DOING BUSINESS IN AFGHANISTAN
Starting a Business
Following the fall of Taliban regime in 2001, a new era of reconstruction and development began in Afghanistan characterized by active international support and considerable improvement in major areas including economic growth, infrastructure development, education, health, access to justice, human capital development and women’s empowerment.
However, as a land-locked and post-conflict country, Afghanistan continues to face numerous special development needs and challenges including those related to lack of access to regional and international markets, infrastructure gaps, and investment deficit as well as shortage of human and institutional capacity in various areas. Afghanistan is also experiencing the challenging task of pursuing peace and reconciliation while remaining a battle front in countering terrorism which continues to cause huge loss of life in the country
With a view to address the challenges associated with landlockedness and post-conflict situation and mitigate the impact of the political, security and economic transitions, the government of Afghanistan, over the past five years, has placed a special focus on areas and sectors that have greater potential to contribute to growth, job creation, income generation as well as private sector development, trade and transit facilitation and export promotion.
First, the Afghan government embarked on an ambitious reform agenda outlined under the Afghanistan National Peace and Development Framework (ANPDF) which was presented to the Brussels Conference on Afghanistan in October 2016. The Government has also developed a number of National Priority Programs (NPPs) which cover important areas such as infrastructure development, agriculture development, rural and urban development, human capital development, private sector development and women’s economic empowerment, all capable of contributing to the goal of achieving a self-reliant economy.
Furthermore, the government has developed a domestic production-led growth policy, a National Export Strategy and a National Trade Policy.
Second, the government remains committed to achieving the global development agendas to which Afghanistan is party. The government has made significant progress in aligning national development planning and implementation frameworks with the Sustainable Development Goals (SDG) following its successful nationalization in the form of Afghanistan-SDGs (ASDG). The completion of this process will also facilitate mainstreaming and alignment of other global efforts such as the Vienna Program of Action (VPoA) for LLDCs and Istanbul Program of Action (IPoA) for LDCs.
Third, Afghanistan has made intensive efforts to utilize its central location as a regional land-bridge in support of increased growth in Afghanistan and greater connectivity and trade in the wider region which has resulted in promising progress over the past few years.
Thanks to these efforts supported by the international community, Afghanistan has experienced a slight recovery in growth since 2015 and the economy is expected to grow further in the next few years.
On 27–28 November 2018, the Geneva Conference on Afghanistan was co-hosted by the Government of the Islamic Republic of Afghanistan and the United Nations with the participation over 60 countries and organizations, providing the opportunity for renewing partnership and cooperation for Afghanistan’s peace, prosperity and self- reliance. The Geneva Conference Communique and the Geneva Mutual Accountability Framework (GMAF) provide a clear roadmap for joint efforts towards the realization of Afghanistan’s development objectives in the next two years.
Afghanistan and the International Trade and Trade Facilitation
Trade is one of the main drivers of growth in Afghanistan, holding considerable promise for the country. Afghanistan stands to gain from increasing the volumes and distribution of its trade. By increasing the exportability of its primary products, growing trade volumes are expected to benefit Afghan development in four primary ways: (i) increasing government revenue; (ii) increasing overall GDP growth; (iii) increasing growth of the energy, mineral, and agricultural sectors; and (iv) increasing the growth of the service sector. Therefore, dynamic gains from trade can be expected to result in substantial increases in economic growth, job creation, public revenue, and the overall standard of living, all stemming from increasing Afghanistan’s integration in its regional and the wider world economy.
According to the World Bank, fully US$5.2 billion in traded goods could be transited through Afghanistan on a yearly basis, including gains of up to 5% of the value of total transit trade or the equivalent of US$260 million (October, 2016).
As a result of efforts by the government of Afghanistan supported by regional and international partners, the number of trade routes through Central Asia, South Asia, and Iran have been increasing, diversifying the movement of goods to and from Afghanistan.
Afghanistan’s trade structure is now less concentrated in terms of the number of its trade partners than it was in the previous decade. Afghanistan’s immediate neighbors represent over 50% of Afghanistan’s total trade volume. In 2018, Afghan trade volumes between Afghanistan and its top trade partners rank as follows: Iran at US$1,2 billion, Pakistan at US$1,4 billion, China at US$1,1 billion, Turkmenistan at US$385 million, and Kazakhstan at US$795 million. In terms of exports, some of the top export destinations of Afghanistan are India (US$359 million), Pakistan (US$378 million), and Iran (US$19.5 million).
In order to increase Afghanistan’s private-sector led export-oriented growth and decrease its dependency on foreign aid, Afghanistan has placed a special focus on negotiating bilateral and regional trade and transit agreements. This would increase not only the volume of its traded goods, but also the volume of goods transiting through Afghanistan. At present, Afghanistan has bilateral trade and transit agreements with most of the neighboring and regional countries as well as multilateral transport and transit agreement such as the Lapis Lazuli Route Agreement, Chabahar Corridor Agreement, the Cross-Border Transport Agreement with the Kyrgyz Republic and Tajikistan; South Asian Free Trade Agreement (SAFTA) and the Economic Cooperation Organization Trade Agreement (ECOTA). The effective implementation of these agreements are expected to significantly reduce the average transit costs between the contracting parties. They are also expected to expand growth opportunities for production and employment as trade and transit prospects increase.
The government of Afghanistan has also embarked on various important initiatives to fully utilize its comparative advantages and unlock the export potential in its energy, mining, and agriculture sectors:
First, the government has developed its new National Export Strategy (NES) with the following 4 strategic objectives:
• Nurture the emergence of a productive, resilient private sector known for quality and innovative products;
• Foster the development of a conducive business and investment climate;
• Enhance in-market support and strengthen enterprise capabilities to harness information and market intelligence
• Support state- and peace-building through inclusive and equitable economic growth;
The six priority sectors under NES include dried fruits and nuts, fresh fruits and vegetables, saffron, carpet, marble and granite, precious stones and jewelry.
Second, the Afghanistan National Trade Policy (ANTP) has been developed with a view to “expand Afghan exports and domestic production that leads to economic growth, creation of jobs and poverty reduction, thereby reducing the trade deficit, by facilitating trade and promoting export opportunities and market access, developing competitive businesses and industrial sectors catering for the domestic market, building the capacity of the Ministry of Industry and Commerce (MoIC) and trade support institutions, and strengthening the trade enabling business environment...it provides an evidence-based, structured and coherent approach to enhance Afghanistan’s trade competitiveness and benefit from the increasing insertion into the global economy.” The ANTP includes the following six policy areas:
• Promoting export competitiveness of Afghan products by addressing supply-side constraints;
• Promoting domestic production and trade;
• Enhancing the tariff regime;
• Increasing the efficiency of import and export administration, customs and border- control measures;
• Promoting market access for Afghan goods and services;
• Making trade enhancing institutions more effective
Third, the government has developed and implemented the Private Sector Development (PSD) NPP with the following four key components:
• Restoring confidence and creating an enabling environment for businesses.
• Increasing access to key inputs for business.
• Sharing risks and crowding in investment.
• Facilitating and securing trade and transit.
And lastly, Afghanistan became a member of the World Trade Organization (WTO) in July 2016, after completing an accession process which began in November 2004. WTO membership provides a major opportunity for Afghanistan to strengthen economic ties and expand opportunities for trade with countries in the region and with the entire world. The Government has developed a post-accession strategy with a view to actively utilize the rights and benefits of full membership in the WTO and to attract investment, create jobs and improve the economic welfare of all Afghans. Efforts will continue to undertake the required reforms and amendments to trade-related laws and regulations.
Economic Integration and Regional Cooperation
Regional cooperation and integration remain key in addressing the challenges associated with landlockedness, as well as in utilizing the benefits of Afghanistan’s centrality as a regional land-bridge.
Regional economic cooperation has, therefore, remained an important pillar of Afghanistan’s foreign policy and an important component of the national development strategy. The vision of the government of Afghanistan, in this context, is to restore Afghanistan’s historical role as a land-bridge and a convergence point between Central Asia, South Asia, China, the Middle East, and Europe, in order to achieve greater regional cooperation and integration for the benefit of peace and prosperity in the wider region.
The government of Afghanistan has pursued this vision under two major Afghanistan- centered regional cooperation platforms: RECCA and HoA-IP.
RECCA was established in 2005 as the first Afghanistan-centered regional cooperation framework aimed at promoting regional economic cooperation through a list of prioritized regional economic cooperation and investment projects that are capable of contributing to economic growth, job creation, income generation and confidence building in the wider Central, South and Southwest Asia and beyond. RECCA currently covers around 20 regional priority projects under six major clusters: Energy, transport networks, trade and transit facilitation, communications, business-to-business partnership and labor support, and research collaboration.
Seven ministerial meetings of RECCA have so for been held in Kabul and major capitals across the region. From 14-15 November 2017, the Seventh RECCA meeting was convened in Ashgabat, Turkmenistan under the theme of “Deepening Connectivity and Expanding Trade through Investment in Infrastructure and Improving Synergy” bringing together high-level delegations from some 67 countries and international organizations. RECCA is expected to become the principal platform for FDI, trade and transit, and infrastructure development in the region. RECCA’s new approach places a special focus on the bankability of regional projects and their effective implementation. The most recent initiatives under RECCA include the establishment of a RECCA Chamber of Commerce and Industries (RCCI), a RECCA Center for Research and Evaluation (RCRE), and a Women’s Economic Empowerment Initiative (WEEI). In the second decade of RECCA, it seeks to be a comprehensive platform for economic integration and commercial exchange, increasingly owned and operated by the people, businesses, and governments of Central, South and South West Asia and beyond. The Eight Ministerial Meeting of RECCA will take place in the first half of 2020 in Tashkent, Uzbekistan.
The HoA-IP is another important Afghanistan-focused regional cooperation platform which was founded in November, 2011, providing a platform for results-oriented regional cooperation by placing Afghanistan at its center, in recognition of the fact that a secure and stable Afghanistan is vital to the prosperity of the Heart of Asia region. HoA-IP is an important platform for enhancing dialogue and building trust among regional countries. The HoA-IP promotes regional political, security, and economic cooperation with the goal of building peace, stability, and prosperity in Afghanistan and the entire region. HoA-IP has three main pillars: 1) Political Consultations, 2) Confidence Building Measures (CBMs), and 3) Cooperation with Regional Organizations. Whereas the primary emphasis of HoA-IP is on political and security issues, the primary emphasis of RECCA is on economics and finance.
The following six priority areas have been prioritized as CBMs under HoA-IP: 1. Counter-terrorism CBM (led by Afghanistan, Turkey and UAE); 2. Counter-narcotics CBM (led by Azerbaijan and Russian Federation); 3. Regional Infrastructure CBM (Azerbaijan and Turkmenistan); 4. Trade, Commerce and Investment Opportunities CBM (led by India); 5. Disaster Management CBM (led by Kazakhstan and Pakistan); and 6. Culture and Education CBM (led by Iran) A new CBM on Agriculture Development was also recently proposed and endorsed under HoA-IP. Seven Ministerial Meetings of HoA-IP have been held and hosted by Turkey in 2011, Afghanistan in 2012, Kazakhstan in 2013, China in 2014, Pakistan in 2015, India in 2016 and Azerbaijan in 2017. Currently, Turkey is the co-chair and the 8th Ministerial Meeting will take place in the last half of 2019 in Istanbul.
Afghanistan is also party to major regional cooperation platforms in the wider region including the South Asian Association for Regional Cooperation (SAARC), Economic Cooperation Organization (ECO), United Nations Special Program for the Economies of Central Asia (UNSPECA), and the Central Asia Regional Economic Cooperation (CAREC) program.
Both RECCA and HoA-IP promote Afghanistan’s active participation in these regional organizations. Both platforms are making efforts to harness the role of regional and international partners by supporting or complementing efforts made under these organizations. Both have sought to actively encourage a convergence in approaches on shared priorities with other regional organizations and initiatives. Following an initial meeting of the heads of the secretariats of regional organizations to which Afghanistan is a member in 2010 in Kabul, a second such meeting was convened on the sidelines of RECCA-VI in 2015 in Kabul.
The collective regional efforts under RECCA, HoA-IP and other regional platforms have helped regional economic cooperation take root, paving the way for concrete and tangible cooperation in a wide range of areas, including energy, transport networks, trade and transit facilitation, communications, business-to-business partnerships, and labor support as well as confidence building in important areas such as counter-terrorism and counter-narcotics. Afghanistan and the wider region have witnessed inspiring achievements over the past two years in the area of regional economic cooperation and integration, exemplified by an expanding network of pipelines, transmission lines, and fiber optic cables, as well as by the finalization of important transport and transit agreements and the operationalization of freight trains and air cargo corridors across the region.
Investment in Afghanistan
Afghanistan offers numerous economic opportunities to the investors at both regional and international levels. The government of Afghanistan has made considerable efforts to develop model bankable projects for replication across a number of key sectors including for example, power generation and multi modal inland ports. The Public Private Partnership (PPP) Policy was developed in 2015 followed by the development and entering into force of PPP Law in 2016 which aims to regulate issues relevant to Public-Private Partnership on the basis of the principles of transparency, open competition, and cost-effectiveness; identify the opportunities of joint investment of Public-Private sectors; provide the opportunity for utilizing efficiently the public estates, assets, capacities, expertise and technology in the private sector; encourage private investment for carrying out the Public Private Partnership projects; ensure availability of funds for infrastructural projects and provision of public services; facilitate efficient and swift economic and social development and ensure public interests. A Directorate General on PPP has been established under the Ministry of Finance (MoF) to oversee the implementation of PPP Law and Policy and to help prioritize and develop PPP projects.
At an institutional level, the Executive Committee on Private Sector Development has been established and a high-level board for the protection of foreign investment is also being created which will further increase private sector investment in the country.
Canada and Afghanistan are well-positioned to collaborate in exploring some of these opportunities, bringing enormous benefits to both countries.
The following sectors provide good opportunities for trade and investment between Afghanistan and Canada:
The mineral and petroleum resources of Afghanistan have not been comprehensively explored and mapped. The resources that have been identified are globally significant, with known deposits of a wide variety of minerals from copper, iron, sulfur to bauxite, lithium, and rare-earth elements.
Traditionally, the primary sources of energy in Afghanistan has been hydro, coal, and natural gas. While Afghanistan currently generates only 600 MWs of electricity. Its potential is estimated to be up to 23,000 MWs of hydropower electricity. Gas and oil are some of the other untapped resources that can push the economy of Afghanistan forward.
Agriculture remains an important sector in the context of economic transformation in Afghanistan and currently contributes to about a quarter of the country’s GDP in the recent years. Following almost three decades of conflict, the government, farmers, and relevant stakeholders have worked hard to revitalize the agriculture sector. Rural economic development is among the highest priorities of the Afghan government. This also attracts development funds from a host of international donors. There is high emphasis on investment in agro-business and agro-processing as it has a huge positive impact on production and consumption of domestic products, and overall economic development of Afghanistan. The Ministry of Agriculture, Irrigation and Livestock (MoAIL) under the comprehensive agricultural development NPP and its sectoral strategy has placed a special focus on improvement of technology in agriculture, creativity, diversification of agricultural activities as well as competitiveness and market access in the sector.
Value chains development is also an important component under the National Horticulture and Livestock Program (NHLP) and other projects. In this context, private sector investment in livestock farms, agriculture farms as well as in building processing and packaging centers, cold houses and storages has been encouraged.
The MoAIL has undertaken a series of initiatives to promote job creation in the sector. For example, the saffron value chain is currently creating job for nearly 5000 people a year and saffron production has increased by 7.8%. The MoAIL has also initiated the Agriculture Development Fund (ADF) that is providing loans for farmers.
While the agriculture sector presents and is likely to present in the near and mid-term future the most important industry sector, Afghanistan is keen to establish a light and low-end manufacturing sector, which will absorb many unemployed Afghans. Low-cost manufacturing industry could be established in Afghanistan as currently major countries like China and India are now moving a step forward into more sophisticated industries.
This sector has also been developed significantly in the past decade. According to the official statistics, there are 153 public and 252 private hospitals. Besides, there are 411 comprehensive health centers, 932 basic health centers, 854 health sub centers and up to 1,700 laboratories. The health service provision of the public sector has improved, and private sector has also forayed into hospitals, laboratories, and pharmaceutical industries. Existing investment is unable to meet local health service needs and medicinal demand. More than USD 300 million flows out of Afghanistan in pursuit of medical treatments annually.
Afghanistan shares borders with Iran, Pakistan, China, Tajikistan, Turkmenistan, and Uzbekistan. Historically, it has served as trade route for many years connecting Asia, Europe, and the Middle East.
Afghanistan has been the traditional trade bridge for up to two billion people around the world. Transport sector provides support to other sectors operating in the country. Afghanistan has acceded to the TIR convention and a National Committee on TIR has been established under the Ministry of Transport to implement the convention in the country. A number of pilot shipments to neighboring and regional countries have so far been conducted under the TIR system including a recent shipment from Afghanistan to Turkey via the Lapis Lazuli Route. The new Transport Law has been developed by the Ministry of Transport which, among other objectives, will further simplify the transport procedures and improve coordination among the relevant departments. The Information and Communications Technology (ICT) has been increasingly utilized in the transport sector including in collecting the transport fees.
The Government of Afghanistan has also made efforts including under the transport and transit agreements to simplify visa procedures and improve information sharing on issues related to customs, transport and transit.
The establishment of Special Economic Zones (SEZs) / Multimodal Transport and Logistics Facilities has also been pursued under RECCA in collaboration with the MoF and the Afghanistan Airfield Economic Development Commission (AAEDC)
Invest in Banking & Insurance
The banking sector in Afghanistan has grown considerably. There are 16 active commercial banks, which conduct standard banking operations. However, there is huge potential for investment in international banks conducting financial transactions and providing access to finance, which has a huge demand.
Invest in Telecommunication Sector
Telecommunications is an important sector under the National Infrastructure Plan of Afghanistan. Currently, the Afghan mobile telecommunication market is served by four private companies and one public company, with private firm investment up to USD 2 billion.
Business registration in Afghanistan
The Afghanistan Central Business Registry “ACBR” is the sole authority within Ministry of Industry and Commerce in Afghanistan for issuing the new licenses for businesses and investors in Afghanistan. For further information please visit the following webpage. http://www.acbr.gov.af
Procurement in Afghanistan
https://nsia.gov.af/choose-langhttps://mowa.gov.af/https://mot.gov.af/For further information on the procurement system and procedures, please visit the webpage of the Afghanistan’s National Procurement Authority webpage.
Other useful links:
Ministry of Industry & Commerce https://moci.gov.af
Ministry of Finance https://mof.gov.af
Ministry of Mines and Petroleum https://momp.gov.af
Ministry of Transport https://mot.gov.af
Ministry of Women’s Affairs https://mowa.gov.af
Afghanistan Chamber of Commerce and Investment http://www.acci.org.af/
Afghanistan Women Chamber of Commerce and Industries https://awcci.af/en/home/
International Chamber of Commerce in Afghanistan http://icc.org.af/
National Statistics and Information Authority https://nsia.gov.af