After more than two decades of war, the first order of business has been reconstruction, heralding the arrival of a wave of construction companies. Afghans’ new-found confidence that peace will hold has triggered a surge in private investment to rebuild homes and businesses.
With a backlog of infrastructure needs, the construction sector is set for a long period of growth. For fiscal year 2004/2005, the IMF estimates the total value of construction sector output will top $405m or more significantly, 7.5% of GDP. This represents a staggering 60% growth on the previous year, and a 101% leap on the year before that.
Companies from India, Pakistan, Turkey and further afield have snapped up lucrative contracts. First-mover advantage and on-the-ground experience are benefits as the country’s numerous operating challenges present a barrier to entry to new firms, particularly in setting up supply lines and negotiating Afghanistan’s tricky bureaucracy and customs regime.
A less competitive niche within the sector is supply of materials, though this is also expanding rapidly. Demand comes from different types of activities, including government reconstruction projects; large-scale private and business construction; small-scale retail and residential development; and military-related projects.
At present, most construction materials are imported. Transportation costs are an important factor, giving locally produced materials an instant cost advantage. Given the abundance of raw materials, the mining and processing of these resources to manufacture construction materials is a promising opportunity. Local-based businesses can outdo foreign rivals with relatively small investments and simple technology. Investors possessing specific technological processes and know-how stand to profit even more.
Investment opportunities also exist in the manufacturing of final construction products from intermediate inputs, such as doors or windows. Often these activities are carried out on a small scale, but opportunities exist to expand into mass production.
Ultimately, the direction of trade may even be reversed, with the potential to export construction materials. Prospects are compelling for the marble and marble-cutting industry.
International donors that are heavily involved in the construction business are under pressure to increase the local content of their development projects, offering opportunities for local producers, if they invest properly to fulfil the quantity and quality requirements of these organisations.
Supply and demand
Currently, most cement is imported from Pakistan and Iran. All necessary conditions for cement production can be found in Afghanistan, and given the high transport costs for the product, Afghan-produced cement is highly competitive. Demand for cement has been strong and is forecasted to grow substantially. Much demand for baked bricks is also sourced from regional markets, in particular Pakistan, and this industry would also benefit from lower transport costs of being closer to market.
Demand for doors and windows is strong. Traditionally, locally produced windows are made from wood and glass, usually on a small scale, and opportunities exist in the industrialisation of this process.
Afghanistan has substantial marble deposits, which is typically exported uncut to Pakistan. Investment in local cutting capacity would save on shipping costs and boost profits. Other opportunities exist for ceramic tiles; sand, gravel and aggregate; natural stone and asphalt.