Afghanistan's Agenda for Action - Economic Growth - usaid

Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007CONTRACT LAW ANDENFORCEMENTIntroductionThe ability to create and enforce contracts under aclear, consistent legal framework is a criticalcomponent of economic growth. Where there iswidely held expectation that agreements freely enteredinto between businesses or individuals will be subjectto enforcement by a court or other tribunal, amarketplace can be transformed. Namely, what wasonce mere hope for performance based on a personalrelationship or vague insinuation becomes a legitimateexpectation of delivery. When business partners are infact required to do what they have said that they willdo – pay money, deliver goods, provide services, and soforth – risk diminishes and the recipients of a promisecan better plan for the future. With decreased risk, thecost of doing business goes down, thereby elevating theprivate sector’s prospects for profit. 43At the time of this Diagnostic, Afghanistan waspresumed to be nearing the passage of a new Law onContracts, the fifth in line among the ten commerciallaws prioritized for enactment through the AfghanistanNational Development Strategy (ANDS) -initiatedsystem of benchmarks. 44 Although the draft law isstrong and comprehensive – as well as reportedlycompliant with the requirements of Sharī’ah – there canbe no mistake that it remains far from being a trulyAfghan law. That is, the development of the new lawappears to have involved only minimal engagement ofthe Afghan legal community.43 See World Bank, Doing Business 2007, How to Reform(2006) at 49 (discussing economic benefits that arise fromimproved systems of contract enforcement).44Ministry of Justice and National Assembly, PrioritizedLegislative Agenda for 1386 and Legislative Capacity Needs ofMinistry of Justice and National Assembly (January 30-31,2007), found athttp://www.ands.gov.af/ands/jcmb/src/jcmb4/eng/05%20-%20MoJ%20%20PL%20Agenda%20&%20Annual%20Legislative%20Plan%20-%20JCMB-IV%20Folder%20-%2024%20Jan%20-%20English.pdf.Thus, once enacted, the impact of the new Law onContracts is destined to be weak. This will be the caseuntil significant effort is made to educate the legal andbusiness communities in the concepts, obligations, andopportunities the new law presents, as well as to clarifythe process for redress when disputes arise. Thecontrast between the relative simplicity of the newcontract law and the old one’s complexity, opacity, andunmistakable bias against enforcing contracts is stark.Accordingly, the process of teaching lawyers, judgesand others to view contracts differently will not beeasy.Fortunately, the draft law itself constitutes a verystrong teaching document, with clearly defined termsand principles drawn somewhat from Afghan legaltradition and, to a greater extent, from internationalbest practices. If and when the new law does becomeintegrated into the legal culture and businessenvironment, it will set a vastly improved stage for thecreation and enforcement of contracts in Afghanistan.In addition to a system of private sector contracts,economies benefit from sound and transparentcontracting practices by the state. Strong law andenforcement in the area of government procurementcan result in increased public confidence in the workperformed on behalf of the government and indiminished public risk arising from malfeasance andcronyism. In Afghanistan, a new Law on Procurementwas enacted in 2005. Plans for its implementation aremore clearly defined than those pertaining to the Lawon Contracts. On the other hand, commitment togenuine reform in government contracting is, at thistime, underwhelming.30