The message to investors is clearly stated on the hoarding in Kabul International Airport’s arrivals hall: 'Afghanistan, land of the brave'. This is not a place for the faint hearted.

Target-prone foreign diplomatic delegations, hotels and government ministries are surrounded by blast walls and armed guards, but Taliban insurgents seem to be able to slip past the security cordons with unsettling ease. Yet if the risks are high, the potential rewards are staggering. The US Geological Survey (USGS) has concluded that Afghanistan lies atop a bonanza of mineral wealth estimated to be worth some $1000bn. Other estimates place the value of the country’s oil, gas, copper, gold, iron ore and rare earth minerals as high as $3000bn. Small wonder, then, that investor interest and activity have centred overwhelmingly on the mining sector.



Afghanistan businesswoman strikes a success

One does not expect to encounter many female entrepreneurs in Afghanistan – even less so one who at age 28 has set up Kabul’s first bowling alley, a $1m venture which, according to its founder and general-director Meena Rahmani, has been met with “a great reaction”.

Ms Rahmani left worn-torn Afghanistan in 1992 and eventually settled with her family in Canada, where she studied media and production. “I wanted to make documentaries on social issues in Afghanistan,” she says. “Then, in 2010, I returned to Kabul and I quickly identified the lack of any facilities for entertainment for friends and families. I used to go bowling in Canada and that gave me the inspiration to introduce the sport in my native country.”

From the outset, Ms Rahmani decided to defy tradition by making the bowling alley a mixed facility instead of having separate lanes for men and women. “I have plans to arrange league bowling and I am happy to have women competing with men,” she says. “This is a new sport and people had no idea what bowling was. We opened in September 2011 and now the place is packed on weekends. It takes time to develop awareness in the market and I am definitely looking at expanding to other cities.” 

“Afghanistan is one of two key countries whose soil contains still unknown quantities of minerals,” says Michael Wareing, international investment adviser to the Afghanistan ministry of mines and former CEO of global professional services firm KPMG. “Afghanistan is the collision point of three continental plates, hence the country’s mountainous topography and complex and, in some cases, world-class mineral wealth.”

Mr Wareing says that from a corporate investor’s point of view, it is the size of the prize that matters. “Mining companies are used to working in this kind of environment and can deal with issues such as corruption and security. One of [the worst scenarios] is dealing with governments that change the rules halfway down the negotiating process, but so far the experience in Afghanistan has been positive. The government doesn’t want to operate a nationalised mining company. It sees its role as that of regulator and facilitator.” 

Treasure chest

The size of the prize in Afghanistan has already attracted multi-million dollar commitments from Indian, Chinese and a number of Western investors. Afisco, an Indian consortium of seven companies, is in the final stages of contract negotiations for Asia’s second largest iron ore mine located at Hajigak, north of the country's capital of Kabul. Afisco was selected as the preferred bidder for its promise to also invest in a 1000-megawatt power plant, along with a $7bn steel plant and a 200-kilometre railway line from mine to plant.

On April 25, 2012, international companies were shortlisted for investment in two gold and copper deposits. The value of Afghanistan’s copper deposits are in the $274bn range, while concentrations of gold are calculated to be worth $25bn, according to USGS estimates.

In addition, there is $81bn-worth of niobium deposits – a mineral used in superconducting materials – and $50bn-worth of cobalt. Estimates of undiscovered petroleum resources in northern Afghanistan range from 1000 billion to 11000 billion cubic metres, while estimates of natural gas liquids are as high as 1.32 million barrels.

Oil production is expected to begin for the first time ever in Afghanistan after China National Petroleum Company won an exploration bid to develop oil deposits in the Amu Darya river basin in the north of the country, in a joint venture with local partner Watan Group. The deal includes the construction of a refinery to process the region’s estimated 87 million barrels of oil. The Chinese-Afghan partnership is expected to boost government revenues by $5bn over the next 10 years.

High risk

The handicaps to doing business in Afghanistan – leaving aside the challenges posed by the Taliban insurgency – cannot be overstated. Large mining projects need power and only 15% of rural Afghanistan is electrified. Governance and transparency are conspicuous by their absence in what non-governmental corruption monitor Transparency International rates as the world’s second most corrupt country after Somalia. The lack of proper roads, a railway system and a sea outlet are on the face of it major deterrents.

Yet private investment in Afghanistan has experienced strong and rapid growth, from 1.3% of GDP in 2003 to 8.6% in 2011, and FDI, now more than $1.5bn, accounts for one-third of the total. “There are opportunities in every sector of the economy, from mining to petroleum distribution, telecoms, construction and retail,” says Sadat Naderi, CEO of Afghanistan’s largest conglomerate, SMN Investments. “Security is definitely an issue, but the situation is improving. Kabul was incident free for six months until March 2010 when a handful of insurgents staged an unsuccessful attack in the city. When you commit to investing in Afghanistan, this is something you have to deal with.”

Mr Naderi says he is always looking for joint ventures, as his success has often been based on teaming up with the right partners. SMN Investments’ Afghan Krystal Natural Resources is currently in partnership with financial services firm JPMorgan to finance and develop a gold mine in Qara Zaghan in the north-east of the country.

“We are pioneers in sectors such as insurance and in the past four years we have insured $17bn-worth of risk. One of the first questions foreign investors ask is whether they can be insured, and our answer is yes. We also insure marine cargo, supermarkets, financial services, energy, construction and healthcare. I see investment opportunities in every one of these sectors.”

Question mark

Naseem Akbar, acting CEO of Afghanistan Investment Support Agency, says that the country's government is striving to make its legislation more enticing for investors. “We adhere to a free-market economy driven by the private sector and we keep revising the law to make it more investor friendly,” he says. “We allow full foreign ownership, 100% capital repatriation, a flat 20% corporate rate of tax and five-year accelerated depreciation. We aim to be a one-stop shop for investors.”

Mr Akbar says that the government wants mining to be at the forefront of foreign investment, although food processing and packaging is another area with high potential. “Countries such as the United Arab Emirates import food products from this region, and we want to be in there offering Afghan goods on a competitive basis.”

The big question mark hanging over Afghanistan is the 2014 withdrawal of NATO troops. Investors constantly express concern over the possibility of a sharp deterioration in security, as well as the potential damage to the Afghanistan economy after the pullout of tens of thousands of foreigners. “I don’t have the answer to that one,” says Mr Akbar. “All I can say is that I remain an optimist. There is no option but to be optimistic.”

Mark Sedwell, the UK's former ambassador to Afghanistan, puts a finer point on the question. “One must try to be realistic,” he says. “The fears of how this could develop are real. There are measures to prevent the worst-case scenario happening and to set the conditions of a political settlement. But the margin for error is great and there is not a huge amount of time.”