Economic Overview
Afghanistan is a backward agricultural and pastoralist countries, in 1971 by the United Nations as one of the least developed countries. After more than two decades of war, Afghanistan's economy has been seriously damaged, transportation, communication system, light and heavy industry, education and agricultural infrastructure has been the most serious damage, the production of living materials shortages, there were more than 6 million people exiled abroad and become refugees. Since the establishment of the Afghan Transitional Administration, many initiatives had been taken to stimulate domestic economic reconstruction. It had issued a new currency, introduced a banking law, attracted foreign investment, carried out tariff and fiscal reforms, strengthened the direct control of the central government over local finances, increased the central government's finances, and gradually promoted post-war reconstruction. The Government has actively utilized international assistance to restore the blood-forming function of the domestic economy, and has vigorously carried out the construction of transportation, energy, water conservancy and irrigation, and other related infrastructure that are of vital importance to the people's livelihood. At the same time, it has enacted an investment law to encourage foreign enterprises to invest in the country. After years of depletion, Afghanistan has gradually begun the process of post-war economic reconstruction, and in 2004, two new laws, the Anti-Money Laundering Act and the Combating of Fiscal Terrorism Act, were introduced to regulate the financial market and combat the illegal economy. According to statistics, Afghanistan's gross domestic product (GDP) for the fiscal year 2003/2004 amounted to $4.3 billion, an increase of 20% over the same period last year. Per capita income was $180. Currency name: Afghani (Afghani), abbreviated to Ani. October 7, 2002, the Transitional Federal Government issued a new currency, the Ani. With the old currency ratio of 1:1000.
Afghanistan resources
Afghanistan's mineral resources are relatively rich, but not fully developed. The main proven resources are natural gas, coal, salt, chromium, iron, copper, mica and emeralds. Afghanistan may have the world's richest copper deposits, the world's fifth largest iron ore veins, 73 million tons of coal. In addition, natural gas reserves are about 185.2 billion cubic meters and oil reserves are about 95 million barrels.
Lapis lazuli is a very unique and rare rock, consisting of blue minerals, variable amounts of pyrite, calcite and other minerals in a distinctive deep blue, light blue and pure cyan color. It can be used for both carved ornaments and jewelry. The top grade lapis lazuli per kilogram is worth about 300 U.S. dollars, the worst is not less than 40 U.S. dollars. Lapis lazuli by the Arab countries called "treasure". Afghanistan is the world's most important and most famous source of lapis lazuli, lapis lazuli is known as the country's "national stone".
Most of the rivers in Afghanistan are inland, mostly injected into the desert and lakes. The main rivers are the Amu Darya, Kabul, Helmand and Hariru.
Afghanistan's industry
The years of war have caused the country's industrial base to collapse. Light industry and handicrafts are the main industries, handicrafts accounted for about 42% of the industrial output value. The main textiles, fertilizers, cement, leather, carpets, electricity, sugar and agricultural products processing.
Afghanistan agriculture and animal husbandry
Agriculture and animal husbandry is the main pillar of the national economy. Agriculture and animal husbandry population accounts for 67% of the country's total population. Cultivated land is less than 10% of the country's total land area. The main crops include wheat, cotton, sugar beet, dried fruits and various fruits. The main livestock products are fat-tailed sheep, cattle and goats. Currently, opium cultivation in Afghanistan amounted to 131,000 hectares, engaged in the cultivation of the population of 2.3 million, the value of production accounted for more than 60 percent of the 2003 GDP.
Transportation in Afghanistan
Afghanistan is a landlocked country with no access to the sea. There are no railroads in the country. Transportation is mainly by road and air. The Amu Darya and Kunduz rivers on the northern borders with Uzbekistan and Turkmenistan are partly navigable.
Roads: 21,000 kilometers, about 2,800 kilometers of which are paved. 70% have been destroyed by war. The government is now actively working with countries and non-governmental organizations to build roads at all levels. The 482-kilometer Kabul-Kandahar highway was reopened in December 2003 after rehabilitation. Rehabilitation of important roads such as the Kabul-Jalalabad road is in progress. Agreements have been reached with the concerned agencies for the rehabilitation of the Kabul-Herat highway and works such as the Salang Tunnel.
Air Transportation: there are two airlines. Aryana Airlines is more powerful and mainly operates international routes. At present, it has launched international flights to Pakistan, the United Arab Emirates and India, and on July 12, 2003, it formally launched the route from Kabul to Urumqi. Bakhtar Air operates domestic flights. Kabul Airport is an international airport.
Afghanistan's Foreign Trade
Afghanistan trades with more than 60 countries and regions. The main export commodities are natural gas, carpets, dried and fresh fruits, wool, cotton and so on. The main imports include various foodstuffs, motor vehicles, petroleum products and textiles. The main exports are to Pakistan, USA, UK, Germany, India etc. The main importers are Pakistan, China, USA, Japan, South Korea, Turkmenistan, India etc.
Foreign Aid
The international community has provided a great deal of financial and material assistance for the post-war reconstruction of Afghanistan. in January 2002, at the Tokyo Ministerial Conference on the Reconstruction of Afghanistan, all parties attending the conference expressed their support for the peace and reconstruction of Afghanistan, and committed to providing a total of 5 billion U.S. dollars in assistance for the reconstruction of Afghanistan. After the Tokyo Conference, the international community made a number of commitments, and at the Berlin Conference on Afghanistan in March 2004, the international community pledged to provide $8.2 billion in assistance to Afghanistan over a three-year period. As of September 2004, Afghanistan had received 4.828 billion dollars in assistance. At the same time, the international community has assisted the Afghan government with a large number of basic equipment in various areas such as education, health, agricultural irrigation, public **** transportation, telecommunications, and government offices.
Afghan people's life
More than 20 years of civil war has caused great damage to the basic facilities of life in Afghanistan. Roads have been damaged, electricity is scarce, prices have risen and there is a lack of basic necessities. Since the establishment of the government, with the help of the United Nations and international non-governmental organizations (NGOs), the government has made great efforts to restore the basic facilities for people's livelihood, resettle the refugees who have returned to the country, solve the problem of water and electricity consumption by the residents, intensify the training of medical personnel, and restore school education at all levels. According to a report by the World Bank, less than 20 per cent of urban residents in Afghanistan have access to running water, the lowest percentage in the world. Basic health care covers only 40 per cent of the population, and there is a severe shortage of medical personnel, especially women. Women's access to basic health care is low due to their reluctance to be examined and treated by male doctors. Afghanistan has an under-five mortality rate of 172 per thousand and an infant mortality rate of 115 per thousand; 50 per cent of the population suffers from chronic malnutrition; and the average life expectancy is 43 years. Backward agricultural and pastoral country, in 1971 by the United Nations as one of the least developed countries, more than a decade of war environment, so that the economy of Afghanistan has been seriously damaged, there were more than 5 million people in exile, fell into the refugee.
Since the establishment of Karzai's new government in 2002, despite the rapid development of the economy, the average annual growth rate of GDP reached double-digit, but due to the low starting point, the foundation is weak, completely insufficient to change the face of poverty of the country and the people. With the support of the international community, the Government launched a five-year National Development Strategy in May, which charts a road map for Afghanistan over the next five years, from 2008 to 2013, to achieve the goals of security, good governance, economic growth and poverty reduction. In the area of economic and social development, the government has placed its hopes squarely on the private economy to achieve poverty reduction and sustainable economic development by fostering and building a strong private sector oriented market economy and to ensure that Afghanistan makes significant progress in implementing the new Millennium Development Goals (MDGs).
Afghanistan has made significant achievements in maintaining macroeconomic stability, with a clear trend towards increased and vibrant small and medium-sized private sector activity, but these have been largely driven by the international community's efforts to assist in Afghanistan's reconstruction and by large-scale imports. With the exception of telecommunications, there is a general reluctance on the part of the Afghan private sector to make medium- to long-term productive investments, due in part to a lack of private sector confidence in the future and the high costs of doing business and transactions resulting from the realities of the Afghan business environment. In addition, according to the Afghan Ministry of Commerce and Industry, despite double-digit growth in international trade, most of Afghanistan's exports are re-exports of imports to Pakistan and Iran, which are largely supported by international aid and the drug economy.
For the Afghan economy to remain sustainable, it is essential to bring the reconstruction-driven recovery economy onto a private economy-led growth track. A thriving private economy is critical to boosting the rural economy and reducing the drug economy. Only a thriving private economy that promotes sustainable growth based on productive investment can provide significant employment opportunities for the society and the people, generate the resources needed by the government to implement the national development strategy, and benefit the country and the society as a whole, and there is hope for the country's economic growth and achievement of poverty reduction goals.
In view of the above, the private economy has been recognized by the GoA as the hope, expectation, and dependence of the country's development as well as the engine and driving force of the country's economic development. The international community, while assisting Afghanistan, is also actively pushing the Afghan government to emphasize and develop the private economy.
Due to the inadequacy of the statistical system, there is no reliable data on investment and business activities of private enterprises in Afghanistan. According to the data provided by the Afghanistan Investment Promotion Agency (AIPA), there are more than 15,000 investment enterprises registered with the agency. According to the information provided by the ACCI, there are 25,000 members of the national business enterprises*** registered with the ACCI.
ANABEs are weak and typically informal, owner-operated, and small in size, and there are almost no medium- to large-sized enterprises among them. Telecommunications is the only sector with large-scale FDI and run by them, while private processing and manufacturing firms are largely invisible.
Second, the poor business environment constrains the development of the private sector in Afghanistan
In post-war Afghanistan, where both physical and non-physical infrastructure has been destroyed, a favorable business environment suitable for the development of the private sector has not yet been established in the reconstruction efforts. The lack of appropriate laws and regulations, well-organized institutional environment and good governmental and social public **** services has made most of the private enterprises or self-employed activities remain at the level of informal economy, which limits the growth of medium- and long-term investment and business, creates a counterbalance and pressure on the promotion of healthy business competition, and promotes and incentivizes corruption, and has become a huge constraint on the existence and development of the private economy in Afghanistan. These factors are summarized as follows:
(a) Lack of physical infrastructure, especially electricity. In major cities such as Kabul, frequent power outages have left most businesses relying on expensive self-provided generators to solve the electricity problem, which is an increasingly heavy burden on the private sector in the face of rising and high international oil prices. In addition, the severe lack or dilapidation of clean water supplies, sanitation facilities, means of communication, roads, airports, border-crossing facilities, etc., is an important impediment to the participation of the private sector in the formal economy and a constraint to the development of international and regional trade and the attraction of investment in the country. Infrastructure problems also affect financial services, especially in rural areas.
(ii) 70-80% of Afghanistan's private economy is informal, as evidenced by the fact that contracts are seldom used and are largely non-binding, provisions for consumer and employee empowerment are largely ineffective, there is a high level of bureaucracy and obstacles or barriers related to government capacity, and there is a limited ability of private enterprises to adapt to legal and regulatory requirements, as well as a lack of public ****information and adaptability to various procedures. is also jeopardizing the existence and growth of the private economy, leading A to be one of the countries with the lowest financial revenues from the private economy.
(iii) Poor business environment. The business environment continues to be plagued by outdated regulations, ambiguous and contradictory provisions, and overly burdensome licensing and transaction procedures. In addition to the requirements for incorporation, which used to be handled by the Commercial Court but will now be handed over to the yet-to-be-established Central Registry, there are investment licenses from the Investment Promotion Agency (IPA) and business licenses from the Ministry of Commerce and Industry (MoCI), as well as more than 20 separate licenses from a wide range of relevant ministries. The lack of structural competitiveness in Afghanistan's business environment is reflected in the Doing Business Index published by the World Bank: Afghanistan is ranked 165th out of 175 countries listed as "easy to do business" (down from 159th in 2006).
(iv) Unclear property and land rights, weak enforcement mechanisms, and the inability of private businesses to use land as collateral for credit. The lack of a commercial insurance system, coupled with a volatile security situation that negatively affects investment, creates a constraint on private enterprise development.
(e) Lack of financial support. It is another major constraint for the private economy to engage in business and development. The ease of access to credit in the conditions for doing business in Afghanistan ranks 122nd out of 155 countries, and access to credit is even more limited in rural areas of the country.
(vi) Lack of effective enforcement mechanisms. The commercial court system has not been established, or they lack resources and capacity or relevant laws, or incomplete laws, etc., which are serious risks for the rights of creditors, banks and financial intermediaries. There is no modernized regulatory framework for the leasing and insurance industries, nor are there relevant laws that apply to non-bank lending.
(vii) Corruption continues to be a huge obstacle to investment, transactions. Widespread corruption in the bureaucracy and in the public **** in the process of obtaining licenses, applying for loans and enforcing contracts not only creates difficulties for businesses, but also significantly increases the cost of investment and transactions for investors or potential investors and slows down the process of transactions, making it impossible to predict the risks in the process of applying for licenses, enforcing contracts, and defending financial rights and interests. In terms of foreign trade, low wages, lack of training and lack of resources for border enforcement or staff trigger or exacerbate corruption, affecting the enforcement of laws by customs and tax authorities, delays in border crossing, cumbersome procedures and lack of facilitation, and a range of obstacles to trade, hurting the competitiveness of Afghanistan's exports. In addition, the existence of a large number of small and obnoxious taxes adds an additional burden on the private or self-employed.
(viii) Illicit proceeds from opium create financial challenges and shocks.
(ix) There is a serious lack of capacity in negotiating trade and transit agreements to secure better conditions for Afghanistan in foreign cooperation. In addition, high wages and de facto high exchange rate due to large amounts of foreign aid and remittances as well as inflow of drug proceeds have made many of Afghanistan's commodities with export potential uncompetitive.
(x) The low level of education and skills in the Afghan labor force is another obstacle to competitiveness and economic growth.
III. Policies, measures of the Government of Afghanistan on the development of private economy
(i) Pursuing the policy of market economy led by private economy
The Government has clearly stated its policy on the development of market economy led by private economy in the Afghanistan National Development Strategy (ANDS), which consists of the following focuses and priorities:
? Creating a legal framework for the development of the private economy, including the development and adoption of important commercial laws (company law, joint venture law, commercial arbitration law, commercial mediation law, contract law, agency law, standards law, copyright law, trademark law, and patent law);
? Create a regulatory and institutional framework for the private economy to support them in the fulfillment of the relevant laws;
? Improve implementation of the legal and institutional framework;
? Ensure that the above legislation reflects the links and characteristics of local Afghan society and is fairly enforceable, continuing to provide investors with a legal environment that is highly predictable in terms of business prospects.
(ii) Plans, measures and implementation
1.
The Government will strengthen and improve the management of the market economy within the framework of policies to promote the growth and development of the private economy, including:
? Identifying institutional responsibilities and mechanisms for reforming the business environment;
? Strengthening the work and functioning of the Ministry of Commerce and Industry, the Investment Promotion Agency, and the related legal system to effectively mediate and resolve disputes;
? Improve access to land, including a range of measures to clarify property rights, simplify transfer procedures, and secure long-term leases. The main procedures used for business management operations (registration, issuance of licenses, entry and exit operations at the border, customs clearance and payments) will continue to be simplified to reduce transaction costs.
2. High priority will be given to the privatization or corporatization of a number of important state-owned enterprises.
The Ministry of Finance has prepared a list of all SOEs to be privatized, which includes National Electricity Authority - Corporatization and Efficiency Measures of Brishna Mowasesa in Greater Afghanistan, Restructuring and Strategic Privatization of Millie Bank and Pashtany Bank, all of which are to be privatization or enter the liquidation process. All relevant agencies of the Government will encourage these competitors, which have emerged as new private enterprises, to enter the market and compete on a level playing field.
3. Commitment to a favorable trade policy.
Trade policies will be designed around the objective of ensuring that import and export trade thresholds are lowered, private enterprises are supported to develop and increase domestic production, and the competitiveness of industries with comparative advantages is enhanced. The Ministry of Finance will be responsible for developing a new tariff system based on consultations with all parties. In addition, priority will be given to improving trade and commercial relations with countries in the region, capitalizing on Afghanistan's strategic location, and promoting and facilitating trade and transit through appropriate policies and measures. In the short term, the Government will aim to ensure the continuity of customs regulations and continue to reduce the average time it takes for goods to enter and exit Afghanistan, eventually reaching the regional average. The Government will also work towards obtaining membership in the World Trade Organization.
4. Further improve financial services.
The financial system, including banking and microfinance services, is growing rapidly, however, only a small percentage of the population has access to formal financial services as financial intermediation capacity remains low. In order to remove some of the key bottlenecks in private sector development, the Government intends to build a strong and responsive financial sector that will strengthen private sector domestic production and enhance its productive capacity. This will be done through the adoption and implementation of four financial laws (security transactions, mortgages, leasing, and negotiable instruments) to strengthen the legal framework and prudent enforcement of banking regulations, followed by the introduction and extension of financial services to rural areas and SMEs, and then (in the medium term) by seeking to establish institutions such as the Credit Information Bureau and the Financial Dispute Resolution Tribunal to enforce appropriate financial services. Later, in the medium term, we will seek to establish institutions such as the Credit Information Bureau and the Financial Dispute Resolution Tribunal, and to implement appropriate insurance laws to encourage and facilitate the development of some key financial institutions.
5. Continue to reform the business environment.
The Ministry of Commerce and Industry has been designated as the authority to promote the development of the private sector in the country, and in line with this function, the Ministry has created two new institutions better suited to the implementation of policies for the development of the private sector, namely the Department of Private Enterprise Development and the Department of Law and Regulation, with the support of the Capacity Building Program.
In the past, the GoA has implemented a number of reforms to improve the business environment for private sector development, some of which have had an impact on private sector development, such as:
? The industrial park program, which has overcome infrastructure deficiencies and obstacles by facilitating a small number of Afghan businessmen;
? Financial support from donor countries for bank credits;
? Microfinance programs designed to help individual traders increase their income;
? The establishment of the Investment Promotion Agency (IPA), which provides a single-window service for investors and is proactively addressing the problems faced by investors;
The overall progress of reforms for the private sector in Afghanistan has been slow and ineffective, with a large number of high-impact informality in the economy, and the negative impact of structural problems in the business environment continuing to offset those positive reform efforts, resulting in a weak overall growth in the private economy, and low output of small and medium-sized enterprises. As a result, the overall growth of the private economy has been insignificant, and the output of small and medium-sized enterprises (SMEs) is still not able to dominate the private economy of Afghanistan. In light of this, the Government continues to work on reforms and construction in the following areas:
(1) Promoting the formalization of the private sector. Encourage the regularization of the economy, emphasizing the need to strengthen the system of micro, small and medium-sized enterprises, to create a platform for them to perform at a high level in the formalization of economic operations, to improve their ability and capacity to formalize their business operations, to reduce bureaucracy, and to eliminate corruption. At the same time, the legal environment will be strengthened by enhancing the capacity of State institutions to enforce the law and the ability of private enterprises to adapt to the law, thus effectively reinforcing reforms. In addition, formalized business training, skills development through the implementation of small-scale training programs and internationally recognized vocational training centers (some progress has been made), modernization of business education (especially in universities), and increased investment in modern processing and manufacturing technologies will enhance the competitiveness of Afghan producers in domestic and international markets.
(2) Sound business development and market policies. It is believed that the inability of the private sector in Afghanistan to realize its potential is mainly related to the arbitrariness and restrictiveness of market rules and regulations, unfairness of competition in the domestic and international markets, lack of market information and uncertainty, and imperfections and discontinuities in trading networks. In this regard, the Government has made plans to create functional markets capable of fulfilling these roles, including the establishment of an institutional market environment (systems, laws and regulations governing the market) and the strengthening of supporting functions (skills, information and networks that enable the market to operate), so that transactions between buyers and sellers can be carried out in a regulated, simple and fair manner, and to promote the viability of a competitive private economy that is capable of competing in the domestic and international markets. To promote the sustainable development and growth of a competitive private economy capable of competing in national and international markets.
(3) Improvement of investment climate. By improving the investment climate, Afghanistan will become a competitive investment destination, attract foreign direct investment and promote domestic investment. The Government also plans to create physical infrastructure for private sector development and investment, such as the continued establishment of industrial parks across the country and the timely provision of land, energy, water, electricity and road access for investors. However, the process and progress of encouraging investment is still constrained by high risks, and existing risk mitigation instruments or investment guarantee mechanisms are only applicable to international investors and have little or no effect on domestic investment. In response, the Ministry of Commerce and Industry (MCI) has initiated a number of special programs, including:
? Reducing the uncertainty, burden and cost of enforcing regulations;
? Introducing more effective investment risk mitigation tools;
? Strengthening the human capital infrastructure;
? Designing and creating a target market that is conducive to investment operations.
With the effective implementation of the Afghan government's policies and measures to develop the private economy and the deepening of the reconstruction process in Afghanistan, it is believed that the role of the private economy in Afghanistan's economic construction and social development will become more and more obvious, and that the future of Afghanistan will be bright.