Page last updated at 23:26 GMT, Thursday, 5 November 2009

Afghanistan's investment choices

By James Melik
Business reporter, BBC World Service

Afghan in field of poppies
About 92% of the world's heroin supply worth $120bn originates in Afghanistan

Afghanistan is endowed with a wealth of natural resources, so persuading people to invest in the country has to be among the priorities facing President Hamid Karzai.

He faces an arduous task whilst the security situation remains so unstable and furthermore, doing business in a country renowned for its corruption is not going to entice large numbers of investors to part with their capital.

But Ajmal Ghani, the chairman of the Afghan-American Chamber of Commerce in Washington believes there is huge interest for investment because the international community has been so involved with the country.

"Forty-two countries have a presence and investors from those nations understand that the situation is a temporary one," he told BBC World Service's Business News.

"Silk Road"

Professor Hamidullah Faruqi at Kabul University says Afghanistan's legal framework and regulations create a business environment which, together with its strategic position, offers great opportunities.

One of the reasons we have insurgency is the lack of employment and jobs
Ajmal Ghani, Afghan-American Chamber of Commerce

"Afghanistan was once at the centre of the Great Silk Road and goods flowed through the country from South and Central Asia to Russia and Europe," he says.

He sees huge opportunities for investment in transport infrastructure.

Most construction materials are currently imported from Pakistan and Iran, however, and is of such poor quality that it is not sold in those countries.

As an advisor to the government, Professor Faruqi also points out the chances that privatisation will provide for investment - particularly in the banking and telecommunications sector.

He also says there is huge potential in the agricultural sector, which currently accounts for 80% of gross domestic product - despite only 12% of the country being arable.

Steps have been taken to encourage poppy growers, which account for most of the world's heroin supply, to switch to legitimate crops.

"If people invested in fruit and vegetable processing, especially organic foods, there will be great added value," Professor Faruqi insists.

Man with goats in Afghan village
Poor infrastructure: transport, telecommunications and power
A volatile security situation
Pervasive corruption
Nascent banking system with limited commercial financing
Inconsistent customs procedures
High transport costs
Little or no enforcement of itellectual property rights
Competition from cheap goods and services: Pakistan, China and Iran
Shortage of skilled labour and trained personnel
Source: World Bank

Work not war

Light industry will also provide jobs and a return on investments, according to Professor Faruqi.

"Afghanistan has a long tradition of making excellent carpets, although most of them are still made individually at home," he says.

The establishment of factories would increase productivity and quality control, and reduce the need to have the carpets washed, trimmed and finished by third parties in Pakistan.

There is concern about how long there will be a foreign presence to guarantee security, and how stable the newly-appointed government might be.

"Of course the political situation is a bit scary," says Mr Ghani of the Afghan-American Chamber of Commerce.

"But any investor willing to take a risk understands that there are great opportunities."

He is convinced that investment in the country will help stabilise the current situation.

"One of the reasons we have insurgency is the lack of employment and lack of jobs," he says.

"Give the people more jobs and there will be less insurgency."

That might be slightly naive at the moment considering the current political climate but, with extensive deposits of natural gas, oil and coal, along with gemstones such as rubies, emeralds and sapphires, there will be some people ready to risk investing in a country which has such a diversity of natural resources.

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