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Review of Peace Dividend Marketplace
Afghanistan
Final Report, August 2010
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Contents
Introduction 3
Market and Policy Context 6
Market Constraints 9
Program Performance 14
Relationships with Clients 24
Regional Offices 30
Risk Factors 33
Future of Project 36
Summary of Conclusions and Recommendations 40
Annex One: Interview Respondents 44
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Introduction
The Canadian International Development Agency (CIDA) is providing funding of $9.0m over
four years from 2008-2012 for the Peace Dividend Marketplace Afghanistan (PDMA)
program. The program is delivered by the Peace Dividend Trust (PDT), a Non-Governmental
Organisation (NGO) headquartered in Ottawa, Canada. PDMA seeks to apply the spending of
the international military, donor and diplomatic community in Afghanistan to assist the
growth of the country’s private sector. It does this by providing information and advice to
tackle information and knowledge barriers to trade between them.
The intended beneficiaries of the program are Afghan private sector businesses, particularly
SMEs. The principles behind it are that the private sector is the main driver of growth and
that increased support for entrepreneurship should happen early in the stabilisation
process. Eighty percent of local businesses which PDMA works with employ less than 50
people. The international community is not the intended beneficiary, though the project
should contribute to stabilisation and improve the efficiency of procurement methods.
The PDMA project followed on from a pilot project, also funded by CIDA, which PDT
delivered during 2006-08 covering only Kabul. This pilot facilitated around $47m of business
between international buyers and local vendors, compared with its initial target of $5m, and
was judged to be sufficiently successful to justify a larger, nation-wide project launched in
2008 as the PDMA.
The project is intended as a short term intervention, tackling the information market failure
then either winding down or transferring any activities still required to a local delivery
agent. The end-point planned for the CIDA project is March 2012.
Specifically, the activities delivered by the project are:
Management of a database of potential suppliers, all of whom must be registered
with the project and have their basic details verified through periodic telephone
survey and visits. There are 5,500 businesses (May 2010) on the national register.
Distribution of tenders to registered businesses.
Advice to international procurement officials on sourcing local suppliers, including a
matchmaking service to put buyers and sellers into direct contact. This matchmaking
service accounted for over 70% of the contract value facilitated by the program up to
March 2010.
Training for suppliers in the standards and procedures required by procurement
offices.
Support and mentoring to local suppliers to improve their business capacity.
Organisation of a series of Afghan Business Conferences (ABC) to bring buyers and
sellers into direct contact.
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Specific initiatives, primarily training, for female entrepreneurs.
The program is managed from PDT’s office in Kabul and also has field offices in Mazar-e-
Sharif, Jalalabad and Kandahar. In parallel, PDT delivers a specific project with similar
objectives in Helmand province, on behalf of the UK’s Department for International
Development (DFID). DFID has committed £720,000 ($1.16m) to the Helmand project for
the period December 2008 to December 2010.
In June 2010, Upper Quartile was commissioned by CIDA and DFID to review the progress of
the PDMA to date. Each donor had slightly different objectives for their part of the review
and for CIDA the requirements were to:
Assess the program’s achievements against its logic model and Performance
Management Framework (PMF), making recommendations for improvements if
necessary.
Discuss any unintended consequences of the project.
Assess the effectiveness of PDMA’s services for increasing local procurement and
improving the capacity of local businesses.
Assess the effectiveness of PDMA’s relations with its clients and client satisfaction
with its services.
Assess whether PDT has undertaken sufficiently deep analysis of the reasons why
local suppliers do not secure a greater share of international business.
Assess whether the program demonstrates value for money and whether it is
possible to determine the “on the ground” impact of the contracts PDMA has
facilitated.
Assess the impact of the newer field offices in terms of their sustainability,
effectiveness and operating costs as compared to the Kabul office.
Assess the sustainability of results and whether there is ownership, financing
mechanisms and institutional capacity to sustain the program after CIDA has
completed its support.
Suggest options for improving sustainability as appropriate.
Assess risks and the effectiveness of mitigation measures.
Assess the effectiveness of PDT’s management of the project and provide
recommendations for any improvement required.
The review was undertaken over June and July 2010 with an integrated work programme
covering the needs of both CIDA and DFID. It included:
A review of background information.
Interviews and observation of work with PDMA.
Interviews with CIDA and DFID staff in Ottawa (CIDA), East Kilbride (DFID), Kabul,
Helmand and Kandahar.
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Interviews with procurement personnel in embassies, donors and the military in
Kabul, Helmand and Kandahar.
Interviews with Afghan businesses and representatives in Kabul, Helmand and
Kandahar.
Field visits to Camps Bastion and Leatherneck, the Provincial Reconstruction Team
(PRT) in Lashkar Gah, Helmand, and the Kandahar Air Force (KAF) base in Kandahar.
Over 50 meetings took place and a full list of respondents is included as Annex One. One gap
in the intended methodology for the review is that we were unable to visit the field offices
in Jalalabad and Mazar-e-Sharif. The costs and visibility of security were agreed to be too
high and our assessment of them has therefore had to be based on secondary data.
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Market and Policy Context
Market context
There are no reliable estimates of the total expenditure by the international community in
Afghanistan. One estimate from the International Security Assistance Force (ISAF) put the
figure in a range of $US10-20 billion each year, of which around $US2 billion is spent within
the country. This contrasts with Afghanistan’s estimated GDP of $US12.9bn in 2008,
emphasising the huge impact that international expenditure can have on the Afghan
economy.
There is a wide range of buyers, nationalities, departments, types of purchases and
procurement procedures involved – a very complex demand side. The broad categories of
buyer are:
NATO headquarters, which buys goods and services on behalf of ISAF as a whole.
US Military headquarters in Kabul, which is the largest single purchaser of supplies.
US Military in the field, both “inside the wire” on major bases such as Baghram and
KAF and “outside the wire” in field operations.
The military procurement sections of other members of the coalition, notably the
UK, Canada, the Netherlands (until 1st August, 2010) and Germany but also smaller
members such as Denmark and Estonia. As with the US, all of these buy for
headquarters and for inside and outside the wire.
The international donor community along with their implementing partners.
Other international agencies such as UNAMA.
International Embassies in Kabul, many of which function as central procurement
offices for other parts of their national mission.
The range of purchases made is similarly complex: small household items; security, medical
and other life support services; food; and construction. The final item, construction, is by far
the largest in value terms and covers anything from small projects within Embassy
compounds to larger projects within military bases, through to major infrastructure projects
in the field.
Each buyer, and in most cases each category of purchase, has to operate within set
procurement legislation and procedures which are generally defined from the home
country. Procurement officers are accountable to headquarters for ensuring compliance
with these standards.
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Therefore the route to winning contracts with the international community varies by
nationality, the function and location of the buyer and the products or services being
purchased, all within a procedural framework set from home base. Added to this,
procurement personnel are generally rotated in and out of the country on the same basis as
other civilian and military staff, meaning that vendors need to continually rebuild
relationships with their individual customers.
This would be a difficult market environment for any supplier but for the still under-
developed Afghan private sector facing barriers of language, limited understanding of
procurement procedures, limited knowledge of international quality standards and
constraints on direct access to military bases it is a daunting challenge.
The proportion of international expenditure realistically available for local vendors to bid for
also varies considerably by market segment. In most Embassies, service requirements such
as security cover and medical support are unlikely to be purchased locally for the
foreseeable future, yet are generally the largest single items of expenditure. Once they are
taken into account the proportion available to purchase locally is much more limited, often
in single figure percentages. At the other extreme, for many military construction projects in
less secure Districts there is little option other than to use local suppliers – building new
infrastructure or community facilities will depend almost entirely on entering into contracts
with local businesses.
Policy context
The policy context for local procurement in Afghanistan is evolving quickly. It influences the
current operation of PDMA and may influence decisions by DFID and CIDA regarding their
future support for the program.
When PDMA was first established in Afghanistan, local procurement was accepted as a
“good thing” which had potential to promote private sector and economic development.
DFID and CIDA were early movers in recognising this potential, reflected in their agreement
to provide funding for the project. But within the rest of the international community, whilst
there was a willingness to support the principle, there was only limited commitment to
putting it into practice. Local procurement was not a mandated responsibility and was not
being institutionalised in procurement practice, which is in reality the only way it can be
independent of the goodwill of individual buying agencies and officials.
Since then, a number of developments have changed the policy context:
The Afghan First initiative was launched by Ambassador Eikenberry in November
2009, creating a greater degree of profile, urgency and advocacy on behalf of local
procurement. Afghan First has rapidly become part of the lexicon of international
procurement officials.
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In parallel with this, UNAMA set a target for the international community to increase
its level of local procurement by 10% (albeit without a definition of the baseline).
The US Government has embedded a policy of local procurement within its
procurement law and this is now rolling out to the regulations within which officials
must operate. This is the first example of local procurement becoming
institutionalised in buyers’ day to day practices.
Most recently, Task Force 2010 has been launched under the leadership of Rear-
Admiral Dussault. It places local procurement very much at the heart of the
coalition’s counter-insurgency (COIN) strategy, alongside the military and
governance strands. Its high profile is already influencing procurement strategy and
it will be supported by a team of intelligence and forensic accounting experts to
ensure the benefits accrue to the legitimate economy.
The combined significance of these developments is that local procurement has a much
higher profile, is being promoted as an essential part of the coalition’s strategy and has
senior political and military buy-in. Commitment to it will be expected to shift from “in
principle” support to practical implementation with procurement officials being held
accountable for the results. This means that decisions on the role, future direction and
funding of PDMA will have to be made in a more visible and more politically charged
context.
One final contextual point is that until now, PDMA has not been mandated to promote local
procurement of fresh fruit and vegetables (FFV). This sector was initially in DFID’s contract
with PDT for the Helmand project but was removed in response to concerns over security
and quality – the same concerns that have constrained similar efforts in the past. A pilot
project is now however being planned at KAF, with participation from the military, PDMA
and Supreme (the lead catering contractor on site). If successful this would reopen the case
for more extensive local purchasing of FFV by the international community, which in turn
has huge potential to stimulate the Afghan agricultural and agri-processing sectors –
significantly more so than the current dominance of the construction sector in the PDMA
program.
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Market Constraints
PDMA’s approach rests on the premise that international buyers and local vendors find it
difficult to connect in the Afghan market place. This is primarily caused by information
market failures, with buyers unable to identify or assess potential vendors, and suppliers
insufficiently aware of the processes and standards they need to meet. We were asked to
examine whether PDT has undertaken sufficiently deep analysis to validate these
assumptions.
Constraints on buyers
There is a wide range of buyers in the market with different procurement requirements and
procedures. They cover four main categories of spend:
Civilian purchases, mostly Embassies, donors, NGOs and other agencies supporting their staff in Kabul or in field offices.
Military domestic procurement, supporting the housekeeping and administrative needs of the military.
Military construction expenditure within bases, meeting the logistics needs of the very large communities on Camps Bastion, Leatherneck and KAF.
Military construction expenditure in the field, supporting stabilisation and reconstruction activities.
Civilian purchases: The main items in this category are security, medical support and other
life support services. It also includes household and office supplies and occasional small
construction, repair and maintenance projects.
The scale of purchases realistically available to local vendors from this category is in practice
very limited. Security, medical and catering services account for by far the greatest
proportion of expenditure and, with limited exceptions where local labour can be employed,
there is little likelihood of these being sourced locally for the foreseeable future.
This leaves the relatively small budgets for basic household and office supplies. Most buyers
have the option to order these from home national base or from a regional centre, usually
Dubai. There is however a general willingness to source from local suppliers where possible,
not just because of Afghan First policies but also for practical reasons such as speed of
delivery or lower costs. Most procurement offices have local national staff who are able to
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directly source and check potential local suppliers and are often able to visit their premises.
As a result, there is not a major information failure other than in the early stages of
establishing the office.
Procurement offices in the field are in a more difficult position than those in Kabul. There is
a smaller local supply base and more restrictions on movement, including for local national
staff. Supplies are also needed to support civilian staff in operating bases in outlying
districts. The information gap is therefore wider, though should be temporary as links to
local suppliers develop.
Military domestic procurement: Military bases in Kabul, provincial centres and in theatre
also require basic household and office supplies – items that are not mission-critical. For
these domestic items, a similar situation applies as with civilian buyers. The easiest option is
simply to order up items from home base. These orders are however of low priority for
freight transport from home and there can be substantial delays in their arrival. Local
sourcing therefore becomes an attractive option, driven by convenience rather than policy.
On Bastion and Leatherneck, there is no significant commercial centre nearby and
procurement officers generally cannot move outside the wire. It is not possible to employ
local nationals on the site. Information on and access to local suppliers is therefore very
difficult. Transport of supplies into the bases is also constrained, with trucks often waiting
up to five days for access. Local procurement is not an easy option, despite the potential
time and cost advantages.
Military construction expenditure within bases: Military bases such as KAF have continuous
construction programs under way. These are generally handled by foreign contractors
located within the perimeter of the base. Afghan contractors are usually not allowed to
operate within the wire, though the foreign contractors do employ and accommodate
Afghan labour on site subject to security restrictions.
The foreign contractors face similar problems in local procurement as buyers for civilian
items. They are not able to deal with Afghan contractors directly because of movement
restrictions into and out of the base. It is therefore difficult both to identify local providers
and assess their reliability. They are encouraged to adhere to the Afghan First policy but
receive little guidance on how to achieve it.
Military expenditure in the field: The military has significant requirements to undertake
construction work in the field: bases for coalition, Afghan National Army (ANA) and Afghan
National Police (ANP) forces; infrastructure improvement in support of military operations;
construction projects in support of stabilisation objectives, such as those managed by the
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Special Team of Royal Engineers (STRE) at the Helmand PRT and by the US Marines
Expeditionary Force (MEF) using CERP funds.
There is little option other than to use local contractors for these projects both for practical
and policy reasons. Foreign contractors find it difficult to mobilise for logistical and security
reasons (though there are some Turkish and UAE-based lead contractors on-site). And for
stabilisation reasons there are advantages in demonstrably using local contractors and
labour.
Many of these projects are driven by commanders in the field and with a great deal of
urgency. Field engineers are under considerable pressure to identify, validate and
commission local contractors on very short timescales. They are also subject to short
rotations, often of six months, and so it is difficult to accumulate and retain knowledge
about the local contracting market. In these circumstances there is a clear information gap,
particularly as stabilisation and reconstruction work extends into more outlying districts.
Engineers need a quick and reliable means of identifying local contracting capabilities.
Overall therefore, the validity of PDT’s diagnosis varies by category of buyer. It is at its most
relevant in military field construction work, especially in outlying districts. It is least relevant
for civilian domestic purchases in central locations where market information is much easier
to obtain.
Constraints on suppliers
We identified a number of constraints facing local suppliers.
Lack of access to invitations to tender (ITT): This can happen for a number of reasons. Only
10% of Afghan businesses use the internet as their main communications method, though
59% of construction companies use it as their main source of information.1 This makes e-
procurement methods inaccessible for many suppliers. ITTs are normally written in English
so there is a language barrier. For some military construction contracts, ITTs were often
simply posted outside procurement offices within bases meaning that local contractors had
no access to them.
Procurement procedures: Most procurement officers are obliged to work to a standard set
of procedures defined from headquarters in their home country. There can be some
variations to meet local requirements but these are generally minor. The procedures are
1 Afghan Business Attitudes on the Economy, Government and Business Organisations, 2009-2010, Afghan
Business Survey; National Endowment for Democracy, 2010
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designed to demonstrate fairness and transparency but are largely alien to Afghan
businesses which have little experience of dealing meticulously with every detail of a
complex procurement process.
Quality standards: Procurement officers also have to work to a set of quality standards, on
health and safety for example, which have been developed for good reason in their home
region but again may be largely alien to Afghan businesses. Even where they are capable of
meeting the right standards, they may find it difficult to demonstrate that. Quality problems
extend even to simple commodities where language or literacy problems often cause
misunderstandings over what the buyer requires.
Fear of corruption. Afghan companies cite corruption as one of the main barriers to
developing their business. It is so endemic that they tend to assume it is there even when it
is not. This fear extends to their perceptions of the international community. They are
concerned that contracts are open to only a small network of businesses with the right
connections, or that local Afghan staff will favour their own contacts when awarding or
advising on contracts. This fear can lead to suppliers not even bothering to pursue business
with international customers. Another concern is the selling on of contracts, where a large
contractor wins the work and then initiates a chain of selling the contract to other
businesses, taking a margin on the transaction and leaving contractors at the lower end of
the chain to do the work with an inadequate budget. This in turn affects the quality of work
delivered.
Payment difficulties: Vendors have experienced difficulties in receiving payment from
international customers. This has included a complete failure to pay by some foreign
companies and a failure by procurement offices to meet promised payment times: 30 days
extending to 50-90 days.
Lack of feedback: Vendors rarely receive feedback on the bid process. They are often not
informed about project delays or decisions. The reasons for unsuccessful bids are rarely
explained. They therefore have no opportunity to learn from experience and in many
instances lack of feedback has led to unwillingness to continue making the effort.
Much of PDMA’s work rests on tackling these constraints: encouragement to buyers to
make their ITTs more accessible through translation into Pashtu and Dari; circulating notices
of ITTs to relevant businesses; training in understanding and following procurement
procedures; matchmaking services and business events to build more direct relationships
and trust.
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We met a number of local businesses, including service providers (recruitment,
communications, business consulting) and construction businesses in Helmand. We also met
with the Afghanistan Chamber of Commerce and Industry (ACCI) to hear the views of the
main business advocacy and representative body and with the Afghanistan Investment
Support Agency (AISA).
Without exception these respondents were able to confirm the above diagnosis. Most had
experienced problems of corruption in the international community market place, not
necessarily from foreign nationals but in areas like the selling on of contracts and
favouritism by locally employed nationals. All had initially baulked at the complexity of
procurement procedures and some hired consultants to prepare proposals on their behalf.
Many had found difficulty in gaining direct access to buyers for transport or security
reasons. And many had experienced difficulties in understanding buyers’ quality and
technical requirements, though were confident of being able to meet them if they could just
work out what they were.
Interestingly, none of the businesses or agencies we met wished to see any relaxation of
standards in favour of local procurement. They accepted that they were a necessary part of
doing business with the international community and regarded them as an opportunity to
develop the experience and competence necessary to tackle export markets.
We therefore believe that the diagnosis on which PDMA is based remains an accurate
reflection of conditions in the procurement market.
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Program Performance
This section reviews the performance of the PDMA to date from a number of perspectives:
1. Comparison of results against the targets set in the original Logic Model and Performance
Management Framework (PMF).
2. Economic impact of the program.
3. Performance of the Logic Model and PMF
4. Value for money
1. Performance against targets
CIDA’s current Logic Model for PDMA was prepared in November 2008 and sets out the
ultimate, intermediate and immediate outcomes anticipated from the program, along with
the outputs and activities required to achieve them. The PMF was finalised at the same time
and details the baseline, targets, data sources, data collection methods, reporting frequency
and responsibility for each of the outcomes and outputs defined in the Logic Model.
The ultimate and intermediate outcome targets defined in the PMF are by their nature set
at too broad level to isolate the specific impact of PDMA. But there are indicators from
secondary sources that the broad targets are moving in a positive direction. The latest
Economist Intelligence Unit report on Afghanistan2 provides a number of indicators of this:
The Afghan economy grew by 22.5% over 2009-10, making it one of the fastest
growing in the world.
This was largely driven by a boom in agricultural output and also by growing
Government and international donor expenditure. Performance in the construction
and manufacturing sectors was less strong.
Government tax revenues increased by 53%, reflecting improved tax administration.
Also, the Afghanistan Investment Support Agency (AISA) continues to report growth in the
number of businesses registered with it and therefore participating in the formal economy.
Its register now includes 12,000 businesses and it is processing 50 new licences and 50
renewals each day.
To this extent, therefore, the long and medium term outcomes to which PDMA is intended
to contribute are moving in a positive direction though it is impossible to say how much if
2 Country Report, Afghanistan; Economist Intelligence Unit, July 2010
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any of this is attributable to the program. This also means of course that the business
environment for PDMA-registered companies is increasingly favourable: therefore the
hurdle that PDMA must jump to demonstrate an additional impact is getting higher.
The more specific and measurable targets for PDMA are in the immediate outcomes section
of the PMF. The results to date, as reported by PDT3, are summarised in the table below.
Immediate Outcome PMF target Cumulative results since
April 2008
Increased access to and
awareness of locally available
goods and services by
international buyers.
6,000 new entries on Business
Portal.
2,400 new entries, with 5,348
businesses now listed on Portal.
Increased access by local business
to international tenders.
9,000 tenders received and
distributed.
3,165 tenders obtained and
distributed 45,776 times.
Strengthened business
environment, improving formal
economy and tax revenues.
Matchmaking agreements for 100
businesses nationally.
205 contracts facilitated, worth
$340m.
Increased capability of local
suppliers to win contracts from
international buyers.
840 businesses attending training
seminars.
Over 1,300 attendees,
representing over 1,000
companies.
Increased visibility and
participation of female
owned/managed businesses.
25% of registered female
businesses registered for training.
90 of 207 (45%) registered female
businesses attended training.
Increased capacity of partner
organisations.
Continually expand marketing
strategies in line with region-
specific best practices.
Increase in impact of partners’
expenditure due to local
procurement. Increased
confidence in Afghan businesses.
Reporting of the quantitative targets indicates that at the half-way point in the program,
PDMA is mostly on track to achieve its final targets. The number of new businesses
registered on the Portal has reached 47% of the final target of 6,000. The number of
matchmaking agreements, expressed in the report as contracts facilitated, has reached 205,
over double the final target. The number of businesses attending training has already
exceeded the final target by almost 20%. The percentage of registered female businesses
attending training is almost double the final target. The main target still behind schedule is
for the number of tenders distributed. Just over one third of this target has been achieved
3 PDMA Semi-Annual Progress Report, October 1, 2009 – March 31, 2010
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half way into the program. At this stage, we suggest this requires attention rather than
major concern. Our field work has shown that the program’s awareness amongst buyers
continues to increase and so the number of tenders notified should accelerate in the
remaining two years.
In addition to the PMF indicators, PDT reports a total number of contracts won by PDMA-
sourced suppliers of over 600, with a total value to date of over US$465m. There are no
reliable estimates of the international community’s spend in Afghanistan. Using the
previously quoted ISAF-sourced figure of $10-20bn annually, this suggests that PDMA is
associated with 1-2% of current annual expenditure. Given that only a limited proportion of
total coalition expenditure is realistically available to local suppliers, the actual level of
penetration of the potential market will be much higher. Again using an ISAF-sourced
estimate of $2bn being available for local businesses, the percentage of total expenditure
with which PDMA is associated could be as high as 20%. These estimates are based on very
rough estimates of the baseline but they suggest that PDMA is now involved with a
significant proportion of total available purchasing.
There are a number of important qualifications on the results reported against the PMF:
The original targets may have been set too low. Initial baseline data are difficult to
establish for any development initiative in Afghanistan and this makes target-setting
very difficult. Also, the systematic encouragement of local procurement is a
relatively new activity in Afghanistan and elsewhere, so there is not much previous
evidence on which to build meaningful targets. However, the Kabul pilot project for
PDMA did run for two years and exceeded its initial targets by a large number so this
should have provided a reasonable basis for calibrating the PMF.
There was no systematic collection of information on local procurement by the
international community until PDMA began. Since then, with exhortation from
UNAMA and PDT, the level of reporting has improved considerably. Part of the
apparent impact of PDMA may therefore be due to fuller reporting rather than to
actual increases. We cannot gauge the size of this effect but it will be having some
impact on the numbers. On the plus side, it does at least mean that there is now
more comprehensive baseline information available which can be used to recalibrate
the PMF targets.
The figures reported by PDT relate only to outcomes associated with PDMA’s
facilitation. That is different from genuinely additional outcomes which would not
have happened without the program’s intervention. Some of the progress reported
would therefore have happened without the program being in place. PDT has
however recently commissioned a job survey for the DFID-funded Helmand PDMA
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project to attempt an estimate of the program’s economic impact and the
preliminary results of that are discussed later in this section.
The Afghan economy has grown rapidly during the time PDMA has been operating.
Thus an increase in business formation, business performance and tax revenues
would be expected anyway. It would require a wider study using a control group of
businesses with which PDMA has not been involved to isolate the program’s
contribution from the wider economic climate.
The figures are based on self-reporting by PDT. We have no reason to doubt the
validity of the data but it is important to note that they have not been independently
verified through.
Despite these qualifications, we are confident in concluding that PDMA is making very good
progress against the targets initially set for it – it is delivering the anticipated immediate
outcomes, in turn contributing to achievement of the medium and longer terms aspirations
set for the program.
2. Economic impact
Our terms of reference include a request to determine whether it is possible to calculate the
economic impact of contracts which PDMA has facilitated: for example employment; and
benefits to SMEs versus large businesses. In order to do this properly information on a
number of variables is required:
The level of employment and revenue in registered businesses before they received
support from the program.
The level of employment and revenue in supported businesses after intervention.
Separation of the employment and revenue increases due to the specific contracts
facilitated through the PDMA from the business’s overall performance.
For impact by size of company, a breakdown of contracts won by registered
businesses according to their employment size.
Also, to measure the additional economic impact of the program, i.e. the extent of impact
which can be attributed solely to PDMA’s intervention, further information would be
required. This would include matched data from a control group of businesses which have
not been supported by the program; and data on employment and income growth in the
overall economy to adjust for growth that would have been expected anyway.
Most of this required information is not available. PDT estimates that employment in
registered businesses is around 138,000. But this is a snapshot and does not cover the
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“before and after” of PDMA intervention. Information is not collected on employment
related to specific contracts nor is this broken down by company size. For measuring the
additional impact, information is available on growth in the wider economy though not at
the level of disaggregation ideally required for a robust impact analysis. Also, there are no
data from any control group of businesses and to gather this was outside the scope of this
review.
In summary therefore, there is insufficient information collected by PDT (who were not
mandated or resourced to do so) or available from government or elsewhere to undertake a
proper economic impact analysis.
PDT has however just completed a survey in Helmand which provides some relevant data.4
Thirty one companies were surveyed, handling 61 contracts representing 65% of contract
awards reported by PDT. The highlights from the survey are summarised below:
The contracts had a combined value of $22m.
Baseline employment of the 31 companies before contracts were awarded was 945.
A total of 335 permanent staff (employed for more than six months) were recruited
after the contract award, and 1,546 temporary staff (less than six months
employment).
39 staff were kept on permanently after the contracts were completed, and 32
temporarily.
Of the 61 contracts, respondents reported that 57 (93%) would not have been
awarded without PDMA support.
The most generous interpretation of the survey is that 1,881 jobs in Helmand were
supported by the contracts awarded (335 permanent and 1,546 temporary). The strictest
interpretation – number of staff kept on permanently after completion of the contract –
gives a total of 39.
We have made an alternative calculation of job impact based on figures provided by the
Special Team of Royal Engineers (STRE) based at the Helmand PRT on construction wage
rates and on labour costs as a proportion of total contract value.5 With a total contract value
of $22m, we estimate that the full time equivalent (FTE) number of jobs supported would be
in the range of 140-275, depending on the daily wage rate assumed. The value of contracts
reported by PDT in the most recent semi-annual report is $465m. A simple extrapolation
4 Helmand Job Creation Survey; Peace Dividend Trust, July 2010
5 Assumptions: 1. Labour costs 15% of contract value
2. Daily wage rates $4-8, depending on security of area 3. 300 working days per annum 4. 10 jobs required for each full-time equivalent (FTE)
19 | P a g e
from the Helmand survey would therefore suggest an employment impact of 2,959 -5813
jobs, using the rather strict assumptions in our alternative calculation.
Another approach is to take the current accumulated value of contracts facilitated ($465m),
estimate the labour content of this and divide that by an average annual salary figure. The
labour cost share of construction contracts was estimated above to be 15%. Nationally,
other sectors with higher labour costs are covered by PDMA so we have assumed a labour
content of 20%. This gives a labour cost associated with contracts facilitated of $93.1m over
the two years of PDMA to date, an average of $47m each year. Estimates of average annual
salaries in Afghanistan vary widely, differing by province and by sector. A top end estimate,
and therefore a conservative one for the purpose of this calculation, is $1,500 annually. This
would mean that the contracts identified would have supported around 31,000 jobs.
Applying our assumption of 10 jobs per full time equivalent gives an estimate of 3,100 FTE
jobs. This is within the range of estimates we made from the Helmand survey.
These estimates must be treated very cautiously. The assumptions on labour content, wage
rates and jobs per FTE are based on very limited evidence though we have tried to be
conservative. We present them only as ballpark figures to give some order of magnitude for
the employment impact of the program.
To build a more robust picture of the PDMA’s impact on jobs and income would require
some additional research and analysis. This could be seen as an extension of the Helmand
study to the national level. It would require survey work in two main areas. The first would
be with a sample of Afghan businesses, some which have received support from PDMA and
a matching sample of others who have not. This part of the survey would gather data on
jobs and income growth in each group over the period of PDMA’s operation, comparing the
two and assessing how much if any of the difference could be attributed to PDMA’s
intervention. The second would be with a sample of procurement offices, probing more
deeply on the difference PDMA has made to their purchasing patterns and also tracking
information on the extent of repeat business which suppliers are now winning without the
need for PDMA intervention.
This type of survey work is not within PDT’s current mandate or resources. It could however
be commissioned as a separate exercise, ideally from a local research or consulting business.
This would both follow the principles of Afghan First and also offer a better opportunity to
question the sample of local businesses in more detail than a foreign contractor can
generally achieve. It would also ideally be constructed in a way which allows for regular
repeat surveys, to enable progress to be tracked over time. It could be funded from a
separate budget or, more likely, could make use of any underspend in the current PDMA
budget.
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3. Performance of the Logic Model and PMF
The project still has around 20 months to run, leaving enough time to amend the Logic
Model and PMF if necessary.
The Logic Model itself mostly remains a clear presentation of the flow from program
activities through to outputs and incomes. It may require some updating to recognise that
the relative value of certain activities has changed with experience. The “pursuit plans” that
were envisaged as a service to institutional buyers do not appear to have materialised to the
extent envisaged and in practice the regular working discussions which PDMA has with key
buyers are the most effective way of developing their “Afghan First” strategies and actions.
Apart from minor adjustments like this, we do not believe that there are any flaws in the
Logic Model, any major omissions in the program’s implementation of it and no
requirement for significant changes to it over the remaining life of the program agreement.
The PMF would however benefit from some recalibration of targets. With 20 months still to
run on the initial agreement it would be advisable to do this to help re-focus activities where
necessary. Our suggestions on this are listed below, focusing on the immediate outcomes:
The target of 6,000 new entries on the Business Portal is almost 50% achieved. We
believe there are still many potential vendors to the international community to be
identified and registered and it would make sense to increase the target to some
extent. However, we do not recommend that this should simply be done pro rata.
The size of the database is not in itself evidence of an effective program. The key is
the quality of vendors listed, the accuracy of information on them and the growth in
their capacity. Focusing only on the numbers, with the same overall resources
available, will detract from these more qualitative but hugely important outcomes.
Also, the larger the database the more difficult it will be to maintain after the
program finishes when some other, local agency may become responsible for it. We
therefore suggest only a modest increase in the target for entries, say 10-15%, with
PDMA in parallel encouraged to spend more time on quality improvement and
assurance.
There are no targets in the PMF for the value of contracts facilitated. We believe this
was a weakness in the original version – the equivalent document for the Helmand
program includes value targets (which have been substantially exceeded). Given that
PDT collects and reports information on contract value, it should not represent an
additional demand on resources to include it in the PMF. There is also now a more
robust baseline, which was not the case at the beginning of the program. We
therefore suggest including a value target in the PMF for the remainder of the
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agreement. Again, this should not just be a pro rata figure which would encourage
the program to pursue only large, construction contracts. It should be coupled with a
higher target for the number of contracts facilitated and a target for the sectoral
breakdown of contracts facilitated, to encourage a stronger focus on, say,
manufacturing and professional services.
The targets for training have already been achieved. This is one of the services most
highly valued by vendors and is also the main activity which has a specific focus on
female entrepreneurs and managers. In this activity we recommend a higher target
of, say, an 80-100% increase in throughput over the remaining lifespan of the
contract.
The PMF does not contain any targets for managing the transfer of the program’s
services over time to local agents. PDT is mandated to achieve this transfer and the
original program design included a planned approach to it. We return to this issue
later in the report but little progress has been made to date on a transfer strategy
and we recommend that its preparation is now included specifically as a target in the
PMF.
4. Value for Money
CIDA has committed marginally over $9m to the PDMA, a significant investment over four
years. The breakdown of costs by main category of expenditure is summarised in the table
below.
Table 2: Budget breakdown
Item Total program budget, $m
Fees 2.81
Reimbursable expenses
- of which security
5.27
- 2.38
Overhead 0.92
Total 9.00
Security is included explicitly in the budget, in contrast to the DFID project in Helmand
where security and most transport costs are covered off-budget under DFID’s duty of care.
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In terms of value for money (VFM), it is necessary to define what the program is there to
“buy”. A more audit-driven assessment would look at PDMA’s impact on procurement costs
for the funders and possibly for other international buyers, looking for savings at least as big
as the program expenditure. Against this measure, it is not possible to demonstrate VFM.
The Canadian mission overall makes very little use of the program, and any procurement
savings it has made through buying locally can only partly be attributed to PDMA’s
intervention. The same applies to the DFID part of the program and generally to all other
buyers, though there is more evidence beginning to emerge of procurement savings in some
cases.
However, the Logic Model and PMF do not set any targets for procurement savings. The
ultimate outcome defined in the Logic Model is to reduce poverty through economic
development and private sector development (PSD). The intermediate outcomes are all
similarly defined in economic development and PSD terms, with an emphasis on SME and
female enterprise development. These are therefore the benefits to be assessed when
considering VFM. Any parallel benefits to international procurement offices, whether in cost
or efficiency, are valuable but not central to appraisal of the program.
In economic development terms the main benefits which the program is there to generate
are:
The value of contracts facilitated and therefore private sector revenues
The employment impact of the program
The specific impact on SMEs and female entrepreneurs
Value of contracts: Up to March 2010, PDT report the total value of contracts facilitated as
$465.6m. To the same date, actual expenditure on the project was $5.1m, giving a leverage
of 1:91, i.e. for every $1 spent on the project, $91 were generated through contracts
facilitated. Some of these contracts would have been let to local vendors without PDMA
intervention. Nevertheless, the leverage is high and represents good value for money in
terms of supporting private sector revenue growth.
Employment impact: To estimate employment impact we made estimates using two
different methods, one producing a range of 2,959-5,813 FTE jobs and the other a figure of
3,100 FTEs. The lower end of the first range is close to the 3,100 estimate so, again to be
conservative, we can take a figure of 3,000 for FTE jobs facilitated.
With expenditure to date of $5.14m, this produces a cost per job supported of $1,713.
There are no “norms” for what is an acceptable cost per job figure in development work in
Afghanistan but this figure is certainly much lower than would be the case in infrastructure
investment but probably higher than for, say, education and training programs. On balance,
we believe that it represents reasonable value for money in terms of employment impact.
23 | P a g e
Impact on SMEs and female entrepreneurs: We do not have sufficient data to assess VFM
in achieving these two objectives. The PDMA database predominantly includes SMEs, 80%
of the total employing less than 50 people, but many of the larger contracts will have been
won by relatively large companies. Nevertheless we believe it is reasonable to assume that
the majority of vendors supported have been SMEs. There was also evidence from our field
work that SMEs were winning more and bigger contracts than they would otherwise have
had an opportunity to bid for, creating genuinely additional business for the SME sector and
a shift of the overall market in its favour.
Overall therefore we conclude that PDMA represents good value for money as an
initiative to promote economic growth, PSD and SME development.
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Relationships with Clients
In this section we report on PDMA’s relationships with its client base. The findings combine
both the CIDA and DFID-related field work in order to give as complete a picture as possible.
Buyers
Relationships and satisfaction with PDMA vary considerably and follow a pattern defined by
geography, procurement purpose, coalition membership and product category.
Geographic location: There was clear variation along geographic lines, illustrated by Figure
1. Use, understanding and appreciation all increase closer to operations in the field. The
Ottawa and London offices of CIDA and DFID respectively were somewhat sceptical about
PDMA’s value. They have no reason to use the service and their contact with PDT’s
operation in Kabul is limited. Their perceptions are primarily shaped by costs and the
periodic reports submitted by PDT. In CIDA’s case, management responsibility for the
project rests with Ottawa and there is a more regular relationship with PDT’s Ottawa office
than with Kabul. Both offices are concerned about the lack of any exit strategy. Awareness
of the context in which PDMA operates and the specific services it provides understandably
diminishes by distance.
Figure 1: Geographic perspective
The perspective from Kabul is slightly different since there is more direct contact with and
understanding of the project - lead responsibility for DFID’s support rests in its Kabul office.
The overall perception of PDT remains largely sceptical. Neither the Canadian nor UK
missions in Kabul make much use of it and therefore question its funding and value for
money.
In the field, in the Helmand PRT, Bastion, Leatherneck and KAF and outlying districts of
Helmand, the perception is much more positive. The service is much more frequently used
and there is less concern with its funding and management structure. Procurement officers
in the field consistently praised the value of the service, primarily citing the time and
manpower savings of using it but also recognising the wider range of supplier options and
the validation of basic vendor information. The ABCs were also well attended and highly
regarded.
Sponsors’ HQ Kabul Field operations
25 | P a g e
Procurement purpose: There is a further spectrum of responses to the project based on the
products and services being purchased, illustrated in Figure 2.
Figure 2: Functional perspective
The value of the project is least for procurement departments purchasing only for civilian
use: primarily office and household supplies. Within those budgets there is relatively little
scope for local procurement given the dominance of security and life support requirements.
The sums spent on supplies that can be purchased locally are small, there are normally local
nationals who can source them and the only real use made of the project is to use the
database to add to the supplier list.
For domestic purchases for the military, the perception of the project improves. This applies
both to military bases in Kabul, primarily Camp Eggers, and the bases in Helmand and
Kandahar. All of these still have the option to source from their home base but are now
adopting the Afghan First policy more explicitly (fully, in the US case). They also see
potential cost and time advantages in local sourcing.
The project is most highly valued by those responsible for military construction projects
both on the large bases and out in the field. Although they have little choice other than to
source locally, constraints on information, time and security mean that PDMA is used
frequently and valued highly.
Coalition members: The next variable is the nationality of the coalition members.
Figure 3: Coalition perspective
The smaller international missions have limited procurement budgets, especially in the
areas where PDMA is most active: construction and domestic supplies. The program is used
mainly as a source of additional suppliers, and is most valued in the field where it is hard to
find vendors outside the wire. Those of the smaller missions which are showing a growing
interest in local procurement are beginning to use the project more, initially to test local
vendors for quality and price. For example, the current Danish military procurement team at
Camp Bastion is the first rotation to try local purchasing. But in general, the service is not
crucial for them.
Civilian Military domestic Military construction
Smaller missions UK Military US Mission ISAF
26 | P a g e
For the larger countries, the value of the program increases. The UK military, and in
particular the STRE in Helmand, rate it as very important to achieving their objectives in the
field, enabling a quicker and more efficient response to operational demands for
stabilisation and reconstruction projects. The STRE now only use contractors who are
registered with PDMA.
The US mission overall has more fully adopted the Afghan First policy and local procurement
is now embedded in its regulations. Its scale of procurement is also by far the largest in the
coalition. Its use of PDMA services is more extensive than other coalition members and its
stated dependence on the project is higher. The Regional Contracting Centre at Camp
Eggers, the largest in the country, now requires that any local vendor is registered with
PDMA. It believes that if the service did not exist, it would have to be re-invented in some
form. The procurement personnel do not have the time or resource to deal with local
procurement and need external help to strike a balance between Afghan First and actually
getting the job on the ground done.
Finally, the most positive advocacy for the project came from ISAF. This is largely due to
Task Force 2010 which positions local procurement as one of the main pillars of the COIN
strategy. PDT is well known to and regarded by ISAF headquarters and the program is seen
as fundamentally important to its strategic objectives.
Unfortunately we were not able to gather information and opinion from the Canadian
military in Kandahar: no one was available to talk with us during our field work. Our
understanding is that they make little if any use of the PDMA service, possibly reflecting
both their relatively small requirements in relation to the US and UK and also the early stage
of PDMA’s presence in Kandahar.
Product category: Perceptions of the project also vary according to the type of product or
service being purchased.
Figure 4: Product sectors
The program does not generally cover the fresh fruit and vegetable sector, although it was
originally included in the Helmand project. Other products and services mainly include the
household and office supply needs of both civilian and military missions. The scale of these
is relatively small but there is a growing commitment to procuring them locally as far as
possible, even where this only involves using local wholesalers and retailers – few of the
necessary supplies are manufactured locally. In addition there are categories of services
such as recruitment, repair and maintenance, communications and business development
FFV Other products/services Construction
27 | P a g e
services, where local the local supply base is increasing. In all of these cases, the project is
recognised as a valuable source of information on suppliers and an effective means of
feeding ITTs into the local market.
Finally, the construction sector is the main user of the project. The scale of expenditure is
much higher than in any other category, the requirement to source locally is driven by both
policy and practicability and the level of urgency demands quick and reliable access to
information on potential contractors. For these reasons, the project is consistently viewed
very positively and considered essential to meeting operational needs.
Suppliers
We interviewed vendors, including local and foreign construction contractors in Helmand
and professional services providers in Kabul. We also met with the Afghanistan Chamber of
Commerce and Industry (ACCI), the Afghanistan Investment Support Agency (AISA) and an
Afghan NGO, Harakat.
Construction contractors: Construction businesses described the “before and after” of their
contact with the project. In the past, they were aware that business was available from the
international community but they had no means of gaining direct access to it due to a lack
of contacts, information and physical access. They did benefit to some extent but only
through being at the low end of a chain of on-selling of contracts.
They now deal directly with buyers, winning contracts in their own right, delivering work to
the right specification and retaining the profit margin. They have invested in new
equipment, increased their permanent employment (from two to 25 in one case),
diversified into new areas of business and expanded their operations geographically.
The most valued support they had received from PDMA was direct introductions to new
customers, including through the ABCs. They had also received help in completing
procurement documentation and more detailed training in bidding procedures. They had
recently won new contracts with the international community of $10-20m which PDMA was
unaware of, demonstrating their progress towards doing business directly with buyers.
The companies did not find the process of registering with PDMA onerous, nor were they
aware of any other source of support available to them: AISA was seen as a necessary
registration process but not a direct means of winning business and chambers of commerce
or other trade associations were not seen as relevant. The beneficial impacts on their
business were attributed fully to the support which they had through the project, matching
the findings of the Helmand Job Creation Survey.
In terms of additionality, the contracts themselves would have had to have been let anyway
– no new business has been created. However, the business is unlikely to have gone directly
28 | P a g e
to local SMEs. They may eventually have benefited from some work towards the lower end
of the contract selling chain but with lower revenues and margins. The benefits of local SME
growth in business and employment would not have been achieved and in this sense the
program has created both additional and accelerated benefits for the SME sector. It has also
helped direct growth to legitimate business.
International contractors: The major military bases have a number of international
contractors based on site, mostly undertaking construction projects within the wire. They
are in the unique position of being both suppliers to the international community and
buyers of local services and materials. In their supplier role, they are expected by customers
to follow the principles of Afghan First and increasingly to transfer business and technical
knowledge to local vendors. For the latter, they are beginning to look for more formal joint
venture agreements with local businesses.
Whilst there is a commitment to Afghan First in principle, no support is provided by
procurement offices in the practice of delivering it. Foreign contractors face the same
problem as the military in not being able to go outside the wire to find and validate
suppliers. They have previously had problems with the quality of local work and in filtering
out the common practice of local contractors claiming to have much greater capacity and
experience than exists in reality. PDMA has provided them with a wider range of options for
potential suppliers and an initial filter on their credentials. Once these are provided, the
contractor can build relationships more directly with local suppliers and the PDMA service is
not vital to them longer term.
Service businesses: The PDMA operation in Helmand deals primarily with the construction
sector. There is a wider vendor base in Kabul, including a growing and increasingly
professional service sector. The initial support received from PDMA was to make
introductions to buyers and provide information on bid solicitations: a first point of entry
into the market. Training in the procurement process was also provided and continuing use
is made of the tender lists.
In the cases of the companies interviewed, the hands-on PDMA support was only required
for an initial period. Their business and communication skills are already well developed and
after relationships with international buyers are established, the businesses become
capable of dealing directly with them.
They saw no options to delivery of the program. AISA has a different function in terms of
business registration and overseas investment promotion. ACCI is viewed with suspicion and
not considered relevant to smaller businesses. For those who can afford it, there is the
option of buying in external expertise, including from international consultants, to assist in
preparing bids. But the PDMA service was seen as the most relevant and professional and
was instrumental in assisting them to make their initial entry into the international market.
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Business agencies: We met with AISA, ACCI and Harakat. Their perceptions of PDMA are
generally positive, with neither AISA nor Harakat planning to provide it themselves. ACCI’s
position is different. They claim to provide a similar service, sending information on
contracts to their members, advising on bids and providing procurement training. They also
have plans to expand the service on a chargeable basis. In contrast, other respondents,
including an ACCI office bearer, were unaware of this. SMEs interviewed felt that ACCI was
not relevant or trusted, while most respondents did not believe that ACCI had the capacity
to deliver a similar service to PDMA.
All three however agreed that it was not sustainable to have the service provided long term
by a foreign NGO and that there should be a phased transfer to Afghan ownership and
management. The issue of transfer is covered later in this report.
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Regional Offices
The initial pilot program for PDMA over 2006-08 only covered the Kabul area. The full
program has extended its geographic reach to three provincial offices, in Jalalabad, Mazar-e-
Sharif and Kandahar. The DFID-funded project covers Helmand. The rationale for opening
field offices was based on a number of arguments: many of the major international buyers
had procurement offices outside Kabul, in particular the military; many of these offices in
turn were “inside the wire” and could only be approached by international staff based in the
field; the private sector in the provinces could not realistically be supported from Kabul; the
identification and validation of provincial businesses would only be possible if done by staff
in local offices.
Due to the costs of security and other logistical problems, we were not able to visit the
offices in Jalalabad and Mazar. Nor did we visit the PDMA premises in Kandahar city or
Lashkar Gah, for security reasons: PDT’s international staff do not visit them either in order
to preserve their low profile within the community. Therefore our coverage of PDMA’s
regional operations was much less comprehensive than would have been ideal for the
review. We did however spend time working with PDMA international staff at Camps
Bastion, Leatherneck and Shorabak, at the Helmand PRT and on KAF, where most of the
procurement client base is located. We have based our assessment of the regional
operation primarily on these visits and on a review of the provincial data in PDT’s regular
reports.
Table 3 summarises the results so far achieved by the field offices in terms of the value of
contracts facilitated.
Table 3: Value of contracts facilitated by field office, $m, to March 2010
Activity $m contracts
Kabul 419.2
Mazar-e-Sharif 9.9
Jalalabad 13.8
Kandahar 6.2
Lashkar Gah 16.4
Total 465.5
The Kabul office clearly dominates the values with 90% of the total to date. It is of course
the longest established, including the two year pilot project, and operates from the largest
31 | P a g e
economic centre in the country. The Helmand office in Lashkar Gah is the second biggest
contributor, at 4% of the total, with Jalalabad, Mazar and Kandahar following behind. The
low proportion of the total contributed by Kandahar is surprising given the concentration of
buyers at KAF and the city being the second largest economic centre in the country. There
are some mitigating factors, in particular the difficulty experienced in recruiting national
staff and a turnover of international staff – the latest field manager arrived only in March
after these figures were collated. Within KAF the combination of a new manager and
rotation of procurement personnel means that the program has started from a low base
and a small contact network each time. Further the security situation prevents personal
contact between the international and national staff. With a more stable staffing position,
the returns from Kandahar should increase but this needs to be monitored closely.
Table 4 shows the projected costs of the field offices over years two to four of the program,
year one having been essentially a start-up phase for the offices outside Kabul.
Table 4: Costs of field offices, years 2-4, $000
Item Kabul Mazar Jalalabad Kandahar Total
Personnel 1510 68 92 258 1929
Operations 684 36 38 46 804
Total 2194 104 130 304 2733
It is expected that the Kabul office will account for 80% of costs, suggesting that it is
currently over-performing in relation to the others (having generated 90% of reported
contract value). This is to be expected given that it is the longest established. The Mazar
office will account for 4% of costs, slightly under-performing in relation to results. Jalalabad
will account for 5% of costs, again slightly behind its results profile. Kandahar will account
for 11% of costs against just over 1% of results to date. This indicates the extent of catch-up
required if the Kandahar field office is to achieve its potential.
Overall the field offices, excluding Helmand, contribute 7% of contracts facilitated by value
but require 20% of projected costs. It is reasonable to expect a higher level of cost in the
field offices compared with Kabul where there are more economies of scale and a longer
track record. For the Mazar and Jalalabad offices, we do not think that the current level of
apparent under-performance is of major concern. But Kandahar should be performing
better given the scale of potential and the higher operating costs of the office.
During the field work we were able to work closely with the international staff of the
Helmand and Kandahar offices. Although the former is part of the DFID-funded project, the
observations from our visit are relevant to the national program.
32 | P a g e
The Helmand field manager has been in post longer than the Kandahar manager. This was
clear from the level of contact and rapport with the main procurement offices. This personal
networking is essential to the success of the program because with buyers it is face to face
contact, advocacy and occasional nagging which makes the difference to their purchasing
behaviour. The field manager is also able to meet regularly with DFID and PRT personnel.
The lead local national working in Helmand is also very capable and experienced, building
personal contact with vendors and also able to meet the field manager on a face to face
basis at the Helmand PRT. Finally, the frequency of ABC events and the ability of vendors to
visit buyers at PRT also help in building confidence in the program.
Kandahar in contrast has faced a number of disadvantages to date: turnover of international
staff; difficulty in recruiting local nationals; lack of access for locals to KAF; and, to date, lack
of access for the field manager both to the Kandahar office and the Kandahar PRT. Contact
between the field manager and the lead CIDA officer at the PRT has been minimal. The two
field offices are therefore almost diametrically opposite in these important regards. As the
new field manager becomes established and benefits from greater freedom of movement
with a security contract now in place, the situation should improve.
These extremes illustrate one main driver of success in the field offices, one which Kabul
had already benefitted from – the importance of regular, face to face contact with the main
procurement offices. Although the policy environment is now moving more rapidly in favour
of local procurement, this level of contact remains essential to PDMA’s ability to influence
its key clients.
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Risk Factors
This section examines the risks associated with the program and the effectiveness of
mitigation measures taken to date. The original Program Design document6 identified four
main risks to achieving the project outputs:
Political instability
Security
Capacity of Afghan SMEs
Economic conditions
The first two of these remain facts of life when operating in Afghanistan and generally have
not improved to a significant extent since the program was launched – deteriorating in
some cases. There is nothing that the program management can do to reduce the risk of
political instability – it can only mitigate its impact on the program by monitoring the
situation and continuously assessing any implications for the PDMA.
In terms of security, this remains a major risk and constraint for the program. The Helmand
project staff operate under DFID duty of care, which assists with freedom of movement and
accommodation for international staff. The other offices make their own security
arrangements within an overall security contract with Edinburgh International. Provincial
offices maintain a low profile, avoiding prominent signage and avoiding visits from
international staff. The field managers in Helmand and Kandahar as well as the Project
Director in Kabul are ex-military and understand the requirements of working within
insecure environments. Security considerations will continue to constrain the geographic
reach of the program and to limit the amount of time that can be spent on direct capacity
building with local suppliers.
The capacity of Afghan SMEs to meet the demands of the international community remains
a risk. Particularly in the early days of working with buyers, and where new products or
services are being sourced, there have been cases of suppliers not being able to meet the
required specifications. Many vendors have overstated their capacity, suggesting that they
can handle all types of work asked of them, misrepresenting their technical and equipment
capacity (often claiming capacity that belongs to other businesses and then seeking to sub-
contract) and providing misleading information on previous work. The basic validation of
vendor details which PDMA undertakes on its registered companies cannot adequately test
for this. Spotting overstatement depends on site visits which are in turn dependent on
6 Afghanistan Marketplace, Detailed Program Design; PDT, December 2007
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freedom of movement and access. The biggest mitigating factor in these circumstances is
that buyers normally only make the mistake once. If a contract is awarded which the vendor
does not deliver on, they are unlikely to get a second chance and PDMA can remove them
from the register if there was blatant misrepresentation involved. Time and resource will of
course have been wasted in the process.
The value of contracts now being placed, the level of repeat business and the increasing
prevalence of direct contracting without PDMA intervention suggest that the capacity risk is
reducing. But it remains an important issue and any disappointment of buyers in local
vendors introduced by the program still carries a reputational risk. This is another argument
for focusing less on the absolute number of registered businesses and more on ensuring the
quality of those already on the database.
With regard to economic conditions in the country, this has not materialised as a significant
risk. Growth in the overall economy has been high and spend by the international
community has continued to increase year on year.
There are other risks which have become apparent but which were not identified in the
original program design.
Corruption: Fear of corruption within the international community and the larger
contractors has been a disincentive to SMEs in pursuing business opportunities. It is more of
a constraint than, say, lack of confidence in meeting technical standards. PDMA will remove
from the register any contractor found to be selling contracts. But there is little it can do to
mitigate the risk and reduce SME concerns – it is a wider national problem.
Vetting of suppliers: PDMA takes steps to validate basic information about suppliers on its
register. It does not however vet them for technical competence or illegality, so there is a
risk that buyers will be introduced to inadequate or illicit vendors. This in turn would
damage the reputation of the service. Despite PDMA making it clear to buyers that it cannot
vet for these problems, a number of buyers raised this as a weakness in the service. In terms
of mitigation, lack of technical capacity will become evident once work on a contract begins
but clearly time and resource will have been lost. On illegality, military contractors generally
accept this as their responsibility and military intelligence services are increasingly involved
in tracking business legitimacy – Task Force 2010 has this as one of its principal objectives.
Dependency: There is a risk that some buyers and suppliers become dependent on
continued provision of the service, reducing incentives for buyers to institutionalise local
procurement and for vendors to build direct relationships with their customers. As ISAF and
the US mission embed local procurement into their procurement legislation and procedures,
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this risk diminishes but this is not yet the case for other coalition members. It remains a risk
for suppliers but PDMA’s training programmes and the evidence from both buyers and
vendors that they are now trading directly with one another are reducing it. The fact that
PDMA was unaware of some repeat business which had been won in Helmand is actually a
good indicator that the market is beginning to work without intervention.
Rotation of procurement personnel: Both civilian and military procurement personnel are
subject to regular rotation and PDMA is already working with second and third cohorts of
buyers. In most other aspects of military and development work in Afghanistan, corporate
memory is short-term and the transfer of knowledge and information to successors is not
systematic. This risk has materialised in many cases, with incoming personnel starting from
scratch on the sourcing of suppliers and suppliers losing consistent contact with their
customers. The only long term mitigation of this is for local procurement to be fully
institutionalised, which PDMA can help with but which is primarily dependent on the
buyers’ commitment, policies and procedures.
Inadequate vendor specifications: The ITTs prepared by buyers have often hindered local
vendors. Specifications written in English will only rarely be understood. Overly general
specifications have caused problems of interpretation and disappointment on both sides.
PDMA has sought to mitigate this risk in a number of ways. It has arranged for specifications
to be translated into Pashtu and Dari. It has acted as an intermediary in helping to explain
specifications to vendors. It has encouraged buyers to use photographs and catalogues to
illustrate their requirements. This problem appears to be diminishing, according to both
buyers and suppliers.
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Future of the Project
It is part of PDT’s mandate to transfer responsibility for the project to a local organisation.
The original agreement with CIDA set out the likely timescale for such a transfer. It said that
the need for the project would decrease over time as market information and business
capacity improved, envisaging a demonstration phase of 18-24 months, a consolidation
phase of 24-48 months and then either a wind down or transfer to a local body.
It was envisaged that there would be a different exit strategy for each of the main activities
in the project. The business database would be reviewed after three years then phased out
or transferred. The verification activity would be transferred in years three and four. The
matchmaking service would be phased out quicker, after year two. The tender distribution
point would be transferred in year four and the training activities in year three. Overall, the
program was intended to be either wound down or transferred by the end of the funding
agreement in 2012.
The need for a continuing service: On the demand side progress is being made on the
institutionalisation of local procurement, especially in the US mission which is the largest
buyer. We believe that there is now sufficient momentum behind the US efforts on local
procurement to begin reducing the need for third party support. It may take another 12-18
months before the process is fully self-sustaining but the combination of regulatory change
and growing practical experience means that it is already well under way.
Other coalition members remain some way behind the US. Afghan First is accepted in
principle but is still not fully embedded to the extent that it is independent of staff rotations.
Realistically it may take another 18-24 months before this is achieved during which time
external support will still be required.
For vendors, there is already encouraging evidence of suppliers winning repeat business
without the project’s intervention and as local procurement becomes institutionalised this
will become more prevalent. This is not yet the case for all PDMA-registered businesses
however and most are still in the early stages of understanding the international market.
Another factor determining the need for the service is the level of penetration it has so far
achieved amongst buyers and vendors. PDMA lists 95 procurement offices which it works
with. The list of participants in the UNAMA Local Procurement Campaign lists only 20
agencies who signed up to the UNAMA campaign. The two lists are not directly comparable
and PDMA’s efforts to involve buyers have been more intensive than UNAMA’s. But the
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figures do suggest that PDMA has already works with most of the relevant procurement
offices.
On the supply side, there are now around 5,500 businesses on the PDMA register. A recent
survey of Afghan businesses7 reported that 4% of businesses were making sales to foreign
companies based in Afghanistan. The survey did not separately ask about sales to coalition
members but applying that 4% to an AISA estimate of there being over 300,000 businesses
in the country suggests that there are up to 12,000 businesses selling to foreign customers.
It is unlikely that all of these will be relevant as suppliers to the coalition and so it does
suggest that PDMA has already achieved a good penetration of the likely supply base.
Both estimates confirm that there can be less emphasis on adding to the number of clients
or the size of the register and more on ensuring that the quality of interaction and trade is
improved.
We believe that the need for and value of the service will not disappear entirely within the
current funding commitments of both DFID and CIDA. But there is now good evidence that
the market information failure on which PDMA was founded is reducing. This was always
the aim of the project and so is an indicator of its success. The initial plan for the national
project to have a 24 month demonstration phase followed by a 24 month consolidation
phase is behind schedule by perhaps 6-12 months but is still moving in the right direction.
An exit strategy is now required to enable a phased run-down of parts of the program which
are not required long term, for example the direct matchmaking and advocacy elements,
and for other parts to be transferred to local management, such as maintenance of the
database and procurement training. Again this is as originally intended. Despite our view
that the original plan is 6-12 months behind schedule it should still be possible to implement
the exit strategy by March 2012, though with provision for a limited extension of up to six
months to ease the transfer process.
Preparation and implementation of an exit plan requires a systematic and properly
resourced effort. It has drifted to date as PDT itself would probably admit – other priorities
for the use of scarce time and resources have prevailed. The risk however is that the end
point of CIDA’s funding agreement will be reached without a plan in place to transfer the
services still required to a local provider. This would result in the service simply fading away
or the current package being extended only because there is no option to do otherwise –
neither would be good outcomes.
7 Afghan Business Attitudes on the Economy, Government and Business Organisations; 2009-2010 Afghan
Business Survey; Center for International Private Enterprise, 2010.
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To prepare the plan properly and in a reasonable timescale a dedicated and separately
resourced effort is needed. PDT should be fully involved in the plan but it could be prepared
by an independent advisor, perhaps funded separately by CIDA and DFID or funded out of
any program underspend. As with economic impact work, this would ideally be done by a
local advisor though care would be required to avoid any conflict of interest – the advisor
should not be one of the options for delivering any transferred services. A timetable should
be established for the plan, ideally by the mid-2011 so that there is sufficient time available
to ensure a smooth transfer to the new providers.
The options for transfer: There will be elements of the project which merit continued
provision after March 2012. The register of companies should still be valuable to
procurement offices as a source of additional vendors, provided it is regularly updated and
cleaned. A distributed list of ITTs would also assist vendors in finding opportunities. Training
in procurement procedures will still be valuable to new entrants to the market. What will be
less necessary as local procurement becomes institutionalised is the intensive, hands-on
work done with procurement departments, primarily by PDMA’s international staff. The
longer term services could therefore be provided by local agents.
Little progress has been made within the current program on identifying and developing
local partners to deliver all or part of the service. PDT initially worked closely with ACCI as a
potential future provider, including operating from shared premises. However the
relationship appears to have broken down. ACCI still says it is interested in delivering the
service on a chargeable basis and claims to be providing it already for members. But other
respondents were sceptical about their capacity and their relevance to the SME sector. ACCI
confirmed that is focusing more on larger companies than on SMEs. We have not
undertaken an analysis of ACCI’s activity and capacity but the consistency of feedback
received was a strong indication of this not yet being a credible transfer option.
AISA and PDMA both maintain registers of businesses and exchange information across
them. Registration with AISA is a condition of being listed on the PDMA database. AISA does
play a role in business development, for example through mediation and arbitration of
commercial disputes. Whilst it probably has the competence to deliver the service, it is not
however its core business and the agency did not express a desire to take it over.
Harakat, a local NGO, is also interested in procurement policy and practice and is currently
discussing a procurement initiative with the Afghan government. This would be for
government business only, however, and Harakat has not expressed an interest in providing
a service for international purchasing. As with AISA, it would be a distraction from core
business.
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It would not have been appropriate to try to shift the opinions of AISA or Harakat during this
review. Any further probing of their position regarding transfer would best come directly
from CIDA on completion of the review. As indicated below, however, we believe that there
are more appropriate options for transfer.
Transfer to a Government department is not considered an option. Vendors expressed
concerns over corruption and competence. This would be the least favoured option at
present.
Transfer to a local business development service (BDS) provider is an option, provided there
is a means of generating revenue. Feedback from respondents was that vendors would be
willing to pay if they believed that it would guarantee business. No provider can guarantee
that of course. Also, once a charge is made there will be concerns over the provider’s
independence and objectivity. However, operation of the service by a commercial provider
is the best option at present. There is no reason in principle why a commercial business
model could not be designed, for example through charging registration fees for entry to
the database or charging for training programmes. It is also not necessary that all the
continuing services should be delivered by a single provider: they may be more easily
absorbed commercially within a number of providers with the best suited business models.
A variation of this model would be to transfer ownership and management of parts of the
current service to Afghan staff, with members of the existing team and/or new recruits. This
would allow for a more seamless transfer but would still require a planned and phased
approach running beyond the current funding period.
The PDMA has made good progress towards reducing the market information failure
which it was set up to address. It has been a successful program. The policy context is also
moving in favour of local procurement. The market failure will not have disappeared
completely within the lifespan of the current agreement with CIDA. Nor is there a clear
exit plan to wind down or transfer the relevant parts of the service to a local provider. But
progress to date means that the original objective to achieve transfer after four years is
still valid, albeit with provision for a limited extension to ease the transfer process if
necessary.
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Summary of Conclusions and Recommendations
This final section presents our conclusions and recommendations from the review under the
following headings:
Changing context
Market constraints
Project performance
Validity of logic model and PMF
Value for money
Client perceptions
Risk factors
Future of the project
Changing context: Since the project was launched, the coalition’s approach to local
procurement has moved on considerably. The Afghan First policy has been launched with
strong advocacy and branding behind it. The US mission has embedded local procurement
more fully in its laws and regulations. ISAF has launched Task Force 2010, positioning local
procurement at the heart of the COIN strategy. These changes reflect well on CIDA and DFID
for being first movers in supporting the PDMA project. They will however make decisions on
its future more sensitive – there will be more interest and comment from other members of
the international community.
Market constraints: On the demand side, the market is highly segmented by type and
location of buyer and the purpose of procurement. Generally the constraints include: the
small discretionary budgets available for civilian spend; a small local supply base;
restrictions on movement for both buyers and sellers; pressure in the field for quick delivery
of stabilisation projects; and short rotations of procurement staff. We believe that PDT
properly diagnosed the constraints facing buyers. The core problem is an information
market failure, the main premise on which PDMA has been designed.
For suppliers, the principal are: lack of access to invitations to tender; lack of physical access
to customers; the complexity of procurement procedures; language; uncertainty regarding
quality standards; lack of feedback from buyers; and fear of corruption. Again, these
findings confirm PDT’s diagnosis and the appropriateness of their interventions: once again
the core problem is an information market failure.
Project performance: The project has performed strongly against the original PMF targets.
There are some qualifications on this: the original targets were set too low; some of the
performance data is due to improved reporting by buyers rather than actual increases in
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local procurement; the reported data are on contracts and jobs associated with the project
rather than created by it; and the results have not been subject to independent monitoring
and evaluation.
Nevertheless, the results are impressive and we have no doubt that PDMA has made a
measurable difference to both buyers and sellers. For buyers, it has enabled local
procurement to progress more quickly, more confidently and more efficiently than would
otherwise have been the case. For sellers, it has generated additional business for SMEs and
improved business capacity to deal directly with international customers.
Ideally the economic impact of the project should be measured more robustly than was
possible in this review, through periodic sample surveys of beneficiaries, a matching group
of non-assisted businesses and procurement offices.
Validity of Logic Model and PMF: The original Logic Model is still robust and there are no
major gaps in PDMA’s adherence to it. No significant changes are required in it for the
remainder of the program. We do recommend some re-setting of targets in the PMF for the
remaining 20 months. These include: a 10-15% increase in the number of vendors
registered on the Business Portal, though with an increased emphasis on the quality of
businesses registered rather than the absolute number: a new target to be included for the
value of contracts facilitated; an increase in the targets for training activities; and the
inclusion of a timetable for the managed transfer of appropriate services to local providers.
Specific targets for the field offices should also be set, particularly for Kandahar which is
currently under-performing in relation to its cost and the scale of purchasing potential from
KAF. PDT should work closely with CIDA in re-setting these targets to ensure that they buy in
to the change in expectations of them.
Value for money: The purpose in supporting PDMA is to promote economic and private
sector development. We believe that it provides good value for money in delivering this
purpose. It is levering $91 business revenue for every $1 spent on the program to date. A
very rough estimate of cost per FTE job supported to date is $1,173 which we believe is
good value compared with other options to promote economic development.
Client perceptions: The perceptions held by buyers and their degrees of satisfaction with
the project vary according by market segment. Geographically, perceptions improve the
further the buyer is from administrative headquarters, with military clients in the field
valuing the service most. In terms of the goods being purchased, buyers of civilian, domestic
items had much less requirement for the service compared with a high level of need and
satisfaction from military construction buyers. For coalition members, the value attached to
the service was lowest for those with smaller missions in the country and considerably
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higher within the US and central ISAF missions. And in terms of product sectors, the value of
the project was by a large degree highest in the construction sector.
In summary, the highest degree of use and satisfaction came from the US and UK military in
the field and the lowest from Embassy-based buyers responsible for household items,
including the Embassies of Canada and the UK.
For vendors, who are after all the intended beneficiaries, the perception of the project was
consistently very positive. They highlighted a range of beneficial impacts: improved access
to ITTs; better understanding of procurement procedures and standards; reduced
susceptibility to the practice of selling on of contracts; increased scope for repeat business
won through direct customer contact. These benefits are now leading to increases in
employment and income.
Risk factors: The risks originally identified in the program design were: political instability,
security, SME capacity and economic conditions. The first two have not reduced and in
some cases are higher but PDT has done as much as could reasonably be expected to
mitigate their impact on the program. The third also remains a risk but PDT has taken active
mitigation measures which have minimised its impact to date – to a large extent it is now a
risk managed as part of the normal business of client/supplier relationships. The fourth has
not materialised, as economic growth has been strong.
We identified additional risks which should be made explicit for the remaining 20 months of
the program: corruption in the business community and government; the vetting of
suppliers; dependency of buyers and sellers on the program; frequent rotation of
procurement personnel; and inadequate vendor specifications.
Future of the project: The project at both national and Helmand level was designed as a
temporary intervention to remove a market failure of information. Nationally, a two year
demonstration phase was to be followed by a two year consolidation phase, after which
there would be a planned transfer of those services for which there was still a need to a
local delivery partner.
The evidence from our review is that the market failure is reducing, with local procurement
becoming institutionalised in the main buyer, the US mission, and direct trading without
intervention growing. This is a sign of success for the project. We do not believe that the
market failure will be fully resolved within the lifespan of the current CIDA and DFID funding
agreements: we think the process is probably 6-12 months behind schedule. But we do
recommend that a detailed exit strategy should now be prepared, including provision for
the transfer of longer term services such as management of the database of suppliers to
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local commercial providers. The exit plan should aim as originally intended for
implementation by the end of CIDA’s contracted commitment in March 2012, with some
provision for a limited extension to smooth the transfer process. A timetable should be
agreed with PDT for preparation of the plan, ideally by mid-2011 to give sufficient time for a
properly managed handover. The resources needed to prepare the plan should be specified
and sourced separately if necessary, and the possibility of commissioning a local advisor to
do the work should also be explored providing no conflict of interest arises.
For DFID, we have recommended that the Helmand project should be placed on the same
timescale of the national project. This should not be assumed to require continuation of
DFID funding and discussions should begin now on finding alternative sources for the
approximate £430,000 required, initially with the ISAF, US and UK military procurement
offices who benefit most as buyers.
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Annex One: Interview Respondents
International donors
Jenny Hill CIDA, Ottawa
Michael Creighton CIDA, Ottawa
Mariam Wafa CIDA, Kabul
Abdul Hadi Karwandoy CIDA, Kabul
Zoe Kahn CIDA, Task Force Kandahar, KAF
Janet Lam CIDA, Kandahar PRT
Doreen Broska DFID Afghanistan, Kabul
Tim Stern DFID Afghanistan, Helmand PRT
Pat Hynes DFID, East Kilbride
Pat Thomas DFID, East Kilbride
David Bailey USAID, KAF
Peace Dividend Trust
Wayne Nightingale PDT Ottawa
Mike Capstick PDT, Kabul
Leigh Ryan PDT, Helmand
Zahin PDT, Helmand
Tom Viscelli PDT, Kandahar, KAF
International Embassies
Jackie Elliot British Embassy Kabul
Simon Diggins British Embassy Kabul
Jeff McIlroy Canadian Embassy, Kabul
Ramin Hamkar Canadian Embassy, Kabul
Erika Zielke US Embassy, Kabul
Mark Ward UNAMA, Kabul
Afghan businesses and organisations
Assad Nissar Harakat, Kabul
Yar Taraky Harakat, Kabul
Abdul Karim Safi Afghanistan Investment Support Agency (AISA)
Marshall Ferrin AISA
Atiqullah Nusrat Afghanistan Chamber of Commerce and Industry (ACCI), Kabul
Aziz Ahmad Afghan Barez HR Services Co., Kabul
Musada Sultan Insight Communications, Kabul
Edriss Raha Fazilat Group, Kabul
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Sayed Ahsan Al Muslim Steel Works/Services and Sayed Tajdar Construction
Abdul Wahab Helmandwal Construction
NATO Military
Dave Babineau ISAF, Kabul
Capt. Headley US Regional Contracting Centre, Camp Eggers, Kabul
Maj. Voth US Regional Contracting Centre, Camp Eggers, Kabul
Maj. D. Brown UK Works, Camp Bastion
WO2 Gary Wills JSF HQ/J8, Camp Bastion
Ms. Veejena JSF HQ/J8, Camp Bastion
Capt. Assoo Estonian military procurement, Camp Bastion
Maj. Allen Danish military procurement, Camp Bastion
Capt. Pieter Danish military procurement, Camp Bastion
Col. Mimms US military C-9, Camp Leatherneck
Col. Kelly US military C-9, Camp Leatherneck
Maj. T. Gates US Regional Contracting Centre, Camp Leatherneck
Maj. M. Hand ANSF procurement, Camp Shorabak
Cap. D. Sureen ANA procurement, Camp Shorabak
Capt. P. Thorneycroft STRE, Helmand PRT
WO2 P. Villa, FCO Helmand PRT
Maj. Lehman Marine Expeditionary Force, Helmand PRT
Maj. Chio Marine Expeditionary Force, Helmand PRT
Lt. Col. M. Heywood RC(S) HQ, CJ4, Kandahar (KAF)
Lt. Col. F. Percival RC(S) HQ, KAF
R. Nowicki USACE, KAF
Sq. Ldr. S. Keenan RC(S) HQ, CJ4, KAF
Contracting businesses
Jarrett Schmitt Green Leaf, Camp Bastion
Frazer Myers Prolog, Camp Bastion
Ian Tinniswood Mott MacDonald, Helmand PRT
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