Doing Business with Afghanistan

KNOWLEDGE PARTNERSHIP PROGRAMME

Federation of Indian Chambers of Commerce & Industry (FICCI)

Submitted to

Department for International Development (DFID)

IPE Global Pvt. Ltd.

November 2013

DOING BUSINESS WITH AFGHANISTAN

CONFERNECE REPORT:18-20 NOVEMBER, 2013

DOING BUSINESS WITH AFGHANISTAN: CONFERENCE REPORT

India and Afghanistan enjoy a rich civilization and historical relationship that spans many millennia; a relationship that has gained strength from India’s role in the reconstruction of Afghanistan. The principal objective of India’s development partnership is to assist in building indigenous Afghan capacity and institutions and to ensure that development touches all the regions of Afghanistan and encompasses all the sectors of development.

Taking the spirit of rebuilding Afghanistan further FICCI, in partnership with Governments of India and Afghanistan, organized an International Conference cum Exhibition on “Doing Business with Afghanistan” on 18th -20th November 2013 at Federation House, New Delhi.

The event was organized under the aegis of the Trade Commerce and Investment Opportunities Confidence Building Measure envisaged under the Heart of Asia Process for Afghanistan. Under the overarching theme, Doing Business with Afghanistan: Harnessing Afghanistan’s Economic Potential, the event attempted to unlock Afghanistan’s colossal investment potential, besides providing an excellent opportunity for Afghanistan and its near and extended neighbours to engage in a sincere dialogue to build confidence and promote economic cooperation at the regional level.

The event included a high-level interactive Ministerial segment wherein Mr Salman Khurshid and Dr Hazrat Omar Zakhilwal, Mr Mohammad Asif Rahimi, Mr Noorullah Delawari, Amb Shaida Mohamad Abdali, Ambassador of Afghanistan to India Mr Sidharth Birla, President Elect, FICCI and Mr V S Sahney, President, SAARC CCI participated. A High powered Afghan delegation was led by Dr Zakhilwal, including Mr Mohammad Asif Rahimi, Minister of Agriculture, Irrigation and Livestock, Islamic Republic of Afghanistan, Mr Noorullah Delawari, Governor, Central Bank, Islamic Republic of Afghanistan, two Deputy Ministers, fifteen senior government officials and more than 70 business groups including women entrepreneurs and 30 exhibitors.

A paper on ‘Doing Business with Afghanistan’ was released by the Indian External Affairs Minister. Also, a Memorandum of Understanding was signed and exchanged between FICCI and Afghanistan Chambers of Commerce & Industry on the occasion.

This was followed by panel discussions on thematic as well as sector specific issues covering mining, energy, agriculture & food processing, infrastructure, logistics, and select services, Exhibition of Made in Afghanistan Products, structured Business-to-Business Meetings and an interactive session with the Afghan Regulators. Each session provided an excellent opportunity to get information on investment and commercial prospects in various sectors in Afghanistan, as well as on the regulatory environment directly from Afghan government representatives and experts in the field.

The Conference attracted over 400 participants from the business community, senior government officials, academicians and international development agencies from across nineteen countries which form the part of the Heart of Asia region. The Event was widely covered by media. The exhibition was also a great success with a whooping footfall of more than 500 per day over the three days with the exhibitors doing sales to the tune of Rs 10 lakhs.

The event drew significant media coverage in Indian and Afghan dailies as well as international media. There were five Afghan media personnel participating in the event and they facilitated near real time transmission in Afghanistan TV channels. The wide publicity of the event and existing investment opportunities in Afghanistan created awareness among the international business community.

Transition Beyond 2014

The year 2014 is extremely important for Afghanistan. The country will be concluding the transition in 3 key spheres- Security, Political and Economic transition. While security transition remains the key focal point of international community, the Doing Business with Afghanistan event focussed on the economic aspect, which is inter-related to the other two transitions.

In the recent years Afghanistan has shown impressive growth rates, however going sustain this high growth momentum will be difficult to sustain after 2014. While Afghanistan offers huge opportunities, political and security uncertainties undermine business confidence. It is envisaged that the planned foreign troop withdrawal by the end of 2014 will have direct impact on the Afghan economy, by some estimates to the tune of two or three percentage

4 of GDP growth rates. The main reason for this will be the reduced local spending, currently being incurred by the foreign forces and also upto a certain extent by the concurrent withdrawal of foreign civilian organizations with international and national staff. Afghanistan’s aid dependency is one of the highest in the world and has increased sharply in the last decade. In 2010/11, total military and civilian aid1 was US$ 15.7 billion, about the same size as of the GDP. The civilian component of aid was nearly 40 percent of the GDP. Aid contributed to domestic demand for construction and procurement of goods and services thereby contributing to economic growth. Further the conditionality on compliances put by the traditional donors will get more and more stringent and will impact the aid flow adversely.

In spite of all the above challenges, the message from the Afghan delegates and their leaders was clear that Afghanistan will emerge much stronger after 2014. Afghanistan is at the cusp of transition, the current event will go a long way towards allaying a lot of fears which are generated due to lack of awareness about the country. The economy no doubt requires a lot of helping hand, but it’s not all gloomy. A lot of opportunities exist for a business which knows how to manage its risks and reap huge rewards. Situated strategically at the heart of Asia, Afghanistan is a land bridge connecting South Asia with Central Asia, Eurasia and the Middle East. Afghanistan is also a key transit route for oil and gas of Central Asia to reach the major sea ports and markets of South Asia and overseas2.

Inaugural cum Ministerial Session: Afghanistan’s Growth Strategy, Priorities & Plans

In the inaugural session Mr. Khurshid said, “We have an open arms approach and we hope that your confidence in yourself will reflect the confidence you repose in India.” As the lead country in supporting Afghanistan’s nation building process, “We have no exit policy and we will be with you for so long as you desire, in good times and bad times,” he added.

He said that it was important for Indian business to see and seize the enormous business opportunities in Afghanistan, and once B2B ties are firmly established they will become

1 Aid here does not include spending on international military forces.

5 major stepping stones and hubs for India’s outreach in South Asia, extending to Europe, and in Russia.

Mr. Khurshid said on the question of success of Afghanistan efforts to re-build its institutions, “We should say that Afghanistan should succeed and express the confidence that Afghanistan will succeed.”

A paper on ‘Doing Business with Afghanistan’ was released by the External Affairs Minister. Also, a Memorandum of Understanding was signed and exchanged between FICCI and Afghanistan Chambers of Commerce & Industry.

Dr. Hazrat Omar Zakhilwal, Afghanistan’s Minister for Finance, pointed out that the Afghan government was committed to unleashing more and deeper reforms to make the business environment friendlier. “The future of Afghanistan resting on the planks of transit, trade and tourism will positively contribute to internal stability and stability in the region,” he said and assured Indian investors that they would be dealt with on a privilege basis and “You will consider your decision as a wise one.”

He called upon the international business community not to be swayed by doomsday prediction of chaos in Afghanistan as the country was today undergoing three major transitions – security, political and economic.

Speaking on the security transition in Afghanistan, he said, foreign troops will withdraw from the country by the end of 2014. Dr. Zakhilwal assured that the security of the country has strengthened and the people of Afghanistan are whole-heartedly supporting the efforts of the Afghan security forces.

Dr. Zakhilwal said post-2014 elections, Afghanistan will be more secure, stable, united and process-oriented. Afghan’s young and talented populace is now in-charge of the affairs of the country and these young people are keen to ensure that apart from internal integration, Afghanistan integrates fully with the rest of the world. A manifestation of this integration is that there are today as many as 18.5 million mobile phones for the total population of 30 million, connecting the remotest districts of Afghanistan.

Furthermore, all the 10 candidates currently in the election fray have given highest priority to building an inclusive society and are willing to forsake winability for the sake of inclusiveness. This has further contributed to the unity of Afghan people.

Mr. Sidharth Birla, President-elect, FICCI, said that FICCI is designated as the implementing agency of activities under the CBM. “We have a key role in this effort to unlock Afghanistan’s investment and business potential, besides providing an opportunity for Afghanistan and its extended neighbourhood to engage in a sincere dialogue to build confidence and promote economic cooperation,” he said.

He mentioned that India’s efforts in the Chabahar port is aimed at providing alternate access to the sea. India is also improving airline connectivity for both passenger and cargo flights. India is a major destination for Afghan products and to promote such exports there is exemption from customs duty on almost all products (except alcohol and tobacco).

Mr. V. S. Sahney, President, SAARC Chamber of Commerce and Industry, said that it is our fervent wish to pursue the agenda of integrating Afghanistan in the regional economic process under SAARC. “We need to look to an inter-related South Asian future where trade and cross border links flourish and bring prosperity to all our people. As a region blessed with an abundance of natural and human resources, a youthful population and a unique spirit of enterprise, this should surely be an achievable goal,” he said.

The business community, Mr. Sahney said, was looking forward to engaging with Afghanistan for enhancing trade in goods and services, promoting investments, improving connectivity and trade facilitation, enhancing security and strategic aspects and improving people to people connectivity.

7 representatives and experts in the field. The session wise details are covered in detail at the later sections of this report.

Afghan diaspora worldwide are taking interests in investing from their home-base abroad. Apart from investing they also provide links with the overseas market3.

Exhibition

After the inaugural session the Made in Afghanistan Exhibition was inaugurated jointly by Mr Salman Khurshid, Hon’ble External Affairs Minister of India and H E Dr Hazrat Omar Zakhilwal, Hon’ble Minister of Finance, Islamic Republic of Afghanistan in presence of other dignitaries. The Afghan Minister explained about the products to the Indian Minister.

The exhibition comprised of 25 companies, displaying the best of Afghan products. The key items displayed related to Dried and Fresh Fruits, Handicrafts, Carpets, Saffron, Jewellery designs and spices. . The exhibition was also a great success with a whooping footfall of more than 500 per day over the three days with the exhibitors doing sales to the tune of Rs 10 lakhs.

Doing Business with Afghanistan: How to get started This session was chaired by H E Mohammad Asif Rahimi, Hon’ble Minister of Agriculture, Irrigation and Livestock, Islamic Republic of Afghanistan.It provided an overview of Afghanistan’s investment & business policy and procedures.

The panellists for the session included H E Mozammel Shinwari, Deputy Minister of Trade, Ministry of Commerce and Industries, Islamic Republic of Afghanistan, Mr Wafiullah Iftikhar, Head, Afghanistan Investment Support Agency (AISA),Mr Mohammad Qurban Haqjo, CEO, Afghanistan Chambers of Commerce and Industry (ACCI) and Ms Wagma Mohmand Karokhil, Country Officer, IFC – Afghanistan, World Bank Office, Kabul.

The speakers highlighted the geo economic importance of Afghanistan, making a reference to the silk route. It links South-Asia and Central Asian countries. Central Asia can access the

3 MIGA, Investment Horizons: Afghanistan – A Study on Foreign Direct Investment Costs and Conditions in Four Industries, World Bank, Washington, DC, 2005, p.34.

8 huge market of India and other South Asian countries, while the later can satiate its ever- growing need for energy from the former. The connectivity can be either through the road or the rail link. Afghanistan being a Least Developed Country (LDC), its exports enjoys many privileges in the developed markets- GSP benefits in USA, EBA in Europe. Also Afghanistan has bilateral and multilateral treaties related to transit and trade. Under SAFTA it enjoys duty free access to Indian market except for alcohol and tobacco products. Other key treaties which Afghanistan is part of relate to SATI, CAREC, ABTA and it is also a member of ECO. It has also started the process of accession under WTO. Much progress has been made to develop a legal framework for easing business processes. This can be seen in the improvement in the Ease of Doing business rankings compared to the previous year. In some of the parameters like staring a business it ranks much higher than many comparable countries, Afghanistan ranks 24 out of 189 countries. These improvements are a result of continuing broader reforms in trade and investment regimes. Much needs to be done as the overall ranking, despite improvement, remains low at 164 out of 189 countries. Afghanistan is rich in mining resources and has a cheap labour force. 2015 is the year of investment in Afghanistan, by then the accession to the WTO process and political transformation will also be completed.

Afghanistan in a continuing process drafted legal frameworks for all the sectors, for providing more clarity on the investment. It provides a business friendly market environment for foreign investors. The Afghan economy has seen high rates of growth in recent years, and continues to see improvements in physical infrastructure like roads, airports and also investment parks. Prospective sectors for investments include

Agriculture

More than half of Afghan population are directly or indirectly dependent on agriculture sector, however, it has received only around 7 percent of the total domestic and foreign investments till date. The sector has greatest capacity and profitable investment opportunities for foreign and local investors.

 Growing, Cleaning & Sorting of seeds and agro products  Grading, labeling and also packaging plants

o that incorporate quality control measures like hygiene and traceability processing  Packaging and labeling of drugs and pharmaceutical crops o Such as Saffron, Olive etc.  Poultry, Fish Farming and Green houses  Cold storage facilities and transportation (for the seasonal fresh fruits and vegetables)  Fruits juice processing and Dairy Products

Services

 Banking  Financial and Insurance  IT and Telecommunication  Energy  Education  Health  Logistics and Transportation

Industry

 Food & Beverages industry  Cotton, garments and textile industry  Processing mills  Wheat - Rice - Sugar  Iron melting & Steel Mills  Electronics & Electric Appliances  Home appliances

Construction

 Increasing rate of population  Growing demand for Residential towns  Commercial buildings & infrastructure

 Construction machinery  Cement; demand in Afghanistan is above12 Million tons;

Afghanistan offers a number of reasons for investors:

 Fast growing emerging market of strategic importance  Tariff & Custom duties exemption to many importing countries  Wide gap in the balance of trade  showing potentials for local production  100% foreign ownership  Subsidized tax and custom tariffs  Availability of natural resources coupled with low-cost labor  Flat 20% corporate tax  No restrictions on inward/outward capital flow  No restriction on profit or other cash repatriation  No import duties on machinery  1% duty on raw and intermediate materials

There was an overall agreement that the Private sector is the key driver of economic growth and employment generation. However, the Public sector has to play a critical in setting the enabling environment for the private sector.

Continued infrastructure development can restore internal market links by deepening private sector relationships within the country and strengthening SMEs’ involvement in sectors such as manufacturing, trade, construction and logistics. Greater regional integration and trade need to be promoted. Increasing public private partnerships (PPP’s) can create good opportunities for the country.

Agencies like AISA, ACCI and IFC identified the various functions which they are carrying out to facilitate investments into Afghanistan.

Plenary Session 1: Mining and Energy This session was chaired by Mr A k Chaudhary, Director (Finance), Steel Authority of India Ltd and focussed on investment opportunities in the energy and mining sectors and also identified specific challenges and issues.

The speakers for the session includd H E Jamil Hares, Deputy Minister, Ministry of Mining and Petroleum, Afghanistan and Mr Sadaat Naderi, Kazan Gold Mine, Afghanistan.

Afghanistan provides a unique opportunity to access untapped mineral resources and under-explored regions. Mining sector is the key driver of sustained economic growth and fiscal sustainability. Keeping in mind the key concerns related to transport infrastructure and security which impinge on the viability of exploiting the available resources. The Afghan government is carrying out its infrastructure development programme focused on resource corridors and also the assets are located in stable provinces with a ‘Mines Protection Unit’ established to provide security. Efficient and transparent management and utilisation of mineral resources is a top priority. Under the new business plan the role of Government has been defined as a policy-maker, regulator and facilitator for the promotion of the mining industry. The sector will be developed through 100% private sector contribution and investment. Government strongly encourages the development of the sector through vertical integration. Government takes a strong approach towards social and community development and focuses on application of appropriate social and environmental safeguards. Thus effective and transparent mining revenue management is crucial.

Number of policy developments has taken places:

A National Mining Policy has been developed by the Ministry of Mines; Afghanistan seeks to develop its mineral resources in a manner that reflects the modern global industry, and in accordance with international good practices. In this regard the Government strongly emphasizes diversity in investment, technical and other mining development approaches that will depend on a variety of experiences and skills. Ministry of Mines has a special focus on technology transfer to the mining sector by bringing world class mining companies to Afghanistan. Hence, companies’ technical competence, financial strength and track-record are important selection criteria for awarding contracts. There is a dedicated Government

12 facilitation of mining investors, incl. Mines Protection Unit. Under the Mines Protection Unit the Government is responsible for providing 100% of the national security.

To fulfil its commitment to international transparency practices, Afghanistan is trying to be part of EITI.

As per the new mining law, companies that are engaged in a mining contract with the Government of Afghanistan, pay the following taxes:

•Royalty

•Surface usage fee

•Corporate tax rate of 20%

•Mining companies will have an unlimited loss carry forward for operating losses

•Capital allowances on a straight-line basis over the lesser of the effective life of the asset and 5 years

•Pre-production expenses are capitalised and can be recovered over 15 years or the life of the mining licence on a straight line basis

Afghanistan’s Mineral opportunities mainly include:

Iron Ore

Iron-Ore deposits are found along the line from Afghan-Tajik border to Afghan-Iranian border and extend several hundred kilometres. Notable examples include:

• Hajigak (Recently the Government identified the SAIL lead consortium as the winner for three blocks of this world class iron ore deposit)

• Syadara

• Khysh

• Ghorian

Copper

All kinds of copper deposits are present in various parts of the country: Sedimentary, porphyry, skarn and VMS. Notable examples include:

• Aynak (both Southern and Northern)

• Zarkashan and Kundalan

• Balkhab

• Shaida

Gold

Many styles of gold mineralisation occur, in particular skarn, vein hosted, porphyry related and alluvial

Notable examples include:

• Qara Zaghan

• Badakhshan

• Zarkashan and Kundalan

Lead and Zinc

Following deposit types can be found:

• Carbonate Replacement Deposits and Skarn

• Mississippi Valley Type (MVT)

• Sedimentary Exhalative Deposits (SEDEX)

• Notable examples include:

• Darra-i-Nur (Kunar Province)

• Nalbandon (Ghor Province)

Molybdenum •Around 2,300,000 ton Porphry Mo-Cu near Bamyan

Li-brines

Lake Ab-i-Estoda, Lake Dashte Nawer, (near Ghazni), Lake Namaksar (Herat) Chakansar (Nimroz) and Gowde Zereh (Helmand) have the highest potential .

Coal

Based on limited exploration total proven reserves in excess of hundreds of million Mt. Resources of coking and thermal coal identified during the 1960s, in Baghlan, Bamyan, Samangan , Sari Pul,Takhar and `Herat provinces

Cement

High grade raw material exist in a number of locations such as Jabul-Seral, Aybak, Herat and Kandahar

Large Scale Mining Projects

AYNAK COPPER MINE

 Supervision of world class Aynak Copper Mining Contract  Capex – US$ 4.4 billion  35 km south-east of Kabul  Development rights awarded in December 2007 to a consortium of China Metallurgical Group (75% stake) and Jiangxi Copper (25% stake) (“MCC”)  First production: 2014E  Annual revenue stream for Afghanistan Treasury

Hajiqak Iron Deposit

 World class Hajigak Iron project with high quality magnetite of approx. 1.8 bt  Creation of thousands of jobs  Three blocks went to the SAIL led consortium and one block to Kilo Goldmines  Lead to the establishment of steel plant, coal fired power plant and the required infrastructure  Focus on social development, environmental protection and economic growth

Oil and Gas Basins of Afghanistan

Three Proven Basins

 Amu Darya Basin ( A portion of it went to China National Petroleum Corporation)  Afghan-Tajik Basin ( to be awararded)  Tirpul Basin (Herat)

Three Potential Basins

 Katawaz Basin  Helmand Basin  Kushka Basin

•4 blocks of Afghan-Tajik Basin will be tendered on the 7th of March 2012

•Tirpul Basin will be tendered in June/July of 2012

•In late summer of 2012, Government will tender large gas fields with potential for power plants and exporting gas

Hydrocarbons Reserves of Afghanistan

 Based on USGS and AGS Assessments, undiscovered gas reserves are estimated at 15.7 trillion cf1 (2.8 billion barrels of oil equivalent2)  Undiscovered oil reserves are estimated at 3.6 billion barrels in two basins (Afghan- Tajik and Amu Darya basins)  Undiscovered liquid gas condensate reserves are estimated at 562 million barrels

A number of concerns were raised especially related to the security and infrastructure related issues for the mining sector. The government and concerned officers answering the queries suggested that by the time first extractions would take place, the infrastructure would be in place. The security concerns, especially in the mining areas are being already addressed. It was also suggested that the mining contracts need to be aligned with the new mining law.

Plenary Session 2: Agriculture, Food Processing and Packaging This session was chaired by Mr Gokul Patnaik, Chairman, Global AgriSystem Pvt. Ltd.detail out investment opportunities and sector specific challenges and issues. It would attempt to provide solutions and would delve into international best practices, success stories and innovative partnerships.

The speakers of the session were H E Mohammad Asif Rahimi, Hon’ble Minister of Agriculture, Irrigation and Livestock, Islamic Republic of Afghanistan, Ms Najlla Habibyar, Head, Export Promotion Agency of Afghanistan (EPPA),Mr Abdul Ghafoor Ghafoor, Chairman, Rana Seeds and Agribusiness Company (RSABC) and Mr Abhay Barhate, Business Development Manager, Jain Irrigation Pvt Ltd

Agriculture is the mainstay of Afghan economy. 70% of the population lives in Rural Areas and almost same numbers of people are dependent on the Agriculture and allied activities as a source of livelihood. Agriculture‘s contribution to GDP is 31%. New investments to the tune of USD 250 million have taken place in last 4 years. As the middle class in increasing the demand for healthy and properly packaged food is also going up. Agriculture products exports are also increasing and accounted for 62% increase in 2013.

Afghanistan agriculture is characterized by a diversified Farming System; a number of Sub- sectors and with enormous Production and agro industry development potentials exist both in the Crops and livestock Subsectors. Efficient and economic tapping of these potentials, requires adequate domestic and foreign investments through domestic public and private partnership as well as foreign investment through mutually beneficial Joint ventures with companies of Friendly countries with similar agricultural development condition such as India.

It is rich in fruits, vegetables and nuts like Almond, Walnut and Pistachio (exports $65.1 mil). Apple, Grape and Pomegranate from Afghanistan are world famous. There is a Good scope for Dairy Industry as imports exceed 10,000 tons of milk. Consumption of meat products,

17 particularly poultry is increasing as well. The other opportunities exist in the area of Cold Storages & Cold Chain development, post-harvest management practices and storage and Farm Machinery sector.

Further in the Horticulture sector, many opportunities exist in Afghanistan.

 Development of Integrated Value Chains in Apple, Grape & Pomegranate

–PHM – Grading and Pre-cooling

–Setting up of CA storage facilities

–Refrigerated transportation

 Processing for fruit juice, pulp & concentrate  Dehydration of Onion and Garlic (India recently imported onion )  Potato cold storage and processing  Saffron Processing

In the dairy sector following opportunities exist:

 Herd Improvement Programme  Develop collection by cool chain  Processing unit  Pasteurized and packed milk supply  Cheese, yogurt & other value added milk products  19.76% Internal rate of return  Growing demand in Kabul (7% annually) and countrywide (5% annually)

In the poultry sector opportunities are available in:

 Options for –Integrated poultry projects –Distributed free range birds with central processing facility  India has developed technology for both options  Suitable species developed for each

 High potential to establish breeder farms, hatcheries, broiler farms and layer farms  13% Internal rate of return

Cashmere value chain development

 80% of Afghan goats are cashmere producing  The third Largest producer of raw cashmere in the world  1500 MT of raw cashmere produced every year  Investment opportunities in developing the value chain like sorting, grading and washing

Saffron

 Very High quality of Afghan Saffron  Opportunity to establish processing plant, packaging and branding  Ready export market  Recent exports show more than 50% growth  High investment return rate

Oil Crops

 About 10 major kinds of oil seeds like Cotton, Sesame,Flax, Sunflower, Safflower, Sharsham, groundnut, Olive and newly introduced Soybean and Canola, can be a viable priority Candidate for large-scale investment.  60000 MT of Production of oil seeds  The aggregate demand for edible oil estimated to be 500000 MT  Industrial processing of oil crops is booming but the industry is still dominated by traditional processing facilities  The processing is mainly traditional  About % 90 of the edible oil requirement is met by imports of uncertain quality

Medicinal Herbs

 About 300 different kinds of herbs with medicinal value identified and used  About 17000 MT of medicinal herbs was produced in 2012  13425 MT of medicinal herbs of was exported  Products are exported unprocessed

 Processing and proper package of herbal medicine remains a intact market

Packaging

 Rise in domestic demand/exports demand for good quality, graded and packed agriculture products.  Only 10% of cartons required for packaging are produced domestically.  Demand for cartons is estimated to be 10000000 Cartons per year  Kabul package house has been in business for the last 12 years. A USD 30 million expansion plan is on the table. The company is looking for a business partner who can provide 50% of the needed capital.

Dry fruit and fresh fruit processing

 Great brand name advantage (quality and taste)  Traditional markets in region in India, Gulf and former Soviet Republics in Central Asia  Currently some agriculture products are exported to neighboring countries and re- exported after processing  In-country processing in Afghanistan will make the products more competitive in addition to significantly reducing post harvest losses.

Agriculture inputs

 Increasing demand for fertilizer, which is presently 600000 MT annually  Pesticides and veterinary medicines are of poor quality and imported from neighboring countries. Therefore, there is high potential to set up facilities to manufacture them in Afghanistan.

Agriculture Machinery

 Afghanistan is promoting mechanization of agriculture as it will increase agriculture productivity.  Currently agriculture machinery and equipment is largely imported.  High potential for export of agricultural machinery/ equipment to Afghanistan and to set up manufacturing facilities within Afghanistan.

Increased production potential can be achieved by :

 Upgrading of yields of both irrigated and rain fed oil seed farming through better seed, better farming practices and for irrigated farming, also through adequate irrigation and fertilizer use.  Expanding area of production through development and improving of irrigation, (improved irrigation practices, Innovative irrigation systems such as solar pumps, drip irrigation, leasing of land to private sector, Credit facilities, affordable power supply, tax concessions.  Promoting and building up on the successful, Innovative experience of post-wheat and post-canola farming for the production of soybean and cotton in warmer areas of the country

India can help Institution building in Afghanistan by developing:

–Research & Development (ICAR)

–National Organisations for co-operative finance & marketing federations (NCDC/NAFED)

–National Standards Organisations

–Agricultural Produce Grading

–Food safety and quality organisations

–Training and skill development

–Consultancy

Plenary Session 3: Infrastructure and Logistics

This session was chaired by Mr Wahidullah Waissi, Director-General for Economic Cooperation, Ministry of Foreign Affairs, Afghanistan. Speakers for the session included H E Eng Hamid Jalil, Deputy Minister, Ministry of Urban Development and Housing, Afghanistan , Mr Zubair-Ud-Din Kerami, Senior Advisor to the Minister of Transportation and Civil Aviation, Afghanistan and Mr Pankaj Tandon, Vice President & Head South Asia, KEC International Ltd, India.

The session detailed out investment opportunities and challenges in Afghanistan’s infrastructure sector. It outlined the progress made in developing the infrastructure and

21 also the vast avenues where work needs to be carried out, and could provide potential vistas for Indian businesses.

Construction & Housing Sector

Value of Construction Market in Afghanistan stood at USD 3.5 bn in 2007, increasing to USD 5 bn at the end of 2010. Only 18 percent of the market was being served by the private sector rest being addressed by the donor agencies or foreign military. 47 percent of it was horizontal infrastructure and 53 percent was vertical infrastructure.

The construction materials market itself was USD 2.4 billion/ year. 58 percent of the demand was being met by the international players and only 42 percent coming from domestic private players.

Opportunities present in Afghanistan’s Construction sector

Construction Contracts

 Enormous opportunities - $billions value contracts  Most contracts are open for Int. Tendering  Comparative advantages for Indian firms; cheap technical labour, smooth mobilization

Construction Materials

 Cement opportunities: o Huge limestone deposits o Inactive cement plants; estimated capacity more than 4 MT/Y  Marble Opportunities: o Top quality white marble deposits; Chest & Khogyani o Marble extractions and processing, a profitable investment!

Housing development

Demand in urban areas = 50,000 units/year

MUDA housing development = 10,000 units in Kabul

Ongoing Public Private Partnership with: Afghan, Russians and Turkish companies in Kabul

Opportunities:

New Kabul City – 500,000 units

Low income housing

Social housing

Construction Services

Estimated value= $1.13 billion

Transportation & logistics: $750-1000 m

Technical services: $250 m, mainly outsourced to int. firms

Financing Services : $70-100 m, few commercial banks provide corporate loans

Opportunities:

Technical and Financing Services

Transport Sector

Afghanistan’s transport sector is focused for social development and economic growth. It aims to promote private sector intervention, improve security & stability and also improve & sustains the regional trade, culture & civilization.

More roads have been built in the last year as compared to the cumulative past records of road construction in Afghanistan. The road links can be divided into mainly two components-regional highways and national highways. The length of the former is around 3500km and that of the later is around 500 km. Regional Highways foster regional trade & economic linkages between Afghanistan & neighboring countries - Iran, Pakistan, Tajikistan, Uzbekistan, Turkmenistan & Russia and through Afghanistan to Middle East, Europe & East Asia & vice versa

Afghanistan’s national highways form a ring; hence it is called a ring road as well. Majority of the construction has been completed with only sections remaining. Almost 87 percent of the planned regional highways have also been completed with only 300 kms of construction underway

Opportunities in the transport sector

Development & construction of dry ports:

•One of the current top priorities for the transport sector

•The government of Afghanistan have interest to enter into any business negotiation with the private sector to achieve this priority

•Joint venturing, longer term leasing out, service charges as profit, etc are areas of consideration for negotiation

•Provinces like Kandahar, Herat, Nangarhar, Balkh, Kabul & Naimroz create wonderful options for such a development

•Some very basic feasibility assessments have been carried out either by the private sector or international donors

•A more business oriented feasibility study is encouraged by investors to weigh their business aspects of investment

•Development of these dry ports will act as a regional hub for trade and business of Europe, Middle East & East Asia to Central Asia & Russia and vice versa

•Afghanistan & Central Asian countries will benefit the most from this connection and development.

Development & Construction of Transport Terminals

 Kabul, one of the busiest cities of the region in terms of commuting, trade and travels  Kabul city has 4 major entrances to the capital, and the usual mode of transportation is road transport

 Means of transportation are buses, vans, trucks and private cars  Statistics show that thousands of passengers and hundreds of vehicles pass these entrances on daily basis  In spite of such a busy movement and the opportunity of business, no standard and “all in one” terminal is established  The terminal will aim at easy movement and a strong business intervention  Terminals are important economically because of the costs incurred in carrying out services & activities  These terminals tend to be made up of simple components, from ticket offices and waiting areas to limited amounts of retailing

Development & Construction of Short Highways

•Better business opportunities and essential return of investment

•Small and beneficial other businesses could also be created once the construction project is utilized

•Short-cut trade and regional highways/routes connecting Afghanistan with neighbouring countries or connecting provinces

•After TIR system application in Afghanistan, we expect a lot of trade & transit convoys passing through Afghanistan

Civil Aviation

•Civil Aviation Technical Institute

–Graduating pilots, co-pilots & technical engineers

–Technical maintenance & engineering work of airplanes and technical equipments at airports

•Supply of airplane oil at airports

–Provincial Airports & Local Airports

•Ground handling of provincial airports

–Ground handling services at key provincial airports

–Services include baggage transfer, catering, general cargo, transport, plane clean-up, etc

Further Opportunities

 Rail, Road, Power Network needed to capitalize on natural resources  Large funding provided by ADB/ World Bank for Roads, Railways and Electricity  CASA 1000 project, is a great opportunity for connectivity of Power between Central Asia (Kyrgyz Republic and Tajikistan) and South Asia (Pakistan, Afghanistan).  More than 4000 Kms of Transmission Line are planned for next 4-5 years  30000 kms of road network needed out of which only 10000 kms rehabilitated  Potential to provide improved water supply to 60% of rural population and 30% of urban population  75% population lives in 38000 villages  Afghanistan Nationals and Government are friendly to Indians

Key Challenges

 Anxiety/Concern after ISAF withdraws 130,000 combat troops: All the US and Europe combat troops in Afghanistan will leave by the end of 2014, giving control to Afghan's own security forces. There is anxiety in relation to security post US forces withdrawal.  Landlocked country and difficult logistics across border  Delays in Clearing at Intermediate Ports(Karachi/Bandar Abbas)  Attracting talent Perceptual security threat Vs Incentivisation leading to difficulty in retaining talent  High dependency on foreign grants  Banking System Capacity  Limitation in issuing high value Bank Guarantee

Plenary Session 4: Services (Banking, Insurance, Health, Education)

This session was chaired by H E Noorullah Delawari, Hon’ble Governor of Central Bank, Islamic Republic of Afghanistan. The speakers for the session were Dr Sharif Fayez, Former Minister of Higher Education of Afghanistan, Founder of American University of Afghanistan (AUAF), Dr Abdul Qadir, Head of Policy Department, Ministry of Public Health, Afghanistan, Ms Sophia Swire, Founder and CEO, Future Brilliance, Afghanistan and Mr Anil Gupta, Senior Vice President, Angelique, India

A number of opportunities exist in Afghanistan’s services sector. The session focussed on Health care, education, skills transfer, banking and engineering, procurement and construction (EPC).

Upcoming opportunities in the public-private partnership (ppp) and Afghanistan’s health sector

Afghans lack access to quality secondary and tertiary healthcare within the country. An estimated US $258 million flows outside Afghanistan for medical care each year. Construction of up to 10 Government hospitals is or will be completed soon while MoPH doesn’t have sufficient financial, technical and management resources to operate these facilities. The country aims to follow a PPP model for developing the health sector.

By establishing PPPs, the MoPH aims to:

 Ensure sustainability of the health service delivery system using the private sector resources with minimal reliance on donor funding;  Partner with the private sector, alleviating public sector financial burden and sharing/transferring risk;  Increase the quantity (type & number), quality & access to secondary & tertiary health care;  Stimulate and support the Afghan economy through finance, job creation, and entrepreneurial expertise

Already much has been done to develop the PPP framework.

Since February 2012:

 Establishment of a dedicated PPP unit within the MoPH official framework;  Development of Legal Framework for PPPs;  Amendment of Article 40 of the National Procurement Law to establish legal basis for PPPs;  Draft of the National PPP Regulation in terms of  Article 40 of the amended Procurement Law;  Development of a PPP Management Manual;  Creation of a multi-sectoral PPP steering committee;  Launch of PPP Unit website http://ppp.moph.gov.af  Execution of operational and financial feasibility studies for three potential PPP hospitals;  Preparations for two investment promotion events to be held during the next 2-3 months;

The following 3 hospitals are being considered as potential PPP candidates:

1. Jamhuriat 200-bed Tertiary Teaching Hospital

2. Sheikh Zayed 100-bed Mother and Child Hospital

3. Jinnah 200-bed General Hospital

Opportunities in the Education Sector

Government of India has been playing a very important role in developing Afghanistan’s student, providing750 scholarship this year. Already a large number of faculties are graduating from the Indian Universities.

The total number of students in Afghanistan is 9 million, out of which only 124000 are there at the higher education level. Almost 60,000 students in the higher education are staying in dormitories. 40 percent of the government budget goes into feeding the children.

There is a proliferation of Private Universities in recent years, currently the number stands at 80.

Opportunities

 Investment in the private sector education and training institutes.  Branches of Indian Universities could be opened in Afghanistan.  Development of Education Village, with special focus on the IT sector.  In the coming years 1 million students will be graduating from high schools. The current college capacity is to accommodate only 200 thousand students.  Opportunities exist in the areas of technical and vocational training.  Nine universities have been given autonomy allowing them to enter into Joint venture with foreign institutes.

Innovative solutions are being carried out by donor backed foreign firms to impart skills development making use of modern technology.

Interactive Session with Afghanistan Regulators

This session was chaired by Mr Arvind Mehta, Joint Secretary- SAARC, Ministry of Commerce & Industries, Government of India. The other speakers were H E Mozammel Shinwari, Deputy Minister of Commerce and Industries, Afghanistan, Mr Sayed Abdul Rahman Sayeed, Senior Advisor of Customs, Ministry of Finance, Afghanistan, Dr Mujiburrahman Khateer, Technical Deputy Director General, Afghanistan National Standards Authority (ANSA), Afghanistan and Dr Abdul Qadir, Head of Policy Department, Ministry of Public Health, Afghanistan.

A number of steps have been undertaken by the Afghanistan Customs towards improving trade facilitation. The key among them are :

 Improvement of Customs Infrastructure- at Jalalabad, Kandahar, Khost, Aqina, Nimroz and Takhar ICDs  Automation of Customs field formation- 95% declarations already brought under ASYCUDA.  Automation of Customs processes and switch over to more user friendly web-based ASYCUDA World system.

 Long term policy blue print developed at Dubai workshop to guide Customs reforms in the country.  5-year ACD Strategic Plan (2013-17 )

The reforms in Afghanistan mainly focussed on Automation of Customs processes, streamlining of procedures and reducing documents for reducing clearance time, border management, risk management, E-Payment, TIR Facility and customs to customs cooperation and Customs to Business Cooperation.

In terms of standards, Afghanistan’s requirements can be mainly classified as Standard, Metrology, Conformity Assessment, Accreditation and Regulatory. The key achievements of Afghan National Standards Authority (ANSA) are:

 National Standard Law  ANSA Strategic Plan (2011-2015) for Development of a National Quality Infrastructure  National Standards-250  Afghanistan Building Codes-5  Testing Laboratories  Participation in International & Regional Standardization Organization  Training & Awareness

The opportunities for the private sector lie in:

 Operation and Services of Testing Labs (e.g. Construction Material, Electrical, Chemicals)  Inspection Services  Certification (QMS and Product)  Accreditation  Calibration Labs  Services (Training and Capacity Building, technical assistances)  Quality Center

Concluding Session: Istanbul Process and beyond: Prospects for regional cooperation through trade and investment

The concluding session was chaired by Dr Nagesh Kumar, Director, ESCAP South and South- West Asia Office, and Chief Economist, UNESCAP. The speakers for the session were H E Amb Shaida Mohammad Abdali, Ambassador of Afghanistan to India, Mr James Creighton, Chief Operation Officer, EastWest Institute, New York and Prof Gulshan Sachdeva, School of International Studies, JNU, New Delhi .

The session presented a wrap up of the key discussions of the conferences. Some of the key points emerging from the discussion were that the Trade, Commerce and Investment Confidence Building Measure (TCI CBM) is an integral part of the Istanbul Process. The security treaty with the USA will go a long way in the stability and allaying of fears about the Afghanistan’s immediate security concerns. There is a need for institutionalizing of peace in the country. India’s no exit strategy is well appreciated by the Afghan government and valued by its people. The youthful population and also a large number of voter registration including women voters for the 2014 election augurs well for the future of Afghanistan.

There is no doubt that the economic growth will drive stability in the country. Regional cooperation will play a critical role in the stability of the region. Proper implementation of the APTTA could unleash trade potential. Central Asia and India need to be made part in this. Already through the Heart of Asia Process and similar mechanisms many countries in the region are looking to enhance their engagement with Afghanistan.

FICCI will continue to carry forward the momentum generated by this Event and through the TCI CBM process, hope to develop Afghanistan’s private sector and attract investments into Afghanistan.