Why Set Up Business in Afghanistan?
Of late, businesses worldwide have been keen to take advantage of the emerging new market opportunities in Afghanistan. According to a World Bank comparison report, Afghanistan ranks 28th for the ease of starting a new business and it takes 7 days to rush through the bureaucratic and legal processes. Afghanistan is a new market for many international companies and offers opportunities for distribution of products or services that match the needs of low income, developing countries. Under the Commercial Laws of Afghanistan (2007) individuals and businesses who want to become legal entities in Afghanistan need to register with the Afghanistan Central Business Registry within the Ministry of Commerce & Industry (MoCI). There are four types of legal entities for individuals and businesses in Afghanistan, which are Sole Proprietorship; Partnerships; Limited and Corporation.
There are numerous benefits for those seeking to venture into Afghanistan. For one, there is a very low level of competition which creates opportunities to bring in new products with potentially good profit margins. Also, there is a very young and growing population in the country, with 70% below 25 years of age, coupled with a new government which is committed to tackling corruption. There is also a growing middle class in Afghanistan and significant potential for exploration in minerals, and in oil and gas. Back in 2014, the economy suffered a little due to uncertainty over security and the outcome of the Presidential elections. As a result investors postponed projects. However, now with the new government, there is a move to create strategic partnerships with the private sector to generate jobs and economic growth.
However, as in every country, there are certain challenges, which in Afghanistan include a rather weak infrastructure, a legal system that is not experienced in dealing with complex commercial issues and a lack of experience in project development and in dealing with foreign companies. Though the government is now determined to weed out corruption, it is still a major problem with Afghanistan ranking very low on Transparency International’s Corruption Perceptions Index. Currently, it has been reported that the Afghan economy remains heavily dependent on foreign aid and their aim is that it should become self-sufficient and private sector led over the next decade.
One major possibility for investment is the country’s mining sector which is said to be worth about USD$1 trillion with more than a thousand potential mineral sites. These sites include iron ore, copper, gold, lithium, gemstones and other minerals. There has been however, very minimum commercial exploration and the Afghan government has reportedly put out to tender some major contracts following international standard tender processes. Opportunities in this area include early stage exploration support services, consultancy and the possible support of relevant equipment. There is also potential growth in the nation’s security sector where there is also high demand for products and services, while the construction industry is also set to diversify. Under this industry, foreigners can look towards the supply of construction equipment, products and services. However, there have been warnings issued to foreigners seeking to join venture with a local partner.
They have been cautioned to take due diligence and best to seek appropriate feedback from the experts. By seeking the services of an expert, you will also be soundly advised on legal matters and and taxation before entering into a joint venture or similar type of partnership with a local company in Afghanistan. At present, the country also does not have any laws or regulations governing labeling and marketing requirements for products. One must also remember that Afghanistan is an Islamic State and you must respect Muslim customs. Women are expected to dress conservatively and have a scarf draped on the shoulders when attending meetings. Work visas are required for all expatriate individuals working in Afghanistan and can be applied for once a company is registered in Afghanistan. If you are looking to set up a business in Afghanistan, contact us.