To understand the business environment can benefit your business in a number of ways.
While your business must comply with business environment, there is much to be gained by taking your commitment further. Then there are the wider benefits, such as how your business is perceived. Dealing with business environmental issues can improve your reputation with all your stakeholders’ staff, customers, regulators, investors, your local community and your country. Doing or establishing business in Afghanistan can be very profitable. Even smaller investments can produce more benefits in a short period of time.
Watchful analysis of market possibilities and best strategies for business growth or development are highly recommended and available that is the reason I have chosen this topic “Business Environment in Afghanistan” mainly for understanding and explaining the concept of business environment in Afghanistan and to give appropriate information regarding business conditions to the investors. To establish business, enough time should be given on networking to comprehend local business practices and to achieve the proper partners.
As well as the strategy of Afghanistan government is to attracting the local and International investors to invest in the country with offering more possibilities in different sectors and fields. I think to explain the conditions of business properly and to put them in practice can help the economy of Afghanistan grow. I have divided my thesis into four main parts those are objectives and methodology, conditions of business in Afghanistan, business supporting program, how to set up business, results and conclusion, In part one objectives and methodology I briefly explain my thesis goal and the choice of methodology.
In part two conditions for business in Afghanistan I give more information such as introduction about Afghanistan, business conditions into some sub chapters and those are economical and political situation in Afghanistan, business supporting program which also includes role of small and middle-sized enterprises and how to set up business in Afghanistan and so on.
In part three results I will add what I have found out as well the result of my questionnaire and the last part which is conclusion I will make a summary of my thesis, give some suggestions, express my vision shortly, add some recommendations and explain whether I will be able to achieve my goals and objectives or not, if not I will explain what the reasons are that I could not achieve my goals. I believe this thesis will help me understand more about business in practice in my country as well as the investors to know what the business and its opportunities are there and how to start up business.
Also for the practical part of my Thesis I have dealt with some of the business organizations in Afghanistan to get the exact information about business conditions over there through a questionnaire. The way how to develop Afghanistan’s economy and what to concentrate on I prefer using South Korea Economic Development Plan, its experiences and match those with the current situation of Afghanistan to prove that Afghanistan can develop and also doing business could be profitable there. This Thesis explains how the right approach to environmental issues can benefit your business and make it more sustainable.
Objectives and Methodology My goals and objectives for doing this project is to give general information about political and economic situation in Afghanistan, particularly to introduce business environment, business opportunities and establishing business in Afghanistan as well as to find out the problems that Afghanistan has been faced to and get the solutions for them. Choice of Methodology The process starts after selection of the topic ‘research design’ denotes the planning of my research study which followed through the below methods and techniques.
The information has been taken through primary and secondary sources such as direct interviewing with people concerned, the professors concerned as well as others who have a deep knowledge of my thesis. I also read a wide range of text books which provide me a clear idea about Economics, Management and Finance. Since there is no book written about business environment in Afghanistan I tried to browse some Government official websites, World Bank and also some other informative websites to get information. Type of Research Descriptive research has been used in the study.
Descriptive research includes survey and fact-findings by consulting the respondents through questionnaire via indirect interviews such as calls and e-mails. For this purpose I contacted the Head of Ariana Financial Services Group which is a Business Organization in Afghanistan by telephone and e-mails to get the real information about business conditions in Afghanistan. Questionnaire The Questionnaire has been prepared by me and answered by Mrs. Storai Sadat the Ariana Financial Services Group Executive Director which has been added to Results chapter as Results of interview.
Ariana Financial Services Group 1. What to have to become an Organization? 2. How do you describe your Organization? Or company profile? 3. Who are you financed by? You operate on your own or supported by international partners? 4. What is your mission and vision? 5. What are the procedures to become an Enterprise or a Business Organization in Afghanistan? Easy or difficult? 6. As an enterprise how do you see the future of business in Afghanistan? Do you think that, your goals and objectives are achieved/ achievable? 7. What are the main business opportunities and threats?
Have you ever faced to any threat that cause you slow down expanding your business or you could expand it to other provinces as well? 8. In your point of view, is it profitable to set up business in Afghanistan? 9. Do you recommend international investors to invest? Conditions of Business in Afghanistan In this chapter I am going to write about the conditions of business in Afghanistan. At the beginning of this chapter I give you some information about geography, people, political system, economic system and current economic and political situation this information will help the readers know more about Afghanistan. 1. 1 Geography
As we know Afghanistan is a landlocked country that is approximately located in the central-south Asia and its capital city is Kabul. The area of Afghanistan is 652. 230 sq km and is considered to be the 41th biggest country in the world. It is bordered by Pakistan on the east and south, Iran on the west, Tajikistan, Uzbekistan and Turkmenistan on the North and China on the North east. Afghanistan has four seasons its climate is dry it has got cold winters and hot summers. The country’s north, west and central provinces are having four seasons, most eastern and southern provinces are not having winters and they only depend on rains. 22) Afghanistan is a mountainous country its mountain peaks in the eastern part the highest point reaches to 7,000 meters. The highest of these is Nowshak at 7,485 meters. Mount Everest in Nepal stands 8,796 meters high. The Pamir mountains, which Afghans call to as the ‘Roof of the World,” extend into Tajikistan, China and Kashmir. The rest of the system consists of many smaller mountain ranges including the Koh-e Baba; Spin Ghar (also called the eastern Safid Koh); Suleiman; Siah Koh and others. 14) More over to its mountains, the country has many rivers, lakes and desert areas. The four biggest river systems or rivers are the Amu Darya, (boundary with Central Asia, 1,100 kilometers in Afghanistan); the Hilmand (1,300 kilometers); the Harirud (650 kilometers in Afghanistan); and the Kabul (460 kilometers). Only the Kabul River, connecting the Indus system in Pakistan, goes to the sea. Many rivers and streams simply empty into dry portions of the country, spending them through disappearance without replenishing the four major systems; others flow only seasonally. 15) Beside mountains and rivers that Afghanistan has, it is also very rich in terms of having natural recources that are natural gas, petroleum, coal, copper, chromites, talc, barites, sulfur, lead, zinc, iron ore, salt, precious and semiprecious stones and later on I am going to discuss it in more details. (23) 1. 2 People of Afghanistan Afghanistan is a country where 30 million people from different ethnic groups are living together starting from Pashtun, Tajik, Hazara, Uzbek and many others and we are all called Afghan.
Also there are many languages spoken in Afghanistan among different groups but the official ones are Persian (Dari) and Pashto which are the most spoken languages in the country. The religion of Afghanistan people is Islam where 99 % of the country’s population are Muslims and 1% others. 1. 3 Political System Before I explain Afghanistan’s political system I would like to give you a brief introduction of Afghanistan’s history. Like many other countries Afghanistan had been colonized by British Empire as well. They ruled us for long time and we fought them three times until they left.
The first war started 1839-42, the second 1878-80 and finally in 19 August 1919 we could defeat them and got our country’s independence. After freedom of our country we could make a lot of developments until USSR Invasion of 1979 to 1989. From 1992 to 1996 Afghanistan encountered a civil war which destroyed lots of our country’s economic infrastructures and changed Afghanistan to a very poor and unsecured country in the region. 1996-2001 which is called a dark period in Afghanistan is the time when Taliban almost took over the country and mostly our people migrated to the neighboring countries in order to survive finally after 9/11 the U.
S Army and Taliban Anti-Forces could defeat Taliban and establish a new government which could brought peace, prosperity, happiness and almost 90 % our people are satisfied from their activities. Afghanistan is an Islamic republic consisting of three powers executive, legislative and judiciary. The present cabinet of our country includes 25 ministers. The Ministers are introduced by the President to the Parliament and if they are well capable they will be accepted by the Parliament and start working.
Afghanistan administratively divided into thirty-four (34) provinces, and for each province there is a capital. Each province is then divided into many provincial districts, and each district normally covers a city or several townships. The Governor of the province is appointed by the Ministry of Interior, and the Prefects for the districts of the province will be appointed by the provincial Governor. The Governor is the representative of the central government of Afghanistan, and is responsible for all administrative and formal issues.
The provincial Chief of Police is appointed by the Ministry of Interior, who works together with the Governor on law enforcement for all the cities or districts of that province. There is an exception in the capital city (Kabul) where the Mayor is selected by the President of Afghanistan, and is completely independent from the prefecture of Kabul Province. (24) 1. 3. 1 Current Political Situation On August 20. 2009, Afghans went to vote in order to elect their president, for the second time in the country’s history.
Even though the bad security situation was measured the main problem, the elections took place with unpredicted smoothness. Al though there is no official information or data showing voter attendance, observers predicted that 40 percent of the electorate turned out much lowers than the 76 percent who voted in the first Presidential election, in 2004. The Independent Election Commission (IEC) announced results that indicated current president Hamid Karzai had won and got more than the 50 percent of votes essential to prevent a runoff against the second placed candidate.
However, official recognition of the results by the IEC will depend on the ECC’s (Electoral Complaints Commission) mediation of extensive allegations of fraud. By September 10, the ECC had received about 2,300 complaints, 720 of which could influence the election results, if determined valid. Security: Security circumstances are little by little worsening. United Nations data show security incidents increased by 45 percent in the first half of 2009 compared to the same period in 2008. [pic] Obrazek 1 Number of Security Incidents
And the reason is unemployment which makes people join insurgent groups. The new US administration promised in March 2009 to increase US troops in Afghanistan by 21,000, taking the total final deployment to 61,000 2 . Security further became bad during August, the month of presidential election. The NATO commander for the International Security Assistance Force has planned a new counter-insurgency tactic, which is under analysis by the US administration. The security circumstances will be solved within few upcoming years since the Afghan Army and Police Forces are increasing as ell as they are trained well in order to be able to get the responsibility of the country’s security. 1. 4 Current Economic Situation Beside the global economic and financial crisis and domestic political and security problems, Afghanistan could keep macroeconomic stability in 2008/09. Real GDP growth for 2008/09, however, decreased to 2. 3 percent, the lowest in the post-Taliban reign, due to poor agriculture. A strong recovery is expected for the current year (2009/10) with the main summer harvest numerous Prices turned from inflation in 2008/09 to deflation year. [pic] Obrazek 2 Inflation to Deflation
Monetary policy is on track, the nominal exchange rate has been stable and international. Reserves reached a suitable level at 13 months of imports. Based on fiscal policy, domestic revenues increased substantially with the completion of new policy measures regarded with the revised income tax law and improvements in customs administration. Obrazek 3 Exchange Rate Afghani Per US$ Developments on structural and policy reforms have been assorted. The government made development and improvements in reforming the revenue part of public financial management and improving the investment climate for enterprises.
It introduced, or was in the process of introducing, new laws to legalize the hydrocarbon, mining and banking sectors, and was preparing to establish institutions to fight corruption. Some reforms lagged. The rate of implementation of main development expenditures has faltered. Pay and grading reforms, a core part of the reform of the public administration, slipped well behind agenda. (21) 1. 4. 1 Living Conditions Personal security is normally measured to be good, both by Afghan businessmen and expatriates alike. Schools, health care and recreation receive low rating, particularly among expatriate staff.
The Living costs are high lack of comfortable lodging in Kabul has pushed rentals increased, meaning expatriate staff housing can cost anything from USD 1,000 for a small traditional house to USD 5,000 per month for a house with almost international standard. a lot of the country’s cultural infrastructure like museums, zoos, parks, gardens, and publicly accessible palaces and monuments were ruined throughout the war years which are mostly have been reconstructed and are used. Travel is still not possible to several places throughout the country. But there are many possibilities as well to organize trips to particular places.
For example a day trip from Kabul to travel around one of Afghanistan’s greatest treasures The Bamiyan Buddha Complex (UNESCO World Heritage Site) with the Buddha reliefs that have been smashed by the country’s former Taliban regime in 2001 and are currently under archeological assessment to take an inventory of the damage. In the wonderful Bamiyan Valley there are many caves with cave murals waiting to be shown as well as north of the country and Herat province in the west which are very attractive places. Cultural life is getting better, while quality of life still suffers from largely unfortunate economic conditions and political risks.
International organizations still do not permit staff members to get their families into Afghanistan. Many Afghan returnees, too, prefer to keep their families outside the country for the time being but if they live there also the government provides them good and special security then there is nothing to be afraid of. Despite the fact that extra-time activities are very less right now, but still there are some good places where people can pass their time such as restaurants, parks, swimming pools and other entertainments. Near the centre of the city there is the Kabul 9-hole golf course with a attractive new Club House.
The Club House is at the western end of Kharga Dam. Also an average of USD 23,000 is spent yearly where companies decide in favor of extra security measures and ordinary safety audits, which are supposed to be provided by international head office rather than recommended locally. Apparent and real risks in Afghanistan can be reduced by following a few essential regulations which are relevant to all significant regions mostly depend on local staff who better familiar with their country, their culture and local circumstances.
Despite of some security risks many foreigners are doing business in Afghanistan now which is indicating a good living condition. Also I can say that Afghanistan physical infrastructure such as main road connections and airports being upgraded as well as the Government have prepared industrial parks for offering serviced plant and warehousing conveniences. The Power problem was solved by mid 2008 as well as fixed line and mobile telephony networks installed in all major cities. (4) 1. 5 Business opportunities in Afghanistan
Afghanistan today is the place of innumerable business opportunities. Throughout the past four years, people of Afghanistan have attained major development towards peace and prosperity. Afghanistan is being built a country where women and men can find proper employment opportunities where commodities in international demand can be manufactured and traded and where national and international companies can do great business. There are numerous possibilities to invest in different fields, whether small or large, the investors can anticipate more benefits from their businesses.
If you are a businessman/woman with a vision of looking into broad and more opportunities, Afghanistan is open for you and your businesses and warmly welcomes you. (12) The countless opportunities which are available for doing business in Afghanistan could be as follow: Most of these businesses are located in Kabul, Balkh, Herat, Kandahar, Helmand, Kundoz, Jalalabad and other provinces of Afghanistan. 1. 5. 1 Investment Opportunities • Agro-processing (e. g. Juices, Jams, dairy products, cooking oil, cotton, pistachio, raisins) Construction and construction materials • Transport and Logistics • Textiles and carpets • Energy and natural resources • Chemical and pharmaceutical products • Banking and other financial services • Telecom Services • Real estate and tourism (3) 1. 6 Agriculture Afghanistan’s vast markets in the region are China, Pakistan, India, wider Middle East, U. S, and some European countries and its natural horticulture product has good brand being the geographic origin of many high-end crops like raisins, pomegranates, pistachios and almonds. . 6. 1 Opportunities The main requirements concerning import and export of agricultural crop are agro-business accessories and fertilizers and Investment in recent processing techniques (relating cleaning, ordering and classifying) as well as Packaging and cold storage facilities. Investment in processing facilities (An example is fruit juices whose market value in Afghanistan is approximately 20 million USD with a yearly growth rate of around 15% all of which is currently imported) and transportation.
If manufacturing companies are built and produce juice in Afghanistan using Afghanistan’s fruits will benefit both companies and people, they will create job for people also benefit investors when consumers start buying domestic or their products. (5) 1. 6. 2 Agriculture Investment Opportunities Investment and support priorities 1. Agro Processing 2. Commercial Crop Production and Processing 3. Livestock Production and Processing 4. Establish Fertilizer Plant 5. Support to Agriculture Infrastructure 1. Major Products for Agro Processing Fruits |Vegetables |Spices | |Apple, Plum, Apricot, Fig, Citrus, Peach, |Eggplant, Tomato, Potato, Onion, Red Pepper |Cummin, | |Grapes | |Saffron, | | | |Pepper, |
Obrazek 4 Major Procucts for Agro Processing Some Processed Products: Raisin, Dried Apricot, Fruit Juice and Concentrates, Tomato Sauce, Potato Chips. Livestock – Dairy Industry Opportunities: Milk Processing, butter, cheese, yogurt and ice cream milk powder production. Meat Products |Apiculture |Sericulture |Fishery | | Eggs | Honey | Silk |Native Trout | |Chicken |Bees Wax | | | |Mutton |Royal Jelly | | | |Beef |Chocolate | | | Obrazek 5 Livestock Investments 1. 6. 3 Major Commercial Crops Production and Processing
Nuts, Almond, Walnut, Pistachios, Edible Oils, Sesame, Olive, Sunflower, Safflower, Corn, Cotton, Vegetable India is the biggest Market for almond and it is open to Afghan goods through a favored trade contract and geographical nearness. Also Afghanistan has got 175 Kind of Raisins and is very rich in terms of having grapes and the Provinces with high grapes yield are Parwan, Kandahar, Zabul, Helmand, Saripul, Faryab, Ghazni and its Production is more than 72,000 MT metric tons per year. To build warehouses and plants will help us create jobs and also export more grapes abroad. Citrus Fruits for Processing: Lemon, Sweet Oranges, Sour Orange, Nectarine L. Nengarhar Current Production, Item |Hectares |Production MT | |Grapes |757,000 |726322 | |Apple |7,000 |54569 | |Pomegranate |8,000 |178747 | |Plum |55,00 |45174 | |Apricot |8,000 |88008 | |Peach |1900 |13622 | |Almond |12,000 |31481 | |Walnut |2,300 |9206 | |Pistachio |450,000 |2000 | Obrazek 6 Citrus Fruits for processing 1. 6. 4 Investment in Agriculture Infrastructure
Irrigation: Afghanistan requires machines such as Pump Lift scheme using pipeline for water transference and drip irrigation the locations are in the following provinces: Balkh, Kundoz, Takhar, Baghlan, Nengarhar, Laghman as well as Engineered irrigation system for canals and the locations are Jalalabad, Kundoz, Takhar, Balkh, Faryab and Badghis if invested agricultural products will grow more and will benefit both sides the farmers and those of investors. [pic] Obrazek 7 fruits and vegetable cultivated land area (16) 1. 7 Logistics and Transport Afghanistan shares boundaries with six countries Turkmenistan, Iran, Uzbekistan, Tajikistan, Pakistan and China: “Land Bridge.
New and expanding trade routes with the building of our ring road and our national highway system (roughly finished), all Central Asian Capitals will be less than 32 hours from the Persian Gulf and the Indian Ocean and Commercial transport is a high-growth sector in Afghanistan and demand for transport services is predicted to stay strong in the medium and long term. The Opportunities are Cold storage transportation facilities (refrigerated transport) as these facilities are near to non-existent inside Afghanistan, Joint ventures between Afghan Trucking Companies and foreign companies because of visa restrictions, Afghan truck drivers cannot bring and take goods out of the country and Currently no foreign companies functioning in Afghanistan. (6) 1. 8 Opportunities in Mining
Afghanistan is a very rich country in terms of having natural resources it has currently got more than 1400 mineral sources that have been found out including energy minerals such as gas, oil, coal, gemstones, copper, iron, cement, gold, emerald and so on. Its Iron and Copper deposits are of world class quality. The hydrocarbon (natural gas and petroleum) provides great investment potentials financially and as a mean of energy production. The government of Afghanistan has provided the Minerals law which governs the natural gas and petroleum industries in energy sectors and is trying to provide a suitable environment to attract and retain private investments. 1. 8. 1 World Class Aynak Copper The mine is situated 35 km south east of Kabul in Logar province.
It costs about $100 m and provides 5000 jobs. Its capital costs is anticipated to be $3. 6b and it brings $400 m to $600 m revenues for the country every year and it has already been given to MCC Chinese Company. 1. 8. 2 Ghori Cement Plant We have got many cement plants with more production capacity and they are such as the Ghori 1 Cement Factory which is situated in Puli khomri in the north of Afghanistan was taken by the Afghan Investment Company (AIC) under the privatization program of the Government in 2007. AIC is a domestic company from Afghanistan with a group of successful managers and workers which could increase the plant production capability from 150 TPD to 400 TPD.
Ghori 2 Cement Plant has the capability of producing 1000 TPD and has already started operation. Ghori 3 Cement Plant has the capability of 4000 TPD production and will be ready by the end of 2009 or after few months of 2010. Since the project requires an estimated amount of $200 m the AIC has less financial resources to increase the production line that is why it is looking for an investment partner. Afghanistan is not only having this Cement Plant but has Kandahar Cement Plant as well which is as big as Puli khomri. 1. 8. 3 Hajigak Iron Mine Hajigak Iron Ore situated in the mountainous area of Bamyan Province, 130 km west of Afghanistan capital Kabul.
The deposit expands over 32 km and is consist of 16 different zones, up to 5 km in length, 380 ? m wide and extending 550 m down dip, seven of which have been studied in feature. The ? ore occurs in both primary and oxidized states. Studies in 1960s tell that Hajigak Iron Mine has got 1. 8 billion tons of Iron with concentration of almost 63 percent. This estimation positions Hajigak Mine as world class. As well as new studies indicate that there is one more Iron Mine called Sya Dara Mine has been discovered in late June 2008 which is almost the same size as Hajigak Mine and they are all ready to be given for those who are interested to invest in the said field. 1. 9 Oil and Gas Reserves in Afghanistan
Latest study is done by the US Geological Survey (USGS) says that Afghanistan has got an estimated at 1200 billion cubic meters of natural gas and more than 150 million tons of oil. The new survey shows that Herat in the west , Helmand in the south, Paktika in the east as well as northern provinces of Afghanistan have most of the gas and oil resources. Privatization of oil and natural gas site in the northern cities of Sur-e-Poll and Sheberghan are now on offer. Natural gas in Sheberghan was one of Afghanistan’s main exports especially to Uzbekistan. Production started in 1967 with 342 million cubic meters and rose to 2. 6 billion cubic meters by early 1990s. n 1991, a new gas field was discovered in Jawzjan province and it was used for generation, power and other common use but it was demolished during the Afghan Soviet war and it is not at this time used as it should be used that is why almost all petroleum, diesel, gasoline and jet fuel are imported mainly from Turkmenistan and Pakistan and (worth about $150 billion and growing). Opportunities in these fields are very profitable for investors by extracting these reserves in the country and Government is fully committed to supporting them and these areas are stabile and peaceful as well and Investors can invest surely without any instability risk. 1. 9. 1 Dar-e-Suf Coking Coal Deposit This mine has been already discovered and is belong to the government.
Since our government does not have enough budget to fix this mine according to the international standards that is why our government is trying to offer it for an international company to extract the coal properly this mine is also located in the north where there is no security risk. It creates about 5000 jobs and anticipated revenues to government will be more than $1000 million per year. (10) [pic] Obrazek 8 quantity and value of mining (17) 1. 10 Energy and Power As we know Energy is very significant medium for economic growth. This project will improve agriculture and management of water resources all over the country. The energy infrastructure projects will enlarge and develop power supplies and extend irrigation and rural development.
Energy will provide power supplies needed for Afghanistan‘s public sectors, private sectors, job creation and poverty reduction. Investment in this field will provide direct employment opportunities in the improvement and development of power plants, gas, oil and coal fields. Investment opportunities regarding the electricity industry in Afghanistan could be as follow: Generation, Transmission and distribution including: Hydroelectric, Gas Fired, Coal Fired, Solar, Wind and Geothermal. Over twenty percent of our people are having access to the electricity which is given by the government whether through our water dams or imported electricity and the rest of population’s needs are met by generators or burning wood.
Since the demand for electricity is so high we must establish government and private sectors which are aware of international energy market in terms of distribution, transmission and generation and also for this purpose we need skilled Technical Assistance and Advisors as well. 1. 10. 1 Local Advantages Northern Afghanistan has probably got about 5 Tcf (Thousand Cubic Feet) natural gas reserves with possibly up to 100 million barrels of medium gravity recoverable crude oil deposits. More than 15 gas and oil fields have been found out there but only three gas fields developed. Opportunity to develop existing energies plants • Kajaki Dam • Mahipar Dam • Naghlu Dam • Darunta Dam • Sarobi Dam • Dahla Dam • Mazar-i-Sharif power plant
The said dams are all at this time operating under government plans and are used by the government as well as people. If they are privatized and investors invest in this part we will have our own electricity as well as export to the other Countries. Kunar Hydro-Power development Project The project production potential is hydro power generation of 300 MW in the first stage and 900 MW in the second stage. The total cost of the project is about US $ 1. 8 billion, if invested in this project it will take an estimated time of 5 years and the feasibility study of the project has been already completed. Upper Kokcha Power Project The hydropower project will produce 550 MW of electricity in the first stage 1900 MW in the second stage.
The total cost of the project is about US $1. 1 billion if started it will take 5 years of time as well as the feasibility study of this project has been completed. Shahtoot Storage Dam Project The project will provide drinking water, irrigation and energy for Kabul province. The project costs US $120 million and its feasibility study has been already done. If invested in this project it will revenue US $ 2 million per year. Kilagai Irrigation and Power Project This power and irrigation project will cost US $ 350 million and benefits people in the Northern Province Baghlan. Its feasibility study has been already completed as well. Upper Amu Irrigation and and Hydro Power Project
It is a Hydropower generation project which would produce 1000 MW electricity to the northern provinces of the country and will water large number areas. Its total cost has been predicted to be USD $ 3 billion. (7) Despite of having these many dams, still Afghanistan depends on imported electricity which is imported from neighboring countries and is shown in the table below. (18) [pic]Obrazek 9 Imported electricity by countries 1. 11 Investment Opportunity in Housing As it is known during the past three decades of war the social and economic infrastructures of Afghanistan unfortunately destroyed or demolished and about five to six million of the population migrated to Pakistan, Iran and some other countries.
People who migrated to different countries especially to Pakistan and Iran they were living all over the country where they are somehow returning to Afghanistan and mostly to Kabul. The population of Kabul city has increased due to migrants return as well as people are coming to live in Kabul in order to find work there that is why the number of population has increased to six million and the houses where people are living are not standard. Mostly the houses have been built on the government areas without any master plan which created lots of problems. The recent master plan for Kabul was approved in 1978 and that is only for 700,000 people since that time they could not build Kabul because of the war start. The present government of Afghanistan has decided to build a new city in Kabul called Dehsabz.
Dehsabz is a wondering new city selected to become Afghanistan’s most famous and modern city. It is situated in the north east of Kabul with the size of 500 square km and is 20 km from the centre of existing capital Kabul city. It is 1. 5 times bigger than the existing urban area of Kabul city. The area is flat surrounded by the mountains creating a triangle shape. The site is located at an average height of 1800m. The city has been divided into many parts and is going to be built over 20 years. Mechanism for the private development is put in place and private entrepreneurs are invited to take advantage of the opportunity. Right now 5 million people are living in Kabul and many of them have not got houses.
The price of the developed lands is anywhere starts from US $ 10,000-$ 40,000 for 100 square meter for residential and anywhere from $20,000 to $ 100,000 for 100 square meters for commercial areas. Also as we know Afghanistan is a country which is currently under development, and many people are returning home therefore Afghanistan needs the investors to invest in this part such as building apartments and houses not only in Kabul but in all major cities and prepare the ground of a good life for the people as well as getting profits in return for their investments. Government of Afghanistan is fully committed to support them. (8) 1. 12 Telecommunications Communications in Afghanistan has rapidly increased since 2002, and has got many wireless companies, internet, radio stations and television channels.
The two major telecommunication companies are Afghan Wireless and Roshan, having the most customers in cellular phone usage in the recent few years. There are three more companies now in the telecom business in Afghanistan, one is Areeba, 2nd Ts_2 and the other is Etisalat which have started operation since 2007. In 2006, the Afghan Ministry of Communications has signed a US 64. 5 million dollar contract with a company (ZTE Corporation) on the establishment of a countrywide fiber optical cable network. This will develop telephone, internet, television and radio broadcast services all over the country. (9) 1. 13 Afghanistan Carpet Industry Afghanistan has been the traditional producer of Carpets and rugs.
However carpet industry and the export of carpets and rugs suffered badly when the Taliban came to power. Most of the carpet weavers escaped to Pakistan and came back only after the Taliban were overthrown. The carpet sector is one of the most significant sector from which Afghanistan receives or gets a lot of foreign revenue. In 2002/03 carpet exports accounted for 47 % of the country? s export earnings. To extend this sector the United States have given support to Afghanistan. According to statistical data, in 2005, Afghanistan sold abroad $140 million worth of carpets. Most of the carpet manufacturers and skilled craftsmen have migrated to Pakistan. The officials are trying to call them back home.
According to report if government can bring back some of the carpet industry that have shifted to Pakistan, the size of the industry would doubled. U. S. Agency for International Development has projected the growth of this sector 11 percent a year. It is estimated that by 2015, Afghan carpet exports would reach $350 million. Industry Structure The carpet industry of Afghanistan has got more than 1 million people, about 3 percent of the population. Millions of people are working in the associated industry like wool production, cutting, washing and design. Since this industry has an enormous export potential, government and private sector are supporting it vigorously. Most critical problem of Afghan carpet industry is that there is limited direct access to the overseas markets.
Currently, most of the production for the overseas market is transported to Pakistan for washing trimming and finishing, and re-exported from there to the overseas markets. Since there is an old age tradition of carpet weaving in Afghanistan and the carpets woven here bears certain richness and the uniqueness in designs, a promising strategy should focus on the promotion of high quality carpets made in Afghanistan. (20) 1. 14 How can we develop Afghanistan Economy As I did a lot researches regarding business in Afghanistan I found out that Afghanistan has got a lot of natural resources , if they are extracted it means Afghanistan will be able to stand on its own as well as help some other countries.
However, our Authorities are doing their best to find out ways to introduce our resources to the investors an example of which could be the recent trip of our president to China to encourage Chinese investors to take part in investment in Afghanistan, I as an Afghan student also took a look at South Korea‘s Economic Development Program plan and found it very interesting and significant which could be applied the same in my country if not the same at least the ideas of Mr. Park Chung-hee who was a military leader with less political or administrative background and later changed or turned to the economists and planners for assistance could be efficient for our economy. As we know in 1961 he sat up an economic planning board, launched a program of rapid industrialization based on exports. He drafted a five year economic development plan.
Park’s policies motivated private entrepreneurs. Businesses were given strong incentives to export, including preferential treatment in getting low-interest bank loans, import rights or advantages, permission to outsourcing or borrow from foreign sources, and tax benefits. As the United States had stabilized Park’s regime turned to financial diplomacy with other countries e. g. Japan and his visit from Germany in 1964 in order to complete his development plan. Substantial successes were gained under the first two five-year economic development plans. The manufacturing sector provided the main motive, growing by 15 percent and 21 percent, as well as, during the two plans.
Domestic savings rates grew and exports expanded significantly. A new economic strategy showing diversification in production and trade proved, over all successful in the 1970s. Under the third plan, the government made a great move to enlarge South Korea’s heavy and chemical industries, investing in steel, machinery, shipbuilding, electronics, chemicals, and nonferrous metals. South Korea’s capacity for steel production and oil refining increased most outstandingly. Refineries for zinc and copper and modern shipbuilding facilities were built automobiles started to be exported to a few markets. The plan sought to better prepare South Korea for competition in the world market.
To compare South Korea’s 1961 situation to the current situation of Afghanistan I can say that Afghanistan has more choices than South Korea had. For example, U. S. A had stabilized and South Korea had to turn to Japan to better their economy, their president visited Germany to get support for their Economy grow, they had steels, chemicals, electronics, shipbuilding and other facilities where today world is ready to support Afghanistan. U. S. A, Germany, U. K and many other European countries are trying to help Afghanistan now this is the time that Afghanistan government must hire those who are capable of working for example, we also have resources if we do not have ships, chemical industries we have resources we can use Park’s ideas to get financial support from the U.
S and Europe to invest in our natural resources, extract and export them and from its income we can build industries in Afghanistan as well as return the liabilities which will be due to the countries that we borrowed from. The main difference is that we should have ten year economic development program plan to build our economy. Mr. Park’s ideas are very useful and efficient if we apply them in our country as well. This is according to my own ideas and I am sure it works very well in Afghanistan. (13) Business Supporting Programs Afghanistan government itself is committed to support business programs in the country through providing security, safe places, and Transportation facilities, helping to promote businesses and supporting investors to sell their products inside the country or exporting them outside the country.
As well as there have been many international organizations which are helping Afghan government to support businesses in the country and they are as follow. 2. 1 Afghanistan’s Business Supporting Program Partners 2. 1. 1 USAID (United States Agency for International Development) The United States Agency for International Development is trying to assist the Government of Afghanistan to build a safe, free and successful future, at peace with its neighbors and a good partner to freedom around the world. USAID is funding the construction and reconstruction of infrastructure mainly for more economic growth and national integration. The main concentration is roads, including a part of the Kabul-Kandahar-Herat Highway and almost 1,000 km of provincial, district and rural roads.
USAID is also investing in building and rehabilitation of power plants, transmission lines, dams, irrigation and flood control systems, industrial parks, bridges, universities, schools, and clinics. Also it has helped to provide a more attractive environment for economic growth by helping to the Government of Afghanistan to form and carry out sound, sustainable, clear, and predictable economic policy. This is consist of improving fiscal and monetary policy, in raising revenue and expenditure management, improving banking supervision and the legal framework for the financial, commercial, and trade sectors. USAID also operates directly with the private sector to support and introduce competitiveness in domestic and international markets. (11) 2. 1. 2 MIGA (Multilateral Investment Guarantee Agency)
As an element or portion of the World Bank Group, MIGA’s mission is to support foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty, and improve people’s lives therefore it operates in Afghanistan as well. Why FDI (Foreign Direct Investors)? The development requirements today are clear. Almost 28 percent of the world’s population1. 7 billion people are earning less than one dollar a day. Billions of people stay alive without having access to safe drinkable water or good treatment. Children are not able to go to school because there is even no electricity to light classrooms in some countries, and no roads to go to school in others. The list goes on. Developing countries governments are not able to solve these problems by themselves because of lack financial and technical support.
Foreign direct investors are able to play a particular role in decreasing the poverty, by constructing roads, for example, preparation of clean water and electricity, and more over, creating jobs. By taking on these tasks, the private sector can support economies develop and fulfill the requirement for governments to use aids better spent on fulfilling social needs, while getting advantage of the chances to provide profitable investments. Also MIGA and FDI have accountability of investment environments and recognition of political risk often put off foreign direct investment, with the majority of flows going to just a handful of countries and leaving the world’s poorest economies largely ignored.
MIGA indicates these concerns by dividing them into three key services: political risk insurance for foreign investments in developing countries, technical assistance to improve investment climates and promote investment opportunities in developing countries, and dispute mediation services, to remove possible obstacles to future investment. MIGA’s operational strategy plays to our foremost strength in the marketplace attracting investors and private insurers into difficult operating environments. The agency’s strategy focuses on specific areas where we can make the greatest difference. Investment into war torn countries is another operational priority for the agency.
While these countries are willing to attract considerable donor goodwill once conflict ends, aid flows eventually start to decline, making private investment critical for reconstruction and growth. With many investors wary of potential risks, political risk insurance becomes essential to moving investments forward. MIGA offers comparative advantages in all of these areas from their unique package of products and ability to restore the business community’s confidence, to our ongoing collaboration with the public and private insurance market to increase the amount of insurance available to investors. (11) 2. 1. 3 United Nations Development Program
UNDP has been present in Afghanistan since the 1950s, providing development assistance to the country and helping construct the many national institutions. In 1990s, while many government organizations were destroyed by civil war and ignored by the Taliban regime, UNDP continued to help communities all over the country. During that decade, UNDP helped US$200 million of assistance to Afghanistan, using its own resources also those mobilized through other partners and its extensive all over the country. The depth of poverty in Afghanistan is considered compitable in all human development indicators, discovering an image of a nation in need of sustained assistance. Not surprisingly, therefore, Afghanistan has been introduced as a global priority for addressing the Millennium Development Goals.
Within Afghanistan’s broad National Development Framework (NDF) are many cross-cutting priorities that points gender equality, stability and regulations, administrative and financial reforms, human rights, environmental integrity, the return of migrants and internally displaced people to their communities, and reintegration of former combatants into society. Guided by the requirements set forth in the NDF, UNDP Afghanistan focuses its activities on the following UNDP global practice areas: poverty reduction, democratic governance, and crisis prevention and recovery. The UNDP Afghanistan programme remains responsive to the amending requirments of a nation still in going from conflict to peace. Afghanistan is at a critical point in proceeding from state building initiatives to emerging as a newly democratic state, and the opportunity to shift focus to longer term development and government support is at hand. In accordance with, the UNDP
Afghanistan programme of activities is organized thematically into three pillars: State-Building and Government Support, Democratization and Civil Society Empowerment, and Promotion of Sustainable Livelihoods. (11) 2. 1. 4 IntEnt, a bridging program for SME’s IntEnt has been established to make easier the process of finding new profession by entrepreneurial and enterprising migrants. IntEnt shows a difference itself from regular SME promotion programmes with its particular focus on connecting two worlds. Its services are primarily given to migrants who wish to set up a business in their countries of origin. People live in two societies and look for ways to make use of experience and insights gained in either country. The customers praise that approach and seek help for that reason from IntEnt. (11) 2. 1. 5 Afghanistan Business Council (ABC)
The ABC’s main goals and objectives are defined as per following: This organization encourages all UAE based Afghan businessmen to invest in Afghanistan to have close relationship with Businessmen in Afghanistan as well as to create the joint investment-venture in the country. Providing a marketplace where Afghan business executive in Dubai and business executive with Afghan interest may introduce, discuss and share common interest regarding their activities and heightening awareness of Dubai’s commercial position in the Middle East among the Afghan business community. It also Forms reference, aggregation and information of referees for Afghan individuals and companies that operate or intending to establish an activity in the territory of Emirate of Dubai.
To improve the state of commerce in Afghanistan by means of a strong private sector active in a stable free market and also to increase international investment and trade with Afghan companies, Safeguard Afghanistan’s economic growth via the enactment and performance of economic reforms and strengthening the state of commerce in Afghanistan by means of a strong private sector active in a stable free market economy. Increase foreign investment and international trade with Afghan companies and the drive to set up the organization stemmed from the need to incorporate ideas, interest and influence into one uniform body for the Afghan business community in the U. A. E. Based in Dubai, the ABC is a private non-profit organization representing Afghan businessmen.
The strength of the Afghan business community in the UAE has grown commensurably with the U. A. E realizing its position as a key regional player. The Afghan Business Council in Dubai consists of 170 members out of 326 businessmen who are registered by Dubai Chamber of Commerce and Industry so for. ABC in Dubai represents a various and broad group of Afghan businessmen across a range of sectors. With an annual flow of 10 billion USD between Afghanistan and Dubai, U. A. E. based Afghans are the most influential of the Diaspora. Since being approved the license to operate, ABC organized a number of seminars in the U. A. E. and attracted huge interest.
The inaugural event, “Business in Afghanistan: Opportunities and Challenges” had marked the formal opening of the Afghan Business Council in Dubai, which took place on 21st of January 2006. (11) 2. 1. 6 World Bank The World Bank is a primary source of financial and technical assistance to developing countries around the world. They are not a bank in the common sense. They are made up of two unique development institutions owned by 185 member countries the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Each institution plays a different but supportive role in their mission of global poverty reduction and the improvement of living standards.
The IBRD concentrates on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together they provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes. (11) 2. 2 Role of Small and Middle-Sized Enterprises in Afghanistan 2. 2. 1 Afghanistan Small and Medium-Sized Enterprise Development Activity (ASMED) ASMED, which began working in late 2006, is a three-year small and medium-sized enterprise (SME) development assistance program. DAI is helping to give technical assistance and financial support to the SME sector and the organizations that can help SMEs all over Afghanistan.
ASMED’s activities will have its national headquartered located in the capital city of Afghanistan Kabul, there are also two other branches operate in Herat and Nangarhar, and two partner offices in Helmand and Badakhshan. The said Organization goal and objective is to raise opportunities for trade, employment, and investment in Afghanistan, ASMED concentrates on five main economic development activities: Gathering, analyzing, and disseminating Afghanistan market information; Developing strong business services providers; Strengthening and increasing the numbers of business associations; Creating public-private sector alliances; and Building the capacity of an Afghan private sector workforce. Some particular examples of these operations or activities are already happening.
For example, one of the difficulties facing business associations is that they lack input in the future of the business regulatory environment. DAI’s ASMED this team has already started working to build a strong advocacy capacity among business Companies. SMEs themselves sometimes find it challenging to identify investors to support grow their businesses. ASMED will assist SMEs in introducing foreign companies wanting to invest in the Afghanistan economy and then forming a relation with these Companies. Recently, there is a recognized requirement in Afghanistan to build the private sector skill capacity of recent university graduates and young educated professionals.
ASMED performed internship programs with Nangarhar University in Jalalabad and Kabul University in Kabul. Upon completion of a two-month business training course, 120 interns were matched with well-established, successful organizations and business people all over Afghanistan. The program allowed participants to gain required experiences and then take that knowledge to businesses, organizations, and government agencies all over the country. (19) How to set up Business in Afghanistan Now doing Business in Afghanistan is very profitable because the government of Afghanistan is trying to attract the attention of investors and ask them to invest in any field they are willing to do and many of these fields have been named and explained above.
To start business in Afghanistan as well as to know how to go there or what processes you have to follow in order to be able to establish your business there are some requirements regarding doing business in Afghanistan as follow and they must be fulfilled to start business. 3. 1 Applying for Visa and Work Permits Short term business visas are on hand at the Afghan Embassy in your country for single and double entry and multiple visas are given for three to six months time. You must have a valid passport (validity more than six months) and a business or sponsorship letter that confirms you are going to do business in Afghanistan and that is one of the requirements.
For more information and relevant fees, Afghan Embassy in your country will help you and If you are holding a valid business license with AISA our investor support extends the service of applying for and / or renewing a work visa for your foreign staff. AISA charges US$10 as service charge. To renew your Visa inside Afghanistan you will pay USD 10 per month for a single entry visa and USD 30 per month for a multiple entry visa. Visas “on arrival” are not offered at present but they will be given in the near future. You should better contact the Afghan Embassy before you leave home. Foreign workers in Afghanistan will require a work permit from the Ministry of Labour and Social Affairs. The owner of the company has to apply for his worker to get a work permit which will be granted for one year.
The work permit can be extended inside Afghanistan for another year if the employer extends the work-contract with his worker. 3. 2 Labor However, rate of unemployment is very high and that is about 40 % in Kabul and almost 50% outside Kabul the capital of Afghanistan, labor in Afghanistan is on hand at inexpensive prices. It is easy to find inexperienced workers and they are tending to work and learn things. Competition amongst employers is higher as far as general management skills and English language are required. Technical know-how and engineering knowledge are somewhat insufficient; the reason is that the country suffered nearly three decades of war and economic isolation.
Tensions in the labour market are becoming good by returning Afghan professionals and their children who lived and grew up and have been educated mainly in Pakistan, UAE, Iran, UK, USA, and Germany. Investors should, however, still be ready to invest mainly in the other technical training of its local workers. The lowest working age is 15 for trade and light industry work, and 18 for heavy industry. Formal working hours reaches to 40 hours per week, for underground work, such as mining, it is 35 hours per week. Night shifts are to be maximum 11 hours and overtime payment is 25% over the normal salary. Workers are given double salaries during holidays which reaches to 20 days anually and to 30 days annually for minors. 30 days unpaid holiday is not obligatory.
Sick leave is 20 days per year. In case of sickness for more than 3 consecutive days, a physician’s statement is required. A new employment and labor code is currently being drafted. 3. 3 Office Space and Industrial Plots Rents for commercial ads and prices for industrial places have been increasing for the last three years in the main business centers of Afghanistan, reflecting powerful economic recovery and short property supply. Prices have factually risen in Kabul, where international organizations and embassies set up their permanent foundation, private sector established offices and shops, and the government refurbishes dilapidated buildings.
In the center of Kabul, smaller showrooms and modest offices were rented at USD 1,500 per month by the end of 2001, while rents went up to USD 9,000-10,000 by the end of 2004. Even if certain IMF and government figures showed a dramatic slowdown in rents from January to June 2005, prices almost are to stay at a very high level for the time being. Supply will catch up only slowly with strong demand in Kabul, which has grown from less than one million inhabitants in 2001 to 3-4 million by mid-2005 and is expected to become a leading regional business center in the years to come. As for industrial places, there will be a huge variety of attractive investment local options in the longer run, as most properties in Afghanistan is owned by the government and privatization is an issue to come.
For the time being, though, accessing government land still is a highly individualized process characterized by many individual government agencies owning, leasing, and selling property in a unclear and not in agreement manner. The private property market works largely on a discussed basis. Title disputes are common, procedures for leasing or selling property differ broadly, and recourse and judicial settlement are difficult and can become bigger on for years. First phase projects include the Bagrami Industrial Park, a 24 hectare (52. 8 acres) park situated 7 km east of central Kabul; Mazar Industrial Park, a 26 hectare (57. 2 acres) park situated 7 km north of Mazar-e-Sharif; Kandahar Industrial Park, a 15 hectare (33 acres) park situated 10 km east of Kandahar.
A second phase of projects is also in progress, which includes Industrial Parks in Kamari, a 120 hectares park situated 13 km from central Kabul; Sinjet Dara Industrial Park, a 120 hectare park situated 7 km south of Charikar; Deh Sabz Industrial Park, a 750 hectare park situated 5 km north of Kabul Airport. Third-phase projects are in the pipeline. The new industrial parks provide a mixture of high quality infrastructure and services, unavailable elsewhere in Afghanistan; including clean land title, reliable electrical power supply, 24 hour security, paved roads, central water and sewage system, and professional management also we are trying to build more industrial parks in other regions in the near future. The works for the first three parks have been done with USD 10 million funds from USAID in 2004.
First plots in the Bagrami Industrial Park reaching from 1,000 to 4,500 square meters have been sold to 34 successful bidders out of 200 applicants and 93 shortlisted businesses, generating income of 1. 6 million USD. Certificates of ownership have been handed over in August 2005, allowing the new owners to set up their facilities immediately. 3. 4 Power, Water and Sewage Infrastructure Basic services such as electric power, water and sewage infrastructure are still less in Afghanistan. Most companies use their own power generators, and even were state or municipal services are available, companies, mostly rely on their equipment due to constantly breakdowns of the system. There are no fixed rates for power to date, with prices between companies and government being discussed on a case-by-case basis.
The same conditions apply to water. Companies generally drill their own wells and then pump for free. 3. 5 Transports and Logistics Poor roads, arbitrary road closings, unloading and reloading at the borders, poor condition of vehicles, custom delays, arbitrary rules and regulation in Afghan countryside, difficult access to insurance for shipments these are the most pressing issues in Afghanistan’s transports and logistics sector today. Views of local and international investors do not differ significantly in this respect. Air transport is to date the best way to bring goods into the country 74 % of goods arrive on time and practically none get lost.
Commercial goods entering the country by road, rail and sea take an average of 9 days to pass customs at the border of Afghanistan, and companies indicate that unofficial payments to customs officials and multiple customs checks in the country are the norm. Better services and cheaper prices, however, can be expected in the years to come. High profitability of the sector and expected new market entrants as well as the strategic importance of transports and logistics to the entire region will put significant pressure on reconstruction and ongoing custom reforms. 3. 6 Financing and Insurance Similar to almost everything else in Afghanistan, the country’s financial sector is being (re-) built from the ground up. More successes are consisting of the institutional recovery of the Central Bank of Afghanistan and the introduction of a new and stable currency (Afghani) in 2002.
While sector reform will go on for the next years, international banks such as Standard Chartered, National Bank of Pakistan, Habib Bank (Pakistan), Punjab National Bank (India), Aryan Bank (Iran) Afghanistan International Bank (managed by Dutch ING, controlled by ARC Companies LLC, Constellation Business Group Inc. , Rahmat Group, Marco Polo Gulf Trading FZE, Asian Development Bank, Overseas Private Investment Corporation), First Microfinance Bank (Aga Khan Fund for Economic Development, Deutsche Kreditanstalt fur Wiederaufbau, International Finance Corporation) have entered the market. Available banking services are consisting of domestic and international money transfers, letters of credit and other business services, savings and current accounts.
Selected credit products and financing instruments are available for specific targets such as donor-financed reconstruction projects, cross-border trade of basic consumer goods, fuel or construction supplies as well as (mainly rural) micro-financing programs. Current reluctance of banks to engage more strongly in SME business, project and investment financing in Afghanistan stems from the continuing lack of enforceability for loan agreements and lack of guarantees. Even when guarantee in the form of land or property is offered, current systems of deeds and property rights enforcement makes it difficult to know if a property can be considered to be legally owned.
New developments in the sector include the availability of long-term political risk insurance offered by the Multilateral Investment Guarantee Agency (MIGA) to foreign investors and foreign financial institutions, located abroad or in Afghanistan, who make loans to local Afghan businesses. Coverage is available against transfer restrictions, expropriation, war and civil disturbance, breach of contract. Also, a first venture capital fund has been sat up: The Afghan Renewal Fund backed by USAID, ADB (Asian Development Bank), and UK-government owned CDC – will initially offer USD 20 million for SME funding in different sectors, with project fundings between USD 500,000 and USD 5 million. You won’t find it so hard to secure financing if you engage in trade or procurement in Afghanistan.
Standard banking products and services for trade are available, and large scale contracting and procurement are being financed by international donors following international standards. Several international banks have entered the Afghan market. You should better directly consult with the government agencies in your home country to learn more about funds that potentially can be used to co-finance your investment in Afghanistan. The Overseas Private Investment Corporation for example, has a USD 100 million line of credit available to help US companies of all sizes to invest in Afghanistan. Further potential co-funding for your investment is available if your proposal relates to the specific agenda of a major development agency operating in Afghanistan. The Afghan Renewal Fund is the country’s first venture capital fund.
It is backed by USAID, the Asian Development Bank and UK government-owned Capital for Investment Group. The fund deliberately targets small and medium-sized investments in different sectors as these promise high profitability with fast growth and quick returns. The Afghan Investment Guarantee Facility (AGIF) is yet another mechanism designed to promote, more particularly, small and medium-sized foreign direct investments in Afghanistan. The facility is administered by the Multilateral Investment Guarantee Agency (MIGA) and offers long-term insurance against political risks such as transfer restrictions, expropriation, war and civil disturbance, breach of contract. 3. 7 Types of Taxes Paid while Doing Business
Before establishing business there are some types of taxes which must be paid and they are as follow: 3. 7. 1 Taxes and Incentives The International Monetary Fund and the World Bank have been modernising the Afghan tax regime creating a more effective and transparent system that follows international standards. Major changes have been introduced in April 2005. 3. 7. 2 Corporate Income Tax Corporate income tax is a flat tax of 20 % of net taxable income. Net taxable income is calculated by deducting all ordinary and necessary business expenses from gross income. Corporate rates apply to legal entities such as corporations, limited liability companies, and some types of partnerships. 3. 7. 3 Personal Income Tax
Resident natural persons are taxed on income from all sources worldwide, including but not limited to wages, salaries, rents, certain types of partnership income, royalties, etc. Non-residents are taxed on all income with its source in Afghanistan. The annual tax rates are as follows: Personal income up to 12,500 AFS (USD 29) will be exempted. Incomes of more than 12,500 AFS and less than 100,000 AFS will be charged 10 % income tax. Incomes above 100,000 AFS will be charges 20 %. 3. 7. 4 Wage Withholding Employers with two or more employees are required to pay tax from their employees’ salaries/wages based on the above rates. These rates are pro-rated based on the frequency of payment (monthly, weekly, etc. ).
Wage/salary earners with only one employer and no other sources of income are not equired to file an annual tax declaration. A wage earner who has more than one employer or additional sources of income must file an annual income tax declaration. 3. 7. 5 Income Tax for Sole Proprietors Sole Proprietors Self-employed individuals must file a tax declaration, and are allowed to deduct all ordinary and necessary business expenses to compute net taxable income. Tax at the 10% and 20% rates is then computed on net taxable income above 150,000 and 1,200,000 Afghanis per year, respectively. This is the same tax-free threshold given to wage earners. 3. 7. 6 Withholding Tax on Rental Services
This is a pre-payment of landlords’ income tax. Legal entity tenants and natural person tenants conducting business at the rented property, and paying more than 15,000 Afghanis per month in rent are required to withhold the tax at the time the rent is paid. The tax is 20% of the rent payment. The landlord is responsible for reporting rental income on his annual income tax declaration and paying tax annually at appropriate rates depending on entity type (legal person or natural person). Ordinary and necessary expenses of maintaining rental property are allowable as deductions against rental income. Tax withheld and paid by the tenant is allowed as a credit hen the annual tax declaration is filed. 3. 7. 7 Business Receipts Tax A 2% business receipts tax is imposed on gross receipts of all types of income of corporations and limited liability companies, except for rents, royalties, commissions, fees, interest, dividends, and similar income, which is taxed at 5%. In addition, a 10% on gross receipts for businesses with over 50,000 afghanis income per month is imposed on service providers in the following sectors. Passenger airline services, Telecom services, including Internet, Hotel services and Restaurant services the tax paid is deductible from gross income in arriving at taxable income for income tax purposes. 3. 7. 8 Custom Tariffs
A new customs code has dramatically reduced and simplified the very large number of ad valorem and regionally-specific customs duty rates to six major national categories: 2. 5 percent (essential food and non-food products), 5 percent (raw materials and capital goods), 8 percent (petroleum sector), 10 percent (semi-manufactured products), 15 percent and 16 percent for respectively luxury and non-priority products. 3. 7. 9 Repatriating Capital and Profits Private investors have the right to transfer their capital and profits out of Afghanistan. They may sell the enterprise and may transfer their capital and proceedings of the sale outside the country.
These rights and respective procedures have been guaranteed by the new investment law as issued in 2002 and amended in 2005. 3. 7. 10 Corruption Howere, the rate for corruption is very high you should better be careful while doing business. The Government of Afghanistan has started the process of eliminating corruption still the best way for you to invest in Afghanistan and make sure that you are not cheated you should be in contact with AISA, AISA is ready to assist you in all stage of investment implementation to reduce red tape and prevent any kind of corruption. The above information is given in order to let you know about doing business in Afghanistan which have been gotten from AISA government official website and are the accurate information. (2) Results
Before writing my thesis i thought that I knew many things about Afghanistan, Business, Business Oppotunities and Business Fields, and finally I found out that my information were quite less than what i thought, but this Topic that i have chosen as my thesis and is about Business Environment in Afghanistan helped me know more and more about Afghanistan, business and its possibilties. According to my understanding that i have learnt while searching for information regarding business environment in Afghanistan i found out that there are lots of fields and opportunities which show that the possibilities for doing business in Afghanistan are as high as possible and if they are introduced well to the world specially to the investors and their attention is attracted our country will become one of the most successful countries in the world as well.
What really importan for doing business in an environment is to analyze and resrearch about the people, place, culture, opportunities, the field that you want to invest in and some other issues in a country as well as having enough financial resources in order to run your business and employing qualified and eduacated people with experience in order to be successfull and acheive your goals according to the mission and vision that you have chosen for your business. A country like Afghanistan which is very rich having natural recources starting from gas, petroleum, copper, coal to many other natural recources, being backward in the world does not make sense but it is a backawarded country and there are reasons like what made Afghanistan become poor and backward? There could be many factors and the main factor which could stop Afghanistan from development, extracting or uncovering its natural resources, is war. According to the history of Afghanistan that I prefer adding some of its outcomes here in my thesis, i decided to write some of the information that
I have learnt about my country specially after getting its independience or freedom from Britrishers in August 19, 1919 Afghanistan could start developing socially and economically in different fields such as establishing its own Army and Police, Airline, Univesities, Schools, Roads some manufucturing firms such as cement, suger, cotton and silk, coal, copper, electricity, transportation, post offices, telecommunication but only in few major parts of the country, government offices and starting trade or international trade particularlly importing and exporting to the neighboring countries and so on till USSR invasion of 1979 to 1989. Some infrastructures that Afghanistan could built during these years have been destroyed as a result of three decades of war againist USSR as well as civil war and war against Taliban and some of them have been rebuilt by the country and its international allies. Also i contacted the head Ariana Financial Services Group a Business Organiztion in Afghanistan and sent her a questionnaire in order to get reply and according to that I prove business conditions in Afghanistan, and the reply as follow: Results of my Interview The Questionnaire has been prepared by me and answered by Mrs.
Storai Sadat the Ariana Financial Services Group Executive Director which is as follow: Ariana Financial Services Group 1. What to have to become an Organization? First of all to become an organization we should have a very strong team, system, and to have a strong leader. 2. How do you describe your Organization? Or company profile? AFS JSC (Ariana Financial Services Joint Stock Company) is a micro-finance institution based in Kabul, Afghanistan, operating in close partnership with Mercy Corps. Among the major goals of this partnership are the strengthening of AFS’s capacity in micro credit program management and eventual program localization (transfer of management to the local organization).
AFS JSC is offering solidarity group loans, individual loans, agriculture loan product in the east of Afghanistan and recently introduced the Islamic Shariah Product Murabaha. 3. Who are you financed by? You operate on your own or supported by international partners? AFS JSC began operations in April 2003 with an initial grant from the Bill & Melinda Gates Foundation. The success of the initial operations led Mercy Corps to submit an expanded proposal to the World Bank for funding under the Microfinance Investment and Support Facility for Afghanistan (MISFA) program, which is implemented by the Ministry of Rural Rehabilitation and Development (MRRD), and in 2007 AFS signed the new contract with Kiva. org which is a web based donor in the US. 4. What is your mission and vision?
Vision: To be a sustainable, nationally recognized financial services institution whose activities are targeted toward reducing poverty and generating employment in Afghanistan. Mission: To create a nationally recognized sustainable financial services institution, providing high quality and fair priced loan products in a transparent and sustainable manner to the economically active poor which will increase their incomes, expand their businesses and improve their quality of life. 5. What are the procedures to become an Enterprise or a Business Organization in Afghanistan? Easy or difficult? If you want to start a business organization in Afghanistan it is very easy, In order to operate a business legally in Afghanistan it needs to obtain a business license.
This license is awarded through AISA and is to be renewed yearly. Certain industries, e. g. the Health Sector, require an additional license from the respective ministries. Both need to be obtained prior to starting business operations 6. As an enterprise how do you see the future of business in Afghanistan? Do you think that, your goals and objectives are achieved/ achievable? Well it depends on the business that you want to start, export and import companies are very successful and services are also profitable, but the productive companies are not very successful, due to the security situation in Afghanistan they can’t achieve their goal and objectives.
Since we are a service provider company our goal and objectives are achievable. 7. What are the main business opportunities and threats? Have you ever faced to any threat that cause you slow down expanding your business or you could expand it to other provinces as well? Opportunities • Usage demand from the community for business • Easy labor market • A number of refugees especially in Nengarhar have returned, are resettling and rehabilitated and now have started micro enterprises – provides a market for microfinance services. • Liberal economic policies – e. g. privatization of state corporations – if managed well will reduce corruption and enhance efficiency. Kabul Bank has big branch network, presently covering 19 provinces and soon to cover all of Afghanistan. AFS will use Kabul Bank’s branch network for money transfers to branches, client disbursements, repayments and remittances. Threats/Challenges • There is increasing criminal activity in the country, adversely affecting a cash-based operation. • Luck of Gov support • Future political instability uncertain especially leading up to and after the 2009 elections. • High inflation • Opium economy is quite significant and therefore recipe for conflict and instability. • Economy is highly dependent on agriculture and therefore vulnerable to changes in weather conditions. Rapid urbanization will exacerbate the poverty levels and this would create more challenges to the microfinance industry. • Men and women do not mix – work • Although the education system is being revitalized, at present universities are not producing graduates with the skills needed by companies • Low literacy level • Cultural norms do not allow women to travel internationally (and sometimes internally) without the company of a male family member. This impedes staff development efforts. • Hundreds of bridges were destroyed and have not been opened yet. Transport for any distance is characteristically difficult and risky, especially in winter. Although electricity capacity has almost doubled compared to 2002, the country still experiences blackouts and as generators are the source of power the cost of operations is high for company 8. In your point of view, is it profitable to set up business in Afghanistan? A very difficult question, again if you do services since you do not invest much it is profitable but if you want to have productive company it is hard to be profitable soon. 9. Do you recommend international investors to invest? The same as above. (Question no 8 ) (1) According to her it’s profitable if you do services and export and import businesses but it’s hard for productive companies to make profit because of security reason.
But what I think is that even you have productive company you can make profit the example is the Baghlan Cement Factory. However it is not functioning fully because of lack of enough financial resources but still their activities are done very well in Afghanistan. Here I am going to conclude or summarize my Thesis. Conclusion My Thesis conclusion based on the information explained in the previous chapters. In this part of my thesis I am going to repeat the most important facts as well as give some recommendations, visions and solutions for the problems that I faced to during my research also express whether my goals and objectives have been achieved or not.
The important facts in my thesis that I could focus on would be the current economic, political situations which include the security and other business facts. Then I will start explaining my vision and give some recommendations to prove my goals and objectives. Before I touch upon business and business opportunities I will shortly explain something about money stability in Afghanistan. Afghani which is our currency has been stable for nine years and One USD is equal to Fifty Afghanis and the reason why it is stable? Because of the central bank well control over the foreign currencies or good monetary policy as well as the international aids flow which is circulating in Afghanistan.
According to the research that I have done and found out information about Afghanistan economy as well as business and business opportunities I can say that there are many different and beneficial fields where investors could invest and those fields are as follow: Agriculture, Agro-processing (e. g. Juices, Jams, dairy products, cooking oil, cotton, pistachio, raisins), Construction and construction materials, Transport and Logistics, Textiles and carpets, Energy and natural resources, Chemical and pharmaceutical products, Banking and other financial services , Telecom Services and Real estate and tourism. The domestic and international investors have invested very well in banking and other financial services as well as in the Telecom services and they are offering satisfactory services for the people and also making profits because of having more customers.
Also beside the full support of the Afghan Government from the investors or investment in Afghanistan there have been many International Organizations which are currently operating in Afghanistan and their goals and objectives are to build Afghanistan’s infrastructures and support the businesses and they are such as: UNDP, World Bank, Afghanistan Business Council, IntEnt, MIGA, USAID and some others. The small and middle sized enterprises started to play a good role in the country’s economy too and their goals and objectives are to raise opportunities for trade, employment, and investment in Afghanistan, ASMED concentrates on main economic development activities. Why there has been done investments in other fields as well but less than these two other (banking and Telecom) sectors? The reason is security that I am going to write about it now.
According to the World Bank Afghanistan security is worsening compare to the last year and increased by forty five percent which shows a very high rate but they have not specified the unsecured areas. According to my own daily information that I get through the Afghan newspaper and media I will also confirm the World Bank report but not everything. The security is worsening in Afghanistan it is true but not all over the country only in some few southern provinces of the country and the rest of the country is controllable and the security is tightened there. If situation was that bad it meant that no company would have operated in Afghanistan by now.
According to my ideas the security situation is changing and it is getting better because of the Afghanistan’s Authority’s hardworking as well as the international community support. The other thing which is necessary to be mentioned is establishing business in Afghanistan. As I explained it in the third chapter of my thesis in details I can say that to set up a business in Afghanistan is very easy. To go to Afghanistan you need to get visa and the visas are given to you through the Afghan embassies in your country and it could be easily renewed in Afghanistan as long as you submit a confirmation letter from the company that you work for in Afghanistan and you will get it.
The other good thing to do business in Afghanistan you need to get a Business License from AISA Afghanistan Investment Support Agency which is an official government organization with good reputation. If you are registered to this organization you will not be deceived by others to pay them bribe and do your work. This organization will help you according to the Afghanistan Business Laws and Regulations. 5. 1 Suggestions While i was reading about business, investment and trade in my country i found out that my country mostly depends on imports to answer the question why? I can say that we must start working very hard to build our country’s infrastructures in order to be able to change our country from an importing to an exporting country as well as to build our country the way that it can stand on its own.
For example, since all Afghanistan’s rivers water are going to the neighboring countries and we are not able to use them properly I suggest building water dams in order to produce electricity and fulfill the needs of our people, and replace the imported electricity to our own producing electricity to help people as well as the country to develop. Also as I saw in my researches I found out that if investors invest in my country it will be very much profitable for them because the labor or work force and supplies are not as expensive as in the western countries. For example: If manufacturing companies which produce textile, cars and soft drinks etc invest in Afghanistan they can make a lot of profits over there because of buying cheap raw materials as well paying less for the employees, transportation and in the same time they can manufacture the same products for cheaper price than other countries.
Another important issue that I found out is, that Afghanistan has many places built by the government for the investors and manufacturing companies in order to start their activities, and they are offered in a very suitable price which will have more profits if they are bought or rented by them, As well as there is land that Afghan government is ready to offer for the investing companies to buy and build their own companies. In both cases it will be cheaper for them. One thing more that I want to suggest or request for my country’s Authority is Protectionism . As we know Protectionism is the economic policy of tightening trade between countires, through methods such as tariffs on imported goods, restrictive quotas, and other different government regulations made to discourage imports, and avoid foreign take-over of native markets and companies. This policy comes into anti-globalization, and differs with free trade, where government barriers to trade and movement of capital are maintained to a minimum.
The term is mostly used in the context of economics, where protectionism goes to policies which protect businesses and workers within a country by restricting or regulating trade with foreign nations. The answer for the question why protectionism? Could be agriculture, Afghanistan is a country where 80% of its people are dealing with agricultural staffs and still our country imports fruits and vegetables and milk from the neighboring countries. What I prefer is that our country must help the farmers to stop cultivating illegal seeds and provide them the ground of cultivating legal seeds as well as bulid places or warehouses where these agricultural products could be kept.
If the farmers are encouraged and their products are bought in a good price by the government then our country will be able to provide people its own vegetables, fruits, milk etc as well as my country will be able to export some of its products to the other countries. Also I can say that, when our people themselves produce our own products then the consumers will also prefer buying local products than foreigner ones in a cheap price and this will stop importing foreign agricultural goods because of the high price that might cost while importing and the investors will concentrate on improving and investing mostly on their countries products. The same as agricultural products there is many other goods which are produced in Afghanistan and cannot satisfy the needs of our people.
For example: As I found out construction is very important in every country, and the same it is important for Afghanistan as well. Afghanistan is a mountainous country which has got a lot of rocks and stones and they are very important in building the country. What I suggest is that our government should concentrate on investing in this part and on our cement factories, because we ourselves have cement factories but still we import cement from China and Pakistan. What our government needs to do is to buy more manufacturing machines for these cement factories or privatize them in order to make our country produce its own cement and sell in the market.
In this case if we are not totally able to stop importing cement from neighboring countries at least we will be able to reduce importing it. Also the rate of unemployment is very high in my country but when our government starts building factories, helping agricultural sector, supporting manufacturing companies etc there will many jobs created and then not only Afghans will not be jobless even foreigners will be able to find work over there. My findings and suggestions are almost true based on an interview that i have done with the head of Ariana Financial Services Group and the head of that organization Mrs. Storai Sadat also told me that it is more profitable to invest in Finacing Organizations and importing and exporting companies than productive companies.
But what i think is that productive companies can make profit as well when they start operating in Afghanistan. 5. 2 Vision According to my understandings, I have a very wide vision for Afghanistan which modifies its good future. This good future could be seen in Afghanistan when ones read about it properly and I have done that. There are many reasons but, I am going to discuss only few. One there are many business opportunities in Afghanistan in different fields and the second the support of international community who are trying to help Afghanistan. These reasons show that the bad situation will soon change to the good one and people will start investing. 5. 3 Recommendations
However, our government and international forces goals in Afghanistan are to secure the country and they could almost secure most parts the country except some parts in the south and that is because of the long mountainous border between Afghanistan and Pakistan. It is too difficult to control the border therefore the insurgents can enter Afghanistan and destabilize the southern parts of Afghanistan. Beside our government and its allies hardworking to secure Afghanistan I have some recommendations for them according to my understanding in order to secure the country. • Our Government should try its best to convince international community to boost the number of our Military Forces and replace them with the international forces.
Because there have been many misunderstandings between ordinary Afghans, Insurgents and International forces, the International forces somehow are not aware of Afghan culture and when they do something not good it makes people become far from the government and in this time insurgents encourage them against the government and international forces to create problems. If our Army patrols they know how to deal with Afghans since they are their people and that could cause safety. Instead of soldiers the U. S and EU who are helping us should better send us some machineries to extract our natural resources also experts to teach or train us how to extract them, that will be very much profitable for both sides. • Our Government should try to fight the insurgents not only by Army but through other mediums. For example: encourage people go to school in order to eliminate illiteracy , create jobs, awareness about insurgents who they are and what hey want then that will be the time when people start knowing them that they are misguided by insurgents and they will stop helping them. • As we know China economy is boosting and their products could be found everywhere, what I recommend our government is to start building the road between Afghanistan and China, to change Afghanistan to a bridge between Middle East and Central Asia and that will be very much profitable for us, because all these countries import Chinese products or China exports its products to them through the Air, which cost them a lot, and in this case they will all prefer using the cheaper way which is land and that could be Afghanistan.
To close my Thesis I would compare my findings to my goals and objectives to prove whether I achieve my goals and objective or not. My goal and objectives for doing this project is to give general information about political and economic situation in Afghanistan, particularly the main goal is to introduce business environment, establishing business and business opportunities in Afghanistan as well as to find out the problems that Afghanistan has been faced to and get the solutions for them. To compare my goals and my findings I will say that I could achieve my goals more than fifty percent, I could find everything about my country, Business, Business Opportunities and so on but what Afghanistan lacks, is investment.
There are many Opportunities to do business in Afghanistan particularly Mining, Energy, Gas, Petroleum and others if invested in these fields Afghanistan will earn billions of dollars per year and the investors will make too much profit as well. The only reason that I could not achieve my goals completely is insecurity. The Investors will not invest unless they know their money will not be lost and the solution to secure Afghanistan, I have added my own ideas in recommendations part. Thank you!
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