The Afghanistan Investment Climate in 2008 : Growth Despite Poor Governance, Weak Factor Markets, and Lack of Innovation

This survey report will help the
government of Afghanistan think through its approach to
private sector development. Historically, there has been a
dearth of information and reliable statistics about
Afghanistan's economy. This report reviews the
constraints that firms currently operating in Afghanistan
face and provides a basis for possible policy
recommendations to address these constraints. It is hoped
that the report will be a useful tool to support investment
climate reforms and enhance the private sector dialogue in
Afghanistan. The report also identifies a group of emerging
issues that include the interlinked issues of
competitiveness, innovation, and diversification. Despite
strong growth, policymakers should be concerned about the
lack of entry of new firms, especially foreign firms, and
the lack of innovative behavior. These two factors indicate
a lack of competitiveness and warrant further research. An
undiversified manufacturing sector that is overwhelmingly
linked to the agriculture and agro-processing sectors are
also of concern. The strong growth trend itself needs more
evaluation. A country that has weak governance, poor factor
markets, and firms that are not innovative is unlikely to
achieve sustainable long-term growth. The report discusses
the issues noted above, summarizes the status of reforms,
and suggests some next steps, including further analytic
work on a number of topics, public private dialogue on
certain issues, and stronger government reform efforts.