Promoting Foreign Direct Investment in the IEA: Some Suggestions

We have learnt from a Reuters report that our Ministry of Commerce has set up a consortium with foreign firms from Russia, Iran and Pakistan and 14 Afghan businessmen (presumably in the private sector) to attract foreign direct investment (FDI) in the mining, energy and infrastructure sectors.

This is a very welcome step. FDI can play an important role in the growth of national wealth and specially technical capabilities of our manpower. We hereby submit the following suggestions for consideration of the brothers designing the FDI strategy for the IEA.

1. There is a need to prepare a basic document outlining the objectives of attracting FDI and the role it is expected to play in national wealth creation. The paper should also outline a strategy for attracting FDI to meet these specific objectives and briefly outline the administrative mechanisms for managing FDI projects. In designing the FDI management system an attempt must be made to ensure a minimization of the project implementation cycle (from preparation of feasibility to approval to start up to transfer). International experience has shown that delays in the implementation cycle are a major cause of FDI project failure.
2. We support the selection of FDI targeted countries by the ministry but suggest that attempts should also be made to interest firms from Belarus, Cuba, Turkey and Venezuela (and perhaps Brazil). We suggest that potential FDI partners should include public sector (i.e. state owned) firms from these countries. The focus should be on attracting small and medium sized firms from these selected countries, rather than major multinationals (reason for this bias is our FDI strategy is given under point 7 & 8 ).
3. We strongly support the idea of holding a convention of foreign investors in Kabul as soon as possible. We suggest that government officials dealing in the investment from the selected countries (Russia, Iran, Pakistan, Cuba, Belarus, Venezuela, Brazil) should also be invited to this convention.
4. We recommend that attracting FDI from selected Muslim countries (Iran, Pakistan, Turkey, Bangladesh, Indonesia, Malaysia) should be seen as part of the Jihad effort and should be retained through the madrassah network in these countries which have billions of dollars that not invested in haram (money and capital market) transactions not even through Islamic banking channels. We believe that a proportion of these halal assets of pious businessmen can be created to support daulat afzai (دولت افزائی) in the IEA.
5. We strongly support the selection of FDI targeted sectors (energy, mining and infrastructure). We suggest that attempts must also be made to attract FDI in the information technology (ITC), pharmaceutical and urban housing construction sectors.
6. We suggest that the objective of FDI attraction should be the stimulation of domestic production, domestic دولت افزائی (investment) and technological capabilities of our workforce. It should not be export promotion. This bias toward using FDI as a means for domestic productivity growth is reflected in the choice of energy and infrastructure as FDI priority sectors but there is a danger that FDI flows to mining may serve to subordinately integrate the Afghan economy within global capitalist markets. This has been the experience of almost Latin American economies (especially Venezuela, Ecuador, Bolivia and Cuba) which have suffered loss of national sovereignty (despite their formal commitment to national self-sufficiency ) because of their continued subordinate integration within global supply chain.
7. FDI must not serve as a means for global supply/value chain integration of Afghanistan’s Islamic economy. This is especially important for mining sector development. Afghanistan’s rich mineral resources are a key target of imperialist penetration. Imperialist mining multinationals are seeking to exploit these resources for transfer through global value chain networks enmeshed to global financial markets for final use in the imperialist countries thus laying the foundation for Afghanistan’s systemic dependence on global commodity and financial market.
8. To avoid this we must ensure that the development of the mining sector is integrated with the corresponding development of domestic manufacturing such as intermediate and capital goods manufacturing (as has been done in Iran). Medium sized mining enterprises (especially from Iran) should be a key target of an FDI strategy and multinationals investment must only be accepted if it serve the domestic manufacturing sectors.
9. We recommend that target preparation of a comprehensive medium term mining sector strategy as a central element of the proposed FDI strategy for the IEA.
10. We oppose the establishment a special economic zones (SEZs). The experience with such zones has not been good throughout the world (especially in Pakistan and Nigeria). SEZs have usually served as a vehicle for foreign firms avoiding the application of domestic law and for exploitation and discriminately treatment of local labor. The cost of providing adequate infrastructural facilities in SEZ will be prohibitive and it will be particularly difficult to ensure the application of Islamic legal norms in SEZs.
11. We strongly recommend that all FDI contracts take the form of joint ventures with participation of national, foreign and government capital and management. We have recommend in our earlier submission that a planning unit and a Da’wah majlis be established in all major industrial units throughout the IEA (See DAIMG: Developing a Planning System for IEA). Such units (with responsibilities outlined in our above paper) should be established in each FDI joint ventures. Public sector representatives should have veto power regarding investment and marketing decisions on joint venture management boards.
12. A key problem with FDI project financing is the almost universal integration of FDI investment firms with money and capital market transactions (their dependence on gharar and riba). A partial solution for this problem can be envisaged as follows.
    1. Halal investment (from both Muslim and non-Muslim countries) that have no links/transactions with money and capital markets should be prepared
    2. The FDI financed projects should not borrow funds from the riba based money markets.
    3. The shares of the FDI financed projects should not be transferable or traded on capital markets and parent foreign firms should be required to sequester/separate such investment from their common asset pool.
13. Hence to ensure that FDI financed firms may have adequate access loanable funds and equity finance, We must develop a non-riba and non-gharar based financing system in the IEA. Brief details of such a system have been outlined in our previous submission Developing a Planning System for IEA. This involves:
    1. The nationalization of all banks and financial institutions
    2. The institutionalization of a musharka and modarba and tamveeli financing investment based system.
    3. The abolition of all money and capital market transactions in Afghanistan.
    4. Trade control of all foreign exchange inflows and outflows by the Islamic government, de-dollarization/de-Rupeesization of the monetary system. All businesses (including FDIs) to surrender foreign exchange earnings for conversion into national currency (Afghani or proposed Islamic Dinar). FDIs to be allocated foreign exchange for imports and profit repatriation through the aegis of a comprehensive currency plan.
14. Points 12 & 13 argue that the FDI strategy is a component of – and not separate from – the national economic strategy of the IEA. The proposal seeks to achieve the objective of using FDI as an instrument of دولت افزائی and technology transfer while protecting the IEA’s economy from subjugation to imperialist/capitalist money and capital markets and becoming part of the global haram economic system.

DAIMG stands ready to clarify points raised in this note and to assist in any way you consider appropriate in the preparation and articulation of a FDI strategy for the IEA.

And in the end we praise Allah, the Lord of the Worlds and beseech Him to save our regime from collapse into Jahiliyya.

AMEEN