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Government
strategy
Constraints
The
constraints mentioned below are sector-wide,
affecting all programs.
1. Lack of physical infrastructure, in particular
unreliable power supplies, remains one of the most
important constraints. Many firms rely on expensive
generators. Access to clean water and sanitation as
well as communication facilities are also important
impediments. Poor roads, crossborder and airport
facilities act as constraints for regional and
international trade and investment. Few commercial
airlines currently serve Afghanistan. The lack of
infrastructure also affects financial services
delivery, particularly in rural areas.
2. Property and land rights are unclear and
enforcement mechanisms weak. Unclear property rights
also affect the private sector’s ability to use land
as collateral for credit. The absence of a
commercial insurance system compounds the adverse
impact of insecurity on investments.
3. Effective enforcement mechanisms, particularly
the commercial court system, are not yet in place or
lack resources and capacity. The absence and
inadequacy of laws that protect, for instance, the
rights of creditors, is a serious obstacle for banks
and financial intermediaries. Also there is no
modern regulatory framework for leasing and
insurance and no law on non-bank lending.
4. The high transaction costs of doing business.
Corruption and difficulties in obtaining licenses,
accessing credit, and enforcing contracts
significantly increase transaction costs for
potential and current investors.
5. Corruption continues to be a
significant disincentive for investment, slowing
transactions and increasing their costs, while
raising the unpredictability of business processes
such as licensing, and the enforcement of property
rights and contracts. Corruption also affects the
enforcement of customs and tax administration. Low
salaries, insufficient training and resources for
personnel at borders exacerbate corruption. The
existence of numerous small “nuisance” taxes puts an
additional burden on the private sector and
individuals. Illegally derived income, primarily
from the opium economy, poses challenges to the
financial sector.
6. Lack of external finance is one of the main
constraints cited by business people. Afghanistan
ranks 122 out of 155 countries in the Doing Business
rankings for getting credit. Access to finance is
particularly limited in rural areas. Trade faces a
series of obstacles including delays, cumbersome
procedures and lack of facilities at the border
posts, which undermine the competitiveness of Afghan
exports. There is also a severe shortage of capacity
to negotiate trade and transit agreements. High
wages and a high real exchange rate due to the large
aid, remittance and drug industry inflow also make
many potential export products uncompetitive.
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