Building Afghanistan

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A trip to Afghanistan’s biggest industrial base

I’ve just gotten back from a four-day trip to Herat, which was like a breath of fresh air from the Hescos and barbed wire of Kabul. Those of you who have visited the ancient city know what I have just learned – that Herat is a beautiful city full of history, culture, and hospitality. What’s more, Herat isn’t just a city for the intrepid traveler, it’s a city for businessmen and investors.

Herat is Afghanistan’s second largest city and biggest manufacturing base. There are over 350 factories in Herat, about half of whom operate out of a modern industrial park on the outskirts of the city. Unlike other industrial parks in Afghanistan, the Herati park has stable electricity and is located in a relatively secure part of the country, making it an attractive place for manufacturers to locate their business.

Plastic cup manufacturing

Aluminum processing and manufacture

What’s interesting is that investors have yet to invest in Herati businesses. Companies are normally set up because the owner is personally wealthy, or is able to take a loan from family or friends. (Afghan business owners, manufacturers in particular, are hesitant to take loans from the bank because they charge high interest rates {12-22%}, which they are unable to start paying back in the 2-6 months it takes by the time the supplier is paid for their work.)

Business owners with enough capital use their profits to re-invest in technology or expansion, or to start up new businesses, but not every company is able to do this. The local manufacturing sector has dozens of companies that have a market for their goods and have proven to be reliable businesses who would benefit from foreign investment. The companies I talked to also claimed to receive no support from the government – no subsidies, tax breaks, or long-term loans that are available to their competitors in neighbouring Iran and Turkmenistan.

The other thing I found was that the people with the potential to inject some cash in to the local economy, the international organizations, were not buying from the local manufacturers. For some of the large buyers, procurement responsibilities lie with the head office in Kabul as opposed to the branch office in Herat. Some buyers are not able to leave their compounds, and as a result they do not know the type of quality of goods and services available in Herat. Others use the “I know a guy” method of procurement for what they deem to be small purchases – a driver is sent out to get quotes for office equipment or furniture, which may not be of the quality that the buyer wants.

So what to do? Convincing potential backers that Herat is a good place to invest is a job that should fall to ACCI and government entities. But buyers can do their part by purchasing directly from manufacturers instead of getting them from the smaller shops in town, or from the logistical companies that act as middlemen. This will inject even more cash in to the business for development/expansion, and the buyer has the chance to dictate the make and quality of the goods that they want to buy. Sounds like the first step to me…

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3 Comments

  1. Simon Rimmele says:

    Very cool and interesting. When’s the last time anyone reported about Afghan industry, the poppy harvest excluded, in the news?

    It looks like a major problem for business owners is getting affordable credit, or any credit at all. Encouraging investment sounds like a great way to build way a market.

  2. A Karim Aliyan says:

    Wow this is very nice job
    and i hope one day we shall have the bigest companies and industries around the Afghanistan like other countries and hopefully saying PDT will do and build market and make dependent Afg

    thanks Kate Landry

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