1. Afghanistan Trade Overview
Increasing international trade and attracting foreign investment is one of the top priorities of the government of Afghanistan. The government believes that sustained economic growth and job-creation requires governmental efforts to help the private sector reach foreign markets and build new trade relationships. To that end, the government has set out a plan for a new strategic partnership with the private sector.
Afghanistan is a new market for many international companies and offers opportunities for distribution of products and services that match the needs of developing nations. Given the historical relationship of Afghanistan and the UK and their close bilateral relations where the UK has been one of the leading contributors to funding and support for Afghanistan, with a development budget of £750 million for the period 2016-2020, there is great potential for extensive trade between the two countries. Currently, many UK businesses operate in Afghanistan, including companies such as GSK, and Unilever, with the numbers growing annually. With the UK looking beyond Europe, Afghanistan provides great potential for sizeable future trade and co-operation.
Benefits for UK businesses exporting to Afghanistan:
- Low levels of competition, which create opportunities to introduce and bring in new products and achieve excellent returns
- United Arab Emirates, India or Pakistan based companies with access to the Afghan market offers low risk option for market entry with ease of access
- A young and growing population with 70 percent below 25 years of age creating significant demand for goods and services
Strengths of the Afghan 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, oil and gas
- Already established British businesses and their performance providing crucial market information for new entrants
- Highly competitive wages and a young, skilled, work force for British businesses to hire
- Low levels of corporate tax and tax exemptions for foreign companies investing in certain sectors highly beneficial to the Afghan economy
- Extremely low levels of import tariffs for foreign goods and services
2. Growth potential
2.1 Economic growth
The Afghan economy grew at about 9% per annum from 2001 to 2013. According to TradingEconomics forecast, Afghanistan will experience a Gross Domestic Product (GDP) growth of more than 4% for the year 2021.
Although the Afghan economy remains dependent on foreign aid, the aim of the Afghan government is to become self-sufficient and private-sector-led over the next decade. To achieve this goal, international donors including the UK have focused on economic development with the UK contributing £100.1 million to the Afghanistan Reconstruction Trust Fund for the year 2018/19. The Afghanistan Reconstruction Trust Fund, run by the World Bank, has had a budget of £678 million of which £203 million still remains to be spent until March of 2021. The Fund focuses on development projects, infrastructure and reforms which can further help in the growth of the Afghan economy, strengthening the private sector and creating more jobs.
3. UK and Afghanistan Trade
In 2013, the UK exported services worth £600 million to Afghanistan.
Top UK goods exports includes:
- Power generation machinery
- Electrical and electronic equipment
- Meat, cereals, fish
- Pharmaceutical and medical products
4. Opportunities for UK Businesses in Afghanistan
DIT provides free international export sales leads from its worldwide network. Search for export opportunities.
4.1 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:
- Supporting infrastructure development
- Governmental capacity development
- Security and risk management
To Identify opportunities to supply products and services to the international aid agencies, please contact DIT’s Aid Funded Business Service for more information.
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. 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
4.3 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.
The security sector continues to have high demand for products and services. There are many opportunities for UK companies in the sector.
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. Given the low levels of competition, lax regulation, highly competitive wages and the retail market being largely insulated from economic cycles, investing in retail in Afghanistan is a wonderful opportunity. From food to clothing and electronics, the high demand, due to a young and growing population, and lack of competition can provide high profit margins at low overheads.
With thousands of Afghans, particularly the growing middle class, travelling to countries such as India, Pakistan, Turkey and the UAE to seek private healthcare and with these numbers growing exponentially, there is a great market gap and opportunity for investment. Given the UK’s expertise and experience in this sector with low levels of cost in Afghanistan, the trade potential is immense.
Afghanistan’s world-renowned gemstones such as lapis lazuli, rubies, emeralds, etc. and the gemstone industry requires modern machinery and expertise, from the processing stage to selling it in international markets. Given the quality of the gemstones and the lack of competition and low costs, this is a great area for British companies to invest.
4.9 Importing Afghan produce
Importing Afghanistan’s popular produce such as carpets, dried fruits and nuts, world leading saffron, etc. are attractive investment opportunities as they essentially are high quality produce for a margin of the price.
5. Start-up considerations:
You can enter the market by:
- Exporting directly from the UK, or via Dubai, Pakistan, Uzbekistan, Turkmenistan or Turkey
- Setting up an agency
- Appointing a distributor
- Forming a joint venture or manufacture under license agreement with an Afghan company.
Consider due diligence in choosing a local Afghan partner. If you are looking to set up a company, you should use:
- A consultant or accountant (UK companies operate in this field in Afghanistan)
- A local or international lawyers operating in the country
6. 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.
6.1 Standards and technical regulations
Afghanistan currently has no laws or regulations governing labelling and marketing requirements for products.
6.2 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). Local companies have used these laws, but there are a few cases yet showing used by foreign companies.
7. Tax and customs considerations:
7.1 Corporate taxation
The corporate tax rate in Afghanistan is 20%.
7.2 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%. The Afghanistan Customs website provides more information on tariffs and procedures.
You can find more information about import tariffs in the Market Access Database.