SOURCE: Ewing Marion Kauffman Foundation

Ewing Marion Kauffman Foundation

February 28, 2011 08:00 ET

Kauffman Foundation Expeditionary Economics Paper Shows 'Great Potential' for Afghanistan Entrepreneurship

Afghan Government, International Community Must Partner to Remove Obstacles to Private-Sector Firm Formation

KANSAS CITY, MO--(Marketwire - February 28, 2011) - Despite decades of conflict, corruption and insecurity, Afghanistan has unrecognized and untapped economic potential in its private sector, according to "Bactrian Gold: Challenges and Hope for Private-Sector Development in Afghanistan," the second paper in the Ewing Marion Kauffman Foundation's Expeditionary Economics Research Series, which is reconsidering the United States' approach to economic development in areas affected by conflict and natural disasters.

To inform the debate over how best to develop Afghanistan's private sector, "Bactrian Gold" authors Jake Cusack and Eric Malmstrom interviewed more than 130 business owners and economic stakeholders in the Afghan cities of Kabul, Kandahar, Jalalabad, Mazar-e-Sharif and Herat, traveling without security or organizational affiliation to better understand the Afghan people's perspectives.

"The importance of investing in the long-term economic growth and human potential of Afghanistan and other post-conflict societies is enormous," said Cusack, citing both authors' perspectives as U.S. combat veterans in Afghanistan and Iraq. "We wanted to provide qualitative information, gained first-hand from Afghan citizens, to complement quantitative business surveys conducted by the World Bank and Center for International Private Enterprise (CIPE) in finding effective strategies to empower Afghan businesses."

The resulting report identifies key obstacles facing private Afghan businesses and would-be entrepreneurs; explores ways Afghan business leaders have adapted operations and business strategies to adapt to these challenges; analyzes key market sectors and their benefits and drawbacks for entrepreneurs; and provides recommendations for how the Afghan government and international stakeholders can best support private-sector economic growth in Afghanistan.

Primary challenges identified by respondents to the 2010 CIPE survey of 738 Afghan businesses -- including lack of security (78 percent), corruption (53 percent) and lack of electricity (44 percent) -- were borne out by the authors' research, which reveals deeper complexities behind each issue. For example, while insecurity resulting from ongoing violence is itself problematic, the paper finds that business owners were more troubled by related infrastructure and transportation blockages and high levels of uncertainty regarding quality and supply of power and the flow of materials across borders. Endemic corruption also affects Afghan entrepreneurs in myriad ways, with businesses subject to bureaucratic and regulatory roadblocks that only the "well connected" can circumvent.

However, Afghan business owners have proved tenacious and creative in adapting to these challenges, the paper finds. Vertical integration of the supply chain, moving from producing to trading, and building relationships with external organizations are among the strategies adopted by the Afghans interviewed to continue to grow their businesses.

Report recommendations include:

  • Private-sector talent from other countries should support and work alongside Afghan businesses. Numerous entrepreneurs and aid organization stakeholders cited the lack of education or background in developing a business plan and effectively applying for financing as a barrier to getting funds or international backing to grow small businesses.
  • Development incentives must be changed to support implementation and long-term results. The short time horizons of many international aid programs, or the program administrators' terms of duty, are at odds with the realities of the time needed for a startup to grow, particularly in the current Afghan business environment.
  • While agriculture remains an economic mainstay and mining has great potential, the authors found that other sectors such as light manufacturing and services may be easier for entrepreneurs to enter.
  • Afghan enterprises must be supported with a better regulatory and operating environment, public-private partnerships, and links to multinational firms.

"The international community must be thoughtful about how it attempts to enable progress, looking at what truly works and not resurrecting flawed concepts," Malmstrom said. "All efforts should constantly consider the Afghan entrepreneurs at the grassroots who are trying to innovate and provide value to the Afghan economy and society."

About the Expeditionary Economics Research Series
The Ewing Marion Kauffman Foundation's Expeditionary Economics Research Series is reconsidering the United States' approach to military- and civilian-led development in areas affected by conflict and natural disasters. The series features research from Kauffman, as well as a number of other civilian and military scholars and practitioners. The inaugural and all subsequent papers in the series will be available at www.expeditionaryeconomics.org.

The concept of Expeditionary Economics (ExpECON) was introduced in 2010 by Kauffman President and CEO Carl Schramm in an article in the May/June 2010 issue of Foreign Affairs, "Expeditionary Economics: Spurring Growth After Conflicts and Disasters." Schramm argued that economic growth is vital to stability, and the military, as the dominant player in these environments, must sharpen its ability to encourage indigenous entrepreneurship, which is the most effective means to sustainable growth.

Kauffman hosted a Summit on Entrepreneurship and Expeditionary Economics with the Command and General Staff College Foundation in May of 2010, and is collaborating with the United States Military Academy, which is devoting its annual Senior Conference to consider expeditionary economics in West Point, NY, in February and May, 2011.

For more information on ExpECON, please visit www.expeditionaryeconomics.org.

About the Kauffman Foundation
The Ewing Marion Kauffman Foundation is a private nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people's eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. In addition, the Foundation focuses on initiatives in the Kansas City region to advance students' math and science skills, and improve the educational achievement of urban students, including the Ewing Marion Kauffman School, a college preparatory charter school for middle and high school students set to open in 2011. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has approximately $2 billion in assets. For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.

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