By Kai Pflug
A big question, of course, and an important one for StayIN, given that our objective is to strengthen the local economy in order to give Afghans a perspective and a reason to stay in the country rather than leaving it. It is also a question that I am not really qualified to answer, but fortunately, others are. In particular, the World Bank periodically issues reports on the development of the Afghan economy, and the latest update was just released in early October 2023.
Part of this report is a survey of private Afghan companies – they were asked to name the main constraints to their business.
The biggest issue given was the low level of demand. The drastically lower government budget and other factors including foreign sanctions have lowered the local purchasing power and thus dampened local demand both for goods and for services.
As a consequence, only about half of the companies surveyed reported operating at full capacity while one third operated below capacity. Low capacity utilization particularly affects small and women-owned firms.
The second biggest issue named was uncertainty about the future followed by limited functionality of the banking system. In particular, while most firms have bank accounts, the vast majority of them have not deposited money in their accounts in the past two years, indicating a lack of trust in the formal banking system. Instead, firms prefer making payments in cash or through traditional Hawala transfers.
The fourth issue provided by the companies surveyed is one with particular relevance for StayIN. Business constraints also come from the lack of skilled labor, which is an issue StayIN is aiming to tackle with the project of introducing a vocational education system in Afghanistan, starting with the profession of industrial electricians which we found to be a particular bottleneck for Afghan firms.
Other difficulties surveyed firms face include a less efficient payment system, increased cost of doing business, poor availability of imported inputs, restrictions on female employment, electricity blackouts, and difficulty securing loans.
The World Bank also reports some positive developments identified in the survey. Almost half of the companies reported an improvement in the security situation, though this improvement was mainly restricted to larger and male-owned businesses. Furthermore, the necessity to pay bribes in order to do business has decreased significantly – most respondents reported not having to make any unofficial payments in the last year. This is well-aligned with anecdotal evidence collected by StayIN – corruption is much less of a problem for businesses than it was just a few years ago. Still, many challenges remain – we hope our StayIN work in cooperation with our local partners can help improve the economic situation of Afghanistan.
Originally posted 2024-03-16 14:36:33.
