Commerce Minister Shahrani, Ambassador Wayne and Director

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TAGS: PREL PGOV EINV EFIN ENRG ECON ETRD EAID AF FAS EAGR
BEXP, AF, TI

SUBJECT: Commerce Minister Shahrani, Ambassador Wayne and Director
Bill Frej visit Herat

REF: (A) Kabul 2056 (B) Kabul 3305 (C) Kabul 03570

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1.(U) SUMMARY: In a trip to Herat, Afghanistan's second largest
commercial capital, a joint USG/GIROA delegation met with
stakeholders to better assess Herat's economic potential and
development needs. Herat Governor Dr. Ahmad Yousuf Nuristani
outlined the Province's priorities for continued infrastructure
investment to strengthen an east-west trade corridor. During a site
visit to a USAID women's cash-for-work program, the delegation
gained insight into the need to link quick-impact assistance to
medium-term vocational training in order to further build capacity.
The delegation also launched the third provincial office of the
Afghanistan Central Business Registry, which will reduce barriers to
businesses entering the formal economy, and participated in a lively
roundtable of Herati industrialists offering insights on the
prospects and challenges to build Herat into a commercial and trade
center. The visit underscored both the vitality of the local
business community and the need for concerted attention to foster
the growth of Afghanistan's private sector. END SUMMARY.

THE GOVERNOR'S PERSPECTIVE

2.(U) Starting off the November 15 visit, the delegates included
Minister of Commerce and Industries (MOCI) Shahrani, Coordinating
Director for Development and Economic Assistance (CDDEA),Ambassador
Wayne, USAID Mission Director Frej, and Parliament National Economic
Committee (NEC) Chairman Hajj Aziz Ahmad Nadem. Governor Nuristani
boasted of Herat Province's industrial and agricultural potential as
Afghanistan's second largest commercial capital, and described
further needs. In the area of agriculture, Nuristani highlighted
saffron production, which sells for USD 4,000 per kilogram, and
pomegranate production -- for which there is high demand in the
West -- making them an excellent cash crop and solid alternative to
opium poppy. He mentioned his plan to train 250 farmers and
agronomists in saffron cultivation and intention to build additional
cold storage facilities for pomegranates and Herati grapes in order
to facilitate exports. The governor added that there is high demand
for processed cotton in Iran, and that Afghanistan has enjoyed a
strong harvest this year.

3.(SBU) While Herat currently enjoys 24-hour electricity, further
development of major dams would also strengthen the agriculture
sector as well as experience of industry. Regarding industry,
Nuristani discussed the importance of Herat City's industrial park.
He also noted that large marble reserves are located 175 kilometers
from the Provincial Capital, and that the 47-megawatt Selma Dam,
presently under construction near the marble reserves, should supply
sufficient power for on-site quarry cutting and production.
Additional infrastructure investments are required to make the
sector profitable. While Herat has large coal reserves, the
governor expressed concern over environmental impacts. At the heart
of his plans for Herat to become a commercial and trade center,
Nuristani pitched construction of an East to West Highway at least
to the dam and marble mines as top priority, a new exhibition hall,
and expansion of the Herat airport to include a new terminal to
service international flights. The road between Herat and Iran
is also an important project which has Japanese and Central Asia
Regional Economic Cooperation (CAREC) stakeholders funding, but the
governor pointed out that completing the road will require an
estimated USD 2 million for compensating landowners. (Comment: Land
compensation is a Government of Afghanistan responsibility. End
Comment.) Finally, Nuristani stressed the need to support Herat's
institutions of higher learning, for example, through building
dormitories and establishing relationships with U.S. universities.
In response to Governor Nuristani's interests, Ambassador Wayne and
USAID Mission Director Frej reinforced U.S. support, in particular,
for agricultural initiatives, the East to West Highway, and U.S.
university connections.

CASH FOR WORK SPURS POTENTIAL FOR VOCATIONAL TRAINING

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4.(U) In the visit to a USAID-funded women's Cash-for-Work program,
delegation members gained insights into the needs of quick-impact
job creation programs. This initiative sponsors 10 centers in
Herat, each helping 30 of the poorest women in the district receive
training in tailoring and salaries for one month. Participants are
paid USD 5 to 6 per day to produce school uniforms for needy girls
who could not otherwise afford the uniforms. The center produces 20
schoolgirl uniforms per day, which encourages recipient children to
attend school. After one month, 30 additional women are enrolled in
the program. The goal for this type of center is to both provide
skills and food for money to women who need both. As a result of
the visit, the program's implementers will explore the possibility
of providing program graduates with sewing kits, at a cost of USD 40
to 50 each, to encourage continued skill-building and possible
self-employment.

THIRD PROVINCIAL REGISTRY LAUNCHED

5.(U) Delegation members officially opened Afghanistan's third
provincial business registry. The first provincial business
registration office opened in Jalalabad, Nangarhar Province in July
2009, followed by Mazar-e Sharif, Balkh Province in October
(reftels). The office in Herat will service entrepreneurs from
Herat, Farah, Nimroz, and Ghor provinces, as a one-stop locale for
complete business registration. These steps include obtaining a
Ministry of Finance tax identification number and publishing a
business name in the Ministry of Justice official gazette for a
single fee of 500 Afs (or USD 10) paid directly to the Central Bank.
A business registration process that once took eleven steps and
several weeks in Herat has shrunk to four steps in several hours in
one location, thereby decreasing opportunities for corruption and
increasing the credibility of government services.

6.(U) As an added benefit, registered entrepreneurs will increase their
potential to qualify for bank loans, attract investment, and
accelerate customs clearances while the Afghan Government improves
its official revenue base, data collection and reporting. Minister
Shahrani hailed the event as an important milestone. Herat Governor
Nuristani, Member of Parliament Aziz Nadem, and Provincial Director
of the Afghan Investment Support Agency (AISA) Mr. Ahmad Tamim
Kakarr praised and endorsed the reform. The Ministry intends to
expand this regulatory reform to the capitals of Kandahar, Khost,
and Kunduz in the next months.

INDUSTRIALISTS SHARE THEIR VIEWS

7.(U) At the Five Star Hotel, the delegation held a roundtable
discussion with businessmen, entrepreneurs, and association
representatives. Participants highlighted such needs as increasing
space at the Herat industrial park, strengthening security,
improving access to finance and credit, reducing trade barriers such
as unreasonable tariffs and import duties, and enhancing the
government's role in promoting trade of local goods and services.
Local businesses also highlighted needed improvements to the
agriculture sector and value chains in order to improve the economy
of Herat and build employment opportunities throughout the country's
western region.

8.(U) As a next step, Minister Shahrani said that the Government is
expanding the Ministry, creating new departments that will focus
economic development at city levels to address such issues as
improved trade and urban economic development. The Minister also
briefed attendees on a new Trade and Tariff policy which the Cabinet
developed and approved, scheduled to come into effect the first
quarter of 1389 (March 2010). This policy will reduce import
tariffs on inputs to production, which are currently relatively high
and inhibit the development of the domestic industry. Member of
Parliament Nadem said that he would raise these issues with the
National Economic Council. Ambassador Wayne assured the

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participants that the U.S. Government will support the establishment
of an effective and strong private sector, which will pave the way
for economic development and prosperity in the regions. He
explained the recently released "Afghan First" policy for US
civilian and military purchases in Afghanistan, which was warmly
welcomed. Governor Nursitani concluded the session by stressing
that actions are underway to address many of the concerns mentioned
in the roundtable. He said that the security situation has improved
in recent months and that there has been a record increase in
customs revenue during the past six months.

9.(SBU) COMMENT: Governor Nuristani is attuned to the vast
opportunities for, and potential long-term benefit of, improving
the business and investment climate in Herat. His strategic vision
runs the gambit - from needed infrastructure to attracting large
industry investments to Cash-for-Work projects that could make a
tangible impact in the lives of many women. Even in the
small-scale ventures, he has combined his vision of
capitalizing on investments in the local industrial park with
heartier investments in workforce development. The business
community there shares an advanced understanding of the needed
legislative and policy improvements that will allow not only the
local economy to flourish, but for Herat to become an economic
driver at the national level, and even internationally competitive.
However, it was clear from the dialogue with this very vibrant group
of Afghan businesspersons that it will take much ongoing work to
create the right policy mix and supporting mechanisms to promote
substantial growth with the private sector. END COMMENT.

EIKENBERRY