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Delhi summit on Afghanistan placed private sector investment at the centre of reconstruction efforts

Written by Chandrajit Banerjee |
June 29, 2012 3:10:59 am

Delhi summit on Afghanistan placed private sector investment at the centre of reconstruction efforts

In the decade since the Taliban regime was replaced by a democratic government,Afghanistan has steadily moved ahead on the path to political,economic and social transformation. A new era in its development is set to begin in 2014 with the withdrawal of military troops and gradual reduction of international aid.

Private sector investment is slated to take on a more active role in Afghanistan’s economic reconstruction. India,as a close neighbour and strategic partner of Afghanistan,has a crucial role to play. In this context,the Delhi Summit on Investment in Afghanistan was organised on Thursday by the Confederation of Indian Industry,with the support of the governments of India and Afghanistan.

Afghanistan’s progress over the last decade in building new economic institutions,albeit from a low base,has been impressive. Real GDP growth over the past five years recorded an annual average of 10 per cent. Substantial progress has also been made in human development,including education and the Millennium Development Goals. Despite this,Afghanistan is one of the poorest countries in the world and faces considerable challenges in education and healthcare.

The international community has been an active participant in Afghanistan’s reconstruction process. However,aid,rather than investment,was the moving force,with the stress on political institution building rather than economic development. As 2014 draws closer,Afghanistan must move towards self-sustainable economic development.This is not an easy task as long years of conflict have led to a low industrial base in the country and many local entrepreneurs and skilled workers have left.

The Delhi summit,one of an ongoing series of international conferences on Afghanistan,placed private sector investment and FDI at the centre of reconstruction efforts. It tried to showcase Afghanistan’s economic potential,explore collaborative ventures,promote intra- and inter-regional projects aimed at developing enduring regional and international investment stakes in the Afghan economy. In July,governments,international organisations and other major donors will meet in Tokyo to discuss financial commitments for a 10-year period after 2014.

Investment opportunities are immense in Afghanistan. The country enjoys excellent deposits of copper,iron,gold,rare earth elements and hydrocarbons. Its agricultural produce was once extolled by Babur,and can offer quality niche fruits and nuts to world markets. For centuries,Afghanistan has been the hub connecting Asia,Europe,and the Middle East.

Today,when there is a renewed emphasis on regional economic integration,Afghanistan is ideally situated to function as a gateway,serving landlocked countries to the north and the Iranian and Pakistani seaports to the south. This throws open huge potential for foreign investment in logistics and transportation. The infrastructure sector,including power,telecommunications,roads and railways,can attract FDI.

Over the years,the government in Afghanistan has undertaken several measures to create a business-friendly environment. Its legal/ regulatory regime encourages investments — the investment law allows 100 per cent ownership of enterprises and easy repatriation of profits. It has established agencies such as the Afghanistan Investment

Support Agency (AISA) to support investment and assist investors.

For India,peace in Afghanistan is important for regional stability,and it is active in re-construction efforts. It is one of the largest aid providers to Afghanistan and is delivering humanitarian assistance through several projects. India also spends on social and physical infrastructure in the country — building roads,providing medical facilities,helping with educational programmes — in an effort to develop long-term local Afghan capabilities.

Indian industry supplements these efforts. For example,the CII,with the Indian government’s support,set up a skill-development institute in Kabul and trained over a thousand Afghanistan nationals in various fields. However,the time is now ripe for Indian industry to build its investment profile in Afghanistan for a real first-mover advantage.

There are naturally several challenges for private industry investing in Afghanistan — security concerns,especially in the hinterland,and a market that is not well-developed. Risk mitigation and investment protection will be a central feature of proposed investments,while financing and talent availability are also concerns.

India cannot afford to be a marginal player in Afghanistan’s quest for economic development. Indian private sector industry must be a proactive partner and needs to demonstrate its commitment to the task of rebuilding Afghanistan.

The writer is director general,CII

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