June 15, 2009

The Role of the Private Sector in Stabilization: Providing Sustainable Employment in Afghanistan

On June 10, 2009, I attended "Role of the Private Sector in Stabilization: Providing Sustainable Employment in Afghanistan," a conference sponsored by the Afghan American Chamber of Commerce (AACC) in cooperation with the National Defense University-Near East South Asia (NDU-NESA) Center for Strategic Studies in Washington, D.C. I served on a panel titled, "Practices and Ideas for Financing SME Businesses and Economic Growth," which discussed sustainable solutions to Afghanistan's recovery and reconstruction through private sector development. While the focus of the conference was on private sector development, it was clear that any sustainable economic solution will require a collaborative effort of the governments, nongovernmental organizations, private investors, and the local population. Immediate needs include access to capital, capacity building in public sector, public infrastructure development and maintenance, and access to international markets to facilitate exportation of Afghan-made goods.

The one-day conference brought together several speakers representing government agencies, nonprofit organizations, Afghan entrepreneurs, and American investors. Major General Arnold Fields, USMC (ret.) Special Inspector General for Afghanistan Reconstruction (SIGAR), correctly said, "People want to live their lives well" and the people of Afghanistan should be more involved with redevelopment since they provide the best information and resources. Saad Mohseni, Chairman and Chief Executive Officer of Moby Capital Partners, elaborated further by claiming the private sector can do a better job at economic development than the government. He recommends a sector-by-sector approach and noted patience is needed since the government and people will make mistakes.

A repeated message throughout the conference was the need to improve access to capital. Bernie Carreau, Senior Research Fellow at National Defense University's (NDU) Center for Technology and National Security Policy (CTNSP) recommended that the Afghan Diaspora needs to be more engaged in private sector development and increasing foreign direct investment (FDI). Mildred Callear, Chief Operating Officer of the Small Enterprise Assistance Fund (SEAF), a Washington, D.C.-based global investment firm focused on providing growth capital and operational support to businesses in emerging markets and those underserved by traditional sources of capital, discussed SEAF's Afghan Growth Finance fund. Created in 2007, the size of the Afghan Growth Finance fund is USD $25 million and provides investments in the $500,000 to $2 million range. Several small and medium-sized enterprises (SMEs) from a wide array of sectors including agro-processing, construction, media (local language), technology and Internet service providers are benefiting from SEAF. According to Ms. Callear, for every $1 invested generates $12 in the local economy.

Several Afghan entrepreneurs questioned the effectiveness of government-sponsored development projects. Mahmood Karzai, Chief Executive Office of Afghanistan Investment Company and First Vice-Chairman of the Afghanistan Chamber of Commerce & Industries (ACCI), noted that government contractors are compensated whether regardless of the project's success whereas Afghan entrepreneurs draw salaries only when their respective business generates a profit. David Beg of Barakat Group of Companies and president of Metro Pact Corporation, a Virginia-based company whose focus is international trade and government relations management, asserted that government contractors do not invest with their own capital and government funds should be directed to those who are willing to invest in themselves. In the panel, "Countering the Drug Cartels: Boosting the Legitimate Agricultural Economy," several of the speakers pointed out that increasing employment in the formal sector will have a direct effect on reducing the lucrative opium and related narcotic trade.

During the panel discussion on private sector finance strategies, Francis Skrobiszewski, an investment fund advisor and member of the AACC Board of Directors and chair of the AACC Working Group on Private Sector Investment and Access to Capital spoke about the need and opportunity to create a "US-Afghanistan Investment Fund" to finance Afghan private sector development and sustainable jobs supporting peace and stability, including the Afghanistan-Pakistan (Af-Pak) border areas. Mr. Skrobiszewski said, "Using private sector risk-taking and decision-making approaches with appropriate funding and proper mandate to complement traditional governmental initiatives such a Fund could creatively adapt and implement existing mechanisms and models to counter the drug cartels, which utilize their own commercial approaches in agricultural regions.

Philip Mistretta with the U.S. Department of Defense said Afghanistan's banking system has grown rapidly with 17 licensed banks, $2.4 billion in deposits, and $1.0 billion in loans as of January 2009. Furthermore, according to Mr. Mistretta, the Afghanistan Central Bank and Finance Ministry have established a market-oriented legal, policy and regulatory framework, and other non-bank financial institutions, such as donor-supported microfinance institutions, operate throughout Afghanistan. He noted that Afghanistan needs to develop financial markets for foreign exchange, debt instruments, and (eventually) equity securities.

Linton Wells II, Ph.D., Distinguished Research Professor and Transformation Chair at NDU explained information and communications technology (ICT) has not been utilized very well in Afghanistan and having access to ICT determines the winners and losers. There is a need for better collaboration between the Afghan government and private sector, according to Dr. Wells. This blog post, "Cheap and Effective Solutions for Humanitarian Emergencies," provides additional information about about Dr. Wells' work on STAR-TIDES, a research project focused on affordable, sustainable support to stressed populations.

My presentation focused on the need to develop a bottom-up approach to achieve sustainable social and economic development. For example, one of Afghanistan's greatest challenges is information (knowledge) sharing. I explained there are several investment and entrepreneurial opportunities in ICT (mobile solutions, including telemedicine, distance learning, and entrepreneur training), renewable energy to power villages, manufacturing and processing facilities. In addition, while I agree there is an immediate need to increase capital, there is an equally important need to facilitate access to export markets. My presentation further explained the need to create centers for entrepreneur development as a community resource and incubator for SME development. I ran out of time before I had the chance to explain the need to create investment vehicles such as private equity and enterprise funds (e.g., the US-Afghanistan Investment Fund) to support private sector development and SME growth.

An afternoon panel, "Reducing Corruption via Sound Economic Governance," focused on rule of law issues in Afghanistan. Clare Lockhart, co-founder and Director of The Institute for State Effectiveness explained the need to create a legal framework to facilitate business growth and handle legal disputes. Mariam Atash Nawabi, an attorney, television host, and co-founder of the Afghanistan Advocacy Group presented Afghanistan's comprehensive rule of law network through the creation of several administration agencies.

While the conference provided essential information regarding the role, challenges, and opportunities of the private sector in Afghanistan, there remain a few unanswered questions:
  1. What are the entrepreneurship opportunities for women?
  2. Is success in Afghanistan's private sector for American investors contingent on the U.S. maintaining a military presence?
  3. What is the vision of a regional solution to Afghanistan's recovery and reconstruction?
  4. How can Afghanistan become competitive in a global economy? What is Afghanistan's competitive advantage?
  5. How will Afghanistan build an educated workforce necessary for sustainable economic development?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

1 comment:

  1. Aaron-
    Your coments can be answered by our Chief of Party, Bryan Rhodes, of our Afghanistan Small and Medium Enterprise Development Program (ASMED) based in Kabul.bryan_rhodes@dai.com This fully funded USAID program will answer all of your questions as well as educate you better to the actual investment climate in Afghanistan- not just from the AACC perspective.