IMPACT OF SMUGGLING ON AFGHAN INDUSTRY: HERAT

C O N F I D E N T I A L KABUL 005250

SIPDIS

STATE FOR SA/FO, SA/A, EB
NSC FOR THARRIMAN, KAMEND
TREASURY FOR APARAMESWARAN
COMMERCE FOR AADLER

E.O. 12958: DECL: 12/26/2010
TAGS: ECON EFIN EAID ETRD AF
SUBJECT: IMPACT OF SMUGGLING ON AFGHAN INDUSTRY: HERAT
GYPSUM TRADE


Classified By: A/DCM ANGUS SIMMONS. REASONS 1.4 (B,D)


1. (SBU) PRT Herat State and USAID officers visited a Herat
gypsum manufacturer who had been forced to end production due
to a flood of lower-priced Iranian gypsum being dumped on the
Afghan market. The GoA, in theory, prohibits gypsum imports
(used in plaster, whitewash, chalk, etc.) in order, to
protect Afghan manufacturers. In practice, the prohibition
is observed in the breach. The wholesale price in Herat of
Iranian gypsum is about 10% lower than the cost of production
for the Afghan product, making it more attractive for Herati
wholesalers who then receive a higher profit margin in the
retail market. The factory owner with whom we spoke believed
the Iranians were targeting Afghan gypsum manufacturers like
himself in order to eliminate competition.


2. (SBU) Why is Afghan gypsum more expensive? Electricity
costs for one. The price of diesel in Herat (AF32/lt ) USD
0.65/lt) for running generators is 10 times higher than in
Iran. And running off the generator, the owner told us, is
just 10-15% more costly than off the grid. While the Iranian
company allegedly receives GOI subsidies, the Afghan company
pays a 5% tax on its raw materials, purchased from the
government-owned quarry, even though the company itself must
mine and transport the rock. The industrialist alleged that
the cascade of Iranian gypsum is part of a barter
arrangement, most likely for Afghan opium.


3. (SBU) Out of 100 employees, 40 have already been fired
since operations were halted. On site, about 16,000 bags of
gypsum inventory lie unsold. Unprocessed gypsum rock, valued
at over USD100,000.00 are also at the factory location.


4. (C) According to informed sources, the &illegal8 import
of gypsum is being facilitated by provincial political
leaders, up to the Governor. One report stated that Herat
Governor Anwari ordered the Head of the Border Police to
allow gypsum to enter without inspection. Another report
told of a shipment of over 15,000 tons of gypsum consigned to
the PRT in Qal-I Naw, Badghis. (We have heard other examples
of imports illegally consigned to tax exempt entities,
including to PRTs, UN agencies, and NGOs.)

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Comment
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5. (C) Gypsum is a bulk product, heavy and difficult to hide,
and unlikely to be smuggled over difficult terrain or on pack
animals. It is entering Afghanistan under the eyes of Afghan
customs officials who when asked, acknowledged that its
importation is prohibited by the Ministry of Trade. This is
just one example of Afghanistan's corrupt customs system, and
how local investment is being crushed by predatory Iranian
trade practices. But the gypsum trade is also evidence that
the rot, permitting flagrant violation of Afghan law, runs
above and beyond local customs officials.
NEUMANN