Islamic Republic of Afghanistan Ministry of Commerce and Industries

Initiative for Regulatory Reform to Enhance Private Sector Development in Afghanistan

An Investor Roadmap

October 2006

Contents A Introduction...................................................................................................................... 5
1 Initiative for regulatory reform to enhance PSD in Afghanistan ...............................5
1.1 1.2 The Afghanistan Compact and ANDS context.................................................................. 5 The Investor Roadmap approach ...................................................................................... 5

B

The Regulatory Framework ............................................................................................ 7
1 2 Rationales for government regulation: Benefits and costs....................................... 7 Impact of efficient, effective regulation...................................................................8
2.1 2.2 Regulation in Afghanistan ............................................................................................... 10 Best practice in regulatory reform ..................................................................................10 2.2.1 Lessons learned..................................................................................................14

C

The Investor Roadmap Project.................................................................................... 17
1 2 Introduction..........................................................................................................17 Findings: Observations and policy initiatives based on the fieldwork and
2.1 2.2 2.3 2.4 2.5

questionnaires ...................................................................................................... 19
Issue 1: The locus of the regulatory reform initiative.................................................... 20 Issue 2: Information deficiencies .................................................................................... 20 Issue 3: All investors must register as a legal entity as well as register either with the MoCI or with AISA ............................................................................................................ 22 Issue 4: Many sectors must also register with and obtain a license from a sectoral ministry............................................................................................................................. 24 Issue 5: Cumbersome licensing processes.....................................................................26 2.5.1 External vs. internal movement of paperwork..................................................26 2.5.2 Entrance to the licensing process in each organisation ...................................26 2.5.3 Cross-referencing/pre-conditions, cross checking and rechecking................. 27 Issue 6: Most obstructive processes and licenses.......................................................... 28 2.6.1 Land acquisition and transfer............................................................................ 29 2.6.2 Zoning................................................................................................................. 30 2.6.3 Building permits ................................................................................................. 31

2.6

D

Next Steps....................................................................................................................... 32
1 2 3 Decision: Reform regulation now or continue as is? .............................................. 32 Locus of reform ....................................................................................................32 Consider policy options, initiatives and priorities .................................................33

Annex 1: Roadmap process groups Annex 2: Core processes Annex 3: Investor Roadmap Master List

Investor Roadmap

Acronyms

AISA ANDS ASI FIAS GDP GoA HCI IPA MoCI OECD PSD PRR SME TIN

Afghan Investment Support Agency Afghan National Development Strategy Adam Smith International Foreign Investment Advisory Service Gross Domestic Product Government of Afghanistan High Commission on Investment Investment Promotion Agency Ministry of Commerce and Industries Organisation for Economic Cooperation and Development Private Sector Development Priority Reform and Restructuring Small and Medium Size Enterprise Tax Identification Number

1

Executive Summary Investor Roadmap Project MoCI-ASI
Under the Afghanistan Compact the Government of Afghanistan has committed that “All legislation, regulations and procedures related to investment will be simplified and harmonised by end-2006 and implemented by end-2007”. Work is ongoing on legislation, but until now, few practical steps have been taken towards regulatory and procedural reform. This Investor Roadmap report is the starting point for addressing commercial regulation, licensing and regulatory processes; for the first time there is a comprehensive and accurate summary of licensing and regulated transaction processes in Afghanistan that can be used to identify reform needs and priorities. Regulatory and procedural reform will contribute towards achieving the Afghanistan Compact benchmark, and the ANDS sector targets for Private Sector Development and Trade, particularly formalisation (by removing unnecessary obstacles to operating in the formal economy), and is also relevant to the cross-cutting themes of counter-narcotics (by creating a more favourable environment for legal business), regional co-operation (by encouraging regional investment and trading opportunities), corruption (by simplifying and clarifying procedures that currently encourage rent-seeking), and gender (by addressing gender based power dynamics between state officials, who are predominantly male, and aspiring female entrepreneurs). Developed by USAID and the World Bank’s Foreign Investment Advisory Service (FIAS), the Investor Roadmap is a diagnostic tool that helps developing countries identify and understand the regulatory and administrative constraints (red tape) that hinder commercial activity. It has been used in more than 50 countries. Andrew Natsios, Administrator of the US Agency for International Development (USAID, (2000-2005) wrote of Investor Roadmap initiatives, Harvard International Review, Vol. 26(3), Fall 2005: “We apply the lessons from the work of Harvard Business School professor Michael Porter, who contends that for trade agreements to translate into investment, developing countries must have a sound business climate. In much of the developing world, however, it remains difficult to start and run a business. Therefore, USAID has pioneered the “investor roadmap,” which examines impediments to investment and business operations in a particular country. We have carried out more than 50 such studies, which provide a basis for working with the host government and private sector to address the most important problems. The roadmap has been hailed by the World Bank as leading the way to the “micro,” or firm-level, reform that is increasingly critical to the underdeveloped world.” ASI, in cooperation of a team from the MoCI, has undertaken Phase I of an Investor Roadmap project for Afghanistan.1 The project identified fifty six licenses and procedures related to investment and operations over time of investors. Each of the organizations that administer these licenses and processes has signed off that the data we collected is accurate and comprehensive: documentation required, time frame, costs, and step by step procedures.

Mr.Shir Hussain Sultani, Mr. Qasim Ali Behsoudi and Ms. Khalida Darwish from Internal Trade Directorate of the MoCI.
1

Investor Roadmap

The project report has been given to AISA to assist it in its endeavors to support investors in Afghanistan; to BearingPoint, to assist it in its regulatory reform and WTO ascension initiatives, to the Transit Trade Project at the MoCI, and the World Bank (Afghanistan). Based on the data collected for the project several issues were identified: 1. There are significant information gaps between government regulators and investors: only a very few post any information about the licensing process so that investors do not know what documents are required, how much to pay, what process steps to take or how long the process should take. This information gap gives power to government bureaucrats and their allied expediters to extract processing fees from investors. 2. The steps in process of obtaining a license are all external, i.e., the investor must carry the paperwork from office to office – and wait outside each office for days and days while the application is being processed. Not only is this an inefficient use of investors’ time, it also is an invitation to corruption to “expedite” the paperwork. 3. In most organizations, the entry point of the process is at the top of the organization at the minister or deputy minister level. These high level personnel review the application, sign it, and order the next level down in the organization to take appropriate action. Yet this appropriate action is usually another review, signature, and an order for the next level down to take appropriate action. And so on for up to five levels of the organization until something is actually done to assess the application. This procedure wastes both the time of investors and these high-level ministry personnel to no apparent purpose. It also increases the number of people who have to be "satisfied” 4. Licenses are often cross referenced, such that to obtain one license requires having another or being in good standing with another organization. As examples, obtain a water connection, the investor must have be registered with AISA or the MoCI, must have a land transfer title certificate validated by the court, and have a building permit validated by Kabul Municipality. To renew a trading license from the MoCI or an AISA license, the investor must provide documentation form the tax authorities that the project’s taxes are paid up to date. This system increases the power of each organization whose permit is required to extract payments since, without their license, another vital license cannot be obtained. 5. A similar aspect of the system is that not only do some licensing procedures require another license to be obtained already, but, even if the investor has this license, he/she must obtain a revalidation of the license in order to obtain another license. For example, to register with the Ministry of Urban Development as a construction company, the investor obtains letters from this Ministry to AISA, the Ministry of Finance, the Kabul tax office, and the Ministry of the Interior all checking if in fact the clearances that the investor already has are in fact authentic. 6. Investors in twenty two sectors not only have to be registered with the Commercial Court to be a legal entity, obtain an AISA license, they also have to obtain sectoral licenses.        

Insurance Banking Foreign exchange dealer University and higher education

Telecommunications Radio and TV Travel agency Real estate agency

 Hospital/clinic

 Animal clinic
3

 Drugstore/pharmacy     Security Pharmaceutical production Transportation Aviation

 Printing press  Film production  Oil pipeline  Natural resources: iron, copper, coal, cement  Hotels  Restaurants

 Construction

While licenses in some of these sectors have the potential for creating economic value, in many others there would not seem to be any economic rationale for mandating them. The MoCI is in a strong position to advocate regulatory reform since it has already accomplished reform under a BearingPoint/TSG Investor roadmap project in 2004. This project reduced the number of signatures needed to obtain a Business License from 53 to 5 and the time to obtain a license from six to eight weeks to five to seven days. To address the regulatory problems identified in the MoCI/ASI Investor Road project we recommend that: 1. The Ministry of Commerce and Industry and Minister Dr. Farhang take the Investor Roadmap Project as a ministry initiative. 2. The Minister take the Investor Roadmap to the High Commission on Investment for adoption as a priority project to undertake Phase II: reform of the licensing and the processes identified in the report. 3. AISA serve as a secretariat for the project. We further recommend that: 1. The information gathered for each license and process be posted on the MoCI and AISA websites for the use of investors. 2. All organizations that administer these licenses and processes that have websites also post them. 3. This information be posted in the relevant offices in the organizations. 4. The reform process be composed of: a. reduction in the number of sectoral licenses. b. reexamination of the AISA and MoCI licenses. c. streamlining of the licensing process within organizations by moving the entry point of the process further down in the organization and reducing the “cross referencing” and “cross checking” of one license with another. d. assisting in other TA initiatives to reduce the regulatory burden of several licenses and process, such as land transfer, building permits, customs, and tax administration from an investor point of view.

Investor Roadmap

Introduction
1
1.1

Initiative for regulatory reform to enhance PSD in Afghanistan
The Afghanistan Compact and ANDS context

Under the Afghanistan Compact the Government of Afghanistan has committed that “All legislation, regulations and procedures related to investment will be simplified and harmonised by end-2006 and implemented by end-2007”. Work is ongoing on legislation, but until now, few practical steps have been taken towards regulatory and procedural reform. This Investor Roadmap report is the starting point for addressing commercial regulation, licensing and regulatory processes; for the first time there is a comprehensive and accurate summary of licensing and regulated transaction processes in Afghanistan that can be used to identify reform needs and priorities. Regulatory and procedural reform will contribute towards achieving the Afghanistan Compact benchmark, and the ANDS sector targets for Private Sector Development and Trade, particularly formalisation (by removing unnecessary obstacles to operating in the formal economy), and is also relevant to the cross-cutting themes of counternarcotics (by creating a more favourable environment for legal business), regional cooperation (by encouraging regional investment and trading opportunities), corruption (by simplifying and clarifying procedures that currently encourage rent-seeking), and gender (by addressing gender based power dynamics between state officials, who are predominantly male, and aspiring female entrepreneurs). 1.2 The Investor Roadmap approach
Developed by USAID and the World Bank’s Foreign Investment Advisory Service (FIAS), the Investor Roadmap is a diagnostic tool that helps developing countries identify and understand the regulatory and administrative constraints (red tape) that hinder commercial activity. It has been used in more than 50 countries, Andrew Natsios, Administrator of the US Agency for International Development (USAID, (2000-2005) wrote of Investor Roadmap initiatives, Harvard International Review, Vol. 26(3), Fall 2005: We apply the lessons from the work of Harvard Business School professor Michael Porter, who contends that for trade agreements to translate into investment, developing countries must have a sound business climate. In much of the developing world, however, it remains difficult to start and run a business. Therefore, USAID has pioneered the “investor roadmap,” which examines impediments to investment and business operations in a particular country. We have carried out more than 50 such studies, which provide a basis for working with the host government and private sector to address the most important problems. The roadmap has been hailed by the World Bank as leading the way to the “micro,” or firm-level, reform that is increasingly critical to the underdeveloped world.

Governments regulate the private sector to increase the efficiency of the economy, to distribute the benefits of a market economy more widely among all the stakeholders in private sector development, to protect the environment, and to protect consumers’ and workers’ health and safety. Based on the findings of this Investor Roadmap project at the Ministry of Commerce and Industries (MoCI), regulation in
5

Afghanistan, however, instead of accomplishing these objectives adds to the costs of doing business and reduces the competitiveness of Afghanistan’s investors against imports in the domestic market and with products abroad in its export markets. Regulation in Afghanistan also fails to increase consumer or worker health and safety or increase economic efficiency. The Investor Roadmap project, carried out with staff from the MoCI and Adam Smith International (ASI), gathered data on over fifty licenses and procedures with which different investors must comply. The study found that many of these licenses are not necessary in that they added no value to the economy or any of its stakeholders; rather they imposed significant costs on investors. Licensing procedures are time consuming and complicated. Yet investors are not provided information on the correct procedures to obtain these licenses or how to comply with their requirements, imposing additional burdens on investors in terms of time and costs of obtaining a license. The licensing and regulatory also allows, even fosters, widespread abuse by government personnel. If the Government of Afghanistan (GoA) is to achieve its goal of providing an investor-friendly environment for business to foster the development of a marketbased economy, as it has stipulated in the Afghanistan Compact and the Afghan National Development Strategy (ANDS), it will need to undertake a major reform of the system by which it licenses business to invest and to operate. At the same time, GoA will need to create a major behavioural change among its personnel who at present see government as a regulator, not a facilitator or promoter of investors in the private sector. The report is divided into 3 main parts:  The Regulatory Framework – which outlines the rationale for government regulation, assesses the impact of effective and efficient regulation, compares regulation in Afghanistan with ‘best practice’ regulation, and identifies ‘lessons learned’ from around the world.  The Investor Roadmap Project – which introduces the goals of the Investor Roadmap and the work undertaken by MoCI and ASI, identifies issues that constrain investment, and provides recommendations for policy initiatives.  Next Steps – which raises several questions around the regulatory reform and policy making process in Afghanistan that need to be addressed before an implementation programme is undertaken.

Investor Roadmap

B
1

The Regulatory Framework
Rationales for government regulation: Benefits and costs One of the overarching objectives of the ANDS is to lift Afghanistan’s population out of poverty in order to improve the living standards and quality of life of all its people. To achieve this objective will require rapid growth of the economy over the coming decades. In turn, to achieve and sustain rapid growth the ANDS concludes that Afghanistan must move toward a competitive, free, market-oriented economy. For the GoA to foster the development of a free, market-oriented economy, however, does not imply that government regulation will not play a role. Quite the contrary, government regulation has a major role to play in the economy, not just the macro-economy (exchange rate, inflation rate, interest rates), but also at the firmlevel, micro-economy in order to ensure that the free market works efficiently and effectively to achieve GoA’s public policy goals. Competitive, free markets can “fail” to achieve optimal economic outcomes in cases of “market failure” or “institutional failure.” Markets can fail when a firm has monopoly power or when firms engage in anticompetitive behaviour. In these instances, Government can regulate prices or enforce competition laws. When investment projects have externalities, such as pollution, the Government may consider devising and enforcing laws and regulations to protect the environment. When there are positive “externalities” and “spill-overs” (in such areas as education and training programmes) the Government may consider providing funding for these activities. When there are public goods, such a country image, “Made in Afghanistan”, for carpets, for example, the Government may regulate to enforce quality standards. 2 And when producers or sellers have more information than buyers and consumers, the Government should regulate to address these information gaps. Again, there may be a role for Government to regulate the economy when the free market system does not lead to achievement of the government’s wider goals, such as poverty alleviation or greater participation of women in the economy.3 When there is market failure, in theory, there is a potential for government regulation to increase the efficiency of markets, to improve economic performance, and to enhance consumer welfare. Conversely, when there is no market failure, then government regulation of the micro-economy destroys value. Even in instances in which there is the potential for government regulation to enhance welfare, in practice, however, government regulation often imposes costs—in terms of compliance costs to investors and the costs of government operations—on the economy that can more than offset the potential benefits of government regulation even when there is market failure. When this happens, government regulation is a constraint to growth. “Compliance costs” for investors include both the costs of ensuring that their operations conform with regulatory standards, but also the costs of demonstrating to government that this is in fact the case and that they should receive the appropriate set of licenses to invest and operate. “Compliance costs” for Government involve the costs of setting regulatory standards and procedures,
A brand name, such as “Made in Afghanistan”, is a public good, since, once established, it can be used by one producer without decreasing its supply to other producers; a producer cannot be excluded from using it; and it does not “pay” any one producer to contribute to its creation 3 As shown below, however, in Afghanistan, regulation tends to discriminate against the poor and against women who desire to enter the private enterprise system.
2

7

evaluating investors relative to those standards at the time of investment and monitoring investor compliance over time. In summary, in order to facilitate growth, government regulation must be effectively designed to address situations in which the competitive market fails and it must be administered effectively. Regulation in most countries falls well short of these goals and impedes the effectiveness of the market system.4 This surprising fact has been the basis of regulatory reform in both high-income and low-income countries around the world. In these countries, the Government has had two regulatory reform goals: 1. To regulate effectively in instances in which government regulation is warranted. 2. To move from a regulator of investors (by reducing regulation to a minimum), to be a facilitator of investment projects (by improving the business environment). Regulatory reform can lead to more regulations being able to achieve their objects, increased entry by new investors, and transition by investors from the informal economy to the formal economy. When regulation imposes costs on investors, investors can escape these costs by operating outside government regulation and government corruption in the informal economy. The higher the regulatory costs, the more investors will choose to operate in the informal economy and the fewer benefits from investment activity will be captured by Government in the form of taxes on investment projects and worker income. If investors remain in the informal sector, fewer benefits of investment will go to workers in terms of receiving at least minimum wages and benefits and working in healthy and safe conditions. Products made by investors in the informal sector usually also have lower quality and safety to the detriment of consumers. The Government then has a high stake in developing an investment environment that is conducive to investment in the formal sector. An investor-friendly regulatory environment is one means to this end. The objective for consideration by GoA is therefore not to eliminate regulation entirely, but only to have regulations that address market failure and, when this occurs and regulation is needed, to have effective and efficient regulation. Such an initiative will not only stimulate economic growth, but it will also encourage investors to enter the formal economy with positive impacts on labour (pay, insurance, working conditions), consumers (product quality), and on competition. 2 Impact of efficient, effective regulation The positive impact of regulatory reform is not just a theoretical construct or another plea by the private sector for reduced government involvement in the economy. There is a strong link between the number of steps required to start a business and the level of informal economic activity as investors choose to avoid the costs of government regulation by operating in the informal sector.5 There is also a strong link between the number of steps, the time and the costs of regulatory compliance and government corruption and the strength of government institutions.

This includes the high income countries of the Organisation for Economic Cooperation and Development (OECD) as well as developing countries, and particularly in transition economies that are moving from a highly regulated, centrally planned to a market-oriented economy 5 Liliana de Spa, “Business Registration Start-Up: a Concept Note,” Washington, D.C.: International Finance Corporation, mimeo, October 27, 2005.
4

Investor Roadmap

The positive impact of regulatory reform can be seen in data from countries around the world. World Bank data from 155 countries show that there is a correlation between the numbers of SMEs per capita in a country and the costs of business start up.6 This statistical relationship does not mean that if the costs of starting a new business decline there will automatically be more SMEs in the formal sector. Entrepreneurs will examine all the regulatory costs, labour costs, and tax costs and possible government incentives for joining the formal sector before making this decision. Nonetheless, World Bank data show the strong relationship between reducing the costs and time of starting a business and increased business investment and registration in the formal sector. Another World Bank study using the same data shows that the quality of government regulation has a strong influence on a country’s growth rate. If a country could move from the bottom 25% of regulatory quality to the top 25%, its growth rate would increase by 2.3%. By way of comparison, if a country’s primary education quality was improved from the bottom 25% to the top 25%, the impact on growth was found to be 0.9%.7 Similarly, improving the quality of secondary education, reducing inflation rates, and increasing government consumption were found to have much smaller impacts on growth than was the case for improving regulatory quality. An initiative to improve the quality of the educational system would be very expensive, investment would have to continue over the long term, and the impact of this investment would only be felt decades later. As another example, trade liberalization/reform in moving from a repressed trade regime toward free trade can stimulate growth, but only in the short run as the economy moves from one level of GDP to a higher one.8 By way of comparison with the costs and benefits of other reforms, the costs of regulatory reform are relatively low, need only be incurred once, and the positive impact of regulatory reform is immediate, large and sustained over time. As discussed below, however, regulatory reform may require strong political will to overcome entrenched interests whose jobs and standard of living is contingent of preserving the regulatory status quo. Conversely, the costs of not reforming the regulatory system fall disproportionately on the poor, women, young people, SMEs, and foreign investors who are not familiar with the country’s regulatory practices and do not have relationship ties to government regulators. Yet, if Afghanistan is to achieve its growth goals, SMEs must be encouraged (or at the very least allowed) to flourish and, over time, inflows of foreign capital, management expertise, technology, and access to markets must replace donor funding and technical assistance projects. Women also need to be able to access the mainstream of private sector development. A more streamlined regulatory and licensing process reduces the disadvantages faced by women entrepreneurs dealing with (male) regulatory personnel. As well, the benefits of a market-oriented approach to development must be realized by the poor, women, and youths if the Government is to achieve its overarching objectives. Reforming regulation via this Investor Roadmap will have another positive impact. To the extent that it is successful in reducing the time and costs of regulatory compliance, it will encourage investors to move from the informal to the formal
Jacques Morisset and Olivier Lumenga Neso, “Administrative Barriers to Foreign Investment in Developing Countries,” Washington, D.C. World Bank and International Finance Corporation, mimeo, May 2002. 7 Simeon Djankov, Caralee McLiesh, Rita Ramalho, “Regulation and Growth,” Washington, D.C.: World Bank, mimeo, March 17, 2006. 8 Moving to free trade typically leads to gains of about 0.25% to 0.75% of GDP. These gains are repeated each year as long as the free trade regime remains in place. Hence, for example, if a country with a GDP of $1,000
6

9

sector. Formalization of the economy is an important goal of the government of Afghanistan and this project can contribute to achieving it. 2.1 Regulation in Afghanistan Afghanistan is in transition from a centrally planned economy to a market-based economy. As well, its economy has been destroyed: in 2002, industrial production in real terms was less than 10% of its 1978 level; by 2005, despite three years of rapid growth, industrial output was still less than 15% of its 1978 level.9 Yet, despite these significant differences, much of the Government’s regulatory apparatus (ministry staff and regulations) are largely intact and unchanged, even though they were designed for a much different economic system and a much larger economy than the one that exists in 2006. The GoA, led by the MoCI, has already undertaken a major initiative in regulatory reform. In 2004, the MoCI reformed the process of business registration, reducing the number of signatures required for a firm to obtain a business license from over 50 to just 5 and the amount of time required from 6 to 8 weeks to less than a week. Doing Business 2006 shows that among 155 countries, the time required to register a business ranges from 2 to 203 days, and the number of steps required to register ranges from 1 to 19. After the reforms, if an investor is registering with the MoCI, there are only five steps (application at the MoCI, acquiring a Tax Identification Number, registering as a legal entity with the Commercial Court, a criminal background check, and payment of fees), and only one step if the investor registers with AISA: filling out the AISA application form (AISA staff performs the rest of the process on the investor’s behalf). These dramatic reforms have vaulted Afghanistan from near the bottom to near the top of countries in terms of the efficiency and speed of their business registration procedures. This reform leads to several conclusions:  dramatic reform of the regulatory system is possible in Afghanistan;  entrenched interests in the Government bureaucracy can be dislodged if there is the political will to do so in order to improve the regulatory system; and  those who benefited personally from the past system can be persuaded to accept the reform process.10 In part based on this achievement and its salutary effects on the investment environment, in the ANDS, the Afghan Government has both accepted the need for regulatory reform and has set a firm timetable for this reform. 2.2 Best practice in regulatory reform As mentioned above, poor regulatory practices have been found to be universal among countries and conversely, all countries can benefit from or have benefited from administrative reform of the regulatory process. This observation raises the question of why universally there are so many problems with government regulation of business. It is important to address this question, since, if there is no understanding of why a problem occurs, there is little hope of successfully correcting it and keeping it corrected over the longer term.

9

10 The

National Statistics Organisation, National Statistics yearbook, 2005, Kabul, Afghanistan: 2005. reform process at the MoCI took eighteen months as part of a BearingPoint Project.

Investor Roadmap

Three reasons have been identified for the problems of regulation11 : 1. Unlike spending through fiscal budgets, there is no accounting system available to the Government that can show the sizeable costs to the investor and ultimately to the economy of going through these administrative and regulatory procedures in order to obtain licenses. These costs are usually hidden, outside the accounting framework of either government or business. Therefore Government tends not to recognize the costs to business and to the economy of responding to government demands and of waiting for decisions. 2. The most common cause of governance failure is lack of coordination across multiple government institutions each with its own jurisdiction for some aspect of the economy. Such an issue of government structure in this case leads to excessive and overlapping demands on business. 3. In government regulation, the benefits are concentrated among a few stakeholders–-government staff, facilitators, lawyers, and existing producers—and the costs are widely dispersed among many new investors is difficult to reverse. Administrative regulations generated “rents” for many interests–-lawyers who sell services to businesses to deal with regulations; facilitators who have expertise in the regulatory maze; civil servants who sell favours, such as faster processing; and incumbent producers who want to reduce entry or make it costly for new entrants. Hence, regulatory barriers are often fiercely guarded by stakeholders and, in fighting them, in the short run, politicians may have to expend significant political capital to realise the political gain from an improved investment environment only in the long run. These problems are exceedingly difficult to address in a sustainable way because developing countries, such as Afghanistan, face a legacy of:  numerous interventions into business decisions from previous state-led growth models;  government staff who genuinely believe that Government must regulate and control the economy via strict regulation of the private sector now as they did via state ownership and central command in the past;  similarly, government staff who cannot envisage a ministry that does not regulate and ask the question, “But what would we do if we do not have the X License to administer?” They cannot envision a government ministry whose major role is to facilitate investment by the private sector, not regulate it;  inadequate understanding or appreciation of the private sector as the engine of economic growth, and the benefits that accrue from an effective and efficient regulatory environment;  poorly paid civil servants who rely on the proceeds from regulation for their livelihoods;  poor communication skills, and limited appreciation of the value of transparent information sharing;

11 Scott

Jacobs and Jacqueline Coolidge, Reducing Administrative Barriers to Investment, Washington, D.C.: foreign Investment Advisory Service, Occassional Paper #17, 2006 and Scott Jacobs, “The Importance of Institutions in Determining the Investment Environment,” Washington, D.C.: FIAS, mimeo, 2003.

11

 government staff, especially senior staff, can make phone calls to other ministries to expedite personal paperwork to obtain licenses; private investors, especially SMEs and foreign investors do not have these power and relationship networks in place; and  lack of public sector capacity to cope with the administration of an effective regulatory system. As is dramatically illustrated in the step-by-step procedures that are required for many of the licenses in Afghanistan (see Annex 3), the resulting regulatory system is complex, non-transparent, often arbitrary, and highly interventionist. These regulations make it almost impossible to create a transparent, predictable business environment. Government regulation in Afghanistan not only lowers the return to investors, but it also increases their risk of doing business in Afghanistan. Studies have shown a close statistical relationship between the total administrative cost per license divided by Gross Domestic Product (GDP) for both foreign and domestic investors and:  the country’s level of corruption;  the quality of governance of both private firms and government organisations;  the openness of government; and  the wage level of civil servants. In other words, the reforms of the regulatory system are bound up in more fundamental reforms of government as a whole.12 To address regulatory reform without addressing these other issues may be difficult or ineffective. Unless the GoA operationalises its commitment under the Afghan Compact and ANDS to wideranging reforms to create an investor-friendly environment to foster the development of a market-based economy, then regulatory reform measures will, at the very best, be piecemeal and largely ineffective. If the GoA is indeed committed to development of competitive market systems, then regulatory reform can be a centrepiece of the government’s comprehensive reform measures. The Government has shown its commitment to better governance through such initiatives as the PRR (Priority Reform and Structuring). It must now undertake the more difficult task of comprehensive regulatory reform. Even in the most optimistic scenario, the reform process will be a long and difficult one. Government activities to discuss, design, and implement reforms should be seen as the force behind economic development and poverty reduction via private sector development. In the most adverse conditions, the GoA has been remarkably successful in developing and managing the macro-economy–-exchange rate, inflation rate, interest rates, and the growth rate–-to make them investor friendly. The next step is to do the same with the micro-economy at the level of the investor. This initiative will require an inter-ministerial coalition, whereas macroeconomic reforms were lodged largely within the Ministry of Finance. Reforms in regulatory and administrative barriers can stimulate growth in the private sector in terms of more companies being created and more companies moving from the informal to the formal sectors. They can also overcome bottlenecks, such as the ability of insider groups to block economic reform and progress. The reform process

12 See

Djankov et al, op. cit.

Investor Roadmap

must be seen not just as a means to an end but is itself a part of the process of changing reform capacities and the Government as a whole. As examples:  reforms can start a process of dialogue and negotiations between Government and other stakeholders, especially the private sector;  reforms can change the political balance by bringing objective parties to balance or referee vested interests;  the reform process can transfer knowledge throughout the policy structure; in fact it can develop the structure itself; and  the reform process can change the attitudes of political actors and influence domestic debate about reform policies on other issues. Experience with regulatory and administrative reform in many countries over time has led to the observation of a number of similarities among successful and unsuccessful reform efforts. These are presented in Table 1 overleaf.

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Table 1: Similarities among successful and unsuccessful reform efforts

Successful regulatory reform efforts
 The

Unsuccessful regulatory reform efforts
 Weak

reform agenda should be supported at the ministerial level (for reforms within a ministry) or cabinet level (for cross-ministerial reforms) institutions are created to manage reform or a high-level existing organisation is given a new mandate to pursue reforms. cooperation was developed and/or enhanced during the reform process. private sector was brought into the reform dialogue and even into the policy design process; effort often begin as pilots, focusing on either a limited number of formal requirements, or a limited geographical area, the purpose being to instil dedication in people to implement more widespread reforms in the future, and to show various (sceptical) audiences that change is possible and beneficial.

political will in addressing the issues of corruption and vested interests (both in government and in the private sector) and reducing protection of vested interests. resistance to change within government organisations that is able to preserve discretionary power and the opportunity for corruption. leadership and poor coordination of the reform process between different initiatives for reforming the regulatory process. of implementation even when laws and regulations have been changed. plans contain no performance measures to ensure that the changes lead to the desired results. there is improvement on some regulatory measures, there is deterioration on others, such that the investor experiences no net change. corruption damages the credibility of Government and its policy reforms among investors. uncoordinated reforms undermine progress.

 New

 Strong

 Inter-ministerial

 Weak

 The

 Lack

 The

 Action

 Although

 Ongoing

 Other

2.2.1

Lessons learned

The observations indicate in Table 1 above have enabled practitioners of regulatory reforms to formulate a number of lessons learned: 13 1. Adopt a multi-year time horizon for implementation, not just in reforming one regulation, but for the entire regulatory reform process. Significant results from regulatory reform only appear over the years; they are not immediate. In particular, in year two of the process, political attention may wander to other issues and bureaucratic interests take control of the reform process. 2. Give reform oversight and management authority to a body that cuts across the whole of Government. This structure requires the presence of a high-level official at the centre of government who is responsible for the reform process or
13 See

Jacobs and Coolidge, op cit.

Investor Roadmap

a high-level committee accountable to the centre of government. For example, the High Commission on Investment and its Chairman would meet these criteria. 3. The high-level committee should actively manage and obtain resources for the reform process. The committee should have a dedicated and accountable secretariat, backed by active political oversight over time. 4. The high-level committee should ensure that the reform process actively involves the responsible ministries and organisations. 5. During the process there should be an active business-government dialogue, both to obtain inputs on what needs to be reformed and how, but also to provide business with information of the reforms that are being implemented so that the reforms gain the support of a broad cross-section of the business community. 6. The monitoring and dissemination of results should be institutionalised—and government civil servants rewarded based on these results. If government bureaucrats know that there will be on-going monitoring of results and that these results are part of their performance appraisals (as envisioned under PRR), they will be more interested in and responsive to reform initiatives over time. 7. Work with international organisations, such as the Foreign Investment Advisory Service (FIAS) of the World Bank. Such agencies can benchmark change, give examples of best practice, and generally validate the process. Afghans may at first be sceptical of the possibility of significant reform. External agents can show that other countries have faced these challenges–-and met them. 8. The reforms should be implemented in manageable quantities–-so that initial buy-in can be secured to build support for more widespread reform in the future. Several unsuccessful approaches should also be mentioned: 1. Simply adopting an action plan without establishing the appropriate high-level, central institutional arrangements to implement it. 2. Assuming the rationale for the reform is known and accepted. Often, it is not made clear what the problem is and why a situation needs to change. 3. Creating ad hoc committees or other groups with responsibility for implementing reforms that are outside the bureaucratic mainstream. 4. Finding and appointing a “champion”, often a strong minister, of the reform process. Ministers can change and the power of ministers can change over time. Regulatory reform must be institutionalised at the highest level independent of personalities. 5. Using an Investment Promotion Agency (IPA), as the focal point of regulatory change. IPAs should develop strong relationships with business and a knowledge of the regulatory problems facing business, but should engage with the policy process in an advisory capacity. An IPA could however have a vital role in the follow up process by providing the secretariat of the high-level body is charged with administrative reform.

15

Investor Roadmap

C

The Investor Roadmap Project
As the first step in regulatory reform, with the approval of the Minister of Commerce and Industries, staff of the MoCI and ASI undertook an Investor Roadmap project. This project was staffed by one international expert, a member of ASI’s Afghan team and three staff members from the MoCI, and with cooperation from AISA.

1

Introduction The Investor Roadmap, an in-depth study of the steps required of an investor to become legally established in Afghanistan, addresses the procedural and administrative barriers to investment and operations. This focus is appropriate at the current time given that Afghanistan, like many of its neighbouring countries, has progressed in recent years to liberalize trade and investment policies at the macroeconomic level, and is grappling with the issues of public sector reform and the appropriate role for government in facilitating private sector development. The Private Investment Law covers domestic and foreign investment in Afghanistan. This law gives some clarity to investors concerning their rights and obligations in Afghanistan. Nevertheless, despite marked improvement in some aspects of the regulatory environment for private business, most notably in business registration and licensing, many aspects of business investment, operations and expansion remain problematic. Many of the reforms to date have been on highly visible matters such as taxes, tariffs, and monetary and exchange rate policies. The importance of these reforms should not be underestimated. Afghanistan’s past performance in regulatory reform at the macroeconomic level, however, now highlights the need for further “second-tier” regulatory and policy reforms beyond the initial investor registration and licensing. These reforms lie at the heart of understanding how GoA may be encouraging or impeding investment and economic activity by the laws, regulations and procedures that have been established by successive governments over time. Despite the remarkable efforts of AISA under the oversight of the MoCI, the overall logistical and administrative environment for new business in Afghanistan still falls short of what many investors expect, and of what will facilitate high levels of foreign and domestic private investment. Some of the constraints–-when examined individually–-may appear to be annoyances rather than binding constraints. However, when grouped together as a whole, these constraints appear to be a significant deterrent to private sector investment and operations in the country. Table 2: The 3 Goals of the Investor Roadmap 1. To develop a comprehensive investment guide, detailing step-by-step all the requirements an investor must fulfil to invest, become fully operational, and continue operations over time. 2. To identify the many remaining bottlenecks and inefficiencies (and their relative magnitude) and make recommendations on how best to streamline them, i.e., through eliminating regulations, reducing the number and amount of supporting paperwork to comply with regulations, and by making approvals more automatic and transparent and less discretionary. 3. To analyse other factors impacting the investor that result from the
17

legislative and regulatory environment. The approach to the Investor Roadmap has been developed and refined in over 100 projects in Asia, Africa, and the Middle East. The Investor Roadmap is comprised of 13 core processes divided into 4 process groups over two phases of investment— start-up and functioning. As shown in Annex 1, the four process groups include: 1. Employment issues – including temporary and permanent residency permits and work visas for investors and expatriates and labour relations; 2. Locating issues – including leasing and developing land, as well as utility hook-ups; 3. Reporting to government – including business registration, environmental compliance, and tax registration and reporting; and; 4. Operating – including importing, exporting, and profit and capital repatriation. The Investor Roadmap is also relevant to domestic investors who are subject to the vast majority of steps outlined in obtaining most licenses. In addition, particular attention has been given throughout the study to the small-to-medium-sized investors (many of whom are Afghan owned) who may be disparately impacted by various investment and operating regulations and procedures. The first step of the Investor Roadmap process component is to document in detail, the various steps required of a new business to establish itself and begin operations, in full compliance with existing laws and regulations. The licenses or approvals required, their application procedures, the costs and timeframe are all detailed. This material will then be used as one input in a business/investor’s guide to Afghanistan that will be useful to AISA in its efforts to facilitate investment in Afghanistan. Process components are followed by an analysis in which policy and procedural issues are identified and discussed, with recommendations for streamlining made where appropriate. Recommendations are based on the twin objectives of eliminating or simplifying regulatory procedures for investors and reducing their compliance costs, while at the same time enhancing the ability of public officials to properly administer the regulations under their jurisdiction. The first stage of the Investor Roadmap made use of the information that has already been gathered by AISA on the regulatory processes in Afghanistan. As well, the project gathered data from other ministries and regulatory bodies on the many licenses that investors must obtain to invest and operate over time. The Investor Roadmap maintains the perspective of all investors, both foreign and domestic. Because foreign investors are required to undertake some steps not required of Afghan investors (e.g., immigration and expatriate work permits), the Investor Roadmap is more comprehensive than if it were just to focus on the domestic investment perspective. In total, information was gathered on over fifty licenses, permits, and procedures (see Annex 3). The data on these licenses and permits and the procedures for obtaining them form the basis for the “Findings” outlined in the following section.

Investor Roadmap

2

Findings: Observations and policy initiatives based on the fieldwork and questionnaires The Investor Roadmap team gave questionnaires in structured interviews concerning 46 licenses at 38 organisations. (We also received information on two licenses – transfer of private lands and transfer of public lands from the USAID funded Emerging Markets Group project and from AISA on the AISA licensing process.) We then translated these questionnaires into English and reviewed them for completeness and clarity; in many instances this process required going back to the organisations responsible for the license with supplementary questions and requests for clarification. These changes were then translated back into Dari. The corrected questionnaires were then taken back once again to the organisations that administered them with a request to check the data on them once again, make corrections, and ultimately to sign and stamp the questionnaire to certify that the data was correct. We then interviewed investors for their input on such issues as the timeframe of obtaining the license and the actual out of pocket costs involved. The questionnaires asked data on:  the name of the organisation;         the ministry under which it operated; the license administered; the law under which it was administered; the documentation required to obtain the license;

the timeframe for obtaining the license; the cost of the license and other fees; the step-by-step procedure for obtaining the license; a description of any administrative reforms that had been undertaken over the past two years and their results; and  the respondent’s opinion as to additional reforms that might be useful. These “findings” are based on the responses to these questionnaires. The findings are, in general, for the licensing process as a whole rather than for reforms in any one license. This approach was taken since the Investor Roadmap project has not deployed any experts in specific licenses to examine them relative to international best practice. In this regard, Phase I of the Investor Roadmap project (as is common in all such projects) has examined the licensing process from the perspective of the investor:     documents required; fees; time frame for obtaining the license; and procedural steps required to obtain the license.

It has not attempted to determine if any given licensing process is effective in achieving its goals, e.g., are extant environment regulations effective in protecting the environment? Are extent building codes effective in preventing building collapse during an earthquake, and so on?

19

None of the project team members are experts in the specific fields of licensing activities, e.g., building permits, environmental control, customs clearance, hiring and firing procedures and social security. Hence, detailed recommendations as to best practices for any given license and changes in the detailed procedures will have to await the decision of Government on which licenses are to be addressed in detail. At that time, experts in each of the licensing processes can be used to address these procedural issues. 2.1 Issue 1: The locus of the regulatory reform initiative The first, and most fundamental, decision for the GoA to make at the beginning of the regulatory reform initiative is the locus of the reform effort. As described above in “lessons learned”, this locus should be at the upper levels of the GoA, should involve high-level members from the major economic ministries, and should based on a general consensus that reform is both necessary and achievable, rather than on the initiative of one champion of reform. The High Commission on Investment would seem to fulfil all these requirements. Using the High Commission on Investment, whose clear mandate is to improve the investment environment, would have a clearer focus on and interest in these regulatory issues. The High Commission on Investment already exists, but as yet it has not undertaken an on-going, serious initiative to reform the investment environment. Policy Initiative #1 The High Commission on Investment could be chosen as the locus of this regulatory reform initiative. AISA could serve as the secretariat for this initiative.

2.2

Issue 2: Information deficiencies In most organisations a description of the procedures, documents required, fees, or timeframe are not posted, available for distribution, or on the organisation’s website. The MoCI staff who administered the questionnaires for this project repeatedly encountered instances in which the information supplied by government staff about the licensing procedure was incomplete, inaccurate or out of date and had to be supplemented by repeated meetings and phone calls. In some instances, information supplied by one government staff member was completely contradicted by another in the same department of the same ministry. In several instances, a department director was at the meeting in which his superior, the director of a directorate, outlined the licensing procedure. Later in his office, the department director informed the researcher that the data supplied by his director was incorrect. In the most extreme case, one licensing department completely revised the step by step procedures for obtaining the license three times before they were able to agree that the procedure on our questionnaire was correct.

Investor Roadmap

Lack of information and inconsistent information can be major deterrents to investors to initiate the process of licenses their investments and to enter the formal sector. It is especially costly for SMEs, new investors, and foreign investors, including those of the Afghan Diaspora, who have little experience with regulation in Afghanistan and do not have high-level contacts in Government to facilitate obtaining the requisite information.14 These information problems:  allow staff to delay the licensing process to insulate incumbent producers from new entry;  allow staff to provide the investor with incorrect information that, if acted upon, will further delay the licensing process;  allow staff to extract money to “expedite” the process;  allow staff to increase fees for services above those authorised by the regulatory organisation;  enhance the central role of “fixers” who are indeed knowledgeable in the processes, and who may or may not be agents of government staff;  make knowledge of licenses—what to do, how to do it, who to do it with, and how much to pay—a prime competitive strength, i.e., it rewards unproductive, even anti-productive behaviour; and  increases the ease with which entrenched firms can block new entrants.  Increases the costs of moving from the informal sector to the formal sector, i.e., impeded formalization of the private sector, a major objective of the Government. For an investor, this disagreement among regulators as to the correct procedures can be a significant barrier. It may lead to the situation in which the investor goes through one procedure only to find that the procedure that he/she has followed is incorrect. This situation also places enormous power in the hands of government staff who may, at their discretion, move paperwork through the process even if it is not correct. Conversely, this situation allows staff to arbitrarily reject paperwork as incomplete or incorrect with the investor having no recourse but to follow these new demands. If the Investor Roadmap team had difficulty in reaching agreement with the licensing organisation on the data on the questionnaires, imagine the difficulty of investors in discovering what documentation is needed to obtain each license and what are the correct procedures to follow. Despite the considerable care that has been taken by both Investor Roadmap team and the license granting organisations to ensure that the data contained on the questionnaires is correct, inevitably there will be some residual mistakes and, over time, as procedures are changed, unless the descriptions of the step-by-by step procedures are changed as well, their errors will increase.
14 Ironically,

one of the components of the business licensing/registration process, the criminal background check, is designed to reduce the uncertainty of all those dealing with a licensed investor. It provides information to workers, suppliers, and customers that the investor has no criminal background and that there are no court cases currently pending against the investor. Yet the licensing authorities (except for AISA and the MoCI) withhold information from the investor about the process itself of obtaining a business license.

21

Even with these errors, the Investor Roadmap would still be useful to investors, since, if nothing else, it gives a starting point and an overall guide against which actual procedures can be identified as exceptions. Policy Initiative #2 Undertake an initiative to commit to clearer and more transparent use of information to explain the regulatory process. As one component of this initiative, to have each regulatory organisation post the information collected via this Investor Roadmap Project on the Bulletin Board of the organisation, prepare handouts for investors, also post the information on the organisation’s website, if one exists, and train the staff of the organisation so that they can explain the procedures clearly and consistently. Although this initiative seems not only an obvious one to follow but a simple one to implement, it might meet significant resistance, since it would clarify the requirements and the costs of each license and hence reduce the latitude for payments to both government bureaucrats and facilitators. Despite these potential obstacles, this initiative would be relatively easy to accomplish compared to many of the others described below. After all, who could argue against it? On what basis? This Initiative could also give reform a fast victory to show the investor community, aiding in overcoming their initial scepticism and cynicism about the Government’s desire to reform the regulatory system in order to assist the private sector.

2.3

Issue 3: All investors must register as a legal entity as well as register either with the MoCI or with AISA In order to operate legally, an investor must register as a legal entity at the Commercial Court of the Ministry of Justice. This process is comprised on three steps:  obtaining a police clearance;  obtaining a tax identification number; and  advertising in the official gazette giving the basic information of the proposed firm: name, business, ownership, and so on. If the investor is a trader and hence registering with the MoCI, the investor must undertake this process by him/herself as part of the process of also obtaining a license from the MoCI. If the investor proposes to operate in all other sectors, it must register with AISA. In this case, AISA itself undertakes this process of registering the investment project as a legal entity–-and charges a substantial fee for these services. Although Afghanistan ranks in the top ten countries in the world in terms of having the fewest steps for an investor to register and the time it takes to accomplish these steps, for its level of income, the costs of registering an investment project in Afghanistan are relatively high15 . This structure of the licensing process allows AISA to present itself as a one-stop shop for investment: AISA staff register the investor as a legal entity with the
15 Afghanistan

ranks high on the list of countries ranked on the basis of the amount of money an investor must pay to register divided by Gross National Income per capita.

Investor Roadmap

Commercial Court (as well as obtain the investor’s TIN and handle the investor’s obligations of reporting to the Central Statistics Office). These activities give AISA the rationale for the fees it charges, i.e., since AISA is a one stop shop for business registration as well as licensing by AISA for the investor, it maintains that its charges are reasonable for services rendered. In every country an investor must register the investment project in some manner with the Government, most often with the Ministry of Justice or one of its subordinate organisations. This registration is needed so that the investment project:  conforms to one of the legal forms of business operation so that it is a legal entity with rights and responsibilities under the law;  has a legally constituted ownership structure;  has a legally constituted board of directors; and  complies with provisions in the Business/Commercial Law/Code on good governance. As part of this procedure, depending on the country, prior to receiving this license, the investor must also register with the tax authorities and with the national statistics office, so that the investment project pays the legally mandated taxes (and contributes to the national treasury) and so that the Government can monitor and regulate the macro and the micro economy based on the statistics provided to it by investment projects. As well, in some countries the investor is required to obtain police clearance to ensure that he/she has no criminal record and that there are no court cases outstanding at that moment so as to assure the other stakeholders in the project (workers, suppliers, lenders, customers) that the investor has no criminal record. For all these reasons, this registration process adds value by correcting for market failure. This procedure is absolutely necessary so that the investment project becomes a juridical entity that can enter into contracts, sue and be sued, and so on. This registration process adds significant value, and must be retained. Beyond this fundamental business registration, however, it is less clear why requiring investment projects in general to obtain an additional license in order to operate beyond the one that makes them legal entities adds value. As outlined above, the rationale for government regulation is based around some form of market (or more broadly institutional) failure that the regulation reduces or corrects entirely. The second AISA license does not correct for any market failure and hence does not add value to the economy. Instead it destroys value by imposing additional costs on investors. AISA does perform a valuable function in assisting investors in obtaining a TIN number, criminal clearance from the police (Ministry of the Interior), advertising the investment project in the Official Gazette, and ultimately registering their investment projects with the Ministry of Justice. In this sense, it is a true one stop shop for investors. It also collects additional information (such as a business plan) from investors beyond that needed for these other activities and issues them an AISA investment license. As with the licenses issued by the MoCI, it is difficult to discern the value of this additional AISA license, beyond that derived from the basic business registration. Essentially the AISA license serves as a fund raising device for AISA. There is a long history of discussion on the various means of funding Investment Promotion Agencies, such as AISA. Essentially charging all investors for a license is one of
23

them. If in fact the services that AISA provides to investors via its one stop shop are of value to investors, then it could allow investors to undertake these processes by themselves or, if they chose, AISA could do them itself and charge for services delivered. At one time, when Afghanistan had a controlled (repressed) trade system in which the Government attempted to regulate imports and exports, licensing traders was part of the control process, a process that the Government believed yielded net economic benefits to the economy. At present, however, Afghanistan has removed all these restrictive measures and its policy is to foster the development of an open, liberalized, market-based trade regime. This policy situation raises the issue of the value of the traders’ licenses issued by the MoCI for various types of trading activity. In 2004, the procedures for obtaining the licenses administered by the MoCI were streamlined, such that the number of signatures required was reduced from 53 to 5 and the length of time needed to acquire on was reduced from 6 to 8 weeks to about five days. Hence this licensing process is faster and more efficient than the equivalent one in most of the countries in the world. With the removal of trade restrictions, however, the value of the MoCI trading license would seem to have been eliminated as well. The next step in administrative reform at the MoCI would seem to be the removal of the licensing requirement for traders. Policy Initiative #3 Despite its low cost in terms of time, fees, and other expenses, the usefulness of the trading license administered by the MoCI and AISA’s license for investors in other sectors should be re-examined. In the MoCI this initiative might be undertaken as part of the Priority Reform and Restructuring (PRR) process. In AISA it could be undertaken as part of AISA’s evolution into a true investment support and facilitation agency.16 If the MoCI were to initiate these two reforms, in addition to improving the investment environment and reducing investment costs, this initiative would have two other important effects:  It would give the ‘moral high ground’ to the Minister of Commerce and Industries and would allow the Minister to advocate regulatory reform in other ministries which are members of the High Commission on Investment.  It would also send a strong signal to the business community that the Government was indeed serious about regulatory reform in order to create a better investment environment.

2.4

Issue 4: In addition to the AISA license investors in many sectors must also register with and obtain a license from a sectoral ministry In many industry sectors, a foreign investor (and for most of these sectors a domestic investor) must also obtain a license from the line ministry responsible for the
16 The

assessment that AISA offers limited support to investors despite its name is the conclusion of GTZ, not this Investor Roadmap project.

Investor Roadmap

industry in which it plans to operate. This procedure is necessary in a wide range of industries:  Insurance         Banking Foreign exchange dealer University and higher education Hospital/clinic Drugstore/pharmacy Security Pharmaceutical production Transportation  Telecommunications         Radio and TV Travel agency Real estate agency Animal clinic

 Aviation  Construction

Printing press Film production Oil pipeline Natural resources: iron, copper, coal, cement  Hotels and restaurants

Often, however, depending on the procedures of the line ministry involved, investors must obtain their license from the line ministry before they have registered as a legal entity or with AISA. For other ministries, investors must register with AISA before seeking to obtain a license form the ministry. The rationale for many of these licenses is clear: government regulators are in a better position than are potential customers to assess whether the investor has the technical capabilities to operate the investment project safely. For example, the Ministry of Health can assess the qualifications of the investor and the staff of a pharmacy to dispense medicines safely better than can a customer with a medical problem. Similarly, the government can assess the financial expertise and solvency of banks to protect depositors; of insurance companies for those they insure, for pharmaceutical companies for the quality and the purity of the drugs they produce, and so on. In all these instances, there is a clear market failure that government regulation can, at least in theory, address. Whether this regulation is effective or not is not the issue here. Unlike for the MoCI or AISA licenses analyzed above, many of these licenses have the potential for yielding added value to the economy. If they are designed and administered effectively so that their potential value is realized in practice, they should be retained. Several of these industry-specific licenses do not have even the potential to yield net benefits to the economy—licenses for travel agencies, real estate agencies, printing presses, film production, transportation and security firms. For companies in these industries, a simple business registration (as is already required of them) would suffice. Such an initiative would place Afghanistan among the many countries in the world that have moved to limit industry-specific licenses to investment projects with implications for public health, national security, and the environment, and for all other activities put in place a simple registration system that does not require any sort of government approval whatsoever. Policy Initiative #4 The GoA may consider abolishing the industry-specific licenses for many of the industry sectors listed above. In addition, it should also consider the
25

licenses required from the Ministry of Mines that investors must obtain in order to bid for leases on mining projects. Instead of requiring the licenses prior to bidding, the qualifications of the bidding companies could be assessed as part of the bidding process.

2.5 2.5.1

Issue 5: Cumbersome licensing processes External vs. internal movement of paperwork Most licensing organisations, except for AISA, almost all of the paperwork is moved externally by the investor, i.e., the investor takes the various forms from office to office during the application/approval procedure, rather than the organisation having the paper flow move internally. In most high-income countries, the paperwork for regulation flows within the organisation. The investor deposits the required documentation at office or reception area and, if it is satisfactory, the investor picks up the license at another office. In Afghanistan, however, the investor, or the investor’s representative must physically carry the paperwork from desk to desk and from office to office. The investor waits in the outer office while the bureaucrat works down the stack on his/her desk to the investor’s application, processes it, signs it, and gives it back to the investor to take to the next step in the process to obtain the next signature. This procedural system increases the cost to the investor in terms of time and delay in obtaining a license. As well, this procedure is an invitation for corruption, since staff can delay procedures until they are “satisfied” by the investor or the investor’s representative or facilitator. Small investors and poor investors who cannot easily pay these bribes go to the end of the line at each position in the process. Large or wealthy investors can jump the line and/or delay, disrupt, or prevent competitors from being licensed. Hence these investors might want to continue a system that allows them to save time and effort in exchange for a “small” expediting fee. It should be borne in mind, however, that for each license that is expedited, perforce all the others in the stack awaiting processing are delayed. Policy Initiative #5 MoCI could encourage each license issuing institution to redesign the paperwork flow so that it is largely internal rather than external. Some opponents of this process might allege that this is an integral part of the Afghan bureaucratic system and hence cannot be changed. At AISA, however, the paperwork flow is internal. Perhaps not coincidently at AISA staff are paid a living wage. Based on interviews with investors, the expediting fees to obtain a license are often roughly equal to the legitimate fees charged by the regulatory authority. At the MoCI, when the number of steps required to obtain a license were reduced by 90%, perforce the expediting fees were reduced by an equivalent amount. These two examples of reform illustrate how despite historic bureaucratic processes and attitudes, reform can be implemented successfully.

2.5.2

Entrance to the licensing process in each organisation The starting point of the licensing process in each license-granting organisation is typically at the top of the organisation—at the minister or deputy ministerial levels

Investor Roadmap

(or equivalent). The review, signature and order of this high-level person is needed before the license application can move downward until it eventually reaches the level at which concrete evaluation is actually performed by lower-level staff in the implementing departments/directorates. It is difficult to ascertain the value added of these high-level reviews. In addition, gaining access to the person at the top of the pyramid may prove difficult, frustrating, time-consuming and expensive. Investors often have to identify and form a relationship with someone with access to the top or find an “expediter” to gain this access. Finding the right expediter and determining the correct fee for services is in itself a problem for first-time investors and, conversely, a competitive advantage to experienced investors and those already in the industry. This process is also a disproportionately high barrier to entry to SMEs, women and the poor. Starting the entry process at the top of the organisation would seem to waste the time and resources of both the investor and of these high-level officials for no purpose. During the reform process in the MoCI regarding trading licenses, the starting point of the process was move two levels downward in the ministry. Such an initiative might be undertaken in licensing organisations in general without a detailed examination of their overall licensing process. Policy Initiative #6 The government may consider undertaking an initiative to move the starting point in the licensing process further down in all the organisations administering licenses to investors. This could be done without a detailed examination of the individual processes themselves. 2.5.3 Cross-referencing/pre-conditions, cross checking and rechecking The procedures for acquiring many licenses often have more steps than would seem to be necessary. As one example of the number of unnecessary steps in the licensing process, recall that the reform of the trading licenses obtained from the MoCI reduced the number of signatures needed from over fifty to five. These lengthy procedures are due to several reasons. As described above, upper-level ministry staff are often involved at the beginning of the licensing process as an “entrance way” to the licensing process. This phenomenon has been observed in many developing countries, but is especially prevalent in countries with a past of Russian central planning: upper level staff as high as the Minister are unwilling to delegate their authority to lower level staff who have the technical expertise evaluate the license application. Many licenses have preconditions that the investor holds other licenses/registrations. For example, in order to obtain a trading license from the MoCI, the investor must first register the company with the Commercial Court, obtain a TIN, and obtain clearance from the police that he/she has no criminal record. In order to renew the trader’s license, the investor must have received a tax clearance from the Mustofiat. If the investor has had problems with the Mustofiat (or the Mustofiat is overworked and cannot issue tax clearances quickly) the investor will not be able to renew the AISA or MoCI license and hence will not be able to import inputs or final goods and, at worst the operation comes to a halt. Another approach is to isolate the requirements for obtaining one license so that they do not contain conditions of having already obtained another license, i.e., to reduce pre-conditions for obtaining a license so that they do not include possession of other
27

licenses or approvals. As an example, to register a vehicle requires the owner to show that customs duties had been paid when the vehicle was imported. This precondition was imposed to try to reduce the incentives to smuggle vehicles into the country without paying duty. In spite of the heavy paperwork requirements to obtain a license, one ministry may not be willing to accept another ministry’s certification that an investor has indeed met the requirements for obtaining a license. In order to obtain one license, the licensing authority may not only require that the investor have another license, but it will examine if the issuing authority for that license should have issued the license in the first place. For obtaining a water connection, the Water Department may not only require that the investor shows his/her land title to the property but the Department may review whether this land title is valid or not. A licensing organisation may not accept certifications/licenses made in the past from other organisations – or even its own past licenses. To renew a vehicle registration, the Kabul Traffic Department requires that the owner obtain a new certification from the department of Customs that duties had been paid; it will not accept the original one. As well, it will not accept its own vehicle registration as evidence that customs duties had to have been paid or else the original registration would have been issued. If a driver loses his/her driver’s license, the driver must go through the entire licensing process again (including drivers’ instruction and training), even though the department has the records and documentation from when the original license had been issued. Policy Initiative #7 The licensing procedures of organisations could be reviewed with a view to removing cross referencing/pre-conditions to the licensing requirements and steps that check the validity of previously issued licenses or licenses granted by other organisations.

2.6

Issue 6: Most obstructive processes and licenses According to investors, the most difficult, time consuming, and expensive processes in the investment and start-up of a project in Afghanistan were:     land acquisition/transfer; building permits; licenses from some line ministries, such as mining and telecommunications; and customs.

The 6 economy-wide issues most often raised by FIAS (Foreign Investor Advisory Service of the World Bank)17 as posing barriers to investors in developing countries have been:  business registration;  site development/building permits;  customs;
17 Scott

Jacobs and Jacqueline Coolidge, Reducing Administrative Barriers to Investment , Occasional Paper #17, FIAS: Washington, D.C. 2006.

Investor Roadmap

 access to land;  employment procedures; and  tax administration. Note that the GoA has already been very successful in addressing the most problematic barrier for investors worldwide—investment registration and licensing–for all investors who do not need industry-specific investment licenses: for investment registration through AISA (and to a slightly lesser extent through the MoCI) Afghanistan leads the world in the high speed and fewest number of steps in its investment licensing.18 This fact should be borne in mind by all those who say that administrative and regulatory reform are impossible in Afghanistan and that instead investors should “understand” the Afghanistan situation. The other licenses that have been identified by FIAS as causing problems in other developing countries do not do so in Afghanistan to that degree. As yet, tax inspection is in its infancy and tax inspectors have not yet gained the power to terrorize investors as they have in other countries, particularly countries in which the Soviet Union at one time played a major role. There has been extensive reform in customs clearance and in the licensing process for imports and exports. No import licenses are needed for most products and for standard products, e.g., consumer electronics, personal care items, clothing, and so on, customs clearance can be accomplished in a matter of hours. 2.6.1 Land acquisition and transfer In Afghanistan by far the most costly, time consuming and risk process that an investor faces is the acquisition of land. This conclusion about the investment process is not a new one; the problems associated with land acquisition are frequently raised by investors to the Government and in the position papers of investors’ associations. At base, the major cause, but not the only cause, of this problem is the land titling problem: in Afghanistan, the majority of the private land has no clear title and, even for land that does have a clear title, it is difficult to establish that the title is indeed clear. This problem is being addressed by a major USAID-funded project focused on land titling. Land title transfer is another component of this project, but not its major focus. The land title problem is complex and is likely to take many years to resolve. Over the years, different central governments have often rewarded the leaders of their supporters by assigning land to them; these leaders in turn have given this land to their followers. As well, traditional titles have tended to be inexact in specifying the location and the dimensions of the property they describe. Records of land titles have also been trashed, destroyed, and stolen over these turbulent years. The land courts and the judges in those courts who are in charge of the land titling and transfer process are said to be among the most corrupt in Afghanistan. The lengthy and elaborate process of transferring land title was designed to increase the security of the land titles and their transfer via this process; instead the process is the source of much of the risk and expense for the investor and land owner. All-in-all, the land transfer process in Afghanistan requires the seller to accomplish 34 steps; it takes about six months; the legal fees are almost 10% of the sales price
18 See

World Bank, Doing Business in 2006: creating jobs, Washington, D.C. World Bank and International Finance Corporation, 2006.

29

and the bribes needed to accomplish the process range between 10% and 20% of the sales price of the land for small transactions. Additional resources in more areas need to be devoted to this problem. It has a severely negative impact not only on investors but on Afghans as a whole. At present, whereas Afghanistan ranks among the best ten countries in terms of the number of procedures and the amount of time needed to register a business, it ranks in the worst ten countries in terms of the number of procedures and among the worst twenty countries in terms of the amount of time it takes to register land. Policy Initiative 8 The GoA may consider a request for more aid resources to be devoted to the land title problem. At the same time, the issue of land title transfer should be given more prominence in these initiatives. AISA has addressed the land ownership problem in another way: with donor funding it has created one industrial park and has three more in various stages of completion. The finished park, just outside Kabul is full; as soon as each park is opened to bidding, the number of investors who register to bid is usually double the number of plots of land available. This shows the pent up demand for land with clear title. These industrial parks are not suitable for many investors who need land in specific places and areas (hotel and restaurants, for example), or along roads (traders and transportation companies).

Policy Initiative #9 The GoA might consider restructuring AISA such that development and management of industrial parks is split off into a separate organisation. This initiative would allow AISA to focus on an IPA’s three most important activities: investment promotion, investment facilitation, and investment advocacy. The general consensus is that IPAs, such as AISA, should confine their activities to investment promotion, investment facilitation, and policy advocacy on behalf of investors. At present AISA has little capacity to support investors via investment facilitation (beyond the basic registration process), although it has recently created an “Investment Support” department. Its role in advocating the investors’ positions in government policy making organisations could also be enhanced. AISA does manage Afghanistan’s industrial parks, however. Yet this activity is not generally seen as a core one for an IPA. Quite the contrary, international best practice is to have an independent economic/industrial zone authority develop and manage industrial parks (and export processing zones, if any). 2.6.2 Zoning There is an additional land problem: zoning. Worldwide all cities have zoning regulations that specify which types of activity – residential, commercial, light industrial, heavy industrial, parks, recreational, and so on - can be undertaken in which areas. Even if an investor can locate land with a clear title and is able to negotiate the transfer process, there may be a zoning problem. The city plan for Kabul was drawn up decades ago under the auspices of the Russians. This zoning

Investor Roadmap

plan has never been revised, much less superseded. Yet the population of Kabul has more than tripled over these decades–-and much of the development has not been according to the plan. What is zoned as green land may de facto have become commercial or industrial land.19 Yet, if the investor is not careful, when he/she goes to the Kabul Municipality to obtain a building permit, substantial payments may have to be made in order to have the land “rezoned” unofficially. The land title and zoning problems exacerbate another problem for investors (and homeowners) in Afghanistan. With no clear title to their land, banks are unwilling to loan money to investors so that they can make improvements and construct buildings using the land as security. This aspect of development finance has gained increasing prominence in recent years. It is especially problematic in Afghanistan. Policy Initiative #10 The Government should modernize and update the city zoning in its major cities. 2.6.3 Building permits The second biggest problem for investors who need to have their own building is to obtain building permits from the Kabul Municipality (and one would suspect other municipalities). This is the one place in which the IR project team ran into a significant obstacle. Despite a letter from the Deputy Minister of Commerce and Industries, the MoCI staff who worked on the project were not received by the Kabul Municipality office in charge of building licenses. ASI Afghan staff on this project waited in these municipal offices for two days without being received. Finally one of the municipal staff who had previously worked in the building license office took pity on our staff member and described the licensing process to him. According to investors, obtaining building permits and the inspection process are difficult and corrupt. As in most countries, building permits are administered at the municipal level. And in Afghanistan, given the political situation, many municipalities are run as almost independent kingdoms. Hence, unless there is cooperation from the Mayor of Kabul (and the mayors of other major cities), this problem is likely to persist.20 Policy Initiative #11 With the cooperation and backing of the Mayor of Kabul, as a matter of priority, the GoA could seek to reform the procedures for obtaining a building permit.

19 Residential

buildings have also been built in areas zoned as green areas, further increasing the difficulty of resolving the land problem and the risk of these home “owners” of losing their homes if the zoning laws were ever enforced. 20 Unlike land registration, no data were given for the building permit situation in Afghanistan in the World Bank’s 2006 Doing Business report.

31

D
1

Next Steps
Decision: Reform regulation now or continue as is? The GoA at its highest levels needs first to decide on whether now is the time to undertake an initiative to reform regulation. An initiative to reform regulation will impose costs on the government in terms of political will and in terms of lost revenue for some government personnel. As is well known, at wages at the lower levels of the civil service are not sufficient to support staff and their families. At senior levels of government, salaries, although higher are still low and may still be insufficient to support the needs of their families. Yet lower-level government staff must live, and upper-level staff often feel they are entitled to a higher standard of living due to their rank, experience, education, and expertise. Before any other decision, the government should at its highest level decide: are the potential benefits of regulatory reform worth the short-term costs that it will inevitably have to bear as some of its staff take a sharp cut in their standard of living? One cautionary note: the GoA should not go forward with a reform initiative if it is not sincere or if it plans to give it only a half-hearted effort. It also should not go forward with any kind of a reform initiative for public relations reasons. The business community is deeply suspicious of the government’s motives and its development strategies despite the pro-business and pro-competitive market rhetoric in the ANDS. A regulatory reform initiative announced with great fanfare that yielded little or no actual change would be viewed as another example of government’s essential corruption and pandering to entrenched special interests. In addition, over the past few years, the public at large has become increasingly disenchanted with the perceived corruption of some members of government to the extent that there has been a shift in public sentiment in some areas of the country. If another reform process were to be announced and then followed by no perceptible change in bureaucratic behaviour, the results in public sentiment would not be favourable.

2

Locus of reform If the MoCI decides to proceed with a regulatory reform initiative, its next decision must be on the locus of reform. It has been demonstrated in the “lessons learned” section that the locus of reform should preferably be a high-level, powerful, multiministerial body that if already existing, is given a new mandate or is created specifically to guide the regulatory reform process. At first look, the High Commission on Investment would seem to fit this description better than any other existing body. Furthermore, an undertaking to manage the regulatory reform process might enable the High Commission to more effectively fulfil its mandate to improve the business environment in Afghanistan. The High Commission undertaking the oversight of regulatory reform might be the first step toward institutionalising investment policy formulation and implementation at the highest levels of government. However, other actors will need to be involved. First and foremost are the government and other entities involved in the licensing process. Within these institutions, political will to reform must be complemented by fundamental shifts in

Investor Roadmap

attitude and behaviour by staff associated with the licensing process. The two areas where change is most needed are in appreciating:  the profound impact that the behaviour of government employees can have on its citizens; and  the real burden to economic development and social progress that excessive regulation causes. International experience with licensing reform demonstrates that this attitude/behavioural shift takes time. Sufficient awareness needs to be created that current licensing practice is a problem for both business and government. Aware that some institutions may be more willing than others to introduce reforms, it is often the implementation of pilot reforms in selected institutions which, by demonstrating positive results, serve to mobilise other licence-issuing entities and other actors to follow. If such pilots are introduced, their impact needs to be carefully monitored and widely shared. This will help ensure that the momentum for reform is carried as far as possible. It is also important that the government entities participating in these reform efforts are recognised. The “message” about licensing reform can be shared at other forums or events where government meets (such as the Economic Committee), or where government interacts with business. The role of the private sector will be central to sustainable reforms. By better understanding the negative impact of regulations, business associations can more credibly demand from government not just reform in the area of licensing, but in other transactions that economic actors must enter with the public sector, and so hold government up to a higher standard of accountability. Business associations and civil society groups can play an important information disseminate role by informing members of the reforms and encouraging them to comply. The Ministry of Commerce and Industries’ leadership of the High Commission on Investment places it in a unique role to stimulate licensing reform. It can also work effectively to communicate with other stakeholders about the reforms, and bring the investment perspective into not just reforms in the licensing process, but in the way that government addresses regulation and the costs to business more generally. 3 Consider policy options, initiatives and priorities Wherever the locus of reform, call it the “Regulatory Reform Committee”, the next step is to agree on policy options and initiatives that will constitute the reform process. These initiatives were described in the previous section of the report. The government must first decide on its objectives for reform and then the strategy by which it can achieve its objectives. As examples, are its goals total reform? Major reform? Partial reform? Or noticeable reform? And how should it go about reform? A quick victory, or set of victories, to show that reform is possible, even if the gain is small or a major reform triumph, even if the cost is high? Given these decisions, GoA can then prioritise its reform initiatives among those suggested above and others that are identified over time. Table 3: Summary of potential policy initiatives Consultation within and outside of government will be required to fine-tune these possible reforms
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and prioritise their introduction. 1. Undertake an initiative to commit to clearer and more transparent use of information to explain the regulatory process. As one component of this initiative, to have each regulatory organisation post the information collected via this Investor Roadmap project on the Bulletin Board of the organisation, prepare handouts for investors, also post the information on the organisation’s website, if one exists, and train the staff of the organisation so that they can explain the procedures clearly and consistently. 2. Despite its low cost in terms of time, fees, and other expenses, the usefulness of the trading license administered by the MoCI and AISA’s license for investors in other sectors may be re-examined. 3. The GoA may consider abolishing the industry-specific licenses for the industry sectors listed above. In addition, it may also consider the licenses required from the Ministry of Mines that investors must obtain in order to bid for leases on mining projects. Instead of requiring the licenses prior to bidding, the qualifications of the bidding companies could be assessed as part of the bidding process. 4. Request for more aid resources to be devoted to the land title problem. At the same time, the issue of land title transfer should be given more prominence in these initiatives. 5. The GoA could restructure AISA such that development and management of industrial parks is split off into a separate organisation. This initiative would allow AISA to focus on an IPA’s three most important activities: investment promotion, investment facilitation, and investment advocacy. 6. The GoA could modernise and update the city zoning in its major cities. 7. With the cooperation and backing of the Mayor of Kabul, as a matter of priority, the GoA could seek to reform the procedures for obtaining a building permit. 8. The GoA could work within each ministry to redesign the paperwork flow so that it is largely internal rather than external. 9. The GoA could consider undertaking an initiative to move the starting point in the licensing process further down in all the organisations administering licenses to investors. This could be done without a detailed examination of the individual processes themselves. 10. The licensing procedures of organisations could be reviewed with a view to removing cross referencing/pre-conditions to the licensing requirements and steps that check the validity of previously issued licenses or licenses granted by other organisations.

Investor Roadmap

Annex 1: Roadmap process groups
Exhibit 1: Roadmap Process Groups Employing Startup Locating

Functioning Investor

Reporting

Operating

35

Investor Roadmap

Annex 2: Core processes
Exhibit 2: Investor Roadmap – 13 Core Processes

Process 1. Registration with Labor Ministry 2. Labor Permit
Employing Locating Reporting

Stage Startup Startup and Functioni ng Startup Functioni ng Startup Functioni ng Startup Startup Startup

Description Applying for Registration Applying for a license both at startup and yearly Applying for Permit Renewing Permit Hiring Workforce Managing Workforce Purchasing Land Leasing land Transferring Deeds

Notes From Previous Roadmap Experience This process is usually quite straight forward in most countries

3. Expatriate Work Permit 4. Renewing permits 5. Local Labor

6. Acquiring Land 7. Leasing land 8. Transferring land Ownership (not applicable for foreign investors in Afghanistan) 9. Developing land and building 10. Expansion 11. Registering and Licensing 12. Renewal 13. Registering and Paying Taxes 14. On-going taxes

In many cases, this may be critical to the success or failure of the investment. Becoming a problem as many countries are clamping down on repeated renewals. Usually not very bureaucratic, if any government involvement at all. Many facets including collective bargaining, dispute resolution, overtime. Can be the most difficult and confusing. Can make or break investment. In Afghanistan this is a major issue; foreign investors not allowed to own land. A crucial problem in Afghanistan due to land ownership and land classification issues. Can be a problem in some countries lacking sophisticated systems. In Afghanistan, ownership of assets/improvement on the land, e.g., buildings, can be sold by the foreign investor, but land transfer/sale is difficult. Problems can occur especially with utility connections. Usually high variability between town planning offices Two permits may be necessary: one from the MoCI and the other from the line ministry in which the investor’s project lies. The registration process has recently been streamlined. Usually not an issue. In Afghanistan the business license has the same validity length as the FI license. Usually not an issue. In Afghanistan this has been a major problem for investors due to the large number of quasi-legal nuisance taxes, but initiatives underway to improve the system. Can be overly complex, inconsistent from year to year in some countries. The system in Afghanistan is changing and being made more efficient and transparent. In many cases, this is not a major cause for concern in developing countries. In Afghanistan, a potential problem, since environment law not yet enacted.

Functioni ng Startup Functioni ng Startup

Transferring deeds Planning and Construction Expanding Facilities Applications

Functioni ng Startup

Renewals Registering as Tax Payer Paying Taxes

Functioni ng Startup Functioni ng

15. Environmental Compliance 16. Environmental compliance operating

Environmental Design Monitoring

37

17. Importing Capital Equipment

Startup Functioni ng

Importing Machinery Importing Machinery Importing Raw Materials Importing / Exporting Registering with Bank Repatriating Profits

Can be very complicated, especially with valuation issues. In Afghanistan, obtaining the import-export license very time consuming and customs clearance takes over one week. It is critical that goods get cleared quickly – this can have a negative impact on the business Not usually a problem. In Afghanistan, the afghani has been stable against the dollar for the past three years. To date, in Afghanistan, not a major problem recently.

18. Importing / Exporting Goods 19. On-going imports 20. Inbound foreign exchange

Startup Functioni ng Startup Functioni ng

Operating

21. Foreign exchange remittances

Investor Roadmap

Annex 3: Investor Roadmap Master List No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Institution AISA Commercial Court TIN Unit/MoF Criminal Department (Kabul Police HQ) Business Licensing Directorate/MoCI Business Licensing Directorate/MoCI Business Licensing Directorate/MoCI Business Licensing Directorate/MoCI International Business Directorate/MoCI Ministry of Interior Affaires Ministry of Justice Ministry of Information, Culture, and Youth M of Communication Ministry of Transportation Director of Transport (Privet Sectors) Ministry of Transport and Aviation Da Afghanistan Bank Da Afghanistan Bank Afghan Insurance Co. Afghan Insurance Co. Afghan Insurance Co. Da Afghanistan Bank Academic Affaires Coordinating Directorate/MoHE Ministry of Info, Cult, and Youth Ministry of Info, Cult, and Youth Ministry of Info, Cult, and Youth Directorate of Curative Medicine/MoPH Ministry of Agriculture Ministry of Agriculture Questionnaire AISA License Business License Registration Acquiring TIN Criminal Background Check Individual Business License: trader Domestic Corporations’ Business License Registering a Foreign Trading Corporation Transit Company License License for Transit Trade, and Import and Export for operating an agency abroad Security Guards’ Permit Property agent (dealer) license Private TV and Radio Stations’ License Telecommunications firm license Transportation company license Destination (route) booklet of vehicles Private Aviation Company License Private Banks License Foreign Bank Agency License Private Insurance Co License Insurance Agency License Insurance Commission Agent License Foreign Currency Exchange License Private Universities License Film Producing Company License Printing Press License Travel Agency and Tourist Accommodation License Private Hospital License Animal Clinic license Animals’ clinic license for an NGO
39

30 31 32 33 34 35 36 37 38 39 40

Ministry of Agriculture Health Legislations and Verifications Directorate/MoPH Pharmacy Affairs Directorate/MoPH Kabul Municipality MMI Ministry of Urban Development Central Statistics Agency Kabul Power Department /MoE Any bank (using Afghan National Bank as an example) M of Communication Kabul City Water Supply Directorate of Ministry of Urban Development and Housing Water Supply Projects Surveying and Designing Directorate International Business Directorate/MoCI Kabul Custom House Ministry of Labor and Social Affairs Pharmacy Affaires Directorate/ MoPH Ministry of Agriculture Kabul Mustofiat/MoF Kabul Mustofiat Kabul Municipality Kabul Municipality Courts MMI Ministry of Labor and Social Affairs National Environmental Protection Agency National Environmental Protection Agency National Environmental Protection Agency

Animals’ medicine sale license Pharmacy (Drug Store) License Pharmaceutical Factory License Hotels and Restaurants License License to be able to bid on Mining Leases Registration of a Construction with MUD to bid on government contracts Collecting Information and Registering Statistics from Producing and Industrial Corporations Electricity connection Transfer of funds to or from abroad Telephone connection Drinking Water Pipe Connection

41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Revival and Expansion of Dams, Streams, Digging Deep Wells Permit of Goods Export Import clearance procedures and documentation Work Permit for foreigners Medicines Import License Animals’ medicine import permit Tax on Investors and Business men: procedures Late payment due tax penalties on Investors and Business men Building Permit Transfer of Public Land Transfer of Private Land Industrial parks-land Hiring and Firing regulations Environmental clearance Hazardous waste disposal license Genetic material access permit

Investor Roadmap

41