By Rob Taylor
KABUL, May XX (Reuters) - Gazing glumly over millions of dollars worth of machinery which used to churn out thousands of police and army boots each day but now sits wreathed in plastic sheeting, Farhad Saffi fears he is seeing the death of an Afghan dream.
Saffi's Milli Boot Factory, in Kabul's sprawling industrial hinterland, was a model for Afghanistan, showcasing local manufacturing while giving jobs to hundreds of people who may have otherwise have picked up insurgent guns.
But a U.S. decision to hand procurement to the Afghan government has left Saffi with something of a developed world problem - local officials opted for cheaper boots made in China and Pakistan, killing off Milli's contracts after a year.
"The U.S. government told me when I started I would have contracts for five years, until at least 2014," he told Reuters. "The Afghan government gave me only three months notice of cancellation and now I have $30 million worth of raw material I can't use."
When it opened, inside huge white sheds that once held PVC piping machinery but is now home to high-tech German injection molding and boot-making equipment, Afghan and U.S. generals were keen to be photographed alongside a local success story.
U.S. Navy Rear Admiral Kathleen Dussault toured in 2010 to present Saffi, just 23, with a quality certificate for the plant to supply fledgling Afghan National Security Forces with top-quality boots under contracts worth up to $40 million a year.
Saffi sold his leather boots, which underwent a rigorous quality testing process in the United States, for $62 a pair, while Chinese-made boots with imitation leather cost the Afghan government $22 in a contract for up to 700,000 pairs a year.
"The Afghan government is just looking for the lowest price," he said, surveying a room piled high with rolls of leather and raw material bought from Taiwan.
"They asked me to sell for $15 a pair, but the leather alone cost me $40. The Chinese boots use fake leather and quickly fall apart, but they are cheap."
From 2002 until the end of 2011, $85.5 billion was spent on reconstruction in Afghanistan, according to U.S. government figures, while international aid worth $57 billion has flooded into the country.
NATO-led forces, who have mostly handled purchasing for the Afghan security forces in the decade-long war, have since 2010 operated under "Afghan First" rules requiring them to buy where possible from local companies, boosting the economy and employment while underpinning anti-insurgent strategies.
Contracts for Afghan businesses included 100 percent of Afghan uniforms and boots, textiles, furniture, tents, software and transformers, according to NATO data.
Those contracts spawned 15,000 jobs, while making savings on imports for combat-related spending worth $650 million - still a fraction of the estimated $200 million spent on the war a day.
THE $10-A-DAY TALIB
The Afghan First Policy backs anti-insurgency efforts by ensuring that people employed locally with better jobs and incomes aren't tempted to join the estimated 25,000 Afghan Taliban fighters in the country, often called the '$10-a-day Talib', referring to the payment offered to would-be fighters.
Some of the 700 workers laid off from Saffi's factory are now thinking of doing just that, seeing no other future as Western nations and NGOs look to leave the country with the withdrawal of most NATO combat troops in 2014.
"The factory must be reopened. If it doesn't we will have to join the Taliban for a job. What else can we do? We have families to feed," said Ares Khan, 23, as he packed some of the last boots Milli will produce without a government change of heart.
Workers at the factory earned between $400 and $900 a month, well over the average wage in a country where up to a third of the 30 million population live under the poverty line.
But many businessmen and workers fear security will evaporate with the Western exodus, taking job opportunities and investment dollars with them to safer havens elsewhere, as Afghanistan's moneyed elite have done for decades.
Khan's friend, Khair Mohammad, who came to Kabul from Ghazni province where NATO forces are engaged now in one of the last large offensives of the war, also sees no future outside the insurgency if the Afghan government closes off jobs.
"There are sixteen people in my family and there is no bread winner except me. When I go back to Ghazni I will have to join the Taliban," Mohammad said.
More than $12 billion a year spent on the war has driven up prices in Afghanistan, and wages for an internationalized few. Mohammad said his living costs were already high.
U.S. military officials say the decision to hand a large slice of procurement to the Afghans was made in March, with responsibility handed over to the Defence and Interior Ministries.
"The decision was part of the transition process to Afghan security and control," said U.S. Navy Lieutenant Aaron Kakiel, a logistics officer for the 130,000-strong NATO-led coalition in the country.
Afghan companies, Kakiel said, had supplied everything from boots to uniforms and sleeping bags, construction and even IT services for the country's security forces, which will eventually number around 352,000.
Milli is not the only company to fall foul of the switch to local procurement, with several uniform and equipment suppliers either nervously eyeing soon-to-expire contracts, or having already lost orders to cross-border competitors.
A rival company executive, who asked not to be named because his firm fears retribution from Afghan military buyers, said, like Milli, he had invested millions of dollars into his business, but his supply contracts were now in limbo.
"The term of our contracts in some fields has ended. It's not clear if the government will contract with us again, or with some other companies in other countries," the executive said.
"My company has imported material from the U.S. for products which get manufactured in Kabul and that will be useless if we don't get contracts back. We will have to sack people."
Lieutenant-General Abdul Basir Asafzari, who heads logistics and procurement in the Ministry of Defence, said only 30 percent of supply currently was coming from Afghan companies, and President Hamid Karzai had also ordered the military to choose local firms where possible.
The reason Milli had contracts cancelled was because it was importing low-quality boots from China and other countries and relabeling them, he said.
"Milli boot company did not fulfill its commitments. There were some complaints from soldiers about the quality," Asafzari said.
But Mohammad Akbar Ahmadzai, from the NGO Building Markets, which helps build jobs and investment in developing countries by supporting entrepreneurs, said Milli's boots had been genuine and met U.S.-based quality tests.
Other business experts, who would only comment anonymously, said Milli and others may have fallen foul of Afghanistan's labyrinth of bribe and patronage payments, with better-connected competitors maneuvering to kill them off.
NATO's Kakiel said Milli and others may also have misunderstood complex contract provisions which stipulated only one year of guaranteed sales.
In 2011, the NATO-led International Security Assistance Force in Afghanistan saw U.S. agencies contract out over $4 billion, out of a total of $17.3 billion, with Afghan companies.
More than 90 percent of that was spent on products bought from Afghan sellers (49 percent), construction (28 percent), support services (11 percent) and transportation (6 percent).
But an audit by the U.S. government's Special Inspector General for Afghanistan Reconstruction, or SIGAR, released in January, said the Afghan First Initiative (AFI) had been marred by inadequate contract solicitation and vetting, while data on claimed employment benefits had been limited.
Saffi, whose family fled under Taliban rule and returned in 2002 to find everything destroyed, said his experience had shaken his faith in both the U.S. government and the future promised by Karzai.
"We tried to do a good job here in this factory, but right now this has happened," he said. "The only judgment we can make is that my company and the country are going the same way."
Most people in Kabul's business world, he said, were nervous about the unpredictable investment climate and deteriorating security, a sentiment reinforced by an audacious Taliban attack on the city centre and nearby provinces in mid-April.
Saffi said he now had to employ 30 personal bodyguards just to ensure his children can attend school, without insurgent harm or kidnap, while police snipers were based on the roof above his home.
"When my company is closing and also going down, the same way you can think of the country. I am president of my company and Karzai is president of the country," he said.
"I am managing my company, and now my workers are leaving. The same will be happening to the country. The president must manage his country."
(Reporting by Rob Taylor; Editing by Nick Macfie)