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Cablegate: Dod Business Transformation Delegation Visits Afghanistan

VZCZCXRO2381
RR RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2763/01 2531205
ZNR UUUUU ZZH
R 101205Z SEP 09
FM AMEMBASSY KABUL
TO RUEHEG/AMEMBASSY CAIRO 0291
RUEHC/SECSTATE WASHDC 1406
RUEKJCS/SECDEF WASHINGTON DC
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0884
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 002763

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E.O. 12958; N/A
TAGS: BEXP ECON EINV EMIN PREL AF
SUBJECT: DOD Business Transformation Delegation Visits Afghanistan

SUMMARY
-------

1. (U) The Department of Defense (DoD) Task Force on Business
Development and Stability Operations -- led by Deputy Undersecretary
of Defense Paul Brinkley -- visited Afghanistan July 26-30, 2009,
chiefly to identify economic opportunities/ventures that could boost
local employment significantly with minimal monetary, technical,
and/or marketing assistance. These ventures -- which delegation
members often described as "low hanging fruit" or "shovel ready" --
would be pursued at the RC or PRT level. Following visits to
Lashkar-Gah, Herat, Mazar-e Sharif, Parwan, Panjshir, and Kabul, the
delegation stated Afghanistan's business community is more
profit-motivated and receptive to assistance than the team had found
in Iraq, where the DOD Task Force began operation in 2006. The
Business Transformation Task Force -- composed of Office of the
Secretary of Defense (OSD) advisors and private sector consultants
-- plans to return in October to negotiate and finalize its presence
in Afghanistan. End summary.

BUSINESS ROUNDTABLE SETS STAGE
------------------------------

2. (U) Deputy Ambassador Ricciardone and Coordinating Director for
Development and Economic Affairs Wayne co-chaired a business
roundtable on the first day of the delegation's visit.
Approximately twenty Afghan and American attendees described various
familiar obstacles to private investment: threats to their personal
security; corruption; weak and/or expensive access to capital,
especially for smaller firms; high transport costs; shortage of
skilled labor; policy shortcomings; general inattention in the GIRoA
to business needs; and an overall lack of appreciation on the part
of the government for the private sector's role as a primary engine
for Afghan economic growth. Participants noted that Afghanistan
currently ranks dead last out of 181 countries measured in terms of
"Protecting Investors." The group's outlook was not entirely
negative, however. All agreed Afghanistan has great potential to
attract private investment if it can improve the policy environment
and reduce corruption. They cited agriculture and mining as key
potential growth sectors. The executives noted that Afghanistan
scores well on a few of the World Bank indicators, including its
25/181 rank on registering businesses, demonstrating the
government's ability to do better when it targets specific problems.


3. (U) Participants also stressed the importance of Coalition forces
and foreign aid agencies boosting the amount of procurement they do
from local Afghan sources. (Note: "Afghan First" is a concept the
Mission is promoting and advancing vigorously. End note.) (The use
of common contracting standards is also key, requiring three-way
cooperation among business, the Afghan government, and the
international community to fight corruption. Finance sector
executives noted while 18 private Afghan commercial banks have been
established and mobilized domestic deposits, their high interest
rates (15-20%) limit small and medium enterprises' access to
financing. They added that while some micro-financing ventures
exist (including projects financed by USAID), they need to be
expanded to non-secure areas of Afghanistan and increase the
proportion of women participating. Commerce Minister Shahrani
acknowledged the challenges facing Afghanistan's private sector and
reaffirmed his own commitment to expanding business-friendly
regulation. He insisted the Afghan government is taking concrete
steps to improve the environment for business and is taking business
views into account in making policy.

4. (U) The Afghan and U.S. business attendees represented numerous
sectors, including mining, food and beverages, insurance, finance,
energy, construction, and trading. The roundtable also received a
presentation from leaders of the American Chamber of Commerce in
Egypt, who shared their experience in building from scratch what is
now one of the largest and most effective AmChams in the Muslim
World. Roundtable participants agreed an AmCham could strengthen
the voice of the private sector in Afghanistan. The Mission will
pursue conversations with the Afghan business community to determine
whether there is sufficient demand to launch and sustain a chamber
(which complements existing Afghan/U.S. efforts) in Afghanistan.

KABUL 00002763 002 OF 003

LASHKAR-GAH EXHIBITS PROMISE/HERAT FLEXES INDUSTRIAL MUSCLE
-----------------------------------

5. (U) Task Force Brinkley noted their earlier notions of
Afghanistan's lack of entrepreneurial spirit and dearth of economic
energy were rapidly dispelled when the delegation toured several
facilities in and around Lashkar-Gah in Helmand Province, known for
its Taliban presence and copious poppy production. Among the
highlights of the tour were a poultry farm, a marble/decorative
stone processing facility, and an experimental farm. Delegation
members said they were surprised at the permissive security
situation in the city and encouraged to hear the Bost Airfield had
been opened and that an agricultural processing facility adjacent to
it would be opened in the near future. A discussion with tribal
elders and representatives of line ministries highlighted the need
to align more closely agri-business/food processors with farmers in
order to increase production, quality, and efficiency. Furthermore,
the task force's agricultural specialist remarked the lack of feed
mills in Helmand -- and in Afghanistan in general -- is a glaring
weakness and potential opportunity. Investment in such facilities
will plug a vital hole in the agricultural supply chain and improve
animal husbandry stocks and poultry/egg operations while reducing
reliance on imported feed.

6. (U) Task force members reported they were "shocked" to learn the
level of industrial and business activity in Herat. In rapid
succession, the task force visited factories/operations involved in
the production/processing of marble, plastic wares, sodas, paint,
tomato paste, cookies, ice cream, cotton, and steel. All the
facilities were within three to five kilometers from the airport in
Herat and most were located in the same industrial park. Most of
the owners indicated the need for assistance in securing capital and
additional markets, which would allow them to expand operations and
improve production and efficiency. During an afternoon luncheon
presided over by the provincial governor, ACCI leadership and
numerous local businessmen solidified the impression that Herat's
business community is more than ready to expand operations, seek
additional markets, and partner with foreign direct investors.

MAZAR-E SHARIF, GATEWAY TO NORTHERN NEIGHBORS
---------------------------------------------

7. (U) THE Mazar-e Sharif visit began with a visit, guided by the
Director General of Customs to the Hairatan border crossing (about
40 miles north of Mazar-e Sharif). The border crossing is the
country's main entry point for fuel. A rail spur is just inside the
border and connects to a container-loading facility. The Asian
Development Bank (ADB) is developing plans to extend the rail line
to Mazar-e Sharif and the Korean company Hanjin is considering
investing to upgrade the current loading facility/bay. The tour and
discussion made it abundantly clear the Hairatan border crossing is
underutilized for exports, as most vehicles are coming into the
country and leaving empty.

8. (U) The visit to Mazar-e Sharif also focused on the carpet
industry, including a visit to a wool spinning operation and the
local carpet guild. In the discussions that ensued after the tours,
there was an emphasis on building a vertically integrated value
added supply chain that includes all pre- and post-weaving
activities (dye selection/collection, wool spinning, cutting and
washing). Deputy U/S Brinkley recounted the work they had done in
Iraq to rebuild the carpet industry where the Task Force focused on
improving "Iraq centric" designs, vertical integration, enhanced
quality through better materials, and matching production to high
end markets in the UK and U.S. The Mazar-e Sharif wool spinning
factory owner and carpet guild members believed a similar approach
would greatly assist their industry. However, they emphasized the
need to quantify accurately changing customer tastes for carpet
designs and colors as most imperative. The Task Force mentioned the
possibility of bringing experts to Afghanistan to discuss
implementation of such a plan.

PARWAN'S STATE-OWNED CEMENT FACTORY
-----------------------------------


KABUL 00002763 003 OF 003


9. (U) Drawing the Task Force's experience in revitalizing nearly
twenty formerly state owned cement factories in Iraq, the Force
visited the Jebel Saraj Cement Factory in Parwan province. The
plant formerly produced most of the cement utilized in Afghanistan.
As the Task Force toured the facility and discussed its operations
with the General Manager (who has worked there for thirty years),
delegation members commented most if not all of the cement factories
revitalized in Iraq were in worse physical and financial shape when
embraced by the Task Force. State-owned enterprises in Iraq had
been propped up by petroleum revenues and employed excessive
numbers, while the Jebel Saraj factory breaks even, despite the lack
of access to electricity and only intermittent periods of operation.
The Ministry of Mines sought to tender the lease for the factory's
operation a couple of years back, but negotiations broke down with
an interested Indian investor. In July, they once again released a
tender notice for Jebel Saraj. Task Force Gladius is currently
supporting the area and the factory by installing diesel generators
that would provide a more constant flow of power.

PANJSHIR VALLEY: NATURAL RESOURCES
----------------------------------

10. (U) Known for its panoramic vistas and lush vegetation, Panjshir
province is one of the better governed and more hospitable places to
live and work in Afghanistan. The Task Force met with PRT
leadership, the governor, and toured a marble processing operation,
Afghanistan's first wind farm, and a micro-hydro facility. Panjshir
province has abundant deposits of marble and of precious and
semi-precious gemstones. Current USAID development projects focus
on creating value-added supply chain processes (e.g.,
cutting/polishing) that would create employment and constituencies
that could begin to dislodge those profiting from the illegal gem
and marble trade into Pakistan. The Task Force and PRT team
discussed ways to provide complementary support for these efforts as
well as to build up tourist-friendly infrastructure that would
encourage and buttress nascent eco-tourism in the province.

OVERALL THEMES/OBSERVATIONS AND WAY FORWARD
-------------------------------------------

11. (U) From the onset of their visit, the DOD Business Development
Task Force members described Afghanistan's business community as
more profit-oriented than in Iraq. They also stated that they found
an enthusiasm and cooperativeness that simply did not exist in Iraq.
The delegation said they saw a surprising range of existing
opportunities in a variety of industries, particularly in Herat, but
also in Mazar-e Sharif, Parwan, and Panjshir. Nevertheless, they
noted business progress is likely to be measured by modest gains,
emphasizing that mining remains the biggest "game changer". Efforts
at quantifying small and medium deposits of commercially viable
minerals must be intensified. The Task Force members noted the
Ministry of Mines needs to be brought on board with this effort.
Furthermore, "Afghan First" efforts can carefully be pushed harder.
One member observed that USG procurement, especially for the
military, could focus on developing a supply chain for raw materials
(especially in regard to fruit/vegetables, cement, and other
essential supplies). In addition, the creation of an "Afghan Brand"
for carpets and semi-precious stones could capitalize on worldwide
recognition and sympathy for international efforts here. Embassy
understands a subsequent follow up visit is now planned for
mid-October and looks forward to supporting it.

12. (U) This cable was cleared by Under Secretary Brinkley.

EIKENBERRY

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