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Marketplace: Doing Business in Afghanistan

Key Economic Concepts:

• Benefit
• Choice
• Costs
• Costs of Production
• Economic Growth
• Entrepreneur
• Externalities
• Incentive
• Investment
• Public Goods
• Role of Government
• Trade-off

Description:

In May 2002, delegates from governments, international companies, and financial institutions met at a United Nations conference in Tehran to discuss the reconstruction of Afghanistan. Afghanistan's officials say that to create a viable economy and a stable society, the country must recreate basic infrastructures --and it requires foreign investment to do so. But will businesses want to invest in Afghanistan? Correspondent Borzou Daragahi recently traveled to Afghanistan's business centers to see what life is like for the foreign entrepreneur.

Lesson Objectives:

Students will:

• Describe devastated infrastructure of Afghanistan.
• Explain the role of infrastructure in fostering economic growth.
• Explain why entrepreneurs may choose not to do business in Afghanistan, despite the many opportunities it offers.
• Assess prospects for reconstruction in Afghanistan by reference to the role of stable government, rule of law, private property and infrastructure.

Introduction:

What does it take for economies to grow? For some economies, foreign investment is a very important factor. Afghanistan is one country that would benefit greatly from foreign investment. But its infrastructure was devastated in 2002, and infrastructure problems have discouraged many foreign investors from doing business there, thus preventing economic improvement. While Afghanistan provides one good example of what is required for economic growth, other underdeveloped countries face very similar problems. The economic principles that help to explain Afghanistan's current situation may also be applied in other cases.

Resources:

[Note to teacher: The following link requires RealPlayer www.real.com/dmm/realplayer/search ^[3] .]

• Marketplace audio file about doing business in Afghanistan: Click on this link, then proceed to click "Listen" and fast-forward the broadcast (audio file) to eight minutes and thirty-nine seconds,  timestamp 8:39.
  www.marketplace.org/shows/2002/05/16_mpp.html ^[1]
   
• Flash: Doing Business in Afghanistan note-taker.
   
• Department of Commerce document: Doing Business in Afghanistan
  http://trade.gov/static/afghanistan_ccg_2007.pdf ^[2] .

Process:

Activity 1
(Have the students listen to the Marketplace audio file about doing business in Afghanistan. As they listen they will complete an outline of important information presented in the audio. Then they will use their outlines to answer both factual and evaluative questions about economic concepts addressed in the audio.)
Provide the following instructions: Listen to the Marketplace audio file about doing business in Afghanistan: www.marketplace.org/shows/2002/05/16_mpp.html ^[1] timestamp 8:39. While you are listening, use the note-taker to find supporting details about main ideas. These are the four main ideas you will focus on today:

1. Devastated Infrastructure in Afghanistan
2. Foreign Investment Obstacles
3. Local Investment Obstacles
4. Traveler and Visitor Obstacles

As you listen to the audio, make a note of any words which you don't know, or words that may be important economic terms. Then listen to the audio file again to gather additional supporting details and possible definitions of the vocabulary words you have noted, using context clues, and record the additional information in your note-taker. Finally, you will be asked a series of questions related to the audio.

Marketplace Questions and Answers: Outline: Using the note-taker, students will identify:

• Devastated Infrastructure in Afghanistan
• Foreign Investment Obstacles
• Local Investment Obstacles
• Traveler and Visitor Obstacles

Questions:

1. What is the commercial capital of Afghanistan?
   a) Kabul
   b) Mazar-e-Shariff
   c) Kandahar
   d) Herat [correct]
   
   
2. The audio states that New York City is the commercial capital of the United States. How do you think New York earned that title?
   [Possible answers: New York has one of the largest natural ports in the country, it has been a trading center since the Colonial era, it has one of the largest stock markets, etc.]
   
   
3. How much money is collected daily in the form of import taxes in Herat?
   a) $250
   b) $2,500
   c) $25,000
   d) $250,000 [correct]
    
4. Which improvement in the infrastructure would be most effective in improving the economy of Afghanistan? Why?
   [Possible answers: the development of utilities; unless these basic needs can be met, investors will not come to Afghanistan and businesses will not be able to thrive there.]
   
   
5. Based on the experience of Borzou Daragahi, do you think now is a good time to travel to Afghanistan? How would you describe traveling in Afghanistan to a friend who was considering taking a trip there?
   a) Afghanistan is incredibly dangerous and travel there should be illegal.
   b) Afghanistan is economically devastated and travel is unpleasant and somewhat dangerous, at best. [correct]
   c) Travel in Afghanistan is no worse than travel to New York.
   d) Now is an excellent time to travel to Afghanistan because you can find some excellent travel bargains.
    
6. Would you consider establishing a business in Herat? Why or why not?
   [Possible answers: No, because the standard of living is too extreme-- no utilities, no night life, security concerns. Yes, because there is such a need for businesses that success is probable; one can survive under such conditions with the hope of improving them. Much would depend upon circumstances related to the rule of law, legal contracts, stable currency, and private property.]

Activity 2

Would you do business in Afghanistan? Because of the great need, there are many business opportunities in Afghanistan- for example, in education, construction, telecommunications, security, transportation services, and many other private goods and services.

As an entrepreneur you've just been given an opportunity to start a business in Afghanistan. To help you decide whether or not to take the opportunity, visit the U.S.Commercial Service ^[2] website. Use the following questions from the note-taker to help you with your decision:

1. What type of business do you think might have the best chance of success?
[Security: this may attract future investors to come to Afghanistan; construction: with better roads and bridges it will be easier for foreigners to travel within the country; education: this is essential for Afghanistan's long-term improvement.]

2. What are the major economic risks of doing business in Afghanistan?
[Business contracts mean nothing; fraud is rampant; you and your business are not safe; working conditions are poor; investors are hard to find.]

3. What are the major personal risks of doing business in Afghanistan?
[Lack of security; lack of amenities; particular difficulties for women because of traditional Afghan culture.]

4. What or who would you need to help you start a business there?
[Translators, security, advisors, assurances about contracts, the rule of law, private property, etc.]

5. Why would an entrepreneur choose to start a business in Afghanistan?
[There is so much need in Afghanistan that there would be very little competition.]

6. Entrepreneurs always weigh risks and potential profits. Do the risks outweigh the profits in this case? [Answers will vary.]

Conclusion:

By the conclusion of this lesson, the students should be able to identify at least three main factors that have caused the collapse of the economy in Afghanistan.

The students also should be able to identify at least three obstacles preventing foreign investors from helping the economy in Afghanistan.

Assessment Activity:

1. Have the students hand in their note-takers. Student work in the note-takers should reflect an understanding of the decisions that entrepreneurs must make in order to weigh risks and potential profits.

2. Have the students discuss  their ideas for Activity 2, working in groups, and hand in what they have recorded. Move around the room while the students are discussing Activity 2. Listen for an understanding of business decisions and how investors might weigh the risks and potential profits that would come with starting businesses.

Extension Activity:

1. Have the students further explore the role of the entrepreneur in Business Ownership: How Sweet It Can Be and The Entrepreneur In You

Links Used:

1. ^{^ ^} "Marketplace: Doing Business in Afghanistan" - (www.marketplace.org) This is a audio file on Afghanistan's new infrastructure and business there.
2. ^{^ ^} "Doing Business in Afghanistan" - (trade.gov) This site provides a country commercial guide for U.S. companies looking to do business in Afghanistan.
3. ^{^} "Real Player" - (www.real.com) Get real player at this website.

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