Friday, 19 February 2016

GOV.UK - Afghanistan trade and export guide

1 - Afghanistan export overview
Early indications are that support for the economy and increasing trade and investment will be priorities for Afghanistan’s new government of national unity. The UK is a leading contributor to funding and support for Afghanistan with development assistance of £178 million per year until at least 2017. Afghanistan is a new market for many international companies and offers opportunities for distribution of products or services that match the needs of low income, developing countries.
About 40 UK businesses operate from Afghanistan, including security companies and larger firms such as GSK, and Unilever.

Benefits for UK businesses exporting to Afghanistan:
  • low levels of competition which create opportunities to bring in new products with potentially good profit margins
  • United Arab Emirates (UAE) or Pakistan based companies with access to Afghan market offer low risk option for market entry
  • young and growing population with 70% below 25 years of age
  • new government committed to tackling corruption
Strengths of the Afghanistan market include:
  • local, highly capable companies, which are adaptable, entrepreneurial and have survived in hard times
  • a growing middle class
  • significant potential for exploration in minerals, and in oil and gas
2 - Challenges doing business in Afghanistan
There are some unique challenges when doing business in Afghanistan. These include:
  • terrorism and kidnapping threats
  • Afghanistan is ranked very low in the World Bank’s Ease of Doing Business index
  • bureaucracy
  • weak infrastructure
  • legal system isn’t experienced in dealing with complex commercial issues
  • lack of experience in project development/management and in dealing with Western companies
  • corruption is a major problem with Afghanistan ranking very low on Transparency International’s
3 - Growth potential
  • 3.1 Economic growth
The Afghan economy remains heavily dependent on foreign aid. The aim is that it should become self-sufficient and private sector led over the next decade.
The economy grew at about 9% per annum from 2001 to 2013.
The economy suffered in 2014 due to uncertainty over security and the outcome of the Presidential elections. As a result investors postponed projects. The election of the new president has reduced uncertainty. The new government is focussing on developing a new strategic partnership with the private sector to generate jobs and economic growth.
The World Bank currently forecasts Gross Domestic Product (GDP) growth of 2.5% in Afghanistan for 2015. Growth could reach 5% in the medium term, but that is dependent on improved stability and delivery of important reforms.

4 - UK and Afghanistan trade
The UK exported goods worth USD 48.8 million in 2014.
The UK exported services worth £600 million to Afghanistan in 2013.
Top UK goods exports included:
  • power generation machinery
  • electrical and electronic equipment
  • vehicles
  • meat, cereals, fish
  • opto photo, technical, medical etc apparatus
  • pharmaceutical and medical products
5 - Opportunities for UK businesses in Afghanistan
  • 5.1 Aid funded projects
Aid funded business projects will continue in Afghanistan for the foreseeable future. These will create opportunities for UK consultants with experience in working in conflict zones and expertise in:
  • education
  • healthcare
  • supporting infrastructure development
  • governmental capacity development
  • 5.2 Mining
Afghanistan’s mining sector is worth up to USD 1 trillion. There are more than 1,000 potential mineral sites in Afghanistan with iron ore, copper, gold, lithium, gemstones and other minerals present. However, very little commercial exploration has been done and supporting infrastructure for some of the projects is not in place.
The Afghan government has put out to tender some major contracts following international standard tender processes. Some projects may receive final approval soon. Over the next 5 years the focus will be to explore and develop the potential through exploration.

Opportunities for UK companies include:
  • early stage exploration support services
  • consultancy
  • equipment
  • 5.3 Oil and gas
Oil production work has started recently in northern Afghanistan. Further exploration work is due to start over the next few months and an additional major tender may be awarded soon.
There will be significant opportunities for UK companies to export mining, and oil and gas services and equipment to Afghanistan.
  • 5.4 Security
The security sector continues to have high demand for products and services. There are many opportunities for UK companies in the sector.
  • 5.5 Construction
As they seek to diversify, Afghan businesses are likely to begin investing in some new projects, such as property or retail or city development.
There will be opportunities to supply price competitive construction equipment, products and services. The development of the retail sector is at an early stage, but there will be opportunities in retail franchising.

6 - Start-up considerations
You can enter the market by:
  • exporting directly from the UK, or via Dubai or Pakistan
  • setting up an agency
  • appointing a distributor
  • franchising
  • forming a joint venture or manufacture under license agreement with an Afghan company
You should take care when choosing a local Afghan partner and undertake due diligence.
If you’re looking to set up a company, normally a local subsidiary in Afghanistan, you should use a:
  • consultant or accountant (UK companies operate in this field in Afghanistan)
  • local or international lawyers operating in country
There are many family companies in Afghanistan so developing personal relationships is very important. This requires an investment of time. Product training for an agent’s workforce is essential.
Business meetings with Afghan companies are sometimes held in Dubai, where some Afghan companies have offices.

7 - Legal considerations
You should seek legal and taxation advice before entering into a joint venture or similar type of partnership with a local company in Afghanistan.
  • 7.1 Standards and technical regulations
Afghanistan currently has no laws or regulations governing labelling and marketing requirements for products.
  • 7.2 Intellectual Property (IP)
Intellectual property protection is a very new area for the courts in Afghanistan. Afghanistan is a member of the World Intellectual Property Organization (WIPO) and has some intellectual property laws. Local companies have used these laws, but there are few cases yet showing use by foreign companies.

8 - Tax and customs considerations
  • Corporate taxation
The corporate tax rate in Afghanistan is 20%.
  • Customs duties
Afghanistan’s tariff is based on the Harmonised tariff System.
Afghanistan maintains the lowest import tariffs in the region. Tariff duties range from 2.5% to 16%.

Updated 15 September 2015