Afghanistan: Land of War and Opportunity

The skyline of the city of Herat, in the westernmost corner of Afghanistan, is dominated by the Qala Ikhtyaruddin, a 700-year-old stone citadel. On a chilly December afternoon, as the sun begins to dip, the citadel's grounds are largely unoccupied. The general public isn't allowed in until renovations to the time-ravaged site are finished. Paid for in part by a $725,000 grant from the U.S. government, the project is scheduled to be completed at the end of 2011.

Paul A. Brinkley isn't the general public. As U.S. Deputy Under Secretary for Defense, he moves freely behind the barricades, ushering a handful of American visitors, including Silicon Valley executives Atul Vashistha and Mike Faith, the heads of Neo Group and, through dark corridors and up steep stairways to the highest reaches of the fortress. The tour comes after a morning of meetings with the provincial governor and the local university's chancellor and students, all of them pushing, along with Brinkley, for the executives to consider a noble and dangerous proposition: opening up shop in Afghanistan. "I've never regretted taking a businessperson to the theater," Brinkley says. "This is about getting their eyes on the problem."

In Herat, Kabul, and cities large and small, Brinkley serves as tour guide, ambassador, fixer, motivational speaker, and leader of the unofficial Afghanistan chamber of commerce. With all of his titles and duties, he prefers to think of himself primarily as a matchmaker, negotiating high-stakes unions between multinational companies like IBM (IBM) and JPMorgan Chase (JPM) and Afghan officials and entrepreneurs. Building a culture of business is the only way Brinkley and General David Petraeus, commander of NATO forces in Afghanistan, believe they can counteract the legendary forces of destruction here—from decades of war and deprivation to the brutal rule of the Taliban and a reliance on opium as a chief export. "It's an infusion of optimism in what can seem like a hopeless situation," Brinkley says. "The Afghans say, 'People actually want to do business with us? Maybe there is something at the end of the rainbow.'"

The Task Force for Business & Stability Operations was launched in 2006 as part of the Defense Dept.'s effort to link military strategy and economic development in Iraq. For four years the task force recruited Western companies in an attempt to modernize Iraq's banking system and reopen factories. Early results were unsuccessful. Security concerns prevented staff from restarting most heavy manufacturing sites, and overseas companies balked at doing business in Iraq because of the very real possibility that their employees could be wounded or killed. A former chief information officer at JDS Uniphase (JDSU) in California, Brinkley joined the Defense Dept. to help with internal business operations. His work in Iraq spurred the creation of the task force. "When we started our work in May 2006," he says, "[Iraq] was in a complete daily deterioration."

The task force ultimately sponsored more than 200 visits by corporate executives and investors, including Honeywell International (HON) Chief Executive Officer David M. Cote and Boeing (BA) CEO James W. McNerney Jr., which generated investment commitments of more than $5 billion, according to task force data.

That doesn't include oil-related investments; Iraq, home to the world's fifth-biggest oil reserves, has, finally, seen some success in reconstructing its energy industry. On Jan. 3 the country agreed to build pipelines across its shared border with Jordan. "The idea of what the military is trying to do is a constructive one," says Isobel Coleman, a senior fellow at the Council on Foreign Relations. "If you're there for the long haul, creating jobs and sustainable businesses is crucial."

With the Iraq project coming to an end, Brinkley shifted his focus in 2010 to Afghanistan, an even more daunting task. More than 30 years of economic and political distress dating to the Soviet invasion of 1979, and spanning the Taliban era and nearly a decade of war, have turned the country into a synonym for hopelessness. Corruption is rampant—accusations reach all the way up to President Hamid Karzai's family—and unlike Iraq, Afghanistan didn't have much of an economic base to begin with: Afghanistan's gross domestic product in 2009 was $26.9 billion, ranking it 110th in the world. Iraq is 65th, with a GDP of $109.9 billion, according to the CIA World Factbook.

In Iraq, thanks in part to Brinkley's efforts, General Electric (GE) is building power plants to meet the country's power shortages; Honeywell opened an office last year to sell equipment to the oil and gas industry; and Daimler (DAI), having created a motor vehicle training workshop in 2008, established a Baghdad office a year later. "Success depends on those iconic companies," Brinkley says. "You augment them with mid-tier companies who are more risk-oriented. Your agility and speed comes from there." Brinkley needs to replicate and expand on the process in Afghanistan, using the military's own spending power to promote local companies and convincing multinationals that Afghanistan is not just a safe place but also a land of real opportunity.

Brinkley and his team allowed a Bloomberg Businessweek reporter to shadow them for five days in December as they went about their Red Bull-fueled, stubbornly optimistic work. Arriving in Kabul on a commercial flight, the task force team and one of two business delegations in the country at the time spent a day in the capital before flying to Herat, then back to Kabul for three more days of tours and meetings. From the natural resources buried in the mountains and valleys where blood is still shed almost daily, to the women-run workshops tucked in corners of Kabul, to the restless students unwilling to become another lost generation, Brinkley sees huge potential. Whether he can convince anyone it's worth the risk is another matter.

With his shaved head, tieless suit, and black leather jacket, Brinkley cuts a distinctly non-Afghan figure. He peppers his conversations with simple phrases such as "Tashakor" (thank you) and frequently puts his right hand over his heart, an Afghan gesture of respect. In meetings, he listens more than he speaks, usually making introductions and then retreating with a self-effacing remark. During an encounter with Herat University's chancellor, he introduces Vashistha and Faith, plugs their Silicon Valley credentials, and then says, "That's my entire contribution, so I'm going to step back."

Brinkley, 44, grew up outside Dallas and earned undergraduate and master's degrees in engineering from Texas A&M University. He is now known, to members of the task force, as "Mr. Brinkley" or "the boss."

Brinkley's pitch to executives starts at home. In the months before the December trip he was in San Francisco, Los Angeles, Dallas, Houston, and New York—and working the phones in between from his Pentagon office—to make his case. Like any good salesman, he believes that if he can just get the customer onto the showroom floor, he can close a deal. "We tap into something," says Brinkley. "There is a huge desire to support the mission among all Americans. People want to help and are at least willing to take a look at it. We just tell them, 'Come over and see for yourself.' "

Once the executives are in the country, Brinkley the matchmaker emerges. Between meetings one day in Kabul, Brinkley mentions the similarities between his job and eHarmony, a website that uses technology to figure out which singles will make the best married couples—only instead of producing children, these partnerships are meant to nurture Afghan industries and generate profits for both parents. Like any good coupling, what comes of it isn't ultimately up to the person who made the introduction. "If there's money to be made on a risk- adjusted basis that makes American CEOs comfortable, they're going to do it," says the Council on Foreign Relations' Coleman. "Having a nice dog and pony show may speed that process, but it's not going to change the calculus."

In Afghanistan, Brinkley has assembled a 75-person team with a $150 million annual budget. The group is culled from his own business network, other parts of the government, political campaigns, and nongovernmental organizations. The apparent camaraderie between its members stems from the nomadic circumstances of the job. Stretches of typical Pentagon life back in Washington alternate with long visits to a country where the mood can swing from uneasy to scary, depending on the day and location. "We live where we work," Brinkley says. "You get to know aspects of people you normally wouldn't see."

The task force's work in Afghanistan consists largely of an endless stream of meetings, many of which are conducted over platters of nuts and raisins and cups of green tea. Sleep is elusive. That owes in part to the brutality of time zones: Just as a Kabul workday ends, Washington and New York, nine and a half hours behind, are getting started. A second workday essentially begins after dinner, with BlackBerrys buzzing throughout the evening. There's no delineation between weekday and weekend, especially given that the Afghan weekend falls on Friday and Saturday. Clothing retailer kate spade new york's chief merchandising officer, Sydney Price, arrived on a Saturday, had what amounted to a working dinner with the task force, and then started Sunday morning with meetings and tours. Brinkley and his staff use their proximity to the guests for the soft sell, talking about what they saw that day, sharing stories aimed at emphasizing the country's humanity.

Security concerns mandate meticulous planning. Over the course of a two-week period, Wall Street bankers, Silicon Valley executives, and Los Angeles-based investors were ferried around Kabul and other parts of the country in armored vehicles for meetings with local business owners, artisans, government officials, and students. To deal with the unpredictability of airline schedules and traffic, team members and visitors often leave their quarters before dawn. Most meals are taken inside the compound; occasionally they are at a hotel restaurant. "I expected it to be a lot more chaotic," says Vashistha. "What I saw was much more of a high-security zone than a war zone."

The Brinkley team typically isn't embedded with the military, which allows them more freedom to work with a range of officials and executives. The group is closely connected to the military mission, though, and Brinkley is exuberant in his loyalty to Petraeus. "He has a phenomenal intellectual range and capacity," Brinkley says of the general. "We're in tight partnership."

Over the course of three December days, Petraeus meets with two separate delegations, including Vashistha's, and has a separate briefing with Brinkley. The general is appreciative of the visitors' curiosity about Afghanistan—and quick to press them to move beyond interest and into commitment. "Just like you can't commute to a fight, you can't commute to business," Petraeus says. When one member of a delegation says the task force has provided a keyhole into what's happening here, Petraeus responds: "We need you to do more than look through the keyhole. We need you to go through the door."

Kabul's infrastructure was designed for about half a million people. The city currently has a population of more than 3 million. Traffic barely moves, and the crumbling roads and bridges are constant reminders that it will take decades before Kabul joins the ranks of modern cities.

Yet flashes of 21st century life are evident. Mobile phones, sold by five different carriers, are everywhere. Afghanistan, with a population of 29 million, boasts 15 million wireless subscribers. This gives hope to outside investors that there's a technological backbone to exploit. "My cell service is better here than in the Bay Area," says Faith of, part of the Silicon Valley delegation. He's a colleague of Vashistha's through their local chapter of the Young President's Organization. Faith says Afghanistan's not yet a big enough market for his company, but he's surprised by the progress he sees. "I'm excited about the possibilities."

Brinkley and his visitors troop up several flights of stairs to visit with Amir Zai Sangin, the government's Minister of Communications and Information Technology, who has the enviable job of proselytizing for what is arguably the most advanced sector of the Afghan economy. An Afghan flag sits in a corner of his wood-paneled office, a large portrait of Karzai hangs behind his desk. Over juice, tea, and cookies, Sangin recounts how Afghanistan created a communications infrastructure from nothing in 2002. "People had to travel to another country to make a phone call," he says. "Now, in Kabul, even the poorest have mobile phones. The beggars have mobile phones."

There are five major telecommunications companies and dozens of domestic Internet service providers. About 80 percent of the population is covered by the telecom infrastructure—a bigger portion than in India, he says. "Our strategy for the last five years was infrastructure. The next five is applications."

While Afghans have been busy talking on their phones, their banking system lay fallow. Historically, Afghans have tended not to trust banks and have avoided using them. When money needed to be moved, transfer agents called hawalas were called in. The notion of a bank as an institution that secures savings and lends out money is still quite alien.

Nadia Dawood, an Iraqi-American, left her job on Wall Street six years ago and started working with the U.S. Agency for International Development. Eventually she landed alongside Brinkley and was charged with trying to build a modern banking system in Iraq. Saddam Hussein's government had set up a network that drove all funds through state-owned and -controlled financial institutions. The task force automated the banking sector and helped install modern services at more than 200 bank branches throughout the country. Like the rest of the task force's members, Dawood has turned her attention to Afghanistan, where among the first orders of business was persuading the government to pay its soldiers and police officers through electronic funds transfers. By the end of last year all of the military and 80 percent of the police were paid on that basis. The next step was persuading them to actually leave their money in a bank.

What the banks were—and where they were—was a question not easily answered when Dawood arrived in February 2010. Now she has a spreadsheet detailing banks' deposits and the number of branches. Getting that data was crucial for the next stage—bringing in a global financial-services company that would connect Afghanistan's monetary system to the rest of the world.

The first bank the team approached was Citigroup (C), which had played a similar role in Iraq. The financial conglomerate was a natural choice, given that it processes the U.S. government's payments abroad and has shown an appetite for working in emerging markets. Still, the work was neither fast nor easy. Citigroup conducted six months of due diligence in Afghanistan, including a weeklong road show with executives at the country's handful of domestic banks. The company made a deal with Afghanistan International Bank, and now the two are helping process payments made by NATO forces to local contractors. "By paying invoices in local currency, it ensures the money stays in the country to stimulate the economy," says Kevin Fitzgerald, the head of Citigroup's public-sector unit in North America, who oversees the company's contracts with the U.S. government. "The entire amount is deposited directly in a bank without being diverted or delayed by a local government agency."

Progress in Afghanistan is never linear. While the implementation of a modern banking system has shown promise, Kabul Bank, one of the country's largest institutions, was beset by a corruption scandal in 2010. Last summer six private security guards were also poisoned and stabbed at a Kabul bank branch in Mazar-e Sharif. Nothing is easy.

Noorullah Delawari, who returned to his native Afghanistan in 2002 after a career spent mostly in Southern California, where he worked at Lloyds Bank's operations there, is one of those pushing to improve the financial system. After a stretch running Afghanistan's central bank, he's now an adviser to Karzai and serves as president of the Afghanistan Investment Support Agency, whose motto is "the Silk Road to Opportunities." AISA is one of the task force's many partners, organizing road shows and pitching businesses in China, Washington, and India. During a meeting in his office with one of the task force's delegations, Delawari rattles off statistics: Through August 2010, 3,267 companies were established in the country, with 38,000 new jobs tied to the investment. "Any positive development will help end this vicious war."

As Delawari speaks, Brinkley sweeps in, straight from the airport. The men embrace. "One of the pleasant surprises coming to Afghanistan was AISA," Brinkley tells the group. "It's like a massive accelerant." At the end of the meeting, Delawari insists that Brinkley accept a small carpet sample, produced at a new factory that AISA and the task force worked to get started, as a gift.

Corruption is often cited, alongside security concerns and lack of infrastructure, as one of the biggest obstacles for companies considering expansion to Afghanistan. Brinkley says the task force seeks to soothe fears about corruption by embedding accountants and legal advisers within government ministries. Ultimately, avoiding corruption is up to the companies. "It's a huge problem," says Erik Malmstrom, co-author of a November study sponsored by the Kauffman Foundation on private-sector development in Afghanistan. The report, titled "Afghanistan's Willing Entrepreneurs" and written with Jake Cusack, found something that surprises many visitors: Afghans worry less about physical threats than about the integrity of the business environment. "Every step of the way," Malmstrom says, "businesses are having to deal with corruption."

Herat is the site of some of Brinkley's most successful matchmaking, and it's easy to see why. Located about 50 miles from the relative calm of Iran—which, despite its political saber-rattling, is home to the world's 19th-biggest economy—Herat doesn't feel like a city in a war zone. Its governor, Sayed Hussain Anwari, stresses the quietude during an enthusiastic sales pitch over a breakfast of traditional breads and pan-fried eggs served with chilies at his mansion near the center of town. "People here want to keep their comfortable life. In the south, they have nothing to lose, so they fight," the governor, dressed in a business suit, explains. "Here, they have something to lose, so they don't fight." He tells the Americans that he's looking to Bangalore as a model for Herat, an analog that will be repeated throughout the day. Jobs are the top priority for both the task force and the locals. "These are hotheaded people who want to do something," Bijan R. Kian, a director of the Export-Import Bank of the United States who is Iranian-born, says of the Afghans.

Beyond the heavily guarded gates of Herat University, the male and female students who roam the dusty campus, some dressed in full burkas, agree. Inside a computer lab with rows of Lenovo machines, a group of students in the university's two-year-old computer programming school nervously show off their projects to Brinkley and his contingent. The Herat IT program got a boost in November when IBM (IBM) signed a letter of intent with the University pledging to help train students after sending executives on one of Brinkley's tours. On this visit, Brinkley is trying to augment that. After the presentations, Neo Group's Vashistha offers to hire several of the students as interns. He also encourages them to look for ways to make money on what they've already created as student projects. He spends most of the afternoon and evening counseling and cajoling a smaller group of students. Ultimately, he decides that he'll start by bringing two of the students on as contractors to one of his companies; they'll work remotely from Herat. In addition, he plans to make an investment in a startup software company, Citadel Software, that he encountered during the trip.

The students respond with cautious excitement. Their lives have been split between Taliban rule and a war that began almost a decade ago. "Every day, we want something better," Eleena Kakar, a 21-year-old who recently graduated from Herat's IT program, says after a task force-hosted dinner. "The next generation will be different if we have peace, and if we get to do what we want."

Kate spade wanted to work in Afghanistan as the next step in its three-year-old partnership with the Washington-based NGO Women for Women International, a project that has taken the company to Bosnia. Brinkley's team coordinated a visit last August for kate spade executives including CEO Craig Leavitt, who announced the company's plans at an event held at the U.S. Embassy. "I was very skeptical," Leavitt says in an interview from his New York office. "We knew of the logistical problems because of the instability."

Four months later, kate spade's chief merchandising officer, Price, is reconnecting with the staff at Turquoise Mountain, a Kabul-based nonprofit that was created in 2006 through an agreement between Karzai and Britain's Prince Charles, with the goal of reviving arts and architecture in Kabul and creating an Afghan craft industry that could thrive locally and abroad. Turquoise Mountain takes 45 new students a year (970 applied in 2010) and trains them in traditional crafts. They spend about 60 percent of their time learning a specialty, such as jewelry making, and the rest studying business, law, and technology to help them become well-rounded entrepreneurs. At a recent local exhibit the students sold $20,000 worth of goods in four hours, all to local buyers, according to Shoshana Coburn, the group's managing director.

If all goes according to plan, Afghanistan-made cashmere scarves may begin production in Kabul this year and will eventually appear in kate spade stores as part of its "hand in hand" line, alongside pom-pom scarves and other products made in Bosnia. Kate spade's approach to the products is different from the traditional "a portion of the proceeds" model. The company buys the goods outright from the workers, typically at a multiple of local market prices. Kate spade then handles all the exporting and marketing costs involved in getting it to its stores.

The advantages for the producers—in this case, Afghan women—are clear. They get the money once they produce the wares instead of waiting for their share of the sale to make its way back to them. If the products sell well, then kate spade will make additional orders. The company aims to employ upwards of 1,500 women in Kabul by the end of 2013. "The Afghans feel that any attempts by the Americans to really change anything would be half done without leaving a viable economy behind," Leavitt says.

During his August visit, Leavitt arrived at Women for Women's Kabul training institute and sat on the floor among the participants and asked how he could help. A woman who had been unable to leave her home for seven years summed it up. "She just needed a market to sell," Leavitt says.

Kate spade is perfectly suited to working in Afghanistan. "Hand in hand" is equal parts philanthropy, entrepreneurship, and branding. "This is not a cash-aid partnership," Leavitt says. "Our goal is that this is ultimately a profit center for the women and for us. This is meant to be good solid economics for everyone." Still, it'll take a lot of kate spades to make Afghanistan matter in the global economy.

What Brinkley's project really needs is scale, and natural resources are the fastest way to push the country forward. According to a June Defense Dept. study, the estimated gold, copper, and iron ore reserves in the hills of Afghanistan make up a potential trillion-dollar opportunity. (The country's Ministry of Mines thinks it could be more than $3 trillion.) It's not worth much if it stays in the ground.

The biggest single foreign investment came from mining—and from a Chinese company. Metallurgical Corp. of China was awarded the Aynak copper mine project in 2007. The Minister of Mines has held additional talks with foreign companies including ArcelorMittal, Total, and Eni, he told investors at a briefing in London last year.

Getting companies from countries not directly involved in the military effort is crucial to the long-term success of economic development, says Thomas P.M. Barnett, chief analyst at consulting firm Wikistrat. "The guys who are going to benefit are going to be from the non-Allied pool." Brinkley is agnostic and has recruited foreign companies, including Daimler, into Iraq. "This is not just about U.S. companies," he says.

Another small mine project stands as a test of the viability of natural-resources investing in Afghanistan. JPMorgan Chase (JPM) assembled investors who ponied up $50 million for a mine in the rugged fly-over country between Kabul and Herat.

JPMorgan bankers, drawing on knowledge of the country's natural resources from its mining clients in the former Soviet Union, shared some of that intelligence with Brinkley's team in 2008 and during the next two years worked to gather additional data. The results were presented to Petraeus and Defense Secretary Robert M. Gates last January. With the money raised, the mining project was granted a license late in 2010.

Ian Hannam, a managing director at JPMorgan who helped arrange the deal, says a successful mine has profound economic consequences. "With the mine comes a village, with the village comes a hospital and a school," he says. "Capitalism is like a good virus. You'll be amazed how quickly people turn up once someone has success."

Brinkley's charge is spreading that virus, and while he stresses realism, progress, and patience, he's hopeful. Back at Qala Ikhtyaruddin, Herat spreads out before him, its signature mosque jutting into the haze. The business tourists, having taken pictures all the way up, turn quiet.

Brinkley stands alone, resting his elbows on a massive ledge that looms hundreds of feet above a neighborhood of small homes. "I came here thinking there was nothing, but there's so much," he says. "This place, they really get it. All we need is time."

    Before it's here, it's on the Bloomberg Terminal.