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Cablegate: Afghanistan Moves Up Eight Places in the World Bank's Doing

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DE RUEHBUL #3570/01 3091730
ZNR UUUUU ZZH
P 051730Z NOV 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 2904
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0936
RUCNAFG/AFGHANISTAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

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E.O.12958: N/A
TAGS: BEXP ETRD EAID EAGR PGOV AF
SUBJECT: AFGHANISTAN MOVES UP EIGHT PLACES IN THE WORLD BANK'S DOING
BUSINESS REPORT

REF: (A) Kabul 2056 (B) KABUL 3305

1. Summary: While still low-ranked as a place to do business,
Afghanistan did ratchet up - from 168 to 160 - among 183 countries
ranked by the World Bank in its recent Doing Business Report for
2010. Moreover, Afghanistan was also the only country in South Asia
to improve its ranking. Improvements in three main indicators were
important to Afghanistan's improved standing - Access to Credit,
Registering Property, and Starting a Business. All are focal areas
for U.S. technical assistance and capacity building. Access to
credit registered the most dramatic improvement, up 53 spots from
180 to 127. At the same time Afghanistan's performance declined in
five areas (Trading Across Borders, Paying Taxes, Enforcing
Contracts, Dealing with Construction Permits, and Employing Workers)
and the country remained last place in two others (Protecting
Investors and Closing a Business). Commerce Minister Shahrani has
formed a Task Force within his ministry to formulate an action plan
by the end of December to address these shortcomings. End Summary.

RECORD LEAP FORWARD IN ACCESS TO CREDIT
2. The World Bank's 2010 Doing Business Report shows Afghanistan
jumping fifty-three spots (from 180 to 127) for improving its access
to credit, mainly by passing laws on secured transactions for
mortgages and moveable property. A USAID project provided technical
assistance that helped Afghans draft the laws and trained the
Central Bank legal department personnel on their application. The
laws broaden the range of assets that can be used as collateral and
define debts and obligations. The new laws also enable out-of-court
enforcement. Central Bank Governor Fitrat championed passage of the
legislation and conducted substantial public outreach to educate the
private sector and legislators on the laws.
PROGRESS IN REGISTERING PROPERTY
3. The World Bank Report also notes the Afghan Government
simplified the property registration process and reduced property
transfer tax from five to two percent of the property value. This
step improved Afghanistan's ranking on property registration by 12
places (from 176 to 164). By lowering registration fees, the Afghan
Government hopes to be able to collect from buyers and sellers who
would not normally register their transactions. The Government also
simplified property registration procedures, cutting the number of
required steps from over thirty to just three for urban land and to
four for rural land. The Ministry of Commerce and Industry expects
these two reforms to increase compliance levels in Kabul from 20% to
60% over the next five years, with court revenues from property
registration fees rising from 117 to 175 million Afghani annually
(or from $2.3 million to $3.5 million). Continued USAID technical
assistance will help to reduce the number of days required, on
average, to transfer property as well as help support expanding the
land registration program beyond Kabul.

REFORMS MAKE IT EASIER TO START A BUSINESS
4. Afghanistan ratcheted up its ranking for starting a business one
notch, from 24 to 23. The World Bank noted Afghanistan simplified
its business start-up process by taking company registration out of
the commercial courts and establishing a new company registry that
acts as a one-stop shop. The reform combines company registration,
tax registration, publication in the official gazette, and charges a
flat registration fee.
FIVE AREAS SLIPPED DESPITE OVERALL IMPROVEMENT

5. Afghanistan's ranking in five areas slipped: Trading Across
Borders, Paying Taxes, Enforcing Contracts, Dealing with
Construction Permits, and Employing Workers. The report stated many
of these areas are rife with corruption and bureaucratic delays in
document processing. One area, Employing Workers, dropped due to
lack of a sufficient legal framework.

DEAD LAST IN TWO CATEGORIES

6. Afghanistan ranked last among 183 countries in two categories,
Protecting Investors and Closing a Business. Investor protection is
measured on the basis of transparency of transaction, shareholders'
ability to sue officers and directors for misconduct, and strength
of investor protection. On a scale of one to ten, Afghanistan rated
zero in transparency, two in terms of shareholders' ability to sue
for misconduct, and 0.7 in terms of investor protection, again due
to an insufficient legal framework. The Closing a Business category
includes the time and cost required to resolve bankruptcies. The

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lack of available data in this area resulted in Afghanistan's last
place ranking, but also indicate weaknesses in its existing
bankruptcy law and administrative process.

COMMENT

7. Minister of Commerce and Industries Wahidullah Shahrani recently
stressed the importance of raising Afghanistan's ranking in the
World Bank survey at a November 4 international donors' conference
on private sector development. He said he had formed a task force
within his ministry to formulate an action plan addressing the
shortcomings identified in the survey. He wants the plan completed
by the end of 2009 and then reviewed with international donors. End
comment.

EIKENBERRY

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