Courtesy of The Financial Times, an interesting article on doing business in Afghanistan:

Hassina Syed, founder and chief executive of Afghanistan’s Syed Group, seems remarkably calm for a mother of three who has spent time in a crowded Kabul jail for failing to pay protection money to the police and has sent her older children to the UK to shield them from kidnappers.

She is living evidence that when people say you need to be tough to do business in Afghanistan, they do not mean that you should insist on compliance with the office dress code or enforce rules of corporate governance. They are talking about terrorism and violence and all the unpredictable challenges of operating in a corrupt wartime economy.

“It’s deteriorating every day. Every day, a company closes,” she says over tea at the Gandamack Restaurant and Lodge in Kabul, which she set up a decade ago with her husband Peter Jouvenal, a former television cameraman for the BBC and others, and $500 borrowed from her father.

The homely Gandamack – it was set up after the Taliban were overthrown and she returned from studying medicine in exile in Pakistan – is guarded by 14 armed security men and was the first of several Syed businesses in everything from fuel transport and vegetable exports to the import of second-hand British trucks. “I always wanted to become a businesslady,” says the 34-year-old, who also advises Goldman Sachs on its 10,000 Women initiative and recently told a visiting John Kerry, US secretary of state, that she liked being an entrepreneur because “you are your own boss”.

But even for established businesses such as Ms Syed’s – the group employs 650 people and has a reported annual turnover of $2.8m – the climate is becoming rougher with the imminent departure of most of the 100,000 troops of the Nato-led International Security Assistance Force (Isaf) and many foreign civilians.

She and her husband were arrested last year over late payment of $10,000-$15,000 demanded each month by the police, and Ms Syed, then heavily pregnant, spent a week in a jail cell with 16 women. The couple were released after the payment of a large but undisclosed sum.

Afghan opportunities

Manufacturing almost non-existent except in traditional industries such as carpet-making. Economists blame foreign aid dollars and the arrival of international forces for strengthening the afghani, the local currency, and inflating wage rates. That made imports from China and Pakistan more competitive. Electricity can be erratic.
Construction and real estate?A boom industry that is quickly running out of steam as US and other foreign forces depart. Rental costs for big houses in the safest parts of Kabul, which once went as high as $100,000 a month, have fallen sharply.

Mining Donors say the sector has the potential to save the Afghan economy. Surveys show that Afghanistan has more than $1tn of mineral reserves, and Chinese, Indian and other companies have announced plans to invest in copper, iron, chromite and other minerals. But a crucial mining law has yet to be enacted.

The threat of violence, whether from the Taliban, corrupt officials or gangsters, is a frequent challenge, which is why Ms Syed sent two of her three children to safety in England. “At least I’m comfortable about my kids and I can concentrate on my business,” she says.

The security of children is also on the mind of Khyber Farahi, co-founder and chief executive of FMR, which he says is Afghanistan’s first private equity group. Like many young Afghans, he returned from Pakistan in 2002, worked for international donors and started a consultancy firm before deciding to make his own investments. At that time the country was relatively peaceful and a combination of patriotism, idealism and the sense that the country offered serious business opportunities brought many Afghan exiles back.

Now they are more anxious. “This country cannot always be dependent on aid, and the way business is done here in Afghanistan does not seem to me to be sustainable,” he says. “So many businesses are now dying.”

Mr Farahi is showing off FMR’s first big investment, a $250,000 private school aimed at wealthy Afghans in Kabul’s Sherpur district that opened with 30 pupils at the end of March. Its facilities, including a computer lab and playroom, look to be as good as an equivalent school in London or New York. But there are special features. “On all these windows we’ve installed anti-blast film,” says Mr Farahi, referring to a plastic layer designed to stop shards of glass flying into a room in the event of a car bomb or other explosion.

The Afghan International School is operating in a competitive market – Mr Farahi reckons there are 300 private schools in Kabul alone – but he sees education as one of five profitable sectors that FMR intends to target in the coming years. The others are healthcare, real estate, financial services and franchising.

Mr Farahi considered trying to open an Apple Store but thinks Afghanistan for the moment will not support major brand franchises. Indeed, he says he was shocked to find that the unauthorised Apple shop now in Kabul belonged to one of his relatives. “I told him: ‘How dare you?’?”

Violence and cheating are not the only problems faced by the country’s entrepreneurs. Customs officials are corrupt, laws and regulations are rudimentary and logistics are awkward. Electricity can rarely be taken for granted, even in Kabul.

Afghanistan came equal last, in 174th place, in Transparency International’s latest Corruption Perceptions Index. In the World Bank’s index to measure the ease of doing business, Afghanistan ranked 168th out of 185.

Rahim Walizada, an internationally recognised exporter and designer of carpets and home interiors, says one of his biggest problems is the cost and time needed to export products such as furniture and rugs from a landlocked country. “For the private sector in Afghanistan, it’s a really, really big challenge,” he says, pointing out that his company employs more than 1,000 Afghan families to spin wool and make carpets.

Air freight to the US costs four times as much from Kabul as it does from Pakistan, he says. It is also expensive and slow to send products by truck over the Khyber Pass to Pakistan, where an agreement to ease Afghan transit trade has never been implemented. Often carpets are sent to Pakistan and exported from there as Pakistani products, thus losing their Afghan provenance.

Importing products legally is not much easier. For his new school, Mr Farahi has ordered $16,000 worth of new text books from McGraw-Hill to supplement those on the Afghan government curriculum. The finance ministry says school books are free of duty but the customs office at the airport wants him to pay a fee, so the books remain stuck at the airport a week after term has started.

Still, like Ms Syed and Mr Walizada, Mr Farahi is optimistic, admitting that the school has yet to break even but predicting that it will attract three times as many pupils next year. “Demand is high,” he says. “Education, we think, is a multibillion-dollar industry?.?.?.?and the most critical thing for this country.”

Nevertheless, he concedes with a smile, “business in this country can sometimes be very difficult”.