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Setting up companies in Afghanistan

Afghanistan, part of the ancient Silk Route and the bridge between the Middle East and South Asia, is slowly, but surely returning to normal after years of unrest. Trade has resumed, though it will be a while before the Kabuls business flourishes again. There are on the visible changes in Afghanistan post the September.
Every Afghan has been affected by the war. The scars run deep, but they are a hardy race, which doesnt expect much from life. Elections, after three decades, have brought back a semblance of normalcy, though the south of the country still remains a war zone. Trade in dry fruits and nuts has resumed and carpet-manufacturing is also an important industry. In the unorganised sector mining of gemstones like topaz, emerald and ruby are undertaken.
The change is that schools have reopened in the country. The free mid-day meal in schools is one of the factors that have encouraged families to send children to school. Better sanitation facilities could be another driving force for women to attend schools. The other visible change is that commercial trade and activity has resumed. Restaurants and shops have sprung up and they remain open till late evening.

A World Bank report released recently, says that investment climate in Afghanistan was improving, but identified key constraints to capital inflows. It called on the government to do more to promote private-sector development. Based on a survey of 338 companies in five Afghan cities, the report said the most serious constraints for private-sector developments were reliable mains electricity, access to land and finance and the scourge of corruption. According to the study, the key challenge is to broaden participation in the market by removing barriers to new investors and creating conditions that will encourage those already active in the economy to invest more.

The report emphasises the need to improve governments capacity to formulate and implement private-sector development policies and programmes. According to Samuel Munzele Maimbo, World Bank Senior Financial Sector Specialist and co-author of the report the “Enterprises need a variety of business services to help them enter, operate, grow and manage risks. These services are best provided by the private sector but the government needs to put in place a policy and regulatory framework to facilitate private entry.”

It notes that the Afghan government has taken a number of steps to improve the business environment and attract investment. It has established the Afghanistan Investment Support Agency (AISA) designed specifically to promote and facilitate investment. There has also been significant progress in developing the financial sector, as well as reform in labour regulation and the nations tax regime.

Jean Mazurelle, World Bank Countrys Manager for Afghanistan. emphasised, “The government has made important strides toward creating an enabling investment climate,” said “But much more remains to be done. Private-sector activity is still carried out in an environment dominated by informal practices. These arrangements may be useful for many investors in the short run but will have negative effects for longer-term investment growth.”
Some 80-90 percent of economic activity in Afghanistan is informal and potential investors who do not have established contacts with influential figures find these informal arrangements daunting and are often discouraged from investing, the report argues.

Afghanistan has witnessed a sharp increase in private-sector investment since the demise of the Taliban in late 2001, but it is well below its potential, the report says. For example, AISA has registered nearly US $1.3 billion in new investment (excluding telecom firms) over the past two years, but only a fraction of these commitments have actually been disbursed.
For more and detailed info, please visit AISA website.