Private Investment in Afghanistan

"Afghans Are Traders, Not Producers"

Although investment in Afghanistan is growing slowly but steadily, international development cooperation is not doing enough to support the private sector. An interview with Stephan Kinnemann, advisor to the Afghan government on economic matters

photo: Sabine Fründt
Wedding dresses on display at a Kabul shop

​​Mr Kinnemann, one can’t help thinking that the cultivation of poppies is all that is blooming in Afghanistan . . .

Stephan Kinnemann: That impression is incorrect. A lot is happening in the urban centres – not only in Kabul, but also in Herat, Mazar and Kandahar. It is true, however, that reconstruction is progressing more slowly in the provinces. On the other hand, agriculture has also noticeably improved.

Have measures such as the reform of investment regulation or the introduction of an investment agency achieved anything?

Kinnemann: Yes, foreign investors have become much more active. Each month, the investment agency awards 100 to 200 licences for investment and commercial transactions. At the moment, trade still predominates, but this is normal. Before companies invest in Afghanistan, the market must first become more firmly established. Foreign investment is mainly in infrastructure, such as in the telephone network and in hotels.

Is there any investment to boost the local economy?

Kinnemann: A large German company wants to make a sugar factory north of Kabul operational again, for example. The farmers can then deliver their sugar beet where it will be processed. There are also initiatives to manufacture cooking oil and tomato concentrate from Afghan products. Such investment in agriculture is important, because it offers alternatives to planting poppies and also counteracts the rural exodus.

Does the security situation allow any investment outside the main cities?

Kinnemann: The German investment in the sugar factory shows that it does work. But there’s no getting away from the fact that the lack of security is a problem. The Afghan government does not deny it, even though it outwardly portrays the situation in a more positive light, for understandable reasons.

Is any Afghan industry developing independent of foreign investment?

Kinnemann: Traditionally, Afghans tend to be traders rather than producers – with the exception of agriculture. Therefore we cannot expect too much investment. Overseas Afghans, however, are showing an active commitment to their country by cautiously but steadily returning with their money. For example, one Afghan businessman is presently building a bottling plant for soft drinks in Kabul, so that in future drinks will no longer have to be imported from outside. At the moment every bottle of water you buy in Kabul still comes from Pakistan or Malaysia.

In an interview with the magazine D+C early last year, you said that multilateral donors were neglecting the urgent demands of long-term reconstruction. Do you feel that this situation has improved?

Kinnemann: To the contrary, it has deteriorated. Up to now the World Bank has not bothered at all about the private sector, although this, according to the Afghans themselves, should be the main focus of economic development. The private sector arm of the World Bank, the International Finance Corporation, has done virtually nothing at all. The multilateral institutions have clearly not delivered what the Afghan government expects of them.

How can that be? The World Bank is well known for almost permanently emphasising the crucial and indispensable developmental role of the private sector. . .

Kinnemann: The problem is that World Bank employees usually have no experience of the private sector. Further, the IFC has in the meantime developed an aversion to risk, which I can no longer understand. It must clearly be said that this is a violation of their mandate.

What about bilateral donors?

Kinnemann: These are somewhat more active. For example, one of the main focuses of German cooperation is the development of the private sector. I think, though, that the international aid caravan fails to appreciate how urgent their task is. Many institutions are sitting back comfortably; in many cases there just does not seem to be enough drive to get things done as fast as possible.

Questions by Tillmann Elliesen

© Magazine for Development and Cooperation E & Z

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