VZCZCXRO7384
RR RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #3184/01 2830516
ZNR UUUUU ZZH
R 100516Z OCT 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 2021
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0898
RUCNAFG/AFGHANISTAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 003184 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A, NEA 
DEPT PASS USAID FOR AID/ANE 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS OPIC FOR ALDONAS AND STRASSER 
DEPT PASS TDA FOR STEIN AND GREENIP 
USOECD FOR ENERGY ATTACHE 
TREASURY FOR JCASAL, ABAUKOL, AWELLER, AND MNUGENT 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
E.O. 12958: N/A 
TAGS: BEXP EINV EMIN PREL AF
SUBJECT: OPIC Delegation Visits Afghanistan 
 
SUMMARY 
------- 
 
¶1. (U) An Overseas Private Investment Corporation (OPIC) delegation 
-- led by Vice President of Structured Finance Robert Drumheller -- 
visited Kabul and Herat September 26 to October 2, 2009.  While the 
delegation identified potential partners in several sectors, 
including mining and agri-business, they also pinpointed weaknesses 
in Afghanistan's tax and commercial law, infrastructure, and the 
banking sector that pose serious impediments to new investment.  To 
help address these issues, the delegation reviewed ongoing 
OPIC-funded projects and explored new possibilities of addressing 
these issues, including the expansion of small- and medium-sized 
enterprise lending windows.  End Summary. 
 
AFGHAN PRIVATE SECTOR INTERESTS AND CONCERNS 
-------------------------------------------- 
 
¶2.  (U) OPIC Delegation to Afghanistan: 
Robert Drumheller, Vice President of Structured Finance; 
Jacqueline Strasser, Deputy Chief of Staff and Acting Vice Prsident 
and Chief Financial Officer; 
John Aldonas, Managing Director; and 
Maria Goravanchi, Special Assistant 
 
¶3. (U) Afghan business leaders, in a roundtable organized and hosted 
by Minister of Commerce Wahidullah, cited three major obstacles to 
progress and economic growth: access to credit, access to land, and 
access to energy.  Minister Shahrani listed advances in addressing 
each of these obsticles: an increase in the number of banks and 
lending institutions, the draft secure transactions law, the 
development of industrial parks, a new Afghan government initiative 
to facilitate public land sales to the private sector, and the 
Ministry of Water and Energy's work to develop domestic energy 
sources under the Afghan National Development Strategy. 
 
¶4. (U) While noting the country's reform measures and relatively 
good economic performance in 2009, Minister Shahrani admitted that 
serious problems exist.  Despite the expanded banking sector, access 
to credit is still a challenge due to the lack of credible 
information about clients.  Acknowledging affordable land and power 
are difficult to obtain, he said the Industrial Park Authority, 
operating as a corporate entity, should help alleviate some of the 
problems by providing secure parcels of land with reliable 
utilities. 
 
¶5. (U) The focus on the private sector continued in a dinner the 
Ambassador hosted, which gathered together Afghan and U.S. 
businessmen from numerous sectors, including mining, food and 
beverage, finance, construction, and communications.  The dinner was 
an opportunity for OPIC to meet with current loan recipients as well 
as to make connections for potential investments and team members 
reported the dinner resulted in several new contacts.  One example 
of those results is the possibility of negotiations with an 
Afghan-American company interested in building a large cold storage 
and refrigeration repair training facility in Kabul.  Such a 
facility would provide key infrastructure needed to expand 
Afghanistan's agricultural sales and exports. 
 
¶6. (U) In Afghanistan, OPIC has developed an innovative way to 
invest directly in wholly-owned Afghan small and medium enterprises 
(SMEs).  By providing loans to finance institutions with American 
shareholders who make long-term SME and agricultural loans to 
Afghans, OPIC has expanded badly needed SME credit facilities.  Vice 
President Drumheller reported OPIC has provided a $25 million loan 
to Afghan Growth Finance, LLC (AGF) for long-term loans to SMEs and 
agriculture ventures and has another $30 million for AGF in the 
pipeline, pending a State/USAID decision on providing $10 million of 
this capital infusion.  The first tranche of AGF funds has been 
disbursed to Afghan clients in the food processing, construction, 
information technology, and alternative energy sources sectors. 
OPIC is also working with Relief International on a similar 
agreement to provide financing in support of rural small businesses 
just above the microfinance level, again pending a $10 million 
contribution from State/USAID funding sources.  In addition to these 
non-traditional funding structures, OPIC has financed 
infrastructure, agricultural support, and manufacturing projects, 
most notably a $60 million loan for a Marriott Hotel in Kabul. 
 
AFGHAN INVESTMENT SUPPORT AGENCY 
-------------------------------- 
 
KABUL 00003184  002 OF 003 
 
 
 
¶7. (U) The delegation also met with the CEO of the Afghan Investment 
Support Agency (AISA) Nooruallah Delawari.  Delawari said he 
appreciated OPIC's efforts to make financing available to the Afghan 
business community, but he lamented local banks' high interest rates 
and lack of available funds.  The OPIC delegation pointed out 
Afghanistan's high interest rates are partially a result of high 
taxes levied on institutions' interest revenue, as opposed to gross 
profits of lending.  Lending institutions pass that expense onto 
their customers in the form of higher interest rates.  Delawari said 
he would address the issue with the Central Bank.  As the meeting 
ended, Delawari requested OPIC train an AISA member to process OPIC 
loan applications.  The AISA now has people able to help complete 
loan applications for other financing/donor organizations.  OPIC 
team members expressed interest in the idea and agreed to consider 
it. 
 
PROPOSED INVESTMENTS IN THE ENERGY SECTOR 
----------------------------------------- 
 
¶8. (U) Over $135 million in potential Afghan energy sector 
investments are in the pipeline at OPIC.  The delegation visited 
their smallest energy project, a renewable energy service company 
requesting $2 million in working capital financing to support the 
implementation of wind, solar, and hydro-power projects.  OPIC has 
also tentatively agreed to work with USAID to provide up to $124 
million in financing for the Sheberghan Independent Power Project, a 
$250 million 150 megawatt gas-fired power-plant southwest of Mazar-e 
Sharif.  Meeting with Deputy Minister of Water and Energy Ghulas 
Farooq, Drumheller said the Sheberghan project could be structured 
to appeal to the private sector and serve as a pilot project to 
attract future investors.  According to the Deputy Minister, the 
country needs more than ten times the current energy capacity; the 
need is here to support many future projects. 
 
HERAT INVESTMENT OPPORTUNITIES 
------------------------------ 
 
¶9. (U) During a three day visit to Herat, the OPIC delegation 
focused on the growing marble and cashmere sectors.  OPIC has an 
investment in Afghanistan's largest marble quarry located outside of 
Herat city and is considering a second loan for equipment upgrades. 
According to the company's owner, the quarry currently employs 
100-120 workers and provides indirect employment for nearly 1000 
people in the area.  With modern cutting equipment the mine has 
increased its yield of useable extracted material from five percent 
to 40-60 percent in fewer than three years.  The owner also reported 
Afghanistan's marble mining industry, unlike other sectors, has not 
been affected by the global economic crisis.  He claimed that with a 
new road and bridge to the quarry site the area could support dozens 
of new quarries and still not meet world demand for the high quality 
product.  The company is working with USAID-funded Afghanistan Small 
and Medium Enterprise Development (ASMED), the Indian Embassy, and 
local officials to support the road and bridge construction project. 
 
 
¶10. (U) The OPIC delegation also looked at Herat's cashmere sector. 
A $20 million loan is under review for a prominent Afghan-American 
cashmere buyer to construct a vertically integrated cashmere wool 
processing facility.  The enterprise would build on USAID's project 
to help farmers improve goat and cashmere production.  The OPIC team 
visited a number of cashmere hand-dehairing facilities employing 
hundreds of unskilled laborers.  All local cashmere suppliers 
claimed the industry in Herat supports more than one hundred 
thousand people and could grow exponentially were there a processing 
facility in place to build the value-added supply chain: collecting, 
dehairing, washing, and disinfecting the cashmere before exporting 
for spinning and weaving. 
 
GOVERNOR AND CHAMBER OF COMMERCE SPEAK OUT 
------------------------------------------ 
 
¶11. (U) Herat Governor Yusuf Nuristani stressed the region's 
potential for developing its extractive industry, agri-business, and 
manufacturing sector.  He claimed while there were still many 
imports from Iran, Herat's industrial park, with more than 350 
factories, was squeezing out Iranian trade.  (Note: The Governor's 
upbeat assessment differs from the Commerce Minister's view that the 
Iranians unfairly disadvantage local Afghan manufacturers through 
predatory pricing and alleged dumping.  End note.)  While security 
is better in Herat than in some other provinces, Nuristani said he 
 
KABUL 00003184  003 OF 003 
 
 
had recently adopted stricter measures in the city and near the 
Industrial Park.  The Governor stated his support of OPIC's proposed 
investments in the marble and cashmere sectors and urged the 
delegation to look at other sectors such as dairy and petroleum 
products.  Members of the Herat Chamber of Commerce, many of whom 
have interests in the cashmere sector, asked for investment and 
security support from the international community.  They were 
adamant that such support would exponentially spur Herat's trade 
growth, reducing its reliance on Iranian goods.  Local state TV gave 
good coverage to the OPIC visit in Herat. 
 
OPIC'S OBSERVATIONS AND TAKEAWAYS 
--------------------------------- 
 
¶12. (SBU) The OPIC delegation was enthusiastic throughout their trip 
as they visited projects underway and gathered information on 
potential future investments.  Members of the team said they 
envisioned strong potential partnerships with the private sector and 
USAID, but they were clear obstacles will continue to hamper 
progress.  Among the most noteworthy issues identified were: opaque 
tax and commercial laws, banking institutions reluctant to fund 
commercial loans, basic infrastructure weaknesses, and security 
problems.  The delegation was clear these issues must be more 
effectively addressed. 
 
¶13. (U) This cable was prepared subsequent to the OPIC delegation's 
departure from Afghanistan. 
 
EIKENBERRY