Formal and informal government policy and procedures can be challenging to successful business development.
This is especially true in countries with weak central governments and rule of law where government policy can be ineffective or restrictive. International investors and equipment providers are often caught unaware of formal or informal policies that will affect their business operations.
Afghanistan is one of the countries where the central government is weak. My definition of weak is the central government in Kabul has little influence over the outlying provincial governments. Each provincial government is dominated by local governor, often former war lord, and local district officials. Kabul has little influence over these remote territories and often are afraid to even travel to some of them due to security issues.
The country has a constitution and corresponding branches of government but lack the resources to enforce many of their laws. Local administration of laws is left to the village elders. The Kabul based central agencies have little contact with local provincial governments. It is clear why outside influences and bad guys can get a foothold in the remote provinces.
More than one way manage government policy.
I’ve witnessed two approaches for outside investors to gain a business foothold in Afghanistan. One is to start small with a pilot business learning the requirements and customs without a major investment. Over time the investor will expand and grow as they learn the formal and informal systems.
The second is depending on local partners to execute the business on the ground locally. The right local partner can navigate challenges and allow the foreign investor to avoid costly mistakes. Selecting the right local partner can be problematic. “Extreme vetting” is necessary or cautious approach for testing the new relationship.
Vetting Local Partners is Important.
Vetting a local partner isn’t much different than vetting a business partner anywhere else in the world. Validating previous work and references is required. Physically visits and meeting with principles is always advised. MEA Trading depends on previous contacts that we have known for years to help us vet new partners for ourselves or our clients. There are organizations like Afghan-American Chamber of Commerce and US Government Trade organizations that can also help. We are more comfortable with referrals from people we know and have worked with previously.
Gereshk storage and distribution center is a good case study on why investors should be wary in countries like Afghanistan. We marshalled all the expertise and resources available from the ISAF SW Command at Camp Leatherneck. Because of our agency’s ability to move around the country and with contacts in the capital of Kabul it would be my job to facilitate both the central government and private investors participation in the project. Obtaining permission to refurbish a bombed-out cotton mill property for building the new distribution center and cooperation from the government to lease the new property to private investors seemed straight forward enough. Successful development and lease of the property would create several hundred jobs in the community. It would also enable remote villages to transport their farm produce to larger cities for sale.
We had a “bigly” advantage with the central government cooperation being part of US DOD. They needed our cooperation and funding at so many levels that signing off on agreements for land improvements and construction wasn’t much of a problem. The local district government agreements were also of little challenge. The location of the property to the ring road and Kandahar made it easier to get an Afghan business owner in Kabul interested in utilizing the soon-to-be built facility for expansion. The USMC, USDA and US Corps of Engineers worked on the design and project plan for demo of the existing structures and building new structures. I worked on facilitating the investment and sustainment plans.
In a previous blog, I wrote about the test sorting and packing house in the village of Marjeh. It was proceeding as planned with high expectations for the season’s first produce crop to be processed the following fall. Sites had been chosen for 4 more locations but there needed to be a central storage and distribution center ready before funding and construction of additional sites could begin. All of this was very ambitious for a war zone. Keep in mind commerce continues in war as in peace. It is just much more difficult for all parties involved to continue operations. If successful, the combination of projects to repair the agriculture value chain in Helmand would help counter terrorism and reduce poppy production.
Networking in a war zone!
The Bolivian agriculture contractor had worked on the major government test farm in Kabul and with a large fruit juice company. Through that introduction, I began discussing the potential of the southern distribution center. Typical of networking anywhere in the world these introductions to Kabul business owners opened doors and provided insights into successful work with the Kabul government.
Not only was the Kabul business man interested in managing the Geresk facility, he wanted to install some of his processing equipment in the facility. He processed fruits for juice in Kabul in a modern factory. The packaged juices were distributed throughout Afghanistan except for the southern part of the country. It was too expensive to transport the finished products with no local cold storage and distribution. His plan was to initially produce concentrate in Kabul, ship the concentrate to Gereshk. In Gereshk, he would install TetraPak packaging equipment to fill and package juice for consumers in Kandahar and other southern locations.
He would also install the cleaning, grading, sorting, and packaging equipment for bulk produce for shipment to the UAE. (think apples, carrots, squash, and melons) It seemed like a natural combination utilizing an experienced Afghan business owner to not only manage the facility but invest capital in equipment. We also needed cold storage like that shown below at the juice company in Kabul.
Government Policies Can Complicate Matters
Regulations prevented USG from turning over the facility built with US Tax dollars to a private business owner. The acceptable plan was to turn the facility over to the Kabul government who would in turn lease the facility back to the private business. If you have any experience with business you can probably anticipate the challenges that arise from this type of arrangement. This is where not only local laws and policies but the naïve approach to business from our government gets in the way of success.
The goal was to provide jobs and improve the agriculture value chain. Involving a weak central government and our government regulating what could be done 7,000 miles from DC destined this project to failure.
Global Interest in Investing in Afghanistan
There was more interest from investors in the facility. As the word spread about its construction other potential suiters came forward. My newly formed network of Afghan business owners and the Bolivian led me to Argentina! A grape/wine maker/raisin processor was looking for grape/raisins to process in their off season. Southern hemisphere/northern hemisphere weather cycles could be leveraged if he could make the connections with Afghanistan grape/raisin growers. Afghanistan produced some of the best raisins in the world. Our indigenous team had been working with growers in the valley west of Kandahar to improve their yields and quality. Global standards were a little different than local standards for processing, packaging, and shipments.
These producers were having challenges getting their raisins to international markets. It could be a real opportunity for them if we could facilitate processing and packaging raisins in Gereshk for shipment to international markets. The Argentinian company was offering to furnish process equipment and training for the Gereshk facility. They needed a dependable quantity and quality of raisins for shipment to Argentina.
Now let’s change the government policies
Just when it seemed everything was coming together for a successful conclusion leadership in DC started changing their support for us and for the Marines in Helmand. The Marines were to draw down their numbers at Leatherneck turning over security to local Afghan National Police. The director of our agency lost his battle with funding in congress and decided to leave the task force. That left us with a series of “acting directors” and directions to transition all projects to other agencies. Everyone had to follow the new government policy.
It is probably worth dedicating one blog describing the chaos that occurs once these decisions are made in a vacuum. The impact our agency, all the other agencies we supported, the Afghan government, Afghan business owners, local government, and most of all Afghan citizens was substantial. I’ll include the SIGAR (special inspector general of Afghanistan reconstruction) report to show how politics and government policy changes often ignores the root cause of disasters.
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