In July of 2013 the Government of Afghanistan revealed new incentives to attract domestic and foreign investment called Investment Promotion Policy during the Transitional Period. The incentives included providing land at almost no cost to industrialists, up to a seven-year tax break for factory owners, 10-year low-interest loans for farmers, as well as one-year multiple entry visas for foreign investors. According to the policy brief investors would have had a window of 2 years to benefit from these incentives. The main objectives behind the incentives were to ensure economic stability during the transitional period and increase much needed inflow of capital to address the decline in aid money during the so-called ‘transformational decade’.
This was a very promising attempt by the government, signaling that they understood both the need for attracting capital and that they were thinking strategically about sustainable growth. However, this encouraging attempt to provide incentives through a time bound investment policy, like many other good initiatives, seems buried under government bureaucracy. Since the original announcement, there has been no further communication from the Government regarding this policy. Leaving everyone to wonder whether this initiative, like many of its predecessors, will remain a proposed policy on paper and nothing more.
While local and international media are abound with news of capital flight from Afghanistan due to uncertainty attached to the signing of the BSA, potential deterioration of security, and predictions of a ‘Boom to Bust’ with the turning back of recent economic advances, the Afghan Government has once again failed to implement a much needed investor friendly policy to lure investment and prioritize economic stability and development during the transitional period and transformational decade for the country. The reason for the inaction of the Government is not clear, but it is likely that it is a combination of inefficient bureaucratic procedures, lack of political will, and simple lack of capacity to follow through with enactment of proposed policies. Regardless of the reason, the inaction signals to the private sector that economic development is yet to be considered a vital priority by the Government.
It is clear that encouraging and attracting domestic/Afghan-diaspora investment should be a top priority for the coming years in order to develop sustainable economic alternatives to the currently donor heavy economic environment of Afghanistan. Creating a business friendly enabling environment along side enacting, and operationalizing, sound policies remain at the core of any investment and export promotion and development initiatives. The question remains, how do we make sure policies are enacted when time and again, we see that good policies like the Investment Promotion Policy during the Transitional Period gain some public attention and then are retired to desk drawers collecting dust.
If it is not possible for the Government to overcome the list of problems outlined above to redefine the legal and regulatory system itself in an effective and timely manner, well-managed semi-autonomous institutions serving as a bridge between the Government and the business community might solve many of the problems for entrepreneurs and can begin fostering a more enabling environment.
One example of such a semi-autonomous institution is the establishment of Special Economic Zones (SEZs). SEZs are designated areas that possess special economic regulations. SEZs utilize an economic management system that is more conducive to doing business than in the rest of the country. These regulations tend to contain measures that are conducive to investment and promote exports. India, Bangladesh, China, Jordan, UAE, Pakistan, and many other countries, have successfully implemented the SEZ model and Afghanistan can do the same. The Afghan government could identify and declare specific zones around the country to become Special Economic Zones, enact a special policy for SEZs similar to the one announced in July of 2013. This will instill confidence in investors and signal the Government’s commitment to economic development and growth.
Another example is to establish a properly structured, lean, proactive and sustainable Strategic Investment Fund (SIF) to be managed by professional experts to inject the needed capital to invest in sectors and industries with import substitution and export development potential. The seed funding can come from institutions such as AISA and the international donor community in order to create the fund. Investment funds provide a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own.
What we have proposed are examples of possible solutions to overcome the gridlock of the Government in order to move good policies from paper to practice. There are many other options and solutions that this short article cannot address; and many creative options that others will likely come up with that we have not even thought about. The point is that clearly articulated, and well thought out models of Public Private Partnership (PPP) like the examples we articulated can serve as a mechanism to overcome the detrimental cycle of good policies not materializing because of inefficient bureaucratic procedures and lack of capacity and political will that seems to be a chronic problem within the Government.