Why Invest in Afghanistan?
Why Invest in Afghanistan?
Afghanistan, with its improving infrastructure, mechanisms and rebuilding processes is now turning into one of the key emerging markets in the region. The trade & Investment volume together are backing the national economy to grow and sustain. As in ancient times, the trade route is enabling Afghanistan to become not only a regional but global business hub. Market economy is helping the private sector to develop and hence creating countless business and job opportunities.
The National Unity Government is committed to make Afghanistan as a vibrant and self-reliant economic country. The Former government made the Investment Incentive Policy in consideration special privileges for investors who either will invest or extend their businesses during the transition (2012 – 2015) and transformation (2015 – 2024) periods.
The policy has particularly been designed to develop five strategic sectors such as industry, construction, export promotion, agriculture and mining. The new government is committed to endorse the policy and create a favorable business environment in Afghanistan.
Afghanistan has sustained a high but volatile gross domestic product (GDP) growth over the past 13 years.
Thanks to favorable weather conditions and an exceptional harvest. Typically, agriculture accounts for one-fourth to one-third of GDP, depending on annual output. The mining sector, on the other hand, is slowly emerging as a source growth. The share of mining in GDP has historically been small, as it was only 0.6% in 2010/11. In 2012, the first large-scale mining project – Amu Darya oil fields – started its operations, and it is expected that the share of mining in aggregate output increases in the upcoming years.
Inflation increased to 7.6% in 2013/14, from 6.4% in the previous year. The Afghani depreciated by 10 percent and 14.5 percent, respectively, against the US dollar and the Euro between January and December 2013. However, it has remained stable since the start of 2014 against the two currencies. The exchange rate averaged AFN 57.3 against the US dollar and AFN 78.6 vis- a-vis the euro during the first six months of the year.
In 2001, after the fall of the Taliban, net enrollment was estimated at 43% for boys and a dismal 3% for girls. Moreover, there were only about 21,000 teachers (largely under-educated) for a school-age population estimated at more than 5 million — or about 240 students for every marginally trained teacher. The Ministry of Education, with support from USAID and other donors, has built more than 13,000 schools, recruited and trained more than 186,000 teachers Since 2002, school enrollment has increased from 1 million to 8 million school aged children including 2.8 million girls. All of the teacher force, 180,000, have received teacher training either through Teacher Training Centers or In-service Teacher Training. Efforts are ongoing to continuously upgrade teacher qualifications and overall access to equitable quality education in Afghanistan.(USAID)
According to the statistics from World Health Organization (WHO), life expectancy at birth m/f is at 58/61 years. Only 39.4 percent of rural and 70.9 percent of urban households have access to safe drinking water. Nevertheless, there has been considerable progress over the last thirteen years. About 85% of the population lives in districts which now have health care providers to deliver basic health services. Neonatal mortality rate has increased from 97 in 2010 to 121 (0-4 weeks) per 1000 live births in 2012/13. In all over Afghanistan 20% infant are low birth weight. The pregnancy-related mortality ratio has decreased to 300 per 100,000 births, which means that every 1.9 hours, a woman dies in Afghanistan from pregnancy- related issues. and 8% of pregnant women have access to antenatal care. Total expenditure on health per capita in 2012 was 47$ in Afghanistan.
Access to Electricity:
The percentage of the population with access to electricity in Afghanistan is among the lowest in the world. In 2002, the USAID estimated that only six percent of Afghans had access to reliable power. Today, more than 28% people have access to safe and reliable power electricity. The power generation capacity in country has doubled, giving 80,000 households in Kandahar and Helmand their first-ever access to reliable electricity. With USAID support, the Afghan government is installing a third turbine
at Kajaki Dam, and USAID is supporting a project to connect Afghanistan’s northern and southern electricity grids. The agency also is working directly with the national electric utility, Da Afghanistan Breshna Sherkat (DABS), to improve management and revenue collection. This assistance has helped DABS double revenue collections and increase overall power deliveries by 18 percent.
The situation has improved significantly in the major urban population centers along the critical North East corridor between Mazar-e-Sharif and Kabul, following the import of power from Uzbekistan and the rehabilitation of three hydro plants (Mahipar and Sarobi completed, and Naghlu ongoing). Increasing parts of some urban centers, for example Kabul, Herat, Mazar-e-Sharif, and Pul-e-Khumri, now have a 24-hour power supply for the first time in decades.
Agriculture is critical to Afghanistan’s food security and a key driver of economic growth. 75% of Afghans rely on agriculture for their livelihoods and their family’s sustenance. According UNFPA, the sector accounts for 25% of Afghanistan’s gross domestic product. Prior to decades of conflict, Afghanistan’s agricultural products earned a global reputation for excellence, particularly almonds, pomegranates, pistachios, raisins, and apricots. Decades of war and neglect devastated Afghanistan’s farmland, displaced millions of people, and largely destroyed the country’s existing infrastructure.
One industry related to the agriculture sector is packaging, which provides great opportunities for investors. Although demand for afghan agriculture goods is high, current packaging procedures are outdated and prevent trade and commerce. Processing is another great investment opportunity. Due to the growing markets for fruits and vegetables, the potential for processed agriculture products is enormous, including snack foods, fruits concentrates as well as fresh fruit jams.
However, it has received only around 05 percent of the total domestic and foreign investments till date, but the sector has greatest capacity and profitable investment opportunities for foreign and local investors.
Due to its fertile soils, abundant water resources, and favorable climate conditions, Afghanistan produces high quality organic products which have excellent market value. Yields on crops such as saffron are estimated to be worth 4,000 US-Dollars per kilogram in international markets. The sector’s potential is further boosted by the availability of vast tracts of uncultivated arable land for increased production, favorable conditions to cultivate more high value organic crops as well as introduction of farming and storage efficiencies to yield higher revenue per acre of cultivated land. Due to the growing demand on the world food market, the potential investment returns in this sector are significant.
The reconstruction drive of the country triggered a growing demand for construction materials and services, making the market more attractive for investors. Currently, the sector is one of the fastest growing in the country. The Asian Development Bank (ADB) estimates investments of in excess of four billion US-Dollars until 2014 to respond to infrastructure needs. A similar trend can be observed in the housing market. Due to the explosion in urban demographics, more than 1.5 million residential units need to be built in the next few years.
Creating a competitive national construction industry is a prerequisite for the reconstruction of Afghanistan. Currently, the sector is one of the fastest growing in the country. That’s why, the demand for construction materials is rising rapidly in Afghanistan, making the market more attractive for foreign investors, for example, urban planners and government officials develop a new urban area in the north of Kabul which will be home to estimated 1.5 million people.
Core telecommunication service providers supply the afghan market already in a sufficient manner with increased competition and price pressures. While, there are still opportunities for mobile service providers. The other supply and service areas of the telecommunication sector represent a far more virgin market. Examples are: data processing, Basic business-processing operation, information and communication technologies, data transfer, process control and call center.
|Telecom Statistics – 2014|
|3G Broadband Subscribers||699,759|
|Investments in US$||2,398,763,897|
|Telecom Base Stations||5,835|
|Population Coverage||Over 89%|
? 51 Internet companies have been issued licenses to provide internet services.
? High speed internet services of DSL have been activated in six major provinces.
? About 2,500,000 people or 8% of the population in the country have access to the internet services.
? MCIT announced the cost of 1MB internet service for 300 USD in 2012, and has recently announced the cost of 1MB internet for 67 USD, current price of 1MB internet services is 35 USD.
? There are 464 Post Offices through the country.
? The total income 112 million AFN or 2.24 Million USD has been generated by the postal services during the last fiscal year.
? Currently there are 65 television channels in the country, including 32 in the capital 33 in provinces.
? 174 radio stations are operating in the county, 47 in the capital and 127 in provinces.
Afghanistan deployed its first satellite into orbit (Afghan Sat1) on January 29, 2014 which is now available worldwide. (Ministry of Communication and Information)
? Transport and Logistics
Afghanistan shares borders with six neighbors – Iran, Turkmenistan, Uzbekistan, Tajikistan, China and Pakistan – and is considered as a land bridge connecting emerging markets in Middle East, Central and Southern Asia . The country’s large and growing market for transportation and logistics service presents a ground floor opportunity for new providers. Early investors report modest start-up costs and low overhead and even smaller operators are moving large volumes of freight. Investments in the transportation and logistics sector are vital to the overall economic development of products throughout the country rod to overseas destinations.
The government has identified improvement in cross border trading as one of the pillars of its economic growth strategy. Afghanistan is a nation rich in resources, strategically located, and its people are steeped in the business of trading. To facilitate the country’s entry into the global trading platform, a multi pronged approach is being implemented. It is designed to create the conditions necessary to attract foreign direct investment to increase export and reduce dependence on imports.
Afghanistan has Four International (Kabul, Herat, Mazare Sharif, Kandahar) Airports from where national and international flights takes place. And also Airports of Khost, Farah, Daikondi, Nimroz, Ghazni provinces and Darwaz Distric of Badakhshan Province are under construction.
The confluence of the events described below: signing trade and transit treaties, undertaking economic and institutional reforms, improving infrastructure, and implementing trade facilitation projects, is an unprecedented development. That it is occurring simultaneously underscore the commitment of the government and international community to prepare the foundation for sustainable economic growth for Afghanistan.
TIR system has recently re-launched in Afghanistan on 4 September 2013 and now Afghanistan is as the 58th Country Member to enjoy facilitated and secure trade by international road transport, the TIR System.
Since 1983 Afghanistan has been member of IRU and ACCI is permanent delegate in the organization. But, due to existence of local unrest in the three past decades, Afghanistan has not utilized the international transit system efficiently.
In conducing TIR system in Afghanistan, three entities are involved. ACCI issues Carnet TIR, Customs Department conducts custom protocol and accelerates execution TIR in Afghan customs and MoTCV facilities essentials transport and transit needs.
By execution of TIR system in Afghanistan, the country will be released the complicated and difficult transit procedures in transit deal with foreign countries specially its neighboring countries and Afghan quality goods will be exported on time to market overseas, 57 courtiers who are member of IRU.
Finally, the mining sector provides vast investment opportunities. Afghanistan has enormous untapped mineral deposits that include copper, iron, ore, coal, hydrocarbons, gold, and semi-precious gemstones. Estimates, based on surveys by a team from the U.S. Geological Survey, have pegged the value of reserves at upwards of three trillion US-Dollars. Presently, the government has begun the process of granting exploration and extraction rights to foreign and domestic companies. Following a competitive bidding process rights for one of the biggest potential copper mines in the world, the Ainak Copper Mine, were awarded to a company from the Republic of China. Additional untapped tracts are scheduled to be tendered and awarded for extraction and production in the next 6-12 months. The government is also forming a Mines Protection Unit to provide security for companies involved in exploration or mining.
Fiscal Incentives for Mining Companies
- Low corporate tax rate of 20% in the Region/ 30% stable tax optional
- Unlimited tax losses carried forward
- Capital allowances on a straight-line basis over the lesser of the effective life of the asset and 5 years
- Pre-production expenses are capitalised and can be recovered over 15 years or the life of the mining licence on a straight line basis
- Fiscal stability
Resources Potential of Afghanistan
- Occurs along the line from Afghan-Tajik border to Afghan-Iranian border. Extends several hundred kilometres
- Notable examples include:
- All kinds of copper deposits are present in various parts of the country
- Sedimentary, porphyry, skarn and VMS
- Notable examples include:
- Aynak (Southern and Northern)
- Many styles of gold mineralisation occur, in particular skarn, vein hosted, porphyry related and alluvial
- Provinces of Badakhshan and Takhar, are prospective for shear-zone gold mineralisation
- Notable examples include:
- Qara Zaghan
- Zarkashan and Kundalan
Lead and Zinc
- Following deposit types can be found:
- Carbonate Replacement Deposits and Skarn
- Mississippi Valley Type (MVT)
- Sedimentary Exhalative Deposits (SEDEX)
- Notable examples include:
- Approximately 2.3 mt porphry Mo-Cu deposit near Bamyan
- Afghanistan has the potential to become the Saudi Arabia for lithium (USGS 2010)
- Lake Namaksar (Herat), Lake Ab-i-Estoda, Lake Dashte Nawer, (near Ghazni), Chakansar (Nimroz) and Gowde Zereh (Helmand) have the highest potential
- Salt lakes in the country have similar characteristics to those in the Li triangle in South America
Rare Earth Elements (REE)
- Helmand province contains a major potential source of light rare earth elements, including lanthanum, cerium and neodymium
- Khanneshin prospect is a primary area of interest
- Based on limited exploration, there are substantial coal resources that extend from Takhar Province in the North-East to Herat in the West
- Commercial production of coal began in the 1930s in Baghlan province
|AYNAK COPPER MINE||HAJIGAK IRON DEPOSIT||OTHER PROJECTS|
Supervision of world class Aynak Copper Mining Contract
Capex – US$ 4.4 billion
35 km south-east of Kabul
Development rights awarded in December 2007 to a consortium of China Metallurgical Group (75% stake) and Jiangxi Copper (25% stake) (“MCC”)
First production: 2014E
Annual revenue stream for Afghanistan Treasury
§ World class Hajigak Iron project with high quality magnetite of approx. 1.8 bt
§ Creation of thousands of jobs
§ 21 companies submitted Expressions of Interest. Deadline for submission of bids closed in September 2011, with 6 Bids received (2 consortiums and 4 companies)
Transparent and fair bid review process
Focus on social development, environmental protection and economic growth
Consortium led by SAIL announced as the successful bidder for three blocks and Kilo Goldmines Ltd announced as the successful bidder for one block
Two gold projects (Noraba-Samti, Qara Zaghan)
Cement in Jabal-Seraj, Herat and Samangan
Gemstones in the North-East
1- Amu-Darya Basin / CNPCW
2- Afghan Tajik Basin
3- Jarqudaq – Turikish Petroleum
Foreign investors have the right to transfer their capital and profits out of Afghanistan, including for debt service for off-shore loans.
Foreigners can lease real estate, for periods up to 50 years for arable land or longer for non-arable land.
Duty free machinery import;
Only 1% duty on raw and intermediate materials.
Easy, streamlined business registration process
No paid-in capital requirement
All pre & post-investment support facilities are provided by AISA:
Providing information on existing market opportunities
Facilitating visa, work permit, customs clearance, trademark registration, and other issues for investors
Source: Afghan Chamber of Commerce