Afghanistan After The United States And NATO Leave: Economic Boomtown, Or A Disaster Waiting To Happen?

   on May 24 2013 10:21 PM
Afghanistan Chamber of Commerce and Industries
Afghan men walk in front of Afghanistan's Chamber of Commerce and Industries building in Kabul, Dec. 3, 2012. AFGHANISTAN-HAWALA/ REUTERS/ Mohammad Ismail

KABUL, Afghanistan -- In the armored splendor of the Serena Hotel -- all sparkling cream-colored marble, ornate dark woods and vibrant Afghan carpets, behind three layers of security and imposing blast walls -- the new Kabuli elite mingle relentlessly. Businessmen clad in Western-style suits, and a few businesswomen in fashionable, though more traditional, attire, share a bite to eat or a workout session at the gym. And they never stop talking deals.

Originally built in 1945, this luxury hotel in the heart of the Afghan capital was renovated by the Aga Khan Fund for Economic Development in the aftermath of the American invasion and reopened its doors in 2005 to a stream of foreign journalists, politicians and NGO workers. Now it’s become the headquarters for an increasing number of Afghans with a hand in the local economy, who are getting ready for 2014, when ISAF, the NATO-led military mission that has been here for more than a decade, will leave.

The Serena itself could serve as a symbol of the rebirth of a city that, when international forces set up shop in the country 12 years ago, was all but reduced to rubble.

Bombed by the Taliban in January 2008 in an attack that claimed the lives of six people, the hotel quickly went back to business and continued to serve as the city’s prime venue for high-end networking. This stands in stark contrast to the on-again, off-again attempt by Marriott International to build the five-star Kabul Grand Hotel. The plan was finally called off by the hospitality giant at the beginning of May, because of a perceived lack of security guarantees.

The divergent paths taken by these two hotels highlight a much larger trend. With nearly all of the international troops leaving the country by the end of 2014, and general elections also scheduled for next year, Afghanistan is gearing up for a crucial security and political transition, which is also bound to have huge economic implications. As this critical phase approaches, many here today are asking themselves if they should stay or they should go.

According to the World Bank, in the 2010-2011 fiscal year, international aid to Afghanistan -- both military and civilian -- totaled about US$15.7 billion, more than 80 percent of the country's entire 2011 GDP. Faced with a potentially lethal combination of shrinking international support and rising political instability, two things making it harder to attract enough foreign capital to make up for dwindling aid, Afghanistan needs to learn to stand on its own two feet economically.

Outside observers tend to be gloomy about the chance of that happening. But many local entrepreneurs are betting on a positive outcome, and they are putting their money where their mouth is, investing large sums in this country precisely at a time when fears for its future mount.

“The best time to invest in Afghanistan is now,” said Khaleeq Ahmad, the executive vice president for wireless for Afghan Telecom, a company that’s part of the Ministry of Communication & Information Technology but operates on its own independent budget. “Sure, you take a greater risk, but your return will also be much bigger.”

I met Ahmad at the cafe of the Serena, where he is a regular at the gym and seems to know everybody. “In these past 10 years a lot of new money was made in Afghanistan,” he added. “But unlike in the past, when people just wanted to get rich fast, they are now focused on the real economy, not the made-up economy, on opportunities for the long run, on sustainability.” Afghan Telecom, for example, is planning to become the fifth GSM operator in the country as well as the first to launch 4G LTE technology, the fastest mobile Internet speed now available anywhere in the world.

If that sounds remarkably Western, that’s because it is. For all its woes, Afghanistan is now a market economy, and some of its citizens are adjusting quite well to the environment.

The Kabul version of the familiar American-style rags-to-riches story often involves former translators and interpreters working for U.S. forces at the beginning of the invasion, who then began using their money, connections and know-how to bid for military and development contracts. For the more business-savvy and entrepreneurial among them, the sky became the limit.

“Not everybody spoke English and I was lucky I did,” said Kabul-born and -raised Fahim Hashimi, practically the embodiment of this Afghan dream. “I was one of those people that knew how to go knock on ISAF’s door, download solicitations from websites, write proposals.”

His ascent began with a $600 contract for bedsheets. At 33, he now heads an empire, the Hashimi Group, with an average turnaround of approximately $200 million a year that includes not only fuel and construction businesses but also a TV station and the recently launched East Horizon, a low-cost domestic airline. “Afghanistan is a land of opportunities,” he said.  

Not too far from the large, somewhat cavernous but richly decorated basement living-cum-dining room which Hashimi calls his personal “coffee shop” and uses as a secure location for many of his business meetings -- he is now a prominent name and the target of a growing kidnapping industry -- another 33-year old entrepreneur shared a similar outlook.

Nazifullah Shaheen started out in 2007 with an investment of $500 and a contract with the United Nations Assistance Mission in Afghanistan (UNAMA) to install 130 billboards across Afghanistan. Today, his KaPUL Group, which is about to migrate to a new six-story headquarters in the perennially-under-construction Taimani neighborhood of Kabul, includes everything from bottled water to interior design. It employs around 175 people and has an average annual turnaround of $5 million, no small amount in an economy worth $19 billion, according to World Bank data.

The mainstay of his small empire remains the original advertising agency, which has around 80 clients. “Each year is getting better than the previous one,” Shaheen said. “Besides, it is our country, we have to stay here and invest. If we leave, who will build Afghanistan?” Like other businessmen of his generation, Shaheen is convinced that this is not only a good time to make money here, but that new ideas can also help open up traditional Afghan society. For example, he is waiting to break ground on the construction of the country’s first amusement park.

Alongside those young and idealistic upstarts, there are older hands at work in the country, who have returned after years of exile. Nasim Doost, 54, left Afghanistan for Germany during the unruly time of the mujahedeen, in the early 1990s. There he started a gemstone business, Doost Gems, that took him around the world, to places as far-flung as Peru, Brazil, Zambia, Mozambique and Malawi. He came back in 2006 with his brother Adam and started Equity Capital Mining, now the dominant player in the nascent Afghan marble industry.

“Security conditions have been improving here lately and we keep investing every day,” Doost said in a phone interview from the western city of Herat, from where he oversees his nearby White Dove marble quarry. “At this point I can’t leave even if I wanted to -- I can’t take the mountains back with me in a bag.” His company has already invested approximately $50 million in Afghanistan, and now employs nearly 600 people.

Mining is in fact all the rage here, not only for marble but also gold, copper, iron ore, oil and gas, and rare earth minerals, with Afghanistan housing some of the world’s largest deposits of lithium.

Sadat Mansoor Naderi, 36, is an Afghan entrepreneur bidding heavily on this sector. “The saying goes that you invest in mining so that your grandchildren can reap the benefits,” Naderi said during a conversation in his office in the industrial northern edge of Kabul, a sleek, modern suite with floor-to-ceiling windows and a stunning view of the surrounding mountains. “We have all intentions of being a long-term partner here in Afghanistan.”

The international consortium that he is part of already owns a gold mine and recently won two more tenders, for more gold and for copper. “We expect to invest more than $1 billion in our copper mine alone,” said Naderi, who in December was awarded the Peace Through Commerce award by the U.S. International Trade Administration.

His conglomerate, SMN Investments, has been a pioneer in a number of other sectors too -- for example, single-handedly creating the Afghan insurance industry. “We’ve done over $24 billion of risk here,” he said, “where five years ago people thought that insurance would never work in Afghanistan.” Naderi, who comes from a prominent Afghan family and whose office walls are plastered with photos of himself and relatives alongside the likes of President Hamid Karzai and the late Northern Alliance leader Ahmad Shah Massoud, is also the owner of Finest, Afghanistan’s first high-end supermarket chain.

Naderi now plans to open 10 new grocery stores called Finest Express. Unlike the original-brand stores, a favorite destination for expats, these will cater to the middle- to lower-segment of the market, which is the largest in a country with a GDP per capita of only $528 in 2011.

For all this widespread optimism, there is at least one group of Afghan businesspeople who are not so keen on the future and are indeed planning their exit. They are those who still work closely with the international community and on military contracts.

“Business is not good now, it’s been down at least 60 percent since the news that ISAF would pull out of Afghanistan,” said Najibullah Khushbin, CEO and president of the Najibullah Khushbin Construction and Road Bulding Company. “My plan is to keep a small branch here, about 10 to 20 percent of what we have today, and look for new opportunities in the United Arab Emirates or maybe the U.S.”

There are, indeed, signs that the boom may die off when the international forces leave. Even the dazzling Serena Hotel, for instance, has experienced a decrease in occupancy since last year -- though only in the range of 1 percent to 2 percent, and there is still a waiting list to join the gym.

Few would argue that Afghanistan is at a crossroads right now, a historical turning point which could mark the beginning of a virtuous cycle of peace and prosperity, as local businessmen hope, or of a vicious cycle of instability and economic collapse, as many foreigners fear. Conditions seem ripe for both outcomes, but the real deciding factor between the two may not be security. Corruption, according to entrepreneurs in Kabul, is the biggest barrier to doing business here and, therefore, to a self-sustaining Afghanistan. According to recent estimates by the Independent Joint Anti-Corruption Monitoring and Evaluation Committee (MEC), an anti-corruption watchdog here, every year corruption costs Afghanistan approximately $3 billion.

But thanks in part to the last decade, which has brought great upheaval in Afghanistan but also enormous change, people like Fahim Hashimi and Sadat Naderi now have a say on which direction their country will take. They may not find it easy to follow through on their pledge to stay and ride out whatever ups and downs await them. But they believe in Afghanistan, and they are as enthusiastic about their country as they are realistic.  

“There is no doubt that businesses will be impacted by the transition,” said Naderi, the insurance, mining and supermarket magnate. “So we need to adapt, be flexible and change.”

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