Will security and telecoms opportunities bring FDI to Afghanistan?

General Mohammad Ayub Salangi sat in his office in Vienna, Virginia, lamenting a recent attack on the police in his country, Afghanistan, before quickly changing the subject back to foreign investment opportunities. The former police chief of Kabul and current deputy minister for security in the Ministry of Interior was on sabbatical in the US, pondering the outlook for his homeland. “I’m looking forward to a bright future,” he said, diplomatically. “Today’s Afghanistan is not yesterday’s Afghanistan.”

Mr Salangi is one of many officials currently trying to sell the world on a risky line: Afghanistan is worth it when it comes to investment. The wars and casualties aside, Afghanistan is – and always has been – a tempting opportunity for those willing to risk it.

The country boasts mineral wealth, and segments of the population are clearly yearning for modernity. According to business groups such as the government-backed Regional Economic Co-operation Conference on Afghanistan, the country offers a “highly business-friendly environment”. It was ranked the top improver on the World Bank’s Doing Business 2019 report for the first time in its history (its improvement in facilitating the payment of taxes was one major step forward), but remained towards the bottom of the overall table in terms of ease of doing business, ranked 167 out of 190. 

Security alert 

How open Afghanistan is to business depends very much on the security situation, the progress of ongoing peace talks and investors’ appetite for risk. Despite claims by everyone from Afghanistan’s president to its ambassadors that the country is open for business, about 40 UK companies now operate on Afghan soil, according to 2015 figures from the UK’s Department of International Trade. US FDI was a mere $19m in 2017, according to the US Department of State, a 5.6% increase from 2016.

To many US and European companies, Afghanistan remains a troubled investment terrain. But the US Agency for International Development (USAID) has trained more than 35,000 people in Afghanistan, and placed 23,000 with companies; 35% of those are women. USAID’s 2019 to 2023 strategy, along with the Afghan Ministry of Industry and Commerce, aims to increase exports from $1bn in 2018 to $2bn by 2023, thanks to the opening of new air routes to India, Turkey, Saudi Arabia, Kazakhstan, the United Arab Emirates and the EU. Exports coming out of Afghanistan were valued at $596m in 2016. 

The key to investment, Mr Salangi insists, is the law. “[Anyone] is welcome to do business in Afghanistan, as long as they follow the rule of law,” he says. “If a person follows the rule of law, they will be very successful.” Indeed, the Afghan government has passed laws that facilitate a market economy; it has also passed laws that will help protect Afghan companies and investors’ rights. It has, perhaps most importantly, reduced the cost of obtaining a new business license from $440 to $1. 

Afghanistan's economic growth has, not surprisingly, been volatile since the 2003 US-led invasion. In 2002, the country experienced 8.8% GDP growth, which climbed gradually – with the exception of some low years – to 21% in 2009, only to plunge to 2.6% in 2017. FDI hit rock bottom in 2007 during the global economic crisis and the Taliban surge in the country. 

Mr Salangi believes that media outlets in Afghanistan have profited from a foreign presence. According to Nai Supporting Open Media, a Kabul-based non-governmental organisation, almost 100 journalists and media employees have been killed in the country since 2001 (16 media workers were killed in 2018, according to the International Federation of Journalists), and yet there are still 483 “operational media” outlets nationwide. 

Better connections 

Mr Salangi talks fondly about the village where he grew up. “Where I was born, before 2001 there were only 20 educated people,” he says. “Today, there are 400, male and female. This is true all over Afghanistan. There could be different points of view... if you ask a villager. But overall, everything has been great for Afghanistan.”  

He points to the telecom boom – which the Taliban did its best to halt in via bombings in the late 2000s and by imposing taxes on mobile service providers in recent years – as evidence that the country is moving forward. “Our youth is connected with the world. People know what’s going on,” says Mr Salangi. Afghanistan’s telecommunications network now covers more than 90% of the population.

A report in late 2018 by media company Business Wire noted that Afghanistan has a “highly competitive mobile market that continues to flourish… thanks to the absence of effective fixed-line alternatives”. In addition, Afghanistan is “making good progress” on a country-wide optical fibre backbone, the report noted; the first phase of a plan to install a crossborder fibre link connecting Afghanistan with China is also under way. 

A safe option?

For any investor in Afghanistan today, adjusting to rapidly changing laws and dealing with security concerns will remain the biggest challenge. Despite the reputation of some private security contractors, Mr Salangi insists they are welcome in the country. Many Afghan officials, former president Hamid Karzai among them, have long been wary of contractors (Mr Karzai banned them in August 2010) but the reality is also that security contracting in Afghanistan has great potential as a booming business – and adherence to new laws will be vital to success.  

According to Afghan analysts, most private security companies that operated prior to Mr Karzai’s moratorium simply changed their brand and became (legal) risk management firms, which employ tens of thousands of Afghan workers and pour money into the local economy.  

“The potential growth of the [private security] market is enormous,” says Doug Brooks, co-founder of International Stability Operations Association, which represents the global private security industry, and secretary of the Afghan-American Chamber of Commerce. “Globally, private security is one of the biggest employers. A company that can protect itself [in Afghanistan] will invest,” he adds. As for security contractors, they are bound by Afghan law. “I don’t care who you are,” says Mr Brooks. “You can’t go to any country and murder people.” 

Afghanistan’s parliament, judiciary and law enforcement entities are adjusting to new laws, but slowly. One law introduced in late 2017 has criminalised the obstruction of justice by public officials, and has allowed for confiscation of assets obtained through illicit means, which will give businesses some security. Transparency International still ranks Afghanistan as 172nd out of 180 countries in its corruption index. 

Mr Salangi does not seem too perturbed by the prospect of private security companies invading his turf. “Private security companies have to follow the laws and procedures, pay their taxes, register their weapons,” he says. “If they follow Afghan law, no doubt they will make a profit and have an impact.” He welcomes any sort of investment, saying: “The companies that have been successful are still in Afghanistan.”