Afghanistan flag Afghanistan: Investing in Afghanistan

Foreign direct investment (FDI) in Afghanistan

FDI in Figures

According to UNCTAD's World Investment Report 2021, FDI flows into Afghanistan have declined sharply over the past two years to USD 13 million in 2020, down from USD 39 million in 2019 and USD 119 million in 2018. The decline was partly due to the global economic crisis triggered by the Covid-19 pandemic and the unstable political situation. At the same time, the total stock of FDI was estimated at USD 1.6 billion.
Among the main projects is the railway project, which aims to connect Turkmenistan, Tajikistan and Afghanistan was signed in 2013. In 2015, the Chinese Government expressed interest in supporting the development of railway infrastructure and the construction of a hydroelectric plant. The railway connection from China to Hairatan, Northern Afghanistan, was established in September 2016, allowing goods to be carried from Eastern China to Afghanistan in two weeks compared with six months by road. The railway was launched in September 2019, providing a boost to Afghan exports and investment from China, already the largest investor in Afghanistan since 2014. In December 2020, Iran launched a new railway connection to Afghanistan, supporting freight transport between both countries. In February 2021, Afghanistan agreed on a roadmap with Uzbekistan and Pakistan for a railway project that would connect all three countries.

Since the takeover of the Taliban in August 2021, the country’s already weal business climate has worsened drastically. Before the withdrawal of foreign troops, Afghan law guaranteed foreign companies the same investment opportunities as domestic enterprises, and official support for open markets and private sector participation was restated in the Afghanistan National Development Strategy (ANDS). Foreign investors were not required to have an Afghan partner, but due to the restriction on land ownership, they almost always chose to work with one. Private investors had the right to transfer their capital and profits out of Afghanistan, including for debt service for offshore loans. Nevertheless, the situation is currently unstable and investment in the country is almost impossible, and future foreign financial assistance is placed under a cloud of uncertainty. Among the structural problems Afghanistan is facing there are political violence, weak regulations regarding property protection, a substantial lack of skilled workforce, under-developed financial markets and insufficient infrastructure limit the country's potential for attracting foreign investors. The country was ranked 173rd out of 190 economies on the latest edition of the Doing Business report of the World Bank, down by six spots from the previous edition (mainly due to increased bureaucracy with regards to paying taxes).

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 231321
FDI Stock (million USD) 1,5761,5921,613
Number of Greenfield Investments* 000
Value of Greenfield Investments (million USD) 000

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Afghanistan South Asia United States Germany
Index of Transaction Transparency* 1.0 4.4 7.0 5.0
Index of Manager’s Responsibility** 1.0 4.4 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Afghanistan

Strong Points
The low level of competition creates opportunities for foreign investors and exporters to bring in new products with potentially good profit margins. With its strategic geographical position connecting Central Asia to South Asia and leading to Europe, Afghanistan could serve as a gateway for investors seeking to enter the regional market. Local companies are adaptable, entrepreneurial and have shown resilience to economic downturn and political uncertainties. The country has a growing middle class and 70% of the of the population is below 25 years of age. There is also a significant potential for exploration in minerals, and in oil and gas. Foreign companies benefit from a 0% duty on import of machineries and 1% duty on import of raw materials.
Weak Points
The security context is precarious as terrorist attacks and kidnapping of foreigners remain prevalent. While the new government is committed to improve business climate and investors' confidence, the country scores very low on the Doing Business Index of the World Bank owing to cumbersome bureaucracy and weak infrastructure. The legal system is not developed enough to handle complex commercial issues and local authorities do not have enough experience in project management and in dealing with Western companies. Corruption continues to be a major problem as the country is ranked very poorly on Transparency International's Corruption Perceptions Index.
Government Measures to Motivate or Restrict FDI
The Afghan government seeks to bolster foreign investment as the country is on its recovery in the aftermath of Taliban rule. Pursuant to the Private Investment Law, which was passed in 2003 and amended in 2006, the Afghan state is committed to maximising private investment and to create a legal regime and administrative structure that encourage and protect foreign private investment in the Afghan economy. There are no sector restrictions regarding foreign investment; however, any investment above USD 3 million requires the approval of the High Commission on Investment (HCI). The same law also guarantees national treatment for foreign investors and allows them to lease land up to 50 years (foreign land ownership is not allowed). Furthermore, companies can be wholly foreign-owned.

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Latest Update: November 2022