Afghanistan's Agenda for Action - Economic Growth - usaid

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Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007company creation, however, is only one step in startinga business, and investors rarely accomplish this directlywith the commercial court. Most companies require a“facilitator,” an investment license, and industry-specificlicenses. A significant-sized investor first acquires afacilitator, depending on the business type. If thebusiness is trading, the facilitator will be the Ministry ofCommerce and Industry (MoCI). If the business is“other than” trading, the facilitator will be AISA. Thereis no logical reason for this split jurisdiction and thedefinitional boundary between trading and non-tradingis not clear in the law. 39 Nonetheless, both the MoCIand AISA abide by this split.The MoCI and AISA are “facilitators” – they provideservices typically rendered in other countries bylawyers, paralegals, or accounting firms. Each agencyhandles forms and other formal requirements forregistration with the commercial court and gets thenew company registered there. (Indeed, thecommercial court requires a letter from the MoCI orAISA to register a company.) The formal requirementsfor registration include getting a clean police recordclearance, acquiring a tax identification number, andposting for publication in the official gazette, withdocuments certified by providing a photograph or athumbprint (no notarization is required). The MoCIand AISA also require the investor to obtain aninvestment license, which those organizationsthemselves can grant. AISA’s service fees, which varyaccording to company size, can reach several thousanddollars.All interviewees stated that both the MoCI and AISAare prompt and efficient with these services. Each is aneffective “one-stop shop” for handling a company’sinitial registration and investment license. There is noevident reason, however, why a separate investmentlicense should be required (with a significant fee inAISA’s case) in addition to the company registration,and no reason why the registration itself should be in athird body, the commercial court.39 The MoCI’s regulation on this subject states that the typeof business covered “includes, but is not limited to, trade,”but interviewees stated that in practice the Ministry hasinterpreted this to cover only import and export trade.This system leaves – between the cracks – many smallcompanies whose registration and emergence from theunderground economy are desirable. They can onlyregister by trying to go themselves to the commercialcourt, and they have little motivation to do this. 40D. Further Permits and LicensesCompany registration and investment licensing are onlya first step; they do not reduce the need or time forseparate approvals that are mandatory in Afghanistanfor an overly-long list of specific activities. Theseinclude banking, freight-forwarding, security guard,insurance, insurance agency, private university, travelagency, tourist accommodation, animal clinic, filmproducing, printing, pharmacy, hotel and restaurant,construction, electricity connection, medicine import,animal medicine import, land transfer, building, mining,health care, construction, tourism and commercialagriculture.Every interviewee on this subject remarked that theprocesses for getting these permits and licenses arelengthy, arbitrary, unpredictable, and/or very expensive.One commented that he acquired his investmentlicense from AISA in a few hours but has been dealingwith a ministry for a sectoral license for over a year“and it is still not resolved.” Another stated that thathe also got his investment license immediately, but hassince spent $5,000 and four months dealing withsectoral agencies “and now they want to shut medown.” Some sectoral licenses are clearly justified forhealth or public safety purposes, but many or most ofthose which are required have no evident publicpurpose. There is no standard form or uniformprocedure for these approvals; each ministry and otheragency has its own rules and approach, oftenunpublished and opaque; and the ministries and otheragencies do not always communicate with each other.Some of these approvals are required as a precondition40 To be precise, the MoCI will handle registration of acompany of any size but – as pointed out above – it willhandle only companies in import-export trade. On theother hand AISA will handle companies only over a certainsize, which leaves small companies which are not in importexporttrade with no way to come out of the undergroundeconomy, since the court requires a letter from the MoCIor ASIA before it will register a company.24
Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007for a company’s initial registration with the MoCI orAISA, which means that a startup business cannot eventake normal organizational steps until it has receivedthese approvals. This is not a newly noted problem.Details and other very negative features of this systemwere described in a 2006 independent consultancyreport to the MoCI to which reference can be madefor more detail. 41E. Information on CompaniesThere is a shortage of statistical and other informationon Afghan companies, and what does exist is not easilyavailable publicly. Efforts were made to obtain, forexample, breakdowns of companies by type of business(such as by industrial classifications as used in the U.S.),size (by any rough measure such as capital, total sales,or number of employees), number of shareholders,number of companies which are foreign-owned vs.domestically-owned, number and names of companieswhich are linked in common ownership, names ofcompany directors, addresses and contact informationfor companies, etc. Information of that kind is soughtby potential investors and it can be essential forassessing corporate governance needs of Afghancompanies.The best source for information of that kind was AISA,which retains much of such data for the companieswhich it has arranged to register (which, as statedbelow, is not all Afghan companies but does includemost companies of significant size). AISA’s data is notpublicly filed or website-available (as such informationshould be), but on request it was provided for thisReport on a CD after a day’s preparation time. AISAclearly does not keep such data confidential and it wasoffered without hesitation when requested, but itshould be noted that is not easily available publicly.AISA’s data shows that the overwhelming majority ofcompanies are “limited companies” (which would beLLCs under the new company law); perhaps 5-10% at41 Initiative for Regulatory Reform to Enhance Private SectorDevelopment in Afghanistan: An Investor Roadmap (October2006), addressed to the MoCI and prepared by AdamSmith International (funded by the British Department forInternational Development (DFID)). The report was basedon information provided by the MoCI, AISA and otherconcerned Afghan institutions and persons.most are corporations or partnerships. This makes it allthe more important for the LLC provisions in the newlaw to be clear, modern and flexible.The MoCI also maintains a database on the tradingcompanies which it has arranged to register, but anapparently force majeure event forestalled viewing itfor this Report and interviewing the MoCI officials whoadminister it. Other interviewees stated that itmaintains the records in regional offices throughoutAfghanistan and transfers them periodically to Kabul.The commercial court also has records of thecompanies it has registered, but these are reportedlynot kept separately from its records and decisions onother matters.Implementing InstitutionsAs described above, the Ministry of Commerce andIndustry (MoCI) arranges the registration of tradingcompanies with the commercial court, issues aninvestment license to trading companies, and maintainsa database of information on the companies which ithas helped register.There is no ongoing company regulation or monitoringsuch as is provided in other countries by bodies such assecurities commissions, stock exchanges and similaragencies, or by shareholder groups.The Afghan Investment Support Agency (AISA)arranges the registration of most registered companiesother than trading companies with the commercialcourt, issues an investment license to those companies,and maintains a database of information on them. AISAis the primary and best investment-information andinvestment-support body in Afghanistan. Its staff isknowledgeable and user-friendly, and it is a good helperfor significant-sized potential investors, not only forcompany registration but for navigating the systemgenerally. It has an attractive website. It would also be alikely vehicle for a future “one-stop shop” overseeingthe process of a company’s getting specific industry andsectoral licenses. It would undoubtedly also be a goodsource for comment on the text of the new companylaw.25
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Nicholas Klissas, USAID/EGATTel: 20
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