Dr Arsala had a major role in convening the Bonn Conference in December 2001, which led to the establishment of the Afghan Interim Administration, where he served as a vice-chairman and finance minister. After the Emergency Loya Jirga in 2002, he became the vice-president of the Transitional Islamic State of Afghanistan. Here, he speaks exclusively to fDi.

Q As you say, the legal and regulatory reform process is work-in-progress. How long before the final framework is in place?

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A The amended investment law will hopefully go to the cabinet in the next two to three weeks. That in itself is very investor-friendly.

Q There is a long list of other laws that are still missing. There is presently no contract law, for instance. How long before commercial law is in place?

A My hope is that a number of these laws will go before the cabinet before we have the new parliament [after elections in September]. The laws that we do not get to, my hope is that we complete them before the end of the year.

Q Investors cite the absence of a suitable legal framework as one of four main obstacles to investment. The others relate to the unresponsiveness of bureaucracy to business, poor infrastructure and the uncertainty of the security climate. What is being done to turn around government bureaucracy?

A There are two issues at stake here. First, the Afghan economy was state-oriented for years and people had got used to it. It takes time for these same people to adjust to a free market and to focus on the private sector.

Second, our institutions are very weak in terms of staffing. Employment was historically based on nepotism or political connections.

We now have a civil service reform programme, which is looking at the structure of government and also improving the grading and pay system. We’re also moving towards a merit-based system of appointment.

But in order to respond quickly to the current needs in key areas, we have a separate programme of priority restructuring and reform for which we have identified key ministries and departments that need improvement. Staff in these ministries will also be better paid, meaning we can recruit better skilled and qualified employees.

All in all, I think it will require five years to create a smaller, tighter civil service that operates effectively.

Q What about infrastructure? Investors complain of slow progress. What is your response to this?

 

A When we came to power in December 2001, we didn’t have any projects and programmes that we could pick up and start implementing. We had to come up with a list and start planning from scratch, and that is what has been happening over the past three years or so.

We have now started implementing some of these but it took us a long time to plan and design everything. Now, the road network construction is under way and there has been some improvement in the power sector.

My own feeling is that our infrastructure – the basic infrastructure and not the kind that you need to facilitate trade with the region, to be a land bridge for the region, which is our objective – will probably be completed in the next five years.

We would love to have people come and invest in the power sector, for instance. But we need investors to be interested first and they need to be assured of things like security and that they can achieve satisfactory returns. We are open for it and we would welcome it. It would certainly speed up the process. But I think it will take some time for large-scale projects involving the private sector.

Q You mention the security issue. What is your perspective on the situation?

 

A Generally, I think there is security in Afghanistan. There are pockets of problems and incidents do happen [but] I do not believe they are of the magnitude that will derail us from our progress to stability. And as we go, building up our army and national police force, these problems will hopefully become less of a factor.

Investors do want to know about security, and I tell them that with the exception of some pockets, most of the country is fine to operate in. In any event, the more investment there is, the more there is stability. Economic activity strengthens security.

I am quite hopeful that security incidents in the country are a passing phenomenon, for as long as everyone in the region also realises that any return to chaos in Afghanistan would not only undermine Afghanistan, it would also undermine the region as a whole.

Q Do the governments of neighbouring countries agree?

 

A I think so – at the top level, they certainly do. They are facing similar kinds of problem. It is in all our interests to work to maintain stability.

There are, of course, people who have got used to a certain way of handling things over the past 20–25 years. It is difficult for them to readjust to this new Afghanistan. But the majority of people in Afghanistan want normality. They want to be able to stay at home with their children, be able to go to work, go to their offices and earn money. They just want to lead a normal life.

The idea of adventurism on the part of a few – and it is a few – is not attractive to the majority anymore. It’s not like the rising up of all Afghans against the Soviets. The majority resent any kind of adventurism on the part of a small minority.

Q As you say, economic development fosters stability. How quickly can Afghanistan achieve economic development that both meets expectations and creates stability?

 

A Of course, expectations are always ahead of delivery. My hope is that in the next five years or so, Afghans will see a substantial change in their lives. Already, parts of society feel that change: people who were earning a $1 per day are now earning $3 or $4 per day.

At the same time, there is this sense of hope: even if they have not got it, they know people who are making money. Lots of the people want to go to school and want to learn new skills. It’s a fundamental change that has occurred in the psyche of the Afghan people. For many people, after so many years of war, they had no hope, and to end up with the Taliban after the war, took away what little hope there was. But now people are improving their homes, investing in their farms and there is a buzz of activity.

Now, this does not mean that everything is perfect. We may still have problems and a lot of the resources that come into the country may not be utilised as efficiently as we’d hope. This is due to capacity constraints. But the direction we are going in is the right direction.

Q The government has calculated the financial resources needed to reconstruct the country and put it on a path to sustainable development. What if the international community fails to meet the funding requirement?

A If we don’t get it all, we have no choice but to reduce our investment plan and reconstruction programme. My hope is that the shortfall will not be that major, at least not for the next three or four years. I am quite sure we can be assured of $4.5bn–$5bn per year for next couple of years. That may not be as much as we’d like it to be, but it will help a lot.

Q Can the rapid economic development and modernisation of Afghanistan be compatible with traditional values?

 

A One should not talk of Afghanistan being Western or anything like that; one should talk of Afghanistan being developed. Development means better education, better health, better housing and better job opportunities and income yet, at the same time, you can retain your religious values and your cultural values.

What the Soviets did was to not understand our society properly. They thought they could change things despite resistance and despite the strong values of the Afghan people. The result was a long-term war and we ended up with greater extremism and fanaticism, which we did not have in the past.

What is happening now is we are moving in another direction. Some people are upset at the fact that in Kabul restaurants people are drinking openly or women are dressed in a certain way. These are areas that you have to be very careful about. They are not worth the backlash of fanatics if that threatens peace.

Debate has to start gradually. There are some who even consider debate as taboo and anti-religious. The government must reflect the will of the majority and at the moment, I think the people expect the government to the play the role of protector of traditional values.

We must ensure that change, progress and development takes place but not in a way that is destabilising.

Q Given the long list of issues the government needs to resolve, what is the relative importance of attracting foreign direct investment?

 

A FDI is of absolutely crucial importance. We are actively encouraging foreign companies to come and invest in Afghanistan in different sectors, in particular, export-oriented industries. We would be very happy to see investments into the energy sector as this is one of the biggest bottlenecks in the economy at present.

Despite the challenges, there are immediate opportunities, including construction materials to meet the demand of the huge reconstruction effort. There are also good opportunities in the agricultural processing sectors, where import substitution has real potential.