Print Version: Joblessness grows as factories shut

The Afghanistan Chamber of Commerce & Industries reports more than a quarter of manufacturing units have closed in the last two years. A Killid investigation.

Azerakhsh Hafezi, in-charge of international relations at the Chamber, criticises the government for not having a proper programme to support domestic industrial production. "Factories are closing because the government does not have a programme to support ailing industries. This is a big tragedy in a country that does not have food to eat," he told Killid.

The Chamber's Vice-chairman Khan Jan Alokozai who echoes Hafezi's views also blames the crisis in industrial parks to interference from neighbouring countries. "Factors contributing to the anarchy includes lack of government support to investors, interference of neighboring and other countries that have swamped the market...”

When a factory collapses hundreds of workers lose their jobs. "Considering we had a total of 4,000 industrial units in the country, and 1,200 have shut in the last two years, affecting domestic production, and the incomes of so many people," Alokozai points out.

The Herat Industrialists Union reports 20,000 people have lost their jobs in the Herat industrial park with the closure of 140 factories after years of stagnation due to infrastructural problems, lack of security, usurpation of land, hike in customs tariffs, corruption, and interference from neighbours.

"Import tariffs on raw materials are decided according to the wishes of importers by corrupt officials in the department of customs in the Ministry of Finance," alleges Khadem. He cites many examples to prove his point. Tariff on raw materials for non-alcoholic beverages rose from 1 percent to 10 percent. "It took us a lot of effort to reduce it to 3 percent," he says. Moreover, tariff on raw food has increased from 8 to 15 percent. Further Khadem says raw material imports for Herat industrial park are taxed between 15 and 18 percent by the customs office, while finished products imported from Iran are charged only 2.5 percent.

The Killid Group, Dec. 28, 2013

Some have fallen victim to competition from cheaper imports from across the border. Among those who have shut are Barna Biscuit Factory, Nab Food Industry, Herat Bastan Oxygen, Afghan Mufeed Salt Production, and Salsabil Plastic container factory.

Documents available with Killid show only 160 factories in the park are working. Manufacturers complain of unfair competition from imports which are priced lower, and of poor quality. Mohammad Asif, the head of Hari-e-Dunya Popcorn, feels threatened by products made in Iran. "If the government does not take action I will go bankrupt, and be forced to close the door of my factory," he told Killid.

According to him manufacturers face myriad problems including uncertain electricity and water supply. "We have requested the government to consider our problem but no attention has been paid to our requests," he says.

Hamidullah Khadem, head of the Herat Industrialists Union, says they have taken their problems to the ministries of finance and commerce but nothing has changed. Domestic industry would benefit a great deal if illegal imports were curbed, and customs tariffs increased on imports to protect goods made in Afghanistan.

He accuses the Ministry of Finance of being pressured by "mafia" to keep customs rates low to enable the domestic market to be flooded by much cheaper imports. Instead of enabling local manufacturing the government has increased tariffs on raw materials.

Khadem blames the authorities in the Afghanistan High Economic Council which was established to assist domestic investors. The Council has instead reneged on promises made, and created problems as well, he says. He warns the government that factories in the Herat industrial park may all shut if their needs are ignored by the authorities. Investors may look to invest outside the country, he says.

Ministry of Finance spokesperson Abdul Qadir Jailani insists the tariffs on raw materials are not high. The rates are better than other countries, he insists. Rates are between 3 and 10 percent depending on the product, he says.

Asked why tariffs on domestic manufacturers was higher, he said it was the fault of traders who inflated the rates to maximise their gains. "In both cases the trader gets to damage," he says.

He believes competition can be successfully fought by domestic industry if they were to improve the quality of products. Goods made in Afghanistan can then find markets abroad, he says.

The Ministry of Finance is doing everything possible to support Afghan investors and manufacturers, he insists.

Plots in the Herat industrial park have been assigned to powerful and high ranking government officials. The Industrialists Union says non-investors have over the last decade got land in the park. This has created many problems, according to the Union's Khadem.

Some factory owners complain about unfair competition from products made in Iran. Iran has flooded the Afghan market with cheap and poor quality goods. Mohammad Naeem, owner of an Isogam factory, which makes road tar, a mix of bitumen and rocks, says the quality of imported tar from Esfahan is much poorer. "We used to import a type of powder to increase the power of stickiness in tar from Iran but Iran deliberately lowered its quality which had a negative effect on our production and as a result domestic tar lost its value in the market," he explains.

The Killid Group, Dec. 28, 2013

For instance many investors have set up factories in rented premises because they did not get space in the park. "The lands that include 130 to 140 flats have been distributed to people like district governors, commanders and other powerful people who have no plans to invest in industry," says Khadem.

Provincial authorities confirm the Union's claim. Governor of Herat, Sayed Fazlullah Wahidi, says the matter has been handed over to the Attorney General's (AG) Office for investigation. Already land not used for industrial purposes has been redistributed to genuine investors, he adds.

The problem has been the result of corruption in the office that deals with assigning plots to investors. However, he did not identify anyone by name. Their identities will be revealed in the report by investigators, the governor told Killid.

Bashir Ahmad Ibrahimi, the expert on private sector development in Herat, says they were able to retake 40 pieces of land from powerful individuals. However, in each case the men have used their influence in the government to take back the plots, he adds.

The Afghanistan Investment Support Agency (AISA) has been selling plots when it should have been distributed gratis. Khadem, head of the Herat Industrialists Union, says AISA has collected roughly 50,000 USD for each plot.

As a result only those who have money to spend have invested in the park, and many genuine manufacturers have lost out. "AISA has shown no responsibility. Each jerib of land was being sold for 50,000 Afs (880 USD) in the third phase of the township, and each plot of land in Phase Four has gone for 50,000 USD," says Khadem.

AISA officials justify the sale. Money collected in Phase Four by AISA is the budget for canalisation of water, roads, electricity and other infrastructural requirements in the industrial park, says Ibrahim Shams, deputy director of AISA.

Some factory owners complain about unfair competition from products made in Iran. Iran has flooded the Afghan market with cheap and poor quality goods.

Mohammad Naeem, owner of an Isogam factory, which makes road tar, a mix of bitumen and rocks, says the quality of imported tar from Esfahan is much poorer. "We used to import a type of powder to increase the power of stickiness in tar from Iran but Iran deliberately lowered its quality which had a negative effect on our production and as a result domestic tar lost its value in the market," he explains.

Industry is suspicious of Iran's setting up an industrial park in Dogharoon, only 2 km from the border with Afghanistan. Iran wants to wean away investors from the Herat industrial park, industry watchers say. Loss of business will definitely bankrupt the industrial park. Saeed Khatebi, head of the Herat Chamber of Commerce & Industries warns Iran is trying to steal away Afghan investors, and ensure the country remains only a market for importers.

Ali Fasihi, an economic expert, accuses Iran of offering "better investment conditions" with an eye on Afghan investors. He says many Herati investors have moved across the border because of "poor" facilities in the country.

A provincial government official, who did not want his name published, says officials in the Iranian consulate advise Afghan investors applying for visas to transfer 100,000 USD for a long-term residence visa in Iran for themselves and their family. The Iranian Consulate refused requests for an interview.

Failure to guarantee security for manufacturers in the Herat industrial park is a major deterrent for investors. There have been a spate of abductions for ransom. Traders have warned they would stop doing business if the government fails to assure security.

In 2012, many factories in Herat joined a general strike in protest against abductions, and demanding security.

Abdul Rauf Ahmadi, spokesperson of Herat police, says they have made many arrests in cases of kidnapping of investors. Security has been beefed up at the industrial park, he adds.

The Killid Group, December 28, 2013

Joblessness grows as factories shut

"Factories are closing because the government does not have a programme to support ailing industries. This is a big tragedy in a country that does not have food to eat"