DOD Business Transformation Delegation Visits Afghanistan

UNCLAS SECTION 01 OF 03 KABUL 002763 SIPDIS DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A, NEA DEPT PASS FOR AID/ANE DEPT PASS USTR FOR DELANEY AND DEANGELIS DEPT PASS OPIC DEPT PASS FOR TDA FOR STEIN AND GREENIP USOECD FOR ENERGY ATTACHE TREASURY FOR JCASAL, ABAUKOL, AWELLER, AND MNUGENT COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH DOD FOR MSCHOEFFLING AND BGIMBEL E.O. 12958; N/A TAGS: BEXP ECON EINV EMIN PREL AF SUBJECT: DOD Business Transformation Delegation Visits Afghanistan SUMMARY -------------- ¶1. (U) The Department of Defense (DoD) Task Force on Business Development and Stability Operations -- led by Deputy Undersecretary of Defense Paul Brinkley -- visited Afghanistan July 26-30, 2009, chiefly to identify economic opportunities/ventures that could boost local employment significantly with minimal monetary, technical, and/or marketing assistance. These ventures -- which delegation members often described as "low hanging fruit" or "shovel ready" -- would be pursued at the RC or PRT level. Following visits to Lashkar-Gah, Herat, Mazar-e Sharif, Parwan, Panjshir, and Kabul, the delegation stated Afghanistan's business community is more profit-motivated and receptive to assistance than the team had found in Iraq, where the DOD Task Force began operation in 2006. The Business Transformation Task Force -- composed of Office of the Secretary of Defense (OSD) advisors and private sector consultants -- plans to return in October to negotiate and finalize its presence in Afghanistan. End summary. BUSINESS ROUNDTABLE SETS STAGE -------------- ¶2. (U) Deputy Ambassador Ricciardone and Coordinating Director for Development and Economic Affairs Wayne co-chaired a business roundtable on the first day of the delegation's visit. Approximately twenty Afghan and American attendees described various familiar obstacles to private investment: threats to their personal security; corruption; weak and/or expensive access to capital, especially for smaller firms; high transport costs; shortage of skilled labor; policy shortcomings; general inattention in the GIRoA to business needs; and an overall lack of appreciation on the part of the government for the private sector's role as a primary engine for Afghan economic growth. Participants noted that Afghanistan currently ranks dead last out of 181 countries measured in terms of "Protecting Investors." The group's outlook was not entirely negative, however. All agreed Afghanistan has great potential to attract private investment if it can improve the policy environment and reduce corruption. They cited agriculture and mining as key potential growth sectors. The executives noted that Afghanistan scores well on a few of the World Bank indicators, including its 25/181 rank on registering businesses, demonstrating the government's ability to do better when it targets specific problems. ¶3. (U) Participants also stressed the importance of Coalition forces and foreign aid agencies boosting the amount of procurement they do from local Afghan sources. (Note: "Afghan First" is a concept the Mission is promoting and advancing vigorously. End note.) (The use of common contracting standards is also key, requiring three-way cooperation among business, the Afghan government, and the international community to fight corruption. Finance sector executives noted while 18 private Afghan commercial banks have been established and mobilized domestic deposits, their high interest rates (15-20%) limit small and medium enterprises' access to financing. They added that while some micro-financing ventures exist (including projects financed by USAID),they need to be expanded to non-secure areas of Afghanistan and increase the proportion of women participating. Commerce Minister Shahrani acknowledged the challenges facing Afghanistan's private sector and reaffirmed his own commitment to expanding business-friendly regulation. He insisted the Afghan government is taking concrete steps to improve the environment for business and is taking business views into account in making policy. ¶4. (U) The Afghan and U.S. business attendees represented numerous sectors, including mining, food and beverages, insurance, finance, energy, construction, and trading. The roundtable also received a presentation from leaders of the American Chamber of Commerce in Egypt, who shared their experience in building from scratch what is now one of the largest and most effective AmChams in the Muslim World. Roundtable participants agreed an AmCham could strengthen the voice of the private sector in Afghanistan. The Mission will pursue conversations with the Afghan business community to determine whether there is sufficient demand to launch and sustain a chamber (which complements existing Afghan/U.S. efforts) in Afghanistan. KABUL 00002763 002 OF 003 LASHKAR-GAH EXHIBITS PROMISE/HERAT FLEXES INDUSTRIAL MUSCLE -------------- ¶5. (U) Task Force Brinkley noted their earlier notions of Afghanistan's lack of entrepreneurial spirit and dearth of economic energy were rapidly dispelled when the delegation toured several facilities in and around Lashkar-Gah in Helmand Province, known for its Taliban presence and copious poppy production. Among the highlights of the tour were a poultry farm, a marble/decorative stone processing facility, and an experimental farm. Delegation members said they were surprised at the permissive security situation in the city and encouraged to hear the Bost Airfield had been opened and that an agricultural processing facility adjacent to it would be opened in the near future. A discussion with tribal elders and representatives of line ministries highlighted the need to align more closely agri-business/food processors with farmers in order to increase production, quality, and efficiency. Furthermore, the task force's agricultural specialist remarked the lack of feed mills in Helmand -- and in Afghanistan in general -- is a glaring weakness and potential opportunity. Investment in such facilities will plug a vital hole in the agricultural supply chain and improve animal husbandry stocks and poultry/egg operations while reducing reliance on imported feed. ¶6. (U) Task force members reported they were "shocked" to learn the level of industrial and business activity in Herat. In rapid succession, the task force visited factories/operations involved in the production/processing of marble, plastic wares, sodas, paint, tomato paste, cookies, ice cream, cotton, and steel. All the facilities were within three to five kilometers from the airport in Herat and most were located in the same industrial park. Most of the owners indicated the need for assistance in securing capital and additional markets, which would allow them to expand operations and improve production and efficiency. During an afternoon luncheon presided over by the provincial governor, ACCI leadership and numerous local businessmen solidified the impression that Herat's business community is more than ready to expand operations, seek additional markets, and partner with foreign direct investors. MAZAR-E SHARIF, GATEWAY TO NORTHERN NEIGHBORS -------------- ¶7. (U) THE Mazar-e Sharif visit began with a visit, guided by the Director General of Customs to the Hairatan border crossing (about 40 miles north of Mazar-e Sharif). The border crossing is the country's main entry point for fuel. A rail spur is just inside the border and connects to a container-loading facility. The Asian Development Bank (ADB) is developing plans to extend the rail line to Mazar-e Sharif and the Korean company Hanjin is considering investing to upgrade the current loading facility/bay. The tour and discussion made it abundantly clear the Hairatan border crossing is underutilized for exports, as most vehicles are coming into the country and leaving empty. ¶8. (U) The visit to Mazar-e Sharif also focused on the carpet industry, including a visit to a wool spinning operation and the local carpet guild. In the discussions that ensued after the tours, there was an emphasis on building a vertically integrated value added supply chain that includes all pre- and post-weaving activities (dye selection/collection, wool spinning, cutting and washing). Deputy U/S Brinkley recounted the work they had done in Iraq to rebuild the carpet industry where the Task Force focused on improving "Iraq centric" designs, vertical integration, enhanced quality through better materials, and matching production to high end markets in the UK and U.S. The Mazar-e Sharif wool spinning factory owner and carpet guild members believed a similar approach would greatly assist their industry. However, they emphasized the need to quantify accurately changing customer tastes for carpet designs and colors as most imperative. The Task Force mentioned the possibility of bringing experts to Afghanistan to discuss implementation of such a plan. PARWAN'S STATE-OWNED CEMENT FACTORY -------------- KABUL 00002763 003 OF 003 ¶9. (U) Drawing the Task Force's experience in revitalizing nearly twenty formerly state owned cement factories in Iraq, the Force visited the Jebel Saraj Cement Factory in Parwan province. The plant formerly produced most of the cement utilized in Afghanistan. As the Task Force toured the facility and discussed its operations with the General Manager (who has worked there for thirty years), delegation members commented most if not all of the cement factories revitalized in Iraq were in worse physical and financial shape when embraced by the Task Force. State-owned enterprises in Iraq had been propped up by petroleum revenues and employed excessive numbers, while the Jebel Saraj factory breaks even, despite the lack of access to electricity and only intermittent periods of operation. The Ministry of Mines sought to tender the lease for the factory's operation a couple of years back, but negotiations broke down with an interested Indian investor. In July, they once again released a tender notice for Jebel Saraj. Task Force Gladius is currently supporting the area and the factory by installing diesel generators that would provide a more constant flow of power. PANJSHIR VALLEY: NATURAL RESOURCES -------------- ¶10. (U) Known for its panoramic vistas and lush vegetation, Panjshir province is one of the better governed and more hospitable places to live and work in Afghanistan. The Task Force met with PRT leadership, the governor, and toured a marble processing operation, Afghanistan's first wind farm, and a micro-hydro facility. Panjshir province has abundant deposits of marble and of precious and semi-precious gemstones. Current USAID development projects focus on creating value-added supply chain processes (e.g., cutting/polishing) that would create employment and constituencies that could begin to dislodge those profiting from the illegal gem and marble trade into Pakistan. The Task Force and PRT team discussed ways to provide complementary support for these efforts as well as to build up tourist-friendly infrastructure that would encourage and buttress nascent eco-tourism in the province. OVERALL THEMES/OBSERVATIONS AND WAY FORWARD -------------- ¶11. (U) From the onset of their visit, the DOD Business Development Task Force members described Afghanistan's business community as more profit-oriented than in Iraq. They also stated that they found an enthusiasm and cooperativeness that simply did not exist in Iraq. The delegation said they saw a surprising range of existing opportunities in a variety of industries, particularly in Herat, but also in Mazar-e Sharif, Parwan, and Panjshir. Nevertheless, they noted business progress is likely to be measured by modest gains, emphasizing that mining remains the biggest "game changer". Efforts at quantifying small and medium deposits of commercially viable minerals must be intensified. The Task Force members noted the Ministry of Mines needs to be brought on board with this effort. Furthermore, "Afghan First" efforts can carefully be pushed harder. One member observed that USG procurement, especially for the military, could focus on developing a supply chain for raw materials (especially in regard to fruit/vegetables, cement, and other essential supplies). In addition, the creation of an "Afghan Brand" for carpets and semi-precious stones could capitalize on worldwide recognition and sympathy for international efforts here. Embassy understands a subsequent follow up visit is now planned for mid-October and looks forward to supporting it. ¶12. (U) This cable was cleared by Under Secretary Brinkley. EIKENBERRY