Nangarhar Provincial Business Agenda

Download the full report or read the executive summary below.

Introduction

What is a Business Agenda?

A Business Agenda (BA) is an advocacy tool created by the business community in a given country, province, or subnational region to improve the commercial environment in which businesses operate. They can address an individual industrial sector, or they can apply more broadly across multiple business sectors. The main purpose of a BA is to identify laws and regulations that hinder business activity and thwart economic growth and job creation, as well as highlighting other obstacles, challenges and deficiencies in the business climate that require some type of government action to rectify the situation. Most importantly, a BA must offer concrete, realistic and achievable policy recommendations and specific legislative or regulatory reforms to remove these barriers and to improve the business climate.

The key element of a BA is the active participation of the business community in formulating its contents and then advocating effectively for the implementation of its recommendations. The BA enables businesses from across the country to formulate and to articulate the challenges they face and their policy needs in a democratic way. It offers a mechanism that can be used to approach relevant officials and policy makers in line ministries, provincial government offices and parliament to inform them of the challenges facing the country’s businesses and to promote sensible reforms to remove those barriers. Because of the proactive outreach and consultative nature of the BA process, the recommendations contained therein have demonstrable and persuasive credibility with policy makers and other government officials.The National Business Agenda of 2011

In March 2011, the Afghanistan Chamber of Commerce and Industry (ACCI), the national apex chamber of commerce in the country, and a coalition of 10 other mostly sectoral Afghan business associations released a report entitled, the National Business Agenda for Afghanistan (NBA). The Center for International Private Enterprise (CIPE), a non-profit business advisory organization, provided financial and technical assistance in organizing and managing this initiative as well as in preparing the final NBA report. The business associations making up the NBA coalition represented the major sectors of the formal Afghan economy including women entrepreneurs. An Advisory Committee was established, chaired by ACCI, but with representation from each of the other 10 participating associations, and was charged with providing strategic guidance for the NBA process, with overseeing its work and with approving the set of recommendations contained in this final NBA report.

To ensure that this NBA reflected the views of common Afghan businesses, the Advisory Committee hosted five regional NBA meetings held between November 2 and December 28, 2010. These meetings were held in Herat, Kandahar, Kabul, Jalalabad, and Mazar-e-Sharif, with a total attendance of over 1,300 business people. All of the meetings were marked by vigorous discussion and debate among the participants. During each meeting, participants were divided into sectoral committees reflecting the major commercial sectors prevalent in that particular region. These sectoral committees were tasked with identifying specific issues that negatively affected the business enabling environment in their region and to provide specific policy recommendations that should be taken to remedy those issues.

Through the intensive advocacy efforts of the business community involved in the NBA initiative, a number of major reforms were enacted. The parliament passed a series of laws that were crucial to improving the business climate and strengthening democratic governance including a competition law, anti-monopoly law, mortgage law, norms and standards law, banking reform law, and land leasing reform law. As a result of the business community’s advocacy efforts on behalf of the NBA’s policy recommendations, some additional improvements in the business climate in Afghanistan were made in a number of areas including:

  • increase in supply of reliable and affordable electricity;
  • reduction in tariffs on essential raw materials and machinery for production;
  • reduction in cost for business licenses and licensing offices more readily available;
  • tax holiday for new businesses;
  • increased availability of land for entrepreneurs and reforms in leasing rules to improve predictability for business owners; and
  • increase in the number of industrial parks and improved infrastructure in existing parks.

As we shall see in the recommendations contained in this and subsequent Provincial Business Agenda reports, despite some improvements in the business climate in Afghanistan over the past several years, many issues remain serious obstacles to commercial growth and economic development, and new impediments are continually emerging that need to be addressed.

Why Provincial Business Agendas in 2014-15?

To build on the business community’s successful achievements during the 2011 National Business Agenda for Afghanistan (NBA) process, CIPE and its Afghan business community partners chose to replicate this NBA model at the provincial level through a series of Provincial Business Agendas (PBA) to be held in 2014-15.

With the massive reduction in foreign military troops across the country and the commensurate reduction in development spending by the international donor community, many of the provinces outside Kabul are experiencing significant economic contractions that are resulting in business closings, increased unemployment and reduced commerce and investment. Growth in the country’s overall gross domestic product has decreased significantly from almost 14.4 percent in 2012 to just 2 percent in 2014. Action on the part of the new National Unity Government is urgently needed in these communities to address the challenges that exist to economic development, commerce and business and job creation so that many of the gains in business creation and employment, as well as the higher standards of living, that had been created over the past thirteen years, are not lost. At the very least, the government should be acting to reduce the most severe impacts of the inevitable economic contractions that arise from the reduction in international troops and development assistance.

After consulting with leaders of key business associations in the country, CIPE and its partners in the business community decided to focus attention on improving the local business climate in the four major regional economic “hubs” in Afghanistan outside of Kabul: the provinces of Nangarhar, Balkh, Herat and Kandahar. Each of these provinces serves as a key commercial trading corridor with Afghanistan’s neighbors – Pakistan to the south and east, Iran to the west, and the countries of Central Asia to the north. In addition, the economies in each of these four provinces are vital not only to their own well-being but also to the economies in the provinces adjacent to them. For example, when the PBA summit meeting was held in Balkh province in December 2014, business leaders from adjacent Kunduz, Samangan, Jawzjan and Faryab provinces participated. The same pattern existed in the other two PBA summits held this past year in Nangarhar and Herat.

The participation of the business communities in each of the three PBA summit meetings held this past year was tremendous. Over 400 people attended each of the PBA summits, including a number of key provincial political leaders. Each summit was organized by CIPE in partnership with a task force of local business association leaders. For each of the three summits held thus far the local task force for organizing the PBA meeting consisted of between12-18 local business associations, including at least two women’s associations, thus representing a broad cross-section of the major industrial sectors for each province. This strong display of interest in and commitment to strengthening the local economic and business climate demonstrates that the vast majority of the Afghan business community is dedicated to working together to communicate to the government what reforms and other actions are necessary to improve Afghanistan’s economy.

CIPE has prepared the final reports on the first three PBAs and will present them in public events to which government officials with authority over the issues contained in the reports will be invited and asked for their support in addressing and fixing the issues. Following the release of each of the reports, the business leaders from the various sectors involved in producing the report’s recommendations will engage in organized and sustained advocacy activities directed at relevant government officials and will work with those government officials in their jurisdictions to implement as many of the report recommendations as possible. Also, in coming months, the fourth PBA summit meeting will be held in Kandahar province, followed by a similar final report and advocacy effort.

While the principal responsibility for these advocacy efforts will fall on the business communities within each of the provinces featured in the PBA initiative, CIPE will continue to work with the advocacy task forces in each province to ensure that their advocacy efforts are organized, active and fruitful. As each of the PBA final reports is released, the respective advocacy task force for that PBA will formally present the report, with its findings and recommendations, to the respective provincial governor and provincial council as well as other relevant provincial and district level officials who have jurisdiction and authority over the subjects and recommendations listed in the report. CIPE will provide necessary training on effective advocacy strategies and tactics to the advocacy task forces, and help them develop advocacy plans for each respective PBA and to divide responsibilities across the task force and with their business association members to conduct the activities outlined in the advocacy plans.

Mechanics of the PBA in Nangarhar Province

CIPE staff convened a series of meetings in preparation for the launch of the Provincial Business Agenda (PBA) initiative in Nangarhar. Discussions to secure the support and participation of the local business community took place initially with the chairmen of the Nangarhar branch offices of the Afghanistan Chamber of Commerce and Industry (ACCI) and the Industrialists’ Association of Afghanistan. In addition, CIPE held a meeting in Jalalabad with other local business groups who were interested in forming a coalition to oversee the Nangarhar PBA process. Ultimately, the following groups and individuals made up the Nangarhar PBA task force, which organized and conducted the PBA summit meeting on June 4, 2014. We wish to recognize their leadership and commend them for their role in this important initiative.

Business Associations participating in the Nangarhar Provincial Business Agenda Task Force:

  • Afghanistan Chamber of Commerce and Industry (ACCI)
  • Afghanistan Industrialists’ Association;
  • Afghanistan Builders’ Association (ABA);
  • Federation for Afghanistan Craftsmen and Traders (FACT);
  • Eastern Zone Chemical Fertilizer, Pesticides and Improved Seeds Association;
  • Speenghar Poultry Farmers’ Association;
  • Nangarhar Bee Raising and Keeping Association;
  • Nangarhar Private Schools Association;
  • Afghanistan National Medical Services Organization (Nangarhar branch);
  • Nangarhar Marble Association;
  • Nangarhar Handicraft Association (Women’s Association);
  • Afghanistan Veterinary Association (Nangarhar branch);
  • Eastern Region Carpet Association;
  • Nangarhar Export and Import Traders’ Association;
  • Eastern Zone Transport Companies’ Association; and
  • Afghanistan Car Importers’ Association.

At the Nangarhar PBA summit meeting held in Jalalabad on June 4, 2014, over 400 business leaders met to discuss ways to improve the business climate in Nangarhar Province. Nangarhar Governor Attaullah Ludin spoke to open the event, pledging the provincial government’s support in working with the business community to enact proposed reforms. The participants split into 10 groups, which focused on various sectors of the economy, discussing a range of challenges and obstacles to doing business, as well as proposing policy solutions. The coalition compiled its recommendations in this comprehensive report outlining the top priorities from each sector.

Executive Summary

This executive summary will cover the general subjects and issues that were frequently raised by large numbers of business sectors who participated in the Nangarhar PBA summit meeting. Following the executive summary, the PBA report will list the specific issues identified by each of the business sectors represented at the Nangarhar summit meeting, along with the specific policy reform or government action requested by the relevant business sector in order to remedy the obstacle in the local business climate.

Security

Insecurity remains a chief concern throughout all sectors of the Afghan business community, both within Nangarhar province and at the national level. As the international community continues to withdraw its military and civilian presence on the ground and reduces financial aid levels, instability and levels of violence continue to rise, particularly at the local and provincial levels. Both insurgent and criminal organizations continue to be active in Nangarhar and Afghanistan as a whole.

Almost every single business or sectoral association in Nangarhar province has mentioned the deteriorating security situation as a major concern. Transporting goods and raw materials is becoming increasingly difficult, with several export/import association members specifically mentioning instances of extortion and embezzlement along the Jalalabad-Kabul highway. Mining companies have also stated that it is becoming more and more difficult to travel to and operate in regions rich in mineral resources due to instability, such as Hisarak district.

Increased levels of insecurity have had detrimental effects on the business climate of urban areas as well as rural ones. Several sectoral associations, including those representing medical service providers, and craftsmen and traders, have explicitly mentioned being victims of extortion and kidnapping by armed groups in major cities such as Jalalabad.

Moreover, given Nangarhar province’s proximity to the Pakistani border, cross-border smuggling activity is highly prevalent, which fuels the illicit economy and limits opportunities for legitimate companies to gain revenue. A number of business leaders have expressed their concern that adequate action is not being taken to curb smuggling and other illicit economic activity, which is taking a particularly hard toll on export and import based companies.

While the business community cannot dictate specific security policy changes to the Afghan government or ANSF officials, the members of the Nangarhar PBA task force and the participants in the summit meeting emphasized the strong connections between increased levels of violence and insecurity and the downturn in economic fortunes and commercial opportunities in Nangarhar province and throughout Afghanistan.

Economic growth, commercial development, and business and job creation are important aspects of Afghanistan’s development progress, and are key to the political stabilization process as well. Nangarhar province plays a particularly prominent role in the Afghan economy. The Jalalabad-Kabul highway is one of the most important routes in the country for commercial traffic, and Jalalabad serves as a regional trade and business hub within eastern Afghanistan and for cross-border trade with Pakistan. Making Nangarhar secure enough for business and trade to grow is necessary for Afghanistan’s economic development as a nation.

Therefore, the business community in Nangarhar province who participated in the PBA summit meeting are demanding that the Afghan government take the necessary steps needed to better protect businesses and commercial interests and to improve the security situation in order to facilitate economic growth in Nangarhar and surrounding provinces.

Corruption & Lack of Transparency

Afghanistan currently ranks 172 out of 175 countries on Transparency International’s Corruption Perceptions Index, ranking only above Sudan, North Korea, and Somalia. Corruption and a general lack of transparency in business policies and dealings permeates nearly every aspect of Afghan economics and commerce, and has a hugely detrimental effect on the business climate.

Following his election last year, President Ghani explicitly made combatting public and private sector corruption a major priority of his governing agenda. On his second day in office, he also challenged the Afghan private sector to clean up its act and no longer engage in corrupt practices, or risk having its assets frozen and licenses confiscated. While his strategy is admirable and extremely important to economic development prospects, the Afghan business community have seen limited signs of progress in curbing the daily predatory actions of corrupt actors in the commercial system.

Corrupt government practices, embezzlement, and lack of transparency were major concerns for every business or sectoral association in Nangarhar province. The Mastofiyat, or ministry of finance, was particularly singled out by several associations, as complicated and lengthy bureaucratic and administrative procedures required for tax collection and reporting revenue provide many opportunities for both businesspeople and government officials to manipulate the system and engage in corrupt practices.

Closely tied in with corrupt practices is the lack of transparency in most government policies and procedures, particularly in the awarding of contracts and procurement procedures. Construction companies have repeatedly raised issues with the practice of how contracts are awarded, as the bidding process is generally perceived to be unfair and biased towards a specific group of companies. Other sectoral associations have also alleged that nepotism and bribery play a key role in determining awardees. If practices such as these are allowed to continue unchecked, they will stymie commercial growth and have a significantly detrimental impact on economic development in Afghanistan.

While corruption is a multifaceted issue, which requires an extensive effort from a wide array of public and private sector stakeholders to successfully combat, there are several measures which could be taken, particularly at the provincial level in Nangarhar. Improving transparency in contractual and procurement procedures as well as licensing and registration procedures would go a long way towards reducing the opportunity for officials and businesspeople to engage in corrupt practices. Further streamlining and decentralizing many of the procedures required would improve efficiency and reduce the incentive to engage in corrupt business practices while limiting opportunities to do so. Eliminating corruption from Afghanistan is certainly a monumental task, but it must be addressed in order for effective and sustainable commercial and economic development to take place.

Lack of Infrastructure

There has been reportedly over $2 billion invested in the Afghan energy sector over the past ten years to improve the generation and distribution of electricity. However, every single major business or sectoral association in Nangarhar province brought up the issue of limited electricity or the complete lack thereof.

Issues with electricity supply to industrial parks was a serious issue that was brought up in the Jalalabad NBA meeting in 2011. While some progress has been made in improving the supply of electricity to businesses in Nangarhar, widespread complaints persist among industrialists and other sectors. Members of the Federation of Afghanistan Craftsmen and Traders claim that there are many potential traders and businesspeople who have gone through the various bureaucratic procedures and paid the necessary fees to open businesses, but they are unable to obtain the necessary property and electricity to be able to start their business. Complaints also persist about the bureaucratic difficulties in acquiring electricity, as well as the high rates being charged for it. These issues have been raised not only by the industrialists and craftsmen operating in the various industrial parks, but also by private schools, medical service providers, and other sectors.

The business community in Nangarhar and surrounding provinces are also adversely affected by the many legal and logistical difficulties to owning or procuring land. The difficulty of navigating the bureaucratic procedures required for obtaining land for commercial purposes is well-documented and has been raised as a major issue by the Afghan business community many times. The Nangarhar Carpet Weavers and Handicrafts Association mentioned that a decree from the Ministry of Commerce and Industry to provide 200 hectares of land in the Sheikh Misry industrial park in Jalalabad, dated from 2009, has yet to be fully executed.

Industrialists, craftsmen, and other sectoral associations have also complained that the government has been unresponsive about this issue. The lack of adequate infrastructure and facilities within existing industrial parks has been raised as well, by multiple sectoral associations. Roads and other basic infrastructure remain only partially completed within various industrial parks around Jalalabad. The Carpet Weavers Association additionally brought up concerns over the lack of an appropriate venue for marketing finished products. A proposal to convert Nangarhar Hotel in Jalalabad into a marketplace for carpets and handicrafts, to be administered by the Carpet Weavers Association, was approved by provincial government authorities, but has since been held up by bureaucratic infighting.

Given that complaints persist about the lack of organization in terms of allocating land for development, the underdeveloped infrastructure in existing development projects and the difficulties in navigating bureaucratic procedures for acquiring electricity and other key services, the Nangarhar government should make addressing these issues a top priority. Access to land and electricity, along with basic infrastructure, are among the most basic prerequisites for commercial and economic development.

Burdensome Bureaucracy & Administration

Lengthy and overbearing bureaucratic policies and procedures have contributed significantly to increased corruption, inefficiency, and economic stagnation all over Afghanistan. A number of business and sectoral associations in the Nangarhar PBA summit meeting expressed their frustration with navigating the myriad procedures for procuring equipment, goods and services, implementing contracts or simply registering their respective businesses.

Bureaucratic inefficiency is highlighted by the procedures required to gain a contract in the marble mining sector. Prospective companies are required to register and comply with the rules and regulations of the Mining Ministry, the Environmental Protection Agency, and the Agricultural Directorate. While complying with such regulations is not unusual for extractive industries, and commonplace in both developed and developing countries with similar natural resources, the almost complete absence of coordination between government agencies demands attention, in order to develop policies that both ensure environmental and other regulations are properly met, while still encouraging business development.

Business registration, which is also mentioned as a chief concern by most of the Nangarhar business associations, has generally been a very centralized process in Afghanistan. Moreover, the lifespan of business licenses has commonly been just for one year, meaning that business owners have had to renew their licenses with both the Ministry of Commerce and Industry and Afghanistan Investment Support Agency (AISA) on an annual basis. The Afghan business community has repeatedly highlighted how inefficient this process has been, including at the NBA meetings in 2011. The process has imposed an unnecessary administrative burden on many business owners, and the short licensure period has had an adverse impact on business stability and certainty.

While both the Ministry of Commerce and Industry and AISA have made the decision to increase the licensure period to three years, the reforms themselves have yet to be effectively implemented in many regions, including Nangarhar. The re-registration process has also historically been linked with the annual submission of balance statements by businesses to the Ministry of Finance, and there have been concerns voiced by Finance Ministry officials that the longer licensing period could result in discrepancies in annual tax payments by businesses. However, the Nangarhar business community feels strongly that it is vital for future economic growth that the reforms to business registration procedures and laws be implemented.

Tax Rates & Tariffs

Many businesspeople, both in Nangarhar province and throughout Afghanistan, believe that the taxation system is not only very complicated to navigate, but is also excessive and unpredictable. Complaints chiefly deal with inefficiency, as the process of submitting balance statements is complex, lengthy, and very prone to corruption. Mastofiyat (Finance Ministry) officials are reported to frequently take bribes to either lower the tax liability owed or smooth over “complications” in the submission process.

Specific complaints have been brought up regarding annual submissions of balance statements to the Mastofiyat. Export and import associations in particular wish to address the overcentralized nature of the process, as their balance statements are submitted in Jalalabad, but are then referred to Kabul for further processing. Other sectoral associations, including those representing construction companies, have also mentioned their concern with lengthy processing times, as inefficiency and the difficulty of navigating the various bureaucratic procedures continues to play a key role in perpetuating corrupt and “under the table” business practices.

Other sectoral associations have raised the issue of multiple taxes being paid at separate junctures. Businesspeople have complained about having to pay registration or licensing taxes, municipal taxes, customs taxes, and other legitimate or unofficial taxes throughout the year. As a result, many believe that the required tax burden becomes excessively high and stymies investment and commercial growth. In addition, several associations have complained about how lengthy customs procedures and high tariffs have prevented the efficient movement of goods across borders and within the country. The long delays often result in spoilage or deterioration of goods, lost business opportunities and rampant opportunities for corruption. All of these situations have a devastating impact on businesses and commerce in Afghanistan.

The other major concern is related to tariff policy and rates, especially given Nangarhar’s proximity to the Afghanistan-Pakistan border and the key role Jalalabad plays as a trade hub. Tariff policy has traditionally sparked considerable debate among the business community in Afghanistan, with some concerned with protecting domestic industry, and others more occupied with promoting the country as a regional trade hub. The general consensus among the Nangarhar business associations, however, is that tariff rates should generally be lowered, as not only do many businesses deal with exports and imports from Pakistan, but many industries are dependent on cross-border trade for equipment, retail goods and raw materials to sustain business growth and commercial activity. However, many sectors, specifically industrialists and craftsmen, advocate for tariffs to protect Afghan-made goods.

An effective balance between protecting key Afghan industries and encouraging cross-border trade is necessary in Nangarhar province and is key to improved economic development going forward. The business community calls on the relevant ministries within the national government to engage business leaders from affected industrial sectors in order to develop a private sector development strategy that evaluates the immediate needs of the businesses in Afghanistan without jeopardizing the long term goal of creating a domestic economy capable of supporting the people of Afghanistan with jobs and quality goods and services but also capable of participating and competing in the global economy.

To read the full report, download the PDF.

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