A window into Afghanistan's North

UNCLAS SECTION 01 OF 04 KABUL 003305

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DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A
DEPT PASS AID/ASIA SCAA
DEPT PASS USTR FOR DELANEY AND DEANGELIS
CENTCOM FOR CSTC-A, USFOR-A
TREASURY FOR MHIRSON, ABAUKOL, AWELLER, AND MNUGENT
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH

E.O.12958: N/A
TAGS: PREL PGOV EINV ECON ETRD EAID BEXP AF
SUBJECT: A window into Afghanistan's North

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1. (U) SUMMARY: A visit to Mazar-i-Sharif revealed a relatively
vibrant economic environment, concerns about growing insecurity
especially in nearby Kunduz, and several very effective AID programs
helping business students and Islamic credit unions.


2. (U) Coordinating Director for Development and Economic Assistance
Wayne and USAID Director Frej accompanied Afghan Minister of
Commerce and Industries (MOCI) Shahrani to Mazar-i-Sharif on October
1, where together they canvassed a wide range of development
programs designed to bring economic stability to Afghanistan's
northern region. Regional Command-North (RC-N) Commander Brigadier
General Joerg Vollmer provided an overview of regional security,
noting a lack of both security forces, particularly police, and
training for Afghan counterparts in his command. He listed NATO's
partners' investments in various sectors, including airports, roads,
and hydropower. Balkh Province Governor Atta Mohammed Noor asked
for signature infrastructure projects for Balkh province, and
affirmed the value of a potential duty-free zone to the region's
entrepreneurs. The delegation launched Afghanistan's second
provincial central business registry office (the primary purpose for
the visit),met with the Balkh University Chancellor, held a
luncheon roundtable with USG-sponsored business interns and business
leaders, and met members of USAID-funded Islamic Investment Finance
Cooperatives (IIFCs). END SUMMARY.

RC-NORTH COMMANDER POINTS TO ANSF SHORTAGE AND INADEQUATE POLICE
SALARIES AS A CONSTRAINT ON CONFIDENCE BUILDING


3. (SBU) Brigadier General (BG) Vollmer highlighted insurgency and
security issues in his nine-province area of responsibility (AOR),
home to approximately 10 million Afghans. The population remains
primarily rural, distributed among approximately 9,000 villages and
five major cities. The RC currently fields 5,700 ISAF troops, 7,000
Afghanistan National Army (ANA) soldiers, and 12,000 Afghanistan
National Police (ANP). In Kunduz, for example, 1,000 police
officers protect 170,000 residents. It is thus no surprise that
insurgent groups have increased activity. BG Vollmer noted that the
shortage of Afghanistan National Special Forces (ANSF) officers is a
primary constraint to consolidating central government control and
building confidence among the RC's diverse ethnic mix. Vollmer
reported that an agreement with local governors and the national
government to increase police salaries and pay them regularly in
local communities would be more effective than spending the same
funds to arm local militias or sending the police to other parts of
the country. In his view, the latter two options undermine
confidence in the central government. (Governor Atta favors relying
on the police, while the Governor of Kunduz favors arming local
militias.)


4. (SBU) Vollmer noted a broad variance in ISAF civilian- military
coordination across RC-North's five Provincial Reconstruction Teams
(PRTs). Civ-mil operations are closely coordinated in the
German-controlled PRTs of Kunduz and Faizabad. Development advisors
in Swedish/Finnish PRT Mazar-i-Sharif operate somewhat more
independently of the military, while the Norwegian-run PRT in
Meimana maintains strict separation between its civilian and
military components. Once the ANSF are in a position to take over,
Vollmer concluded, then "we can go home", in reference to graduating
the military side of PRTs.


5. (SBU) Vollmer called Kunduz province his primary "area of
concern," with Faryab province a close second based on numbers of
insurgent incidents and general levels of insecurity. He called for
greater efforts to recruit and train ANA and ANP with expanded
German and U.S. mentoring, as well as more ANP training at the Mazar
and Kunduz Regional Training Centers. He identified ANP training
programs and linked Focused District Development mentoring as
important steps in enhancing the professionalism and credibility of
ANP district forces. Vollmer credited strong ISAF, ANA, and ANP
coordination for the opening of 97% of polling stations in the
region on Election Day.

ECONOMIC DEVELOPMENT AND SIGNATURE INFRASTRUCTURE PROJECTS: THE BEST
WEAPON FOR SECURITY


6. (SBU) Calling economic development the best weapon against
expanding insurgency, Vollmer noted that donor and Multilateral
Development Bank-funded projects across the RC include hospitals,
airports, railway lines, agriculture, water, and energy

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infrastructure. In Balkh province alone, total development
expenditures are approximately $700 million, including a major joint
German/UAE reconstruction of the Mazar airport. German expenditures
in Kunduz province have totaled 334 million Euros (approximately 492
million USD) with projects focused on bridges, roads, and
hydroelectric projects. In Badakhshan, German funding includes 6.0
million Euros (8.8 million USD) to build a hospital and 3.8 million
Euros (5.6 million USD) for airport reconstruction. Vollmer
highlighted completion of the RC-North segment of the national ring
road and the start of a road from Balkh to Bamyan that will provide
an alternate route to the sometimes-snowbound Salang tunnel. He
noted the importance of completing road construction across all five
provinces. Vollmer called expanding irrigation in the
agriculturally dependent north a challenge due to poor water
quality, although he noted that Kunduz province boasts the most
extensive and best-maintained irrigation system in the region.


7. (SBU) Vollmer noted relatively effective provincial governance
structures and strong governors in Balkh, Faryab, and Badakshan.
These governors, he said, have managed to make their provinces
relatively poppy free, and look forward to signature infrastructure
projects to reinforce licit agricultural activity. (Note: Balkh is
poppy-free due to strong intervention by the Governor. However, the
province is not hashish-free and remains one of the larger
hash-producing provinces.)

GOVERNOR ATTA PRIORITIZES INFRASTRUCTURE DEVELOPMENT AND
PRIVATE-SECTOR LED GROWTH


8. (SBU) In his meeting with the delegation, Governor Atta
criticized international donor development spending in Balkh
province. He asked for fewer workshops and seminars and more "hard"
infrastructure development projects, and listed the Cheshma-i-Shafa
hydro project in south-western Balkh as a priority. Extending
irrigation canals from the Amu Darya river to the Balkh agricultural
heartland, he asserted, will not only have a positive economic
impact but also protect the environment.


9. (SBU) Atta recognized the need for private sector-led economic
development in Balkh and expressed appreciation for the
USAID-supported, MOCI-led Afghan Central Business Registry (ACBR)
initiative that the delegation would launch later in their visit.
USAID Mission Director Frej thanked the governor for his feedback on
assistance programs in Balkh Province and said that investment in
northern Afghanistan is a priority. For example, the USG is
considering large signature infrastructure projects in the water
sector. Governor Atta thanked Frej for this commitment, and added
he has an interest in addressing commercial investment activities.
He requested assistance in creating a duty-free zone in the north
and increasing visible projects like irrigation and power. A
duty-free zone, he said, would complement the new railroad link
which the ADB will fund, from Hairaton to Mazar-i-Sharif and the
expanded airport.

REFORMS FACILITATE BUSINESS IN NORTHERN AFGHANISTAN


10. (U) Commerce Minister Shahrani joined Ambassador Wayne, Mission
Director Frej and Governor Atta to officially open the country's
second provincial business registry. (The first provincial business
registration office opened in Jalalabad, Nangarhar Province, in July
of this year.) The central business registry in Mazar-i-Sharif will
service entrepreneurs from Balkh, Jawzjan, Samangan, Sar-e-pol, and
Faryab provinces.


11. (U) The offices make it possible to complete all the steps
required for business registration in a short time at one central
location, ranging from obtaining a Ministry of Finance tax
identification number to publishing a business name in the Ministry
of Justice official gazette. All services together cost one low fee
of 500 Afs (or 10 USD),paid directly to the Central Bank. A
process that once took eleven steps and up to twenty days in Mazar
will now take four steps, streamlining government services and
reducing opportunities for corruption, and the whole process should
be completed in two days or less. As added benefit, registered
entrepreneurs will increase their potential to qualify for bank
loans, attract investment, and accelerate customs clearances, and
the Afghan Government will improve its data collection and reporting
and its official revenue base. Minister Shahrani hailed the event as
an important milestone.

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12. (U) The launch took place in a room crowded with private sector
and government representatives, evidence of the business community's
support for the reform. Ambassador Wayne praised Afghanistan's
improvement in the "Starting a Business" category of the World
Bank's Doing Business report, but pointed out that Afghanistan still
ranks poorly in business licensing and permits, which represents the
next stage of regulatory stream-lining. The new ACBR represents
what is possible and should be extended to further stages of
business operations in Afghanistan. (Note: The Ministry intends to
expand this regulatory reform to Herat, Kandahar, Khost and Kunduz
in the next several months. Entrepreneurs in all 34 of
Afghanistan's provinces will eventually have access to this
streamlined registration process. End note.)

FURTHER RESOURCING REQUIRED FOR UNIVERSITIES


13. (SBU) Balkh University Chancellor Mohammad Naser Hyder asked the
U.S. to support construction of one of seven faculties on the new
campus. USAID's Mission Director responded that USAID is committed
to continuing its support to the university through its current
teacher and faculty training programs. USAID is also funding
construction of the Faculty of Education on the university's current
campus, including capacity building for planning, financial and
management operations, and maintenance of the new facility.

LINKAGES BETWEEN EDUCATION AND THE JOB MARKET


14. (U) Ambassador Wayne led a roundtable discussion with Balkh
University business interns, intern graduates, and faculty. USAID's
Afghanistan Small and Medium Enterprise Development (ASMED) project
coordinates the internship program with the university. Male and
female students, speaking impressive English, unanimously praised
the program, which selects 150 students out of 500 applicants for a
three-month professional training program followed by three-month
practical internships. Students requested the program be expanded
to allow for more student participation, longer internships, and
other professions beyond business. Minister Shahrani noted the
Afghan Government's need to employ bright, energetic, and ambitious
graduates (and even handed out his business cards). He pledged to
recruit 8 to 10 graduates from the University in the future. USAID
Mission Director Frej added USAID is also interested to recruit
qualified Afghans in Kabul and at key regional platforms.

ISLAMIC-COMPLIANT FINANCIAL SERVICES TO RURAL COMMUNITIES BOLSTER
STABILITY AND INVESTMENT


15. (SBU) The delegation also held a roundtable with members of the
Islamic Investment Finance Cooperatives (IIFCs) (a credit union
equivalent) from Balkh, Jawzjan, and Samangan Provinces. Mehir
Momand, Afghanistan Supervisor and Examination Manager of the
USAID-funded World Council of Credit Unions (WOCCU)/Afghanistan,
chaired the event. Participants included female and male IIFC
council members drawn from Afghanistan's traditional rural
population. The discussion centered on the councils' provision of
Sharia-compliant finance mechanisms. The councils also use repaid
loans to provide Sharia-compliant "zakat" (charitable works) into
community-determined projects such as mosque refurbishment and
literacy training. Members requested that Minister Shahrani promote
further efforts to develop Sharia-compliant credit instruments.
Speakers noted that social pressure and personal communications are
the best mechanisms to ensure that members repay loans.


16. (U) To date, IIFCs in Afghanistan have disbursed 29,926 loans
totaling over $18.6 million, with over 10,000 active borrowers and
more than 39,000 network members. More than 95 percent of IIFC
loans in the north are repaid on time. Loans range between $500 and
$1,000 with terms between 6-9 months. USAID will soon increase
WOCCU's program in the south and east to extend financial services
to remote and marginalized communities. The IIFC members at the
roundtable expressed hope that they would be authorized to provide
larger loans in the future to help local businesses grow.


17. (U) COMMENT: The use of U.S. economic development resources to
promote job creation, improving stability, and increased confidence
in the Afghan government is a good investment in RC-N, where
security threats are a growing concern. USAID's Office of Economic
Growth (OEG) will continue partnering with the Minister of Commerce
and provincial governors to improve the business enabling

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environment to encourage private sector-led growth. USAID's Office
of Infrastructure, Engineering and Energy (OIEE) is looking into
funding a signature water project in Afghanistan's northern or
western region. The students, business people and credit union
members were clearly enthused by their participation in the USG
assistance programs and made clear their hopes that these
opportunities could be extended to more Afghans. End Comment.

EIKENBERRY