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08KABUL1602 2008-06-29 09:43:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kabul
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1. (SBU) Summary: Private sector activity, spurred by trade across
the new Afghan-Tajik bridge, and improved security are driving
economic growth in Kunduz. Security has benefited from improved
Afghan army and police capabilities, institutionalized co-operation
amongst the security forces and a temporarily reinforced Provincial
Reconstruction Team (PRT). However, limited governance capacity, a
lack of reliable energy, and inconsistent application of the rule of
law prevent greater growth. It is important that the stabilizing
reserve force and army and police mentoring functions remain.

Afghan-Tajik Bridge Brings Economic Growth


2. (U) Kunduz has benefited from the seven-fold increase in traffic
across the Afghan-Tajik bridge. Multiple gas stations and hotels
have sprung up throughout the city to cater to increased vehicle
traffic. Kunduz's central business district has grown with new
business improvement projects. The city hosted an agriculture fair
June 19-21 that included a delegation of 50 Tajik businesspeople.
The successful and secure event underlined the region's potential
for trade and the Afghan government's ability to provide security
for an event that approximately 20,000 people attended.

3. (U) Nowhere is the growth and dynamism more palpable than at the
border city of Sher Khan Bandar. The European Commission will
complete the construction and re-location of the Commercial Customs
facility from Kunduz to Sher Khan Bandar by the end of 2008. An
Afghan private investor has committed to investing USD 1.5-5 million
for a 1600-shop bazaar in a public-private partnership. Finally,
the Chinese government announced in May 2008 its plans for a USD 3
billion rail-line from Sher Khan Bandar as part of the Aynak Copper
Mine project.

Afghanistan-Tajikistan Cooperation


4. (U) In January 2008, Afghanistan and Tajikistan reached an
agreement to facilitate the issuance of vehicle road passes for the
two countries. In March, the two countries announced an inter-state
bus service from Kunduz to Dushanbe. Discussions are on-going for
the establishment of a Tajikistani consulate in the province. An
energy agreement is currently in place, but Tajikistan's irregular
winter production led to a three-month hiatus in electricity exports
to Kunduz. Kunduz currently has no large-scale independent electric
generation capacity.

Security Improvements


5. (SBU) The U.S. and German militaries provide continual mentoring
and training to the Afghan National Army (ANA) and Afghan National
Police (ANP). The Focused District Development (FDD) program
included Chaha Dara district's ANP in the first round of training
and in July, Emam Sahib is slated to be trained as part of FDD Cycle

4. The ANA will field a new brigade in Kunduz in 2009. Improved
ANA and ANP capabilities, as well as their ability to operate with
one another, are evident in the joint and Afghan-only operations
conducted in the province. Finally, the temporary reinforcement of
the PRT with a 200-person German airborne company allowed the PRT to
regain the initiative against insurgent attacks (reftel).

Governance: Lacking Planning and Project
Management Expertise


6. (U) Kunduz's provincial government continues to garner
credibility and legitimacy while delivering services to the
population. However, it continues to be limited in its planning and
project management capabilities. The provincial government does not
have a master plan for development of Sher Khan Bandar, for example,
and a disagreement between Customs and the Afghan Border Police on
the operation of the border-crossing point has been submitted to
Kabul for resolution after the two parties were unable to agree on a
plan locally. The business community also suffers from the
government's lack of understanding for the private sector and
irregular application of governmental regulations. Kunduz's
recently arrived prosecutor has already made inroads in cleaning up
administrative corruption.

Reconstruction and Development


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7. (SBU) Reconstruction activity remains civilian-led; the largest
donors are the German Ministry for Economic Co-operation and
Development and USAID. Afghan and international governmental and
non-governmental organizations are active throughout the province.
German development workers live and work in Kunduz city separate
from the PRT. The U.S.-funded Keshem-Feyzabad road in Badakhshan
province will link Badakhshan's capital, Feyzabad, with Kabul via a
paved road through Kunduz.

8. (U) In Kunduz, economic development and growth is occurring
thanks to the investments that the international community has made
in roads and bridges. If the energy piece can be solved, Kunduz
will be well on its way to sustained economic growth.