Capitalism Comes to Afghanistan

With his tattered gray turban, his threadbare waistcoat and the gnarled hands of a laborer, Karim Khan hardly looks like the ideal customer for a financial-services firm. But to the Azizi Bank in Kabul, he's a prime client. Khan is one of some 60,000 Afghans who have opened an account at Azizi since a new savings product was launched four months ago. Although his initial deposit of $100 in crumpled Afghani notes may seem paltry, because of customers like him Azizi is increasing its deposit base faster than any other bank in the country. "You have business opportunities here in Afghanistan like nowhere else in the world," says Hayatullah Dayani, the bank's chief of business development.

Dayani is one of thousands of optimistic souls who believe a prosperous future can emerge from the stony soil of strife-torn Afghanistan. Since the brutal Taliban regime was toppled five years ago by Western coalition forces, the government of President Hamid Karzai, beset by warlords and Islamic militants, has struggled to maintain order and control. The country's primitive economy is dominated by illicit opium production, which by some estimates accounts for as much as one-third of GDP. About 40% of Afghans are unemployed. And last month, the World Food Program warned that millions of rural Afghans might starve this winter because a prolonged drought has devastated the wheat harvest.

Yet the country also harbors a hardy strain of entrepreneurs like Dayani who have sparked an economic revival of sorts. Afghanistan's average annual per capita income has almost doubled from $180 in 2002 to $355 this year, according to the International Monetary Fund. The IMF also estimates the economy grew 17% in 2006, and it's projected to grow 11.7% in 2007. In Kabul, the capital, new shops open every day, and construction is altering the city's low-rise skyline, which not long ago consisted mainly of bombed-out buildings. More than 1.5 million Afghans own mobile phones, six independent TV stations have launched since 2002 and 16 private banks are expected to be open by early next year. "It's not like investing in Austria or the United Arab Emirates where things are pretty straightforward," says Mohammad Rafi Fazil, economics officer for the Asian Development Bank (ADB) in Afghanistan. "Given that we are only just emerging from a postconflict situation, things are very complicated. But the possibilities are endless if you are able to adapt."

That's what Azizi Bank's founders were forced to do when they opened in June. Islamic law prohibits the collection and payment of interest, making it difficult for banks to attract deposits from devout Muslims. Instead, Azizi launched a program they called Qismat (or "luck") Banking, in which customers opening new accounts are automatically entered in a lucky draw for cars, TVs, gold jewelry and other prizes. It may sound more like a lottery than a savings account, but no fees are charged, and customers can withdraw their money any time after three months. Since the program launched in August, Azizi has drawn $20 million in Qismat deposits alone, capital that it can in turn lend to its less religious banking customers, at a profit. "That's another $20 million mobilized in the economic cycle of the country," says Dayani. "People are coming who have never seen a bank before. They are pulling their money from under the floorboards and we are putting it into circulation through loans." But the ADB's Fazil worries that the system is unstable: Afghanistan's banking sector is largely unregulated, and loan officers have little experience in assessing the risks of business lending. "If the private sector goes bankrupt, [Afghanistan's private banks] will go bankrupt," he says, "and the public, with all their 'safe' deposits, what will happen to them?"

But there are few sure things in Afghan commerce. Not even a powerful international brand like Coca-Cola is guaranteed success. In September, Habib Gulzar Non-Alcoholic Beverages, Coke's franchisee in Afghanistan, opened a $25 million dollar bottling plant on the outskirts of Kabul. The modern facility—the first such factory to open since the fall of the Taliban—is large enough to produce 40,000 cases of soda a day. But the factory is operating at less than 20% of its capacity. Asked to estimate when the investment might be recouped, Salman Rawn, country manager for Coca-Cola Afghanistan, demurs. "Our break-even point is far in the future," he says, noting that he's currently selling the bottles of soda at a loss because volumes are so low.

There are numerous reasons why profits may prove elusive for Coca-Cola's Afghan venture. The country's rustic road network means that product distribution is limited to Kabul and a few other nearby cities; Kandahar, a potentially large market in the south, is off-limits because militants and bandits make it too dangerous to truck goods there. In many places, Coke smuggled in from neighboring Pakistan is available in shops at significantly lower prices than the Afghan-produced bottles. The cost of safeguarding Coca-Cola's local bottling plant and employees from attacks has soared as suicide bombings have increased in Kabul. And some of the government's pro-business promises have not materialized, says Sayed Mustafa Kazimi, the former Commerce Minister who signed the Coca-Cola license on behalf of the government. "I didn't go to the [factory] opening ceremony because I didn't want to be embarrassed when they said that I brought [Coca-Cola] to Afghanistan," says Kazimi, who claims his successors in the commerce department disregarded his commitments. "We promised them electricity, we promised them security. We offered tax holidays and tariff reductions. It didn't happen. How can anyone operate under these conditions?"

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