Balkh 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 Balkh Province

On August 25, 2014, CIPE met with a range of business association heads and other leaders of the business community in Balkh province to brief them on the Provincial Business Agenda initiative and its role in promoting commercial growth at the local level. A task force was assembled with CIPE’s support to organize both the summit meeting and any advocacy activities or initiatives related to the PBA process in Balkh, comprised of the following individuals and organizations. We wish to recognize and commend them for their leadership and role in this vital initiative.

  • Mr. Abdul Satar Beegzada, Head of Carpet Guild, Balkh Province
  • Mr. Basheer Ahmad Muzhda, Deputy Chairman Industrialists Association and Head of the Poultry Association
  • Mr. Rasool Tajzada, Head of Transportation Association
  • Mr. Assadullah Nachar, Head of Federation for Afghanistan Craftsmen and Traders (FACT), Balkh Branch
  • Ms. Qandi Amaki, President Balkh Women Business Association
  • Mr. Sayed Tahir Roshanzada, Head of the Industrialists Association
  • Ms. Rubaba Naibi, Head of Social Services for Young Women and Children Organization and Member of the Balkh Provincial Council
  • Ms. Shakeeba Shakeeb, Representative of the Women’s Business Association in Balkh
  • Mr. Nasir Ahmmad Qasimi, CEO, Balkh Chamber of Commerce and Industry (BCCI)
  • Mr. Nasir Ahmmad, Deputy BCCI and President, Baran Corporation
  • Mr. Emamuddin Sanayeezada, Head of Cooking Oil Production and Process Company
  • Mr. Abdul Ghani Turab, Head of Sheer Abad Agriculture Firm
  • Mr. Peer Mohammad, Technical Advisor for Saweda Agricultural Services
  • Mr. Sarajuddin, Representative of Salt Production Company

The Balkh PBA Task Force subsequently convened the summit meeting, with CIPE’s support, in Mazar-e-Sharif on December 10, 2014. Over 400 individuals attended, representing all of the major business associations and sectors in the province. A number of representatives from women’s business associations were also present, as well as business leaders from neighboring Kunduz, Samangan, Jawzjan, and Faryab provinces, indicating how vital the PBA process is for economic growth across northern Afghanistan. Arash Younsi, chairman of the Balkh branch of ACCI, opened the event with introductory remarks thanking CIPE for supporting the PBA initiative in Balkh and encouraging participants to identify specific challenges to the local business environment and to propose concrete solutions and policy recommendations to address those challenges. Following the conclusion of the summit meeting, Mr. Ahmad Wali Sangar, Economic Advisor to the Balkh Provincial Governor promised support on behalf of the provincial government for the PBA process and the enactment of policy recommendations.

The Task Force subsequently compiled the concerns and recommendations proposed by the summit meeting participants into this comprehensive report, outlined by sector.

Executive Summary

This executive summary will cover the general subjects and issues that were frequently raised by a large number of the business sectors who participated in the Balkh 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 Balkh 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 & Criminal Activity

Mazar-e-Sharif and Balkh are widely perceived to be the safest region of Afghanistan outside of the capital region, and have largely been spared from the insurgent attacks and violence that is pervasive throughout the rest of the country. A significantly fewer number of business owners and sectoral associations cited the security situation as a major concern at the Balkh PBA summit meetings, when compared to Nangarhar and Herat.

However, security does remain a pressing concern in northern Afghanistan. Neighboring provinces such as Kunduz, Baghlan, and Faryab continue to see high levels of insurgent activity, which has the potential to spill across the border into Balkh if not addressed. Unstable conditions in neighboring provinces have also led many business owners to relocate or transfer capital outside of Balkh. If the security situation continues to deteriorate, these trends are expected to continue and have a detrimental impact on commercial growth in the province.

While insurgent activity is not a chief concern for most business owners in Balkh, a large number of them have raised the issue of heightened criminal activity, in particular smuggling. As Mazar-e-Sharif serves as the principal hub for Afghan trade with Central Asia, many business owners rely on cross-border trade for revenue. Smuggling can severely limit the ability of legitimate businesses to gain revenue and expand, and plays a huge role in fueling the illicit economy. Smuggled goods are frequently sold at cheaper rates, as they bypass a number of tariffs and other customs-related fees. The oil importers’ association is particularly impacted by this, as large quantities of petroleum are smuggled from less secure border points in the southwest, and sold at significantly discounted rates.

It is also important to note that, while a significantly smaller percentage of business owners and sectoral associations raised security-related concerns in the Balkh PBA summit meeting, all the associations representing women business owners raised the issue of security. This suggests that even though the overall security situation in the province is comparatively stable, violence and criminality directed against women is still prevalent in Balkh, which severely limits women-owned businesses’ opportunities to grow and expand.

Therefore, while Balkh enjoys a comparatively higher level of safety and security than many parts of Afghanistan, it is still highly recommended that national and provincial policymakers in the security field take the necessary precautionary steps to ensure that violence and instability in neighboring provinces such as Kunduz and Faryab does not spill across the border and affect the political and economic climate in Balkh. Mazar-e-Sharif serves as the principal conduit for trade with the Central Asian republics, and as such, plays a vital economic role for the northern region of the country. Ensuring that security conditions do not deteriorate like they have in other provinces in northern Afghanistan will be vital for continued economic development in Balkh.

Corruption & Lack of Transparency

As was the case with the PBA summit meetings and report launch events in Nangarhar and Herat, and the 2011 National Business Agenda process, corrupt government and business practices and lack of transparency were among the most widely listed concerns of the Balkh business community. Transparency International’s 2014 Corruption Perceptions Index ranked Afghanistan 172 out of 175 countries surveyed, below Iraq, Syria, and Yemen, and above only Somalia, Sudan, and North Korea. Corruption and an overall lack of transparency in business policies and dealings permeates nearly every aspect of business and commercial life in Afghanistan and has had a hugely corrosive effect on the business climate.

After last year’s election, President Ghani made combatting public and private sector corruption a major priority of his governing agenda. On his second day in office, he challenged the Afghan private sector to clean up its act and to end corrupt business practices or risk having assets frozen and licenses confiscated. While his objectives and strategy are admirable and extremely vital to improving prospects for sustainable economic development in Afghanistan, the business community in Balkh and across Afghanistan have seen limited signs of progress in curbing the daily predatory actions of corrupt actors in either the private or public sectors.

Instances of bribery, embezzlement, and other corrupt practices in customs offices were raised by several sectoral associations. The border crossing at Hairatan drew particular attention as an area where convoys carrying exports and imports were stopped and extorted for bribes by customs officials. There were additional concerns over the lack of transparency in customs duties and rates. Given the huge role that cross border trade plays in the economy of Mazar-e-Sharif, and Balkh province as a whole, it is imperative that the provincial government and relevant national line ministries take steps to address bribery and similar instances of corruption in border crossings and customs offices, in order to improve business conditions in Balkh.

The Mastofiyat, or Ministry of Finance, was also singled out by several associations, as complicated and opaque bureaucratic and administrative procedures for tax assessment and collection provide numerous opportunities for both businesspeople and government officials to manipulate the system and engage in corrupt practices.

The lack of transparency in government policies and procedures is also closely tied in with corrupt practices. As is the case across the country, several sectoral associations in Balkh have raised issues with procurement procedures and the awarding of contracts. The construction industry, in particular cited nepotism and bribery as playing a key role in determining awardees, and the process is generally perceived by all major business sectors to be unfair and biased towards a specific group of companies.

Improving transparency in contractual and procurement procedures, as well as in customs policies, would have a huge effect on reducing opportunities for officials and businesspeople to engage in bribery, nepotism and other corrupt practices. Streamlining and decentralizing many required procedures would also improve efficiency, reduce the incentive to engage in corrupt business practices, and limit opportunities to do so. Eliminating corruption from Afghanistan as a whole is a monumental task, but is necessary to encourage effective and sustainable commercial and economic growth at both the provincial and national level.

Tax Rates & Tariffs

A wide range of sectoral and business associations in Balkh and across Afghanistan have raised issues with the taxation system, which is generally perceived to be excessive, unpredictable, and difficult to navigate as a business owner. There are concerns that high tax rates provide little to no incentive for commercial growth, and that complicated procedures and an overall lack of transparency encourage corruption, embezzlement, and fraud.

In addition to high tax rates, multiple taxes are frequently required at separate junctures throughout the year for business owners, including registration or licensing taxes, municipal taxes, customs taxes, and other official or unofficial fees. This contributes to the overall required tax burden being excessively high, and is a major barrier to investment and commercial growth. Excessive tax rates and delays from dealing with complicated bureaucratic procedures provide numerous opportunities for corrupt practices to occur, and is also a major contributing factor to cross-border smuggling and other illicit business transactions. All of these issues have a devastating impact on commerce in Balkh and across the country.

Due to the role Mazar-e-Sharif and Balkh province play in cross-border trade with Central Asia, tariff policies, procedures and rates are major concerns for the Balkh business community, and spark considerable debate. Tariff policy is a contentious issue throughout Afghanistan, but it is particularly relevant to Balkh given its role as a major regional trade and transit hub. Some business sectors are concerned with protecting domestic industry, while others are more focused on promoting Afghanistan as a transit hub for regional and international trade. In Balkh, a large number of businesses deal with exporting and importing finished goods and raw materials from Central Asia and are dependent on cross-border trade to sustain and expand commercial activity, and as such, support lower tariff rates. However, there are several sectors, including industrialists and craftsmen that advocate for higher tariff rates to protect domestic products and industries. The carpet making association has stated that the poor quality of imported raw materials have led to a decline in the overall quality of finished products. Other craftsmen have also mentioned there have been shortages of domestic raw materials, as it is often more profitable to export materials than to sell them domestically.

Sustaining and encouraging commercial growth in Balkh will therefore require an effective balance between protecting Afghan industries, and encouraging cross-border trade. The business community calls on policymakers and relevant ministries at both the national and provincial levels to engage business leaders to develop economic policies that meet the needs of the Afghan business community without jeopardizing the ultimate goal of creating an economic system that supports the Afghan people and participates and competes in the global economy.

Lack of Infrastructure

Over $2 billion has reportedly been invested to improve the availability, reliability and affordability of electricity in Afghanistan over the past ten years. While progress has been made in improving the quality of electricity supply in Balkh, a large number of business and sectoral associations have raised the issue of limited access and high rates being charged. Concerns have also been raised over the lengthy bureaucratic procedures needed to obtain power flow.

Additional concerns have been raised about the lack of reliable water supply by a number of business associations, the majority of whom deal with agricultural industries and whose business activities largely take place outside of the major urban area of Mazar-e-Sharif. The agriculture sector continues to be a major source of both employment and revenue in Balkh, and is reliant on a steady supply of clean and usable water.

A number of associations have also stated their concerns about the legal and logistical difficulties of obtaining land for commercial purposes. Problems with procuring land have been extensively documented across Afghanistan, predominantly by industrialists and craftsmen, who need to obtain land to develop industrial parks and other commercial facilities. However, a number of other sectors, including agricultural associations, have also raised this issue.

The Balkh government should make addressing these complaints about the difficulty of allocating land for development and commercial expansion, and the unreliability of basic services including water and electricity, a top priority moving forward. Access to land, electricity and water are among the most basic prerequisites for commercial and economic development, and these issues must be addressed in order for commercial growth to take place.

Burdensome Bureaucracy & Administration

Inefficient and lengthy bureaucratic and administrative policies and procedures have contributed to economic stagnation and encouraged public and private sector corruption across Afghanistan. A significant number of business and sectoral associations present at the Balkh PBA summit meeting expressed their concerns and frustrations with navigating the reportedly intricate and convoluted web of procedures for procuring equipment, bidding on contracts, or simply registering their respective businesses.

The chief concern raised by most business owners in Balkh has been about the business registration process. Business registration has traditionally been a very centralized process in Afghanistan. The duration of business licenses has commonly been just one year, meaning that business owners have had to renew their licenses with both the Ministry of Commerce and Industry and the Afghanistan Investment Support Agency (AISA) on an annual basis. This process has been singled out repeatedly by the Afghan business community as being particularly inefficient and burdensome – including at the NBA meetings in 2011. The short licensure period has had an adverse impact on commercial stability, by further adding to already severe levels of business uncertainty as well as imposing unnecessary administrative burden on business owners who already face innumerable challenges in sustaining their businesses in the prevailing environment.

Both the Ministry of Commerce and Industry and AISA have made the decision to reform the registration process by increasing the licensure period to three years. However, this has yet to be implemented in many areas outside the capital region, including in Balkh. The business registration process has also been historically linked with the annual submission of balance statements of businesses to the Mastofiyat, and there have been concerns by Finance Ministry officials that a longer licensing period could result in discrepancies in annual tax payments by businesses. However, the business community of Balkh strongly feels that reforms to business registration procedures and laws need to be implemented, in order to limit corrupt business practices and facilitate future economic and commercial growth.

To read the full report, download the PDF.

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