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Kunduz economy rides 2014 jitters

Construction and manufacturing industries in Kunduz that were thriving only a year ago have slammed the brakes on amid growing 2014 jitters. Their caution deepens the slump in the market, which in turn creates…
27.06.2013  |  Kunduz
Changing cityscape: Apartment complexes rose around Kunduz in recent years but many current projects were halted as investors wait out 2014 concerns. (Photos: Niazman)
Changing cityscape: Apartment complexes rose around Kunduz in recent years but many current projects were halted as investors wait out 2014 concerns. (Photos: Niazman)

Despite his reputation as a Kunduz businessman with flare and determination, even Ghulam Haider is showing the strain these days.

Amid broad gloomy prognoses of the post-2014 situation after the departure of most foreign forces, Haider still believes in a prosperous future for both his country and his plastic bag factory. The trouble is his partner does not, and withdrew his stake in the 150,000-US-dollar business eight months ago.

“People have turned 2014 into something of a monster -  we will lead this country to prosperity whether foreigners are here or not,” the 49-year-old former Afghan National Army officer says staunchly. But anxieties about the topic still show through in tense discussions with employees as they prepare a large consignment of green and red plastic bags for transportation to Baghlan and Takhar provinces.

Similar tendencies are evident in other sectors, including the construction industry, which has seen numerous projects grind to a standstill this year as owners and investors work out what to do.

It is not just a question of fearing the resurgent Taliban. People are equally concerned what powerful local actors and the ruling elite will do, especially those with a dark history and enough firepower to potentially seize attractive assets once the foreign presence has diminished.

“If there is no assured political transition I think the situation will be worse than during the (1992-96) era of [ex-president Burhanuddin] Rabbani,” said Esmatullah, a Kunduz car dealer whose business is also now struggling. He like many others fears a slide back into the internecine conflict of 20 years ago. “In such a scenario, the looting of houses and properties will begin, businesses will disappear and killing will increase.”

Increased numbers of kidnappings by armed factions in the province in the past year showed that these are valid fears, he added.

Construction industry tremors

Gowhar Olfat has worked as a construction contractor for the past eight years, mainly focused on projects in Kunduz and Takhar. His company's recent decision to expand into Baghlan province is misleading, he says. Rather than reflect a thriving business, they took this step because opportunities were dwindling in their main area of operation. Formerly he employed around 100 employees, now he is down to 20.

"A lot of people asked me to draft plans for buildings but they stop short of actual construction, saying we will first wait for 2014 to pass." Gowhar Olfat, engineer.

“A lot of people asked me to draft plans for buildings but they stop short of actual construction, saying that we will first wait for 2014 to pass,” the 32-year-old engineer told Afghanistan Today.

In the past eight years, his company completed 95 different projects, mostly markets, houses and mosques from private investors and owners, but also state contracts for schools and clinics. But now it has just two projects underway instead of the usual 10 to 12 a year. "The reason for all this change is 2014,” says Olfat.

But even though the date has greatly affected the private sector, government contracts have continued relatively steadily, says Olfat. In Kunduz, for example, the main current state projects include a bridge-building project on the Chardara River, school construction, and a nine-kilometre road-surfacing project in Kunduz city.

Roll out the yardsticks

A construction worker in KunduzThe cost of labour and materials is a reliable gauge of the market.

A simple measure of the economic climate is the cost of labour, which is relatively high when work is plentiful. In 2012, a day labourer was paid on average 500 Afghanis (almost nine US dollars). The wage has now halved in some areas. Recession aside, finding workers during harvest season is generally tough, and the local market last year could not sustain both agricultural and construction sector needs. This resulted in some building projects being shelved until there was sufficient labour.        

Then there is the square metre cost of a new building, which reached 1,800 dollars at its peak more than a year ago. It now fell to 1,000 dollars, which Olfat says barely turns a profit. 

Another reliable indicator is the cost of materials, which peaks when demand peaks. In 2012, a ton of steel bar sold for 900 to 950 dollars, compared to the current price of 800 dollars. And according to Olfat, this time last year 1,000 kiln-fired bricks cost 4,300 Afghanis (75 dollars), but now fetch half the amount.

Like many people, he also fears that the slump will create further instability as unemployed workers struggle to feed their families.

For example, Mohammad Jan is an architect with 20 years experience in construction, where he used to earn 900 afghanis a day. With no work, he now makes bricks at a kiln to make ends meet for the family.

His working day starts at 3am, and he might clear 500 afghanis if he makes 1,500 bricks in a day. The old order in the family home is in disarray, he says, adding that his own toil still doesn’t cover the family's bills. Now his ten-year-old son also works at the kiln after school.

Who is pulling the strings?

There are three prominent apartment blocks in Kunduz that have been halted in construction. One belong to a medical doctor called Enayatullah, and the other two he says belong to  two senior state officials.

“I don't know whether the political situation is heading towards a positive or negative outcome,” Enayatullah said of his decision to freeze the work on his ten-unit apartment complex. “If it worsens, then I at least get to save some of my wealth and avert a major loss.”

"Now is the time for work. I have told my friends to take advantage of the 2014 buzz and get on with their projects." Arif, engineer now building his own house.

But he is more skeptical of such heavyweights as his fellow investors who also chose to stop their private construction projects.

“These people have millions of dollars and if they build an apartment building, there will be no [significant] reduction in their wealth, they made so much money in the past 30 years,” he said.

Moreover, the same class of people has great influence in shaping the political situation that is causing so much anxiety to investors like himself, he believes.

“If these people – ministers and their political opposition jihadi leaders - want it, there can be a positive change, there can be security and nothing will happen. Conversely, they can also choose to change the situation negatively and create chaos.”

Simmer down, say authorities

Those who should perhaps be expected to issue reassurances ahead of 2014 seem unruffled. Any panic now observed is rather the reaction of Western investors or Afghans who returned home, says the head of the Kunduz Chamber of Commerce, Abdul Rasoul Amiri.

“It is natural for those who have lived in Western countries to think their wealth will be lost if they invest in the country at this juncture,” he said. “I do not believe that ordinary Afghans have the same worries,” he said.

Amiri hwoever acknowledged that the looming 2014 date has impacted local business: “Prices for land, real estate, cars have gone down and therefore business has gone down. Currently people are keeping hold of their money and not investing.”

But his office does not have any specific plan to provide any counter-message for post-2014 gloom: “I do not believe there will any bad ramifications for the coming years or that the situation will worsen."

Some are slamming on the brakes

Workers in KunduzBrick-by-brick: Construction of state schools and smalll private projects continues with pace, boosted by cheap materials and labour.

Those on the front line of local trade, like the car dealer Esmatullah, might object to such an upbeat assessment. Esmatullah buys mainly used US and European models in Herat and brings them to Kunduz for sale, but now he is fighting for survival.

“Two years ago I could sell on average four to five Toyota trucks per month,” he said. “I could make between 1,000 to 1,200 dollars per car, but things have changed. I have had a Mazda truck for the past month and I cannot find a buyer for it,” he said. “Nowadays you have to invest 10,000 dollars and wait two months to make 400 to 500 dollars per car, so it is almost nothing.”

Instead, he keeps the business running through commissions from sales of other people’s cars through his showroom in the west of the city, charging 2,000 afghanis from both buyer and seller.

...Others say carpe diem

While the current market presents a dilemma for the big spenders, the sharper citizen with capital sees that this is precisely the time to build.

Arif is a 33-year-old engineer for a private company who spent his life so far living in a mud-built house. One month ago he finally began construction of his own concrete-walled house, prompted by the drop in the price of materials and labour.

Three years ago, when he began planning his own home, he reckoned only with a one-story house. Now, due to cheaper labour, cement and steel, he is building an entire basement too.

“Now is the time for work. I have told my friends to take advantage of the 2014 buzz and get on with their projects,” Arif said.

But for large-scale developers like Olfat, they must just weather storm for now: “Basically there is no work around," he says. "I would do it even if the profit is low because it would keep me busy at least. But there is just nothing.”