A Battlefield Tourist

Afghan First; Afghans Last

Oct 21 at 7:07pm by David Tate

Creating a Level Playing Field for Afghan Businesses
While Safeguarding the Future
LtCol Asad Khan, USMC (Ret.)

A central element to the success of the counterinsurgency strategy in Afghanistan is based on the development of the country’s economy and on the ability of Afghan businesses to create economic growth, jobs and sustained opportunities for Afghans. The Department of Defense (“DOD”) is the largest contributor to the Afghan economy. DOD uses the US Army Corps of Engineers (“USACE”), Air Force Center for Environmental Excellence (“AFCEE”) and US Military Contracting Officers to oversee its projects. Unfortunately, many aspiring Afghan businesses are either excluded from the DOD related projects or if they are allowed to participate, they are put under heavy financial strains due to our inability to pay them in a timely manner – thereby failing. In this counterinsurgency, one cannot underestimate the benefits created by Afghan businesses contributing to Afghanistan’s long-term development, prosperity and stability.

Therefore, we need to focus more on the Afghan businesses rather than the international companies who have greater influence and access. While international companies take the money out of Afghanistan, local companies reinvest into their own country. Afghan companies are competitively disadvantaged in many ways that international companies operating in Afghanistan are not. Examples include:

• Restricted access to information, bases, and contracting officers / finance
officers;
• Visa and travel restrictions to attend key meetings in the US;
• Complex US/DoD contracting and Federal Acquisition Regulations (“FAR”);
• Limited corporate knowledge and experience;
• Language barriers.

These factors have created grave concerns among the Afghan business community regarding DoD contracting and international commitment to supporting the long-term economic development of Afghanistan. Many Afghan businessmen believe the “Afghan First” initiative is undermined by the preferences given to international companies who have the right connections and relationships as well as access to bases and contracting / finance officers that Afghans do not have. Afghan businessmen know they have greater obstacles to overcome and lack resources solely because of their Afghan heritage. Sadly, many Afghan businessmen perceive “Afghan First” as nothing more than a bumper sticker ad campaign.

For the larger projects, Afghan companies are completely barred from participating in the bidding process. For example, Request for Proposals (“RFPs”) for large construction contracts require bidders to have executed projects valued at $10 million or more; a prerequisite that precludes nearly all Afghan businesses from bidding. Rather than excluding Afghan businesses from the tender process due to lack of experience on large construction projects perhaps a better strategy might be to require international companies to formally team with interested Afghan companies in a mentor protégé relationship – thereby facilitating the education, training and development process of
these Afghan companies enabling them to become self sufficient on future opportunities. By excluding them, we stunt their growth and relegate them to being subcontractors and providing cheap labor – without growing their management and technical skills. Afghan businesses suffer from a lack of information and business networking that international companies do not experience. Creating new business opportunities relies on a company’s ability to stay informed of opportunities and develop essential business relationships.

US / DoD contracting puts little to no effort into overcoming language differences. RFPs and announcements are not written in Dari or Pashtu and Afghan businesses do not have access to USG / DoD websites such as www.fbo.gov. It seems absurd that Afghan companies receive and have access to less information about projects in Afghanistan than US and international companies, but that is precisely the case.

In many cases contract pre-proposal conferences and business development conferences are held in the US (generally in the Washington D.C. area where USACE [Winchester, Va.] and many contracting companies are based). Meanwhile Afghan participation in these events is prevented by visa requirements, terror watch lists and compounded travel costs. Ironically, Afghan government officials and key military leaders are frequently brought in for the benefit of US and international companies that attend. The resulting options for Afghan businesses are to either “stand on the outside looking in” or to be relegated to subcontracting for a US or international company.

Afghan businesses have limited or no access to bases and facilities where contracting and finance offices are located. Obtaining identification badges for Afghan nationals is slow, sometimes taking weeks or months to complete the process. If they do gain access privileges, they often have to wait in long lines with local laborers to be searched and processed onto the camp – this is very demeaning in the Afghan culture. Afghan companies frequently hire US expatriates, at increased cost, for their ability to access coalition installations and interact with American systems. Moreover, these austere forward-deployed offices are the sole point of entry for Afghan companies
conducting business with the US/DoD.

These offices are frequently understaffed and unresponsive to Afghan business needs. Senior executives for Afghan companies often find themselves handling routine administrative tasks through junior enlisted US service members. US and international companies, on the other hand, have the ability to work invoices, payments and bids through USG / DoD offices that are designed for efficient service on the larger FOBs or back in the US. Efficient government business offices allow executives and staff employees to transact business at appropriate peer-to- peer levels. One has to wonder what Afghan executives are learning from a process that takes them away from strategic and operational level management to speak to an Army Private about collecting payment of overdue invoices.

The complexity of the US/DoD contracting processes, procedures and the Federal Acquisition Regulation (“FAR”) create a nearly insurmountable barrier to Afghan companies. The FAR has not been translated into Dari or Pashtu, nor should it be. The complexities of the FAR are beyond the capabilities of current Afghan corporate knowledge. Once again, Afghans must hire American expats to navigate the system. Construction projects, in particular, are overwrought with FAR-specific technical requirements.

For example, nearly 60 pages of construction project RFPs are FAR-specific. The US RFPs are overly complicated and lengthy, containing boilerplate technical specifications that confuse Afghan companies. This makes for an unlevel playing field as most Afghan companies understand the work that must be done, but not the reasoning behind all of the regulatory requirements that is imposed – such as prohibition of conducting business in Sudan, supporting the secondary Arab boycott of Israel, et cetera.

I have yet to find a single Afghan company conducting business in Sudan or supporting the Arab boycott. The point being is that the 60+ pages of FAR listed in every proposal is a daunting challenge for an American to understand – let alone an Afghan. We need to remain sensitive to the environment in which we are operating. One can make the point that these are designed to ensure compliance and minimize corruption. If so, we failed in Iraq and are failing in Afghanistan. We need rules that allow people to make decisions, ensure local compliance and help the Afghan contractors succeed – not navigate toward failure.

Afghan companies that are successful in receiving an award face critical cash flow problems from the outset. Contract execution requires immediate expenditures of capital that can only be recouped through the government’s payment of invoices. The government’s disbursement process is delinquent and insensitive to the vital needs of Afghan businesses. The finance offices are staffed with low ranking military personnel who lack both the understanding of business needs and the authority to correct problems.

Cash flow is the life blood of any business – especially in Afghanistan. Afghan
companies, unlike US and international companies do not have sufficient resources or
access to credit to sustain their operating expenses to survive frequent negative cash
flow circumstances. The prevailing interest rate, for Afghan companies that can get
credit has been up to 20% per month – that is if they can find someone to lend them the
money. Afghan companies rely solely on cash flow to survive and pay their employees
and vendors.

The current system causes challenges that frequently threaten the survival of Afghan
businesses and the entrepreneurial spirit which is essential for the economic growth and
stability of Afghanistan – and our vital national security interests. A company’s failure to
meet its financial obligations results in loss of trust and can quickly lead to business
failure. The Afghan culture, unlike American culture, regards business failure as an
extreme personal embarrassment. High rates of business failures can decrease the
entrepreneurial spirit by increasing the risk of dishonoring the family. It goes without
saying that business failures result in unemployment and adversely affect large Afghan
families. Bottom line: the survival of Afghan companies and businessmen should not be
threatened by the US government’s failure to pay in a timely fashion nor should we have
fledgling Afghan companies bear the financial costs of our operations – for the short
term.

The “Afghan First” initiative should do much more to enable Afghan businesses
to compete with at least an equal footing, and at best, with a helping hand. A true
“Afghan First” strategy would look for ways to stimulate entrepreneurialism, incubate and
mentor new Afghan businesses and projects, and foster their continued growth and long
term ability to build their capacity to provide jobs and improve the economic health and
infrastructure of their nation. This is currently not the case; according to some estimates
approximately 80% of US aid is spent on US and international companies that take the
money out of Afghanistan. The money the US spends in Afghanistan neither remains in
the country nor contributes to helping the Afghans for whom it is intended. “Afghan First”
should mean that work is being given to Afghan companies that create jobs and invest
their profits back in Afghanistan – not take them out for their shareholders.

As we progressively increase security and reduce insurgent influence, opportunities for employment and prosperity become increasingly important to lasting stability. The current presence of large numbers of coalition forces corresponds directly to US government expenditures in Afghanistan. Since force reductions will begin in the near future, Afghan businesses expect corresponding reductions in US government contracting opportunities. Once the contracts dry up, the international companies will leave creating greater unemployment – so the time to begin a focused effort to develop Afghan businesses is now.

The below examples represent common trends among Afghan companies working
on USG / DOD projects:

• Late Payments Creating Cash Flow Crisis: An Afghan security company was
owed over $1.4 mil of which $857k was past due over 30 days; This may not
seem significant to a large international corporation, but as mentioned earlier,
small Afghan companies do not have access to financial credit to secure bridge
loans. They rely on being paid on time – so they can pay their employees and
vendors on time.

• US & International Companies Location and Access Advantage: The
USACE Pre-Proposal Conferences for Operations and Maintenance Services for
the Afghan National Army and Afghan National Police Site and Facilities
throughout Southern Afghanistan (solicitations W912ER10R0002 and
W912ER10R0003) were recently held in Winchester, Virginia. Although 38
Afghan companies were on the bidder’s list, none participated. It is not easy for
Afghans to get visas or travel to the US.

• US Companies Location, Access and Networking Advantage: The 2nd
Afghanistan Aviation & Defense Summit is scheduled to be held on March 25-26,
2010 in Washington, D.C. The stated purpose of the conference is to focus on
business opportunities that will aid in the recovery process of Afghanistan and
help in the effective implementation of the country’s development programs.
Afghan businesses will not attend due to challenges with the visa process and
excessive travel costs. The following excerpts were taken directly from the
conference announcement and are provided to highlight the disregard for
developing Afghan business opportunities and the advantages US and
international companies have over Afghan companies:

– The important people who you will meet at the conference are Afghan
government officials responsible for security and defense procurements,
high-ranking military commanders from Afghanistan Ministry of Defense
and International Security Assistance Force – Afghanistan, senior
industry executives from defense companies, prime contractors for
Afghan projects, senior directors and government advisors.
– We can also arrange for your exclusive One-on-One Meetings with
Afghan officials who will provide you with insights and analysis of the
current challenges facing Afghanistan’s aviation, security and defense
sectors.

• Insensitivity to Afghan Business Needs: On the last day of the month the
Chief Operating Officer of an Afghan company had to personally make the third
follow up visit to the Camp Eggers Finance Office to seek payment of $858,000
of unpaid and delinquent invoices. Although Sunday is a normal workday in
Afghanistan, the office was closed.

• Insensitivity to Afghan Business Needs and Late Payment: Two senior
executives (COO and Commercial Director) of an Afghan development company
had to intercede on an outstanding invoice for $53,000, 46 days pending. The
Private First Class at Camp Eggers Finance Office disagreed that businesses
need to be paid within 30 days. He pointed out that the office was “really backed
up” and that he had higher priorities. When asked if there was someone senior
they could talk with, the Private told them no one was available and asked them
to leave.

• Insensitivity to the Afghan Culture: In November 2009, before the Islamic Eid
al-Fitr holiday (celebration at the end of Ramadan that is similar to Christmas in
America) the Finance Office refused to pay invoices a few days early (24 November)
so companies could meet their payroll and send their employees home to their villages
in time for them to purchase gifts and food before the long holiday.

Recommendations:
• Enforce the Prompt Payment Regulation (Title 5, CFR 1315) in Afghanistan by
establishing policies and procedures to disperse funds to Afghan companies no
later than 15 days after receiving an invoice which allows time to address issues
before late payments cause disruptions of business operations.
• Simplify RFPs and the FAR as it applies to Afghan companies so they can
understand the process and requirements.
• Create Afghan accessible Contracting and Finance Offices that include a local
ombudsman and a simple process for quickly resolving problems and addressing
concerns.
• Conduct government sponsored business/contracting conferences in Kabul or
Dubai rather than in the US.
• The Nunn-Perry Mentor Protégé Program is a USG funded program and has been
very effective for smaller companies being mentored by larger companies. We
should start a similar program in Afghanistan requiring US and international
companies, profiting from US government contracts in Afghanistan, to mentor
Afghan business in better practices and successful execution of larger projects.
• Allow Afghan companies seeking and performing government contracts to travel
aboard ISAF military or contracted aircraft and use government facilities.
• Allow Afghan companies to access to ISAF facilities by establishing a system to
screen and provide badges in a timely fashion.

In summary, Afghan businesses are central to our long term success in Afghanistan.
We need to focus more on their success by fostering a climate within the USG / DOD
contracting world that levels the playing field and understands the business imperatives
that the Afghans must deal with. By excluding them or allowing our own inefficiencies to
hamper their success, we ultimately undermine our own success. As we encourage and
assist small businesses in the US, we need to do the same for Afghan entrepreneurship
and businesses – through them we can reach out to the Afghan people and create
sustainable opportunities for their collective future – and our national security.