Commerce created the Afghanistan Reconstruction Task Force to support U.S. private sector involvement in reconstruction and to contribute to U.S. government efforts to promote bilateral trade and investment. The Task Force has highlighted several industry sectors for business development, including electric power, water and sanitation, telecommunications, natural resource mining, transportation and construction. While Afghanistan reconstruction projects may provide U.S. companies with commercial opportunities, they also carry risks, not only financial, but also physical, due to the lack of security in many areas. Interested U.S. companies can call (202) 482-1812 or visit the Web site http://www.export.gov/afghanistan.

Afghanistan's need to completely renovate its infrastructure will present opportunities for American firms. However, this will be severely hampered in the short-term by the very limited purchasing power of the Afghan population. Business opportunities are driven by the overall rebuilding effort, donor assistance, and the ability of U.S. firms to participate in larger projects. The U.S. Department of Commerce has provided a list of U.S. goods and services that appear, based on an informal study of the market in Kabul, to have strong demand. This list is not prioritized; however, it does convey the broad, extensive nature of the potential import market in Afghanistan. Hard to maintain, expensive, high technology items will not sell well in Afghanistan. Competition from lower-quality, cheaper goods and services from Pakistan and Iran should be taken into consideration when preparing quotations.

Short-Term Opportunities

• Architectural, construction, and engineering services
• Building materials for both residential and commercial properties
• Computer hardware, software and peripherals (to include Dari language capability)
• Telecommunications services and equipment
• Diesel generators for independent power supply
• Education/training Services
• Consumer electronics
• Heavy equipment, including trucks, trailers and buses; motor graders, concrete mixers, heavy duty dumpers, paver finishers, and bulldozers
• Security and safety equipment
• Automobiles/light trucks/vans and development of dealerships for 4x4 vehicles (sales, parts, and service)
• Translation services, including simultaneous, conference style translation products
• Office furniture

Medium-Term Opportunities

• Aircraft/aircraft parts
• Airport/ground support equipment
• Electrical power systems
• Oil and gas field machinery, oil, gas and mineral exploration and production services
• Agricultural chemicals, machinery, equipment and services
• Food processing and packaging equipment for nuts, raisins, and other fruits
• Irrigation planning and technologies
• Road upgrades, lighting and signage
• Transportation services (other than aviation)

Finally, while the U.S. Embassy in Kabul encourages U.S. companies to review business opportunities in Afghanistan, it is important to keep in mind the fluid security situation in the country. Travelers should consult the State Department Web site http://www.state.gov - (see Consular Information Sheet and Travel Warning Page) prior to any travel.

The USAID web site, http://www.usaid.gov, has a business and procurement link that lists upcoming procurements including solicitation documents, announcements, and other resources. This site is updated daily and offers e-mail notification when a new solicitation has been uploaded to the site. U.S. firms interested in bidding on USAID projects in Afghanistan can review requests for applications, proposals, quotations, and invitation for bids on this web site. U.S. firms should also review the main portal for U.S. government procurements at http://www.fedbizopps.gov.

The Overseas Private Investment Corporation (OPIC), an independent agency of the U.S. government, offers specialty insurance (stand alone terror/sabotage and political risk coverage) and loans to help U.S. businesses of all sizes invest and compete in more than 140 emerging markets and developing nations worldwide. A $100 million line of credit is available to projects that demonstrate a substantial U.S. participation, promise significant benefits to the economic and social development of Afghanistan, and foster private sector competition in Afghanistan. OPIC gives preferential consideration to projects that significantly involve U.S. small businesses. OPIC is actively developing several projects in Afghanistan. For more information, visit http://www.opic.gov.

The U.S. Trade and Development Agency (USTDA) advances economic development and U.S. commercial interests in developing and middle-income countries. The agency funds various forms of technical assistance, feasibility studies, training, orientation visits and business workshops that support the development of a modern infrastructure and a fair and open trading environment. USTDA moved quickly to establish its program in Afghanistan, and already has approved funding of about $3 million for activities in that country.

You can also start the pursuit of business in Afghanistan right in your backyard with the U.S. Commercial Service Office in Pittsburgh. Call: (412) 644-2800.