The Money Flight
Afghans fret flight of hard cash a sign of things to come
by Rob Taylor
Reuters
February 12, 2012
* Hard currency flight seen accelerating before Nato 2014 handover
* Property prices in Kabul falling, reversing decade-long boom
Kabul - In the crush of people in Kabul's Shahzada money market, conspiracy theories are a currency as hard as the bundles of cash in the hands of bearded traders trying to divine their future.
And the theory going around - amid the din of shouted exchange rates - is that Afghanistan's rich are preparing again to shift their money and lives from the country over fears of chaos or civil conflict after foreign troops leave.
"The money will all go out of Afghanistan. It is always like that. As soon as the foreign soldiers leave all the problems come back," says money changer Hajji Asadullah, gripping bundles of U.S. dollar bills, Gulf currencies and tattered local Afghani notes, all wrapped tightly in rubber bands.
Three years from the end of NATO combat missions and a total transfer to local security, Afghan officials are thinking hard about how to stop the flight of hard currency like dollars, euros or scrip [to] Gulf countries like the UAE that usually happens when nervousness overtakes their countrymen.
"It is the main topic of conversation now," says Naseem Akbar, who heads Afghanistan's Investment Support Agency and whose job is to lure investment, rather than stop it going out.
"The worry is about the country going into crisis, and parallel to that is that from now until 2014 we must work out how to avoid such a calamity."
PROPERTY A WEATHERVANE
A U.S. government audit report last year found it was almost impossible to track where much of the billions of dollars spent on security and development projects in the last decade had gone given the country's dysfunctional financial tracking system and poor bank oversight.
Wealthy Afghans have for years locked their money into safe havens and property elsewhere, with Dubai and its man-made Palm Jumeirah island being favoured locations, with an estimated $8 billion stashed away in the Arab emirate.
But Haji Sher Shah Ahmadzai, the millionaire owner of a group of construction companies in Kabul, said property prices at home jumped by 15 percent at the start of last year after foreigners pledged to support Afghanistan well beyond 2014.
Confidence however began leaching away with the September assassination of former president Burhanuddin Rabbani, who headed an Afghan peace council trying to launch talks with the Taliban.
It took a further blow as the United States, the Taliban and the Afghan government circle each other over possible peace talks in the Gulf state of Qatar, which could eventually see the austere Islamists return to Kabul as a political force.
"A flat cost around $220,000 months ago, but now it costs around $140,000 because of the uncertain situation," Ahmadzai told Reuters in his plush, heavily-guarded office in the upmarket Wazir area of central Kabul.
SIGNS OF UNCERTAINTY
Hardly any Afghans expect the Taliban to be strong enough to again rule the country by force, but memories of past brutality are enough to worry people about their influence, even as President Hamid Karzai tries to reassure his country.
In 2009, ahead of the last Afghan election, millions of dollars -- much of questionable origin -- made its way out of the country in suitcases and even on pallets loaded into aircraft, according to police at Kabul's main Airport.
Former vice president Zia Masood was stopped entering Dubai carrying cash worth $52 million and realeased without question, according to a cable from the U.S. Embassy in Kabul that appeared later on the whistleblower website Wikileaks.
In 2010 the Afghan government took over Kabul Bank -- the country's biggest commercial bank -- after a run on deposits caused by revelations that the bank's owners had lost millions of dollars they loaned to themselves to purchase property investments.
The investment support agency's Akhbar said that without steps to build confidence political and security gains in the past decade, uncertainty will dry up new investment.
"The short answer is that any sign of uncertainty is a major blow to investment," he said, calling for a redoubled effort by Karzai's government to tackle serious corruption and fix woeful infrastructure.
Afghanistan is perennially among the world's most corrupt nations listed by Berlin-based anti-graft body Transparency International.
CAR, APPLIANCE SALES DROP
But growth has defied that reputation, averaging around 9 percent in recent years as war and aid spending worth more than $50 billion fuelled a spending boom in Kabul's dusty streets, now choked with private cars as well as NATO convoys.
At a dealership for luxury Lexus SUVs, salesman Mir Alam said once reliable Afghan ministers had stopped buying in favour of armoured vehicles, while private buyers had also dried up.
"It's because of the Qatar talks. Car prices are not up, but still we haven't sold any for the past three months," Alam said. "Afghan businessmen have already left Afghanistan, or they have their money in hand in case they need to escape."
Mohammad Jawid, who sells appliances to the wealthy at the upmarket Kabul City Centre, said sales topping $5,000 a day before September were down to under to $500 now.
And the worries are the same for Abdul Haddi's Sarak Khumar electronic company.
"I've lost more than 60 percent of my customers. The rich I know are already out of Afghanistan, or just waiting to see what happens," Haddi said.
WORLD BANK WARNING
The World Bank has warned that growth that hit an unsustainable 21 percent in 2009-10 could collapse in the next few years as aid projects wind down and funds are re-directed into areas like health and education.
The country's medium-term growth and stubbornly high unemployment would depend on the government's ability to manage the transfer of security from international to national forces, and ensure political and fiscal sustainability, the bank said.
The Afghani currency has slipped following its rise through 2010-11 on the back of large capital inflows, sliding from 46.2 to the dollar to around 49, making foreign havens and currencies more attractive.
Jean-Luc Lemahieu, who heads the United Nations Office on Drugs and Crime in Kabul, said Afghanistan needed a stronger system of capital controls, adding the agency is setting up financial investigations units to deal with not only laundering of money from the opium trade, but also monitor cross-border cash flows.
"It is a huge concern," he said. "This country cannot afford this and we need to have better capital controls and have the money within this country invested in productivity, so we can share the employment that is so required."
The Kidnapping Wave
Afghan Investors Scared by Kidnapping Wave
By Mina Habib
February 14, 2012
IWPR
Businessmen suspect they make easy targets for organised criminals linked to government.
Afghan police and relatives of powerful officials have been linked to a wave of kidnapping and killing that threatens to scare away investors vital to economic recovery.
When Shour Niazi, a trader, was kidnapped in the capital Kabul on January 20, it was by armed men in the uniform of the National Security Directorate, the domestic intelligence agency.
Once inside the vehicle, they pulled a black mask over his face and drove him to a building where he was detained and beaten every day, while the kidnappers demanded a three million US dollar ransom from his family.
“When they realised they wouldn’t get the money, they wanted to kill me,” Niazi told IWPR. “I made a hole in the wooden ceiling of the room and escaped. I then informed the police, who arrested some of them.”
Niazi has little confidence the men will be punished. He says suspects in such cases are always released.
Kidnappings are nothing new in Afghanistan, but some fear the problem is escalating ahead of the 2014 withdrawal of American forces.
The Afghan Chamber of Commerce and Industry, ACCI, says 85 of its members have been killed or abducted since late March 2011, 20 more than in the preceding 12 months.
Ahmad Shah Hakimi, deputy chairman of the Kabul Chamber of Commerce, believes police were complicit in an attack on his entourage while he was transporting three million dollars last July.
The assailants attempted to kidnap Hakimi and his brother, and killed two of his bodyguards. Although the abduction attempt failed, they made off with the money, held in a box inside Hakimi’s vehicle.
The circumstances of the attack made him suspicious.
“If government officials are not supporting these groups, how come they were able to kill two of my bodyguards and steal my money close to a police checkpoint?” he asked.
ACCI vice-chairman Khan Jan Alokozay told IWPR that his organisation believes senior officials and their relatives, rather than insurgent groups or ordinary criminals, are involved,
“These are officials who have positions in the government. High ranking officials support them and they use government facilities,” he alleged.
When the perpetrators of abductions are arrested, Alokozay says they are often released soon afterwards on the orders of corrupt officials.
“There are documents and evidence available that indicate that some kidnappers have been released by the legal and judicial authorities,” he said.
Alokozay said criminal proceedings against suspected kidnappers had been derailed by interference in Paktia and Logar provinces, and in Jalalabad city in Nangarhar province, all in eastern areas of Afghanistan.
“Investment has fallen by 30 percent because of these factors,” he added.
Alokozay said police were currently under pressure to release a man arrested last month for alleged involvement in a kidnapping. The pressure, he said, was being exerted by the suspect’s brother, a member of the Meshrano Jirga or upper house of parliament.
General Mohammad Zaher, head of criminal investigations at Kabul police headquarters, acknowledged that this was the case but insisted the force would not be swayed.
“The senator is exerting pressure on us to release his brother,” he said. “We have never released a criminal because he is a someone’s relative or client, nor will we ever do so.”
The general insisted the police had a good record on solving abduction cases.
“The police have acted successfully in every kidnapping case, and have arrested the criminals with all due haste,” he said.
His predecessor in the post, however, conceded that some members of the Afghan National Police had taken part in kidnappings.
“When I was head of criminal investigations at Kabul police headquarters, I arrested about seven police officers for involvement in such cases,” Sayed Abdul Ghafar Sayedzada, now director of criminal investigations at the Afghan interior ministry, said.
Sayedzada said the courts needed to make more of an effort to ensure suspects were prosecuted.
“I would urge the legal and judicial bodies to act swiftly and seriously in solving these cases,” he said.
Officials at the prosecution service and Supreme Court declined to be interviewed on these matters.
Economists warn that increasing lawlessness targeting businesses is bad news. With international aid expected to decline following the withdrawal, domestic economic activity will become increasingly important. But crime and poor security could prompt an exodus of investors and their capital.
Economist Hekmat Samsor says poor security and suspicions of official complicity in criminality is already hitting businesses hard.
“When investors are kidnapped or assassinated, and when they don’t feel safe, they will undoubtedly freeze their capital and transfer it abroad,” he said. “I’ve personally witnessed the closure of dozens of companies and factories. They have all stopped working for this one reason.”
Businessman Babrak Sherzai is among those now considering leaving because of the lack of protection.
“Over the past decade, investors have faced many problems – interference by neighbouring countries, extortion by police on the highways, kidnapping, and assassination – yet the government has done nothing about it,” he said. “If security cannot be guaranteed for our capital, for ourselves and for our families, we will have to move abroad.”
After his kidnap experience, Niazi is considering leaving Afghanistan for a safer environment.
“I don’t think I will be able to continue living in this country under these circumstances,” he said. “I have to think of other options that will allow me to survive.”
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