Afghanistan is striving to emerge from a prolonged period of military occupation, wars and the Taliban rule and remains one of the world’s poorest countries with an estimated per capita GDP of only US$355 in 2006/07.2 The country’s security situation remains critical, especially outside of Kabul, yet in recent years the economy has continued to grow in this volatile political, economic and security environment. Real GDP for 2006/07 is estimated at US$8.88 billion and projected to grow by 11% in 2007/08 (excluding opium production). The macroeconomic environment has been stable and inflation returned to a moderate level in 2005/06 (approx. 5%).
Public and Private Sector Development
Starting in 2002, the GoA has introduced a number of structural reforms. A new Income Tax Law, a revised Customs Code, a modern Public Finance and Expenditure Management Law, a strengthened Procurement Law, Rules of Procedure for Public Procurement, a new Civil Service Law, and a revised Law on Foreign and Domestic Investment are in place. Fiduciary standards have been strengthened and administrative reforms have been undertaken. The GoA is committed to fiscal discipline but fiscal sustainability remains a challenge. In 2004/05, total public expenditures amounted to US$3.4 billion, of which only US$0.9 billion was implemented by the GoA. Revenue mobilization remains low at 5.5 percent of GDP in 2005/06, one of the lowest ratios in the world, and domestic revenues cover only half of total operating expenditures in the Government’s core budget. Almost all public sector consulting services contracts are externally funded. Continued progress in reform of Afghanistan’s Public Administration (PA) and the rule of law are critical for progress, but PA capacity is still very limited.
Achievements in private sector development include the establishment of the Afghanistan Investment Support Agency (AISA) as a one-stop shop to register firms,3 approval of a Banking law, licensing of more than a dozen commercial banks, and creation of an Industrial Park Authority.
Security Situation
Apart from challenges of education, health, and infrastructure, the lack of security is the main obstacle to Afghanistan's reconstruction program. The country has not yet fully emerged from its state of conflict and the security situation in the country has deteriorated since April 2004. Even major NGOs are reluctant to send their national staff to the provinces where conflict is ongoing. International experts avoid travel within the country, and when they do, they either keep a low profile or hire extensive and costly security support. As a result, studies and reports are frequently based on old data since visiting missions in dangerous provinces are rarely feasible. Compared to the provinces where the conflict is ongoing the security situation in Kabul is relatively stable. However, attacks on international staff, threat warnings, and seizure of explosives are common. Risks related to security lead to a low level of interest from potential bidders, higher costs and/or delays in assignment execution. The security situation is not likely to change in the medium term and will limit operational activities while requiring substantial security expenses.
Consulting Services in Afghanistan
Traditionally, most technical departments of the PA covered in-house their limited needs for planning, research, studies, designs, and supervision services. However, nearly 30 years of unrest reduced Afghanistan to political and economic ruin. The process of political reconstruction following the end of the Taliban regime in 2001 has had barely any significant impact on the creation of a domestic consulting service sector as yet.
One of the most dramatic consequences of decades of turmoil was the loss of knowledge capital as the majority of skilled labor left the country. Young and qualified professionals, mainly educated in Pakistan, prefer to pursue careers outside Afghanistan. The risky operating environment in Afghanistan is also reducing the incentive for qualified foreign consultants to undertake assignments in the country.
While extensive donor support could encourage local consultancies to emerge, the exodus of local capacity is still seriously hampering their development. The lack of basic professional management, English language and IT skills prevents domestic firms from emerging and participating in development projects. At present the local consultancy market is very small. The domestic supply of consulting services is discussed in detail below (paras. 69 ff).
Past Developments and TA in the Area of Public Procurement
Steps to improve the Afghan procurement environment were initiated under the First and Second Emergency Public Administration Projects (EPAP I and II) funded by the Bank starting in 2002. Under the Procurement Strengthening Component of the EPAP I, the Government appointed a consulting firm as the PA’s central Procurement Consultant (PC) responsible for handling procurement operations under IDA and other donor-funded aid within the Procurement Unit (PU) of the Afghanistan Reconstruction and Development Services (ARDS).4 The purpose was to put in place emergency procurement capacity and to facilitate rapid and transparent utilization of donor resources for reconstruction.
A progress review conducted in January 2004 identified key constraints in achieving EPAP I and EPAP II’s objectives and recommended further actions to be addressed by the Bank-funded Public Administration Capacity Building Project (PACBP), being implemented May 2005 – June 2009. Additional consulting services to be provided under the procurement component of PACBP were approved in 2004 and can be grouped into three main categories:
Procurement services (subcomponent 1);
Technical assistance on capacity building (subcomponent 2); and
Legal and regulatory framework development (subcomponent 3).
The procurement support services (subcomponent 1) are provided by the PC (currently RITES Ltd. from India) within ARDS.5 This assignment includes capacity building of local procurement counterpart staff to be trained as Procurement Liaison Officers (PLOs).
Based on recommendations of the 2005 Bank assessment, Public Procurement for Development Effectiveness,6 the following tasks were accomplished:
A Procurement Policy Unit (PPU) within the Ministry of Finance (MoF) was established in August 2006; and
Rules of Procedure for Public Procurement to implement the new Public Procurement Law (PPL) were prepared by the PPU and became effective on April 12, 2007.
The international consulting firm responsible for implementing the most recent relevant assignment, the Procurement Reform Program: Procurement Capacity Building and Legal & Institutional Framework Development (PRP), commenced work on March 17, 2007.7 The objectives of this assignment cover the subcomponents 2 (capacity building) and 3 (legal and regulatory framework development) of PACBP and are:
To develop local procurement capacity within Line Ministries (LMs) and to enable them to progressively carry out procurement;
To train the PA and as far as practicable the private sector in procurement procedures and practices under the new Public Procurement Law (PPL); and
To develop procedures under the national law and to provide further support to the PPU.
