Investment Incentives

The Public Procurement Law, revised in 2016, retains the preference for national sources and domestic products that was codified in the Public Procurement Law of 2005.  In public statements since ratification, President Ghani has continued to emphasize the importance of giving preference to domestic products in order to create jobs. Foreign firms can receive the benefit of a domestic firm by partnering with a domestic firm.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Afghan Airfield Economic Development Commission (AAEDC), established in 2015, has taken the lead on drafting a new Special Economic Zone (SEZ) law, which was released for public comment in early 2019.  If passed, the law will provide the legal foundation for all types of export processing zones.

Performance and Data Localization Requirements

The Afghan government does not require the use of domestic content in goods or technology related to data storage.  There are no requirements for foreign IT providers to turn over source code and/or provide access for surveillance purposes.

Capital Markets and Portfolio Investment

Afghanistan is in principle welcoming toward foreign portfolio investment, but financial institutions and markets are at an early stage of development.  Afghanistan does not have a stock market. There are no limitations of foreign investors obtaining credit. The banking sector generally only provides short term loans.

Afghanistan joined the IMF on July 14, 1955.  As confirmed in the May 2018 IMF Country Report, Afghanistan maintains an exchange system that is free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions.

Money and Banking System

The penetration of banking services is described in the below tables based on Q3 2018 data from the Afghan Central Bank (Da Afghanistan Bank, DAB):

Most Afghans remain outside the formal banking sector.  Afghans continue to rely on an informal trust-based process referred to as Hawala to access finance and transfer money, due in part to religious acceptance, unfamiliarity with a formal banking system, and limited access to banks in rural areas.  Three of the four major mobile network operators – Etisalat, AWCC, and Roshan – offer mobile money services. The Afghan government will launch a mobile money salary payment system for 5,000 employees in the Ministry of Labor in mid-2019.

Finance is Afghanistan’s second-largest service industry behind telecommunications and is potentially an important driver of private investment and economic growth.  There are 14 commercial banks operating in Afghanistan.

There are three state banks: Bank-e Millie Afghan (Afghan National Bank), Pashtany Bank, and New Kabul Bank (formerly the privately owned Kabul Bank).  There are also branch offices of foreign banks, including Alfalah Bank (Pakistan), Habib Bank of Pakistan, and National Bank of Pakistan.

As of September 2018, the total assets of the banking sector was USD 4.16 billion.  Banking remains highly centralized, with a considerable majority of total loans made in Kabul.  Bank lending is undermined by the legal and regulatory infrastructure that impedes the enforcement of property rights and development of collateral.

As of December 2018, the banking sector gross Non-Performing Loans (NPL) ratio was 11.3 percent, while the net ratio stands at 5.9 percent.

Formal credit to the private sector stands at less than 10 percent of GDP, significantly lower than other countries in the region.  Afghanistan ranks 105 out of 190 economies for ease of obtaining credit in the World Bank’s Doing Business 2019. Afghan entrepreneurs complain interest rates for commercial loans from local banks are high, averaging around 15.5 percent.  In response to this situation, investment funds, leasing, micro-financing, and SME-financing companies have entered the market. USAID is working with the Afghan banking sector to promote improved access to finance and the expansion of financial inclusion.

Afghanistan has lost many correspondent banking relationships in the past few years due to risk aversion and lack of profitability.  The full extent of impact has yet to be quantified, but the unmeasured effects have been a loss in the ease of basic international transactions.

The Afghan Central Bank (Da Afghanistan Bank, DAB) has made improvements in monitoring and supervising the banking sector, following the 2010 Kabul Bank crisis.  President Ghani also took steps to hold those responsible accountable. The Afghan Government has a plan to recover assets from perpetrators of the large-scale bank fraud, though progress on its implementation remains slow.

Foreigners can open bank accounts with Afghanistan banks if they have valid visas, work permits, and in the case of a legal entity, a valid business license.  Afghan banks do not open bank accounts for non-resident customers.

Foreign Exchange and Remittances

Foreign Exchange Policies

Private investors have the right to transfer capital and profits out of Afghanistan, including for off-shore loan debt service.  There are no restrictions on converting, remitting, or transferring funds associated with investment, such as dividends, return on capital, interest and principal on private foreign debt, lease payments, or royalties and management fees, into a freely usable currency at a legal market clearing rate.  The PIL states that an investor may freely transfer investment dividends or proceeds from the sale of an approved enterprise abroad.

Major transactions in Afghanistan, such as the sale of autos or property, are frequently conducted in dollars or in the currency of neighboring countries.  Afghanistan does not maintain a dual-exchange-rate policy, currency controls, capital controls, or any other restrictions on the free flow of funds abroad. Afghanistan uses a managed floating exchange rate regime under which the rate is determined by market forces.  It is illegal to transport more than USD 20,000 or its equivalent in other currencies out of Afghanistan via land or air. Amounts over USD 10,000 but less than USD 20,000 must be declared. Enforcement is reported to be inconsistent.

Remittance Policies

Access to foreign exchange for investment is not restricted by any law or regulation.  There are large, yet informal, foreign exchange markets in major cities and provinces where U.S. dollars, British pounds, and euros are readily available.  Entities wishing to buy and sell foreign exchange in Afghanistan must register with the Afghan Central Bank (Da Afghanistan Bank, DAB), and thousands of licensed, as well as unlicensed, Hawalas continue to practice their trade.  Non-official money service providers often cite the lack of enforcement in the currency exchange sector, and the resulting competitive disadvantage to licensed exchangers, as a disincentive to becoming licensed.

Over the past several years, Afghanistan has made significant progress in improving Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) controls and is no longer subject to Financial Action Task Force (FATF) monitoring.  The FATF report can be found at http://www.fatf-gafi.org/countries/a-c/afghanistan/documents/fatf-compliance-june-2017.html  .

Sovereign Wealth Funds

Afghanistan does not have a sovereign wealth fund.

The U.S. Department of State continues to warn Americans against travel to Afghanistan.  U.S. citizens should review the Consular Information Sheet and Travel Warning for Afghanistan for the most up-to-date information on the security situation and possible threats.

Anti-government and political violence are common and public concerns regarding security constrain economic activity.  Security is a primary concern for investors. Foreign firms operating in country report spending a significant percentage of revenues on security infrastructure and operating expenses.

Afghanistan suffers a critical shortage of skilled labor.  Only 31 percent of the population over the age of 15 can read and write.  Decades of war, emigration, low education levels, and a lack of training facilities have resulted in a scarcity of skilled labor, qualified managers, and educated professionals.  The Central Statistical Organization reports the 2018 unemployment rate was 8.8 percent, although the youth unemployment rate is estimated to be as high as 40 percent.

A 2005 labor regulation allows for the employment of foreign workers but requires priority be given to equally qualified Afghan workers.  Under the law on Foreigners Employment in Afghanistan, foreigners can be employed on the basis of a work permit issued by the Ministry of Labor and Social Affairs.  Work permits are issued for one year and are renewable. Foreign citizens traveling to Afghanistan for employment are required to obtain business visas and work permits.

The formal sector labor law contains some restrictions on termination of employment.  The law provides for the right of workers to join and form independent unions and to conduct legal strikes and bargain collectively, and the government generally respects these rights.  Broadly, labor-management relations are undeveloped. Freedom of association and the right to bargain collectively are generally respected, but most workers and employers are not aware of these rights.  This was particularly true of workers in rural areas or agriculture. In urban areas, the majority of workers participate in the informal sector as day laborers in construction, where there are neither unions nor collective bargaining.  The 2007 Labor Law guarantees basic workers’ rights, such as wages, overtime, leave, and other benefits, and bans forced labor and child labor. The 2017 Trafficking in Persons law punishes forced and child labor with a maximum 12-year sentence.

Comprehensive data on workplace accidents are unavailable, though there have been several reports of poor and dangerous working conditions.  Although the law prohibits children under 14 from working, UNESCO reported 7.5 percent of children under 14 work, primarily in agriculture, domestic work, carpet-making, and brick kilns.

Table 1: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Economic Section
Embassy of the United States of America
Kabul, Afghanistan
+93 (0) 700-108-001