Entrepreneur hopes to bottle success in Afghanistan

There is no chatter of gunfire or smell of smoke, but this plot of ground near Kabul is every bit as important to the future of Afghanistan as any battlefield teeming with Taliban.

The warehouse that stands here, surrounded by high walls and razor wire, holds the hope of a more prosperous Afghanistan. It is the home of Afghanistan Beverage Industries Ltd., the nation's first bottled-water maker and employer of nearly 150 Afghans.

For all the focus on nascent democracy, it is jobs that Afghans say they want – and jobs that will diminish the Taliban's appeal here, analysts and generals agree. But a look at the Kabul beverage maker's experience reveals both the promise of the Afghan economy, and the enormous challenges that would keep it stuck in a decades-old pattern of smuggling, corruption, and small-time trade.

"It's not all gloom and doom," says Cecil Galloway, operations director of Afghanistan Beverages Industries, sitting in a well-appointed office that could just as easily be in Cleveland as Kabul. "But investing in Afghanistan is not easy," he adds. "You can't come in here and expect to make millions or make a profit your first year."

With uncertain security, a dysfunctional government, and the promise of only modest profits, entrepreneurs both here and abroad are wary of spending money to mine Afghanistan's emeralds or harvest its apricots. More than half the government's revenue comes from foreign aid, and more than one-third of the nation's gross domestic product is generated by the illegal opium trade.

Exploiting the power of geography

The result is that economic progress is stuttering, and investment is the province only of the most daring or optimistic.

"There is potential, but we have to be a lot more patient," says Michaela Prokop, an economist in the Kabul office of the Asian Development Bank (ADB).

By the numbers, the legal economy is doing moderately well. Since 2001, the country's gross domestic product has doubled, and the economy grew by 13.8 percent in the 2005-06 fiscal year, according to an ADB report.

But the starting point is low. Before 2001, the economy was ruined by 10 years of civil war and Taliban rule. Moreover, much of the new growth is funded by foreign aid or by the opium boom – with annual poppy production rising by 49 percent in 2006. These trends "will not sustain growth," according to the ADB report.

Building a more sustainable economy is Omar Zakhilwal's job. As president of the Afghanistan Investment Support Agency in Kabul, he sees plenty of opportunities.

Afghan fruits are among the best in the world. Before the jihad against the Soviets in the 1970s, Afghanistan grew 60 percent of the world's raisins.

Its mountains are also an untapped resource of natural resouorces: Some of the crown jewels of England, Russia, and Iran came from here, and the Hindu Kush contains some of the world's largest iron-ore reserves, as well as substantial amounts of copper and coal.

Most promising of all, however, is Afghanistan's location, which could make it an economic keystone between Central Asia and the Indian subcontinent. "What is abundant in Central Asia is what is desperately needed in South Asia," says Mr. Zakhilwal, citing the construction of a natural-gas pipeline from Turkmenistan through Afghanistan to India as a prime example. "The two markets have been separated by Afghanistan, but they could be connected by Afghanistan."

Other experts agree with him – to a point. The problem is that while the rest of the world progressed economically Afghanistan was going backward.

"Afghanistan used to have a large market, but it has now been captured [by other countries], and it would be hard to get it back," says Ms. Prokop of ADB.

Lack of a comprehensive aid strategy

Clearly, the security situation will need to improve. But Afghanistan could be making more progress now, say critics: Millions of dollars of foreign aid are being wasted on poor planning and bad policy.

For example, Afghanistan imports $1.5 million in food products that it can grow domestically, says Zakhilwal. If some of the aid money were used to build cold storage, Afghanistan wouldn't have to send its produce to Pakistan, then buy it back later. "There's no comprehensive strategy," adds Zakhilwal. "The donors and the government are going in different directions."

Moreover, the government's economic policy seems to be directly at odds with building domestic industry, others add. Spurred on by the Bush administration's commitment to the free market, Afghanistan has thrown its doors wide open – and been flooded by cheap goods.

That helps Afghan consumers. But it makes it difficult for fledgling businesses here. While Afghanistan levies a 20 percent import tax, for instance, neighbors Pakistan and Uzbekistan charge 57 percent and 120 percent, respectively.

Foreign competition is one of several disadvantages to running a business in Afghanistan, says Mr. Galloway of Afghanistan Beverage Industries:

• In Pakistan, electricity costs 5 cents a kilowatt hour. Here, Galloway must rely on generators, which burn 220 liters of diesel an hour at a cost of 60 cents a liter.

• He maintains a team of 36 security guards.

• And he has to import everything: The bottle pre-forms come from Dubai at $5,000 a shipment, caps by truck from Istanbul at $7,000 a load – even the electric hand driers in the bathrooms come from Turkey.

The good news is that he has proved it is possible to run an international-quality operation here – one that meets the rigorous standards of his biggest customer: the US military. The bad news: Galloway's water is more expensive than every brand made abroad.

But ABI has a missionary zeal – its shareholders are all Afghan-Americans. And the company is proof of how investment can change the lives of everyday Afghans.

"If somebody had showed me a plant like this, I never would have thought that I would have been put in charge," says Mohammad Habeeb Faqirzada, who runs a section of the beverage plant.

"The best part is that in my war-torn country, we are able to have a company [like this], and I am a part of that," he says.

View photo gallery: Snapshots of Afghanistan's economy

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