Governor Chaudhry Sarwar, Minister Daud, entrepreneurs of Lahore and Pakistan, members of the Afghan delegations, my colleagues;
Why did I want to come to Lahore?
First, because I have long relationship with Lahore. From 1980 to 1996, I came almost every year and in 1986 I lived here six months. My children went to school because I wanted to give them closest experience to Afghanistan.
Second, of course, a gate, the most important gate in the city of Kabul was named the Lahori gate. We have had millennia of relationships and while historians have talked a lot about Bengals, united Bengals, exports to Europe. Historical research demonstrates that the Sobas of Lahore, Kashmir and Delhi exported more to Central Asia and Russia than South India to Europe combined. But fundamentally because we are ready to discuss investment.
So in order to discuss this, what have we done? I’ll very briefly review that and then suggest some particular sectors for investment. The agenda of connectivity I have discussed yesterday in detail; I will not go over it. And then also, a number of my distinguished colleagues are here; our minister of Finance, our minister of Industry and Trade, our minister of Mining, and our minister of Interior and our National Security Advisor, Director General of NDS who could probably join the conversation later.
When I became president, Afghanistan was known as a landlocked country. Today nobody calls us landlocked. In five years, we have become the roundabout through which connectivity between Central Asia and South Asia, East Asia and West Asia is becoming possible. So the number one issue: our location that was a disadvantage for 200 years is becoming a central advantage. It is the shortest road of connecting Central Asia to South Asia and we are creating it. But we are creating the connectivity agenda in a completely new manner because we have to tackle simultaneously the transport revolution of 19th and early 20th century; the energy revolution; pipelines, and transmission lines; the fiber optic revolution and the railway.
We now have a direct route to Caucuses and Europe. We also have a direct route to Kazakhstan, to Uzbekistan, Kazakhstan and Russia and this week, our minister Finance will inaugurate a much shorter route to China. Iran through Port of Chabahar has become active. So the first thing that an investor looks is, can you get your goods out? You can get them out reliably, effectively, cheaply.
And second, the tariff regime that we enjoy is one of the most preferential with everyone. So don’t look at Afghanistan as a national market, look at it as a platform for a global market, particularly for your textile sector. Prices in China have gone up. There is a World Bank report called “From Stitches to Riches” that documents it. That opens a 10% global market that is fundamental. We offer the potentiality. And so your number two concern is energy. We have synchronized the transmission lines from Tajikistan, Uzbekistan, Turkmenistan, and we are synchronizing now Kyrgyzstan and Kazakhstan. There is a central hub for synchronization in northern Afghanistan called Dahst-e Alwan in Baghlan. In four years, we have provided more power to our provinces than the last hundred years combined. In another two years colleagues, every single district Afghanistan will be linked to the national power grid. The impact of this on our security expenditure alone is about $700 million because our bases used to be linked through generators. In two years, Afghanistan will be in a position to provide villages across the Durand Line and Khyber Pahkhtunkhwa with power.
But the most significant agenda of power is, we are talking up to fifty thousand megawatts of power from Central Asia to South Asia. And the big test, you know governments, donors, etc. but those I set aside; I am interested in you. The first proposal from the private sector, a Turkish firm for $1.7 billion investment for a transmission line from Turkmenistan to Pakistan through Afghanistan is under discussion. This will be from 1 to 2 thousand megawatts but we can go.
What is the reason? We created essentially the energy market with Central Asia, you know every one of them is a surplus energy country; they cannot trade with each other, so we have provided and we have developed superb relationships with them both for reliability of payment and for activity.
Here, and Dr. Qayoumi could speak more about it, synchronization allows for direct, efficient, cost effective transmission line, tailored to your needs. You don’t need to build back to back stations like CASA. CASA was done through World Bank financing, of course we got the design wrong as Dr. Qayoumi and I predicted, but now it is making cheaper. But the private sector investment in energy is what we want you to invite you too. This is a fundamental opportunity in terms of transmission lines.
The second issue, Afghanistan fortunately has been shown to have one of the most powerful wind systems anywhere outside the Scandinavian countries on the North Sea. The wind potential is now estimated at 80 thousand megawatts. We are in discussions with Siemens to be able to change the power dynamics; this is Herat, Farah and Nimruz, 160 days of continuous wind. Solar is underway so the renewable energy is the domain.
For textiles which is our one proposal, we propose the cities of Herat and the cities of Mazar-e Sharif, Balkh. Because power is reliable and efficient, and I think considerably cheaper than what you are having; half or cheaper than what you will be paying.
The other thing we have done so the infrastructure part. The railways are connected, there are three dry ports and we will be increasing those. Turkmenistan to which we are very grateful, put the investment itself to make the critical linkages. TIR connections have been built. Jaihan in Turkey, Baku in Azerbaijan, Batumi and Patumi in Georgia are now preferential ports that would allow the gateway to Europe and meeting the standards.
The second issue which all of you will be asking of course is the legal basis. We have passed 400 pieces of legislation in the last four and half years. I don’t want to discuss details but particularly the Mining Law, the Municipal Law. Last year the World Bank recognized us as the top reformer in the world for doing business indicators. Our reform agenda is totally meeting the doing business indicators because that is your language. We are not doing the reforms that we want, we want the reforms that you want. And there is a leadership team in place that is pushing this. It is not driven by me. This is an important point. In Afghanistan now there is an economic team that is driving the agenda with private sector, and has built immense credibility with them. Out Supreme Court and our Attorney General’s Office which used to have the reputation of being among the dirtiest are now the cleanest. And in terms of investors, of course, till you build confidence in ours, third party arbitration will be acceptable.
The other component of reform is land. Land was a nightmare. It was in sixteen different—minimally sixteen different departments of government had to deal with it; now it is a single authority in the Ministry of Urban and Land that is dealing with land as one stop shop. Over a million hectares of land in one year have been put in the land bank. The Municipal Law, that again passed and has been judged one of the best in the world, allows for fairly significant, easy access. We are auctioning land in Kabul as on a trial basis to see which formula works and we sense the market and that would be expanded. There are plans for all our major cities, the Kabul Plan is ready, a framework. We have worked with the firm called Sasaki in Boston with a six-volume framework that makes land available and the area. Policy is in place for the private sector participation in industrial parks and states and Minister Ahmady [Minster of Industry and Trade] can provide details should you wish, but that is an area that we call on the private sector itself to be able to work with us.
The other area is fiber optics. Minister Stanikzai [Director General of NDS] was minister of Communication; I was minister of Finance [Minister]. With 100 mobile phones in 2002 and it was a nightmare because they gave me the distribution. I was the chief advisor to President Karzai and they wanted me to distribute. And of course, everybody was VVIP. Now I think we have exceeded 22 million cell phones. Penetration of country is over 92 percent, and we have a fund for access to remoter areas that is over $200 million and this fund to be expanded because it is meant in money.
Four companies, the first license we gave was $5 million, the Royal Sum; the second license was $40 million.
But the most important recent investment of the private sector is in fiber optics; $400 million from Afghan and international companies. The company incidentally that got the license for $5 million is now worth over a billion. So the fiber optic connectivity, and again our focus is not on Afghanistan. We are connecting to China. We are connecting to the European system through Azerbaijan and to Turkmenistan. We are connecting to Chabahar via Iran, so we become a hub because if we can save one minute or fifty seconds, each second is ten million dollars. So it is a very significant agenda to be able to bring us [together].
The other connection, the other factor that is on everybody’s mind is, of course, human capital. Thanks again under the leadership of Dr. Qayoumi, we are overhauling our vocational and technical schooling to adopt the German, Scandinavian and Swiss dual track system. And we are very keen to invest in technology universities rather than schools of engineering. We have 100 graduates of Berlin Technical University now in Computer Sciences with Masters and PhDs so it is a core. But people are being trained and of course one of the programs for management that we have is we have created the joint system of scholarships with lumps, the Afghan government has put $5 million of its own money to acquire this sort of capability. There is a human contrary to the general message; thanks to the 18 years of international engagement; there is a human capital that is quite significant but development of human capital is key to this.
Let me just take about five more minutes to answer one key question and then suggest the areas of investment. The question that might be on minds of a lot of Pakistani entrepreneurs and others: “Why would you trust your energy security to a country with which in the past you have had hostile relationship?” My answer is very simple. Don’t trust us; create the risk management system.
So in short, what are the risks? The first risk is political. When I was in the World Bank, of course I have provided political risk guarantees to countries like Russia. There is a major instrument to allow us to cost the risks and put the right mechanism.
The second risk is that of disruption. The system will be played with politically, the way people played with us, closing their borders you know thinking we would collapse, etc. For that, our response is very systematic: We are willing to create and escrow account with very heavy penalties. Should any government in Afghanistan in the future disrupt the flows, it will pay a penalty that would be so costly that would never do it again.
The third is risk of management. How we thrust if it is 10,000 MW to 15,000 MW to management. And we are totally ready to agree to international management systems that would be accountable to all investors. This is a multi-stakeholder governance system. It cannot be trusted to one party. We need to be able to create the governance structures where on the board of governance, all the key stakeholders sit and they are mutual checks and balances. There is nothing like mutual accountability. A single type of accountability doesn’t work.
The other risk is social and environmental. And again for both of these in my first five years of the bank, I was responsible for social risks, including China, 600 thousand people were resettled. We have created a single stop shop again for dealing with social risks, land acquisition systems, and on environment, we are ready to proceed.
The other risk is security and there is two-fold answer. When it is project-based, we have created the systems of security including a state-owned corporation. So the state-owned entity provides security, tailor-made to the specific projects, it is a commercial transactions with the firm having the right to hire and fire specific individuals but security as corporate task in that regard.
The larger security, of course, is why I am in Pakistan. We have had good discussions at the level of intent; we have made a lot of progress. I think peace is going to dawn in Afghanistan; we are determined to bring peace. And with that of course the country’s risk will change. But again we have a $180 million investment in the province of Helmand from a Turkish firm. And you would be amazed; Helmand is of course where 80 British officers and men lost their lives to take to generators to the Kajaki dam. Kajaki dam is now being built by a Turkish firm; the first phase was completed, the repairs and they are putting … What did we do with security? We put conditions we cost at the security arrangement for the dam and then we said: every three years, the security conditions will be revisited. If it is high risk, we accept one type of premium; if it is medium risk another; and if it is low risk then the conditions change.
In terms of power, of course, the legal framework for PPP is in place so private public partnership has a legal instrument. In Kandahar are ready 15 MW of solar have completely met the test and power is being provided to the city. Two other investments from natural gas in northern Afghanistan have been approved and are underway, including partnership with IFC [International Finance Cooperation] and others. I hope that his gives you an indication of [the improvements that are taking place.]
And again let me emphasize there is a team that thinks alike and is willing to manage and shepherd this, it is not an isolated president’s agenda. The young generation of Afghanistan, I am extremely proud of, is now not only taking the torch. You know somebody teased former vice president Biden in the debate and said, “It is the time to pass the torch.” He said, “I am still holding to it.” My generation is not holding to the torches; we are very proudly passing it to this generation. And they are ready to, and they know you. A lot of them have grown up in Pakistan. Our National Security Advisor, a distinguished PhD in Computer Sciences spent years in Quetta going to school. And if I give the biography of everyone, it will take the rest of my time. But there is knowledge…
Now the areas of investment. The first area we propose to you is power; both transmission but also getting into production. Kabul-Kunar River, we estimate can generate 3,000 MW of hydropower. We are willing to enter directly into discussion with the private sector in Pakistan on provision of reliable power and the arrangements could be. The key is to treat each river as a system, not as isolated dams because the individual impact—the cost if you build a dam at a time, it soon becomes—it runs into billions while if you build it as a system it becomes a major production process, affords its type of production process. This is an area we are very keen including discussions of natural gas. TAPI [Turkmenistan-Afghanistan-Pakistan-India] is proceeding very well, Minister Ahmady could give you detail, it is going to be reaching Afghanistan and TAPI will be ready in one option, they are discussing three options in the province of Herat.
The second area we are proposing to you is textiles. The internal market is probably around $260 to $400 million but if we really want to work with you is the export market. And why are we interested in that? Because of job creation in general and job creation for women in particular. Afghanistan’s women have really come to their own. I have two distinguished colleagues, the minister of Mining and the minister of Information and Culture. They are not there because they are women. They are there because they are the best to run those ministries. Nobody plays with mining or Information and Culture as political appointments. Our ambassador to the United States, our ambassador to the United Nations, Two our most important diplomatic appointments are again women. And our ambassador to the United Nations again lived in refugee camps in Peshawar. This is the generation of mobility, responsibility and accountability. Women-centered job is a key issue both politically, economically and culturally for us so textiles are a crucial sector in this regard to be able to move forward.
The third area is transport. We have discussed an initial railway from city of Mazar-e Sharif in the north to the city of Herat in northwest or southeast as you call it. Uzbekistan is putting its own money, we are putting our money. Kazakhstan and Russia are beginning to interest. The price is to link Uzbekistan to Pakistan. And there are two routes. The quickest route but requiring other investments is Helmand’s Bahramcha corridor to Gwadar. Central Asia, thanks to our efforts and of course yours now, is very keen to get Gwadar and Karachi to be its ports of choice. If these ports reformed, the question is not the infrastructure, the question is a system approach to infrastructure and to connectivity. What is the eternal question, Karachi at everything going for it, it could have been Dubai. And Gwadar had a lot of potential but it wasn’t realized. We need to learn, with all respect, to be able to think from a competitiveness perspective. And the competitiveness is not in hardware, it is in the software. Here the transport sector offers us immense possibilities. Thinking transport as an interlinked system allows us, areas.
Those are illustrations, I am sure. When entrepreneur to entrepreneur talk, you will be finding a lot more areas. We are becoming fast…our focus on agriculture is to become exporters. I will give just one illustration. Last year, Afghan pine nuts were not known in the world. They were being smuggled to Pakistan and then added value and they were going to China. We just exported 4000 tons of pine nuts to China and now we are opening up the European market, so the key is to get associations of producers, associations of processors, associations of exporters. The area of supermarkets value-chains and supply-chains are really crucial to this development.
And my last observation. Countries in today’s environment don’t develop, regions develop. Getting supply-chain and value-chains is crucial. All that we have done in the last four and half years has not been to move away from Pakistan but to be able to provide the linkages to and from, so you with your immense creativity, entrepreneurship skills, and of course varieties of capital including financial capital are key to this. I have been very effective in getting aid money. You know, when I was Finance Minister, the governor was very kind during lunch mentioning it, they offered me one billion I said, “I am not coming unless I get 8.4 and a commitment of 27.” I got it. But aid does not end in development. The sad truth is that aid is a painkiller. It is not a solution for prosperity. The key is to be able to … and because of that we in the next three years, you will be witnessing an agricultural revolution in Afghanistan.
Water, like land was divided between five ministries and nobody was finishing systems. We have just created the law to invest all water production and management in one ministry. Everybody else becomes a client. Ministry of Agriculture will be a client; Ministry of Rural Development will be a client; Ministry of Mining will be a client; Ministry of Urban will be a client so that we know how to balance the systems.
Governance again has become collective. What I am most proud of, one is the Supreme Court and the Attorney General’s, but the other is to change the President, the authority vested in a president to a presidency. We have a series of councils, the High Economic Council, the High Urban Council, others of that type where all the elements of private sector that are involved in decision-making participate. Because otherwise you cannot really problem solve. In this context, I hope that what I have put as an offering, will become seriously debated. I hope that you will form a trade and investment delegation to come to Kabul, talk to our entrepreneurs and particularly talk to the team that is leading the effort. Thank you very much for the opportunity.