Afghanistan has a poor, agrarian economy with a small manufacturing base, few value-added industries, and a largely dollarized economy. International financial and security support has been instrumental in growing the Afghan economy from a $2.4 billion GDP in 2001 to $19.3 billion in 2015. In addition, various estimates place the value of the informal economy at up to $4.1 billion. Government expenses will continue to far exceed revenues, resulting in continued dependency on international donors for the foreseeable future, although the Government of National Unity GNU) has been able to significantly increase tax revenue.
The drawdown of international forces significantly slowed economic growth as demand for transport, construction, telecommunications and other services fell. Economic growth averaged 9.4 percent from 2003-12. The IMF estimates growth at three percent for 2017. The IMF notes that a return to growth is conditioned on improvements in the security sector, “strong reform momentum,” and investments in key economic sectors (mining and agriculture). Much higher growth rates are required to support a three percent population growth and roughly 400,000 new entrants into the labor market each year.
Agriculture remains Afghanistan’s most important source of employment: 60-80 percent of Afghanistan’s population works in this sector, although it accounts for just a third of GDP due to insufficient irrigation, uneven rainfall, lack of market access, and other structural impediments. Most Afghan farmers are primarily subsistence farmers.
Investment has declined in recent years, and what remains is largely financed by donors and the public sector. In 2017, the government is undertaking initiatives to attract private-sector Afghan and foreign investment, including promotion of public-private partnerships. New firm registrations tailed off dramatically in 2014, with half as many new firms registered in 2014 compared to 2013. That reduced level has remained relatively constant through 2016. Afghanistan has a small formal financial services sector and domestic credit remains tight.
Challenges to business in Afghanistan center around a still-developing legal environment, security, varying interpretations of tax law, and the impact of corruption on administration.
On the enabling environment for business, the Afghan government at all levels has publicly emphasized its commitment to fostering private sector-led development and increasing domestic and foreign investment. Important government and civil society efforts to build an enabling environment for the private sector and to expand investment by developing natural resources and infrastructure have been hindered by institutional capacity, reliance on top-down decision making and rent-seeking. Some improvements are underway in business licensing in 2016, including the consolidation of business and investment licenses within one ministry and the extension of business license validity from one to three years. Additionally, the government adopted an open access policy calling for liberalization of the telecoms sector, which now awaits implementation.
Afghanistan’s legal and regulatory frameworks and enforcement mechanisms remain irregularly implemented. The existence of three overlapping legal systems — Sharia (Islamic Law), Shura (traditional law and practice), and the formal system under the 2004 Constitution — can be confusing to investors and legal professionals. Corruption hampers fair application of the laws. Commercial regulatory bodies are often understaffed and under capacity. Financial data systems are limited. Crucial sectors such as mining and hydrocarbons lack a regulatory environment and policymaker support conducive for investment.
Afghanistan accessed to the World Trade Organization (WTO) in 2016, a positive sign for business and trade.
Afghanistan’s security challenges remain headline news, particularly for businesses. Nevertheless, domestic and foreign business leaders in most of Afghanistan report corruption and patronage in government are tougher challenges than security.
Although government officials express strong commitment to a market economy and foreign investment, Afghan and foreign business leaders report this attitude is not always reflected in practice. Private sector leaders routinely note that some government officials levy unofficial taxes and inflict bureaucratic delays to extract rents.
11. Labor Policies and Practices
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 scarcity of skilled labor, qualified managers and educated professionals. Unemployment is high and the country possesses an extremely small formal sector.
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 respected 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. The Ministry of Labor, Social Affairs, Martyred and Disabled (MoLSAMD reported 32 inspectors, short of the 200 recommended by the International Labor Organization (ILO).
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% of children under 14 work, primarily in agriculture, domestic work, carpet-making, and brick kilns.
Albania is an upper middle-income country with a GNI per capita of USD 4,300 (2015) and a population of approximately 2.8 million people, more than half of who live in rural areas. Real GDP grew by 3.3 percent through the third quarter of 2016, and growth is projected to reach 3.8 percent in 2017 on public spending increases. Albania received EU candidate status in June 2014 and is working to implement reforms necessary to open EU accession negotiations. In November 2016, Albania received a European Commission recommendation to open EU accession negotiations conditioned primarily upon implementation of a judicial reform package passed earlier the same year.
Despite the government’s stated desire to attract foreign direct investment, corruption in Albania is endemic, particularly in the judiciary, and sanctity of contract and respect for private property remain low. The implementation of the reform of the judicial system has recently begun, but the investment climate remains problematic and Albania is perceived as a difficult place to do business.
Investors report ongoing concerns that regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies. Regulations and laws governing business activity change frequently and without meaningful consultation with the business community. Major foreign investors report pressure to hire specific, politically connected subcontractors and express concern about compliance with the Foreign Corrupt Practices Act while operating in Albania. Reports of corruption in government procurement are commonplace. Several U.S. companies complained last year that they were disqualified from public tenders despite offering the lowest qualified bid, only to see the government award the contract to a local company.
Property rights remain another challenge in Albania, as clear title is difficult to obtain. Some factors include unscrupulous actors who manipulate the corrupt court system to obtain title to land not their own. Compensation for land confiscated by the former communist regime is difficult to obtain and inadequate. Meanwhile, the agency charged with removing illegally constructed buildings often acts without full consultation and fails to follow procedures.
To attract FDI, the GOA approved a new Law on Strategic Investments in 2015. The new law outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors, depending on the size of the investment and number of jobs created. The government also passed legislation creating Technical Economic Development Areas (TEDAs), similar to free trade zones, but the tender to develop the first TEDA failed and the process stalled. The tender has since reopened for the third time.
Albania climbed 36 notches in the World Bank’s 2017 Doing Business report, ranking 58th out of 190 countries, up from 90th in 2016. The lifting of a moratorium on building permits, which the government froze in 2013 to combat illegal construction, explained much of the improvement. While Albania fared well in the “Dealing with Construction Permits” category, jumping 80 places from 2016, the country lost points or improved only marginally in every other variable measured by the index. Albania continued to score poorly for enforcing contracts and registering property, ranking 116th and 106th, in the overall global rankings.
The Albanian legal system ostensibly does not discriminate against foreign investors. The U.S.—Albanian bilateral investment treaty entered into force in 1998 and ensures that U.S. investors receive most-favored-nation treatment. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies except in the areas of international air passenger transport, electric power transmission, and television broadcasting.
Energy and power, water supply and sewerage, road and rail, mining, and information communication technology represent the best prospects for foreign direct investment in Albania over the next several years.
11. Labor Policies and Practices
Albania’s labor force numbers about 1.1 million people, according to official data. The official estimated unemployment rate in October 2016 was 15 percent; though unemployment for people aged 15-29 was estimated at 27 percent. Approximately 46 percent of the population is self-employed in the agriculture sector. Informality is widespread in the Albanian labor market. A 2013 International Labor Organization survey on Labor force suggests that 43 percent of non-farm jobs correspond to informal employment. The situation is even more serious in the farm sector, where 88 percent of employment is informal or undocumented.
While some in the labor force are highly skilled, many work in low-skill industries or have outdated skills. The education level of the workforce is relatively low, limiting economic prospects and access to quality jobs. According to the Institute of Statistics, in 2015 about 43 percent of working age persons in Albania had a primary education or less, while only 19 percent had a tertiary education. The government provides fiscal incentives for labor force training for the inward processing industry, which in Albania includes the shoe and textile sectors. A majority of young Albanians speak English, Italian, or Greek as a second language. Other foreign language skills are common, as well.
Albania has a tradition of a strong secondary educational system, while vocational schools are less prevalent. In 2014, just 8 percent of high school pupils were enrolled in vocational schools. However, the current government has shifted attention to the promotion of vocational education.
In October 2016, the average salary in public administration was approximately 54,000 ALL ($436) per month. Minimum wage is 22,000 ALL/month (approximately $176), which is among the lowest in the region.
Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management. Albania has been a member of the International Labor Organization (ILO) since 1991 and has ratified 54 ILO conventions, the entire set of fundamental and governance conventions as well as two protocols: http://www.ilo.org/dyn/normlex/en/f?p=1000:11200:0::NO:11200:P11200_COUNTRY_ID:102532.
The Albanian government has established the National Council of Labor, composed of government officials, trade unions, management, and employers’ associations, to improve social dialogue between stakeholders. The institutions governing the labor market include the Ministry of Welfare and Youth, Ministry of Innovation and Public Administration, the National Employment Service, the State Labor Inspectorate, and private actors such as employment agencies and vocational training centers. Albania has adopted a large variety of regulations to monitor labor abuses, but their enforcement remains weak due to persistent informality in the work force.
Law 108/2013 dated March 28, 2013 “On Foreigners” and various decisions of the Council of Ministers regulate the employment regime in Albania. The law limits to 10 percent the number of foreigners hired by employers in Albania. In 2015, the labor code was amended to include the temporary employment of foreigners in Albania. However, for specific projects or to attract foreign investment, employment can be regulated thorough special laws, and wages and training costs may be tax deductible.
Both employees and managers have the right to form trade unions. Trade unions are organized at both the national level (according to industrial sector) and company level. The Labor Code guarantees the right to strike as part of the right to negotiate wages and working conditions. However, strikes from economic grievances are rare in Albania. Employment contracts apply to both union and non-union workers. The two main national-level trade unions, both affiliated with the International Trade Union Confederation (ITUC), are the Confederation of Trade Unions (KSSH) and the Union of the Independent Trade Unions of Albania (BSPSH). Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract. Employees can collect up to 12 months of salary in the event of an unexpected interruption of the working contract.
The state labor inspectorate is the main authority responsible for the monitoring of labor conditions and the enforcement of labor code and occupational health and safety standards. Its performance is considered inadequate due to a lack of human resources and limited financial capabilities. Furthermore, the inspectorate has no investigative and prosecution responsibilities as it submits all allegations of infringements to other law enforcement agencies.
The State Labor Inspectorate is responsible for enforcing occupational health and safety standards and regulations. Workplace conditions in the manufacturing, construction, and mining sectors are often poor and, in some cases, dangerous due to a lack of inspections and enforcement by the Labor Inspectorate.
U.S. Department of State Human Rights Report: http://www.state.gov/j/drl/rls/hrrpt
Department of Labor Child Labor Report: http://www.dol.gov/ilab/reports/child-labor
Algeria is a lucrative but challenging market with significant potential for many U.S. businesses. Economic growth has been primarily driven by oil and natural gas production, which have traditionally accounted for more than 90 percent of export revenues, 60 percent of state budget revenues, and 40 percent of GDP. The drop in oil prices since 2014 has reversed the trajectory of both the balance of payments and government budget, the latter of which has been the principal engine of non-hydrocarbons activity, largely through infrastructure spending. The Algerian government has announced it aims to diversify its economy and rely increasingly on the private sector to spur economic growth, with an emphasis on attracting more foreign direct investment (FDI) to boost employment and offset imports via increased local production.
Private sector interlocutors report that multiple sectors potentially offer substantial opportunities for long-term growth for U.S. firms with many having reported double-digit annual profits. Sectors targeted for robust investment include agriculture, tourism, information and communications technology, manufacturing (especially vehicles), energy (both fossil fuel and renewable), construction infrastructure, and healthcare. A new investments law passed in August 2016 offers lucrative, long-term tax exemptions, along with other incentives.
However, significant challenges remain. U.S. companies must overcome language barriers, distance, customs challenges, an entrenched bureaucracy, difficulties in monetary transfers, currency conversion restrictions, and price competition from Chinese, Turkish, French and other European businesses. International firms that operate in Algeria sometimes complain that laws and regulations are constantly shifting and applied unevenly, raising the perception of commercial risk for foreign investors. Business contracts are likewise subject to changing interpretation and revision, which has proved challenging to U.S. and international firms. Other drawbacks include the 51/49 rule that requires majority Algerian ownership of all new foreign partnerships, inadequate enforcement of protections for intellectual property rights (IPR), and limited regional trade. Arduous foreign currency exchange requirements and overly bureaucratic customs processes combine to impede the efficiency and reliability of the supply chain, adding further uncertainty to the market.
Algeria’s adoption of an import substitution policy has severely restricted foreign trade. As of April 2017, 21 imported products now require authorization from the Ministry of Commerce via the issuance of import licenses, and many items—including vehicles, cement, steel, and certain fruits and vegetables—are subject to strict quotas up to 90 percent below import levels in 2014. Delays inherent to the opaque and inefficient system under which licenses are granted has in some instances led to the complete halt of certain imports. For many finished goods, importers are now unable to clear items into Algeria unless they have filed plans to build or are already operating local manufacturing facilities. Although import substitution policies have introduced volatility of supply and price increases, the Algerian government appears to view these policies as a success in the wake of late 2016 announcements of several joint ventures with European and Asian automakers. The Algerian government’s overriding economic policy priority appears to be reducing the import bill to minimize its current account deficit while reducing government capital expenditures, a major source of non-hydrocarbon investment within the country.
11. Labor Policies and Practices
There is a chronic shortage of skilled labor in Algeria, especially in the construction industry. Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas; many of the engineers employed by foreign construction companies active in the country are Chinese or Turkish. Oil companies report they have difficultly retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf. White collar employers also report a lack of skilled project managers, supply chain engineers, and even sufficient numbers of office workers with requisite computer and business skills.
Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM). Official Algerian government statistics listed overall unemployment at 10.6 percent as of September 2016, an increase of about 0.6 percent from April 2016. For youth aged 16-24, the figure in September 2016 was 26.7 percent. The International Labor Organization (ILO) estimates that more than one-third of all labor in Algeria is employed in the informal economy.
The Ministry of Vocational Training sponsors programs that, according to government figures, train 40-50,000 Algerians annually in various professional programs. There are no current laws requiring companies to hire nationals, although contacts at foreign companies report pressure to do so under implied threat of not approving the visa applications for expatriate staff. Employers are required to pay severance, with slight variations in the law regarding lay-offs and firings. There are no special economic zones or foreign trade zones in Algeria.
The constitution provides workers with the right to join and form unions of their choice provided they are citizens. The country has ratified the International Labor Organization’s (ILO’s) conventions on freedom of association and collective bargaining but failed to enact legislation needed to implement these conventions fully. The General Union of Algerian Workers (UGTA) is the largest union in Algeria and represents a broad spectrum of employees from both the public and private sectors. The UGTA, an affiliate of the International Trade Union Conference, is an official member of the Algerian “tripartite,” a council of labor, government, and business officials that meets annually to collaborate on economic and labor policy. The Algerian government chooses to liaise almost exclusively with the UGTA, sometimes putting other labor unions in Algeria at a disadvantage. Collective bargaining is permitted under a law passed in 1990 and modified in 1997, but is not mandatory, and in practice the UGTA is the only union authorized to engage in collective bargaining. Algerian law provides mechanisms for monitoring labor abuses and health and safety standards, and international labor rights are recognized within domestic law, but are only effectively regulated in the formal economy.
Sector-specific strikes occur often in Algeria, though general strikes are less common. The law provides for the right to strike, and workers exercise this right, subject to conditions. Striking requires a secret ballot of the whole workforce, and the decision to strike must be approved by majority vote of workers at a general meeting. The government may restrict strikes on a number of grounds, including economic crisis, obstruction of public services, or the possibility of subversive actions. Furthermore, all public demonstrations, including protests and strikes, must receive prior government authorization. By law, workers may strike only after 14 days of mandatory conciliation or mediation. The government occasionally offers to mediate disputes. The law states that decisions reached in mediation are binding on both parties. If mediation does not lead to an agreement, workers may strike legally after they vote by secret ballot to do so. The law requires that a minimum level of essential public services must be maintained during public-sector service strikes, and the government has broad legal authority to requisition public employees. The list of essential services included services such as banking, radio, and television. Penalties for unlawful work stoppages range from eight days to two months’ imprisonment.
Stringent labor-market regulations likely inhibit an increase in full-time, open-ended work. Regulations do not allow for flexibility in hiring and firing in times of economic downturn. Unemployment insurance eligibility requirements are so stringent as to discourage many job seekers from collecting benefits probably due them. Employers must have contributed up to 80 percent of the final year salary into the unemployment insurance scheme in order for them to qualify for unemployment benefits.
The law contains occupational health and safety standards that are not fully enforced. There were no known reports of workers dismissed for removing themselves from hazardous working conditions. If workers face such conditions, they may reserve the right to renegotiate their contract or, failing that, resort to the courts. While this legal mechanism exists, the high demand for employment in the country gave an advantage to employers seeking to exploit employees. Labor standards did not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status, which made them vulnerable to exploitation. The law does not adequately cover migrant workers employed primarily in construction and occasionally as domestic workers.
The Labor Ministry generally enforced labor standards, including providing for compliance with the minimum wage regulation and safety standards. Nevertheless, broad enforcement remained insufficient. An estimated 15 percent of workers were not declared by their employers, the director general of social security at the Ministry of Labor announced in August 2015, rendering those violating companies subject to fines.
The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations. The minimum legal age for employment is 16, but younger children may work as apprentices with permission from their parents or legal guardian. The law prohibits workers under age 19 from working at night, but there is no list of hazardous occupations prohibited to minors. Although specific data was unavailable, children reportedly worked mostly in the informal sales market, often in family businesses, or on family farms. There were isolated reports that children were subjected to commercial sexual exploitation. According to UNICEF, six percent of children ages 5 to 14 were economically active.
The Ministry of Labor is responsible for enforcing child labor laws. There is no single office charged with this task, but all labor inspectors are responsible for enforcing laws regarding child labor. The ministry conducted inspections and in some cases investigated companies suspected of hiring underage workers. Monitoring and enforcement practices for child labor were inconsistent and hampered by an insufficient number of inspectors.
The Ministry of Labor leads a national committee composed of 12 ministries and NGOs that meets yearly to discuss child labor issues. The committee was empowered to propose measures and laws to address child labor as well as conduct awareness campaigns.