BERF Business Environment Reform Diagnostic for Harakat March 2017

Background

DFID and the Board of Harakat commissioned BERF to carry out a diagnostic review of the business environment in Afghanistan, following the approval of the Afghanistan Investment Climate Programme’s Business Case for funding in June 2016.

The programme aims to improve the business environment in Afghanistan by supporting private sector-led growth through advice and advocacy on legal and regulatory reforms, supporting women’s economic empowerment, and facilitating investment. Harakat is an independent organisation with its own board who will be responsible for implementing the programme.

The new programme will be implemented through four programme pillars, with enhanced and more robust management systems in place. BERF was asked to provide technical support for organisational development, the design and update of the procurement system, and a diagnostic review of the BE in Afghanistan. This report contains the diagnostic review of the Business Environment in Afghanistan with recommendations for way forward.

Findings

The government’s private sector reform priorities are highly relevant and have guided Business Environment Reform priorities set for the new programme. Promoting a one-stop-shop, strengthening investor protection as well as national policy for public and private partnerships have particularly influenced the prioritisation of reforms. Public Private Partnerships and Investor Facilitation have been identified as priority pillars.

Harakat will need to ensure its ability to influence the government in policy making and regulatory reform, which means forming credible relationships with key ministries and their departments and agencies that will lead to increasing investor confidence in Afghanistan.

Consultations carried out during this assignment highlighted three issues that need to be addressed to enable better engagement and ownership:

  • ownership of Key Performance Indicators by prospective government ministries and agencies.
  • inter-ministerial (including the High Economic Council) and private sector engagement:
  • donor coordination among multilateral development agencies (such as the World Bank and Asian Development Bank) and bilateral donors and contractors.

The key constraints identified in this review are:

  • Inadequate private sector representation and protection to do business;
  • Fragmented and complex regulatory environment for business
  • Weak implementation of legal and regulatory frameworks for Public Private Partnerships;
  • Limited capacity within government to identify, plan, and monitor such partnerships;
  • Complicated processes for business start-ups; and
  • Weak or absent legal and regulatory frameworks for business law
  • Complicated and sometimes absent legal and regulatory frameworks for doing business

Priority Recommendations

The following actions should be undertaken with the appropriate government and public sector partners:

  • Establish a stakeholder and communications function within Harakat and use this to promote ownership and accountability for interventions by all actors in Business Environment Reform including government and private sector agencies and organisations;
  • Form a formal partnership and agree on a capacity enhancement programme with the Ministry of Finance;
  • Prepare requests for proposal for third parties to support reform in each of the three pillars;
  • Identify and appoint third party contractor to strengthen the Ministry of Finance, and enhance promotion and management of Public Private Partnerships;
  • Form partnerships with other government ministries and agencies including the High Economic Council, Ministry of Commerce and Industry, Afghan Chamber of Commerce and Industry, and Asan Khedmat to promote investor facilitation;
  • Recruit a gender specialist to support the design and implementation of the forth pillar for women’s economic empowerment; and
  • Harakat to incorporate robust management, financial and procurement systems.