WASHINGTON, Dec. 10 (UPI) -- U.S. investors and other foreign companies continue to shy away from investing in Afghanistan and Iraq because of security and infrastructure problems as well as government corruption, a critical shortcoming in the two countries' efforts to grow their economies and increase stability.
"Security is essential to economic and business development," said Ethan B. Kapstein, a professor of international affairs at the University of Texas' Lyndon B. Johnson School of Public Affairs, in an e-mailed message.
Investors are reluctant to make capital investments in conflict areas, Kapstein said, fearing that they will be destroyed. The reluctance affects not only foreign investment but local entrepreneurs, research indicates.
And that lack of investment exacerbates the difficulty of creating security in a country, experts said.
Gayle Tzemach Lemmon, a journalist and fellow at the Council on Foreign Relations who researched women-owned businesses in post-war areas, said economic growth is key in creating secure communities.
"Entrepreneurs are a passionate and vocal force for stability," she said.
Despite low inflation and impressive economic growth, Afghanistan remains a challenging environment for many businesses and not only because it is a conflict zone.
Foreign firms and exporters are few but the U.S. State Department's Bureau of Economic, Energy and Business Affairs says the investment climate "has shown surprising levels of dynamism in recent years."
A World Bank report indicates Afghanistan's gross domestic product is expected to grow 8.6 percent in 2010-11 due mainly to a boom in agriculture, mining and the service sector. Low inflation -- estimated this year at around 5 percent -- has started to make inroads into the country's high poverty levels.
But despite the encouraging signs, security is still a top concern for most entrepreneurs, said Sulaiman Lutfi, chairman of the board of the Afghan-American Chamber of Commerce, an organization created eight years ago to promote private investments in Afghanistan through seminars and networking events.
In addition, uncertainty is one of the main concerns of local business owners, said Jake Cusack, a graduate student at Harvard University's Kennedy and Business schools.
Cusack, who recently co-wrote a policy brief for the Center for a New American Security interviewed 130 business owners in Afghanistan and found that their top concerns weren't about security.
Despite Kandahar's reputation for being one of the most dangerous cities in the country, for example, Cusack and study co-author Erik Malmstrom determined that business people there were mainly worried about unstable power supplies, financing and the intentions of the local and national government.
The U.S. withdrawal from Afghanistan, Cusack said, was often mentioned as another source of uncertainty.
Inadequate infrastructure, complex regulations and government corruption also contribute to making Afghanistan an unfriendly place for investors.
Corruption is endemic in the country, including in the judicial system; in 2009, Afghanistan ranked 179 out of 180 countries in Transparency International's survey on global corruption.
According to the State Department, most businesses rely on "informal mechanisms" to resolve legal disputes and enforce property rights and many report often being asked for bribes in exchange for a government service.
"Despite an incredibly difficult business environment, a lot of entrepreneurs are working around the obstacles doing the best that they can because they see their businesses as a way to support their families," Lemmon said.
Roadblocks to investment in Iraq are similar to those in Afghanistan.
"Everything imaginable needs to be rebuilt," said Leslie M. Schweitzer, senior trade adviser for the U.S. Chamber of Commerce, referring to airports, seaports, waterways, railroads, water purification systems and around 2 million to 3 million houses. "The numbers are astronomic."
The 2011 World Bank's "Doing Business" report ranked Iraq 166th out of 183 countries.
Despite its abundant natural resources, Iraq's GDP is very volatile, mainly because of its dependence on oil, a sector marked by extreme price fluctuations. While security has improved, widespread corruption, a fragile rule of law and complex regulations still make business owners' lives difficult.
Nevertheless, Iraq holds "tremendous opportunities" for investors, Schweitzer said.
"The U.S. Chamber of Commerce is taking a very aggressive approach in helping American companies to take advantage of the billions of dollars of infrastructure needs in Iraq," she said.
In 2008, the chamber created the Iraq Business Initiative with the goal of facilitating U.S. investment in the country.
While the oil and gas sectors have attracted large companies, Schweitzer said that American businesses haven't taken advantage of the services related to them.
"We have realized that Turkish, Chinese, French, German and Indian companies are doing much more business there than American companies," Schweitzer said.
The infrastructure and the energy sector, she said, also offer increasing opportunities.
While Schweitzer acknowledged that doing business in Iraq isn't for everybody, she said it is worth it for companies to explore what the country has to offer.
"It's very important, since America paid the highest price to get this country to the point of being a democracy," she said.