Signs of Resilience but Critical Challenges Remain for Afghanistan’s Private Sector

Many firms in Afghanistan are adjusting to the new business environment but most still face daunting challenges, the World Bank’s second private sector survey finds.

Conducted in May-June 2022 and published today, the Private Sector Rapid Survey (PSRS) Round 2 assesses the status, constraints, and investment outlook of businesses, and the impacts of the ongoing economic challenges faced by private sector firms in Afghanistan. The PSRS Round 1 survey was conducted in October-November 2021 and published in March 2022.

“Afghanistan continues to face enormous social and economic challenges that are impacting heavily on the welfare of its people, especially women, girls, and minorities. The new survey confirms the resilience of Afghanistan’s private sector, which can play a key role in the economic recovery of the country and improving the lives of all Afghans,” said Melinda Good, World Bank Country Director for Afghanistan. “It also shows that firms continue to suffer from impacts of political uncertainty and policy fragmentation, Afghanistan’s isolation from the international financial sector, and reductions in international assistance.”

What has changed between the two Rounds of the survey?

• More than three-fourths of firms surveyed in Round 2 are operational, compared to two-thirds in Round 1 of the survey. However, most are operating significantly below their full capacity and are only considered partially open. Consumer demand appears to have slightly improved in past months but remains considerably lower than before August 2021.
• Employment remained around 50 percent lower, on average, than before August 2021, compared to 61 percent lower in Round 1 of the survey. Women-owned businesses are most affected by restrictions on women’s mobility, resulting in disproportionate revenue and job losses. Female employment remains 62 percent lower than before August 2021, while it was 75 percent lower in November 2021.
• Businesses continue to be negatively impacted by the loss of international banking relationships, which has disrupted international payments and limited access to bank accounts and formal banking. Firms are resorting to the use of informal money transfer systems for domestic payments. In Round 2 of the survey, 58 percent of respondents reported that making domestic payments was difficult, compared to 82 percent in Round 1.
• Firms are also struggling to obtain inputs: imports are costlier due to border closures and non-availability in the local markets; domestic inputs remain a challenge, owing mainly to price inflation and the closures of suppliers’ businesses.
• Despite some businesses hiring employees, the majority of respondents have coped with these challenges by laying off employees, shifting to cash and informal payment channels, shrinking investments, and lowering staff salaries.
• Overall levels of corruption with respect to paying taxes and clearing goods through customs are significantly down compared to one year ago, but there are signs of an uptick in the past six months. Two-thirds of firms surveyed in Round 2 reported having made unofficial payments before August 2021, 3 percent reported making these payments between August and November 2021 (Round 1), and 8 percent since November 2021 (Round 2).

“Action is required by the authorities to unlock possibilities for much-needed international economic integration and domestic opportunities for Afghanistan’s private sector,” added Good. “This includes increased transparency in public finances and reestablishing central bank independence. With measures like these and continued resilience of businesses, a sustainable private sector-led recovery is possible.”