Mark McKenna

1
Afghanistan at the CrossroadsIs There a Role
for Business?

• Mark McKenna
• Consultant, Institutional Development and
  Conflict Management

2
My Background

• 25 years supporting local initiatives to promote
  governance and political reform in Asia
• 14 years living and working in South and West
  Asia
• 10 months over the past 2 years spent working in
  Afghanistan

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Afghanistan at the Crossroads

• Afghanistan sits astride the ancient Silk Road
  from China and East Asia to the Middle East and
  Europe
• Afghanistan borders Iran, Pakistan, China and the
  Central Asian states of Uzbekistan, Turkmenistan
  and Tajikistan

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Afghanistan in History

• Farthest extent of Alexander the Greats empire
  in 3rd century BCE
• Incorporated into the Mughal empire in 8th
  century CE
• Contested over by the British and Russian empires
  in the 18th and 19th centuries
• Established as an independent state in 1919
• Modern history
• Democratic opening, 1973-1978
• Period of Soviet occupation, 1979-1989
• Rivalry among contesting ethnic groups, 1990s
• Removal of the Taliban, 2001
• New Constitution adopted, 2004

5
Afghanistan Today People

• Population, about 31.9 million (July 2007 est.)
• Total fertility rate 6.6 children
• Population growth rate 2.6 per year
• Median age 17.6 years
• Life expectancy at birth 43.8 years
• Literacy rate 28 (43 male 13 female, 2000
  est.)
• Population living below the poverty line 53

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Afghanistan Today People

• Ethnic groups
• Pashtun - 42
• Tajik - 27
• Hazara - 9 and Uzbek - 9
• Aimak - 4, Turkmen - 3, Baloch - 2, and other
  - 4
• Primary linguistic groups (many are multilingual)
• Dari - 50
• Pashtu - 35,
• Turkic languages (Uzbek and Turkmen) - 11
• 30 minor languages (mainly Balochi and Pashai) -
  4
• Religious groups
• Sunni Muslim - 80
• Shi'a Muslim - 19
• Other - 1

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Afghanistan Today People
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Afghanistan Today People
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Afghanistan Today Culture

• The family is the most important reference point
  in Afghan culture
• Joint family system
• Gender roles defined by tradition and religious
  beliefs
• Honor and shame are key values that shape
  individual and group behavior
• Honor defines the worth of the individual
• The male family head responsible for protecting
  the familys honor
• Dishonor brings shame honor must be restored
• Hospitality is an important virtue in Afghan
  culture
• A host is bound to protect the honor of a guest

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Afghanistan Today Land

• About the size of Texas
• landlocked no significant bodies of water
• arid to semiarid cold winters and hot summers
• mostly rugged mountains plains in north and
  southwest
• Natural resources include,
• natural gas, petroleum, coal, copper, iron ore,
  zinc and other minerals, and precious and
  semiprecious stones
• estimates made in the 1970s indicated as much as
  5 trillion cubic feet of natural gas, 95 million
  barrels of oil and condensate reserves, and 400
  million tons of coal
• Environmental constraints/concerns,
• limited natural fresh water and potable water
• soil degradation overgrazing deforestation
  desertification
• air and water pollution

11
Afghanistan Today Government

• New constitution, adopted January 16, 2004
• Establishes the form of government
• Includes a bill of rights
• Mixed presidential system
• President and two vice-presidents elected by
  direct vote for five-year term
• Bicameral National Assembly
• House of People (Wolesi Jirga), 249
  directly-elected members
• House of Elders (Meshrano Jirga), 102
  indirectly-elected members
• Judicial branch headed by a nine-member Supreme
  Court (Stera Mahkrama) appointed for 10 year
  terms
• Legal system is a mix of civil and Sharia law

12
Afghanistan Today Economy

• The economy is primarily agricultural
• 2004 GDP 21.5 billion per capita GDP 800 (2004
  est.)
• Economy growing at over 12 per year since 2001
• Has received 8 billion in international
  assistance since 2001
• 80 of labor force in agriculture
• 40 of the workforce is under- or unemployed
• Primary agricultural products
• Afghanistan is once more the worlds largest
  producer of opium, supplying 80-90 of the
  European market
• Other products wheat, fruits, nuts, wool,
  mutton, leather
• Primary industrial products
• Small-scale production of textiles, soap,
  furniture, shoes, handwoven carpets
• Production of fertilizer and cement
• Significant potential for extraction of natural
  gas, coal, copper and other minerals

13
Afghanistan Today Economy
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Afghanistan Today Economy
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Afghanistan Today Comflict Impact
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Afghanistan Today The Kite Runner
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Afghanistan Today The Kite Runner
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Afghanistan The Business Case

• Doing Business (2008 rankings of 178 countries)
• Starting a business 24
• Employing workers 24
• Paying taxes 38
• Dealing with licenses 141
• Doing business 159
• Enforcing contracts 160
• Registering property 169
• Trading across borders 174
• Getting credit 177
• Protecting investors 178
• Closing a business 178

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Afghanistan Key Market Challenges

• Poor infrastructure, including power, transport
  and telecommunications
• A weak legal framework and judicial and
  regulatory enforcement
• High levels of corruption
• Inadequate access to land and to secure land
  title
• A nascent commercial banking system providing
  limited commercial financing
• Customs regulations and procedures that are
  neither transparent nor uniform
• A shortage of skilled labor and trained personnel
  both in the government and among the workforce
• A critical threat and security situation

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Afghanistan Four Key Sectors

• Transport and logistics
• Opportunity Little competition, consistent
  demand, high profits
• Challenge Poor road conditions, lack of a
  seaport, arbitrary rules and regulations, high
  cost
• Food and beverage processing
• Opportunity First mover advantages, brand
  recognition, proximity to low cost materials and
  large markets
• Challenge Poor transport, low quality, poor
  environmental conditions, need for energy,
  technology, financing

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Afghanistan Four Key Sectors

• Carpets and textiles
• Opportunity Traditional expertise, recognized
  brand, preferential trade access,
  non-perishable product
• Challenge High-cost of infrastructure and
  transportation, shortage of raw materials, lack
  of finishing skills
• Extractive industries
• Opportunity Growth potential, high demand, low
  cost for locally produced materials, high unmet
  need for energy
• Challenge Weak legal regime, incomplete
  privatization, security concerns in mineral rich
  areas, shortage of skilled labor

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Why Invest in Afghanistan?

• Most important from the investors point of view
  should not be the current situation but
  rather the dynamic movement of the countrys
  economic and security realities, and the future
  opportunities created for business.
• Investment Horizons Afghanistan (World Bank
  2005)
• Three important reasons to invest in Afghanistan
• The value of being a first mover in a regional
  economy
• The potential for growth
• CSR The important role of business in promoting
  economic opportunity and global security

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Any questions?

• Afghanistan at the CrossroadsIs There a Role
  for Business?

Thank you