Remarks by Jim Bullion, Director, Task Force for Business and Stability Operations, US Department of Defense Afghan-American Chamber of Commerce, December 2012 Good afternoon. Thank you very much for the kind introduction and for the opportunity to speak today. This is a tremendously significant event and the attendance and the stature of those who have travelled from all over the US and especially from Afghanistan to address this gathering speaks to its importance and to the increasing attention on Afghanistan’s future as a land of opportunity, not as a land of dependence and conflict. What I’d like to talk about today is the wide gap between the perception of Afghanistan around the world and the reality of what much of AFG is rapidly becoming – a country that can generate rapid economic growth that will create jobs and hope for the its people, internal stability, and healthy relations with its neighbors and the rest of the world community. The popular perception of Afghanistan is that it is a backward country wracked by violence, with no economic other than opium production, and heading toward a disaster after 2014 as NATO forces draw down and international donors reduce their spending. Let’s look at recent headlines • • • • • • • • • •
Suicide bombing kills 10 Afghans UNHCR Begins Winter Aid Drive Across Afghanistan Al Qaeda battle in Afghanistan to stretch for years. Conflict continues to displace Afghans A 14-Year-Old Girl Is Beheaded for rejecting marriage proposal Afghanistan's displaced dread the coming winter Afghanistan: our never-ending war Girl’s School attacked by Suicide Bomber In Afghanistan, poppy crop rules Why Would Anyone Ever Go To Afghanistan?
These headlines drive a clear perception of Afghanistan as a semi-failed state that deserves only the minimum support that the world community must give it to keep it from being a haven for terrorism. But that perception dramatically misses the reality of opportunity that Afghanistan presents to the international investing community and to its people. Of course, Afghanistan has its challenges – weak infrastructure, weak human capital development, weak governmental capacity, high levels of corruption, difficult logistics - and we certainly can’t ignore the reality of these challenges. 1
But each of these factors represents an opportunity for the future and not one of them cannot be changed over time. Afghanistan is not an immutable country deserving of despair, but a country that has survived decades of conflict The common perceptions of Afghanistan remind me of the two show salesmen who are sent to a far-off country to assess the market. When they get there, they notice that few people are wearing shoes. The first emails back to the head office “Returning home. No opportunity. No one wears shoes.” The second, seeing the same scene as the first, writes: “Send help. Endless opportunity. No one is wearing shoes yet.” About a month ago I attended a conference in London sponsored by the Emerging Markets Private Equity Association. This conference brings together investors and funds, including major endowment funds, pension funds and other institutional investors, to share ideas about investing in emerging markets. One day was entirely devoted to investing in Africa – and it was standing room only. These investors are almost literally falling over each to find opportunities in Africa. Yet only a few years ago headlines for Africa included: • • • • • • •
Local Governance Key to African Renewal Journalists disappointed by Africa governance African corruption drives illegal immigration, say Europeans Determined, Sustained Efforts Needed to End Conflict in Africa Mass Unemployment Hamstrings African Development Fuel crisis 'driving South Africa to its knees' Business leaders worried about AIDS impact on African economy
These are headlines from 2005 – and yet what do those headlines look like today? • • • • • • • • •
Africa's economic growth miracle: 'It's the real thing' Africa Economy: Mozambique's economy in good shape: IMF Africa is on a roll, say economists How Sub-Saharan Africa Is Evolving Into A Global Economic Powerhouse KKR Said to Consider Investing in Africa, Following Carlyle Blackstone to boost energy investments in Africa Brazil competes with China, India to invest in Africa - CNN.com An African Investment Boom - Barrons.com Africa's share of foreign direct investment largest ever
Last year, $55B of foreign direct investment flowed into Africa last year, spread through a number of countries - $5B to Kenya, $9B to Nigeria, etc. Ernst & Young predicts that foreign direct investment in Africa will grow to $150 billion a year by 2015. While extractive industries remain the dominant 2
sectors attracting foreign investment, the survey shows growing attention to tourism, construction, consumer goods, telecommunications, and financial services. How did this happen? Some of this growth is due to China’s investments in natural resources, especially oil and gas and minerals, which it needs to fuel its own economy. As we know, China has also entered Afghanistan, in both the copper and the oil sectors, where it expects to make substantial investments, including commitments to building rail and power capacity. Chinese investments can be problematic, of course, as the lack of progress at Aynack and concerns in Africa about imported labor show, and must be carefully managed. Other investments have been attracted to Africa as a result of significant reforms in government policies that reduce corruption and protect investors, reversing statist and socialist policies that have discouraged outside investment and restrained growth. Governance in Africa is not perfect by a long shot, but it is making dramatic improvements, many specifically designed to attract foreign capital. Another factor has been Africa’s rapid urbanization, which is also taking place in Afghanistan, and a very young population. “Africa has a growing population of very young, ambitious, often well-educated, globally minded people who are increasingly moving into the middle class” this phrase could also describe Afghanistan, where the median age is only 18, very similar to that of Africa’s fast-growing economies. The world community is playing a big role alongside the private sector, as private equity investments are being backed by loans from international institutions – for example, a $900M 250MW hydropower plant in Uganda is being funded by $200M in equity from investors including the Blackstone Group, $20M from the Ugandan government, and $700M from lenders including the IFC, African Development Bank, the European, French and German Development Banks, and Barclays Bank. Significant areas of violence and instability continue to exist in Africa, yet investors are able to see beyond them and to recognize that they are generally confined to certain geographical areas or of a degree that can be contained by security forces. This is similar to the situation in Afghanistan, where the vast majority of the country is free from violence, or only subject to occasional episodes that do not have a significant impact on trade and business. In fact, one index of violence ranks Afghanistan 119th in the world, well behind (better than) most countries in Central America (including Mexico) and many countries in Africa. My contention, then, is that investment in Afghanistan is being held back by perceptions that simply do not reflect the reality of most of the country 3
today. I have made 6 trips to AFG since March of this year, and am still struck, every time I go, with how normal life seems there. In many ways, it reminds me of the Kurdish region of Northern Iraq, which is stable, safe and prosperous, attracting large amounts of foreign investment in its oil resources as well as in hotels, airports, agriculture, and other industries. Exxon Mobil and Chevron are actively investing there, and France’s LaFarge has invested over $500 million in cement plants in the region. My views of Afghanistan have included visiting the Herat Ice Cream company, a mid-sized company that employs over 200 people making very high quality products (I sampled several myself), turning out 30 tons of product a day using local milk. The company is well managed, integrates men and women into its plant operations, distributes widely throughout AFG and has ambitions to grow even further. I also visited a juice plant in Kabul that is buying enormous quantities of fruit from Afghan farmers and turning it into a line of very high quality juices sold all over the country. This company is now building a packaging plant in Helmand province, reputedly one of the most dangerous in Afghanistan, to take advantage of the market opportunity there. A Kabul businessman recently told me that he had surveyed multiple sites for a metals recycling business and decided to locate it in Kandahar, in Afghanistan’s south, which is considers by some to be the heart of Taliban-controlled territory. An Afghan-American is investing millions of his own money to build a glass-manufacturing plant in Mazar-eSharif to supply a growing market both in AFG and potentially throughout Central Asia. In the next few weeks, Afghanistan will announce the winners of four major minerals tenders – gold and copper mines – to companies that will have committed to invest many tens of millions of dollars to explore those sites. Development of those mines will require billions more, and that industry will require enormous investment in supporting infrastructure as well as in the human capital needed to build and operate it. These four mines, together with the potentially enormous Aynack copper mine and the Hajigak iron mine, and several more mines yet to be tendered, will generate as much as $2 billion a year in royalties and taxes to the Iraqi people for many years to come. Afghanistan is already producing oil from the Amu Darya field, developed by the Chinese company CNPC and an Afghan partner. This oil will be trucked to a refinery in Turkmenistan and will eventually be refined in Afghanistan at a refinery that already has equity investors committed to it. Blocks of the giant oil fields in the Tajik Basin, NE of Mazar-e-Sharif, have been tendered and the winners of those blocks will also be announced very soon. Seismic work is being done as we speak to confirm the potential for substantial natural gas reserves near the Turkmen border. These reserves could potentially be exported to India and Pakistan to fuel their economies as well as forming the basis for electricity production on a large scale inside 4
Afghanistan. A major electric power generation plant is already being planned for Sheberghan. Natural gas is already being produced in the North and Afghan Gas is about to begin rebuilding a pipeline from the fields near Sheberghan to Mazar-eSharif to support industrial development there. This gas could fuel heavy industries such as cement manufacturing (there are large limestone deposits nearby), expanded fertilizer production, glass and ceramics manufacturing, plastics, metals manufacturing, CNG for vehicles and many other industries. Combined with the development of oil fields to the east, gas fields to the west, and rail lines running north to Uzbekistan, Tajikistan and Turkmenistan, west to Herat and south to Kabul and the mines, Mazar-eSharif has the potential to become the Chicago of Afghanistan, an industrial and logistics hub. These industries will use Afghanistanâ€™s natural resources to create valueadded industries inside AFG, generating thousands of jobs, reducing imports and increasing exports, and building a diverse economy that is not solely dependent on the export of raw materials. The Task Force for Business and Stability Operations (TFBSO) has been deeply involved in supporting many aspects of identifying and tendering these mineral and oil and gas sites. We have also surveyed, documented and advised about 600 Afghan middle markets companies, preparing the best of them for expansion through infusions of international equity. We are also helping traditional Afghan indigenous industries such as carpet manufacturing, cashmere production, and the gemstone and jewelry industries increase production and improve their quality to be able to compete in international markets and have connected them with international buyers to whom they can sell their high value products directly. Finally, we are helping to prepare the next generation of Afghans to take ownership of their country by establishing entrepreneurship training centers and small business incubators, building on a successful incubator in Herat. The first entrepreneurship center will open at the American University of Afghanistan in Kabul early next year. The private sector is the key to Afghanistanâ€™s future and we are confident that the Afghan people, with help from the international business and investment community, will rapidly take ownership of their destiny and build a rapidly growing economy that will rival any other place on earth as a great place to invest.