Monthly Investment Bulletin

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					                                       Monthly
                                       Investment                 ``



                                       Bulletin                                         June, 2009
                                                                                        Volume 2, Issue 7



                                Introduction
INSIDE THIS ISSUE
                                I am happy to release the Monthly Investment Bulletin for June, 2009
1   Introduction                prepared by Research and Policy Department of AISA. This monthly bulletin
                                provides a summary update of investment related data. The bulletin also
3   Summary                     attempts to bring out the macro level investment information for the policy
                                makers and users of data in other organizations. It also provides brief
3   Initial capital investment
                                information on ongoing investment in the Construction, Services, Industry and
    registered with AISA (2008-
    2009 end May)               Agriculture sectors. The main goal of bulletin is to identify the gaps and the
                                challenges faced by the investors and to propose suitable recommendations to
4   Number of companies         the decision makers augmenting inflow of domestic and foreign investment
    registered with AISA (2008 into Afghanistan. The emphasis of the bulletin is on the three key investment
    – 2009 end May)             variables namely: 1) initial capital of the existence companies; 2) number of
5   Number of employees
                                registered companies; and 3) number of jobs created by registered
    created by investment
                                companies.
    (2008– 2009 end May)         Most of the investment in Afghanistan flows through informal non banking
Main Investment challenges      channels and, therefore, does not capture the overall picture of investment.
                                It may also be noted that consequent to simplification of licensing
5   Security
                                procedures, AISA does not seek any proof of the amount of capital declared by
                                the investor at the time of filing registration. Likewise, some investor may be
6   Access to land
                                under registering their initial capital just to avoid the delay in procuring
7   Access to finance           license as company with more than US$ 3 million investment has to get the
                                prior approval of the High Commission on Investment before getting a license.
7   Access to Power and         A number of the companies are reinvesting their profits but do not report to
    Energy                      AISA even though as per the Investment Law each company is required to
                                inform AISA on a quarterly basis regarding any change in capital investment.
7   Problems in the
                                Not with standing these drawbacks the investment figures provided by AISA
    administrative procedures
                                are the best available information that reflects current investment condition
7   Recommendations             in Afghanistan.
Annexes                         I would like to congratulate the Research and Policy Department for bringing
                                this Monthly Investment Bulletin and hope that in months to come special
                                efforts would be made to further improve the content and quality of the data
                                and its analysis




                                                               Noorullah Delawari
                                                               The President and CEO of AISA and Advisor
                                                               to the President of Afghanistan in the
                                                               Private Sector and Banking
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                                                                                               Monthly Investment Bulletin

                             Information at a Glance
1                            The total initial capital during January-May period of 2009 increased by 249
                             percent as compared to the corresponding period of 2008
2                            The composition of total initial capital registration during (2003- to end May 2009)
                             shows that 31 percent of the total investment went to the construction sector, 37
                             percent in the services, 24 percent in the industry and the rest 8 percent to the
                             agriculture sector.
3                            Domestic capital constituted about 66 percent of the total initial capital registered
                             during (2003- end May 2009) while remaining 34 percent was foreign.
4                            During January-May period of 2009 about 82.2 percent of the total initial registered
                             capital went to services followed by 24 percent in industry, 13.4 percent in
                             construction and the rest 0.4 percent to agriculture sector.
5                            During January-May of 2009, the number of companies increased by 23 percent as
                             compared to the same period of last year.
6                            The number of jobs created by registered companies during January-May of 2009
                             decreased by 23 percent as compared to the same period of 2008.


Initial capital registered in AISA during 2009 (end
May)
The total initial capital inflow registered by AISA since its establishment in 2003 up to
the end May 2009 was USD 4.896 billion. Out of this about 66 percent is domestic while
34 percent is foreign investment. The composition of total investment shows that 31
percent is related to construction, 37 percent is in the services, 24 percent is in the
industry and the remaining 7 percent is received in the Agriculture sector.

The total investment registered during January-May 2009 was USD 733.6 million. This
marks a 249 percent over the same period of 2008. Compared to April, 2009 the
investment during May, 2009 was down by 91 percent. This was mainly on account of
one major investment during April, 2009 from Da Afghanistan Breshna Sherkat of an
amount of USD 500 million which in turn was as a result of registration of this company
as a private entity subsequent to its privatization. The following figure shows the
comparison of initial capital on monthly basis.
                                                 Initial Capital Registerd By AISA, 2008 - End May 2009
    Initial Capital In USD




                                          $600
                               Millions




                                          $500
                                          $400
                                          $300
                                          $200
                                          $100
                                            $0
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                                                                              2008          2009
333113333333333
                                                                          Monthly Investment Bulletin
                    The composition of the initial capital registration during the January-May period of
                    2009 shows that 13.4 percent is related to construction, 82.2 percent is related to
                    services, 4 percent is related to industry and the rest 0.4 percent is related to the
                    agriculture sector.

Main Reasons for Changes in Investment are as below:
-   Most of the companies are registering their initial capital below the actual amount
    because they are afraid of income tax and some companies want to escape from the
    delay of taking licenses that will happened due to the conducting of Investment
    High Commission meeting.
-   Most of the local companies register low level of initial capital because they think
    that their initial capital is also subject to taxation.
-   The investment climate issues such as security, lack of access to land, finance,
    power and corruption are other reasons that discouraged the inflow of investment
    into the country.
-   The increase in the investment registration in April is due to the privatization of
    government entities as the Da Afghanistan Breshna privatized and registered about
    $US 500 million.


Number of companies registered in AISA (end
May 20091)
The total numbers of companies registered by AISA since its establishment up to the end
of May 2009 are 16,056 companies from which 78 percent are domestic while 22 percent
are foreign companies. The composition of the companies shows that 55 percent are in
the construction sector, 25 percent in the services, 16 percent are in the industry and the
remaining 4 percent in the agriculture sector. The total number of companies registered
during January-May 2009 is 1,691, about 23 percent above the same period of 2008. A
complete picture on the number of companies being registered can be had from the chart
given below:
                          Number of Companies Registered By AISA, 2008 - End May 2009


                    500
    N of C panies




                    400
                    300
          om




                    200
                    100
     o.




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                                                           Month
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                                                               2008     2009




1
    See appendices for more details information.
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                                                                                           Monthly Investment Bulletin
The composition of companies during January-May, 2009 shows that 61 percent relate to
construction, 24 percent to services, 13 percent to industry and the remaining 2 percent
relate to agriculture sector. The survey result conducted on 298 companies by RPD
during August, 2008 show that there are about 6,106 active companies which are
renewing their licenses each year.

Possible Reasons for Increase/Decline in the number of registered companies:
- Increase in electricity supply in Kabul has given hope to the domestic and foreign
   investors that the position of electricity supply in the country would improve in the
   near future.
- Privatization of government entities and reform in the fees of investment licenses are
   other possible reasons for the increase in the number of companies.
- Increased presence of the donor agencies and international security forces impart a
   fillip to investment in projects especially in the construction and services sector.
- Weak security measures and confusing government regulations in the country also
   contributed to the decline in the registration of number of companies.

Number of Jobs created by Investment (end
May, 2009)
The total number of jobs created by companies registered by AISA since its
establishment up to the end May 2009 is 654,475. About 55 percent jobs have been crated
by domestic companies while the rest 45 percent by foreign companies. The composition
of total employees show that 53 percent are relate to construction, 28 percent to the
services, 14 percent are in the industry and the rest 5 percent in the agriculture sector. The
total numbers of employees registered in the new companies during the January-May
2009 are 28,717. This marks a 23 percent decrease compared to the corresponding period
of 2008. The figure given below provides a comparative picture of registered employees
on a monthly basis:
                                   Number of Employees Created By Registered Companies, 2008 -
                                                          End May 2009

                                 16
                     Thousands
  No. of Employees




                                 14
                                 12
                                 10
                                  8
                                  6
                                  4
                                  2
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                                                                        Month
                                                                      2008          2009

The compositions of employees during the January-May period of 2009 shows that 38
percent relate to construction, 42 percent to services, and 18 percent are related to
industry and the rest 2 percent to the agriculture sector.
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                                                                          Monthly Investment Bulletin

Investment Climate issues:
Investment plays a vital role in the development of the economies, reduction of poverty
and achieving the cross cutting goals of political stability. It is for this reason that ANDS
has envisaged private sector lead development growth as a very important goal. AISA
since its inception has played a very important role in attracting local and foreign private
investment into the country. Since its inception it has been able to attract about US$
4.896 billions of formal investment of which 34 percent is FDI.

 According to the survey conducted by the research and Policy Department of AISA; it is
found that security, corruption, electricity, crime theft and access to land were the most
sever problems and constraints for the private sector development in the country on
national level. The result could be shown in the following table:
                                     Investment Climate Issues 2009

     100         85
      90              76   72
      80
      70                        49
      60                              45   40
      50                                        37   32   34   32    31    32
      40                                                                        27   27
      30                                                                                  13   11   10
      20
      10
       0




High Taxes rate, High cost of finance, inefficient tax administration, ambiguous role and
regulation are other problems that the investors are complaining from and were also
identified as investment climate issues in Afghanistan.
Some of these constraints are mentioned below in brief:

Security Problems:  It is one of the major constraints toward private sector development in
Afghanistan. Security was worsened in 2008 as compared to the previous year as nearly
4000 civilians were killed, more than 6,800 were wounded and around 120,000 were
forced out of their homes in 20082. The security problems increased in 2009 as compare
to the previous year. The following chart shows the increasing coalition fatalities in the
country.3




2
    http://www.afghanconflictmonitor.org/2009/01/afghan-unrest-killed-4000-civilians-in-2008-report.html
3
    http://www.afghanconflictmonitor.org/militaryfatalities/OEF-Jun09-cum.JPG
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                                                             Monthly Investment Bulletin




According to the investment climate survey in 2005, the worsening of security situation
has increased the expenditure of the investors on security equipments and protection
measures. This amount is about 20% of their total cost whereas it is between 1% to 5% in
the neighboring country.
According to the survey Crime, theft and disorder turned to be the fourth sever problem
for investor in Afghanistan as shown in the following figure.

           Crime, Theft and Disorder as fourth National problem

   100
    90
    80                                                                           72
    70
    60
    50
    40
    30                                                           20
    20         12                               12
    10                           4
     0
          No obstacle         Minor         Moderate           Major        Very severe
                             obstacle       obstacle          obstacle       obstacle



The main reasons for such deteriorating condition are on account of corruption, inability
of the government to bring stability, and the regional conflict.

Access to Land: this have been identified the second most constraint toward the private
sector development in the country. According to the investment climate survey
conducted by RPD of AISA in August 2009, about 50% of the investors tried to get land
but did not succeed. About 33% (3300 companies) of the total are inactive but are
renewing their licenses with the expectation of getting land for restarting activities while
7% of the total companies have closed. The survey further shows that due to non access
to land 4,000 active companies are operating in rented house or land and 2300
companies are operating in their private land while only a small number of investors
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                                                                            Monthly Investment Bulletin
companies operating in the industrial parks. The survey further shows that the land
rent is relatively high in Kabul, as the average spending for establishing the
company is about US$ 160,585 per annumm.
The land transferring procedure is another problem for investors as there are 22 steps in
the procedures taking 252 days to get the ownership. The following chart shows the level
of obstacle for access to land on national level.
              Access to Land Response by National Level

   100
    90
    80
    70
    60                                                                                     49
    50
    40                                                                         28
    30         20
                                                                16
    20
                                                 7
    10
     0
          No obstacle                       Minor            Moderate        Major     Very severe
                                           obstacle          obstacle       obstacle    obstacle



Access to Finance:Access to credit have a vital role in the enterprises development, it is
one of the major factors inhibiting the investment climate in the country. The survey
conducted by RPD of AISA shows that only 1.04% of the companies have received loans
from commercial banks and the rest 98% do not have access to credit.

                                                 Source of Finance


                                       100.00%
               of Finance
                            Catagory




                                       50.00%

                                        0.00%
                                                     Self Finance       Loan
                                                             %age Finance


                                             Fore ign                   Dom e s tic



Most of the investors can not afford the high interest rates on the loan from the
commercial banks. The cost of short term loan is 15%-20% while the cost of long term
loan is 10%-12%.
Access to Power and Energy: it is another constraint in the attracting private investment
into the country. Non availability of electricity at competitive rates increases the cost of
production of the companies. The survey conducted by RPD of AISA shows that the
average requirement of electricity of each company is 0.2 KW per day and on average the
annual demand of electricity is 920,064 KW for whole of the industrial sector. The
survey further shows that due to the lack of electricity 7% of companies closed down and
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                                                                                   Monthly Investment Bulletin
33% of inactive companies are renewing their licenses with hope that the Government
will provide them electricity.
                         Ele ctricity as an obsticle Re sponse by National lev e l

    100
                                                                                                      76
    80

    60
    40                                                                                 27
    20                    6                 7                   7
     0
                      No obstacle     Minor obstacle   Moderate obstacle         Major obstacle   Very severe
                                                                                                   obstacle

                                                             Electricity

The government is trying to import electricity from the central Asian countries but it has
not materialized.

Problems in Administrative Procedures:    The investors identified the administrative
procedures of the public organizations with which they interact as costly and time
consuming. Based on the investor survey conducted in August on 298 companies, 91% of
the sample population answered the question posed in this regards. About 59% of the
respondent said that the investment license takes 3-5 days while 28% said that it takes
one week and only 9% of the respondent mentioned that it takes more than one week. The
figure given below provides the details:


                                           Time absorbed by Licensing in AISA

                   80%
                                59%
                   60%
      % response




                   40%                                 28%

                   20%                                                            9%
                                                                                                     4%
                    0%
                               3-5 days            One w eek               More than one w eek    Long Time
                                                             Tim e absorbed



Recommendation:

-                  AISA’s activities in the field of research, promotion and support may be further
                   strengthened; through restructuring and improving the functions, by building
                   human resource capacities in the various departments. This will include proper
                   training and adoption of improved management practices.
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                                                          Monthly Investment Bulletin
-     The data entry set up lacks statistical skills and needs to be improved in a time
      bound manner.
-     AISA should further identify the investment climate issues, prioritize and monitor
      the investment issues; through timely and regular statistical analysis.
-     Preparing systematic and concise report on each investment issue, identifying the
      causes and proposing solutions to the High Commission on Investment.
-     AISA should identify the investment opportunities in different sectors in the
      Capital and provinces through research to aware the potential investors to work in
      the profitable investment projects in the country.
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                                     Monthly Investment Bulletin




                               Monthly
                               Investment
                               Bulletin
                               June, 2009
                               Volume 2, Issue 7
                               Volume 1 Issue 3
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                                               Monthly Investment Bulletin




                           Investment Bulletin
                               June, 2009
                            Volume 2, Issue 7
                  Editor-in-Chief: Dr. Said Mubin Shah
    Coordinating Organization: Research and Policy Department, AISA

                            Contact Person:
  Your Comments and Queries Will Be Appreciated. For any Suggestion
                             Please Contact:
  Abdullah Saleh, Investment Analyst, Research and Policy Department
  Afghanistan Investment Support Agency (AISA), Opposite Ministry of
                   Foreign Affairs, Kabul, Afghanistan.
            Email: a.saleh@aisa.org.af, asalehh@yahoo.com
                        Tele: +93(0)20210 34 02
                      Mobile: +93(0) 77 500 4651