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A SHOP DISPLAY IN KABUL CITY
A SHOP DISPLAY IN KABUL CITY

Business and Investment Climate in Afghanistan

BACKGROUND
Whilst the majority of the professional Afghan youth, both within and outside Afghanistan, are very aware of the political developments in Afghanistan, mainly due to the unbalanced focus of international media on Afghan politics, unfortunately not many are aware of the developments within the private sector in Afghanistan over the recent years, and their implications for the future of the country, especially beyond 2014.

Through various legal reforms, private sector development initiatives, and an entrepreneurial spirit, the Afghan government, the international community and the Afghan people have worked extremely hard over the past few years to help make Afghanistan a suitable place for investment; to generate employment and achieve economic growth.

Afghanistan today is a land of endless opportunities. A culturally diverse country, with a population of around 30 million, Afghanistan is emerging as a central hub for trade as the economies of Central and South Asia continue to grow.

The aims of this discussion are as follows:

  1. Highlight and celebrate the achievements within the private sector in Afghanistan over the recent years;
  2. Understand the investment opportunities in Afghanistan post 2014, and
  3. Help inspire the Afghan youth to become more aware, engaged and active in the private sector development of Afghanistan.

To help facilitate discussion, we aim to address the following key questions:

  1. What are the key business investment opportunities in Afghanistan?
  2. What are the current strengths, weaknesses, opportunities and threats of investing in Afghanistan?

WHAT ARE THE KEY BUSINESS INVESTMENT OPPORTUNITIES IN AFGHANISTAN?

There has been substantial private investment from both Afghan and foreign investors over the last decade in various different sectors, including in the fields of telecoms, hospitality, real estate, media, and financial services.

Examples of sectors that are ripe for further growth and business investment include:

a)    Financial services: a small proportion of the Afghan population have access to basic banking services. Lack of banking infrastructure (e.g. bank branches), especially in the rural parts of the country, presents a strong market opportunity to develop alternative payments solutions to facilitate transfer of funds for personal (family and friends) and business transactions. There is a deep gap in the market in the provision of start-up and growth capital to Afghan entrepreneurs, as well small and medium enterprises, eager to exploit business opportunities.

b)   Healthcare: more than 10,000 Afghans seek medical treatment in India and Pakistan every month, spending more than US$200m a year on treatments abroad. The private sector offers opportunities to expand facilities within Afghanistan, and improve supply of effective medication and medical equipment. There is strong consumer demand and need for improved healthcare services, including clinics, hospitals, as well as diagnostic and pharmaceutical products and services.

c)    Education: after decades of war, most Afghans are keen to exploit the opportunity to educate themselves and their children as they see this as the basis stepping stone to a brighter future for themselves and the country. The youth of Afghanistan are motivated, hard working and creative. Many attend private evening classes in English, ICT, Business and Management after work and/or school. There is a strong demand for high end international schools, universities and vocational courses and qualifications.

d)   Metals & mining, oil & gas, and infrastructure: Afghanistan hasmore than $3 trillion in mineral reserves so there is a very real opportunity for the country to develop the mining sector and allow mining services and companies to flourish, creating employment and economic prosperity for the entire nation. The new mining laws, expected to pass towards the second half of 2014, are expected to pave the way for substantial foreign investment. Furthermore, many development projects are under way to help Afghanistan produce local renewable (hydro and/or solar) electricity, with the intention of helping the rural households gain access to basic services such as heating, lighting and clean water.

e)    Agriculture and consumer goods/services: this market has been expanding considerably, demonstrating strong underlying market opportunity to exploit local production (to meet local demands) and to enable Afghanistan to lead an export-led economy. Increasing local wealth is also leading to increasing demand for international products and therefore creating opportunities to import international brands into Afghanistan.

WHAT ARE THE CURRENT STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS OF INVESTING IN AFGHANISTAN?

Some of the current strengths, weakness, opportunities and threats of investing in Afghanistan include:

Strengths: Afghanistan is a growing economy (it is expected to grow around 5% per annum in 2014 and 2015) despite perceptions of possible challenges in Afghanistan after a change in the involvement of the international community.

Small and medium sized Afghan enterprises have the potential to grow into strong domestic and regional players, if provided with access to financial and (perhaps more importantly) intellectual capital. The Afghan government has developed, and continues to develop, an enabling regulatory environment with regards to foreign investment into the country (the investment law currently allows for 100% foreign ownership), paving the way for international investors to inject capital and resources into the country.

More than 50% of the Afghan population is under 15 years of age. This new generation, with the right support from the Afghan professional community, as well as the Afghan government, have the potential to make real positive impact in every aspect of future life in Afghanistan.

Weakness: Amongst the local Afghan community, focus on solutions to problems is not always the norm as there tends to be discussion on the problems, and the people causing the problems, versus finding effective ways to tackle the problem. Corruption within the government is still a major issue, unfortunately. The economy is still very much aid-dependant.

Opportunities: Currently there are two distinct economies in Afghanistan: a) the International Security Assistance Force (ISAF) led economy, to which around half a million people provide products and services;  and b) the agriculture-led local Afghan economy. As the role of the international community changes, there is an opportunity to employ the Afghan staff from the ISAF-led economy into the local Afghan economy, avoiding an otherwise resultant increase in unemployment of the skilled workers in Afghanistan.

Considering that women make up half of the population, supporting Afghan women entrepreneurs and nurturing the unique skill-sets of rural Afghan women in traditional handicrafts (such as embroidery, tailoring, carpet weaving, and jewellery making) are vital for a sustainable economy.

Threats: Security, especially in the southern part of Afghanistan, is still perceived to be a threat. To mitigate this risk, the current Afghan government is negotiating the terms of a bilateral security agreement (BSA) with the international community.

CONCLUDING REMARKS

In conclusion, contrary to the general perception both within and outside the country, Afghanistan is an emerging central hub for trade in Asia, with untapped business and investment opportunities across multiple sectors. Entrepreneurs and investors have an enabling regulatory framework to exploit these opportunities for long term financial gains, and, in the process, develop Afghanistan into an economically stable country, where its men and women will find suitable employment opportunities, where products in domestic international demand can be produced locally and exported globally; and where national and international businesses will flourish.

FURTHER READING AND REFERENCE MATERIALS

Afghan business/investment news sites

  1. http://www.wadsam.com/
  2. http://www.pajhwok.com/en/business-economics
  3. http://www.tolonews.com/en/Business
  4. http://www.khaama.com/category/business

a) Afghan Government Bodies

  1. http://www.aisa.org.af/
  2. http://www.acci.org.af/
  3. http://moci.gov.af/en
  4. http://www.epaa.org.af/
  5. http://mof.gov.af/en
  6. http://mfa.gov.af/en
  7. http://moec.gov.af/en
  8. http://mom.gov.af/en
  9. http://afghanistanembassy.org.uk/english/?page_id=20

b) Development Banks 

  1. http://www.adb.org/countries/afghanistan/main
  2. http://www.worldbank.org/en/country/afghanistan
  3. http://www.ifc.org/wps/wcm/connect/region__ext_content/regions/europe+middle+east+and+north+africa/ifc+middle+east+north+africa+and+southern+europe/countries/afghanistan+country+landing+page

c) International AID agency initiatives

US

  1. http://www.usaid.gov/news-information/fact-sheets
  2. http://tfbso.defense.gov/

UK

  1. http://www.imurabba.org/
  2. http://www.harakat.af/
  3. http://www.buildingmarkets.org/our-impact/afghanistan

d) Corporations

  1. http://en.wikipedia.org/wiki/List_of_companies_of_Afghanistan

e) Developments in the international trade/business/investment relationships of Afghanistan

USA-Afghanistan business relations:

  1. http://www.a-acc.org/
  2. http://www.embassyofafghanistan.org/page/investment-news

India-Afghanistan business relations:

  1. http://www.rferl.org/content/india-afghanistan-pakistan-relations-karzai/25199934.html
  2. http://dsafghan.in/index.html
  3. http://www.tolonews.com/en/business/12759-india-to-hold-conference-on-business-with-afghanistan
  4. http://ibnlive.in.com/news/indian-business-see-opportunities-in-afghanistan-says-salman-khurshid/434871-3.html
  5. http://en-maktoob.news.yahoo.com/afghanistan-peace-seeks-indian-investment-business-072804286.html
  6. http://www.ndtv.com/article/india/india-has-to-come-forward-for-11-billion-iron-ore-project-says-afghanistan-president-hamid-karzai-458379

Pakistan-Afghanistan business relations:

  1. http://www.rcci.org.pk/wp-content/uploads/2013/01/Pak-Afghan.pdf
  2. http://www.brecorder.com/top-news/1-front-top-news/146613-pakistan-afghanistan-enjoy-excellent-trade-relations-ambassador-sadiq.html
  3. http://www.pajhwok.com/en/2013/11/28/joint-afghan-pak-trade-fair-begins-kabul
  4. http://www.nation.com.pk/islamabad/25-Aug-2013/pak-afghan-finance-ministers-discuss-measures-to-enhance-trade-economic-relations
  5. http://www.wadsam.com/pak-afghan-joint-chamber-of-commerce-and-industry-confer-on-economic-cooperation-232/

Iran-Afghanistan business relations:

  1. http://www.reuters.com/article/2013/12/08/us-afghanistan-iran-idUSBRE9B708L20131208
  2. http://www.reuters.com/article/2013/07/28/us-afghanistan-exports-idUSBRE96R05620130728
  3. http://www.tolonews.com/pa/business/5185-afghanistan-iran-sign-economic-co
  4. http://www.wadsam.com/afghanistan-calls-for-closer-economic-ties-with-iran-232/

China-Afghanistan business relations

  1. http://www.scmp.com/news/asia/article/1313161/afghanistans-plan-jumpstart-economy-chinese-mining-investment-under-threat
  2. http://www.cbsnews.com/news/as-america-fights-china-gets-contracts/
  3. http://www.scmp.com/news/china/article/1373109/chinas-dilemma-afghanistan
  4. http://www.brookings.edu/research/papers/2013/02/21-china-afghanistan-downs
  5. http://www.businessinsider.com/china-is-the-real-winner-in-afghanistan-2013-1

Turkey-Afghanistan business relations

  1. http://www.mfa.gov.tr/turkey_s-commercial-and-economic-relations-with-afghanistan.en.mfa
  2. http://www.hurriyetdailynews.com/turkish-firms-to-explore-gold-in-afghan-territory.aspx?pageID=238&nid=42332

Germany-Afghanistan business relations

  1. http://www.wadsam.com/first-afghan-german-mining-resource-dialog-held-in-berlin-767/

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