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Contributions from
the Column
Focus
Lessons learnt from East Asia
Ghana: problems with private sector promotion
Private business as technology partner
Making FDI work for the poor
Benefiting from globalised value chains
05/2005
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“Our role as technology partner is important”
Afghans love sugar. In the past, they produced it in their own country; but then came the war and production ceased. For over a year now, private investors have been working, with Afghan and German government help, to rehabilitate the Baghlan sugar factory some 250 kilometres north of Kabul. One member of the investor group is German seed producer KWS SAAT AG. D+C/E+Z discussed the prospects with KWS project manager Alois Kühn.
[ Interview with Alois Kühn, KWS SAAT AG ]
Mr Kühn, what conditions need to be met for your company to invest abroad?
First of all, we expect the host country to show an active interest in foreign investors – interest evident in the ratification of investment protection agreements, for example, and a willingness to actively assist foreign investors.
The Afghan government is trying to create a business-friendly climate and international donors are helping it do so. Are you satisfied with the reforms so far?
Many of the steps taken certainly move in the right direction. One example was establishing the Afghan Investment Support Agency (AISA), which helps private investors register new companies. But AISA only helps once companies have already completed the laborious and time-consuming process of establishing an enterprise. The Afghan administration needs to provide much more effective support for private investors travelling on that rocky road in the future.
What about security?
A certain security risk naturally still exists. But that risk must and can be accepted by companies seeking to position themselves in the rapidly growing Afghan market.
What prompted you to invest in Afghanistan?
We had very good technical and commercial links with the Baghlan Sugar Company, which was in operation up to 1991. Our links dated back to the 1950s. Even after 1991, we kept a constant eye on the country and vowed to help rebuild its sugar industry one day – not least, of course, with a view to winning back the market for our products.
How great is the sugar market potential in Afghanistan?
Afghanistan has a population of around 25 million, who consume 400,000 tons of white sugar a year. The import bill for the country amounts to roughly $ 140 million. I am convinced that the entire volume of sugar consumed could be produced by four factories in Afghanistan. That is the prospect we anticipate.
There are also others involved in the Baghlan factory project...
Yes, four private Afghan investors, the Ministry of Agriculture – putting up the old production facilities as a contribution in kind for the new company – the German finance and investment company DEG and ourselves. We regard our own stake of nearly 10 percent in the company as a kind of start-up fund for rehabilitating the factory, reintroducing commercial sugar beet farming and, in the more distance future, building more sugar factories with the help of international financial institutions. In the Herat area of western Afghanistan, sugar beet was grown successfully for many years and sent to Iran for processing. So there is ample potential for more factories.
Would the plant be possible without KWS money?
In theory, yes – but there are two important practical aspects. First, the more intensively foreign private and public investors are involved in a project, the easier it is for local financiers to invest. Foreign participation is a kind of umbrella against possible bureaucratic tyranny, which local people apparently still fear. The second point is that sugar beet is largely a forgotten crop in Afghanistan today and needs to be reintroduced. For this purpose, the country needs a professional partner with the requisite agricultural expertise. So our role as a technology partner is probably even more important than our role as a financial backer.
What relevance did public sponsorship of the project have for your decision to invest?
The Afghan government is important because we need its support. Equally important, though, is the money generously contributed to this significant development project by the German government.
Would you have got involved in the project without public participation?
Most probably not.
When will the factory start operating?
In autumn this year. Initially, we’ll be running a small-scale trial operation. When a factory has been idle for 15 years, you never known what kind of problems may occur. We basically face two risks. First: we could have a factory ready for operation by the autumn but no feedstock. The far bigger risk, however, is that we have feedstock but no operational processing plant. That would be an economic disaster – both for the factory and for the farmers. Therefore, we plan to start reintroducing commercial sugar cultivation on a fairly small scale and use the harvested beet to test-run the processing plant this year. Full-scale operation will start with the 2006 harvest.
How many jobs will the factory provide in full operation?
The factory itself will employ around 125 people. But thousands more jobs will be created in agriculture, transport and services – for example, for skilled labour.
What has been the reaction from farmers?
Basically, there is keen interest in the reintroduction of commercial sugar-beet farming. The sugar factory offers farmers a chance to grow a new commercial crop under contract on terms that are fixed before the seed goes into the ground. And the beet price is calculated high enough to guarantee a good income – by commercial crop standards – to farmers using the modern farming techniques we recommend. Sugar beet will not be an alternative for opium poppy growers, though. A farmer can earn twelve times more by cultivating opium rather than wheat. No other commercial crop can compete with opium.
How are you going to get farmers to grow sugar beet then?
This year, we are going to create numerous demonstration fields in the project area to give farmers an idea of the kind of yields they can expect. Lots of older farmers are unfamiliar with modern farming, so they cannot imagine how to achieve the yields we tell them are possible. What is more, we offer farmers credit for agricultural inputs such as seed, fertiliser and pesticides as well as for services such as seed-bed preparation, sowing and field clearance – plus advice on all aspects of production and techniques. There is a learning process ahead, but I am convinced we will get the acreage we need to meet the factory’s feedstock requirements.
Questions by Tillmann Elliesen.
Dr. Alois Kühn
is a long-standing employee of KWS SAAT AG and responsible for KWS activities in Afghanistan.
a.kuehn@kws.de
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