October 20, 2011
Next steps:
Strategy and Vision for the Afghanistan Carpet Sector
By: Alex Zahir and Rob Leahy
Introduction:
There was a successful event in support of Afghanistan’s carpet sector in September of 2011. The well attended
Carpet Export Conference was held in Kabul, Mazar-e Sharif and in Herat. About 150 Afghan businessmen and
women participated in a day-long forum that allowed them to voice their hopes and expectations and to discuss
the obstacles they confront. The US Department of Commerce (DoC) developed and presented the Conference
with the support of the Export Promotion Agency of Afghanistan (EPAA). The team that made these
presentations was DoC staff member Dale Wiggins and Subject Matter Experts, retained for this purpose, Alex
Zahir and Rob Leahy. The Summary Report of Sept 2011 Afghanistan Carpet Export Conference (13 Oct 2011)
presented the background and outcome of the sessions. In addition, this report included responses and some
analysis of a questionnaire that was completed by 116 of the attendees. The purpose this memorandum is to
expand the analysis of that questionnaire and introduce other information gained while planning and traveling
in Afghanistan for the Carpet Export Conference. Certain inconsistencies have appeared and this paper will
discuss them and recommend ways to unravel the ambiguities. Finally, this memo will employ our vision and
advocate a helpful strategy for Afghanistan’s carpet sector.
What we do know is that the Afghanistan’s carpet makers are upbeat and optimistic with 80% of those who
filled out the questionnaire expecting their businesses to be better next year. This is a remarkable chance to
give assistance at a time when the recipients are willing to accept it. The timing of this opportunity comes when
other rug producing countries are in complete disarray. Export prices from India and Pakistan have risen 30%
and China is posting prices 50% higher. Many of the reasons for these cost increases will affect Afghan makers,
but the chief component of theses price hikes is a shortage of weavers. However, in Afghanistan the carpet
traders, the industry’s driving force, can attract weavers back into the trade, pay weavers more and still stay
under the increased world prices. This is an economic formula for increased share of market and higher profits.
Still, with all this opportunity and the general agreement among Afghanistan’s carpet traders that a ‘shared
vision’ is a valuable concept, the groups are not going to form up by themselves; they will need help! The
Afghan Brand, properly positioned, can stabilize a large industry that already affects the lives of 5 million people
and has the potential to provide them a more secure future.
What we know:
An eleven question survey polled the participants on the effectiveness of the conference and asked specific
questions about their businesses. The attendees agreed that the information presented was valuable. The
actual statistics are listed in the previously mentioned summary report. The questionnaire then asked what
obstacles that they felt were most significant and what changes would be most helpful to them. The following
are elaborations on the findings from these two questions.
What are biggest obstacles to your business today?
As a Country
In Kabul
In Mazar-eSharif
Wool (yarn)
Wool (Yarn)
Wool (Yarn)
Weaving
Finishing
Weaving
Finishing
Weaving
Finishing
In Herat
Finishing
Wool (Yarn)
Weaving
These outcomes were unexpected. Prior to making these presentations it was assumed that the Afghan carpet
makers still needed cut and wash facilities. But, between these obstacles; yarn, weaving and finishing, as a
country, the respondents listed finishing third. During this trip it was learned that a public cut and wash facility
has just opened Kabul and another is set to begin operating next spring. The Department of Defense’s Task
Force for Business Stability Operations (TFBSO) is building cut and wash plants in Mazar-e Sharif and another in
Herat. Therefore, we can reasonably predict that the lack of available cut and wash capacity in Afghanistan is
passing.
Beyond the empirical data, anecdotal information from the attendees indicated that many of the traders now
finish their carpets at small sites all over the country. This was particularly true in Heart where members of the
audience stood and vigorously declared that they needed yarn spinning more that finishing. (There is paradox in
the survey tabulations which is a simple average and does not take into account the relative importance of the
responses made. More study is required.) In Mazar-e and in Kabul an overwhelming number of respondents
complained of an inability to get wool. It can be safely assumed that they mean’ wool for spinning’ or ‘wool yarn
for weaving’.
It needs to be recognized, as was presented in the charts during the Carpet Export Conference, that these
responses were collected at a very weak point in worldwide carpet demand. This means that the relationship of
the variables will change with improved business conditions. In fact, there is more finishing capacity coming
online soon while shortages in wool yarn spinning will only become more severe and could restrain the business.
The most significant input to carpet manufacture is the yarn. This cannot be overstated. Yarn is put into the
homes to actually weave carpets which are then sent to the finish plants. Weaving seems to be less of an issue
in this data. Weaving is the easiest to scale up when needs increase and as ISAF jobs decline in coming years,
people will be available to answer the call for more weaving.
What would help your business in the future?
As a Country
In Kabul
Marketing
Loans
Gov’t Assist/ Loans
Transport
Transport
Marketing
In Mazar-eSharif
Marketing
Gov’t Assist
Transport
In Herat
Marketing
Spinning
Gov’t Assist
The most frequent response, by far, was ‘better security’ but, since this is a universal need, it was not
considered. The ‘issuance of travel visas’ so that the traders could travel to the US was the next most common
need. Since, in the foreseeable future, this is not likely these responses were also disregarded.
If the desire to acquire a visa is an indication of a need to help sell products it makes the next most repeated
request for support even stronger. Marketing or help selling rugs was listed as very important in all three cities.
Marketing was an area that was addressed heavily during the Carpet Export Conference. The essential message
in the presentation was the need for the Guilds, Associations, regions, even families to bind themselves together
with a ‘shared vision’ for an Afghan Brand. Local wool through local finishing and the maintenance of accepted
standards will create momentum for carpet sales from Afghanistan. A hang tag certification, to support quality
standards, was generally agreed to be desirable. During the lunches and after the sessions we located and
engaged the Association and Guild presidents in marketing discussions. All appreciated the concept of an
Afghan Brand and agreed that payoff for marketing as groups will be orders from large US importers.
The participant’s comments during the open discussion periods identified an interest in having a sales center to
attract foreign buyers in Mazar-e Sharif as well as in Herat. The traders in Mazar-e wanted help in determining
rugs designs and colors that would sell to Americans, while the Heart traders emphatically said that they wanted
help selling the designs that they already make. This difference was not surprising since the rugs of the western
region are perhaps the most rigidly traditional patterns and colors for which Afghanistan is so well known.
It is difficult to separate ‘Government Assistance’ from ‘Loans’ since most traders most look to the government
to loosen credit. This response is predictable because after the finishing returns to Afghanistan the other major
part of the relationship with Pakistan comes into play. It has been long known that the Pakistanis financed the
trader’s businesses and how this feature of the Pakistan model will be replaced is a major issue. (See Notes
Section for more information on Pakistan’s role in the Afghan carpet business)
The next most important appeal made was for better shipping. Much can be done to improve carpet transport
from Afghanistan. Dubai has a very dependable free trade zone that would enable transshipments of air freight
to sea freight or onward air freight. We proposed to have a regular air freight pick-up circuit at Herat, Mazar-e
Sharif and Kabul that would fly to Dubai and transship there. The hope is that the groups of Afghan traders are
able to use this service only as a part of the Afghan Brand concept. A side benefit is that a single major shipper
could streamline paperwork and nurture co-ordination with export and import authorities. This organized
approach would get attention of the Afghan government and the Ministry of Trade and Industry could become
involved to help stimulate carpet exports.
What we need to know:
Any research that has ever done created new questions. During the Carpet Export Conference we gained
valuable information on the carpet sector in Afghanistan, but certain paradoxes and inconsistencies were turned
up. If the initial effort is to be helpful to businesses in the sector, the new questions need to be answered.
Having a good base of data, it is possible to direct the new research toward achieving certain outcomes. The
following sections list the additional information needed and gives action plans for how to get it as well as
expected outcomes for each action.
These actions should be made sequentially, but developed concurrently. For instance, co-incident with work
done to help create groups of traders we need to be ready to make matches with importers. The most
successful marketing programs always anticipate issues that arise and have a next phase ready to implement.
Sector Capacity questions:
1. Does sufficient finishing capacity really exist? Is the quality able to be supportive of an Afghan Brand?
2. More finishing capacity seems to be coming. When will the TFBSO plants actually begin production?
3. Why is yarn spinning is so short? Is the need for hand spinning or mill spinning? Is it really the ‘yarn’
that is needed or is it simply the money to buy yarn?
4. What does needing ‘Government assistance’ really mean?
5. When worldwide business conditions begin to improve, what capacity constraints will appear?
Action plan:
A. Visit Afghanistan to study the yarn, weaving and finishing dynamics in each rug centers; Kabul,
Mazar-e Sharif and Herat. Catalog estimated capacities in each rug center.
B. Provide assistance to TFBSO in linking them into the Afghan Brand groups.
C. Study and determine the specifics on the need for yarn spinning in each rug center.
D. Meet with Carpet Associations management to qualify meaning of ‘Government Assistance’.
Expected Outcome:
Credible documents on points A-D (above) which would become the presented information in a second
set of meetings with newly formed ‘groups’ of traders. Bringing the TFBSO carpet operations on as a
partner in the ‘Afghan Brand’. Meetings with the appropriate Afghan Ministries to seek their blessing of
Afghan Brand’s objectives. Presentation of the second Carpet Export Conference.
Marketing questions:
1. How do we foster the group marketing concept? How to follow-up with the Carpet Associations?
2. How to integrate International carpet shows into the Afghan Brand?
3. What is the right way to market the Afghan Brand? How can we best employ the services of the
Brand Center at VCU.
4. How to position the Afghan Brand in advertising. How to advertise in Architectural Digest?
5. How to use importer contacts in matchmaking with Afghan groups and the Afghan Brand.
Action plan:
A. Visit Afghanistan (same trip as above) to meet with Carpet Associations management to discuss
working relationships needed to facilitate the ‘Afghan Brand’.
B. Cease trade show involvements in US. Even without the difficulty in acquiring travel visa documents
for Afghan traders, Rob and Alex do not feel it wise to bring individual traders to US trade shows.
C. Integrate Brand Center and Architectural Digest opportunities into a message consistent with the
studied needs and expectations of the trader groups that are being assembled in Afghanistan.
D. Hold meeting with US Importer groups, ORIA and ORRA to discuss Afghan Brand planning and seek
co-operation.
Expected Outcome:
‘Groups’ assembled in each of the three rug centers and continued development of a ‘shared vision’ for
an Afghan Brand. Marketing and advertising efforts developed consistent with an agreed brand
strategy. Interested US Importers lined up to develop product lines using the Afghan Brand. Bring them
to Afghanistan.
Investor Questions:
1. Work needs to be done to further understand the workings of the Pakistani relationships with
Afghan traders and find ways to duplicate it within Afghanistan. (Read: History of Pakistan’s rug trade)
2. How could Pakistan’s traders invest in Afghanistan?
3. What would importers invest in Afghanistan?
Action plan:
A. Visit Pakistan finishers (same trip as above) to more fully understand the Pakistan model for carpet
export. Determine if there is opportunity to include them in the creation of the ‘Afghan Brand’.
B. On visit, seek understandings or commitments for investment in Afghan rug sector.
C. In sales discussions with US importers offer suggestions concerning investment opportunities.
Expected Outcome:
It is apparent that, seeing the industry leaving their country, some Pakistani companies may be willing
investors in the transition. If security improves, some appear interested in building regional rug centers.
Seek investment in support industries such as spinning, dyeing and chemical companies in Afghanistan.
In USA, seek same from US rug importers. Combining ongoing prospect relationships with TFBSO would
be beneficial.
Shipping Questions:
1. What can be done to standardize and execute better transport?
Action plan:
A. In Dubai, during September visit, Rob and Alex had meetings to discuss interest in a routine for
carpet shipment from the country.
Expected Outcome:
Find a regional air freight carrier who can be contracted by the Afghan Brand groups to carry finished
goods from points inside Afghanistan and re-shipped from there by other carriers, air or sea, to
other ports. (It is possible that this plan may need seed money for bonding free trade goods in Dubai.)
Notes:
History and future of Pakistan’s rug trade:
Throughout the 1980’s Pakistan was flooded with Afghan refugees escaping Soviet tyranny across the
border. By 1988 there were 3.3 million Afghans living in makeshift camps in side Pakistan and the
country was having great difficulty assimilating the exiles. Pakistan had to do something to both give
comfort and to engage these millions in beneficial activity. Some of the Afghans, particularly the
Turkmen, knew rug making and the government of Pakistan seized onto them to proliferate weaving
within the refugee camps. The government, at the same time, gave considerable benefits to Pakistani
businessmen to set up companies to supply wool yarn, to take in raw woven goods, to finish carpets and
ship them to foreign markets. These benefits included a 16% export value rebate and free freight. It
was a brilliant plan and camps all across the country had a way to generate some income, thus
remaining orderly, and Pakistani businessmen flourished.
After the Soviets left, some Afghans went home but a similar number came right back upon at the
advent of the Taliban in 1996 and again the number of Afghans living in Pakistan totaled 3.3 million. This
time the refugees were the more business savvy Afghans who had already been indoctrinated in the rug
business and from 1996 through 2002 the Afghan woven, Pakistani finished carpet business exploded.
After the Americans came in 2002, the Afghans began returning to their country and, according to the
Pakistan government, 2.8 million had left for home by 2007. Afghans in the carpet weaving trade
brought their looms with them but still depended on the Pakistani businessmen for the money to buy
the yarn, the finishing and exporting. So, for the Pakistan carpet establishment nothing really changed
until worldwide demand really began to fall off in 2008. With few orders the Pakistanis began cutting
off their Afghan weavers in Afghanistan, giving their orders to the few Afghans still weaving inside
Pakistan. Luckily the displaced workers inside Afghanistan, mainly the men, went right to work building
road, barracks and other temporary infrastructure for the ISAF, aid agencies and the many NGOs who
were arriving.
Rugs that were still being woven in Afghanistan were mostly made for Afghan Americans or Afghan
Europeans who had migrated further away from Pakistan. They represent the backbone of today’s
Afghan rug business. The slowdown in demand and decoupling from Pakistan did have a crucial feature
of relieving much of the debt that had bonded the non-Afghan American carpet traders with their
‘benefactors’ in Pakistan. This has apparently allowed them to experiment with their own finishing and,
it appears now, many have made that transition. Still, though, they need the wool yarn to begin the
production process and we see that as the primary need for these non-affiliated carpet traders. Today,
it appears that there is a delicate balance, at very low volume levels, in the Afghanistan carpet sector.
But, not so much in Pakistan! Massive enterprises are running nearly empty and wondering where the
business went. After the Afghans left, the Pakistani government curtailed the subsidies and now only
rebate $2,000 per shipping container to the freight forwarder.
While the carpet exporters of Pakistan wait for world demand to return they are beginning to recognize
that they will be confronted with a dramatically changed labor force. Their weavers are largely in
Afghanistan now and, pending another wholesale migration of refugees, they will be forced to deal with
the Afghans differently. It is predictable that they will move operations to Afghanistan, following their
labor force.
Some of the biggest Pakistani carpet makers are diversifying into machine made carpets, keeping their
entire footprint inside Pakistan. That trend will continue, but we see these companies also carefully
watching the evolution of the hand knotted business within Afghanistan. The same evolution we are
watching and endeavoring to assist. Many of the needed investments inside Afghanistan, especially as
world demand improves, will require money that is not able to be raised by Afghans. It is our feeling
that for the very same motivations that got Pakistani businessmen into this business in the 1990’s will
put them into it again. Should someone be there to shepherd them?