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 The Afghanistan Compact and ANDS context.................................................................. 5
1.2 The Investor Roadmap approach ...................................................................................... 5

B The Regulatory Framework ............................................................................................ 7

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

C The Investor Roadmap Project.................................................................................... 17

1 Introduction..........................................................................................................17
2 Findings: Observations and policy initiatives based on the fieldwork and
questionnaires ...................................................................................................... 19
2.1 Issue 1: The locus of the regulatory reform initiative.................................................... 20
2.2 Issue 2: Information deficiencies .................................................................................... 20
2.3 Issue 3: All investors must register as a legal entity as well as register either with the
MoCI or with AISA ............................................................................................................ 22
2.4 Issue 4: Many sectors must also register with and obtain a license from a sectoral
ministry............................................................................................................................. 24
2.5 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
2.6 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

D Next Steps....................................................................................................................... 32
1 Decision: Reform regulation now or continue as is? .............................................. 32
2 Locus of reform ....................................................................................................32
3 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 Afghan Investment Support Agency

ANDS Afghan National Development Strategy
ASI Adam Smith International
FIAS Foreign Investment Advisory Service
GDP Gross Domestic Product
GoA Government of Afghanistan
HCI High Commission on Investment
IPA Investment Promotion Agency
MoCI Ministry of Commerce and Industries
OECD Organisation for Economic Cooperation and Development
PSD Private Sector Development
PRR Priority Reform and Restructuring
SME Small and Medium Size Enterprise
TIN 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.

1 Mr.Shir Hussain Sultani, Mr. Qasim Ali Behsoudi and Ms. Khalida Darwish from Internal Trade Directorate of
the MoCI.
 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  Telecommunications
 Banking  Radio and TV
 Foreign exchange dealer  Travel agency
 University and higher education  Real estate agency
 Hospital/clinic  Animal clinic

3
  Drugstore/pharmacy  Printing press
 Security  Film production
 Pharmaceutical production  Oil pipeline
 Transportation  Natural resources: iron, copper,
 Aviation coal, cement
 Construction  Hotels
 Restaurants

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 Initiative for regulatory reform to enhance PSD in Afghanistan

1.1 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 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).

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 market-
based 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 The Regulatory Framework

1 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 firm-
level, 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 anti-
competitive 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,

2 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.

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.

4 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.

 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

6 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

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 National Statistics Organisation, National Statistics yearbook, 2005, Kabul, Afghanistan: 2005.
10 The 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 wide-
ranging 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.

13
 Table 1: Similarities among successful and unsuccessful reform efforts

Successful regulatory reform Unsuccessful regulatory reform

efforts
 The reform agenda should be
supported at the ministerial level
(for reforms within a ministry) or
cabinet level (for cross-ministerial
reforms)
 New institutions are created to
manage reform or a high-level
existing organisation is given a new
mandate to pursue reforms.
 Inter-ministerialcooperation was
developed and/or enhanced during
the reform process.
 The private sector was brought into
the reform dialogue and even into
the policy design process;
 The 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.
efforts
 Weak 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.
 Strongresistance to change within
government organisations that is able to
preserve discretionary power and the
opportunity for corruption.
 Weak leadership and poor coordination
of the reform process between different
initiatives for reforming the regulatory
process.
 Lackof implementation even when laws
and regulations have been changed.
 Action plans contain no performance
measures to ensure that the changes
lead to the desired results.
 Although there is improvement on
some regulatory measures, there is
deterioration on others, such that the
investor experiences no net change.
 Ongoing corruption damages the
credibility of Government and its policy
reforms among investors.
 Other
uncoordinated reforms
undermine progress.

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  Telecommunications
 Banking  Radio and TV
 Foreign exchange dealer  Travel agency
 University and higher education  Real estate agency
 Hospital/clinic  Animal clinic
 Drugstore/pharmacy  Printing press
 Security  Film production
 Pharmaceutical production  Oil pipeline
 Transportation  Natural resources: iron, copper,
 Aviation coal, cement
 Construction  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 Issue 5: Cumbersome licensing processes

2.5.1 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 Residentialbuildings 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 Next Steps
1 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, multi-
ministerial 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

33
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 Locating
Startup

Functioning

Investor

Reporting Operating

35
 Investor Roadmap

Annex 2: Core processes

Exhibit 2: Investor Roadmap – 13 Core Processes

Process Stage Description Notes From Previous Roadmap Experience

1. Registration with Startup Applying for This process is usually quite straight forward in most
Labor Ministry Registration countries
Startup Applying for a
2. Labor Permit and license both at
Functioni startup and yearly
Employing

ng
3. Expatriate Work Startup Applying for In many cases, this may be critical to the success or
Permit Permit failure of the investment.
4. Renewing Functioni Renewing Permit Becoming a problem as many countries are clamping
permits ng down on repeated renewals.
5. Local Labor Startup Hiring Workforce Usually not very bureaucratic, if any government
involvement at all.
Functioni Managing Many facets including collective bargaining, dispute
ng Workforce resolution, overtime.
6. Acquiring Land Startup Purchasing Land 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.
7. Leasing land Startup Leasing land A crucial problem in Afghanistan due to land
ownership and land classification issues.
8. Transferring land Startup Transferring Can be a problem in some countries lacking
Ownership (not Deeds sophisticated systems. In Afghanistan, ownership of
Locating

applicable for assets/improvement on the land, e.g., buildings, can

foreign investors be sold by the foreign investor, but land transfer/sale
in Afghanistan) is difficult.
Functioni Transferring
ng deeds
9. Developing land Startup Planning and Problems can occur especially with utility
and building Construction connections. Usually high variability between town
10. Expansion Functioni Expanding planning offices
ng Facilities
11. Registering and Startup Applications Two permits may be necessary: one from the MoCI
Licensing and the other from the line ministry in which the
investor’s project lies. The registration process has
recently been streamlined.
12. Renewal Functioni Renewals Usually not an issue. In Afghanistan the business
ng license has the same validity length as the FI license.
13. Registering and Startup Registering as Tax Usually not an issue. In Afghanistan this has been a
Paying Taxes Payer major problem for investors due to the large number
Reporting

of quasi-legal nuisance taxes, but initiatives underway

to improve the system.
14. On-going taxes Functioni Paying Taxes Can be overly complex, inconsistent from year to year
ng in some countries. The system in Afghanistan is
changing and being made more efficient and
transparent.
15. Environmental Startup Environmental In many cases, this is not a major cause for concern in
Compliance Design developing countries. In Afghanistan, a potential
16. Environmental Functioni Monitoring problem, since environment law not yet enacted.
compliance ng
operating

37
 17. Importing Capital Startup Importing Can be very complicated, especially with valuation
Equipment Machinery issues. In Afghanistan, obtaining the import-export
Functioni Importing license very time consuming and customs clearance
ng Machinery takes over one week.

18. Importing / Startup Importing Raw It is critical that goods get cleared quickly – this can
Operating

Exporting Goods Materials have a negative impact on the business

19. On-going imports Functioni Importing /
ng Exporting
20. Inbound Startup Registering with Not usually a problem. In Afghanistan, the afghani
foreign exchange Bank has been stable against the dollar for the past three
years.
21. Foreign exchange Functioni Repatriating To date, in Afghanistan, not a major problem recently.
remittances ng Profits
 Investor Roadmap

Annex 3: Investor Roadmap Master List

No Institution Questionnaire
1 AISA AISA License
2 Commercial Court Business License Registration
3 TIN Unit/MoF Acquiring TIN
4 Criminal Department (Kabul Criminal Background Check
Police HQ)
5 Business Licensing Individual Business License: trader
Directorate/MoCI
6 Business Licensing Domestic Corporations’ Business License
Directorate/MoCI
7 Business Licensing Registering a Foreign Trading Corporation
Directorate/MoCI
8 Business Licensing Transit Company License
Directorate/MoCI
9 International Business License for Transit Trade, and Import and Export for
Directorate/MoCI operating an agency abroad
10 Ministry of Interior Affaires Security Guards’ Permit
11 Ministry of Justice Property agent (dealer) license
12 Ministry of Information, Culture, Private TV and Radio Stations’ License
and Youth
13 M of Communication Telecommunications firm license
14 Ministry of Transportation Transportation company license
15 Director of Transport (Privet Destination (route) booklet of vehicles
Sectors)
16 Ministry of Transport and Private Aviation Company License
Aviation
17 Da Afghanistan Bank Private Banks License

18 Da Afghanistan Bank Foreign Bank Agency License

19 Afghan Insurance Co. Private Insurance Co License

20 Afghan Insurance Co. Insurance Agency License
21 Afghan Insurance Co. Insurance Commission Agent License

22 Da Afghanistan Bank Foreign Currency Exchange License

23 Academic Affaires Coordinating Private Universities License

Directorate/MoHE
24 Ministry of Info, Cult, and Youth Film Producing Company License
25 Ministry of Info, Cult, and Printing Press License
Youth
26 Ministry of Info, Cult, and Travel Agency and Tourist Accommodation License
Youth
27 Directorate of Curative Private Hospital License
Medicine/MoPH
28 Ministry of Agriculture Animal Clinic license
29 Ministry of Agriculture Animals’ clinic license for an NGO

39
30 Ministry of Agriculture Animals’ medicine sale license
31 Health Legislations and Pharmacy (Drug Store) License
Verifications Directorate/MoPH

32 Pharmacy Affairs Pharmaceutical Factory License

Directorate/MoPH
33 Kabul Municipality Hotels and Restaurants License
34 MMI License to be able to bid on Mining Leases

35 Ministry of Urban Development Registration of a Construction with MUD to bid on

government contracts

36 Central Statistics Agency Collecting Information and Registering Statistics from

Producing and Industrial Corporations

37 Kabul Power Department /MoE Electricity connection

38 Any bank (using Afghan Transfer of funds to or from abroad
National Bank as an example)

39 M of Communication Telephone connection

40 Kabul City Water Supply Drinking Water Pipe Connection
Directorate of Ministry of Urban
Development and Housing

41 Water Supply Projects Surveying Revival and Expansion of Dams, Streams, Digging
and Designing Directorate Deep Wells

42 International Business Permit of Goods Export

Directorate/MoCI
43 Kabul Custom House Import clearance procedures and documentation
44 Ministry of Labor and Social Work Permit for foreigners
Affairs
45 Pharmacy Affaires Directorate/ Medicines Import License
MoPH
46 Ministry of Agriculture Animals’ medicine import permit
47 Kabul Mustofiat/MoF Tax on Investors and Business men: procedures
48 Kabul Mustofiat Late payment due tax penalties on Investors and
Business men
49 Kabul Municipality Building Permit
50 Kabul Municipality Transfer of Public Land
51 Courts Transfer of Private Land
52 MMI Industrial parks-land
53 Ministry of Labor and Social Hiring and Firing regulations
Affairs
54 National Environmental Environmental clearance
Protection Agency
55 National Environmental Hazardous waste disposal license
Protection Agency
56 National Environmental Genetic material access permit
Protection Agency
Investor Roadmap

41