Afghanistan's Agenda for Action - Economic Growth - usaid

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Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007paper. Yet the absence of overall policy or specificplans for implementation – in the business community,among lawyers, in the law schools, and elsewhere –threatens to create a law without context and that isdestined to disappoint.Real Property Law. Real Property Law is theunderpinning of a modern, middle class, credit-basedconsumer society. An unambiguous, officiallyrecognized, and transferable title to real propertyprovides the basis for borrowing money secured bythat property – money that then in turn fuels theeconomy. Afghanistan’s land laws and practices areextremely complex and often unclear. Moreover,Afghanistan has never had a reliable, standardizedsystem of land titling. The consequence is that, today,commercial land use and investment present obstaclesto future economic development.Secured Transactions Law. The presence of aworking legal system for the enforcement of a lender’srights to its collateral upon the borrower’s default iscentral to a mature economy with a strong commerciallending sector. A well understood and efficient SecuredTransactions Law – combined with a judiciary that iswell versed in commercial law and is perceived to befair, speedy, and transparent in the enforcement ofcommercial rights – is an essential component of such asystem. Unfortunately, at this stage of its development,Afghanistan has neither a statutory framework nor ajudiciary that can be relied upon for the enforcement ofa lender’s collateral rights.Bankruptcy. While there are provisions of existinglaw in Afghanistan that deal with insolvency and thewinding up of business enterprises, they are generallyunknown even among lenders. In practice, bankruptcyis nonexistent as a viable method of dealing withinsolvency in Afghanistan. Inefficient or nonexistentbankruptcy systems prevent the redistribution ofincome-producing assets and employees, with anoverall negative impact on the local communities inwhich previously solvent businesses once operated.Commercial Dispute Resolution and CourtAdministration. For the formal systems ofadjudication, the overall legal framework is reasonablysufficient to support the needs of the developingeconomy, when it is applied. There are some gaps, butthe basic system of commercial procedure – on paper– will not need substantial amendment for some years.Arbitration and mediation have formally beenintroduced through the recent adoption of new laws,and these should also be adequate for this stage ofdevelopment. The institutional structures are not sorobust. Not only did government institutions and civilsociety organizations retreat or disintegrate during thewar years, the underlying educational system was badlydamaged as well. As a result, many of those responsiblefor the administration of justice have minimaleducational and practical qualifications to fulfill theirroles. As the schools are re-established, new and betterqualified judges and lawyers will be available.Competition Law and Policy. Competition Law,known commonly as “Anti-Monopoly Law,” is the bodyof rules designed to promote business competition bypreventing domination of any one market by any oneenterprise. Afghanistan does not currently have aCompetition Law, nor does it have many of thedeveloped markets or market players that might giverise to the need for a Competition Law. There are anumber of unique social dynamics that constrainbusiness competition. Work in these areas couldultimately help build a vibrant domestic economy thatmight one day benefit from such a body of law.Opium Poppy. Afghanistan’s opium poppy narcoeconomyconstituted 36% of the licit GDP in2004/2005. It permeates the entire economy and theculture of the country, contributing to massivecorruption, undermining public institutions, andhindering the development of the rule of law. The liciteconomy is growing, however, and some of the legalinstruments needed to combat the narco-economy arenearly in place. The goal of eliminating opium poppyproduction, or at least of making the impact of thenarco-economy negligible, is near at hand and fullyachievable, assuming that the right developmentinstruments are supported and the political will tosustain them is manifest.Foreign Direct Investment. Foreign directinvestment has grown dramatically in Afghanistan overthe past four years but it has thus far failed to deliver10
Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007on its promise to grow the business infrastructure of aself-sufficient Afghan economy. Afghanistan remainslargely a nation of raw exports and re-exports of goodsmade elsewhere in Central Asia and beyond. Althoughthe legal framework appears to support predictability ininvestment and return, a lack of supporting institutionsand underlying social factors conspire to makeAfghanistan’s climate for foreign investment lessattractive than those of the comparable alternatives.International Trade Law. There is no specific“trade law” in Afghanistan. Many of the trade laws andregulations typical in developed countries are nonexistentin Afghanistan. Tremendous impediments tointernational trade must first be overcome. Forexample, the deplorable security situation discouragesinvestment in the critical infrastructure of internationaltrade and discourages travel and transit overall. Theabsence of commercial laws drafted and implementedto the standards of the international marketplace willseverely hamper Afghanistan’s progress towardbecoming a meaningful international trading partner.Flows of Goods and Services across Borders. InApril 2005, a new Customs Law came into effect inAfghanistan. The law reflects effective modern Customspractices, such as organizational structure, seizure andpenalty authority for Customs violations, collection offoreign trade statistics, joint facilities with neighboringcountries, and the acceptance and the use of electronicdata for Customs documentation. However, conditionsat border ports remain chaotic, with poor security,thefts, and many unauthorized individuals offering bothlegitimate and illegitimate services. Import processes,despite improvements, continue to be complex andburdensome, leading to delays and increased costs.WTO accession is a new topic to both the governmentand private sector of Afghanistan; as a result, accessionis often treated with apprehension fueled by a lack ofbasic understanding and misconceptions about itspotential impact upon Afghanistan’s foreign traderegime and Customs collections. Enactment of aGATT-compliant statute and the issuing of the definingand implementing decrees are important steps in WTOaccession that remain to be accomplished.Trade-Related Financial Flows. Access to money isunconstrained, and transferring money in and out ofthe country is relatively easy and uncontrolled. TheCentral Bank is mandated to carry out the basicoperations of a central bank, including foreign exchangecontrols and regulating the flow of money, although themonitoring of exchange practices has been limited todate. Laws are being prepared, and in the process ofbeing enacted, for regulating trade financing,documentary credits, and various forms of financialinstruments. However, the laws do not reach as far asregulating international trade financing or providing forinsurance for financing transactions. Foreign investorsare allowed to operate in Afghanistan and trade andinvestment financing is not considered to be undulycomplicated or cumbersome.Trade-Related Flows of People. Trade-relatedflows of people to Afghanistan are very limited at thistime because the security environment remains volatileand unpredictable. Tourism (except so-called “extremetourism”) is out of the question. The ability of Afghanauthorities to maintain public safety and order whileensuring the security of citizens and visitors is limited.Even though the capital of Kabul is considered fairlysafe, extreme caution is advised in U.S. StateDepartment and other foreign government traveladvisories. Elsewhere in Afghanistan, a significantincrease in attacks in the south and southwestern areasof the country has occurred, and a seasonal surge ininsurgent activity is expected. Violence and the threatof violence are restricting trade development in manyparts of the country, cutting off work opportunities forAfghans and those wishing to invest in Afghanistan.Despite low trade-related people flow in Afghanistan,key infrastructure improvements have been made andmore are planned. Over $8 billion in aid andinvestment from the international community hasgreatly improved Afghanistan’s prospects for the future.As needed stability is achieved, these improvementswill allow for larger numbers of cross-border, traderelatedtravel.Financial Crimes. Financial Crimes – namely, moneylaundering and terrorist financing – seem to rununabated throughout Afghanistan. Opium poppy is a$2.7 billion illicit industry. Some of the warlords and11
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Nicholas Klissas, USAID/EGATTel: 20
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