From Aid to Trade: Getting Afghanistan on its economic feet

LONDON: On 23rd June 2015, Christopher Kolenda, a good friend, senior military fellow at King’s College London and former adviser to General McChrystal, presented a hypothetical doomed scenario of how things could wrong in Afghanistan, which would pave the way for the collapse of the country and return of militancy if appropriate steps are not taken to deal with the threats that Afghanistan faces today in his article ‘The Saffron Revolution of 2018’ published in Foreign Policy magazine. 

A key triggering point highlighted in the hypothetical Saffron Revolution of 2018 in Afghanistan by Mr Kolenda is the collapse of the economy followed by the collapse of the country, a view shared almost universally by all those who know Afghanistan.

Afghanistan’s President Ashraf Ghani and Chief Executive Officer Abdullah Abdullah have been making promises that everyone wants to hear. From selling Afghanistan’s raisins to Tesco in United Kingdom to connecting Kabul with Silicon Valley in USA and to attracting Chinese investment into building the country’s infrastructure to turn Afghanistan into the land bridge of Asia. The vision is praiseworthy and probably the only hope for Afghanistan.

For the government’s vision to materialise, the most important stakeholder and partner capable of leading Afghanistan towards economic self-sustainability is the private sector. Governments are never good in doing business. So, the Afghan government must leave business to the private sector and provide all the support to make sure that trade, investment and business can be done easily internally in Afghanistan and externally with the rest of the world. Similarly coalition partners and donor agencies should increase their focus and pursue an Aid-For-Trade and Aid-For-Entrepreneurship strategy. We know for every dollar given in aid for trade, it generates $8 in further trade.

Achieving Afghanistan’s economic self-dependence, a to-do-list in action not just words

I am highlighting four critical points below, which are based on my discussions and work as a social entrepreneur, philanthropist and private sector leader with stakeholders from the private, public and non-governmental sectors in Afghanistan, United Kingdom, United States and China.

These points are not presented from a researcher, economist or historian’s point of view but rather from a frontline social entrepreneur and change maker’s point of view:

1.       The government must show leadership:

First and foremost, Afghanistan is in dire need of true leadership. I believe leadership is the first and most fundamental requirement because it is the leadership where the vision for the nation will come from and it will form the national strategy for moving forward.

As things stand in Afghanistan right now, the Afghan people feel Afghanistan is being torn apart between two poles, the G pole and the A pole. The unity government and its leadership seems in a state of absolute confusion, pity politics and disconnect with the people. Dr Ghani and Dr Abdullah must stand together, show unity and fight this extremely negative notion.

In our globalised and highly interdependent world, when we talk of modern leadership, we speak of tri-sector leaders. Tri-sector leaders have extensive experience of multiple sectors, which allows them to come up with very inclusive, multi-dimensional and balanced decisions drawn not merely from government bureaucrats but also private and non-governmental sector practitioners resulting in collective success for all stakeholders. Dr Ghani and Dr Abdullah must harness private sector skills, expertise and leadership to prevent Afghanistan from crumbling under the weight of its economic burden. The government collaborate with the private sector to advise and implement important state policies and projects for the benefit of the people through modern methods of collaboration such as the Private-Public Partnership.

An unfortunate phenomenon that can be observed and people speak about when meeting ministers, business leaders and civil society leaders in Afghanistan, is that the smallest of issues are escalated higher and higher up the chain to the extent that it reaches the CEO and the President and months are wasted. Authority must be delegated and accountability demanded. Every issue has to be dealt with at the lowest level possible with the greatest accountability. Leadership should not just stop with Dr Ghani and Dr Abdullah but it has to be extended to every ministry and department level where qualified people are put in-charge. A leader is never a micro-manager but rather a great delegator.

Furthermore, Afghanistan has to achieve too much with too little time. The two leaders of unity government should not do everything together but rather do different things at the same time. A good example is when President Ghani was in Saudi Arabia to win support for the peace process; CEO Abdullah was in India to reassure India of Afghanistan’s historical friendship. The coalition government for Afghanistan can truly be a blessing in disguise despite the exaggerated pessimism shown by many international analysts.

In such a collective leadership model, the leadership does not only rest with the head of state or government alone but it is in line with and reinforced by the leadership from the private and non-governmental sectors. This form of collaborative relationship will allow the vision of government to turn into a reality where Afghan raisins can truly be sold to Tesco, Silicon Valley connected to Kabul and investment from China drawn to build infrastructure and industry.

2.      Government must ensure security and fight corruption:

A key aspect of the definition of a nation state is the state’s monopoly over violence. This very important authority of the state makes the government the only entity to have a military and use force in the context of a modern state. In my countless and extensive discussions in national and international seminars, conferences and roundtables, time and again, there is one thing above all that all investors and private sector leaders want from the government, that is to ensure security. Private sector cannot form its own military to fight wars but if the government can deliver on its fundamental responsibility to ensure security then the private sector can guarantee to give Afghanistan a self-sustaining economy by 2025.

The second most important concern for private sector and the common people of Afghanistan is the rampant corruption in Afghanistan’s government. While security is an external threat, corruption is the biggest internal threat to the rise or fall of Afghanistan in the years to come. In both cases, only the government has the power and authority to eliminate these threats and prosecute those responsible.

So rampant is the corruption in the government departments in Afghanistan that the common people confuse every rich government employee or mafia kingpin with an entrepreneur and businessman. A catastrophic and disheartening situation for any social entrepreneur and investor who wants to transform Afghanistan to be put in the same category with a criminal, who has accumulated wealth by destroying lives, communities and societies.

3.      Government must make doing business easy:

Afghanistan is a country blessed by nature in terms of geography, natural resources and a multi-cultural population of almost 30 million people. Situated on the ancient Silk Road in the heart of Asia rich with unexplored natural resources and a virgin market for products and services, Afghanistan is the ideal destination for every international investor and entrepreneur. The country is also blessed with a young, multilingual and entrepreneurial population where two-thirds of the country’s population is under the age of 25. Harnessing the power of the local entrepreneurial start-ups and attracting international companies into the country should be a key area of Afghan government’s economic policy.

Afghanistan is currently ranked as the 7th worst place in the world to do business by the World Bank. A 2014 Wall Street Journal article on worst places to do business started with this paragraph You’d have to be heroic — or perhaps willing to break the law — to start a business in Venezuela, Afghanistan or Libya.”

Afghanistan Investment Support Agency (AISA) has some of the most confusing and complicated rules in the world when registering a new business. Chairing a recent entrepreneurship event a few months ago in Kabul organised by Founders Institute and Afghanistan’s only startup incubator Ibtikar titled ‘How to Start a Startup in Kabul’, I cannot express the joy I felt to meet so many talented entrepreneurs in a war-ravaged country but also the sadness to learn that the biggest hurdle to the success of most of the startups was AISA, a department which is meant to support entrepreneurship.

The complications start with the very inception of a business idea and the branding of a startup. Branding is such a significant part of a business that business analysts claim that the brand name can make or break a company. In Afghanistan to start a business, the name has to have the industry in the name of the company. Suppose if an entrepreneur wants to start a small consulting company and name it Kabul Associates, he would be forced to change the name to Kabul Associates Consulting. Similarly, construction companies are expected to use construction, printing companies to use printing and other companies from other sectors to do the same.

If that does not put an entrepreneur off from registering his dream start-up, then the next stage will surely make him think twice. The young entrepreneur in our example, who dreams of starting Kabul Associates, has worked hard in the marketing department of an international firm which provided its services to foreign businesses and embassies in Kabul. Time has come to use his savings from the job and experience to become his own boss, get an office, hire staff, generate revenues and pay taxes to government, which in turn can be used to serve the people.

With such experience or even no experience our young entrepreneur could open a consulting firm within 20 minutes online, paying only £15 and start operating with a name of his choice the same day in United Kingdom. But in Afghanistan, he would not only be asked to rebrand his name as per AISA rules, he would also be asked whether he has a Master’s Degree or not? As if the world’s greatest consultants and consultancy firm employees such as PwC, EY, Deloitte and BCG have a Master’s Degree. If this is not a big enough slap on the face of a budding entrepreneur and his idea, AISA registration fee for registration of a consulting firm is $2,000.  Almost a hundred times the amount needed in United Kingdom. Registration of foreign businesses is even more complex.

A common excuse given for the complicated procedures by some executives in the government is that AISA is trying to curb corrupt and illegitimate businesses by making the process harder. Are we going to kill real entrepreneurial aspirations because we are trying to crack down on crime? In a country, where rich opium trader and rich warlord are confused with a socially responsible entrepreneur striving to transform Afghanistan, is this the incentive we are offering to entrepreneurship? In Europe, Small and Medium-sized Enterprises (SMEs) account for more than 99% of all European businesses. They provide two out of three of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU. Making small business start-up harder and longer is suicidal for future Afghan economy.

4.      Afghanistan must be internally and externally connected, communication channels established and sustainability put at the core of every initiative:

In the last 14 years, Afghanistan has transitioned from a theocracy into a democracy, record numbers of children are going to school, youth graduating from university, it has an army, judiciary and many other aspects of a modern functioning state.

We have a huge number of students graduating but no jobs. We have great production whether it is saffron, gemstones or the revival of carpet and dried fruits industry but no access to markets. We have loads of natural resources but no foreign direct investment. Why? Firstly because government never had a strategy and secondly because in the past most programs were designed to deliver quick fixes for scoring political, military and media marketing points rather than ensuring state building.

Now, we have to do things different to deliver short, medium and long-term results and not do things merely for show. Afghanistan must be connected physically and virtually both internally and externally with the world.

In the modern technological era, Afghanistan’s key priority should be to be connected internally and externally through internet. Internet prices in Afghanistan are sky-high for individuals as well as small and medium sized businesses. While mobile penetration is one of the highest and people can access internet through mobile phones, the use of internet to connect with the world for exchange of goods and services is extremely expensive and not available to everyone. The cost of 1MB internet can range anywhere between $150-$300 per month compared to 100MB for around $30 in United Kingdom.

This has to change whether through government relaxation of taxes on internet or subsidising internet provision to get the nation connected internally and externally. The benefits to individuals, educational and research institutions and business community will be monumental. Easier access to internet and focus on tech innovation and entrepreneurship should be a key priority.

Learning from success stories such as that of Estonia’s, a country which gained independence only in 1991 but became a global record holder for start-ups per person, is an ideal example for land-bound Afghanistan. In 2000, the government declared internet access to be a human right and according to the World Bank, high-tech industries have been reported to account for about 15% of GDP.

Communication channels on government level should ensure that the President’s economic council has private sector leaders from Afghanistan and leaders from business chambers from across Europe, America, Middle East and China.

Ministries must be directed to have specific communication channels and support departments dedicated to the private sector. Email, phone and postal communication with Arg and ministries should be recorded and responded to accordingly.

So bad is the situation that business leaders complained to me that while President Ghani and CEO Abdullah’s pictures go viral with their campaigners or donors on social media, business and non-governmental sector leaders are blocked off from coming to the attention of the national leaders.

On an international level, coalition countries such as Britain, Australia, Canada and many more must understand that Afghanistan is no more a country in a distant part of the world but rather a country where coalition soldiers and citizens have lost their lives, tax payers billions have been spent and a country which we all want to see to succeed as an example of a cause worth our sacrifices.

Countries such as Britain must end its policy of asking Afghan businessmen and entrepreneurs to visit a third country such as Pakistan or Dubai to apply for a visa. Afghanistan needs capacity building and connections with the rest of the world to trade and do business in the next phase of its lifecycle, and if the countries who sacrificed their citizens in Afghanistan, cannot dedicate a small visa application section in Kabul despite spending billions then how on earth can we expect the country to be ever free from aid-dependency, militant propaganda and support itself.

Furthermore, donor agencies must work with and fund local and international chambers of commerce focused on promoting trade, investment and business between Afghanistan and the world.

Not only should Afghanistan and coalition partners encourage people-to-people and business-to-business exchange between them, they should dedicate funds to holding private sector led trade and investment matchmaking conferences and trade delegations to London, Paris, Washington and Beijing.

The next phase of Afghanistan’s nation building cycle needs exchange with the rest of the world in terms of trade, investment and business. The coalition partners, who have sacrificed their sons and daughters in Afghanistan, have a moral and national responsibility to be the first to facilitate bilateral exchange between Afghanistan and their nations.  

If Afghanistan’s government along with coalition partners ensure security, fight internal corruption, remove barriers and bureaucracy that hinder entrepreneurship and private sector growth, support technological innovation and internet availability to the masses and listen to the private sector, Afghanistan can be transformed into an economically self-sustaining nation by 2024.

Dr Mohammad Hotak is the President of British-Afghan Chamber of Commerce & Industry, Chairman at MAIH Group & Afghanistan Investment Fund.

The views expressed by the author do not necessarily reflect the views and policies of the INTERNATONAL BUSINESS TRIBUNE.