Afghan advisor promotes the reform agenda

Q: What has been your business reform strategy?

A: We’ve created a number of new laws over the past year to make the business environment more conducive to success for both domestic and foreign businesses, and we have aligned our reform efforts with regional integration projects and international rankings. The former provides us with support and financing from key regional actors, and the latter addresses an important matter – Afghanistan faces a credibility issue. We say we are reforming, but international indicators show us at the bottom of rankings. So we have continued to push for reforms. The impacts of these changes are reflected in Afghanistan’s improved position in the World Bank’s Ease of Doing Business rankings in 2018. As a result of the country’s reform efforts, Afghanistan rose 16 places on the annual World Bank report, from 183rd in the world to 167th.

Q: What are the most interesting sectors for FDI?

A: We encourage foreign investment in sector, especially in areas where the government has created the right opportunities for investment. The private public partnership [PPP] law, which allows private entities to invest in certain sectors. In the power generation space, where we have disaggregated power generation from transmission and distribution, allowing for private investment and power generation. We have already started a number of tenders and signed a number of contracts in the gas power arena and we’re now moving forward with some solar and hydro-powered projects using this framework.

Second, the government has provided opportunities in the services sector, for example, we have a number of hospitals that are underfunded but well built, in relatively new buildings provided by donors, and we are providing these projects to investors on a PPP basis.

Third, the telecoms and fibre optic network sector provide interesting opportunities. As with power generation, the government used to have a monopoly in the telecoms sector. However, we passed an open-access policy last year, and that has allowed, for the first time, private investment to be made in the fibre optic network. Subsequently, of the five telecom companies that operate in Afghanistan, three have already come through with an expression to invest more than $300m.

What’s exciting is that we’re making significant advances in our natural resources sector. There’s about $1 trillion to $3 trillion of mineral wealth in Afghanistan. However, none of that has translated into concrete action due to the lack of a regulatory framework. Two years ago, we passed a new hydrocarbons law, and we have just passed the new minerals law which resolves a number of key issues. The minerals law will be signed into legislation within a month, and once this is done that means the law has immediate effect and there are a number of components of the law that will simplify the procedure immediately. For example, for small-scale licences, the process will be based on a relatively simple application process  Meanwhile for large-scale licenses, investors will be able to invest via public tenders. Both processes have been made quite simple relative to the administrative procedures under the previous minerals law. This law resolves a number of key issues and makes the industry more attractive and the tender process more transparent, so we can actually begin providing tenders to international companies in that space. As a result, we recently signed a copper contract with a firm at the September Mumbai Trade Conference.

Q: How do investors mitigate key risks in Afghanistan?

A: The main risks concern security, contractual risk, and corruption. There are several ways to mitigate these. Not only can investors source local partners who have the networks to mitigate those risks, but for infrastructure projects, the government has classified key projects as government-backed, so our national security team monitors those, in addition to the Afghan Public Protection Force, who provide security on a cost basis. Contractual risk is why we have significantly reformed the legislative and regulatory framework. To tackle corruption we have created institutions and checks and balances that diminish the opportunities for corruption in bidding processes of projects. For example, within the new minerals law is the the fixed royalty rate, which means that no investors have to discuss money with the ministry of mines.