December 16 th, 2009 Ministry of Commerce & Industry (MOCI) Afghanistan SME Development Strategy.

December 16th, 2009

Ministry of Commerce & Industry (MOCI)

Afghanistan SME Development Strategy

2

Contents

Executive summary

SME Strategy details• Priority sectors• Constraints to growth• Formalization• Implementation

Appendix• Project background• Sources

3

Vision for Afghanistan SME Development Strategy

Create a globally competitive and socially responsible SME sector in Afghanistan, in which sustainable and equitable

growth is private-sector led and where government functions to help achieve this goal.

4

Goals and objectives of SME Strategy

Create an SME Development Strategy to help drive the economic prosperity of Afghanistan• SMEs with under 300 employees make up 80-90% of Afghan businesses and nearly all rural businesses• SMEs generate over 50% of GDP and employ ~75% of labor force• Nations such as Pakistan or Singapore have shown that SME development is critical for job creation and poverty

reduction

Define four key roles for government in SME development• Policy maker – Develop a national and regional SME policy which will identify priority sectors for SME development and

address the major needs of each of those sectors, especially in financing, capacity building, and infrastructure• Facilitator – Remove obstacles, bureaucracy and market inefficiencies that inhibit SME growth• Regulator – Ensure that the competitive environment for SME growth remains strong, and that the many forces that

influence their growth (government, SMEs, trading partners, etc.) contribute to that environment• Coordinator – Help align organizations (donors, NGOs, associations, etc.) that are already working to promote SMEs

Pursue SME growth, job creation, and formalization• Because of high unemployment rate (~40% and growing) job-creation and growth must be the strategy’s primary goal• Policies must also reduce costs and increase the benefits of formalization (80% of SMEs currently not formalized)• Increased formalization will help the SME sector grow, improve the quality of service SMEs provide, and increase

government revenues, which in turn should promote further growth

Increase the role of women in SMEs, in particular their role in entrepreneurship• Women already play a major role in Afghan industries, such as agriculture, carpets and embroidery, but typically they

receive a low portion of the benefits. For example, a female weaver receives <20% of the value of a carpet.• Policy thus must prioritize female-intensive sectors (such as carpets and embroidery) and work closely with women’s

associations to improve the benefits women receive from the economy

Create ~1M jobs & ~$3B dollars of GDP by 2016• The targets are ambitious but attainable if the government of Afghanistan agrees to take action• This is an imperative to meet the needs of a growing population

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2

3

4

5

5

Priority SME sectors and areas of growth

Labor-intensive, natural-resource sectors are priorities

Several sectors must receive national priority based on several factors

• Afghanistan’s competitive advantage• Sector’s ability to create jobs• Sector growth• Afghanistan’s ability to compete across multiple

parts of value chain

In particular, these industries emerge as highly attractive

• Agri-processing (including fresh and dry fruits, nuts and medicinal plants)

• Carpet weaving, cutting, washing and trading• Marble quarrying, cutting, polishing• Gem stones mining, cutting & polishing and jewelry• Livestock and skins• Wood, timber and carpentry

Priority sectors should be reexamined after 1 year, and then every three years thereafter

Export industries must play central role in growth

Exports have grown 3x faster than the overall economy, but still are just 4% of GDP ($550M)

All sectors named are appropriate for export, although in many cases these sectors will serve increasing domestic demand as well

Import substitution (IS) where Afghanistan has competitive advantage

Imports will continue to be key part of economy, but IS should be pursued in low-technology products, such as vegetable oil, dairy and poultry

Substitution of inputs to national industries, such as wool, wood and re-imported marble, also critical

IS should be achieved without excessive trade & tariff intervention, but rather, with coordinated government and donor support for target industries

6

SME constraints for government to address

Three critical challenges for the government to address

Finance

• Still a major constraint in Afghanistan, especially for SMEs in non-trade industries

• Actions will include SME windows in banks, Sharia-compliant products, sector-specific products, and lower interest rates

Infrastructure

• Government must work with donors, AISA and others to obtain investment for sector-specific infrastructure, such as cold storage facilities in certain regions

Capacity building

• Must work with donors and BDS firms to address the capacity building needs in target sectors

• Programs underway, such as National Skills Dev. Program and the National Vocational Education and Training Authority, but efforts must be coordinated with the SME strategy

Other SME constraints where the government can make an impact

Transportation• Improving freight processing in airport and promoting

additional capacity in the transport sector

Market access• Continue to work with EPAA and donors to improve

market access in target sectors

Certification• ANSA must address need for standards and certification

in target sectors, such as testing facilities for marble and quality standards for food exports

Registration & licensing• Continue to improve both the registration & licensing

processes, and provide more benefits for registering

Trade & tariffs• Need clear and well-communicated policy on trade and

tariffs. Must also continue to keep import duties low on inputs to national industries

Safety, land & electricity• Can be addressed in the short-term by continuing to

increase the capacity of industrial parks

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SME Group in MOCI will lead implementation

SME Group within MOCI will implement strategy

Strategy Group in MOCI will take responsibility for implementing the strategy and delivering results

Group should first reside within MOCI, in the PSSD, then become independent group within 2 – 3 years

The group must include on its board:• Ministers of Commerce & Industry, Finance and

Agriculture, and MRRD• 4 – 6 respected business leaders from around the

country

Commitment of the Cabinet and inter-ministerial coordination is required for success

• Can achieve some coordination by working through the structures of ANDS

• However, as ANDS does not have an SME component, the SME Group will have to fill the gap

Strategy will be rolled out in phases, and cover whole nation by 2016

Development strategy to be rolled out in four regions:• North• South• East• West

Regional strategy must be coordinated with many players, including

• Provincial governments• Community Development Councils• Specific donors• PRTs• Others agencies and organizations working in each

region region

Pilot programs will begin in 4 regions in Q1 2010

Goal is to have all regions covered by 2016

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Program estimated to cost ~$750M – $1B over 7 yearsPreliminary cost estimate

Cost($M)

Financing – $500M • Financing still one of the critical barriers to SME growth. Total SME financing in Afghanistan

today amounts to only ~$45M, yet the need for SME financing is estimated at ~$7B• Financing is especially scarce in non-trade and agricultural enterprises, and in particular in

the loan-size range of $30K - $300K• Financing for SME Strategy to come from three primary sources

− Donors, in the form of additional SME funds available through credit facilities such as ARIES, ARFC, and other SME-specific financing vehicles

− Banks. Banks have ~$1B of credit outstanding in Afghanistan, but little with SMEs. Goal of SME strategy is to have banks lend greater amount of money to SMEs, both via SME windows and partnerships with donors

Infrastructure – $180M • Infrastructure specific to the target industries, such as cut and wash facilities, cold storage

facilities, improved marble quarrying equipment, etc• Will come from three sources: donors, FDI, and in some cases from government (such as

low-cost leasing of government land to target industries)• Much funding is already going toward infrastructure; key will be better coordination

Capacity building for SMEs – $50M• Skills are still lacking in many SME sectors. However, efforts to build skills much be

coordinated with other efforts underway, in particular:− National Skills Development Program − National Vocational Education and Training Authority− USAID CDP

Program Administration – $20M• Cost of implementing strategy, including establishment of SME development group within

MOCI, which will become independent organization after 2 – 3 years

500

50

20

180

0

100

200

300

400

500

600

700

800

Source: SME financing data from SME Development Workshop report, ARIES, 2009

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Targeting growth of > $3B GDP and 1M new jobs

$1,800

$1,000

$500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Export growth Import substitution Domestic demand

0

200

400

600

800

1,000

1,200IncrementalGDP, 2016

($M)

Jobs created(K)

Potential GDP and job creation by sector, by 2016

Growth rates are aggressive, but there are already many efforts underway to achieve these results. Important goal of the strategy is to better coordinate the efforts

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Summary implementation timeline

Government approval of policy

Creation of SME Group in MOCI

First meeting of SME Group

Regional strategies shared with stakeholders (donors, ministries, etc)

Pilots kicked off in each of 4 regions• Address the 3 key areas: financing,

infrastructure, & capacity building

Results from pilots

Revision of strategy based on results

Staffing expansion of SME Group

Funding sources identified

SME Group fully operational, ready to become independent

Activity Feb MarJan April June Q310May Q410 Q211 Q311Q111 Q411 Q112 Q212 Q312 Q412

Short-term (2010) Mid-term Long-term

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Contents

Executive summary



12

Path from agriculture to higher-value industrial economy

Export-drivengrowth

Agricultural, resourced-basedLow-tech economy

Labor intensive

Japan

Afghanistan

Link between economic sectors and growth

Manufacturing / ServicesHigh-tech economy

Capital intensive

Reliant onImports

Korea

Importsubstitution

growth

Pakistan

Brazil

Developing economies, especially those in post-conflict situations, are usually agriculture-based, low technology, and experiencing large annual trade deficits

Development generally begins through export growth and import substitution. Asian countries have favored exports, Latin American countries generally have favored import substitution

In practice, a country like Afghanistan will have to do both, but choose industries carefully

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2

Eventually agriculture become more efficient, less labor intensive, and a greater portion of the workforce moves into manufacturing and services

3

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Afghanistan will go through these three phases as well

Export-drivengrowth

Agricultural, resource basedLow-tech economy

Labor intensive

Link between economic sectors and growth

Manufacturing / ServicesHigh-tech economy

Capital intensive

Reliant onImports

1

Importsubstitution

growth

1. Where we are today:• Imports of ~$3B, exports of just $0.5B• Exports growing quickly, however

• Low-tech and low-value products• Usually at the commodity end of the

value chain

2. Where we are moving (5 – 10 years)• Increasing exports, especially low technology

exports• Beginning to increase the value of exports – for

example, from fresh fruit to packaged dry fruit• Beginning import substitution, especially in areas

of food security (mainly wheat) but also low-tech products like soap or pipes

3. Where we aim to be (~20 – 30 years)• Agriculture and natural resources will

always be important• However, they will employ a decreasing

portion of workforce as agriculture becomes more sophisticated

• Export of manufactured products will become more important2

3

14

The move toward industry – examples from other countries

0

10

20

30

40

50

1960 1965 1970 1977 1980 1985 1990 2000 2002

% of GDP

Important to look now at specific sectors to understand the situation in Afghanistan

Manufacturing as % of overall GDP, select Asian countries

Korea

Malaysia

Indonesia

Pakistan

Nearly all countries gradually become more industrialized as they develop

The process takes a long time – over 40 years to go from ~10% manufacturing to 30 – 40%

Note the correlation between level of manufacturing and GDP per capita in 2002

• Korea ($6,691)• Malaysia ($4,194)• Indonesia ($839)• Pakistan ($449)

Afghanistan in 2009 earns 16% of GDP from manufacturing

Source: Data in manufacturing from World Development Reports, World Bank. 2002 GDP information from Students of the World and the CIA Fact Book. Afghanistan date from IMF Statistical Appendix

15

Services and industry now make up over 70% of GDPGDP grew at 10% average from 2003-09

2,516

875 105

2,160 44

1,382

1,370

1,362 288472 134

1,333615 12,903

247

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Cereals Fruits Livestock Mining Mfg. Util. Constrct. Trade /Rest /Hotel

Transp /Comms /Storage

Fin / Realestate /

Bus.

Dw elling Privateservices

Governmtservices

Other Total

Afghanistan GDP breakdown by sector (2009)

2009GDP ($M)

Source: IMF Statistical Appendix, MOCI Internal Data. Excludes opium products Note: 2009 GDP is March 2008 – March 2009

Agriculture 28% of GDP-0.4% CAGR, 03-09

Industry – 29% of GDP16.0% CAGR, 03 - 09

Services – 43% of GDP14.5% CAGR, 03 - 09

03-09 CAGR -1.5 3.3 2.3 24.5 9.8 9.8 29.5 4.2 21.1 26.0 3.8 8.7 21.5 15.3 10.1

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Four sectors account for nearly all growth since 2003Agriculture lagging and yet it is the largest employment sector

43,817

22,093

21,8555,965

5,7563,874 2,663 1,636 1,412 1,315 719 91

138,732

32,256

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

Transport/Comms /Storage

Constrct. Govtservices

Mfg. Otherservices

Trade /Rest /Hotel

Fin / Realestate

Dw elling Livestock Privateservices

Fruits Mining Utilities Cereals Total

IncrementalGDP, (in constant ’03Afs, millions)

Source: IMF Statistical Appendix, MOCI Internal Data. Excludes opium products

Incremental annual GDP, 2009 vs. 2003

~ 90% of new GDP comesfrom these 4 sectors, driven largely by int’l presence

The growth of all these sectors, including all agricultural sectors, is 0%

Yet, these sectors employ >75% of workforce, and contain many SMEs.

Thus, large portion of population benefits little from GDP growth so far. There has been some job creation, but perhaps not enough to keep with new entrants to workforce

Drought conditions explain some but certainly not all of the low growth in agriculture.

(4,721)

Despite the current strength of these four sectors, Afghan economy over the next 10 years (especially SME sector) will be driven by agriculture and a select few traditional manufactured products.

17

Sector growth parallels public and donor expenditureRelatively low expenditure on agriculture and agricultural industries

34 34

20 22

12 11 42

27

19 20

10

8

11 10

7

11

6 64

5

5 77

10

3 22

6

4 5 3 6

6 5 5 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2003-07

Portion of public expenditure, and donor disbursement to external budget

Percent

Infrastructure

Security

Agriculture

Education

Health

Rule of Law

Social projection

Unknown

Econ. Governance

Annual public spend Total donor distrbto external budget

Source: Food for Thought: Analysis of Agriculture Financing in Afghanistan, Economic Literacy and Budget Analysis GroupNote: Other studies, such as one from Oxfam International, suggest that only 2% of international aid has gone toward agricultural sector

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More growth can come from agriculture and related SMEs

World bank estimates that the agricultural sector needs to grow at ~5% / year in order to meet the needs of poverty reduction

12 - 15% of Afghanistan’s 65M hectares is viable for agriculture, but only 6% currently cultivated

In addition, crop yields in Afghanistan are only half what they are in the rest of the world

• From 2005 - 2007 Afghanistan yielded an average of 1.6 tons of cereal per hectare, versus 3.2 for rest of world, and 2.2 for Pakistan and 2.9 for Uzbekistan

• Fertilizer intensity was 1 kg per hectare in 2001, versus 140 kg for Pakistan and 160 kg for Uzbekistan

Source: Food for Thought: Analysis of Agriculture Financing in Afghanistan, Economic Literacy and Budget Analysis Group; USDA reports; MOCI internal data

Quick analysis suggest a very large potential for growth in agriculture sector:

• Potential to double cultivated land• Potential to double output per hectare of

cultivated land

Result would be a quadrupling of agriculture contribution to GDP

• From ~$4B / year to $16B per year• That additional $12B of GDP represents a

100% increase over 2009 GDP

Question is, how fast and at what cost?

Currently operating well below potential Possibility for at least 3 - 4x growth

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DomesticDemand

Exports

Import substitution

(IS)

Overview Size Strategy

The backbone of the economy

Will increase as population produces more, which leads to greater consumption, which leads in turn to further production

Currently makes up ~96% of GDP• Overall GDP: $13B• Minus exports: $500M• Equals domestic demand: $12.5B

Within agriculture sector, exports make up greater percentage of GDP ~20%

Domestic demand component increases with import substitution (Imports not part of GDP, but locally-made substitutes are)

Increasing domestic supply and demand is key to strategy

Focus largely on the food sector; ability to meet domestic demand without imports is key to food security

Moving domestic customers to higher value consumption will occur as GDP per capita continues to rise

A critical component of the economy, especially in natural-resource based sectors where Afg. has advantage

Export growth continues to outpace growth of the overall economy

Central to the development strategy of many countries in the Far East

Exports currently are ~$550M, which is approximately 4% of total GDP

However, exports growing at 32% annually, while overall economy growing at 10% – hence a growing priority

Most are agricultural or based on other natural resources, such as marble & gems

Export growth should be primary focus of strategy, especially in short-term:

• Afg has resources and skills already• Demand exists in neighboring countries,

such as India (for fruits & nuts)• Quick impact possible by linking local to

producers to markets (eg, trade fairs)• Additional growth by removing barriers

to exporting (paperwork, transport, etc)• Often involves technology investment to

meet buyer standards

Imports do not count toward GDP, they deplete foreign reserves, and don’t generate profits for population

Hence, IS can be a way to bring profits and production back home

However, IS often involves raising tariffs or manipulating exchange rates – which is generally not beneficial in the long-run

Imports are currently ~$3B / year in 08

Roughly 6x the level of exports, hence the trade deficit which will need to be corrected over time

Roughly 40% of this comes from machinery, equip, petroleum products and metals – which are not likely to be substituted soon

Identify several priority products• Low-tech products• Products where Afg. can be cost

competitive without government price / tariff intervention

Likely areas are food products• Wheat, chicken, eggs, veg oil

Important for establishing food security

Recommend pursuing export-led growth firstSelective import substitution and increase in domestic demand should follow afterwards

3

1

2

20

Export sectors growing 32% annually, but still only ~4% GDP

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008 2009

98

Afghanistan exports by sector (2003 - 2009)

Carpets 152 49%

Dried fruit 229 25%

Fresh fruit 37 27%

Skins 13 17%

Other 85 100%

Med. Plants 24 30%

Wool 5 4%

Prod.Exp‘09

‘03-09CAGR

Source: IMF Statistical Appendix, MOCI Internal Data. Excludes opium products

Total 547 32%

135

297

383

416

454

547

$M

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Adding unofficial exports at least doubles the figures

Note: By unofficial exports, we do not include opium products, only unofficial exports of legal productsSource: IMF Statistical Appendix, EPAA Interviews, Investigation into the Potential of Establishing a New Tannery, Avery Leather Consulting

Several reasons for unofficial exports

Large quantities of legitimate products are exported unofficially overland to neighboring countries

There are several reasons for the trade, despite the fact that Afghanistan does not have export taxes (except on gemstones)

• Many traders seek to avoid import taxes that neighboring countries place on products

• Traders will want to lower annual tax burden, and hence have incentive to hide some transactions

• In particular, there is potential for re-export arbitrage with Pakistan as traders seek to avoid some of the import taxes levied by Pakistan

Estimates of unofficial trade vary by sector, but overall are in the range of 100%, even more in some industries

Example of unofficial trade – skins and hides

In 2006, official exports of bovine, goat and sheep skins and hides estimated at $15.6M

However, interviews with traders in Kunduz suggest that the actual amount of exports could be up to 4x that amount: ~$50 – $60M

Implications

1. Estimates of skin supply, for analysis of a tannery, for example, needs to take this supply into account

2. Much of the unofficial trade could be made official, and more valuable, if we had capability for post-processing – i.e., a tannery

• $15M sector could turn into a $150M sector based on existing supply only

3. Potential to boost value exists in most commodity industries which rely on overland transport

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Must prioritize export industries based on several criteria

Is the sector growing quickly, or does it have the potential to grow quickly?• For example, carpets, which have grown at ~50% annually, and dried fruit, which grew at 25%• Or marble, which has grown very little so far in Afghanistan, but which is growing ~8% annually worldwide

Are the barriers to entry low?• Raw materials: easy access to input materials, such as raw marble, wood or agricultural products• Skills: the right level of skills in the workforce in order to be competitive in the industry• Technology: low technology requirements, or at least the ability to introduce the technology quickly and cost-effectively

Does the industry have a large concentration of SMEs?• For example, carpet cutting and washing facilities, which usually employ <200 people, and often just 10 - 20

Is the industry labor-intensive?• Because of the importance of job creation, labor-intensive industries must be prioritized, such as carpets, which are

extremely labor-intensive in the weaving phase• When selecting particular technologies to use within each industry, must strike a balance between high-technology and

high job creation– High-technology equipment generally means fewer jobs, but sometimes such equipment is required in order to meet

international standards

Can Afghanistan be competitive in most parts of the industry’s value chain?• Preference should be given to industries where Afghanistan can be competitive across the value chain• For example, the carpet value chain: wool – spinning – weaving – cutting and washing

3

1

2

4

5

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Job creation is especially important criteriaUnemployment currently 40% and likely to raised based on current demographic skew toward youth

0

5

10

15

20

25

30

35

Population Workforce

People(Millions)

<15 yrs old

14M

15-65 yrs old

17M

>65 yrs old0.75M

60% employed

~10M

40% unemployed

~7M

Each year, ~200K of these people leave the workforce…

…and ~1M of these people enter

New jobs needed each year to hold unemployment levels steady at 40%

Large young population is a massive opportunity or threat – depending on whether jobs are available

Population & workforce breakdown

Source: CIA Statistics; Spotlight on Differing Demographic, World BankNote: World Bank also predicts that the boom in youth demographic will continue in Afghanistan for several decades

Unemployment data is unreliable due to informal employment and child labor, etc, but the fact that 45% of population is under 15 means growing pool of workers will need jobs

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Focus is on SMEs under 300 employees and $15M in capitalSME definition used by IFC in developing countries and by ACBAR

Micro-enterprises

Smallenterprises

Medium

Large

Number of employees Capital requirement (USD)

>300

51 – 300

11 – 50

1 – 10

>15M

3M – 15M

100K – 3M

0 – 100K

Accounts for

• ~80-90% of businesses

• ~500K businesses overall

• At least 75% of the workforce

By this common definition, SMEs make up the vast majority of business activity in Afghanistan

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Based on criteria, several attractive value chains emergeIn most cases, industries are based on natural resources and will be export-led

LivestockDairy / meat

Skins LeatherClothing /

leather goods

Wood CarpentryFurniture /

crafts

Marble quarrying

Cutting Finishing

Fresh fruit / plants

Dried fruit / nuts

CementAggre-gates

Construct.

MiningCut /

polishJewelry design

WoolSpinning /

dyingWeaving

Cutting / washing

Concen-trate / Juice

Livestock

Agri-processing

Building

Gemstone

Marble

Wood

Carpet

• Low potential in near-term; technology needed• Tough competition from India and Pakistan• However, raw skins has historically been a major export

• Attractive and very large sector• High brand awareness in certain sectors, such as nuts• Need to address particular sub-sectors individually

• Room for growth and repatriation cut & wash / trading• However, overall market size limited (~$1B)• Still important because it is extremely labor intensive

• Mining generally not SME business• Opportunity in polishing, processing and jewelry• Afghan market potential at least ~$100 – $200M• India gems went from $13M to $13B

• High-potential segment for SME• Quarrying capital intensive; only 10-year lease on mines• World market size ~$3-4B, growing ~9% / year

• High-potential segment, generally overlooked• Government has recently approved a timber policy• Limited reserves in South and SE, sustainability is key

• Construction industry high-growth, driven largely by international presence in country

• Bricks and simple tools attractive for Import Substitution• Potential for cement, but not generally SME business

Value chain Potential

Trading

Medicinal plants

Trading

Important to increase production at the beginning of the value chain, but also to migrate toward the end of the value chain where much of the value is added. Note that is not a complete list of

industries. BDS, for example, is an area that will grow as SME sector becomes more sophisticated

BricksTools, other

supplies

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Potential for official exports to reach $3.8B by 2016

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014 2015 2016

Potential exports by sector (2009 - 2016)

Source: IMF Statistical Appendix, MOCI Internal Data, interviews with MOCI, ASMED and Harakat.Note: Excludes opium products

$M

Carpets 950 30%

Dried fruit 1,000 25%

Fresh fruit 230 30%Skins 144 30%

Other 275 20%Med. Plants 410 50%

Wool 25 25%

Prod.

Exp’16(M)

‘09-16CAGR

Total 3.8B 30%

Marble 450 70%

Wood 57 50%Leather 115 50%

Carp C&W 25 60%

Without SME strategy, exports would grow at 20% (2x average GDP growth), as shown by line. This is less than export growth since 2003, as is expected given that early export growth was starting from a very low base.

27

~$1.8B incremental GDP and ~500K new jobs from exportsWill need to set targets for each region and verify estimates

Note: Based on all sector-specific reports, interviews, and ASMED assumptions

$435

$114

$62$25

$6

$100

$262

$57

$324

$409

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Marble Carp. Craft Med. Plants Dried fruit Leather Fresh fruit Skins Wood Carp. C&W Wool

IncrementalGDP, 2016

($M)

Potential incremental GDP by sector (2016)

09-16 CAGR - status quo 0% 20% 20% 20% 0% 20% 20% 0% 5% 20%

09-16 CAGR - target

Job potential (K)

70% 30% 50% 25% 50% 30% 30% 25% 60% 25%

15 200 150 100 20 50 20 15 6 2

Approximately $1B in increased domestic demand expected as well, especially in dried and fresh fruits, plants, skins and leather

28

~$500M potential for import substitution as wellNumbers shown here are 2006 – latest available; estimate of $500M based on extrapolation to 2009

101

47

31

29

2518

1313

1010 9 7 0 368

55

0

100

200

300

400

Veg. Oil Sugar Froz.Chicken

Footwear Rice Soap Livechicken

Yarn Eggs Matches Blanket MilkPwdr.

Clothing Salt Total

($M)

Source: ARDEP, “A Competitive Afghanistan” 2006

Afghanistan import substitution potential (2006)

0.3

SME SME SME SME SMESME SME

Other potential income substitution opportunities include grains, flour, fruit juice, and potentially some leather products such as footwear

29

Contents

Executive summary



30

Four major types of constraints can affect SME growth

Macroeconomic

1. Interest rates

2. Trade & tariff

3. Taxation

4. Inflation

5. Exchange rates

Legal / Regulatory

1. Land

2. Registration & licensing

3. Bankruptcy / closing

4. Labor law

5. Environmental law

6. Patent / IP protect.

Infrastructure

1. Transportation

2. Electricity

3. Sector-specific (e.g., cold storage)

4. Telecom (mobile phone, internet)

5. Water

Business services

1. Finance

2. Capacity building

3. Certification

4. Market access

5. BDS (accounting, consulting, etc.)

6. Associations

1 2 3 4

Only 14% of firms feel that there is consistency in the interpretation of laws and

regulations

Macro-econ environment generally good in

Afghanistan

Many issues here, but generally requires much time and coordination to influence

Many things MOCI can do to lessen these constraints

Source: Afghanistan Investment Climate, 2008, and Doing Business in Afghanistan, 2010 (for information about severity); ASMED interviews (for information about MOCI ability to change constraint)

Businesses cite excess bureaucracy and corruption across almost all areas: taxation, tariffs, regulations, access to infrastructure, etc. Safety and crime are also major issue for most SMEs

31

1. Macroeconomics – significant improvement

1. Interest rates

2. Trade & tariff

3. Taxation

4. Inflation

5. Exchange rates

• Interest rates generally high (~19%) for SMEs• Typical for post-conflict nations where cost of doing business

is high; prohibits many SMEs from taking loans

• Trade and tariffs generally liberal• Potential to selectively increase tariffs for import substitution• Potential to work with neighbors (Pakistan, for example) to

improve customs process – cited as major issue• Need better communications of trade and tariff regulations –

most SMEs have low knowledge about international trade

• Overall tax rates generally not problem, although high BRT makes many low-margin businesses are not viable unless they avoid taxes or simply pass high tax onto consumers

• LTO and MTO have simplified taxes for some payers in last several years, but still many complaints around process

– No consistency or transparency in how tax law is applied

• No major issue – inflation rate has been stabilized

• No major issue – exchange rates have been stabilized

Issue


• DaB, MoF

• MOCI (for trade)• MoF (for tariffs)

• MoF

• DaB, MoF

• DaB, MoF

ResponsibilityConstraint

32

2. Legal and regulatory – better, but must be MOCI priority

1. Land

2. Registration & licensing

3. Bankruptcy / closing

4. Labor law

5. Environmental law

6. Patent / IP protection


• Improving, but still an issue• Difficulty accessing land, obtaining zoning approval, and land

titling – also leads to difficulty of banks to extend credit• Construction permits also very difficult to obtain

• Area shows much improvement with ACBR, etc, but still opportunity to speed registration nationwide, to better communicate the process and the benefits

• No set process for bankruptcy, hence low World Bank ranking• However, not the primary obstacle to growth or financing.• Issue need to be addressed, but not short-term priority for

SME strategy

• Labor law not currently a major issue, but will grow in importance as businesses mature

• Generally not a major issue yet, although law is required in area of wood production, as well as in tanning/leather and mining. Will become increasingly significant issue

• Not yet a major issue, but will become a more significant issue in the next 5 – 10 years as companies advance and FDI increases

Issue

• Ministry of Justice

• MOCI, AISA, municipalities

• MOCI, Ministry of Justice, potentially MoF, too

• Ministry of Labor

• National Environmental Protection Agency (NEPA)

• MOCI (has an IP sub-department)

ResponsibilityConstraint

33

3. Infrastructure – big issue, difficult to address in short term


• Road system poor, disconnecting suppliers and customers• Security on roads poor, leading to overall high transport costs• Air transport constrained due to lack of facilities at airport• Leads to overall high cost for SMEs

• Major issue for businesses: lack of access, and poor service leading to higher cost of business

• Many sectors lack specific infrastructure needed for basic operations. For example, cold storage.

• Government might provide help until private sector matures to the point that it can provide for itself

• Constraint for some, but rapidly growing mobile coverage• Internet access generally not cited as a constraint, but that is

due to the fact that most SMEs haven’t had enough access to the internet to realize its importance

• Generally not a major issue, but could affect water-intensive industries, such as the potential for tanneries

Issue

• Ministry of Transport• MOCI

• Ministry of Power and Energy

• MOCI, MAIL, ARDEP, Donors

• Ministry of Communications

• Ministry of Power and Energy

Responsibility

1. Transportation

2. Electricity

3. Sector-specific infrastructure

4. Telcom

5. Water

Constraint

34

4. Business services – MOCI can make large impact


• Shortage of funding, especially for SMEs• ~Only 50% banks assets are lent, and only 3% of total loans

outstanding are SME loans• Access to finance difficult for many reasons: SMEs lack

proper paperwork to prove business, no land titling and collateral, high interest rates, no Islamic finance

• Many sectors require training from donors / associations in order to become more competitive. Technical training is key, as well as training in bookkeeping, accounting, etc.

• An important area as export sectors growth. For example, testing of livestock, dairy products, marble testing, etc.

• Major constraint for export-oriented sectors• Progress made with trade shows, etc, but opportunity for

MOCI to do more

• BDS services increasingly important for businesses as they enter the formal sector

• Not usually cited by SMEs as a constraint to growth, and yet still an important factor in growth

Issue

• MoF, MOCI, MAIL, ARDEP, Banks, Donors

• BDS, MOCI, National Skills Development Program, Donors

• BDS / MoCI – for tech skills• Afg Nat. Standards Agency

(ANSA) and EPPA – for testing

• MOCI, EPPA

• BDS, MOCI

• BDS, MOCI, ACCI

Responsibility

1. Finance

2. Capacity building

3. Certification

4. Market access

5. BDS (accounting, consulting, etc.)

6. Associations

Constraint

35

MOCI should prioritize those where it has most influence

High

Low

How severe isthis constraint?

HighLow Ability of MOCI to change it?

1.4. Inflation

2.1. Land

1.3. Tax

1.2. Trade & tariff

1.5. Exchange rates

2.2. Registration & licensing

2.3. Bankruptcy / Closing

2.4. Labor law

2.5. Environmental

2.6. Patent / IP

3.4. Telcom

3.1. Transport

3.2. Electricity

3.5. Water

Safety / crimecorruption

4.1. Finance

4.2. Capacity building

4.3. Certification

4.5. BDS

4.6. Associations

MOCI priorities

Less important Future priorities

Must work with others

1.1. Interest rates


Typical constraints to SME growth

3.3. Sect. specificinfrastructure

4.4 Market access

36

Three areas for government to prioritizeIn many cases, will need to be address in sector-specific basis

• Gap in SME loans in range of $30K-$300K; MOCI must work with banks and donors to:– Provide sector specific products, especially in ag sectors where payback is longer term– Help to reduce (but not eliminate) interest rates with help of partial donor funding– Provide Sharia-compliant products, potentially including leases– Financing must still be bank-driven, but facilitated with help of government and donors

• See following three pages for additional information

Finance

Sector-specific infrastructure

• MOCI must work with donors and AISA to obtain investment for sector-specific infrastructure• Must be undertaken at a region-specific level, as described under regional strategies• Infrastructure could come in many forms, depending on the industry’s particular need

− E.g. cold storage facilities in certain regions which are producing fruit for further processing

− Tanning facilities in the north to increase the value of skins which are currently exported− Roads to and from quarries, or quarrying equipment

• Goal is not to fully subsidize industries, but rather, to provide starter infrastructure until the sector can provide its own

• In most cases, the government should work with donors to obtain grants for equipment, partially subsidized funding, etc. However, in some cases the government can provide some of the infrastructure directly – such as providing government land at low rental rates

MOCI, MoF, MAIL, AREDP banks, donors

MOCI, AISA, MAIL, AREDP donors

Actions ResponsibilityConstraint

Capacity building

• Additional training needed in most growing SME industries• In many cases, training spans most industries, such as management and accounting training,

which should be done by BDS firms• Sector specific training is needed too – just as gem cutting, jewelry making, and tanning• MOCI should work with donors in each region to develop sector-specific training needs• Programs are underway, such as National Skills Dev. Program and the National Vocational

Education and Training Authority, but these efforts must be coordinated with the SME strategy

MOCI, donors, BDS, National Skills Dev. and other gov’t training programs

37

SME financing gap – especially for non-trade SMEs

0

1,000

Commercial bankloan portfolio

SME portion

($M) $980M ~40M

Trade80%

Service9%

Non-ag prod10%

Agriculture1%

Commercial banking portfolio 2009 SME breakdown

• Trade is majority of SME portfolio• Quick turn-around, profitable for banks• Does not generate high job creation

• Production sectors lagging• Agriculture lagging in particular because

it is a higher-risk sector due to seasonality and need for longer-term payback periods

Source: Challenges and Next Steps in SME Financing, Shorebank; Development of Commercial Banking System in Afghanistan, IMF; MISFA Interviews

Many institutions addressing micro-credit and many commercial banks offering loans to large companies, but SMEs have few options. Strategy must address their lack of credit

Finance

38

Supply and demand reasons for the SME financing gap

Supply: Banks don’t want to lend

SMEs can’t provide proper business documentation• No financial statements• No order books

Insufficient collateral• Banks often demand over 200% collateral• I.e., the only people who get money are those who

don’t need money

Desire for quick payback• Most bank loans go to traders, whose loans are often

repaid within 3 – 6 months• Reluctant to lend to enterprises which require a

longer payback period

Insufficient training of loan officers• Many banks claim they want to lend more, but

currently have enough skilled SME loan officers

No desire to lend in general• Some banks in Afghanistan are simply cash

management services / deposit companies with little intention to lend

Demand: SMEs don’t want to borrow

Interest rates too high and payback period too short• Rates often over 20%• Payback often starts within months, which doesn’t

suit many businesses, such as seasonal agriculture

Lack of Sharia-compliant products• Islamic loan products• Leases

Little information about how to get a loan and what kinds of products are available

No desire to enter the formal economy

Finance

39

Short- and long-term actions to improve financing

Finance

Short-term (<6 months)

Work with 2 – 3 banks to provide loans to SMEs within target sectors

• Likely partners are BRAC, FMFB and AIB• Often, sector-specific products will be needed

– For example, loans to agri-businesses might require more time before first payment (~1 year)

• Coordination between banks & donors is important– Donors can help to identify priority SMEs within

each sector• Interest rates could be partially subsidized

– Can subsidize rates to ~10%, but should not eliminate interest

Work with ARIES to ensure that their SME lending is coordinated SME policy

Mid-term & Long-term (> 6 months)

Drafting appropriate banking law in four areas• Sharia-compliance, secure transactions, leasing and

negotiable instruments

Improved training for bankers, especially loan officers• Will be done as part of the Institute of Banking and Finance

which will be active in 2010

Establishment of credit information bureau to promote commercial lending

Establish a collateral registry to ensure ownership of pledged assets and to ensure that they are not already pledged elsewhere

Work with partner banks to have them open SME windows in branches

• Government can either mandate the opening of SME windows, or provide an incentive to Banks who open them

SME policy should also link closely to upcoming USAID FAIDA project (Financial Access for Investing in the Development of Afghanistan)

40

Additional areas where government can make impact

• MOCI already taking action here (e.g., ACBR, and licensing reform) but still room to do more• Licensing process still not transparent or consistent at MOCI or at municipal level• MOCI must better communicate process and benefits of registration• In addition, must streamline process in MoF to encourage license renewal• Harakat initiative now underway to address many of these issues, both in terms of better

processes and better infrastructure

• Continued creation of industrial parks can solve these issues for targeted groups• Therefore, expanding the industrial parks strategy under MOCI and AISA is imperative

Registration & licensing

Safety / Land / Electric

Trade & tariff• Trade restrictions and tariffs on exports are major point of confusion for SMEs in all regions• Often just better communication is needed – but that must come from MOCI• Should continue to keep import duties low in inputs to national industries

MOCI, AISA, MoF

MOCI, AISA

MOCI, MoF

Actions ResponsibilityConstraint

• Transportation is a key constraint, and MOCI can address this issue in several ways– Improving freight processing facilities at the airport – initiative in progress– Easing the paperwork requirements for shipping overseas – initiative in progress– Encouraging additional competition and capacity in transport sector

• For exports, MOCI must work with ANSA and associations to determine required certification– E.g., with pomegranates and marble, do we need a national testing facility?

• Must ensure that testing is based on customer needs, not government mandates

Transportation

Certification

Market access• MOCI should continue to work with donors to sponsor trade shows, foster links, etc.• Must work to coordinate donors around sector and regional strategies

MOCI, Min. Transport, MoF, donors

MOCI, EPPA, ANSA, donors

MOCI, EPPA, donors

41

Contents

Executive summary

SME Strategy details• Priority sectors• Constraints to growth • Formalization• Implementation


42

Four typical components to formalizationCurrently focusing on the first three components in Afghanistan

1. Business registration

Business registered with some department of government or agency

For example, registered with ACBR, or a municipality

Business has a license to operate, as granted by AISA or Department of Licenses, for example

Business may be required to have additional licenses and permits, such as an additional license from the Ministry of Public Health for pharmacies

Business has a Tax Identification Number (TIN) and pays taxes to the government

Or, business is registered with municipality and pays municipal taxes

Typically means the business participates in labor programs, provides labor insurance, etc.

Currently less applicable in Afghanistan

2. Business licenses and

permits

3. Tax identification

number

4. Labor / Social

insurance

43

High costs and low benefits to formalization in Afghanistan

High costs

Entry and compliance costs• Registration fees (e.g., up to $1,200 at AISA)• Time spent obtaining licenses and approvals

(improving with AISA & ACBR, but still high)• Difficulty re-registering, especially getting tax

clearance from MoF, leading people to start a new company rather than renew existing registration

Paying tax• Actual cost of the tax itself, especially 20% BRT• Time spent dealing with complex tax system,

Mustoufiats, and additional corruption

Additional reporting – must submit balance sheet annually to the MoF

The costs of corruption• Bribes to officials during the registration process• Bribes to inspectors / officials once business is formal

Loss of existing relationships with customers, suppliers, and others

Fewer benefits

Low level of government services and infrastructure – even for formal business

Shortage of credit, which is one of the typical benefits for formalization

Little benefit of technical training, certification, accreditation, etc.

Fewer regulated markets and other formal sector business to have access to

Limited access to better skilled labor

“Among the companies registered with AISA or the Ministry of Commerce, only 47% were able to identify a benefit from registering.” -- Harakat study

A vicious circle: low SME formalization (20%), leading to low tax revenues (4% GDP), leading to poor government services, which reinforces disincentive to formalize

Source: A Formalization Strategy for Afghanistan, 2008, Market and Business Development Department, PSDD. Reforming Business Licensing in Afghanistan

44

Several opportunities for improvement in registration process

42

13

12

54

6 100

18

0

25

50

75

100

No benefit Avoid tax Don't know how Too expensive Too complicated Bad stories fromothers

Other Total

% of SMEs

Reasons SMEs cite for not registering

Need to better communicatebenefits to registration, and introduce more benefits

Need to better communicate process (90% who did register say process was NOT complicated)

Should lower cost (AISA currently $200 - $1,200)

Source: Afghanistan Investment Climate, 2008, based on 197 respondents

45

But business registration still complex in many areas

SME wants to register

MOCI Licensing Dept.•Provides trade license•Facilitates registration and receipt of TIN

•Offices in 17 provinces•~8K business / year•Official price: 3,500 afs.

Municipality and District• Takes SME paperwork and fee, registers business• Grants municipal and district licenses• Sends paperwork to Kabul for additional license, if

necessary (trading, for example)• Will place business in one of 412 different classifications

based on Soviet methodology• Municipality collects all taxes, which is likely different in

each municipality

AISA•Provides invest license•Facilitates registration and receipt of TIN

•Part of High Comm. on Investment

•Offices in 7 provinces•~8K businesses / year•Charges up to $1,200

If trading co

If investing

If neither of above

Ministry of Finance•Receives paperwork•Sends TIN to ACBR•TIN sub-office usually in the ACBR

•No charge

Other Ministries• Provide sector-

specific licenses• Ministry of

Transport• Ministry of

Communication• Ministry of Public

Health• DAB• etc.

Min. Culture / MoJ•Receive information, publish in official gazette

•Charges 3Afs/letter

ACBR•Collects forms from AISA or Department of Trade

•Registers business•Sends paperwork to MoF for TIN

•Collects and returns to DoT

•Has offices in Mazar and J’bad

•Charges $20

46

Summary timeline of actions to improve formalization

Increasing benefits

Reducing costs

Short-term (< 6 months) Mid-term (6 – 18 month) Long-term (>18 months)

Identify target sector for pilot (same sector as for growth pilot)

Introduce specific formalization benefits• Access to lower-cost financing• Help with preparing financials for loan• Access to technical advice, certification

Communicate benefits to target group• Message should be: here is what the

government is doing in the sector, and what they will do for you if you register

Formalize group

Take findings from group and incorporate into overall plan to improve formalization

Build on success stories from the pilot to better communicate process to other sectors

Work with donors, banks and associations to develop additional benefits to formalization

MOCI should also ensure that benefits are communicated clearly by the many groups, and check to see that the promises are delivered

Continue communicating benefits to formalization

Work with other ministries to better define what benefits they offer

• For example, if an SME needs to register with the Ministry of Communications, what do they get besides just the license?

Plan for better overall communications so that SMEs see that the process is not as complicated as many perceive

• Link with upcoming AISA PR campaign

Reduce cost of registration at MOCI Licensing Department

• High corruption and low transparency

Coordinate with AISA to have them lower their rates if possible

Continue with one-stop registration for exporters at the airport

Communicate more success stories about ease and benefits of registration

Work with MoF, as tax clearance is primary obstacle to renewing license

• As long as tax clearance issues remain, many businesses will not renew

• Hence, AISA formalizes many businesses for one year only

Consider eliminating Trader and Investment licenses all together

• AISA should still provide investment services, but the licenses are not critical

Work with other ministries to remove other licenses

• Many ministry licenses are currently just a form of tax, not a mechanism to protect public safety, as they should be

• In India model, removed all but ~8 licenses

Work with municipalities to consolidate municipal and district registration with national registration

• Remove multiple business classifications at the District level

• Remove duplication of licenses at district and municipal level

• Increase transparency of taxation at municipal level

47

Contents

Executive summary

SME Strategy details• Priority sectors• Formalization• Constraints to growth• Implementation


48

Implementation will happen in three phases

Long-term (>18 months)

MOCI SME Group continues implementing and monitoring plan

• Plan will need to address exit strategy from foreign aid

Incorporate ongoing findings, communicate to stakeholders

Continue to track metrics of job creation and poverty reduction

Develop pilots of new concepts as needed

Short-term (<6 months)

Gain government buy-in on strategy

Establish SME Group within MOCI

Share strategy with stakeholders

Launch sector-specific pilots and interventions which will

• Test ideas • Create quick impact• Create momentum and buy-in• Build on current programs

SME Group reports pilot results

Mid-term (6 – 18 months)

Modify policy based on pilot results

Communicate updates

Continue successful pilot activities, and expand pilots to new sectors and geographies

Build capacity of SME Group which will manage long-term plan

Prepare rollout of long-term plan

Remember, South East Asia required fifteen years to create a solid base of SMEs

49

SME Group within MOCI should initially drive the strategy

Minister

Deputy MinisterPrivate Sector and Industry

Industrial Affairs Directorate

Private Sector Dev. Directorate

SME Group

Deputy Minister Trade

Deputy Minister Consumer and

Reg.

Group to be part of Private Sector Dev. Directorate

PSD Director

Propose a small team at first which can expand as needed

SME Group also will work closely with other groups within MOCI, and with the other stakeholders (donors, banks)

SpecialistNorth

SpecialistSouth

SpecialistEast

SpecialistWest

SME Financing

Regional specialists should work immediately to prepare pilots and regional strategies

Coordinate with regional entities where possible (ACBR, AISA, ASMED, regional government)

Financing is important enough that person should be dedicated to working with banks / donors to set up financing product

Formalization specialist from MOCI should also be part of the team

Senior-level coordination across ministries is important, so support from Minister, Deputy Minister and Director is key, especially in the first 6 months

Meetings of group should occur at least once per month

Depending on Director’s other responsibilities, might need additional SME strategy leader

50

SME Group can expand over time as neededComplete pilots first, then expand SME Group based on needs

Longer-term group roles – based on SMEDA, Pakistan’s SME Development Association

Potential long-term structure of SME Group – again, based on SMEDA in Pakistan

• Formulate policy to encourage the growth of SMEs and to advise government on issues related to SMEs

• Facilitate BDS Services to SMEs

• Facilitate the development and strengthening of SME representative bodies, associations and chambers

• Conduct sector studies and analysis for sector development strategies

• Facilitate SME financing

• Strengthen SMEs by conducting and facilitating seminars, workshops and training

• Help coordinate donor assistance for programs and projects

• Assist SMEs in getting international certifications, where needed, for their products and processes

• Identify SME service opportunities on the basis of supply/demand gap

CEO

Policy and planningOut-reach BDS Support

Region 1

Region 2

Region 3

Region 4

Fin. Serv

Legal

Tech

Research

Planning

Policy Dev.

Accounts

HR

Admin

MIS

Board should include both the public and private sectors• Minister of Commerce and Industry – Chairman• Ministers or Deputy Ministers of Agriculture, Finance & RRD• Potentially other ministries too (Min. Mines, MOPH)• ~ 4 – 6 industry leaders, at least one from each region

Board of Directors

Communication

Source: ASMED research; Pakistan Small and Medium Enterprise Development Association Group Charter

51

Coordination among multiple stakeholders is key

Government• MOCI

– AISA, EPAA• MAIL• MRRD

– AREDP• MoF• MoT• DAB• ANDS

Coordinated through many inter-ministerial committees

Private sector• Financial institutions

– 17 commercial banks – MFIs and DFIs (inc’d

MISFA, etc.)– BDS firms

– Consulting– Auditing,

accounting– Transportation, etc

Banks coordinated via ABA BDS associations emerging as well

SMEs

Donors / Implementers• USAID (AIRES, ASMED /

EGPSS)• UN / UNIDO / UNDP• World Bank / IFC• GTZ • DFID (Dept. for Intl Dev)• JICA (Japan Int. Coop Ag.)• AKDN (Aga Khan)• Harakat• USDA• ACBAR Associations

• SME associations– ACCI

• Federation of Afghan Crafts and Trades (FACT)

• Afg. Woman’s Bus. Fed.• Afg. Carpet Exporter Guild

& Kabul Carpet Association• Trade organizations• Unions

5

1

2

3

4

52

Government and SME group will have to lead coordinationMuch coordination will need to be done on a regional level, as described next

Government• First step is to gain

commitment at Cabinet level – Min. Commerce and SME Group will lead

• Input critical from MAIL, MoF, MRRD, and MOCI

• Will likely take ~1-2 mo. for first buy-in from all parties

• Ongoing inter-ministerial coordination either through board of SME group, or through a separate SME inter-ministerial committee, as ANDS has an SME gap

Private sector• As with donors, private

sector needs to be aware of SME strategy overall, in particular the banking sector

• Government should work with ABA to communicate high-level strategy

• Then, will work with ABA to select specific partners banks for targeted products and sectors

SMEs

Donors / Implementers• Donors and implementers

should must be informed of strategy and at national level

• Then, donors will work on specific sectors and regions, based on their current operations and areas of interest

Associations• SME development group

will coordinate with associations on a national, regional and sector basis

• Regional & sector basis for specific industries & areas

• National for multi sector issues, such as Women Entrepreneurship

5

1

2

3

4

53

SME strategy needs to be effective at various levelsNational and international activities, as well as regional activities, based on operating conditions

National

Regional

International

•Int’l trade•FDI•Market access

National SME sector policy

Capacity building program

SME financing facility

Customs / transport facilities

• Local facilities• Infrastruct.• Training

Strongat national level

Weakat province level

Strategy enablers• Human capacity• Population density• Private services• Efficiency & cost-

effective delivery• Infrastructure• Security

Province Province

International to provincial levelInternational to provincial level Varying operating conditions at each levelVarying operating conditions at each level

54

Regional strategies will be based on four major regions

West

Herat

FarahGhor

Badghis

1

2

3

Central / East

KabulNangarharKunarBamyan

LaghmanKapisaNuristan

LogarPanjsherParwanWardakGhazniKhostPaktyaPaktika

1

2

3

South

Kandahar

HilmandDaykundi

NimrozUruzganZabul

1

2

3

North

BalkhBadakhshanFaryab

KunduzBaghlanJawzjan

SamanganSari PulTakhar

1

2

3

55

Actions in each region depend on local conditions

Shape

(Hilmand, Paktika)

Clear

(Badakshan)

Hold

(Kunduz)

Build

(Herat, Mazar)

• Extremely difficult local conditions in terms of safety and / or infrastructure

• Can begin to build select SMEs, but widespread SME growth unlikely soon

• Good conditions in terms of both infrastructure and safety

• SME development can take place immediately and progress quickly

Varying operating conditions in each districtVarying operating conditions in each district

• Create strong institutions (associations, etc)• Make significant investment (donor and private sector)• Promote national & international linkage• Create linkage to hold / clear / shape provinces which will

aid in their development

• Provide services, training• Likely less investment• Empower local institutions, like professional associations • Build links to build provinces

– Economic ties across value chains

Types of development actionTypes of development action

• Difficult conditions, will need improvement before development can occur across region

• Conditions generally good, but must prevent backsliding to poor safety situation

• Empower local institutions, like professional associations • Where possible, look to these regions to provide agricultural

inputs to SMEs in neighboring regions until conditions improve

56

Will test and refine strategies with regional pilot programs

Fresh fruit

JuiceConcen-

trateAgri-processing

Marble quarrying

Cutting FinishingMarble

WoolSpinning / dying

WeavingCutting / washing

Carpet Trading

Medical Herbs

Agri-processing

Wood WoodFurniture

/ craftsCarpentry

57

Initial regional strategy: North Strategy will need to be refined and expanded during pilot planning

Provinces (Pop. M)

Balkh 1.1Badakhshan 0.8Faryab 0.9Kunduz 0.9Baghlan 0.8Jawzjan 0.5Samangan 0.3Sari Pul 0.5Takhar 0.9

1

2

3

Industries

• Balkh: carpets, livestock, skins & leather• Badakshan: minerals, medicinal herbs• Faryab: carpet, pistachio (primary national producer), salt, marble• Kunduz: agriculture (grains), livestock, formerly a large cotton producer• Baghlan: grains, vegetables, cement, timber & untapped coal and marble• Jawzjan: little, some agriculture• Samangan: grains, fruits nuts; long-term potential for tourism• Sari Pul: agriculture, mainly cereal and melons• Takhar: cereal, pistachio, untapped coal, gold & salt

MOCI Partners

USAID, EGGI

GTZ, EU

JICA

Priorities

1. Carpet pilot: Recommend a carpet pilot first because of job creation potential. MOCI works with 2 donors in region to remove constraints on industry growth; strategy involves repatriating cut & wash & trade from Pakistan, as well as including more domestic wool in production.

2. Kunduz has high potential for leather industry, given presence of livestock and high number of literate workers; however, water supply and transportation will be issue; requires significant investment.

3. Medical herbs are low-investment potential for Badakhshan.4. Far North East (Badakhshan, Takhar, and Baghlan) are attractive mineral belt in long-term, but mining issues are barrier.

Issues & Infrastructure

• Large numbers of people returning home from northern countries• Good infrastructure in Balkh, especially around Mazar; also good irrigation infrastructure

around Takhar• Large number of literate workers in Kunduz, but separated by poor and mined roads• Other areas undeveloped, such as Jawzjan, and Samangan (no energy infrastructure)

58

Regional strategy: SouthStrategy will need to be refined and expanded during pilot planning

Provinces (Pop. M)

Kandahar1.0

Hilmand0.8

Daykundi0.4

Nimroz0.1

Uruzgan0.3

Zabul0.3

1

2

3

Industries

• Kandahar – agriculture, especially fruit production, currently poppy production as well• Hilmand – agriculture, especially cereal, vegetables, tobacco and cotton, and poppy• Daykundi – agriculture, especially almonds• Nimroz – some agriculture, but susceptible to drought, and with high unemployment• Uruzgan – agriculture, especially grains, apricots, almonds and poppy• Zabul – agriculture, wheat, almonds, grapes, apricots

MOCI Partners

USAID, EGGI

DFID (Helmand)

GTZ (in Uruzgan)

Priorities

As in parts of the East, security is a risk here, which makes high-investment activities difficult. However, given that the high-risk areas have high agricultural output, the goal should be to encourage that output by purchasing products from under-developed areas and processing them in facilities in nearby more developed areas.

• Plan is first to pilot activities around an agricultural product in Kandahar – most likely either pomegranates or almonds.• The area already produces both of these products, but will need to assess the cost of setting up additional processing

facilities for each product and then work at first with the one that will create more job opportunities in the short term.


• High security risk and poppy production, especially in Kandahar, Hilmand, and Uruzgan• Whole region generally suffers from low population density, drought, poor infrastructure

59

Regional strategy: WestStrategy will need to be refined and expanded during pilot planning

Provinces (Pop. M)

Herat1.6

Farah 0.5

Ghor 0.6

Badghis0.4

1

2

3

Industries

• Herat: Agriculture (wheat), livestock, tomato, carpet (kilim), marble & trade with Iran• Farah: Agriculture (wheat, barley), embroidery• Ghor: Primarily livestock, with some nuts, fruit and honey as well, embroidery• Badghis: Agriculture (wheat, barley, pistachio), cattle

MOCI Partners

USAID, EGGI

Italy (PRT leaders)

CRS (in Herat and Ghor)

Priorities

1. Marble pilot in Herat. Already a priority among donors, but MOCI can undertake several activities to speed growth, as described under Marble pilot, starting on page 64.

2. Coordinated investment in agriculture processing: many defunct facilities silos & mills for wheat production, cotton (cotton fabrics & oil), shoe mfg. Also, high potential for saffron.

3. Trade & tariff with Iran: traders & SMEs unsure of trade and tariff regulation.4. Skills building for displaced workers: embroidery, higher value farming.

Issues

• Large numbers of displaced people returning to region – in need of skills• Increased unrest and difficulty in Farah, making development work difficult, and water

shortage which affects economic base

Infrastructure

• Roads good in many places, airports and easy access to boarder with Iran• Industrial park in Herat• Electricity outages common, no access to electricity for some industries, such as marble

60

Regional strategy: EastStrategy will need to be refined and expanded during pilot planning

Industries

• Agriculture – as with most parts of Afghanistan, agriculture is the major industry• Minerals – currently a small but high-potential segment, especially along eastern border• Forestry – as with minerals, currently an unexploited sector, but one with high-potential• Manufacturing – large potential for manufacturing, especially around Kabul and J-bad

Priorities

Key to this region will be to develop a strategy that can utilize both the high-infrastructure areas (like Kabul & Jalalabad) while beginning to develop more difficult areas such as Paktya.

• Plan is to first begin a pilot program promoting the wood & furniture sector, which currently is under-developed. First step is to complete assessment of timber supplies in Kunar, as well as assess their carpentry capability. Much of the processing of timber and carpentry work might have to be done in Kabul, especially at first.

• In addition, as part of the North Regional Strategy, more carpet cut and wash facilities will need to be opened in Kabul and around Jalalabad.

• For areas such as Paktya and Paktika, recommendation is to encourage greater production of agricultural raw materials by purchasing them for use in processing facilities which are being developed in nearby developed provinces, such as Kabul.


• Many parts of this large region have quite high development potential, but several of the provinces (such as Paktya and Paktika) still suffer from security problems which make development activities in those areas difficult

• Similarly with infrastructure, it is quite good in some areas, but lacking in others, especially in many of the provinces bordering the Pakistan border

Provinces (Pop. M)

Kabul 3.5Nangarhar 1.3Kunar 0.4Bamyan 0.4Laghman 0.4Kapisa 0.4Nuristan 0.1Logar 0.3Panjsher 0.1Parwan 0.6Wardak 0.5Ghazni 1.0Khost 0.5Paktya 0.5Paktika 0.4

1

2

3

MOCI Partners

USAID ASMED, EGGI

USA (Leaders of most PRTs in the region)

61

Carpet example: significant value comes from final steps

24

4

50 24

27 115

4

0

10

20

30

40

50

60

70

80

90

100

110

120

Wool Spinning Dying Weaving Transport to Pak Cut & Wash Sell to Wholesaler Total

Significant value from weaving, but extremely labor intensive, and low margin overall

High value from trading, and has the key benefit of access to markets, customer, brand, etc. But currently these final two steps are performed in Pakistan on 85% of carpets

Source: Growth Strategy and Action Plan for Carpet Sector, ACC & On the Frontier; ASMED Carpet Sector Strategy; Carpet Sector Analysis, US Department of Trade

$ / sq. m

Value distribution of typical Chob Rung carpet

Carpet – North / East

62

Cut and wash in Pakistan generates ~$6M in revenue• 1.6M sq. m / year * 85% cut in Pakistan * $4 revenue per m

And employs ~7K people• Based on average facility of 200 people cutting and washing

3,000 sqm / month• Hence, average person cuts and washes 180 sqm / year

Carpet sector can gain ~30% value through repatriation


Overall market information

World market ~$1B; Afg market: ~$150M (15% market share)• National production ~1.6M sq m / year

Price $90 / sq m; output: 1 sq m / person / month• Hence, ~140K full-time weavers could work full time• In practice, there are probably at least twice that many

weavers, working half time or less. Some estimates of up to ~1M people weaving part time

Cut and Wash

Trading Afghan carpets in Pakistan generates $38M• Traders make on average $27 / sq meter

Trading does not employ many people• Given the fact that a single trader trades 1,000s of square

meters / month, while a weaver just weaves 1 sq m / month

But trading would give Afghanistan better control over markets and branding, and keeps margins in country, which could then benefit weavers

Trading

Thus a $150M annual market can become a roughly $200M market

Adds 7K jobs in cut and wash

Gives Afghanistan better control over market and brand, which in turn will lead to higher sales

Question is: what needs to happen now?


63

Several actions in carpet sector for MOCI and othersLand – more land needed for cut and wash, likely in industrial parks – in some cases, MOCI can provide land at low lease rates to attract industry back from Pakistan

Finance – will need to work with banks to provide financing; however, loans <$20K

Environment – increased cut and wash in Afghanistan means NEPA will need to develop a policy to address the environmental impact of cut and wash

Additional incentives – to bring back cut and wash from Pakistan, government will have to offer additional incentives (low or no tax, subsidized shipping out of Afghanistan, land, etc.)


Cut and Wash

Shipping and transportation• Need to increase shipping and handling capacity at the airport• Security issue at airport – carpets are cut and damaged during a post-customs security check

Trade paperwork – most Kabul-based traders still complain of excessive procedures in order to get permission to export

• Others say the process is not difficult, but process is neither consistent nor transparent• One-stop-shop for exporters at the airport will help to address this issue

Financing – Kabul traders will need more access to finance (although finance for traders typically not too difficult to obtain)

Trading

General

Branding – will need to develop a brand for the finished products, including several components• Fair Trade – increases value of brand in the states, but would require government mandate stating

that all carpets are made according to Fair Trade, and then would require Fair Trade organization itself to ensure compliance

• Also need to consider other certifications – handmade vs. machine, natural vs. chemical. Before making these decisions, need to find out what the customer market actually values

Design – Afghanistan will have to spend more time with design• Hence, a design facility might be needed. Could be done as part of a new independent carpet

guild, which would draw from members of the existing carpet associations


64

Marble production taking place in all regionsHerat is good place for pilot: high quality product, some production already; Jalalabad also potential

Source: On the Frontier; ASMED Marble Sector Strategy

Marble - West

Herat

Helmand

• Lashkar Gah• 10 tons / month• White / onyx

Kandahar

• 150 tons / month• But low quality

Jalalabad

• 150 tons / month• White, medium

quality

Kabul

• 300 tons / month• White, black,

green

Mazar

• Some exports, but little market data available

• 300 tons / month• High quality white

marble

65

Most of the value going to neighbors


30

20

140

30

10

0

25

50

75

100

125

150

175

200

225

250

Quarry Tax Shipping to Pak Cutting (Slabs) Final cut, polish

$ / ton

Value distribution of typical metric ton of marble from Afghanistan

Afghanistan captures only $40 per ton from a value chain that is worth approximately $240 / ton, and low quality blasting at the quarry means ~50-80% of marble is wasted

Majority of the value comes from the final two steps, but a significant amount of capital investment is required. Hence, marble pilots should focus on high-quality quarries, such as in Herat

Marble - West

66

Could become ~$450M industry; ~$100M investment needed


Marble - West

0

100

200

300

400

500

2009 2010 2011 2012 2013 2014 2015 2016

USD $M

Potential grown of Afghan Marble

Tiles

Slabs

Blocks

But substantial investment needed

Requires ~$100M in investment in several areas• Road and infrastructure to and from quarries• Equipment within each quarry• Overall, building this type of capacity requires

opening over 200 quarries, and 50 finishing plants

These estimates also rely on several assumptions• World capacity continues to grow at 8% per year,

as it has over last five years• Adding 250K tons of capacity each year between

now and 2016, meaning a total capacity in 2016 of 1.5M tons

• Also assumes an ongoing price of $150/ton for blocks and $300/ton for slabs

• Nearly all production would be exported

Best estimates suggest that output at this level would create 15K jobs

67

But many actions and interventions needed to start industry


Quarrying

Cutting (slabs)

Advocacy need with Ministry of Mines to encourage investment• Quarrying rights should be awarded based on company’s willingness to invest capital• Quarry owners should be taxed based on profits, not based on a royalty system• Lease lengths need to be increased – current short-terms of lease discourage high capital investment

The industry is unlikely to grow if these mining issues cannot be resolved

Financing required to improve quarrying operations• Organizations such as USAID / ASMED working with OPIC, IFC and others to provide financing• Capital requirements high – up to ~$1M per quarry• MOCI can help to promote the marble cluster and work with banks to provide financing• However, the most important role for MOCI is to help remove roadblocks at Ministry of Mines

Final cut & polish

Afghanistan already has skills in this area• Often Afghanistan re-imports slabs and tiles from Pakistan• However, more training and equipment needed to further raise the standard of local finishing

Other

Infrastructure• Government coordination will be needed to ensure proper infrastructure. For example, improved

roads will be needed to access several major quarries in Heart• Electricity grid might also need to be extended to quarries

Testing• Critical for marble to be tested before selling to international markets. Currently samples are sent out

of the country for testing. Based on test results, quarries for pilot can be identified. However, as industry grows, government will need to support an in-country testing facility

Marble - West

68

Action needed in most of the SME constraint areas

• Financing is critical with marble industry; ~$1M for quarry to be fully effective• Payback time will be slow, at least 1 – 2 years• Will need to work with bank to provide financing, and with donors to provide some capital to

reduce risk to banks and to help lower the effective interest rate

• Most transportation will be overland; roads in region generally good, but in many cases will need to work with donors to provide last stretch of road to quarry

• Testing needed, and must be quarry specific• Donors have helped send samples for overseas testing, but need explore in-country testing

• MOCI already taking action here; should coordinate through new ACBR in Herat

• Electricity is issue in many quarries; usually powered by generator• Final cut and polish can be done in industrial park

Finance

Transportation

Certification

Registration

Safety & crime / Land / Electric

Market access

Sector-specific infrastructure

• Government should continue to work with donors to sponsor trade shows• Trade shows in Italy have been effective in past

• Needed infrastructure are generally roads to quarry and equipment in each quarry• Polishing and final cut facilities can be done near quarries or in industrial park

Capacity building

Trade & tariff• Trade and tariffs are still major point of confusion for SMEs in all regions• Some regulations might need changing, but often just better communication is needed

• Training needed for use of all new equipment in quarries

MOCI, MoF, Banks, donors

MOCI, Min. Transport, donors

MOCI, ANSA, donors

MOCI, donors

MOCI, AISA

MOCI, EPPA donors

MOCI, donors

MOCI, donors, BDS

MOCI, MoF

Issues and actions ResponsibilityConstraint

Marble - West

69

For all target sectors, communication from government is key

Government must determine for each target sector what type of benefits the government can provide to companies• Access to overseas markets via trade shows, customer visits to Afghanistan• Access to technical training or certification, for example, design training in carpets or ISO certification in Agri-processing• Assistance with access to finance via banks or a public-private SME credit facility• Information about donors and access to their programs• Expedited tax and / or registration procedures, and potential tax-reductions• Advice from MOCI, provided SME can show proof that they have registered

Once the benefits have been agreed on for a target sector, MOCI will have to communicate them clearly• Recommend putting together an official MOCI guide to specific sector. Should include:

– Information on the current state of industry: size, dynamics, achievements to date, etc– Details about what MOCI’s plans are for that industry: how much MOCI is investing, how big the industry can

become, what that means in terms of additional profit for companies– What the SME can expect when they formalize: not just the benefits, but also details on taxes, trade regulations,

inspection regulations, etc.• Distribute official guide through multiple existing channels

– Regional governments– ACCI– Sector-specific associations– Donor groups– Banks that are participating in credit programs for that particular sectors

MOCI and other Ministries will have to commit to benefits once they are communicated• E.g., a tax rate and procedure, once communicated, will have to stick• SMEs should be encouraged to call MOCI with complaint if they experience different procedures than those

communicated• Opportunity to contact the Ministry with such issues is a benefit to registration

1

2

3

Will help to promote formalization as well, as the government will only be able to provide these benefits to formalized companies

70

Strategy implementation timeline – overview

Government approval of policy

Creation of SME Group in MOCI

First meeting of SME Group

Regional strategies shared with stakeholders (donors, ministries, etc)

Pilots kicked off in each of 4 regions• Address the 3 key areas: financing,

infrastructure, & capacity building

Results from pilots

Revision of strategy based on results

Staffing expansion of SME Group

Funding sources identified

SME Group fully operational, ready to become independent

Activity Feb MarJan April June Q310May Q410 Q211 Q311Q111 Q411 Q112 Q212 Q312 Q412

Short-term (2010) Mid-term Long-term

71

Summary of tasks for each stakeholder group

MOCI & government

Donors and implementers

Banks and BDS

Associations

Short-term Mid-term Long-term

Gain agreement on overall SME strategy• Agree on sector activities to support strat.• Communicate strategy to all stakeholders

Create SME Group within MOCI

Kick off pilot in particular sector• Likely includes support from donors and

banks (tech skills, subsidized loans, etc)

Incorporate results of pilot into strategy

Prepare additional pilots

Add additional staff to SME Group based on pilot results

• Potentially a communications person to continue promoting MOCI target clusters

Working together with stakeholders• SME Group to have regular sessions

with donors, certain SMEs, and MOCI• MOCI receives recommendations from

SME Group• Through Inter-ministerial mtgs, MOCI

ensures that gov’t meets SME needs

Work through MOCI to ensure that efforts are coordinated at national and regional level

Certain donors should be coordinated in particular for pilot program

Continue dialogue with MOCI & SME Group on results of work

Make recommendations based on their own findings in the field

Continue dialogue with MOCI & SME Group on results of work

Recommendations based on findings

Ensure that capacity over the long term is transferred to permanent institutions

Specific SME-oriented banks will work with MOCI to offer SME product to target sector

• BRAC, FMFB, AIB, for example

Donor support to offer subsidized loans

Specific BDS firms engaged to provide support – for example, in preparing necessary documentation for loans

Specific banks will work with gov’t to open dedicated SME windows in certain locations

• BRAC, FMFB, AIB are all potential partners

Expansion of SME windows

Ongoing program to offer single-digit interest on loans for target industries

Is it possible for regional branches to accelerate formalization right at the SME window?

Associations such as ACCI or FACT will provide important input to pilot

• Names of potential participants• Information on needs of participants

Associations will continue to be consulted as overall strategy is developed

Associations are conduit between SMEs and gov’t / donors

• Help ensure that SME strategy is understood by SMEs and that gov’t understands SME needs

• Should also be able to help promote formalization

Associations gradually take on a larger role as donor transfer more capacity-building responsibility to them

72

Major risk factors

Commitment from

government

Funding

Organizational development

Private sector-failure

Potential Issue What needs to be done

Without government support from multiple Ministries, the SME Policy and Strategy cannot succeed

In particular, government support must come from Cabinet level, additional inter-ministerial level, and the regional level

“Support” is not so much financial or human resources as it is a general agreement and willingness to support the principles of laid out in the SME Policy and Strategy

There is no to way to gain wide-spread buy-in except by working very closely and extensively with all stakeholders at the start of the project

The Minister has proposed inter-ministerial SME meetings 2x/month, at least for first 6 months

Only when this is achieved and all feedback is consolidated can the strategy proceed to a regional level

Funding will be required to further develop and execute plan

In some cases, funding is already being directed to areas consistent with the strategy (such as in carpets)

However, in other areas, such as SME-credit and development of the SME group, additional funding is key

Donor funding needs to be secured at the start of the project, but only after government commitment is achieved

Recommending small donor funding at first, then increasing a project gains momentum

Capacity building will be important at the Ministerial level, particularly within the SME group at MOCI, but also on a regional level

Plan is currently to have a small SME group which reduces immediate capacity building needs, but as group grows in 2011 and beyond, much more capacity is critical

As with donor funding, organizational development must be addressed after government buy-in is achieved

Capacity building needs must be limited at the project outset. Throughout the project, the aim is to do a few things right, and then build, rather than attempting too much too soon

Fundamentally, much of the success for this program involves SMEs building trust in the government so that the government can better serve their needs

However, given current level of SME’s mistrust in government (as evidenced by low levels of formalization), gaining buy-in from our primary stakeholders (SMEs) will be a challenge

Clear and frequent communication between the government and all stakeholders is essential to success, otherwise we expect little buy-in from SMEs

However, before communication can happen, the government must decide what to communicate, leading again to the notion of government commitment

Better no communication than to communicate a promise which is either unclear or not kept

73

Contents

Executive summary



74

Project background and objectives

Background

His Excellency, Mr. Shahrani, Minister of Commerce and Industry, drafted ambitious 2-year plan for MOCI

Goal to create a “socially responsible market economy in which sustainable and equitable growth is private-sector led”

ASMED to develop SME section of the plan to answer some key questions

• What barriers prevent SMEs from joining the formal economy?

• What should MOCI do to lower barriers and to help to grow the overall SME sector?

• How will other ministries, agencies, etc, help?• What are MOCI’s benchmarks for success?• Given the above, what will be the government’s

overall policy for SME development?

Objectives

Primary deliverable is an SME policy and development plan with three major sections

• Diagnostics− Assessment of current state of SMEs (growth,

barriers to growth, etc)− Overview of what initiatives are underway now− Understanding of gaps

• Policy and Initiative development− Government’s SME policy, based on findings in

the diagnostics− Tasks for MOCI and other government groups− Outline of areas of coordination between

government and other organizations• Implementation planning

− Timing of initiatives and policy rollout− Plan for coordinating all stakeholders− Budget and manpower needs− Estimation of impact

Plan builds on existing research and draws from interviews with ministries, NGOs, donors, banks, etc.

75

Strategy development followed two-month schedule

1. Diagnostics• Overview of current research• Fact-finding with

stakeholders• Synthesizing results

2. Initiative Development• Overview of actions• Analogues from region• First recommendations

3. Implementation Planning• Develop implementation

plan• Validation with stakeholders• Develop metrics to measure• Identify quick wins• Present final plan• Incorporate final feedback

Milestones

Activity Week of

Second reviewwith Minister

Final presentation

Oct 16 Oct 23Oct 9 Oct 30 Nov 13 Nov 20Nov 6

First reviewwith Minister

Nov 27 Dec 4

76

Contents

Executive summary



77

Incorporated findings from existing studies (I)

Report Source Topic

SME development --best practices from other countries

GC University, Lahore, Office of the Chancellor

Asian Development Bank

Pakistan Development Forum, 2005

Thitapha Wattanapruttipaisan, Senior Officer, Industrial Services, ASEAN

Human and Organizational Potential Development Center, Thailand

Ganeshan Wignaraja, Head of Competitiveness and SME Strategy, Maxwell Stamp

USAID

Overview of SME policy reform in Pakistan and its impact on growth

Constraints and policy recommendations

Data on correlating industrialization with GDP

Assessment of Asian SME development policy, with particular emphasis on trade

Overall policy recommendations for SME development in ASEAN

Initiatives for gov’t, SME associations, & donors to develop SME sector

Navigating the political aspects of SME development & building consensus

Topic

SME Development in Pakistan – Issues and Remedies

SME Development in Pakistan – Analyzing Constraints on Growth

Towards a Prosperous Pakistan – Strategy for Rapid Industrial Growth

Promoting SME Development: Some Issues and Suggestions for Policy Consideration

A Proposed ASEAN Policy Blueprint for SME Development

Promoting SME Exports from Developing Countries

The Political Economy of SME Development Policy in Indonesia

78

Incorporated findings from existing studies (II)

Report Source Topic

SME development --best practices from other countries

GC University, Lahore, Office of the Chancellor

World Bank

Government (?)

Royal Government of Cambodia

SMEDA

SMEDA

Abdul Awal Mintoo

Overview of SME policy reform in Pakistan and its impact on growth

Analysis of local constraints in various African countries

Review of India SME policy

Outline of national framework and policy

How Pakistan developed their leather industry

Operating rules and charter for Pakistan SME development group

Report on what Bangladesh is doing in its SME sector

Topic

SME Development in Pakistan – Issues and Remedies

Formalization of SMEs in Africa

SMEs in India

SME Development Framework, Cambodia, 2005

Leather Industry Development, Pakistan

SMEDA Ordinance

SMEs in Bangladesh

79

Report Source Topic

SME sector analysis

ASMED / Altai Consulting

ASMED / Altai Consulting

Clive Mitchell, Antony Benham, British Geological Survey

ARDEP, Haroon Chakansuri

Agency Coordinating Body for Afghan Relief, Saurabh Naithani, MOCI

UN Office on Drugs and Crime

Feasibility study for 6 sectors• Milk and yoghurt• Cashmere• Gemstones• Flour• Industrial bread• Cakes and candies

Market analysis and feasibility study for renewable energy and energy efficiency

Study focussing on the minerals sector

Analysis of constraints to SME development

Issues in promoting SMEs, and governance recommendations

Assessment of viable SME sectors and overview of scope of major donor agencies

Topic

Afghanistan SME Market Analysis – Phase 1

Afghanistan SME Market Analysis – Phase 2

Afghanistan Revival and Redevelopment

ARDEP SME Survey Analysis

The Case for SMEs in Afghanistan

Mapping of Alternative Livelihood Projects in Afghanistan

Incorporating findings from existing studies (III)

80

Report Source Topic

SME sector analysis (cont’d)

Avery Leather Consulting

Mir A. Rahim Yahya

On the Frontier

On the Frontier

The McCord Group

The Macauley Institute & Mercy Corps

Euan Thomson / AREU

ADB

Analysis for potential leather industry in North region, including report on engineering specifications

Analysis of Afghanistan competitive advantage

Sector report done for ASMED

Sector report done for ASMED

As described in title

Focusing on these sectors in North

As described in title

Frameworks and data for agricultural sectors

Topic

Potential for Establishing a New Tannery in Afghanistan, 2009

Afghanistan Marble Industry Competitiveness, 2009

Marble Cluster Analysis

Carpet Cluster Analysis

Analysis of Business Opportunities within Afghanistan’s Carpet Sector, 2007

Production and Marketing of Red Meat, Wool, Skins and Hides, 2005

Overview of the Livestock Sector and Livestock Marketing in Afghanistan

Rebuilding Afghanistan’s Agricultural Sector, 2003

Incorporating findings from existing studies (IV)

81

Report Source Topic

Investment climate for SMEs

Sayed Mahmood, WB Finance and PSD Sector Unit (SASFP)

John Speakman, World Bank, DFID, Altai

IBRD / World Bank

Saurabh Naithani

AREDP

US State Department

World Bank

NATO / OTAN

ARIES

Major impediments to SME development, based on results of SME survey

Major impediments to SME development, based on results of SME survey

Constraints to growth

Overall guide to ANDS (not SME specific)

Business climate for SMEs

Practical facts for investors, including registration procedures, etc.

Good source of overall development data

General, not SME specific

SME constraints and recommendations

Topic

The Investment Climate in Afghanistan, 2005

The Afghan Investment Climate in 2008

Doing Business in Afg, 2010

ACBAR’s Guide to the ANDS

AREDP SME Survey Analysis Results & Presentation

Doing Business in Afghanistan – A Country Commercial Guide for US Companies, 2005

Afghanistan: State Building, Sustaining Growth &Reducing Poverty, 2004

Afghanistan Report, 2009

ARIES SME Dev. Workshop Rept.

Incorporating findings from existing studies (V)

82

Report Source Topic


IMF

IMF

DFID

ADB

UNDP

World Bank

DFID, World Bank

Matt Waldman / ACBAR

USAID

Update on IMF poverty reduction initiatives

Excellent source of macroeconomic data

Another excellent source of macroeconomic data

Macro-economic data

Good source of macroeconomic data

Excellent macroeconomic data

Analysis of agricultural sectors

Good for aid data

Review of agricultural programs in the East

Topic

Afghanistan Poverty Reduction Strategy Paper, 2008

IMF Statistical Appendix, 2008

Understanding Afghanistan: Growth Diagnostic, 2008

ADB Afghanistan Statistics

Afghanistan National Human Development Report, 2004

Structure of Afghan Economy

Economic Incentives and Development Initiative to Reduce Opium Production, ‘08

Falling Short: Aid Effectiveness in Afg.

Alternative Development Program, East Region, 2005 – 2009

Incorporating findings from existing studies (VI)

83

Report Source Topic


Adam Smith / DFID

William Byrd

GFA Consulting Group

Report on issues and solutions

Actions to promote growth

Analysis of issues and constraints, especially in Kunduz and Balkh

Topic

Reforming Business Licensing In Afghanistan, 2008

Afghanistan Needs Pro-Private Sector Growth, 2005

SME Policy Issues, 2008

Incorporating findings from existing studies (VII)

84

Report Source Topic

Access to credit Amjad Arbab, Managing Director, MISFA

Afghanistan Research and Evaluation Unit

MRRD and MoF, Afghanistan

Radjeep Sengupta and Craig Aubuchon

Ishrat Husain

On the Frontier

World Bank

IMF

ARIES

Microfinance sector analysis

Assessment of microfinance institutions and credit-seekers, and discussion of barriers to increased lending

Microfinance reviews and recommendations

Overview of Microfinance around the world

Tactics used in Pakistan to increase access to finance

Details on the barriers to financing in Afghanistan

Framework for enhancing SME growth through financing

Academic details on risk and rewards and CAMEL system

Review of efforts

Topic

Facing the Challenge of Scaling up Microfinance in Afghanistan

From Access to Impact: Microcredit and Rural Livelihood in Afghanistan

Midterm Review of the Microfinance Sector and MISFA in Afghanistan

The Microfinance Revolution

Banking Sector Reforms in Pakistan

Finance Cluster: Understanding Investor Needs, 2006

The Link Between Competitiveness and SME Financing, 2006

Development of Commercial Banking System in Afghanistan, 2009

FINCA Progress Review, 2009

Incorporating findings from existing studies (VIII)

85

Report Source Topic

Access to credit

Export promotion versus import substitution

Actionaid

Mennonite Economic Development Associates

Shorebank International

Hakan Yilmazkuday

Debdas Bandyopadhyay

Excellent detail on financing needs in agricultural sector

Excellent data on what is needed in agricultural sector

Constraints to SME financing

General analysis of costs and benefits

Academic framework for analysing benefits in India

Topic

Food for Thought: Analysis of Agricultural Financing in Afghanistan, 2009

Agricultural Market Research for Microfinance and SME Interventions, 2009

Challenges and Next Steps in SME Lending in Afghanistan, 2009

Export Promotion versus Import Substitution

Effects of Export Promotion and Import Substitution on Poverty, Inequality and Growth in India

Incorporating findings from existing studies (IX)

December 16 th, 2009 Ministry of Commerce & Industry (MOCI) Afghanistan SME Development Strategy.

Documents

Transcript of December 16 th, 2009 Ministry of Commerce & Industry (MOCI) Afghanistan SME Development Strategy.