Kandahar 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 Kandahar Province

On February 17, 2016, CIPE met with a range of business association heads and other leaders of the business community in Kandahar 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 Kandahar, comprised of the following individuals and organizations. We wish to recognize and commend them for their leadership and role in this vital initiative:

  • Mr. Eng. Abdul Baqi Bina Chief Executive Officer Afghanistan Chamber of Commerce and Industries (KCCI) Kandahar
  • Haji Faizulhaq Mushkany, Deputy Chairman of the Kandahar Industrialists Associations
  • Haji Pacha, Chairman of FACT Kandahar
  • Dr. Laila Afaq, Chairperson Afghanistan Women Trade Association, Kandahar
  • Ms. Shahla, Chairperson Afghan Women Handicraft Association, Kandahar
  • Ms. Razia Haidary, Chairperson Kandahar Women Business Cooperatives
  • Haji Abdul Ahad, Chairman Dry Fruits Exporters Association
  • Haji Rahmatullah Rahimi, Chairman, Carpet Production and Sales Associations
  • Mr. Sayed Yaqoot Shah, Chairman Fresh Fruits Association
  • Mr. Wahidullah Sahraye, Chairman Agriculture Services of Loy Kandahar
  • Haji Mohammad Nabi Niazy, Chairman Nabi Niazy, Carpet Importers Association
  • Mr. Shahed Ahmad, Chairman Medicines Sellers Association
  • Haji Habibullah, Chairman of Cloth Merchants Association
  • Mr. Naweed Ahamd Wafa, Representative of industry advisory council of private and public Universities
  • Haji Sardar Mohammad, Chairman Liquid Gas Association
  • Mr. Ahmad Wali, Deputy Chairman of Exporters and Importers Associations
  • Mr. Mohammad Yousef Yousufi, Adviser of Fuel/oil Association
  • Mr. Mohammad Asef, Chairman Goldsmith Associations
  • Mr. Abdul Majeed Barak, Representative of Traders
  • Mr. Shah Wali Hotak, Deputy Chairman Hotek Group Exporters and Importers
  • Haji Enayatullah Akhondzada, Representative of the Central Trade Market of Kandahar.
  • Mr. Abdul Rasheed Deputy Chairman Cloth Merchants Association
  • Mr. Gul Ahmmad Kameen, Executive Director Rahi- Abreeshem Construction Company
  • Mr. Niamatullah Niamat Founding member of Afghan Maldar (Diary)
  • Mr. Najibullah Noor, Principle Roohila Private School
  • Mr. Ershad Barakzai Representative of Kandahar Defense Lawyers
  • Matiullah Khaksar Representative International Legal Foundation of Afghanistan ILFA

The Kandahar PBA Task Force, with CIPE’s support, subsequently convened the summit meeting in Kandahar City on February 24, 2016. Over 450 individuals attended, representing all of the major business associations and sectors in the province. Twenty representatives from women’s business associations were also present, as well as business leaders from neighboring Helmand, Zabul, and Uruzgan provinces, indicating how vital the PBA process is viewed for generating economic growth across southern Afghanistan.

A number of prominent provincial government figures were also in attendance, including Mohammad Raheem Rahimi, Director of the Economic Department; Mohammad Nasir, Advisor to the Provincial Governor; and Mohammad Naseem, the Acting Mayor of Kandahar. Abdul Baqi, the CEO of the Kandahar branch of the ACCI opened the forum by highlighting the importance of the PBA initiative to Kandahar province and Southern Afghanistan’s prospects for economic growth. CIPE Afghanistan Program Director Mohammad Naim followed up on those remarks by urging summit meeting participants to work together to identify problems hindering private sector growth and develop viable, realistic solutions to these problems.

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 Kandahar 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 Kandahar 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.

Corruption & Lack of Transparency

Corrupt government and business practices, and an overall lack of transparency were some of the most widely cited concerns of the Kandahar business community. The issues raised in the Kandahar summit meeting were largely similar to those voiced in the PBA summit meetings and reports for the other three provinces, and in the 2011 National Business Agenda process. Afghanistan is ranked 166 out of 168 countries in Transparency International’s 2015 Corruption Perceptions Index, behind even Syria, Yemen, and South Sudan, and ahead of only North Korea and Somalia. Corruption has a highly detrimental effect on the business climate in the country, as it permeates nearly every aspect of commercial life in Afghanistan.

After the formation of the National Unity Government following the 2014 presidential elections, President Ashraf Ghani made combatting corruption in both the private and public sectors one of the highest priorities in his governing agenda. On his second day in office, he challenged the Afghan private sector to end corrupt business practices or risk having assets frozen and licenses confiscated. However, while his goals and intentions are admirable, and extremely vital for encouraging economic growth in Afghanistan, the business community in Kandahar and across the country have seen limited signs of progress in curbing the regular predatory actors in both the public and private sectors.

Embezzlement, lack of transparency, and corrupt government practices were major issues raised by almost every business or sectoral association in Kandahar. The Mastofiyat, or Ministry of Finance, was singled out, due to concerns about complicated and opaque bureaucratic and administrative procedures for tax assessment and collection. Shopkeepers and small business associations have reported that tax collection officials regularly demand additional, unspecified taxes on top of the usual rates. A wide range of other major business and sectoral associations also report that bribes are frequently solicited during the course of filing tax forms or registering businesses, to smooth over cumbersome and lengthy administrative processes. The difficulties and regularity of navigating these various procedures and practices provide numerous opportunities for both businesspeople and government officials to manipulate the system and engage in corrupt practices, including bribery and embezzlement.

A lack of transparency in government procedures, particularly related to procurement and the awarding of contracts, is also linked to corrupt practices, and was cited by a number of sectoral associations as being a major concern, as is the case across Afghanistan. The process is general perceived by all major sectors to be unfair and biased, with nepotism and bribery playing a key role in determining awardees.

Improving transparency in government procedures, and simplifying bureaucratic and administrative procedures would be highly beneficial in 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 is a monumental task, but is necessary to encourage effective and sustainable commercial and economic growth at both the provincial and national level.

Security

Southern Afghanistan has, since 2001, experienced particularly high levels of insurgent activity, in comparison with the rest of the country. Large swathes of land in the southern Afghan provinces including neighboring Zabul, Helmand and Uruzgan provinces, have repeatedly changed hands between the government and anti-government elements over the past fifteen years, and these areas remain highly unstable. If allowed to continue unchecked, levels of violence and political instability will have a corrosive effect on regional economic and commercial development.

The major security-related concern of the business community in Kandahar province was extortion by armed groups. The Wesh-Chaman border crossing at Boldak, on the Pakistani border, was singled out by several export-import associations as being particularly susceptible to extortion by armed groups. This border crossing is one of the two major ports of entry between Afghanistan and Pakistan, and therefore plays a key role in facilitating trade. Other associations have also raised concerns about high levels of criminal activity along roads and other major transportation routes. Given Kandahar’s status as a major trade hub for southern Afghanistan, and given that a large portion of exports and imports with Pakistan, the country’s largest trade partner, flow through border crossings in Kandahar province, it is imperative that these concerns of extortion be addressed. Otherwise, it is bound to have a highly detrimental impact on cross-border trade - and the provincial economy in general.

While the business community cannot dictate specific security policy changes to the Afghan government or ANSF officials, the members of the Kandahar PBA Task Force and the participants in the summit meeting emphasized the strong connection between increased levels of violence, insecurity, and criminal activity, and the downturn in economic fortunes and opportunities for commercial growth, both in Kandahar province and throughout Afghanistan.

Economic growth, commercial development, and business and job creation are important aspects of Afghanistan’s development progress and are vital to the political stabilization process as well. Kandahar province plays a key role in the regional economy in southern Afghanistan, and the country as a whole. The Wash-Chaman border crossing is the second busiest transit point, after Torkham in Nangarhar province, between Afghanistan and Pakistan, and it serves as a key conduit for trade between the two countries. Making Kandahar province secure, thus allowing business and trade to grow, is vital for Afghanistan’s economic development as a nation.

Lack of Infrastructure

Over $2 billion has been reportedly invested in the Afghan energy sector over the previous ten years, to improve the generation and distribution of electricity. However, limited access to electric power, or the complete lack thereof, has been a major impediment to private sector growth across the country, and was brought up in the February 2016 summit meeting in Kandahar by almost every single major business or sectoral association.

Limited electricity supply to industrial parks in Kandahar, in particular, was brought up during the NBA process in 2011, and widespread complaints persist among industrialists, as well as craftsmen, medical service providers, agricultural associations, and other sectors. Complaints have also been raised about the bureaucratic difficulties in acquiring electricity, and the high rates that are charged for electric power supply.

Electricity in Kandahar has been supplied through diesel generators for the past fifteen years, which has been subsidized by the international donor community. However, as international development assistance funds have dwindled, so has the power supply. Increased levels of violence in Kandahar and neighboring provinces has also contributed to inconsistent and limited flows of electric power. Efforts have been made to utilize hydropower or solar power sources to mitigate shortages, but neither have been sufficient to account for all of Kandahar’s power needs.

The business community in Kandahar and Southern Afghanistan are also adversely affected by the numerous legal and logistical difficulties in procuring and owning land. The myriad of opaque bureaucratic procedures required for obtaining land for business purposes has been raised as a major impediment to commercial development by the Afghan business community several times, and is a well-documented issue.

Access to land and electricity, along with basic infrastructure, are among the most basic prerequisites for commercial and economic development. As concerns persist about the lack of organization in terms of allocating land for commercial purposes, and an inconsistent electric supply, the provincial government of Kandahar should make addressing these issues a top priority.

Lack of Credit & Banking Reform

The lack of available credit and financial capital has been a major problem in Afghanistan, and was voiced as a concern and impediment to commercial growth by a number of business and sectoral associations in Kandahar province.

While more than 17 banks with over 300 branches have been established throughout the country, with more than $3.5 billion in deposits, banking credit on reasonable and affordable terms remains unattainable for the majority of Afghan business owners. Almost every major business association, including the industrialists, the handicrafts association, export-import associations, and the women’s business association, raised concerns about the lack of availability of banking credit. Most Afghan business owners are unable to afford to take out loans under the current system due to high interest rates and the collateral requirements imposed by most banks. However, even if interest rates were dramatically lowered, many businesspeople would refuse to consider taking out a loan because charging interest is viewed by many Afghans as contrary to Islamic banking principles. In CIPE’s Afghan Business Survey held in 2010, 73 percent of the 738 businesses surveyed said they had not sought to take out a loan to start or grow a business in the past year because charging interest ran against Islamic principles and there were no other opportunities for pursuing banking credit through Islamic banks.

The issue of interest rates running contrary to Islamic banking principles was also raised by a number of business associations in the February 2016 Kandahar summit meeting, who requested that the banking system be reformed to reflect Islamic principles, and to have financial transactions be conducted without interest rates. While revamping the financial system is a difficult and arduous process, and one that must be taken on a national, rather than provincial, level, policymakers in Kandahar province should sit down with private sector leaders and stakeholders in the banking and business communities to develop policies and implement reforms that will more effectively encourage commercial and economic growth.

Burdensome Bureaucracy & Administration

Lengthy and burdensome 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 Kandahar 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.

Business registration, which is also mentioned as a chief concern by most of the business associations in Kandahar, 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 in the NBA report issued 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 Kandahar and other provinces in Southern Afghanistan. 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 Kandahar business community feels strongly that it is vital for future economic growth that the reforms to business registration procedures and laws be implemented.

To read the full report, download the PDF.

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