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Afghanistan Public Policy Research Organization
May 2014 Working Paper
Business Licensing in Afghanistan: Procedural Reform or Institutional
Regression?
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Acknowledgements This paper is based on two research projects funded by the World Bank’s International Finance Corporation (IFC) in 2010 and 2011. About the Researchers The APPRO research team responsible for this paper are (in alphabetical order): Ahmad Shaheer Anil, Saeed Parto, Ehsan Saadat, Mohsin Usyan, and Jos Winters. Saeed Parto and Jos Winters authored this report. Rebecca Gang edited an earlier version of this report. APPRO is grateful to the many traders who agreed to be interviewed at multiple times and spent many hours with APPRO researchers. APPRO is also grateful to numerous individuals from Afghanistan Chamber of Commerce and Industries and the Ministry of Commerce and Industry. About APPRO Afghanistan Public Policy Research Organization (APPRO) is an independent social research organization promoting social and policy learning to benefit development and reconstruction efforts in Afghanistan. APPRO is a non-‐profit, non-‐government organization, headquartered in Kabul, Afghanistan. APPRO’s mission is to measure development progress against strategic reconstruction objectives to provide insights on how to improve performance against the development milestones set by the Afghan government and international donors. APPRO conducts applied research, carries out evaluations, and provides training on policy analysis, research methods, Monitoring and Evaluations, and research methods. For more information, see: www.appro.org.af Contact: [email protected] APPRO is responsible for all omissions and errors. Photograph: Jos Winters © 2014. Afghanistan Public Policy Research Organization. Some rights reserved. This publication may be reproduced, stored in a retrieval system or transmitted for non-‐commercial purposes only and with written credit to APPRO and the author(s). Where this publication is reproduced, stored or transmitted electronically, a link to APPRO’s website at www.appro.org.af should be provided. Any other use of this publication requires prior written permission which may be obtained by writing to: [email protected]
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Table of Contents
Executive Summary......................................................................................................4
Key Recommendations ................................................................................................5
1. Introduction .............................................................................................................7
2. Objectives and Methodology....................................................................................8
3. Overview: Business Licensing in Afghanistan ............................................................9
4. Findings..................................................................................................................11 4.1 New Licenses................................................................................................................ 11 4.2 License Renewals ......................................................................................................... 15 4.3 Findings from Survey Data............................................................................................ 18
5. Discussion ..............................................................................................................22
6. Recommendations .................................................................................................24
Annex 1: Survey Findings, Demographic Observations ...............................................27
Appendix 1: International Chamber of Commerce Anti-‐corruption Rules of Conduct for Businesses and National Governments.......................................................................30
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Executive Summary
Since 2004 the Government of Afghanistan has shown a great willingness to reform its private sector, easing the way for new businesses and improving the operating environment for those already in existence. This openness to change was noted by the World Bank, which described Afghanistan as the top ‘conflict-‐affected’ business reformer of 2004. Of particular note were reforms that cut new business application procedures from 28 to 1, application processing times from 90 to 7 days, and new registries for property and credit to facilitate the provision of loans. At the London Conference in early 2006 the Government of Afghanistan further committed to simplifying and streamlining investment-‐related legislation, regulations, and procedures by the end of 2007. This commitment was incorporated into the Afghanistan National Development Strategy (ANDS) for 2008 – 2013, which prioritizes poverty reduction and sustainable development through private sector-‐led market growth and reform as a major feature of national reconstruction. Internationally funded reconstruction and development initiatives coupled with ongoing improvements to Afghanistan’s business environment continue to facilitate a surge in the number of registered domestic and international businesses. Despite completing a number of in-‐depth structural reforms, the Government of Afghanistan and its international donors have been less successful in sustaining and institutionalization of these projects. In particular, little attention has been paid to effective monitoring of procedural changes or to creating incentives to bring about behavioural change among public and private actors. The result has been a strong tendency for institutional regression to pre-‐reform status, and thus renewed opportunities for bureaucratic delay and corruption. An important example of this, and the risks to economic growth and good governance it creates, can be seen in reforms to the business licensing sector. While successes were initially dramatic, reducing required procedural steps to eight from over fifty between 2004 and 2006, by the time of this study, required steps were back up to over twenty and applicants almost universally expected to pay some form of illicit fee, usually at multiple stages of the process and at spiraling costs. This regression demonstrates the vulnerability of business actors and the strength of official impunity – an awareness that has led to a loss of confidence among business actors, and a corresponding increase in negative incentives to engage in corrupt practices. Through the lens of business licensing reforms, this working paper examines progress and remaining challenges under the economic reconstruction models currently in use by the Government of Afghanistan and its international donors. To this end, the paper compares the procedural steps for business licensing and renewal officially mandated by the Ministry of Commerce and Industry and those actually needed to complete the process. Survey data and resulting analysis then pinpoint areas of continued difficulty for applicants/investors, including bottlenecks, duplicative or unnecessary processes, and opportunities for corrupt practices to emerge and become firmly embedded. The following recommendations are intended to support the Government of Afghanistan, its formal institutions, and its international donors in their ongoing efforts to bring sustainable structural reform and increased transparency and efficiency to the business licensing regime in Afghanistan.
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Key Recommendations
• In addition to structural reform, efforts have to be made to affect and shape actual behaviour by the private and public users of the system. Public campaigns and changes in the education system are among the tools that may be used to raise awareness about corruption.
• Relating to the above point, there needs to be recognition that public awareness campaigns, unlike structural reform, can take years to become institutionalized and have a measurable impact on the general public’s perspective on corruption.
• Currently, business licenses are valid for only one year. Much of the bureaucratic delay and opportunities for corruption throughout the business licensing regime could be eliminated by extending the duration of business licenses from one to three, or even five years.
• The most objectionable requirement of the Ministry of Finance, according to license holders and license renewers, is that of presenting business accounts as part of the licensing renewal process. That this is a legal requirement – and not a de facto mechanism for soliciting bribes by Ministry officials – must be made clear to the applicants. These requirements, as well as a clear and concise explanation for their need, should be posted on the Ministry’s website and in all offices where renewal procedures take place.
• Afghan businesses should be mandated by law to establish fully auditable accounting systems. Possession of complete and auditable accounts will act as a deterrent to corrupt officials at several key phases of the licensing process.
• Only designated government officials should be permitted to view business accounts. A major concern of business actors is that widespread knowledge regarding their level of wealth may increase risks of harassment, extortion, kidnapping, or other forms of criminal activity. Ensuring confidentiality within the licensing system is a key incentive to securing the full participation of business actors.
• The Afghan business custom of giving or receiving small payments in exchange for services, which can be seen as petty corruption, is likely to continue for the foreseeable future. While a complete ban is not practical or advisable, it is possible to regulate and monitor what constitutes an acceptable gratuity and when a gratuity becomes a bribe. The International Chamber of Commerce (ICC) Rules of Conduct and Recommendations for Combating Extortion and Bribery provide a helpful model for such projects.
• The Afghan Chamber of Commerce and Industry (ACCI) requires ongoing technical support to help consolidate its authority as a business-‐sector associative institution. ACCI must be assisted to build its legitimacy within the business community by exhibiting an ability to perform key tasks, particularly through advocacy campaign.
• Competition over access to resources and scope of authority among key ministries and institutions is undermining national efforts to improve the business operating environment. Consultation with representatives of key ministries, Afghanistan Investment Support Agency, ACCI and the wider business community are needed to explore long term strategies for addressing ambiguities in the division of labour and resources among ministries and administrative departments, as a key component of the broader goal of instituting good governance.
• Reform efforts should embrace grassroots innovations aimed at increasing institutional efficiency, such as the role of administrative fixers, or komishenkars. By formally
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legitimizing such practices, they can be regulated to eliminate opportunities for corruption while minimizing transaction costs for license applicants. Regulations could include formal certification, reporting requirements, financial disclosure, and tax payment on commissions earned among others.
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1. Introduction
Since 2004 the Government of Afghanistan has shown great willingness to reform the private sector, easing the way for new businesses to establish, and improving the operating environment for those already in existence. This openness to change was noted by the World Bank, which described Afghanistan as the top ‘conflict-‐affected’ business reformer of 2004.1 Of particular note were reforms that reduced the steps in new business registration process from 28 to 1, application processing times from 90 to 7 days, and new registries for property to serve as collateral for obtaining loans.2 At the London Conference in early 2006 the Government of Afghanistan further committed to simplifying and streamlining investment-‐related legislation, regulations, and procedures by the end of 2007.3 This commitment was incorporated into Afghanistan National Development Strategy (ANDS) for 2008 – 2013, which prioritizes poverty reduction and sustainable development through private sector led market growth and reform as a major feature of national reconstruction.4 Internationally funded reconstruction and development initiatives coupled with ongoing improvements to Afghanistan’s business environment are intended to facilitate a surge in the number of registered domestic and international businesses. A key objective for the Government of Afghanistan and its international donors remains regulatory reform and structural change to build on previous improvements to the business environment. Through continued reforms national and international stakeholders hope to sustain existing domestic and international private investment in Afghanistan and to attract new investors in the future. Much progress has been made in this regard since the establishment of Afghanistan Investment Support Agency (AISA) in 2003 and through extensive support to the Ministry of Commerce and Industry (MoCI). Over 20,000 private businesses have been registered by AISA offices throughout the country, while approximately fifty new businesses a day are being registered with the MoCI. There is general satisfaction with improvements to Afghanistan’s business operating environment among domestic and international businesses. However, it is also evident that a number of bottlenecks continue to impose significant burdens on the business community including various forms of delay, extortion, and onerous bureaucratic requirements. This paper is based on two research projects which mapped and assessed the processes of acquiring a business license and renewing an existing business license. The findings reported here are intended to support the Government of Afghanistan and its international donors in their continued efforts to streamline new business registration and business license renewal procedures. Section 2 outlines the study’s objectives and methodology. Section 3 examines reforms to date in the arena of business licensing and license renewal, highlighting the work of the Department of Licensing, Ministry of Commerce and Industry (DL-‐MoCI), their key accomplishments and remaining challenges. Section 4 provides a comparison between official and actual procedures
1 World Bank (2006), “Doing Business in 2006: Creating Jobs,” 6. 2 Ibid. 3 Afghanistan Compact (2006). 4 Afghanistan National Development Strategy (2008).
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for acquiring new licenses and license renewals, while Section 5 offers an analysis of the impact of this discrepancy on business actors in Afghanistan. Section 6 concludes and provides a series of recommendations for consideration by domestic and international policy makers to support ongoing reforms in licensing and license renewal in Afghanistan.
2. Objectives and Methodology
This paper reports on the findings from two separately commissioned studies. The first study focused on acquiring a business license with a focus on the Ministry of Commerce and Industry. The second study focused on renewing an existing business license with a focus on the Ministry of Finance (MoF). The combined objectives of these studies were thus to: -‐ Document official procedures required to obtain and renew business licenses through the
Department of Licensing, Ministry of Commerce and Industry -‐ Document the steps, time, and costs of obtaining and renewing a business license in
practice including licit and illicit requirements -‐ Pinpoint areas of continued difficulty for applicants including bottlenecks, duplicative or
unnecessary processes, and corruption, and -‐ Generate recommendations for future interventions in licensing reform. The first study was carried out in consultation and cooperation with DL-‐MoCI. Initially, researchers used a mapping exercise to delineate official and actual steps required to obtain new and renew existing business licenses through the DL-‐MoCI. The official steps were determined through interviews with key informants at DL-‐MoCI, while the actual steps were mapped out by undertaking the process of acquiring a trade license and through focus group discussions with business actors on the topic of license renewal. Researchers then sought to verify the applicants’ actual experiences and identify the constraints in the licensing processes. This was achieved by convening two focus group discussions in March and April 2011 with active traders in the offices of APPRO and Afghanistan Chamber of Commerce and Industry (ACCI). The resulting data was further verified through a survey of license applicants at DL-‐MoCI conducted over a period of three weeks during June and July 2011, resulting in data from 152 applicants for both new licenses and license renewals. Identifying process bottlenecks in business licensing renewal carried out at MoF was the focus of the second study. To gain insight into common bottlenecks, researchers sought to conduct in-‐depth interviews with officials in relevant departments at MoF as well as officers at the High Office of Oversight (HOO). Formal approaches to MoF officials for interviews were met with indifference and a general lack of willingness to engage. As an alternative, two consultation meetings were organized at APPRO’s offices in September 2011 with invitees from MoF, HOO, other relevant bodies, and licensing renewal applicants. While this did not generate new data on MoF practices, APPRO researchers were able to gauge MoF officials’ reactions to the study’s preliminary findings, including allegations of widespread corruption throughout the licensing renewal process. These consultation meetings also served to facilitate dialogue among stakeholders, with the goal of mobilizing political will to address identified issues identified by the research.
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It should be noted that these studies focused only on the experiences of Afghan national individuals and firms. Although one foreign firm was engaged during the survey phase, no foreign individuals were included as key informants or focus group participants. Foreign business actors’ experiences with licensing or other administrative tasks is an important area for research, however, with particular emphasis on foreign investors’ responses to corruption and the impact of those responses on corrupt practices.
3. Overview: Business Licensing in Afghanistan
Despite significant growth in private sector activity as a result of reconstruction and reform efforts since 2001 a number of major constraints remain, with poor governance and institutionalized corruption assuming prominence.5 A 2008 survey commissioned by the World Bank and the United Kingdom’s Department for International Development (DfID) reported that although private sector actors were “quietly resolving and managing the bewildering array of constraints they face,” growth and market development continued to be hindered by weak policy enforcement, disorder, corruption, and access to resources among other factors.6 In particular, corruption and weak policy enforcement were seen by the respondents as a constraint to business registration and licensing.7 These constraints are “more or less the same” as those reported in a similar survey from 2005, but with “marked deterioration in policy enforcement and security related to crime, theft, and disorder.”8 Afghanistan’s business regulatory environment is currently ranked 167 out of 183 economies, down from 162 in 2009.9 As in other countries, operating a business in Afghanistan requires a license. Licenses for individual traders or trading companies are awarded by the Department of Licensing at the Ministry of Commerce and Industry (DL-‐MoCI), while the Afghanistan Investment Support Agency (AISA) grants all other types of licenses in conjunction with the relevant ministries. While individual traders are required to register only with the DL-‐MoCI, trading companies are additionally required to register with the Commercial Court. All licenses are valid for a period of one year, after which the license holder must apply for renewal. Although this study focuses on the licensing processes of MoCI, a brief description of AISA’s role and functions is important for understanding the full context business licensing in Afghanistan. 5 See APPRO’s Working Paper on Corruption and Private Sector Development, available at: http://www.appro.org.af/Publications.html. 6 World Bank / DfID (2008). The Afghanistan Investment Climate in 2008. (Kabul: World Bank and DfID), §5 and 6.
7 The report notes: “Larger firms generally perceive corruption as a bigger issue, although many small firms report informal gifts or payments in their dealings with public officials, especially for the registration process, securing operating licenses, or obtaining a water connection. Over half the firms in Herat, Jalalabad, and Kabul reported corruption as a severe constraint. Over 20 percent of firms in Herat, Kandahar, and Mazar-‐e-‐Sharif (compared with just 4% of firms in Kabul and 6% of those in Jalalabad) reported that an informal gift was expected or requested for the registration process. For an operating license, two out of three firms in Mazar-‐e-‐Sharif and two out of five in Jalalabad report paying bribes. To secure an import license, about half of the firms in Mazar-‐e-‐Sharif and Herat, and a third of those in Jalalabad, pay a bribe or make a gift.” World Bank/DfID (2008), §2.31.
8 Ibid. 9 Current rank derived from the World Bank’s Ease of Doing Business Index, accessed at http://data.worldbank.org/indicator/IC.BUS.EASE.XQ on Nov. 6, 2011. 2009 data cited in World Bank (2009), §9.
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AISA was launched in 2003 as part of efforts to streamline the business licensing process, due in large part to perceived bureaucratic weaknesses at the DL-‐MoCI. AISA was created to serve as a ‘one-‐stop-‐shop’ for obtaining or renewing licenses for a range of business models. AISA issues licenses for all private sector businesses except trading companies (registered with MoCI) and small retail businesses (registered with the Kabul Municipality).10 Applicants are assisted in completing the forms required to initiate the registration process or to renew a license. On behalf of the business applicant, and depending on the specific requirements for each license type, AISA assists the applicants in following up on their license applications through the Ministry of Justice, MoCI, the Commercial Court, and MoF. Securing a new business license under AISA’s streamlined application system takes an average of five weeks while license renewal can take several months. A key difference between AISA and DL-‐MoCI is that AISA completes all stages of the registration processes on behalf of the applicant while DL-‐MoCI procedures require the applicant to undertake these processes him/herself or utilize the services of semi-‐official agents. It is worth pointing out that AISA was created in 2004 to remove bureaucratic hurdles to business activity and as a non-‐governmental body that acted efficiently and effectively in support of the fast emerging private sector. AISA’s role was to ease the administrative burden on the DL-‐MoCI and aid it to re-‐assume its rightful role as a key government ministry.11 Before 2004 acquiring a business license with the DL-‐MoCI was estimated to take as many as 53 steps and up to eight weeks. Through use of the “Investor Road Map” diagnostic tool12, the Government of Afghanistan and its advisors successfully reduced the number of signatures needed to obtain a license to five and the time required to between five and seven days. While applying for a business license with DL-‐MoCI is more efficient than it was in 2004, DL-‐MoCI procedures continue to be hampered by excessive bureaucracy and opportunities for corruption, however. There is strong evidence both within this study and others to support the World Bank’s finding that the DL-‐MoCI’s licensing process has “slipped” from the streamlined five steps back to a burdensome 17 stages for individual traders and 18 for incorporated trading companies.13 Renewing an existing business license is described as even more complicated and time-‐consuming than applying for a new license, given higher incentives for corruption and tax fraud as well as bureaucratic inefficiencies at relevant government ministries. Increased incentives for fraud are likely related to the precondition that all tax payments must be finalized with MoF for the previous financial year before a renewal can be issued. Because many businesses avoid payment of business taxes or keep less-‐than-‐accurate accounts of their activities, license renewal applicants are commonly subject to an investigation by MoF officials. Those with sound record keeping are not immune from inspection either. Inspections usually take around two months. The likelihood of being inspected at a slow pace, combined with lack of institutional 10 See www.aisa.org.af for further details. 11 It is worth noting that AISA’s very success has become an obstacle to MoCI gaining full legitimacy and becoming established as a key ministry charged with facilitating and overseeing private sector development, however. AISA’s current strength and success increasingly raise questions regarding MoCI’s continuing weaknesses. Paradoxically, it is now MoCI’s need for continued support to accomplish what AISA has already achieved.
12 For more on the USAID/World Bank funded “Investor Roadmap,” see http://www.commerce.gov.af/en/page/555. 13 World Bank / DfID (2008).
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oversight, low salaries, and limited capacity at MoCI and MoF in particular creates an environment that enables and tolerates corrupt behavior. Thus, for a mutually beneficial fee, paid by the applicant or a komishenkar (agent) on the applicant’s behalf, license renewal applications are fast-‐tracked while the government stands to lose taxes payable by businesses. To understand where and how the current weaknesses and bottlenecks are occurring, a comparison was made between the officially mandated and actual steps for obtaining a new license and renewing an existing business license through DL-‐MoCI. The next section reports on the findings from this comparison based on the data collected from key informants and survey participants.
4. Findings
4.1 New Licenses
Officially, obtaining a new license through DL-‐MoCI should take no more than two days providing the paperwork is in order and necessary clearances have been obtained by the applicant from the relevant ministries.14 The steps are described as follows: 1. Approach Directorate of Trade Licenses (DTL), DL-‐MoCI, for referral to the Section for
Individuals Traders or Section for Companies. 2. Collect and complete the Registration Form. 3. Submit the Registration Form to the DL-‐MoCI Treasury Department. Collect the Request for
Payment Form to be taken to a designated Bank for deposit. 4. Deposit payment for the license fee at the Bank. Collect receipt. 5. Submit receipt to the Section for Individual Traders or Section for Companies, for
verification of the deposit. 6. Proceed to the Central Registration Office, MoF, to register the business. Collect
confirmation letter. 7. Submit confirmation letter to the Section for Individual Traders or Section for Companies to
obtain clearance for issuance of license. 8. Submit license clearance to the Head of DL-‐MoCI, for signature and issuance. The official costs associated with obtaining a new license are listed in Table 1. Officials at DL-‐MoCI state that between 1.5 and 2 days are required to complete the licensing process, at a total direct cost of 2,700 Afghanis (Afs)15 for an individual license. To verify this information, a license applicant was followed by an APPRO researcher to document the various stages of license acquisition through DL-‐MoCI. In contrast to the officially stated eight steps, the documentation the actual process revealed that there were many more steps than eight. A key finding of this phase of the study was the prevalence of fixers, or komishenkars, throughout the two processes of acquiring a new license and renewing an existing one. Studies since around 2007 have shown a significant increase in the use of the
14 Applicants are required to have key documents in place before beginning the process, including an ‘organizational constitution’ describing the nature of the business and the roles of key individuals who make up the firm.
15 The standard exchange rate for 50 Afghanis is 1 USD.
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komishenkars as a means to overcome the multiple burdens of multi-‐step, complicated, and often obscure administrative processes.16 The interviewed traders reported that their own dealings with officials and those conducted through komishenkars are plagued by corruption, both at the institutional level and through smaller, more arbitrary bribes. Table 1. License Acquisition Costs (Official) Domestic Individual Trader License 35 USD Domestic Company Trader License 60 USD Foreign Individual Trader License 1,400 USD (includes 30 USD as “special charge”17) Foreign Company Trader License 1,400 USD (includes 30 USD as “special charge”) Foreign-‐Domestic Joint Venture Trader License 1,400 USD (includes 30 USD as “special charge”) Trading Agency of a Foreign Company in Afghanistan
1,900 USD (includes 20 USD as “special charge”)
Transit and Freight Forwarding Business License 60 USD Cooperative Company License Starting at 60 USD (increases depending on
amount of the start-‐up capital required) Brokering License 35 USD
Source: DL-‐MoCI Since 2006 the prevalence of corruption has increased and it has become more institutionalized accompanied with the inevitable backsliding of structural reforms. Komishenkars are thought to participate in the giving and taking of bribes 44% of the time in 2010.18 For a short time, komishenkars were formally recognized by the customs department as semi-‐official clerks for the processing of traders’ paperwork.19 Although this is yet another layer of formalized corruption faced by business actors, in many ways the komishenkars act as a buffer between corrupt or less capacitated officials and traders by navigating the fastest and least expensive path through what is a complex, unclear, and at times predatory process.20 The actual process for acquiring a new license is as follows: 1. Submit a written letter of request for a license to DL-‐MoCI. Letter writers are located at the
entrance of the MoCI; their fee is approximately 30 Afs and this takes about ten minutes. -‐ At this point, the applicant can choose to use the services of any number of fixers who
congregate in front of the MoCI and are often called over by the letter writers to assist potential clients. A fixer usually charges 7,000 Afs for completion of the licensing process, offering delivery in approximately three days.
2. Proceed to the Section for Individual Traders or Section for Companies, DL-‐MoCI. -‐ Submit the license request letter to the relevant section. -‐ Collect a Personal Information Form and an Assessment Form for a fee of 220 Afs. (The
fee listed on the Personal Information Form is 100 Afs; the Assessment Form does not note a price.)
16 IWA (2007). 17 It is unclear what this ‘special charge’ covers, or whether is it part of scheduled fees. 18 IWA (2007) and IWA (2010). 19 Key informant interviewed in Kabul, June 2011. Subsequently, in July-‐August 2011, key informants from the Customs Department of the Ministry of Finance reported that komishenkars were no longer formally recognized in the customs system.
20 IWA (2010).
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-‐ Complete the first part of the Personal Information Form. 3. Proceed to the Ministry of Interior (MoI) to submit part two of the Personal Information
Form, the Criminal Clearance Form. This clearance usually takes about 24 hours. 4. Having collected the Criminal Clearance Form, proceed to the MoF to submit part three of
the Personal Information Form, which includes a request for a Tax Identification Number (TIN).
5. Return to the Section for Individual Traders or Section for Companies, DL-‐MoCI, to submit the MoI stamped Criminal Clearance Form. Collect license fee payment form to be taken to the DL-‐MoCI Treasury Department.
6. Proceed to the Treasury Department for verification of the stamped Criminal Clearance Form and the license fee payment form.
7. Proceed to the DL-‐MoCI Department of Registration, where the applicant is issued two requests for payment (one for 1,500 Afs and the other for 150 Afs).
8. Proceed to the designated Bank, to submit two fees (1,500 and 150 Afs). Collect receipts. 9. Return to the Treasury Department to submit receipts for verification, after which the
applicant is referred to the Department of Registration. 10. Proceed to the Department of Registration, where the payment is again verified and the
applicant is referred back to the office of the DTL, DL-‐MoCI. 11. Proceed to the DTL to receive an order for issuance of a TIN. 12. Proceed to the Central Registration Office, MoF, to submit the TIN request. The issuance of
TIN usually takes 24 hours. 13. Return to the Department of Registration, DL-‐MoCI, to receive the Registration Form. The
applicant is then issued two more requests for payment: 500 Afs for the “right to register” (Haq e Sabt) and 666 Afs for the “First Application Surcharge” (Haqul Esha-‐eh).
14. Return to the Bank to deposit second round of fees. 15. Return to the Department of Registration to submit payment receipts for verification. The
applicant is then referred back to the Central Registration Office, MoF. 16. Return to the Central Registration Office for submission of the applicant’s completed and
signed Registration Form. The applicant is told to return the next day to collect the verified and registered form.
17. Return to the Central Registration Office to collect Registration Form. The applicant is told to deliver part of the form to the Archives Department, DL-‐MoCI.
18. Proceed to the Archives Department to submit part of the Registration Form. 19. Return to the Section for Individual Traders or Section for Companies to collect a clearance
form for submission to the Secretariat, DL-‐MoCI. 20. Proceed to the Secretariat, DL-‐MoCI, to submit the licensing clearance form. At this point,
the license is issued in Farsi and English and sent to the office of the DTL, DL-‐MoCI, for signature.
21. Proceed to the DTL. The Director signs and formally issues the applicant his/her license. The 152 applicants surveyed at DL-‐MoCI reported a great deal of variation in actual costs for obtaining a new license (Figure 1), as well as the unavailability of receipts for all of the ‘fees’ requested by officials (Figure 2).
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Figure 1. Average Cost per License Type
Shadowing one license applicant as part of this study revealed that the actual cost of an individual trader’s license totaled 3,060 Afghanis, excluding indirect transportation costs and other travel expenses (Table 2). This is an average difference in direct costs of 360 Afs per licensing applicant, not including the more significant costs associated with procedural delay, travel and lost economic opportunity.21 Figure 2. Percentage of Applicants Receiving Receipts for All Payments
On average, around fifty new applicants per day begin the process of obtaining a new business license. The amount of money that leaks from the process is thus roughly 360 Afs per applicant six days a week, or approximately a leak of 108,000 Afs per week.
21 Travel and transport related expenses from Kandahar to Kabul, for example, can cost around 400 USD at a minimum and range up to thousands of dollars.
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Table 2. Indirect Costs for Out-‐of-‐Kabul Applicants Travel Costs – One Way (USD)
Province Food in Kabul (USD per day)
Accommodation (USD per night) Air Land
Kandahar to Kabul 10 – 40 10 – 300 100 10 – 40
Herat to Kabul // // 120 20 – 40
Mazar to Kabul // // 100 10 – 20
Helmand to Kabul // // 100 7 – 20
Jalalabad to Kabul // // No Commercial Flights 4 – 10
Ghazni to Kabul // // No Commercial Flights 4 – 10
Paktia to Kabul // // No Commercial Flights 4 – 6
Kunduz to Kabul // // No Commercial Flights 10 – 20
Bamyan to Kabul // // No Commercial Flights 10 – 15
Parwan to Kabul // // No Commercial Flights 3 – 5
Khost to Kabul // // No Commercial Flights 10 -‐15
The process described above is estimated to take an applicant between three and five days of continuous effort, requiring a total of 23 signatures or verifications of signatures. Using a komishenkar doubles the cost of obtaining a license but it also cuts the average processing time in half.
4.2 License Renewals
Renewing a license with the DL-‐MoCI is a far slower and, by all accounts, much more painful process. The official costs associated with the renewal process are listed in Table 3. Officially, the process for renewing a license through DL-‐MoCI is as follows: 1. Submit an up to date business balance sheet to the Revenue Department and Control
Section, MoF, to secure a letter of clearance to proceed with the renewal process. 2. Once clearance is received from the MoF, submit a written letter of request to MoCI for the
renewal of an expired license. The MoCI will refer the request to the Directorate of Trade Licenses (DL), MoCI, for a fee of 30 Afs.
3. Proceed to the DL-‐MoCI to collect two forms for a charge of 220 Afs (no receipts are issued). 4. Proceed to the Department of Registration, DL-‐MoCI. On the condition that the applicant
has already registered the request for renewal with the DL-‐MoCI, the Department of Registration issues a request for payment of 1,950 Afs.
5. Proceed to the designated Bank for payment and collection of the receipt. 6. Return to the Department of Registration, where the receipt is verified and registered. The
bank receipt is stamped and returned to the applicant. Collect two further requests for payment (150 Afs each) to the Department of Registration, for ‘stamping services’ and photocopying charges.
7. Proceed to the Revenue Department and thereafter the Control Section, MoF, to present business accounts in order to secure clearance on tax payments and other business charges (e.g., import taxes).
8. On receipt of clearance from the Control Department and a referral back to the DL-‐MoCI, the applicant may return to DL-‐MoCI to collect his/her renewed license.
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Table 3. License Renewal Costs (Official) Domestic Individual Trader License 35 USD Domestic Company Trader License 50 USD Foreign Individual Trader License 400 USD (includes 30 USD as “special charge”22) Foreign Company Trader License 400 USD (includes 30 USD as “special charge”) Foreign-‐Domestic Joint Venture Trader License 400 USD (includes 30 USD as “special charge”) Trading Agency of a Foreign Company in Afghanistan
900 USD (includes 20 USD as “special charge”)
Transit and Freight Forwarding Business License 50 USD Cooperative Company License Starts from 50 USD but may be higher depending on
amount of the start-‐up capital Brokering License 35 USD
Source: DL-‐MoCI To document the actual process, costs, and length of time for license renewals focus group discussions and individual interviews were held with a number of experienced traders, MoF officials, and officers of the HOOAC. The licensing renewal process takes significantly longer than securing a new license mainly because the financial stakes are much higher in the renewal of licenses, both for the applicants and officials involved. To illustrate, without clearance from MoF the application for renewal cannot be submitted to DL-‐MoCI. And, without a valid license goods cannot be cleared through the Customs system, risking significant losses to importing traders who are required to pay storage fees to the ports where their goods are being held. This risk is compounded for traders of perishable goods who also incur spoliation-‐related costs. Unlike in securing new licenses, where use of administrative fixers was seen as more of an issue of convenience, traders in the focus group described fixers as a practical necessity in the license renewal process. Even with their additional connections, securing a license renewal can take a fixer as long as three to four months and can cost a considerable amount in illicit fees. Traders’ decision-‐making on whether to use the services of a fixer must also take into account the fact that license renewal is required annually. The first serious bottleneck in the licensing renewal process occurs even prior to submitting an application to the MoCI for license renewal, when traders are required to present their business accounts to the MoF to obtain a letter of clearance. Officially, the Revenue Department and Control Section of the MoF are required to examine renewal applicants’ business accounts to ensure taxes, duties, rents, and other obligations are up to date. Much of this data is in fact already available to them, in the database of AYSCUDA, Afghanistan’s new, fully automated customs system. While there are concerns regarding the accuracy of some of the data, the fact remains that the ASYCUDA database can and should be used as a major source for much of the information MoF officials demand from license renewal applicants. Knowing that this database exists, requests for detailed information by MoF officials are thus understood by most traders to be indirect requests for bribes. While MoF officials are legally
22 It is unclear what this ‘special charge’ covers, or whether it is part of scheduled fees.
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mandated to request information that is required by official forms, such as the number of people employed in an applicant’s firm, rent paid for business premises, properties owned, daily sales figures and so forth, requests are more commonly made not to gather the required information but instead to coerce traders into paying bribes. Beyond officials’ ignorance of data already in their possession, the connection between opportunities for corruption and requests for information is further evidenced by the fact that no matter whether the applicant’s files are orderly and up-‐to-‐date or genuinely in need of investigation, applicants are almost universally expected to proffer ‘donations’ or gifts of appreciation to secure the MoF’s clearance of their accounts. Moreover, each division of the MoF involved in the renewal process is likely to demand such a payment, ranging from about 600 USD to receive the application to 1000 USD for final confirmation and clearance. This stage of the process alone can take many days or even weeks depending on the applicant’s willingness to furnish the officer in charge with adequate payment. For an applicant whose accounts are not well maintained the likelihood of paying multiple and excessive illicit fees is even higher. A breakdown of license applicants’ perceptions on the causes of bottlenecks at the MoF can be seen in Figure 3, with unjustified and undocumented requests for cash payments as the most cited source.23 Figure 3. Bottlenecks at the Ministry of Finance
n=152 Once the letter of clearance is secured from the MoF, applicants face further administrative bottlenecks throughout the process, almost universally found when excessive or duplicative bureaucratic requirements increase opportunities for corruption. These include, for example, demands for a ‘voluntary’ gratuity of between 2,000 and 4,000 Afs at the Central Statistical Office where traders are required to register their licenses. Another common hurdle in the renewal process is in the DTL, MoCI, where traders are requested to pay between 200 and 2,000 Afs as an application processing fee. Some traders reported that renewal applications were occasionally denied by the DTL on the grounds that the goods to be imported under the renewed license were currently being imported by other license holders; traders allege that such refusals are driven by pressure from higher-‐level officials and other traders who wish to monopolize the import market for particular goods. Although the DTL has a relatively clean
23 Further survey data is available in Section 4.3.
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reputation for bribe taking among traders (despite the patterns described above), fixers routinely pay further gratuities to DTL officers of between 100 to 500 Afs to fast track their clients’ applications. Much of the corruption in this arena has become institutionalized and is sustained through tacit agreements between MoF officers, fixers, and the renewal applicants themselves. Although often seen as victims of corruption, traders have at least two incentives not to present accurate business accounts or other information and instead offer to pay bribes. First, business accounts and other financial data can reveal a trader’s net worth to others, which may increase the likelihood of kidnapping, extortion or other security threats for many wealthy Afghans. Second, it is widely recognized that many traders undervalue their imports, business size, profits and properties in order to pay less duties and taxes to the state. Knowing this, MoF officers seek out incompleteness, irregularities, and other inadequacies in applicants’ paperwork in order to justify their demand for informal payments. What has developed is a relatively fixed equilibrium between officials and applicants, a schedule of illicit payments which is undocumented yet understood by all participants. While there are firms in Kabul that offer account preparation services for between 10,000 and 20,000 Afs, many traders prefer to continue paying the MoF to keep their actual holdings unreported. But costs are spiraling as corruption becomes increasingly institutionalized; informants suggested that recently traders have been known to pay as much as 200,000 Afs just to get through the first stage of MoF clearance. In order to complete the renewal process, traders describe paying up to 500,000 Afghanis in total, depending on the size of the business, adequacy of business records and the applicant’s ability to pay. It is important to state again that this process is required on an annual basis.
4.3 Findings from Survey Data
In addition to qualitative interviews, informants were asked to participate in a quantitative survey. The survey requested that participants provide detailed information about amounts paid during the licensing renewal process and rank the various aspects of obtaining or renewing a business license according to their transparency, helpfulness and ease. Of the 152 survey participants almost 40% report paying between 10,000 and 20,000 Afs in illicit fees, while over 20% report paying more than 100,000 Afs (Figure 4).
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Figure 4. Breakdown of Amounts Paid to Renew a Business License
n=152 Given the prevalence of using administrative fixers, renewal applicants were asked to estimate the costs incurred when utilizing fixers in the renewal process. When a fixer was used, costs were reportedly lower, though as seen in Figure 5, illicit fees still generally totaled between 10,000 and 20,000 Afs. Figure 5. Estimated Fees When Using Fixers in License Renewals
n=152 When fees paid by applicant traders independently and fees paid through the use of a fixer are compared, it is clear that the use of a fixer accrues real savings to the renewal applicant. Averaged out, individual traders can spend 200,000 Afs on a renewal application they submit themselves, saving as much as 100,000 Afs through the partial use of a fixer, and almost 140,000 Afs when a fixer is used for the whole process (Figure 6).
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Figure 6. Average Costs for License Renewal
n=152 Survey participants were further asked whether they had received any form of receipt for payments made to MoF and MoCI officials during the renewal process. Over 95 percent of those surveyed reported making undocumented payments (no receipts) to the MoF, while just under 50 percent reported making undocumented payments to the MoCI at some stage of the license renewal process (Figure 7). Figure 7. Payments without Receipt
n=152 Perhaps not surprisingly given the results described above, the vast majority of license renewal applicants rely on fixers. What is interesting, however, is that for the majority of those surveyed (approximately 80 percent), the most compelling reason to utilize the services of a fixer were not related to money, but to saving time (Figure 8). Of additional note is the third most common reason for using a fixer, which is traders’ unfamiliarity with renewal procedures.
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Figure 8. Reasons for Using a Fixer
n=152 In a separate component of the survey, traders were asked to rank the ministries and specific departments involved in licensing renewal according to their transparency, helpfulness and ease of use.24 The least transparent points of contact according to respondents were the banks designated for payment of license fees, the Control Section of the MoF, and the Central Registration Office of the MoF. In terms of helpfulness, the least helpful entities were reported to be the bank, the Control Section and Central Registration Office at the MoF. The Directorate of Trade Licenses and the Treasury Department at MoCI were also identified by license renewal applicants as relatively difficult stages in the process. Payment of fees at designated banks was consistently ranked lowest for transparency, helpfulness, and ease, particularly by those acquiring a new license. Abuse of authority by officials throughout the business licensing sector not only detracts from economic growth by raising transaction costs for traders, but has the knock-‐on effect of undermining the legitimacy of the licensing regime as a whole. An example of this is seen in the ‘guarantee deposit,’ an additional fee of between 200-‐300,000 Afs imposed on traders by the MoF. The fee was instituted to ensure that imported goods are sold in Afghanistan and not illegally re-‐exported to Pakistan, which has much higher customs duties on imported goods. While this deposit may have a rational basis, it is difficult for traders to see such costs (or the officials who enforce them) as legitimate given the prevalence of demands for illicit fees by officials at almost every stage of the renewal process. This sentiment was best illustrated by one focus group participant:
[W]e pay for our [imported] merchandise, taxes, and wages and report all these expenses to customs by recording them on the HCD form.25 When we have paid all that is due to get the merchandise across the border and it is recorded, why do we need to present the Ministry of Finance with a guarantee, or fill out yet another license application form? If they have already
24 Survey respondents were asked to rank each step of the process required to acquire or renew trade licenses according to the following categories: transparency (0=Not at all Transparent, 10=Transparent), helpfulness (0=Not at all Helpful, 10=Helpful), and ease (0=Not at all easy, 10=Easy).
25 Researchers were unable to determine the meaning of this acronym.
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charged us everything we owe to the government and we are clear, why is there a need to fill out a form to say that we have done exactly that? I think all these requirements are put in place to increase the opportunities for extorting money from traders. [Government officials] are just looking for excuses to take bribes. This is not good for trade and not good for fighting government corruption.
5. Discussion
In Afghanistan, key governmental entities are responsible for establishing and regulating acceptable parameters for private sector actors across the full spectrum of business activities. A significant element in the management of this sector pertains to the issuing and renewal of business licenses. Despite completing a number of in-‐depth structural reforms to the licensing process, the Government of Afghanistan and its international donors appear to have been less successful in the ongoing implementation of these projects. In particular, little attention has been paid to effective monitoring of procedural changes or to incentivizing behavioral change among relevant officials and license applicants. The result has been a strong tendency for institutional regression to pre-‐reform status, and thus renewed opportunities for excessive bureaucratic delay and corruption. An important example of such backsliding, and the risks to economic growth and good governance it creates, can be seen in reforms to the business licensing and renewal sector. Successes in this arena were initially dramatic, reducing procedures for licensing to eight steps from over fifty between 2004 and 2006. By the time of this study, however, procedural steps were back up to over twenty and license applicants almost universally had the expectation of paying some form of illicit fee, usually at multiple stages of the process and at increasingly higher cost. In fact, this certainty led to the creation of a new mechanism in the licensing process: the fixer, or komishenkar, who could cut processing times by about half for double the average price. While the current state of affairs remains much improved from what it was prior to 2004, regression in structural reforms has sharply demonstrated to business actors their vulnerability in the face of official impunity. This awareness has led to a loss of confidence, and a corresponding increase in negative incentives among business actors to engage in corruption. Limitations in the design and implementation of top-‐down structural reforms have thus not only detracted from their long-‐term success and sustainability, but have contributed to the institutionalization of old, and new, forms of corruption within the targeted ministries. When asked as part of APPRO’s survey what could be done to improve the license renewal process, participants had a series of clear and concrete suggestions (Figure 9). The general acceptance of these suggestions among key stakeholders was verified through in-‐depth interviews with traders, fixers and officials within the MoF and HOOAC. In addition to calls for increased transparency, traders strongly requested an extension in the validity of business licenses to more than one year – to three or even five. This change alone would eliminate a great deal of the opportunities for corruption and sense of alienation from state process experienced by traders and officials alike.
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Figure 9. Traders’ Suggestions for Improvements to the License Renewal Process
n=152 The vast majority of informants and survey participants expressed a strong preference for reforms that would bring about a ‘one-‐stop-‐shop’ for licensing renewal, where traders could have their records checked, taxes and other fees paid in a unified process that would eliminate opportunities for corruption. It is likely that traders based this suggestion on the demonstrated success of the Afghan Investment Support Agency (AISA), which now offers a one-‐stop-‐shop for all processes related to non-‐trade related business licenses.26 As discussed above, the AISA’s success in streamlining and increasing transparency in licensing practices has only highlighted the ongoing corruption and bureaucratic delay within licensing departments at the MoF and MoCI. As one license renewal applicant demanded to know, “why should we have to go back and forth between different locations to process our paperwork? Why can’t we just go to one place and do all the things required of us?” Another put an even finer point on it, asserting that “the more places you have to go to [in the process of renewing a license], the higher the possibility of actual and arbitrary delays which breed bribery and corruption.” In addition to further structural reforms, national and international efforts to improve business-‐related processes like licensing and license renewal must also take into account the personal and professional incentives that influence traders’ behavior. For example, according to the vast majority of renewal applicants who contributed to APPRO’s research, the most objectionable of all of the MoF’s licensing requirements was that of submitting business accounts for inspection to officials. Upon an examination of what matters to business actors in Afghanistan, the reasons for this objection become clear. First, formal bookkeeping is a rare practice among Afghan traders. This and other research by APPRO has shown, time and again, that an overwhelming majority of businesses prefer not to keep formal records of their business transactions. Reasons for this disinclination to rely on documentation include the wish not to reveal monetary wealth, widespread illiteracy and an overall lack of business accounting skills. Second, as with entrepreneurs and businesses the world over Afghan business actors make every attempt to minimize costs and maximize profit. This fuels the drive, for example, to find loopholes in the MoF’s taxation regime or a mechanism to undervalue imported goods. Taken together, these
26 See Section 3 above, or the AISA’s website at www.aisa.org.af.
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and other factors continue to motivate traders to participate in corrupt administrative practices as a way to succeed (or even survive), both personally and professionally. If future endeavors to improve Afghanistan’s business-‐related structures and procedures are to have a positive and durable impact, national and international stakeholders must also account for behavioral incentives that will facilitate change from the bottom up. A focus on investing private sector actors with a stake in the outcome of reforms could include creating grassroots mechanisms for consultation, monitoring and advocacy, increasing support to the Afghanistan Chamber of Commerce and Industry as they consolidate their institutional role, and strengthening the role of civil society organizations devoted to the needs and interests of the business community (for example sectoral organizations, or etahadias). By transforming business actors into vested stakeholders with the means of influencing reform outcomes, business actors themselves will be empowered to support – as opposed to undermine – structural and procedural improvements to Afghanistan’s business operating environment.
6. Recommendations
• Reform efforts have the greatest positive impact when based on in-‐depth knowledge of the resources available to key actors, the environment to be reformed, and the pertinent levers that impact actual behavior beyond structural change. Perhaps most importantly, reform efforts should exhibit willingness to experiment with programmatic alternatives and adaptability in the face of unexpected outcomes.
• Currently, business licenses are valid for one year, requiring annual renewal. Much of
the bureaucratic delay and opportunities for corruption could be altogether eliminated by extending the duration of business licenses from one to three, or even five years. The Ministry of Commerce and Industry (MoCI) could continue to charge license holders an annual fee if so desired, but could avoid the time and costs associated with yearly renewal. This would be the easiest change to make, with likely the greatest and most immediate impact.
• According to most license renewal applicants surveyed by APPRO, the most objectionable of all Ministry of Finance (MoF) requirements is that of presenting business accounts as part of the renewal process. That this is a legal requirement – and not a de facto mechanism for soliciting bribes by MoF officials – must be made clear to license renewal applicants. These requirements, as well as a clear and concise explanation of their purpose, should be posted on the MoF’s website. Additionally, formal notices and clear checklists of all licensing renewal requirements, with mandated fees, should be posted in all offices where renewal procedures take place.
• Afghan businesses should be required by legal regulation, and supported by the Afghan
Chamber of Commerce and Industry (ACCI), to establish fully auditable accounting systems. Possession of complete and auditable accounts will act as a deterrent to corrupt officials at several key phases of the licensing process. This recommendation is also supported by International Chamber of Commerce (ICC) guidelines.
• Only designated government officials should be permitted to view business accounts. A
major concern held by many business actors is widespread knowledge about their level
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of wealth business activity, which may put them in danger of harassment, extortion, kidnapping, or other forms of criminal activity. Ensuring confidentiality within the licensing system is a key incentive to securing the full participation of business actors.
• Traditional Afghan business customs such as giving or receiving small payments in exchange for the completion of services are likely to continue to play a role in business transactions in Afghanistan for the foreseeable future. A complete ban is not practical or advisable, as this would likely just push such behaviors under the table. It is possible, however, to regulate and monitor what constitutes an acceptable gratuity and when a gratuity becomes a bribe. ICC Rules of Conduct and Recommendations for Combating Extortion and Bribery provide a helpful model for the pragmatic application of self-‐imposed anti-‐corruption efforts.27
• Reform efforts should embrace grassroots innovations aimed at increasing institutional
efficiency, such as the role of fixers, or komishenkars. By formally adopting and legitimizing such practices, they can be regulated to eliminate opportunities for corruption while minimizing transaction costs for license applicants. Such regulations could include, for example, formal certification, reporting requirements and financial disclosures, among others.
• Immediate steps must be taken to eliminate endemic levels of corruption the Revenue
and Control Departments at the MoF through instituting a higher degree of oversight and accountability. To move away from current practices, further procedural revisions and improved oversight mechanisms are required, the latter possibly to be implemented by a third party entity such as the High Office of Oversight and Anti-‐Corruption (HOOAC).
• A strong preference was expressed by the vast majority of study participants to create a ‘one-‐stop-‐shop’ for licensing renewal, where traders could have their records checked, taxes and other fees paid in a unified process that would eliminate opportunities for corruption. It is likely that this suggestion is based on the demonstrated success of the Afghan Investment Support Agency (AISA), which could serve as a model for future reforms.
• The ACCI has a mandate to promote the interests of Afghan businesses and protect those interests through advocacy-‐related activities. ACCI currently suffers from a lack of legitimacy within the businesses community, which has prevented it from fulfilling its mandate and thereby further detracted from its status among business actors and officials. ACCI requires ongoing technical support to help consolidate its authority as a key business-‐sector institution. ACCI will have to build trust within the business community by exhibiting their ability to perform key tasks, such as through a successful advocacy campaign.
27 The ICC Rules of Conduct and Recommendations for Combating Extortion and Bribery is available on the iccwbo.org website, at http://www.iccwbo.org/uploadedFiles/ICC/policy/anticorruption/Statements/ICC_Rules_of_Conduct_and_Recommendations%20_2005%20Revision.pdf
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• Competition over access to resources and scope of authority among key ministries and institutions is undermining national efforts to improve the business operating environment. An example of this is the AISA, whose success in streamlining non-‐trade business licensing procedures has further undermined the authority and legitimacy of the MoCI, due to their less efficient systems for issuing trade-‐related business licenses. Consultation with representatives of key ministries, AISA, ACCI and the wider business community are needed to explore long term strategies for addressing ambiguities in the division of labor and resources among ministries and administrative departments, as an element of the broader goals of good governance.
• Future efforts to address reforms in business-‐related administrative procedures must be fully inclusive of those who perpetuate and suffer from corrupt practices. For example, although the MoCI is primarily responsible for issuing/renewing business licenses, arbitrary delays and corruption are often encountered in the MoF. For this reason, it is critical to engage a broad range of stakeholders to generate cross-‐sectoral ownership and cooperation in the reform process. At a minimum, consultation should involve the MoF, MoCI, Ministry of Interior, and other key ministries, ACCI, AISA, and business community representatives, and focus on how to best continue to implement and enforce changes in licensing procedures. Outcomes from this dialogue should further include interventions to increase the integrity, independence, and authority of the HOOAC in relation to other governmental agencies and ministries.
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Annex 1: Survey Findings, Demographic Observations
This annex highlights some of the key demographic characteristics of business license and license renewal applicants identified in the survey component of this study. Approximately 70% of new license and renewal applicants at the DL-‐MoCI’s offices in Kabul are from businesses based in Kabul (Figure 3). Of applicants surveyed, around 10% were sole proprietorships while the majority were entities with between 2 and 10 employees. Around 5% of applicants were businesses with more than 10 employees. Only one large-‐scale national company was encountered during the survey, with 270 employees, and one foreign trading company with 300 employees (Figure 4). Figure 3. Provincial Origin of Trade Businesses Acquiring or Renewing Licenses at DL-‐MoCI
Figure 4. License and Renewal Applicant Firms, Number of Employees
New and renewal licenses are issued only to the head of the applicant’s firm or a designated representative. Figure 5 illustrates patterns in the delegation of this task.
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Figure 5. Position of Applicants in Firms Applying for New or Renewed Licenses
Of survey participants drawn from DL-‐MoCI offices in Kabul, all foreign owned company offices and transit and freight forwarding companies were headquartered in Kabul. While domestic companies engaged in importing and exporting are primarily based in Kabul, representatives of domestic trading companies from other provinces were also identified (Figure 6). Kandahar appears to be the only province other than Kabul that has a number of individual traders (about 5% of applicants surveyed). Figure 6. Provincial Spread of Business Types
Transit and freight forwarding license holders have the highest percentage of firms with more than 10 employees, at around 50%, while only about 20% of foreign owned companies had more than 10 employees (Figure 7).
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Figure 7. Number of Employees per Firm / License Type
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Appendix 1: International Chamber of Commerce Anti-‐corruption Rules of Conduct for Businesses and National Governments
Box 1. ICC Anti-‐corruption Rules of Conduct for Businesses ICC offers a range of other articles to be adhered to in fighting corruption as follows:
Article 1: Prohibition of Bribery and Extortion – Enterprises should prohibit bribery and extortion at all times and in any form, whether direct or indirect, including through agents and other intermediaries.
Article 2: Agents and Other Intermediaries – Enterprises should make their anti-‐corruption policy known to all agents and other intermediaries and make it clear that they expect all activities carried out on their behalf to be compliant with their policy.
Article 3: Joint Ventures and Outsourcing Agreements – Enterprises should take measures within their power to ensure that anti-‐bribery provisions consistent with these Rules of Conduct are accepted by joint-‐venture partners as applicable to the joint venture and by parties to outsourcing agreements.
Article 4: Political and Charitable Contributions and Sponsorships – Enterprises should only make contributions to political parties, party officials and candidates in accordance with applicable laws, and all requirements for public disclosure should be fully complied with.
Article 5: Gifts, Hospitality and Expenses – Enterprises should establish procedures covering the offer or receipt of gifts, hospitality or expenses to ensure that such arrangements are limited to reasonable and bona fide expenditures and do not improperly affect, or might be deemed to improperly affect, the outcome of a procurement or other business transaction.
Article 6: Facilitation Payments – Enterprises should not make facilitation payments. In the event that an enterprise determines, after appropriate managerial review, that facilitation payments cannot be eliminated entirely, it should establish controls and procedures to ensure that their use is limited to small payments to low-‐level officials for routine actions to which the enterprise is entitled.
Article 7: Corporate Policies – To prevent bribery and extortion, enterprises should implement comprehensive policies or codes reflecting these Rules of Conduct as well as their particular circumstances and specific business environment.
Article 8: Financial Recording and Auditing – All financial transactions must be properly and fairly recorded in appropriate books of account available for inspection by boards of directors, if applicable, or a corresponding body, as well as auditors.
Article 9: Responsibilities – The board of directors or other body with ultimate responsibility for the enterprise, should take reasonable steps to ensure compliance with these Rules of Conduct.
Source: CAC (2005)
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Box 2. ICC Rules of Conduct and Recommendations for National Governments Capacity Building: Governments should provide adequate resources − including funding, staffing and training − for the organizations combating corruption. These resources should be aimed at raising public awareness of the economic and social consequences of corruption. …
Strengthen Enforcement: Even though laws prohibiting extortion and bribery have been on the books in virtually all countries, enforcement is weak or nonexistent in many countries. Governments [should] strengthen enforcement of anti-‐bribery laws, including laws prohibiting extortion by public officials and laws prohibiting commercial bribery. Governments should also establish reporting channels for complaints about corruption. …
Economic Regulations: Governments should, as far as possible, minimize the use of systems requiring issuance of individual permits, authorizations, etc., because such systems offer scope for extortion and bribery. …
Public Procurement: Governments should commit themselves to improve transparency in public procurement, including public bidding, and publication of the criteria upon which awards are based. … In particular, in the case of projects financed by an international financial institution, observance of these principles should be reflected in contractual arrangements between the parties. …
Political Contributions: Undisclosed political contributions can be a source of abuse. Governments should, subject to the specifics of their national political system, regulate the conditions under which political contributions can be made. …
Accounting and Auditing: Governments should require auditing by independent public auditors of the accounts of all economically significant enterprises. Governments should also support the adoption of strong and consistent international standards for accounting and auditing. …
Export Credit Agencies: Export credit agencies should include in their conditions that financing and guarantees are not provided for contracts secured through bribery and that sanctions shall be applied in the event of violations. …
Official Development Assistance: Development assistance programmes should require strict adherence to anti-‐corruption rules by government officials and contractors. …
Source: CAC (2005)
