Bactrian Gold: Challenges and Hope for Private-Sector Development in Afghanistan

This work builds on studies of entrepreneurship in the developing world, which show that the incidence of entrepreneurship is twice as high in emerging markets as in the developed world. They cite talent migration, a pent-up supply of entrepreneurs, and lower seed-capital requirements as key drivers of these trends. Moreover, they emphasize the role that these companies play in generating jobs, income, and wealth, creating industries, satisfying domestic demand, and opening export markets.To inform the debate about how best to develop Afghanistan’s private sector, the authors of this report conducted more than 130 interviews with businesses and economic stakeholders in the Afghan cities of Kabul, Kandahar, Jalalabad, Mazare-Sharif and Herat. To better gain perspective from the people who matter most — the Afghans themselves — we traveled without security and maintained no organizational affiliation. Our goal was to understand the narratives, challenges, and opportunities of Afghan businesses in order to inform a more effective strategy to empower them. Our study aims to complement quantitative business surveys conducted by the World Bank and the Center for International Private Enterprise (CIPE) with qualitative research. Our desire to conduct this study stems from our experience as combat veterans of Afghanistan and Iraq, where we saw firsthand the importance of investing in the long-term economic growth and human potential of those societies.We argue that there is tremendous potential to nurture a vibrant private sector in Afghanistan. In order to realize this potential, the Afghan government must address key obstacles to business growth, principally security, corruption, access to capital, infrastructure, and policies, rules, and regulations. Meanwhile, the international community must support the Afghan government in these efforts while reforming several components of its own efforts relating to its leadership, human capital, accountability, sector prioritization, and time horizons. While the substance of this report is broadly echoed in our November 2010 policy brief published by the Center for a New American Security (CNAS), we undertake a more thorough examination here.Section II addresses the implications of key obstacles to Afghan businesses. Section III highlights strategies that Afghan businesses implement to adapt to this highly distorted environment. Section IV examines five sectors of the economy through specific company profiles. The final section provides recommendations for those attempting to enable private sector development in Afghanistan.It is necessary to establish what this paper will not do. Although we interviewed donors and officials from the U.S. Agency for International Development (USAID) in every major region of the country, we do not provide a comprehensive evaluation of international programs. Rather, we describe their most salient shortcomings and successes as identified by international development officers and Afghans themselves. Additionally, we draw on extensive work by many before us in writing about these issues. It is our hope that our recommendations lead to a renewed focus on private-sector development in Afghanistan.The Ewing Marion Kauffman Foundation's Expeditionary Economics Research Series is reconsidering the United States' approach to military- and civilian-led development in areas affected by conflict and natural disasters. The series features research from Kauffman, as well as a number of other civilian and military scholars and practitioners.