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Afghanistan Rural
Enterprise Development Program
:: Rural Enterprise
Development Policy ::
Rationale
The largely rural
population of Afghanistan is severely affected by
poverty, resulting from many years of conflict that have
been compounded by harsh drought. The physical
consequences of these events include poor infrastructure
and public services, indebtedness and low value assets
(human and financial). Through flight of educated people
and lack of access to education during the conflict
years the human resource base has been severely
depleted.
The Afghan economy, which
was considered bleak at the fall of the Taliban has
rebounded convincingly;
growth however, is due largely to one time or temporary
assistance. This situation highlights the need to
implement more sustainable drivers of economic
expansion. To this end the Government of Afghanistan is
pursuing several poverty reduction strategies, one of
which is to increase the number and diversity of
sustainable income generating opportunities for
individuals and families by supporting the growth of
formal private sector activities. Sustained, equitable
economic growth will be an essential path for poverty
reduction.
Any reduction in rural
poverty is dependant on the ability of the poor to
generate wealth and accumulate physical capital,
accompanied by the ability to invest in micro
enterprises, which can lead to the creation of SME’s.
Fundamental to the development of small businesses will
be a process of business incubation coupled with access
to affordable finance.
Given the urgent need to
diversify the economy and create commercial
opportunities, the Government sees the advantage of
creating an Afghanistan Enterprise Development Council
and designating The Ministry of Rural Rehabilitation and
Development (MRRD) as the focal point for promotion of
rural enterprises. A comprehensive and integrated
Enterprise Development Program is required to ensure
full coordination among national and sub-national
agencies and participation of civil society at the
grassroots.
The Current Situation
Available data shows that
investments in small and medium enterprises have fallen
across the board from 2004 to 2006. Currently Kabul
shows the highest amount of investment in SMEs, in
excess of $250 million, whilst Herat is less than $50
million and Kandahar, Balkh and Nangahar less than $25
million each. Commercial banks are lending to SME’s on a
limited basis, tending to concentrate on the higher end
of the SME sector, with loans over $50,000.
Smaller SME’s do not qualify for loans due to a lack of
registered assets and their capacity to maintain
records.
The construction and
industry sectors have experienced compounded annual
growth rates (CAGR) of 7.5 percent and 6.3 percent
respectively, over a three year period. Only Kabul has
experienced stable growth in the service sector, while
services have stagnated in other regions. The
agricultural sector has shown a decline over the three
year period of 12.6 percent.
For this reason, the
Government is adopting a policy framework that directly
addresses the key constraints to enterprise development.
Vision
To harness the potential of
the private sector for inclusive economic growth and
sustainable rural employment and income generation.
Potential
Sustainable livelihoods are
at the foundation of long-term social and economic
development of Afghanistan. The Nation’s proud cultural
heritage, unique environment, and natural beauty provide
numerous opportunities for investments in services to
support the visitor industry. Afghan products, once
recognized as being high quality and exported to global
markets, continue to be in demand. Fruits and nuts grown
naturally provide a sufficient volume of raw materials
for value added processing. Large areas of potentially
productive land offer sites for livestock raising to
meet increased local and regional demand. Given the
surplus of labor in rural areas, rural enterprises are
seen as providing the greatest opportunity for
employment and off-farm income generation for a large
portion of the Afghan population.
Definition of Rural Enterprise
For the purpose of
formulating this policy, rural enterprise is defined as
the investment of time and capital in creating,
expanding, or improving (for excellence) the operations
of a business or an endeavor that contributes to the
vitality of a community economy and that has employees.
Furthermore, the program will target for assistance only
those rural enterprises that are engaged in
value-addition activities, and will exclude as much as
possible trade-related activities.
Statement of the Policy
In the context of the
above;
Policy Statement Number
1;
The Government of
Afghanistan will establish the Afghanistan Enterprise
Development Council.
The Council will provide a
national focal point for consideration of cross-sectoral
policy issues and provide guidance on issues related to
enterprise development in Afghanistan. H.E. President
of the Islamic Republic of Afghanistan will serve as the
chairman of the Council. Members of the Council will
consist of Ministers of key line ministries concerned
with business development issues. The Council is
mandated by the Government to formulate a long-term
vision, policies, and programs for sustainable
development of enterprises generating products for food
security, import substitution, and eventually export
goods that meet international standards in
regional and international markets.
Policy Statement Number
2;
The Government will
establish the Afghanistan Rural Enterprise Development
Program (AREDP).
The AREDP will serve as a
mechanism to promote micro, small
and medium-scale enterprises that will create
jobs and contribute to poverty alleviation particularly
in rural areas. MRRD will be the lead agency for this
flagship program. In this role, MRRD will take
responsibility for executing the AREDP through an
Enterprise Consultant and an independent Fund Manager.
All agencies concerned with rural enterprise promotion
and development will contribute resources to the
execution of this program. The program will be managed
through central and sub-national government structures
to generate economic opportunities at the grassroots
level. The AREDP is a temporary structure which after 8
years will become a sustainable SME.
Policy Statement Number
3;
Through the AREDP and
other enterprise development initiatives and programs,
the Government will facilitate the establishment of
enterprises to meet food security needs and import
substitution demands.
Enterprise development
interventions financed through the Government’s budget
will be designed to promote self-sufficiency and create
opportunities for value added processing of raw
materials in country, with the aim of reducing
dependency on imports in the transition from donor
dependency to full market economy. In consultation with
the private sector, the Government will facilitate the
management and productive capacity of enterprises,
sharing of information, and creation of channels for
expression of entrepreneurial creativity. MRRD will take
the lead role in coordinating these efforts.
Policy Statement Number
4;
The Governments pro-poor
enterprise development policies, programs and
initiatives emerging from consultations with civil
society at the grassroots will aim at developing social
and economic stability that form the foundations for
good governance.
Recognizing the progress
made in rebuilding civil society at the grassroots and
that 80 percent of the Afghan people live in rural
areas, the Government aims to achieve the objectives of
the ANDS Rural Development Benchmarks. Initiatives of
the Afghanistan Enterprise Development Council will
complement the critical work of the National Security
Council and its efforts to re-establish security and
stability throughout the country. Acknowledging the key
role that private enterprise plays in creating economic
opportunity and jobs that lead to social stability, the
Government will utilize the AREDP as an accelerating
mechanism for empowerment of private enterprises.
Building on the indigenous knowledge and local wisdom of
the Afghan people, the AREDP will focus on the promotion
of micro-enterprises producing culturally inspired
products.
Policy Statement Number
5;
The
Government will operate a policy-based lending program
to promote enterprise development specifically linked to
critical food security needs and import substitution.
The
Government acknowledges the lack of capacity of small
enterprises that prohibits the majority of prospective
investors from qualifying as borrowers from private
lending institutions at the current high rates of
interest. The AREDP will operate a policy based lending
program that facilitates the phase-in of market-level
interest rates whilst building the capacity of potential
entrepreneurs.
Policy Statement Number
6;
The Government will
ensure sustainability of programs by establishing access
to revolving credit and privatizing business support
services.
Learning from past experiences, the activities
implemented by the AREDP will be structured to respond
to the financial needs of micro-, small-, and
medium-scale enterprises. By taking actions that fill
gaps in the existing financial system, key stakeholders
will participate in a manner that will allow revolving
credit activities to continue. In this way, the AREDP
will be sustainable when exit strategies are implemented
within all projects under its control.
Policy Implementation
The Government will utilize
the following measures to implement the adopted
policies:
Policy Statement No. 1
The Government of
Afghanistan will establish the Afghanistan Enterprise
Development Council.
Measures
-
The President will create the Afghanistan Enterprise
Development Council (AEDC) consisting of these
following bodies:
·
The
President of the Islamic
Republic of Afghanistan
(Chairman)
·
Ministry
of Rural Rehabilitation and Development (Secretariat)
·
Ministry
of Finance
·
Ministry
of Commerce and Industry
·
Ministry
of Agriculture, Irrigation and Livestock
·
Ministry
of Economy
·
Ministry
of Labor and Social Affairs
·
Ministry
of Energy & Water
·
Ministry
of Public Works
·
Ministry
of Counter Narcotics
·
Ministry
of Transport
·
Ministry
of Women’s Affairs
·
Afghanistan National
Development Strategy (ANDS)
·
Afghanistan Investment Support Agency (AISA)
·
Afghanistan
International Chamber of Commerce (AICC)
-
The AEDC will formulate a master plan that will
provide a framework and macro level guidance and
inputs to a national strategy for economic
development across Afghanistan. The AEDC will act as
a forum for positive debate resulting in creative
solutions to policy issues for implementation by
concerned ministries.
Policy Statement No. 2
The Government will
establish the Afghanistan Rural Enterprise Development
Program.
Measures
-
Donor funds will be used to establish the AREDP as a
program of MRRD that will integrate the efforts and
initiatives of concerned Government agencies to
promote holistic rural enterprise development.
-
The AREDP will address rural enterprise development
at two levels, namely; Mass Mobilization into
Entrepreneurship (MME) and Small and Medium
Enterprises (SME). This approach recognizes the
spirit and determination of the Afghan people and
the need to re-establish the physical and economic
infrastructure and incentives required to mobilize
communities and stimulate partnerships leading to
rehabilitation of rural enterprise. Phase one of
the AREDP will occur in seven provinces within the
seven eco zones of Afghanistan.
-
The AREDP will evolve into a sustainable SME over
the course of the planned programs.
Policy Statement No. 3
Through the AREDP and
other enterprise development initiatives and programs,
the Government will facilitate the establishment of
enterprises to meet food security needs and import
substitution demands.
Measures
1.
The
Government will continue to strengthen the capacity of
community institutions to support enterprise development
leading to a systematic and continuous increase in self
sufficiency.
2.
The
Government will mobilize human, capital, and natural
resources to support enterprise development specifically
in the rural areas, which will ensure that maximum value
added will be retained in country.
3.
The AREDP
will consolidate sub-national government structures,
namely the CDCs AND DDAs, by consultation during the
implementation process with assistance provided by the
Enterprise Facilitators and Enterprise Management
Consultants.
Policy Statement Number
4;
The Government’s
pro-poor enterprise development policies, programs and
initiatives emerging from consultations with civil
society at the grassroots will emphasize social and
economic stability that are the foundation for good
governance.
Measures
-
Through the AREDP mechanism people at the grassroots
level will form groups and be accountable for the
Community Investment Loans (CIL) and SME loans
(generated by individuals or groups), for economic
development purposes.
-
Business incubation services will be provided
through the AREDP and will include training,
technology and knowledge transfer, information
sharing, business planning and market linkages.
-
The AREDP will provide rural communities with the
resources and opportunities that will lead to
conditions conducive to social stability, economic
growth and the production of culturally inspired
products.
Policy Statement Number
5;
The Government will
operate a policy-based lending program to promote
enterprise development specifically linked to critical
food security needs and import substitution.
Measures
-
The Afghanistan Enterprise Development Council will
formulate a framework for short and medium term
policy based lending through the AREDP.
-
MRRD through AREDP will identify and execute
appropriate measures to implement the policy
framework.
Policy Statement Number
6;
The Government will
ensure sustainability of programs by establishing access
to revolving credit and privatizing business support
services.
Measures
-
The program will finance new enterprises in the area
of manufacturing and value added processing that are
deemed to be sustainable following the end of AREDP
support.
-
The AREDP will provide business incubation support
until such time as businesses are sustainable.
-
Linkages will be established between value added
processing facilities and micro-, small-, and
medium-scale enterprises.
Potential Constraints to Policy Implementation
Constraints to
implementation of policy in promoting small and medium
scale enterprises have been documented numerous times in
extensive detail. The principle obstacles to enterprise
development are highlighted below.
·
Restricted
access to markets
·
Lack of
coordinated approach for enterprise development and
infrastructure
·
Rapidly
changing markets
·
Unofficial
trade
·
Lack of
National Branding and faith in National products
Expected Impacts of the Policies
Policy Statement No. 1
The Government of
Afghanistan will establish the Afghanistan Enterprise
Development Council.
Enterprise development
policies will be formulated in a consultative and
participatory manner and implemented on a coordinated,
systematic and continuous basis by all concerned
agencies at the national and sub-national level.
Policy Statement No. 2
The Government will
establish the Afghanistan Rural Enterprise Development
Program.
MRRD will take
responsibility for operating the AREDP in a transparent
manner, applying the tenets of good governance. Through
the AREDP, 243,100 savings and credit groups will have
been formed and an estimated US$243,100,000 will have
been disbursed. The AREDP will also have provided loans
to 3333 SME’s, amounting to $100,000,000. Jointly
through these activities, 1,321,322 jobs will have been
created, injecting an additional $4,317,525,000 into the
rural economy. During the lifecycle of the planned
programs the AREDP will have transformed itself into a
sustainable SME corporation that will continue
furnishing of financial and non-financial services to
SMEs created under AREDP and beyond – on a market rate
fee charging principle.
Policy Statement Number
3;
Through the AREDP and
other enterprise development initiatives and programs,
the Government will facilitate the establishment of
enterprises to meet food security needs and import
substitution demands.
Small and medium-scale
enterprises will be producing a significantly greater
variety and volume of food and agricultural products to
meet food security needs and to replace imports. The
Government will have organized product competitions to
promote the quality and awareness of the availability of
domestic products. Foreign joint-venture enterprises
will have begun to produce high quality goods for
export, while retaining maximum value added in country.
Policy Statement Number
4;
The Government’s
pro-poor enterprise development policies, programs and
initiatives emerging from consultations with civil
society at the grass roots will aim at developing social
and economic stability that form the foundations for
good governance.
MRRD will have achieved the
objectives of the ANDS Rural Development Benchmarks.
Civil society will have been strengthened through the
establishment of joint-liability savings and credit
groups; community marketing groups; business groups;
and, integrated, self-sustaining, and inter-dependent
clusters of SMEs and micro-enterprises in all regions of
the country. The promotion of micro-enterprises tapping
on the creativity of rural communities will result in a
significant increase in the availability of culturally
inspired products in local, regional and international
markets.
Policy Statement Number
5;
The Government will
operate a policy lending program to promote enterprise
development specifically linked to critical food
security needs and import substitution.
The Afghanistan Enterprise
Development Council will have issued a framework for
policy based lending in support of rural enterprise
development. The AREDP will have formulated the
measures to engage private enterprises in an effort to
achieve the goals of the policy lending framework. The
AREDP will have set the lending criteria for rural
enterprise development within the MRRD programs.
Policy Statement Number
6;
The Government will
ensure sustainability of programs by establishing access
to revolving credit and privatizing business support
services.
Through the AREDP new
businesses will have been established and supported
until they reach a level of maturity that will guarantee
their sustainability. The AREDP will have created links
between supply and demand, focused producers and value
added processing facilities, as well as market outlets.
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