Afghanistan at a Glance

Afghanistan's ethnically diverse population of 28 million is coming together around the goal of national unity, and exhibits a groundswell of support for economic and political progress. The Transitional Islamic State of Afghanistan, installed following the June 2002 Loya Jirga (grand council), is transforming an economy that passed through a Communist regime, a civil war, and the extremist Taliban regime in succession. The government is business-friendly, trying to embrace market principles, acquiring the necessary experience and training its personnel. A significant international effort to reconstruct Afghanistan is currently underway, led by the United States and other international donors. Investors should monitor programs established by international financial institutions such as the World Bank and the Asian Development Bank as well as projects that may be established by the U.S. government. Business infrastructure is improving rapidly. In September 2002, President Hamid Karzai signed the "Law on Domestic and Foreign Private Investment in Afghanistan", allowing, among other things, 100% foreign ownership, full transferability of profits outside of the country, international dispute resolution mechanisms, and stream-lined investment licensing procedures. Since the passage of the investment law, over 5,700 investment licenses have been approved. Afghanistan's Ministry of Commerce inaugurated in September 2003 the Afghan Investment Support Agency (AISA), a "one-stop shop" for foreign investors to receive necessary documents and other information for establishing a business venture. The Afghan government has considered privatization of state industry and the development of oil, gas, and precious and semi-precious stones to attract foreign investors.

Geography

Area: 648,000 sq km (252,000 sq mi)
Terrain: Landlocked; mostly mountains and desert
Climate: Dry, with cold winters and hot summers
Cities: Kabul pop. 2.2 million, capital of Afghanistan
Kandahar pop. 340,000, capital of Kandahar province
Mazar-I-Sharif pop. 240,000, capital of the province of Balkh
Herat pop. 177,000, capital of the province of Heart
Jalalabad 60,000, capital of the province of Nangarhar
Konduz 60,000, capital of the province of Konduz
Population: 27.8 million
Population growth rate: 3.54% annually
Main ethnic groups: Pashtun (44%), Tajik (25%), Hazara (10%), Uzbek (8%). Turkment, Aimaq, Baluch, Nuristani and Kizilbash make up the rest.
Religions: Sunni Muslim (84%), Shi'a Muslim (15%), Other (1%).
Main languages: Dari (Afghan Persian) and Pashto.
Education: The overall literacy rate is of 31.5%, 47.2% for the males and 15% for the females.
Health: Life Expectancy is 46.6 yrs for the males and 45.1 yrs for the females. The infant mortality rate is of 149 per thousand.
Work Force: Mostly in rural agriculture.

Afghanistan is landlocked, being surrounded by Iran, Turkmenistan, Uzbekistan, Tajikistan, China, and Pakistan. The Hindu Kush mountain range runs from northeast to southwest through the middle of the country.

Government Structure

The Transitional Islamic State of Afghanistan, to serve until new elections are called in September 2004, is headed by President Hamid Karzai, who leads a cabinet of four vice presidents and 29 ministers with various political, economic, social, and security portfolios. A future parliament or National Assembly is a topic of much discussion but was not clearly defined during the Loya Jirga. Afghanistan's court system is beginning to regain its place in business and society.

Economy

The gross domestic product (GDP) is estimated at $3 billion, and GDP per capita at about $115 per year. Afghanistan has various crops, including grain, barley, and other commodities. Afghan carpets, world famous for their quality and craftsmanship, represent a major opportunity for export earnings. Other light industries include leather and leather processing, precious and semi-precious stones, and marble. These sectors present opportunities for investors. Afghanistan is seeking public and private sector capital to rehabilitate and develop its energy sector. Afghanistan holds about five trillion cubic feet of natural gas and 100 million barrels of oil reserves. All significant oil and gas exploration and development has occurred in the northern area near Sheberghan and Sar-i-Pol. Afghanistan's power sector is in need of sizable investment. Afghanistan has a total installed capacity of 420 megawatts (MW) and is importing increasingly large volumes of electric power from Turkmenistan, Uzbekistan, and Tajikistan. Plans to string additional and higher-voltage transmission lines between these countries and Afghanistan, eventually could lead to the basis for the creation of a regional power grid. The World Bank and other organizations also have provided funding to help Afghanistan develop a Master Plan for the electric power sector.

The U.S., EU, Japan and India all extended Generalized System of Preference-type trade privileges to Afghanistan in 2003, providing ample scope to favorable Afghan export potential. In addition, Afghanistan concluded two trilateral transit and trade agreements (Afghanistan-Iran-India and Afghanistan-Iran-Tajikistan) and four bilateral transit and trade agreements (with Iran, Turkmenistan, Uzbekistan and India). Trade with other neighbors, including Turkmenistan, Uzbekistan, Tajikistan and China, is growing slowly. U.S.-Afghan bilateral trade has grown from $17.7 million in 2001 to $95.54 million in 2002, and $47.43 million through September 2003. With the extension of the Generalized System of Preferences (GSP) duty-free privileges and further investment and development of the Afghan private sector, this figure can be expected to continue rising through 2004 and beyond.

Transportation

Transportation infrastructure is rapidly improving The U.S.-Japan-Saudi Arabian effort to rebuild the Kabul-Kandahar-Herat portion of the national ring road has made substantial progress. The U.S. Agency for International Development (USAID)-project Kabul to Kandahar portion of the road has been completed. Meanwhile, major highway construction is being developed throughout the country. The Asian Development Bank (ADB) is financing the construction of the northern portion of the ring road (from Herat to Pol-e Khomri). ADB is also managing the construction of the road linking Kandahar to Spin Boldak at the Afghan-Pakistani border, a project funded by the governments of Japan and Kuwait. The World Bank project to link Kabul and Konduz, with an extension to the Afghan-Uzbek border at Shirkhan Bandar, is also underway. The EU and Pakistan are building a road from Kabul to the Torkham border crossing with Pakistan. Iran is improving upon the existing heavily traveled road between Herat and the Islam Qala border crossing. Finally, the most recent road project under consideration is an Indian-built road linking the town of Delaram (on the southern portion of the ring-road between Herat and Kandahar) and the Zaranj border crossing. Repairs to Kabul International Airport have allowed commercial flights to operate. The reopening of the Salang Tunnel in 2003 was a major step forward to open road links with northern Afghanistan and to improve road commerce. The Amu Darya (Oxus) River, which forms part of Afghanistan's border with Turkmenistan, Uzbekistan, and Tajikistan, has barge traffic. The reopening of the Termez-Hazarey Bridge in 2002 opened links to Uzbekistan.

Banking

The banking system in Afghanistan has advanced greatly since 2002. The Central Banking Law and the Commercial Banking Law were finally promulgated in September 2003, clearing the way for new commercial banks to be licensed. Three commercial banks have now been licensed, with others in the pipeline. The banks are Standard Chartered (UK), the First Microfinance Bank of Afghanistan (an Aga Kahn/IFC joint venture), the National Bank of Pakistan and Afghanistan International Bank. The Central Bank (DAB, Da Afghanistan Bank) offers some commercial banking services, such as processing of letters of credit and electronic fund transfers. A U.S. Agency for International Development (USAID) project helped connect Afghan banks to the SWIFT international electronic fund transfer system. The Central Bank intends to move out of commercial banking operations in 2004, as commercial banks begin operations around the country. The Central Bank can also provide transfers and other banking services in provinces throughout Afghanistan. The Overseas Private Investment Corporation (OPIC) is in the advanced stages of establishing a commercial bank.

Currency

The official Afghan currency is the Afghani, which is freely convertible within Afghanistan. The exchange rate is in the range of 49 to 50 Afghanis per U.S. dollar, remaining remarkably stable.

Labor Information

Age. Minimum age is 15 for light industry work and 18 for heavy industry.
Hours. 40 hours per week. For underground work, such as mining it is 35 hours per week.
Night shift: Cannot be more than 11 hours
Overtime: The worker receives 25% over the regular salary
Holidays: The worker receives double salary
Vacation: 20 days paid annually. For less than 18 year old, 30 days. 30 days unpaid vacation is optional
Sick leave: 20 days per year. More than 3 consecutive days, a physician statement is required.
Emergency time: 10 days per year, not more than 3 consecutive days at a time.

Unemployment

Unemployment rates run as high as 50% in Kabul and even higher outside of the capital. The average monthly salary in Kabul is about US$10 per month, with wages much lower outside the capital.

Communications

There are just 12,000 functioning telephones in Kabul. The Ministry of Communications has moved aggressively to improve communications services throughout the country. Prospects for communications have improved considerably by mid-2003. The first wireless service provider, the American firm Afghan Wireless Communications Company (AWCC) reached agreement with the Ministry of Commerce in early for an extension of its service license, and plans a major upgrade and expansion of existing services. The second wireless service provider, the Aga Khan-Alcatel led consortium, Telecommunications Development Company of Afghanistan, operating under the name "Roshan" in Afghanistan, commenced operations in Kabul in July 2003. Roshan plans to operate in several major provincial centers as well. In addition, both firms anticipate greatly improved Internet service capacity.

Law on Domestic and Foreign Private Investment in Afghanistan

The law encourages and supports private domestic and foreign investors. Its aim is to foster economic recovery, expand the labor market, advance national revival, increase the standard of living, and help in Afghanistan's reconstruction process. The High Commission for Investment (HCI), chaired by the Minister of Commerce, has the authority to plan and determine policy, and execute and supervise the administration of investment. Investment in an enterprise can be in the form of cash, credit, goods, services or other forms, such as intellectual property, trademark and copyright. Qualified domestic or foreign entities may engage in investment in all commercial and manufacturing activities. Investment by foreign, domestic, and mixed investors may be structured as follows:

1. 100% private domestic
2. 100% private foreign
3. Mixed private domestic and foreign
4. Mixed public and private, either domestic or foreign

Tariff Duties. Production is exempted from any type of export duties or tariffs for four years

Real Estate Leases. Foreign investors, based upon short, medium, or long-term lease contracts, may lease real estate for ten, twenty, or thirty years, respectively. Extensions may be granted.

Transfer of Capital and Profits. Capital and profits of private investments may be transferred.

Sale. After paying all legal expenses, private investors may sell their enterprise.

Purchase and Sale of Shares. The enterprises may sell shares to Afghan citizens or to the State of Afghanistan.

Banking Facilities. The enterprises shall have the right to use Afghanistan's banking system to open bank accounts, foreign exchange, and to secure loans and credit to advance their investment in Afghanistan.

Confiscation and Seizure. The Government does not have the right to confiscate or seize foreign or domestic investments without due process of law. Confiscation is only authorized for the purpose of safeguarding the public interest upon providing reasonable compensation. Any transfer of funds received from the Government as a result of confiscation may be transferred tax-free out of Afghanistan.

Exceptions. Pipeline construction, telecommunications infrastructure, oil and gas, mines and minerals, and heavy industries are exempt from the provisions of this law.

Licenses. The Ministry of Commerce issues the licenses for national investors. The Ministry of Foreign Relations and AISA will issue foreign investors' licenses.