Afghanistan’s Sectors Worth Investment

by Wadsam | April 18, 2012 6:55 am

1. Agriculture and agriculture-related industries

Agriculture is a fundamental means of livelihood in Afghanistan, generating 50% of the country’s GDP and supporting 85% of its people. The climate of Afghanistan is well suited for the cultivation of horticultural crops and Afghanistan is the geographic origin of many high-end crops like raisins, pomegranates, pistachios and almonds.

There are approximately one million farms in Afghanistan and more than 2,000 wholesalers for horticulture products. Intensive commercial farming increases sustainable economic growth in rural areas, encourages competition, contributes to regional development and helps sustain the growth of private businesses related to it. Investment in agro-business and agro-processing will make a positive impact on the economic development of Afghanistan and will give Afghans pride in producing and purchasing local Afghan products. It should be the goal of a modern agricultural sector for Afghanistan to become self-sufficient again and subsequently be able to expand into an export industry.

One industry related to the agricultural sector is for example packaging which provides great opportunities for investors, as demand for Afghan agricultural goods is high, but current packaging procedures are outdated and damage fresh goods en route to markets and prevents an effective export business for many crops. Some 20-40% of post-harvest horticulture products are wasted because of poor packaging.

Processing is another great investment opportunity. It is estimated that the processed fruits and vegetables market amounts to around 1.4 to 2.5 billion Afghani (US $28-60 million)7 demonstrating that the market potential for processed agricultural products including snack foods, packaged biscuits, fruits concentrates, pickles and fresh fruit jams is enormous. An example is fruit juices whose market value in Afghanistan is approximately 20 million USD with a yearly growth rate of around 15%.8 In 2003 alone, Afghanistan imported 40 million litres of juices, mostly from Pakistan and Iran.

Domestic production of machinery related to the agro-business and agro-processing industries is a lucrative opportunity for investors given that current equipment in Afghanistan is currently imported from abroad, or date back from the Soviet era. Demand for new machinery, such as grain cleaning and sieving equipment for flour, and tractor trolleys and ploughs, will continue to grow and be vital to the production of agricultural goods. In the long term, the manufacture of local machinery will be profitable to the agricultural industry.

2. Construction materials

Another interesting area of investment is the construction materials industries in order to improve the supply of quality products from within the country. These, if up to international standards, might grow into an export industry and hence have a future that way.

While in the first years of reconstruction it was mainly foreign construction companies who attracted the major construction contracts, it is now the local construction industry which is shaping up to acquire the necessary capacity to take over from their international competitors as they offer a considerable price advantage.

Good quality construction material produced locally will hence be an important and profitable sector to drive the local construction industry.

3. Telecommunication

Core telecommunication service providers supply the Afghan market already in a sufficient manner with increased competition and price pressures. While there are still opportunities for mobile service providers, a far more virgin market represents the supply and service area of the telecommunication sector. Examples are: Data processing, basic business-processing operations information and communication technology (ICT), data transfer, process control and perhaps call centres. These areas are attractive as they do not depend on the overall infrastructure of Afghanistan such as airports and roads but investors can bring and rely on their own infrastructure such as satellite communication equipment etc.

4. Transport and Logistics

This sector represents a vital support-industry to other sectors which will not be able to perform well without an up-graded transport and logistics sector.

Afghanistan offers new and expanding trade routes. The improvement of its transport infrastructure supports Afghanistan’s trade nexus, both in country and across its borders. It is estimated that 60% of overland transportation comes to or from Pakistan, 30% to or from Iran, and a combined 10% through borders with the Central Asian republics. To the north, in Turkmenistan, Uzbekistan and Tajikistan, goods and commodities flow on main transit routes south through Afghanistan to the ports of Bandar-e ’Abbas and Chah Bahar in Iran, and Gwadar and Karachi in Pakistan. A planned bridge will link Afghanistan and Tajikistan over the Amu Darya (Oxus) River, which carries barge traffic along the borders with Turkmenistan, Uzbekistan and Tajikistan. Within Afghanistan, the main “Ring Road” is connecting Kabul to Kandahar in the South, Herat in the East, and Mazar-e Sharif in the North, hence linking the country’s key commercial centres, while other roads are extending to the border crossings with Iran, Pakistan and other neighbouring countries.

Afghanistan’s large and growing market for basic logistics and transportation services presents a ground-floor opportunity for new providers. This opportunity is open to domestic and foreign firms of all sizes and origins. While investment in the sector is increasing, the field is virgin territory for many services. The timing is right to cultivate customers and establish a “first mover” advantage. Early investors in the sector report modest start-up costs and relatively low overheads, and even smaller operators are moving large volumes of freight.

Afghanistan offers a geological-strategic advantage for investors in the Logistics and Transport Sectors. For centuries Afghanistan has been the hub connecting Asia, Europe and the Middle East. Today Afghanistan is ideally situated to again function as a strategic gateway, serving landlocked countries to the north and the Iranian and Pakistani seaports to the south. Afghanistan is potentially the shortest route to the open sea for the Central Asian republics and Russian industrial centres of western Siberia. For Pakistan, Afghanistan offers a primary route for trade with Central Asia. In fact, Afghanistan shares borders with six neighbours – Iran, Turkmenistan, Uzbekistan, Tajikistan, China and Pakistan – and is considered a “land bridge” connecting proximate country markets, as well as potentially large trading partners, such as Iran and India. Afghanistan offers a point of access to an extended regional market of more than 2 billion people, linking the Middle East to Southern, Central and Southeast Asia.

Commercial transport is a high-growth sector in Afghanistan. Among the commercial markets as well as the donor community, demand for transport services is expected to remain strong in the medium and long term. Afghanistan has immediate, almost unlimited demand for both industrial materials and consumer products. Transport volumes for commercial goods, which are almost double that of donor material are expected to rise as Afghanistan’s commercial infrastructure continues to improve. Finally, improving infrastructure and security is resulting in increased transhipment of goods through Afghanistan.

An important demand in the logistics sector is the provison of cold transportation and storage facilities such as cold rooms and refrigerated trucks and containers. Some 20-40% of post-harvest horticulture products are wasted because of poor packaging. In cold storage transportation, there are currently less than 50 refrigerated trucks available around the country.

5. Mining, power and water

The development of the mining sector has clear benefits to the economy of Afghanistan and provides first-mover advantages to investors. The mining sector is crucial to the reconstruction and rehabilitation of Afghanistan. Yet they remain virtually absent of foreign investment due to historic state control of natural resources. Today, many mining resources remain under the control of failed state-owned enterprises (SOE’s). Other mining activities are conducted on a small-scale, mostly illegal, basis. Moreover, experience in other countries shows that private operators are, for the most part, more effective in the exploitation and exploration of natural resources and mining.

Opportunities of these sectors are largely dominated by government tenders. Interested investors should approach AISA for guidance in the bidding process and for a introduction to the relevant ministry.

For more Information

6. Low-end (labor-intensive) manufacturing

While the agricultural sector presents and is likely to present in the near and mid-term future the most important industry sector, Afghanistan is keen on establishing a low-cost, labor-intensive manufacturing sector which absorbs the many unemployed Afghans, the number of which is likely to increase dramatically with the influx of more returning refugees from neighbouring countries and which can not be absorbed by agro-related industries alone. Given the fact that countries like China and India, who have been for decades at the forefront of low-end manufacturing are now moving a step forward into more sophisticated industries which bring rising labor and manufacturing costs, international production industries must be on the continued look-out for low-cost countries to relocate their industries to. Afghanistan can be that new low-end manufacturing base for you.

Industries suitable for investment are likely to be those which can first supply the local market and later on become an export product. That way these industries can help significantly with off-setting Afghanistan’s trade imbalance. All the manufacturing products imported into Afghanistan are shown in a list published by the Afghan statistics office. This indicates that all these products have a market in the country itself. Out of this list the following are low-end manufacturing products and offer a ready area of investment:

Suitable industries are further likely to be those from foreign countries which are keen on outsourcing certain parts of their production. In the case of Afghanistan one might think of simple parts which e.g. serve the car industry in Europe and which are expensive to manufacture there.

Source URL: