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Essential facts on economic performance and

investment in Afghanistan

March 2012
Research & Statistics Department

The Afghan Economy


Since 2002, Afghanistan is in transition from a centrally-planned and heavilyregulated economy towards an open and free economy based on the market system. The
economy encountered a structural change over the last decade, when the political shift
occurred after the fall of Taliban in 2001 and with the adoption of the new constitution in
2004. The new constitution acknowledged market economy as the economic system and
guaranteed the promotion and protection of private investment (Article 10 of the
Constitution). The economy has since been highly liberalized and the government has
focused on a private sector-led growth.

Economic performance of Afghanistan has been remarkable...


The economy has grown at a remarkable pace since 2003; average growth rate over
the period 2003-2011 has been 11.2 percent. Only few countries in the region have
experienced a growth rate above 10 percent in the last decade. For Afghanistan, this is a
remarkable achievement despite the fact that serious security challenges exist in the country.
Real GDP growth is estimated at 5.7 percent in 2011/12 and is projected to increase to 7.1
percent in 2012/13. Income per capita is estimated by the World Bank at US $501, which
puts Afghanistan in the 175th position among 190 countries in the world.
Inflation has been on average above 10 percent in the last nine years; the average
inflation rate for the period 2003-2011 is 11.3 percent. However, such a relatively high
inflation rate does not seem to have been a drag on economic growth. Period-average
inflation for the year 1390 (2011/12) has been 10.6 percent, whilst it is forecast to remain in
single digits in 2012/13. (For further macroeconomic indicators, please refer to Table 1.2.)
Agriculture is the dominant output sector in Afghanistan. Although the share of
agriculture sector has
1.1: Sector decomposition of GDP and its evolution
dropped from 45.2 Figure
100%
percent of GDP in
35.1
2002/03
to
28.8
80%
49.8
percent in 2010/11, it
is still larger than the
60%
19.7
Services
industries sector which
Industry
makes 21.3 percent of
40%
21.3
Agriculture
GDP (see Figure 1.1).
Furthermore, it
is estimated that 59
percent of employed
Afghan population is

20%

45.2
28.8

0%
1381

Source: Central Statistics Office

1389

engaged in the agriculture or livestock (NRVA, 2009). Some sources maintain that more than
80 percent of households depend in some way on income received from agriculture-related
activities.

Afghanistan remains one of the most open economies in the region...


Afghanistan remains one of the most open economies to trade and investment among
the low-income countries (LICs). It has the lowest tariff rates in the region, both among the
South Asian and Central Asian countries, as illustrated in Table 1.1. Since 2002 the
government has tried to lower the tariff and legal trade barriers, and this process was
intensified after it agreed in 2006 to receive financial support from the IMF under the PRGF
(Poverty Reduction, Growth Facilitation) programme through 2010. There remains, however,
a wide range of technical barriers to trade such as lack of infrastructure, transport, market
access and information, which can only be eliminated over a long period with public-private
partnership. Being a landlocked country, Afghanistan has chosen to move towards trade
integration with regional economies. It is now a member of regional economic cooperation
organisations such as the South Asian Association for Regional Cooperation (SAARC),
Economic Cooperation Organization (ECO) and Central Asia Regional Economic
Cooperation (CAREC), and has signed SAARCs Agreement on South Asian Free Trade
Area (SAFTA) in 2008.
Table 1.1: Degree of openness and Tariff rates in the region

Afghanistan
India
Iran
Pakistan
Tajikistan
Turkmenistan
Uzbekistan

Openness

Average applied
tariff rate

Maximum
duty applied

No. of MFN
applied tariff lines

61.7
45.8
43.7
38.1
73.1
111.9
72.9

5.6
12.8
26
13.9
7.9

15.9

40
246
400
100
332

787

5,207
11,360
6,649
6,802
11,176

10,985

Sources: PENN WT (for openness) and WTO Tariff Profiles 2010 (for other indicators)
Note: All data is as of 2009, with the exception of tariff-related indicators for
Afghanistan which are as of 2008.

Public enterprises were privatised over the last decade...


Under IMFs PRGF programme, now named ECF (Extended Credit Facility), an early
vague of privatisation was carried out. Three state-owned banks (namely Agricultural
Development Bank, Industrial Development Bank and Mortgage Construction Bank) were
liquidated and seven other state-owned banks and public enterprises were partially or totally
restructured in order to be possibly privatised in the future. The latter included Bank-e Milli,
Pashtanay Commercial Bank, Export Promotion Bank, DABM/S (the Afghan electricity
enterprise), FLGE (Fuel and Liquid Gas Enterprise), Afghan Telecom, and Ariana Afghan
Airlines. Nevertheless, the Afghan economy remains less regulated and the private sector has
grown remarkably since 2002.
3

Table 1.2: Main economic indicators (2003-2011)

Output
Real GDP growth
Nominal GDP (million US$) b
GDP per capita (current US$) b
Prices
CPI Inflation (period average) a
CPI Inflation (end of period) a
Core inflation (excl. cereals & energy) a
Fiscal sector
Domestic revenues
Foreign grants
Expenditures
Overall balance (incl. grants)
Overall balance (excl. grants)
External sector
Exports of goods
Imports of goods
Trade balance
Current account balance
FDI
External debt

1382
2003/04

1383
2004/05

15.1
4,766
169

9.4
5,704
196

24.1
10.3

12.9
14.9

4.7
6.7
14.5
-3.1
-9.8

5.0
9.0
15.3
-1.4
-10.4

39.7
91.9
-52.2
-10.0
1.3

28.8
89.2
-60.4
-4.4
3.1

49.0
-11.3

47.8
10.1

Commercial lending interest rate


a
Exchange rate (Af. per USD)
e
REER (percentage change)
c
Unemployment
Employment rate (% of working-age pop.) c
Poverty headcount rate c
Poverty gap ratio c
GINI Index c

1384
1385
1386
1387
2005/06
2006/07
2007/08
2008/09
(in percent, unless otherwise indicated)
16.4
8.2
14.2
3.4
6,815
7,722
9,777
11,940
228
251
307
367
(in percent)
12.3
5.2
12.9
26.8
9.5
4.8
20.7
3.2
11.8
6.7
5.1
10.2
(in percent of GDP)
6.4
7.5
7.7
7.8
11.2
10.2
12.3
9.8
16.6
19.6
22.0
21.7
1.0
-2.9
-2.0
-4.1
-10.2
-13.1
-14.3
-13.9
(in percent of GDP)
26.3
23.5
18.8
20.6
90.0
87.3
80.2
74.9
-63.6
-63.9
-61.4
-54.3
-2.8
-5.6
1.3
0.9
4.2
3.1
2.8
2.9
184.2
169.6
23.0
19.7
(in percent, unless otherwise indicated)
18.0
15.0
15.0
49.6
49.9
49.8
51.0
3.2
-0.2
5.5
21.6
7.0
61.9
36.0
7.9
29.0

1388
2009/10

1389
2010/11

1390
2011/12

20.4
14,214
425

8.4
17,243
501

-12.2
-5.1
3.1

8.9
15.9
8.8

10.6
9.1
12.1

10.3
10.2
22.1
-1.6
-11.8

11.0
11.0
21.1
0.9
-10.1

11.5
12.2
23.8
0
-12.2

17.7
62.4
-44.7
-2.8
2.4
9.2

16.4
53.0
-36.6
1.7
2.1
8.0

14.5
45.7
-31.2
0.1
2.1
7.9

15.0
49.3
-12.0

15.0
45.8
9.3

15.0
47.9

5.7
20,054
542

Ratio R/P 20% c


d
Human Development Index

0.340

0.354

4.3
0.363

0.370

0.387

0.394

0.398

Sources: a: DAB; b: WDI; c: NRVA (2009); d: UNDP; e: AISA; For the rest of the series: IMF
Notes: Values in italics indicate estimates by their respective sources; Underlined values indicate estimates by AISA; Exports exclude the export of opium and drugs;
Trade statistics include both official records of and smuggled trade; R/P 20% refers to the ratio of average income of the richest 20% to the poorest 20% (calculated by
author based on NRVA data); REER (Real effective exchange rate) is calculated using Afghani's exchange rate vis--vis the most widely exchanged currencies in Kabul's
money bazaar (i.e. US Dollar, Pakistani Rupee, Indian Rupee, Euro and Iranian Ryal). The weights used for these currencies are based on the average share of their
respective countries' trade with Afghanistan over the period 2002-2009: US$ (49%), Pak Rs. (24.5%), Indian Rs. (12.6%), Euro (11.7%) and Iranian Ryal (2.2%). The
weight for US$ is obtained as a residual after deducting the trade share of the four latter countries -- it is the average share of the Rest Of the World. The data on trade
shares is obtained from UNCTAD Statistics; Financial year starts on March 21.

Financial sector has developed rapidly...


Financial sector in Afghanistan has developed rapidly in recent years. The number of
commercial banks (including private & public banks and branches of foreign banks) reached 17
banks in 2012. Total assets of the banking sector which were less than US$300 million in 2004
have soared to more than US$4 billion in December 2011. The commercial lending prime
interest rate in Afghanistan is now at 15 percent which is almost at the same level as that in Iran
and Pakistan (see Table 1.3). Furthermore, there seems to be sufficient capital for investment in
the economy, thanks to large current transfers (in the form of foreign assistance) that
Afghanistan is receiving from the rest of the world (see Figure 1.2).
Figure 1.2: Savings and Investment
50

Source: AISAs calculation


using CSOs data for
Consumption and Investment,
and IMFs data for Current
Account.

40

33.7

30

26.7

27.9
23.9

23.3

20

21.1

20.9

15.6

10

12.4

0
1381 1382 1383 1384 1385 1386 1387 1388 1389
Gross national saving

Investment and GNS are


expressed as percentage of
GDP.
Gross national saving is
calculated per SNA 2008, as
Gross National Disposable
Income (= GDP + Income +
Current Transfers) minus
Total Consumption (private
and public), expressed as
percentage of GNDI.

Investment

Though exports have increased in volume, trade deficit remains high...


The trade balance has improved since 2002, though the deficit remains very significant.
The trade deficit which was over 60 percent of GDP in 2005 has declined to below 40 percent in
2011. However, this decline is mainly due to a drop in imports, which were 90 percent of GDP in
2005 and have now declined to 50 percent. On the other hand, exports despite having increased
in nominal terms have shrunk as a percentage of GDP. Exports have doubled between 2002 and
2011 to $2.9 billion, but as a percentage of GDP they have actually declined over the same
period from nearly 40 percent to around 15 percent, as shown in Figure 1.3. The real effective
exchange rate (REER) shows that Afghanistan has lost severely its competitiveness position in
6

Figure 1.3: Exports between 2002 and 2010


the world. The REER
appreciated by 27 percent
50
between 2004 and 2010 an
appreciation that is mainly
40
due to rising domestic
prices. Nevertheless, the
30
large trade deficit is
balanced in the current
20
account by the huge inflow
of foreign aid. In fact,
10
current account is nearly
balanced, and there does not
0
seem to be any external
1381 1382 1383 1384 1385 1386 1387 1388 1389
disequilibrium which would
Exports (in millions of US$)
put pressure on the exchange
Exports share in percent of GDP
rate. But any shock to aid
Data source: IMF
inflow would severely affect
the current account balance and may engender a serious balance-of-payments crisis.

Fiscal deficit, excluding grants, remains large...


The fiscal position remains very
poor. Although domestic revenues have
doubled as a percentage of GDP between
2003 and 2011, there is still a modest gain
in terms of fiscal balance. Domestic
revenues cover merely half of total
expenditures; only 48 percent of total
budget were covered by domestic
revenues in 2011/12. The remaining
deficit is financed by foreign aid in the
form of budget support. Domestic
revenues are not even sufficient to finance
entirely the operating budget they could
only cover 65 percent of recurrent
expenditures in 2010. This raises serious
concerns over the fiscal sustainability in
Afghanistan. The IMF forecasts a

Figure 1.4: Fiscal projections

Source: IMF (2010)

3,000
2,750
2,500
2,250
2,000
1,750
1,500
1,250
1,000

balanced fiscal budget no earlier than 2023. This forecast, however, is based on the presumption
that the security situation will not deteriorate. Any worsening security situation and/or an
increase in security forces beyond 2013, and thus an increase in military budget, would postpone
the fiscal sustainability by several other years.

Development indicators in Afghanistan are very low


The Human Development Report puts Afghanistan in the category of countries with
low HDI (Human Development Index). Afghanistan is thus the only country among its
neighbours to be ranked in this category. All other neighbouring countries are in middle and
high HDI categories. However, inequality appears to be the lowest in Afghanistan as indicates
the GINI coefficient. Furthermore, according to a 2007 study, 36 percent of the Afghan
population lives under the national poverty line of 1,255 Afs. per month, which puts it in the
region after Pakistan with a headcount poverty rate of 51 percent.
Table 1.3: Regional comparison of development indicators
Afghanistan

Pakistan

Tajikistan

Uzbekistan

Turkmenistan

Iran

GDP per capita (2010;


current US$)

501

1019

820

1,384

3,966

4,526

8-year average growth


rate (2003-2010)

11.9

5.2

7.6

7.6

12.1

4.1

8-year average Inflation


(2003-2010)

11.4

9.6

11.0

11.4

6.6

15.0

Commercial lending
Interest rate

15.0

15.0

23.1

<

<

12.0

36
29

51
31

17
33

2
37

<
43

<
38

0.398
nd
(172 )

0.504
th
(145 )

0.607
th
(127 )

0.641
th
(115 )

0.686
nd
(102 )

0.707
th
(88 )

Poverty headcount rate


GINI Index
HDI (ranking among
187 countries; 2011)

Sources: WDI; IMF WEO; EconomyWatch.com (for interest rate); and Human Development Report 2009;
Note: Data on poverty and GINI index is of 2009 for all countries with the exception of Afghanistan, for which
data is of 2007.

The informal economy remains significant...


The informal sector is significantly large in Afghanistan. The World Bank estimates that
80 to 90 percent of economic activity in Afghanistan occurs in the informal sector, which has
been largely responsible for the recent economic recovery and dynamism (World Bank, 2004).
A large part of the informal sector is the opium economy; drug-related activities (including
opium production and processing activities) are estimated to equal 35 percent of GDP (World
Bank, 2004). United Nations Office on Drugs and Crimes (UNODC) estimates that the farm-gate
value of opium production was 5 percent of GDP in 2010. Once opium production is taken out
of the agricultural output figures, the share of agriculture sector is reduced from around 30
8

percent to around 25 percent making it as large as the industries sector. However, the gross
export value of opiates is estimated at 11 percent of licit GDP in 2010 a figure which was 50
percent in 2003 (UNODC, 2010).

Afghanistan has been a major aid recipient in the world


Afghanistan has been one of the major aid recipients in the last decade. According to the
World Bank data, over the period 2000-2009 Afghanistan was the sixth largest recipient of
official aid in terms of proportion to GDP. The average aid Afghanistan has received amounts to
35 percent of GDP. However, if we ignore the small states,1 Afghanistan becomes the third
largest recipient country after Liberia and Burundi. In terms of nominal value, Afghanistan was
the second largest recipient after Iraq, receiving $26 billion in official aid between 2000 and
2009. Table 1.4 enlists eleven top recipient countries of official development assistance2 over the
period 2000-2009. In terms of proportion to GDP, although Afghanistan comes in the sixth
position, the total GDP of the first five countries altogether does not even reach a quarter of the
Afghan GDP.
Table 1.4: Largest aid recipients over the period 2000-2009
Average
ODA/GDP

Total ODA received


(billion US$; net)

Liberia
62.8
Iraq
60.0
Micronesia, Fed. Sts.
42.7
Afghanistan
26.6
Timor-Leste
42.6
Nigeria
24.3
Burundi
38.5
Vietnam
20.6
Marshall Islands
35.8
Ethiopia
20.2
Afghanistan
35.4
Tanzania
18.5
Sierra Leone
31.4
Congo, Dem. Rep.
18.5
Solomon Islands
31.0
Pakistan
17.6
Congo, Dem. Rep.
27.3
India
15.6
Iraq
26.7
Mozambique
15.1
Mozambique
26.2
China
14.9
Source: WDI and OECD STAT;
Figures above include disbursements by both DAC and non-DAC member countries.

According to the data provided by the Afghan Ministry of Finance, almost one-fifth of all
official assistance has been allocated to security issues. Agriculture and rural development
have received 13 percent of all assistance, followed by energy and education, each one receiving
9% and 7% respectively. As Figure 1.5 shows, the sectors of transport, governance and health
have received equal shares of almost 6 percent.
1

Commonwealth Secretariat defines small states as countries with a population of 1.5 million or less.
Official Development Assistance (ODA) comprises all flows of official financing which are disbursed at
concessional terms (i.e. having a grant element of at least 25 per cent). ODA include both bilateral and multilateral
aid. It excludes, however, grants from non-governmental organisations and charities raised through private or
individual contributions.
2

Figure 1.5: Sectoral decomposition of ODA disbursements over 2000-2010

Other,
15.2%

Private
Urban
Sector Dvp. Dvp., 4.4%
&
Trade, 5.3% Refugees,
5.7%

Security,
20.4%

Agricluture
& Rural
Dvp., 13.2%

Health &
Nutrition, Governance,
6.6%
6.7%

Energy, 8.6%

Education,
Transport, 7.2%
6.8%

Source: DAD (Development Assistance Database), Ministry of Finance

10

Investment in Afghanistan
During the last ten years, private investment has had a strong and rapid growth in the
country. Share of private investment increased from 1.3 percent of GDP in 2003 to 8.6 percent in
2011. Total investment (including public and private), however, amounted to 22.6 percent of
GDP in 2011. Since 2003, more than 25,000 businesses in different sectors and activities
registered with AISA, which in total have invested almost $5.2 billion in Afghanistan. Foreign
direct investment (FDI) makes approximately one-third of all private investment in the country.

Figure 1.6. Investment in Afghanistan since 2003


4.50
3.82

4.00

4.18

4.16

3.53

3.50

Billion US$

3.96

3.04

3.10

2.74

3.00
2.50
2.00

1.51

1.35

1.50
1.00
0.50

0.56

0.65

0.58

0.75

0.95

1.58

1.09

0.06

0.00

Total Investment

Private Investment

Source: IMF

Figure 1.8 illustrates the


decomposition
of
private
investment by economic sectors.
Construction has been the primary
destination of private investors;
38.1 percent of all private capital
is allocated to this sector. Services
are the second largest sector to
have received private investment.
Telecommunications
and

Figure 1.7. Domestic and Foreign Investment


(Total 2003-2011)

34.6%
Domestic
73.3%

11

Foreign

commercial banking have


hosted the largest amounts of
private capital among other
services. Private investment in
the industries sector amounts
to $1.4 billion which makes
almost a quarter of total
private
investment.
Agriculture, however, has
received the least amount of
private investment, partially
due
to
lower
output
productivity
and
higher
vulnerability to climatic shocks.

Figure 1.8: Investment decomposition by sector


(Total 2003-2011)

6.9%
Construction
24.4%

38.1%

Services
Industry
Agriculture

30.7%

Private investment is concentrated in provinces where security is better conceived. More


than half of all registered firms are located in Kabul province. Other major provinces such as
Kandahar, Herat, Balkh and Nangarhar are secondary destination for both domestic and foreign
investments. Figure 1.9 indicates that total private investment in Kabul province amounts to $2.8
billion. Such strong geographical concentration is influenced by various factors such as security,
infrastructure and access to and size of urban markets.
Figure 1.9: Private investment by province
1,000

2,807

900

Million US$

800
700
600
500
400
300
200
100

220

179

169
110
62

12

42

31

18

16

AISAs statistics show that almost 4 thousand foreign companies have invested in
Afghanistan. Though this number represents only 15 percent of all registered businesses, total
value of foreign investments (i.e. $1.8 billion) makes almost one-third of all private investment
in the country (as shown in Figure 1.7). This shows that despite serious challenges Afghanistan
has been able to attract a relatively substantial amount of FDI. Foreign investment may
contribute to economic growth and job creation, and may increase transfer of technology and
market competitiveness in Afghanistan.
Top investing countries in Afghanistan, in terms of total value of FDI, are as following:
Countries
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

South Africa
Turkey
United Arab Emirates
Canada
United States
Pakistan
Iran
England
China
Netherland
India

Total value of FDI


(million US $)
154.4
150.1
122.7
111.8
98.4
70.8
67.3
61.8
58.2
54.9
22.9

However, in terms of number of FDI projects, top investing countries in Afghanistan are:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Countries
United States
Turkey
Pakistan
Iran
India
England
Germany
China
United Arab Emirates
France

No. of FDI projects


305
191
143
127
78
69
54
49
21
20

It is estimated that approximately 770,000 employment opportunities have been created


by private sector since 2003. Domestic investment has ensured nearly 60 percent of all new jobs
created in the country. The majority of these employments, which may include both temporary

13

and permanent jobs, have been created in the construction sector, amounting to nearly 400,000
jobs.

Business environment has significantly improved since 2003


Business environment in Afghanistan has significantly improved in the last few years.
The government has been continuously engaged in eliminating institutional barriers, easing
regulation procedures, and developing an efficient legal framework for private investment in
Afghanistan. Afghanistan was ranked 160th out of 183 countries in the world in the Doing
Business Indicators of the World Bank and the International Finance Corporation for the year
2012 the report was published in October 2011. Doing Business Indicators measure and track
changes in regulations affecting 10 areas in the life cycle of a business: starting a business,
dealing with construction permits, getting electricity, registering property, getting credit,
protecting investors, paying taxes, trading across borders, enforcing contracts and resolving
insolvency. Ease of doing business index averages the countrys percentile ranking in the
above 10 topics.
Although Afghanistan was downgraded from 154th position in 2010 to 160th in 2011 in
the Ease of doing business index, it ascended in some of the sub-indices such as in Getting
Electricity (by 28 points) and in Resolving Insolvency (by 2 points). In Starting a Business
index, Afghanistan is ranked 30th among 183 countries, and a large number of OECD member
countries are ranked lower than Afghanistan in this index. This shows that launching business in
Afghanistan is one of the simplest and easiest in the world. In Paying Taxes index, Afghanistan
is also well-ranked: 63 out of 183 countries.

Investment policy in Afghanistan remains one of the most liberal


Afghanistan disposes some of the most liberal policies when it comes to investment and
business practices. The Law on Private Investment, issued in 2005, does not discriminate, in any
sort, between domestic and foreign investments. Provisions made in the law are applied
uniformly to both local and foreign businesses. Whilst 100% foreign ownership of an enterprise
is allowed in most economic sectors, the law also allows full profit repatriation out of
Afghanistan for foreign companies. The Central Bank (Da Afghanistan Bank) does not put any
restriction on capital flows or on currency exchange.
Afghanistan Investment Support Agency (AISA) acts as a one-stop shop for investors.
Business license is delivered within 2 or 3 days at AISA. Minimum capital required for starting a
business is AFN 250,000 or $5,000. However, this is not a paid-in capital requirement and
companies are not required to deposit any amount in a bank.

14

Frequently asked questions (FAQs)

1. Is there any restriction on foreign ownership of immovable property in Afghanistan?


Foreign individuals or business entities cannot own immovable property in Afghanistan,
but they can lease immovable property for a maximum period of 90 years.
2. Are there any priority sectors for the government to support and promote investment in those
areas?
The SME Strategy, which was finalized in December 2009, identified seven sectors
which can generate pro-poor growth and contribute to economic development. These sectors
are: 1) Processing wool (including cashmere), carpet weaving, cutting, washing and trading;
2) Marble quarrying, cutting and polishing; 3) Gemstones mining and jewelry; 4) Livestock
skins and leather; 5) Construction; 6) Wood, timber and carpentry; and 7) Agri-processing
(including fresh fruits, concentrate juice, dried fruits & nuts, and pharmaceutical crops).
3. Are there any Industrial Parks (IPs) in Afghanistan?
There are four major Industrial Parks (IP) developed and administered by AISA, which
are located in Kabul, Kandahar, Mazar-e-Sharif, and Jalalabad. In addition to these,
Agriculture Business Park is soon to be developed in Helmand. There are also more than ten
other IPs developed by the Ministry of Commerce and Industries in various provinces
including Herat. Within the IPs managed by the Industrial Parks Development Department
(IPDD) at AISA, necessary facilities and services are provided. The price of land, as leased
to private firms, is partly subsidized and tax reductions are also another incentive provided to
firms registered with AISA.
4. How can a company acquire an industrial land?
Interested companies are required to fill out AISA land application form and submit it to
the IPDD. After an initial assessment of the applications by the IPDD, shortlisted companies
are required to prepare a business plan, using AISAs template and guidelines for this
purpose. Selected companies are then introduced to the High Commission for Investment for
final approval of land accordance. Type of operation, experience in business, and amount of
investment are important criteria for awarding a plot in industrial parks.
5. Does the government take special security measures for the safety of businesses and
investors?
The government provides exhaustive security for the Industrial Parks, and other areas
where companies and business are concentrated. There are also special security forces
designed uniquely to safeguard companies at specific industries. For example, a special

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police unit has been created to provide necessary security measures to companies operating
in the mining sector.
6. Is AISA an independent institution?
According to the Law on Private Investment, Afghanistan Investment Support Agency
operates under the High Commission for Investment which is composed of eight sectoral
Ministers and is chaired by the Minister of Commerce and Industries. Therefore, AISA
operates independently from other Afghan ministries and institutions.
7. Does AISA engage in business and investment with private companies?
AISA does not engage in any sort of investment and business activities with private
enterprises. AISA has been established on a decree by the Afghan government. It thus acts as
a public investment promotion agency (IPA) and does not invest with private firms in any
form.
8. What procedures are required to obtain a business license?
The applicant refers to the Licensing Department at AISA, and verifies if the commercial
title he is willing to choose for his business is not already in use by another company. Next,
the applicant fills in the relevant forms and submits them along with the required documents.
Upon approval, he/she will then be required to pay the license fee at AISA. His application
will be sent by the Licensing Department to the TIN (Tax Identification Number) and ACBR
(Afghanistan Central Business Registry) offices, located within AISA, to obtain a tax
identification number and for official registry of the business in Afghanistan. The applicant
will obtain his license within 3 days of submitting his first application.
9. Which support activities does AISA provide to foreign and domestic firms?
The Investment Support Department at AISA provides all pre- and post-investment client
services to private enterprises, such as providing basic information to foreign and domestic
investors on market position, investment opportunities, legal framework, taxation and
insurance, providing administrative support for visa and passport-related issues, and taking
on mediation and dispute resolution activities.
10. Does the Afghan government provide bank guaranty for investors?
For the moment, the government does not provide public credit and guarantees.
11. Are there any incentives for local or foreign investments in Afghanistan?
The Afghan government provides all basic services (such as infrastructure, access to
energy, transportation, access to industrial land, etc.) and investment support activities to
foreign and domestic investors. However, as of now, there are no special incentives designed
to investors such as tax incentives or other types of incentive packages. Nonetheless, AISA is

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looking to provide such incentives in a near future which could encourage private investment
in the country.
12. Does Afghanistan have bilateral investment agreement with any country?
Afghanistan does not have any bilateral investment agreement with any country
13. Which types of taxes are applicable to businesses in Afghanistan and what are their rates?
Principally, there are two types of tax for businesses in Afghanistan. (1) Corporate
Income Tax rate is a 20-percent flat tax rate deducted on net taxable income. It is applicable
to all corporations, limited liability companies, and other types of legal business entities. (2)
Business Receipt Tax (BRT) rate is imposed at 2 percent of gross receipts on all types of
income by corporations and limited liability companies whose income is more than
Af.750,000 per quarter. However, the BRT rate is 10 percent for activities such as
international passenger airline services, telecommunications, and hotels and restaurants
providing high-quality services.
14. Is there a minimum wage in Afghanistan?
There is no minimum wage in Afghanistan.
15. What is the maximum working time allowed?
Maximum working time allowed per week is 40 hours.
16. What is the minimum age requirement for employment?
Minimum age requirement for employment is 18 years, while for physically nonintensive work it is 15 years.
17. Are there any institutions in Afghanistan which provide mediation and arbitration to
disagreed parties?
The Afghan Chambers of Commerce and Industries (ACCI) and Afghanistan Investment
Support Agency (AISA) both provide alternative dispute resolution (ADR) process to their
members and registered companies. Furthermore, Financial Disputes Resolution Committee
(FDRC) provides mediation to disputed financial cases in the banking and
telecommunications sectors.
18. Which types of financial product are offered by the banking sector in Afghanistan?
Commercial banks in Afghanistan offer most of conventional financial products such as
current account, savings account, term deposits, Islamic banking products (i.e. musharika,
mudaraba, murabaha, ijarah, and istisna), fund-based credits such as term loans, overdraft,
SME financing, and non-fund based credits such as letter of credit and bank guarantees.
Almost all banks provide international fund transfers through SWIFT, and offer ATM
services.

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References:
IMF. 2011. Afghanistan: ECF Review. IMF Country Report No. 11/330. November 2011
NRVA. 2009. National Risk and Vulnerability Assessment 2007/08: A profile of Afghanistan.
ICON-INSTITUTE. Kabul. October 2009
UNODC. 2010. Afghanistan: Opium Survey 2010. United Nations Office on Drugs and Crime
World Bank. 2004. Afghanistan: State Building, Sustaining Growth, and Reducing Poverty.
Country Report No. 29551-AF. World Bank. September 2004

The booklet has been prepared by the Research & Statistics Department at AISA. For any
inquiry, please contact:
Omar Joya
Research & Statistics Manager
Email: omar.joya@aisa.org.af
Phone: +93.(0)20.210.37.08; +93.(0)20.210.34.09
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