Aside from the development of Afghanistan’s military capabilities and pursuing the peace process, the other equally important factor that will allow the country to achieve peace and stability is the economy.
An economic transformation is taking place in Afghanistan right now, with a goal to boost private investment to create jobs and sustainable industries.
During the past few months, the government has passed significant economic legislation, opened up opportunities across new sectors and cut bureaucratic red tape to encourage businesspersons to invest.
These changes have already produced results — more than $500 million in investment contracts have been signed since the beginning of the year, and we estimate a boost in Afghanistan’s structural GDP growth rate from 2.5-3.0 percent to about 4.0 percent over the coming years.
In the past, a foreign investor had to visit an embassy two times to get entry into the country — once for a letter of introduction, once to receive a visa. He or she had to spend a great deal of time visiting multiple offices in Kabul to obtain costly permits.
The investor’s rights were not protected by legislation, and he or she would find it nearly impossible to obtain credit; all of this, in addition to security concerns. It’s no wonder then why economic growth languished over the past decade, and investors were scarce in Afghanistan.
Over the past few years, the National Unity Government has taken action to create a more enabling environment for investors and private-sector development. First, the government reduced regulatory burdens, cutting the cost of obtaining a new business license from $440 to only $1.
We simplified regulations by reducing the costs and simplifying procedures to obtain both electricity connections and building construction permits. We’ve opened a one-stop shop where investors can obtain all permits in one location. We now offer visas-on-arrival and easier foreign authentications for investors.
Second, we passed important new legislation that forms the legal foundation of a market economy. Our new Companies Law dramatically improves the protection of investors’ rights, allowing them to take minority stakes in operating companies, confident in knowing that their rights are protected.
We also passed a new Insolvency Law to make it easier to obtain capital for businesses and to enter into bankruptcy procedures for companies that do face challenges. This law replaces one that had not been updated since 1942.
A new mining law that provides a strong legal foundation and a transparent bidding process for the sector will be passed before the end of 2018.
Third, a number of large regional projects are being implemented. Whereas five years ago, Afghanistan did not have a single operational railroad, we now have four functioning railway connections with three neighbors.
The Turkmenistan-Afghanistan-Pakistan-India (TAPI) project, which had been discussed for decades, stared construction at the Afghan border earlier this year. We are in the process of finalizing the Host Government Agreement (HGA) and have reconfigured the project to make it financially feasible.
The CASA-1000 project, which will connect Central Asian Hydropower potential to South Asia, is in the procurement sage. Each of these projects will generate jobs and align regional countries’ interests with Afghanistan’s economic development.
Fourth, we opened up entirely new sectors to investment by eliminating government monopolies. In the power sector, we passed new regulations to allow for investment. This led to three contracts signed in December 2017, reduction of bureaucratic requirements and attracted over $200 million in private investment into the country.
Private companies are now constructing two gas generation plants in northern Afghanistan, as well as expanding a hydropower plant and constructing a solar plant in southern Afghanistan.
In the telecom sector, we opened up opportunities in our fiber optic backbone. Companies enthusiastically responded with more than $300 million in commitments. These fiber licenses were signed last month.
These actions have dramatically improved Afghanistan’s business environment, as evidenced by the steady flow of power and telecom investments we have seen over the past several months.
We look forward to also seeing these improvements reflected in significant improvements in Afghanistan’s international rankings, namely next year’s World Bank Doing Business report.
When the National Unity Government took office, we had to triage our economic challenges. Government revenues were declining, payment arrears were building, and we had a large contingent financial risks. We stabilized the economy by signing on to an economic reform package with the International Monetary Fund.
Since then, government revenues increased by more than $500 million, state banks have been fully recapitalized, and the currency has stabilized. Though we have a long road ahead of us, Afghanistan is now moving from policies of economic stabilization toward policies of economic growth, with results to show for it.
Ajmal Ahmady is the economic advisor to the President of Afghanistan and sits on the board of the TAPI pipeline company. He has an MBA from Harvard Business School, an MPA/ID from the Harvard Kennedy School, and he previously worked at various asset management firms and the World Bank.