Business flees Afghan instability

Corruption, political strife and increasing violence drive Afghan business abroad.

Uncertain future: Afghanistan is one of the most corrupt countries in the world [GALLO/GETTY] 

Escalating violence, lingering political uncertainty and rampant corruption may prompt a massive flee of capital from Afghanistan, as many Afghan business owners have already started moving their assets to safer economies in the Gulf.

According to Nurullah Delawari, the head of the Investment Support Agency of Afghanistan (ISA), a total of $5.3bn has been invested by the private sector in Afghanistan in the past seven years, of which only 27 per cent was foreign investment.

Delawari says that foreign investment has diminished due to deteriorating security conditions, but with over 60 per cent of private investment stemming from Afghan entrepreneurs, recent reports of an ‘exodus’ pose a far graver threat to the already shaky reconstruction process.

At an economic cooperation conference in Islamabad last May, Hamid Karzai, the Afghan president, said that rising violence targeting trade threatened to harm economic development.

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Karzai listed other issues that could stall progress, such as insufficient infrastructure and inconsistent policies, but he stopped short of naming pervasive corruption, his government’s inability to regulate the private sector and the overarching weakness of the rule of law as other obstacles to investment in his country.

In its 2008 report, Transparency International, a global corruption watchdog, ranked Afghanistan as the fifth most corrupt state in the world.

Disgruntled business owners have also charged that those with political power have established their dominance in the business field, making it difficult for anyone outside of the power structure to be successful.

Dubai bound

Mohammad Fahim Hashimi is an Afghan entrepreneur who made his fortune in the past five years. Starting out as an interpreter at a US military base, he then used his strong business sense to secure supplies contracts from the US military.

Today his business interests include logistics, cargo, an airline and a TV channel. But Hashimi admits that he has finally diverted his capital to Dubai. 

“While the day-to-day operations of most businesses are continuing, no major new investment is being made,” he says. He adds that banks have put a temporary freeze on granting approvals for new loans or even credit extensions, which has perpetuated the stagnation.

The election contributed to the instability that is driving business away [GALLO/ GETTY]

When Seema Ghani, the managing director of the Baawar Consulting Group, arrived in Kabul in 2003 she was full of hope but fast became a victim of the system.

“With no rule of law in the country, my losses began in 2003 with my first business when a corrupt man as my partner stole money and the system supported him. I lost hundreds of thousands of dollars which was a lot in those days,” says Ghani, who was living in London during the Taliban’s rule.

Ghani went on to start up her management consultancy firm. Her gravest challenge now, she says, is endemic corruption.

“I have to pay to get projects from the government and mainly from the US companies. They are the biggest implementers of the USAID projects in this country,” she says, adding that bribery is against her principles and as such, she loses out on many projects.

Hashimi contends that the anti-corruption fight that threatens local business should not be limited to tackling bribery.

“It [should] cover proper law enforcement and a clean judicial system. It contains no protection for friends and relatives of influential people, no preferential treatment in granting contracts or monopolising certain lucrative sectors.”  

‘Most sectors monopolised’

Traditionally, Afghanistan has always had a state-owned economy. However, a market economy system was prescribed as the economic system of choice for the country in the Bonn Agreement (the document that led to the formation of the first post-Taliban government in Kabul) in 2001. The system was later enshrined in the 2004 Afghan constitution, triggering a quick expansion of privately-owned businesses.

Yet, so far, the government’s rate of success in regulating the private sector remains negligible. While the creation of laws and regulations and relevant offices for implementation is a work in progress, bribery and connections allow most businesses to continue to run without meeting the checks and balances prescribed by those regulations. 

“A few rich businessmen are in charge”

Seema Ghani, the managing director of Baawar Consulting Group

Moreover, most sectors are monopolised and there is no fair competition, says Ghani.

“A few rich businessmen are in charge and since they can afford to pay, they bribe their way to holding the market,” she says. 

“Examples of corruption are starting from the top, where ministers get the president to sign deals for their family members, and friends and going down to deputy ministers, directors and even managers give/sign projects in return for a percentage.”

A tradesman in Kabul, who asked to remain anonymous, says most lucrative businesses in Afghanistan are monopolised by a handful of people who still think and behave like “warlords”.

Electoral fiasco

The protracted electoral stalemate in August and September, which threatened to plunge the country into a full-fledged political crisis, only added to the challenges facing the business community. A rise in the price of basic goods and other operational costs, such as the provision of security, has been reported.

According to Ahmed Wali Massoud, a former Afghan ambassador to London, many affluent business owners have already left because of political uncertainty. He claims that the electoral fraud uncovered by the Independent Electoral Commission has given business owners a sense that they are not on an even playing field. 

“During the first round of elections, Karzai collected funds for his campaign from a number of big businessmen in exchange for tax reduction or the promise of lucrative projects,” he claims. “This prompted other businessmen to leave the country because they realised that they simply could not compete with businessmen who had been given such advantages.”

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For the members of the business community who opted to stay in spite of the challenges, Ghani predicts the dry spell will go on for a few more months, until a perception of political stability re-appears. No new development projects will be announced before next year, she predicts. 

Another reason for the exodus is an alarming increase in ransom kidnappings targeting wealthy business owners and their families. 

Khan Jan Alikozai, the deputy head of the chambers of commerce and industry of Afghanistan, recently expressed concern that “if this situation continues, businessmen will have no choice but to migrate and transfer their assets outside of the country”.

According to the chamber of commerce in the western city of Herat alone, since the August elections, 10 major incidents of kidnapping and killing of local businessmen have occurred. It is reported that in the past two years more than 60 business owners and their relatives have been kidnapped for ransom.

Hashimi says that the country’s security hinges on improving the economy. He believes that unemployment is the key factor contributing to the rise in cases of ransom kidnappings, robberies and even the rate of recruitment by insurgent militias.

But the crucial first step must be taken by the government, he says. “Most kidnappings are done with support or at least protection of officials in the government, the parliament or influential warlords outside of the official state structure,” says Hashimi. 

Since the re-election of Karzai in a process marred by allegations of fraud, leading figures in the international community have called upon Afghanistan’s leadership to deal with the rampant corruption that has impeded progress.

On November 3, Karzai announced that he will launch an anti-corruption campaign, adding that “these problems cannot be solved by changing high-ranking officials”. 

The willingness of the new Afghan government to heed these ‘recommendations’ will determine whether or not it will be able to win back its disenchanted private sector, and resume the stalled development process. 

Source : Al Jazeera

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