SOL-306-13-000034_-_RADP_NW_-_2FBO_-_Attachment_J.13_-_Agricultural_Assessment_-_Supporting_Materials_-_22_April_2011.pdf

Afghanistan Agricultural Assessment and

Framework Development

Additional supporting materials

April 22, 2011

1. Population and GDP

2. Agricultural productivity

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Table of Contents

Overview of Afghan population

1. Dalberg analysis based on population estimates by the World Bank, the Humanitarian Practice Network (HPN), and RAWA News

Source: data.worldbank.com; The Humanitarian Practice Network, “Kabul, Afghanistan: a case study in responding to urban displacement” (2009);

RAWA News, “Unsafe housing puts Kabul residents at risk”(2009)

Kabul Population (million)1

% increase in urban population

(1970 – 2009)

…while Kabul has tripled in size in the past decade

4.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2005 2010 2015 2020 2025

7.7

6.2

5.4

1.5

• Kabul grew 12.4% per year 2001-2011 to a population of ~4.8 million people

• Kabul is projected to have ~5.4 million in

2014 and ~7.7 million in 2024

2.4%

5.0

(19%)

12.6

(84%)

22.5

(76%)

18.6

3.4

(18%) 11%

20001970 1980

29.8

11.8

26.6

15.2

(82%)

15.0

10.5

(89%)

7.3

(24%)

21.6

(81%)

2.4

(16%)

Rural population (millions)

Urban population (millions)

(2014)

(2011)

(2024)

2.0%

4.5%

CAGR

(„70-‟09)

+13.4% +12.8%

+10.0%

(2001)

IndiaPakistanAfghanistan

…increasing faster than other countries in the region…

Urban population has increased at ~4.5% over the past 40 years…

(2018)

Projected

Overview of Afghan GDP

Source: The World Bank (data.worldbank.com); UNCTADstat; UNODC Afghanistan Opium Survey (2010)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

45%

4.3

45%

20%

45%

11.8

29%

19%

4.8

26%

28%

6.8

39%

35%

25%

5.7

34%

40%

26%

7.7

39%

33%42%

35%

23%

20032001

2.5

9.7

35%

35% 46%

35%

Afghanistan has experienced GDP growth of

~25% per year since 2001…

…fueled primarily by a 12x increase in foreign aid, to over 40% of GDP.

GDP, non-PPP ($, billion)

The export value of poppy is currently estimated at $1.4 billion per year, which would increase agricultural output to approximately 40% of GDP if it were included.

Development Assistance (as a portion of GDP)

3.5

(62%)

3.0

(38%)

2002 2005

4.1

(60%)

6.9

(59%)1.6

(33%)

3.0

(70%)

3.2

(67%)

2004 2006

4.0

(41%)

1.3

(30%)

2.7

(40%)

2.1

(84%)

11.8

2.2

(38%)

4.8

(62%)

2001 2008

5.8

(59%)

0.4

(16%)

4.9

(41%)

GDP (less development assistance)

Development Assistance

25%

Services, other

Agriculture

Industry

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Afghan agricultural productivity

1. World Bank food production index baseline set in 2000 at a relative value of 1.0

2. Decline in wheat production due in large part to drought during 2007/8 season

3.„Other‟ includes wool and skins, refined sugars and oils, processed beverages, tea, coffee, and spices

Source: data.worldbank.com; FAO STAT

0.3

0.2

0.1

0.0

199019801970

0.7

0.6

0.5

0.4

1.0

0.9

0.8

1.3

1.2

1.1

Food Production Index1

United States

South Asia

Middle East & North Africa

UN Least Developed Countries

Afghanistan

Agricultural productivity has grown slowly relative to South Asia and other regions

7.8

1.9

9.6

-42%

3.4

(38%)

1.9

7.7 0.9

1.0

+78%

2.6

(34%)

1.1

1.3

0.9

1.9

8.7

0.9

1.0

1.0

1.3

10.0

4.5

(45%)

2006 2008200720052004

1.2

2.0

0.9

2.1

0.9

0.9

0.8

4.3

(44%) 2.4

(31%)

1.2

Million Tons

WheatFruits & Nuts

Other3

Meat & Dairy

Other CerealsVegetables

Wheat represents ~30-45% of total crop production by volume but output varies greatly from year to year

1.3%

CAGR

(„70-‟07)

2.4%

3.5%

3.0%

1.8%

Afghan wheat productivity

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

4.0

3.5

3.0

2.5

5.0

~4

~5

~1.5

~3

~1.5

2.0

1.5

1.0

0.5

0.0

4.5

5.5

Wheat production in Afghanistan: 1961 - 2010

Metric tons (millions)

Wheat (USDA)

Wheat (FAO)2009: Afghanistan met 96%

(FAO)/81% (USDA) of its own wheat needs due to favorable weather conditions.

2008: Afghanistan produced only produced

~50% (FAO)/~30%

(USDA) of its wheat needs due to severe drought.

2001: Due to political instability and poor weather, Afghanistan‟s wheat crop suffered

Source: FAO STAT, 2008; USDA PSD Database

2010 data available through USDA only

1960 1970 1980 1990 2000 2010

80.0

75.0

70.0

65.0

60.0

55.0

50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Population:

India: 1.2 billion

Pakistan: 170 million

Kazakhstan: 16 million

Uzbekistan: 28 million

Afghanistan: 30 million

Regional wheat productivity

Regional wheat production levels has shown substantial growth in last ~50 years…

Metric tons (millions)

Source: FAO STAT, 2008

…though in last 10 years, regional markets exhibit similar levels of volatile demand

24.0

22.0

20.0

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

200820072006200520042003200220012000

Afghanistan

Kazakhstan

UzbekistanPakistan

India

India wheat production not on scale

India

Pakistan

Kazakhstan

Uzbekistan

Afghanistan

Kazakhstan

Pakistan

Uzbekistan

Afghanistan

Regional wheat yields

1.National Risk and Vulnerability Assessment 2007/08 ; 2. Ibid, 3. Ibid.; 4. AWATT Program Factsheet, 5. “Food Price Increases in South Asia,” 2008;

“Post harvest losses in agriculture and their containment”, University of Faisabad, 1998.

Source: Agricultural Progress Report, 2010; USDA PSD Database;

While multiple factors influence low yields, primary and secondary research highlights agronomic practices together with irrigation as significant drivers

Inputs to production

• Low quality seeds: 7-10% of wheat is saved for next year‟s seeds; however they are low quality and do not improve yields1

• Little use of fertilizer: Just over half of farmers used some sort of fertilizer, although 40% said that this did not meet all of their needs2

Production methods

• Limited knowledge of pest management: Only 17% of farmers used pesticides or herbicides on their crops3

• Inadequate water management: Farmers tend to over-irrigate their crops when water is available leading to lower overall yields4

Post-production

• Non-mechanized agriculture practices: Based on comparable statistics from Pakistan, up to 8% of wheat could be lost due to a lack of mechanized tools to harvest wheat5

+162%

~4.7

+57%

~2.8

+47%

ChinaIndiaPakistan

~2.7

Afghanistan

~1.8

Kazakhstan

~0.7

Tons/hectare (2010)

Examples of inefficient agronomic practices which contribute to lower wheat yieldsAverage wheat yields per hectare

Avg. yield for irrigated wheat

Avg. yield for rainfed wheat

Afghan arable land (12% of total land area)

Source: National Vulnerability and Risk Assessment 2005; Provincial Development Plans, MRRD

Greater than 60% arable

Between 40 – 60% arable

Between 30-40% arable

Less than 30% arable

Sparsely vegetated

Arable land:

Afghan livestock husbandry

1960 1970 1980 1990 2000 2010

16.0

15.0

14.0

13.0

12.0

11.0

10.0

9.0

8.0

7.0

6.0

5.0

Other livestock

3.0

2.0

1.0

0.0

Number of livestock

(millions)

22.0

21.0

20.0

19.0

18.0

Cattle

Goats

Sheep

Chickens

17.0

4.0

2.0

1.6

(82%)

7%

4%

4% 2%

1%

Livestock products

(millions tons)

Sheep meat

Other meat

Animal skins

Other products

Milk

Cattle meat

1. “Other livestock” includes camels, donkeys, horses and mules. 2. “Other products” includes chicken eggs, honey, and silk worm cocoons.

Source: FAO STAT; Dalberg analysis

Afghan crop production volumes

Agricultural production

(million tons)

Crops

Dairy and livestock

Non-food products

(e.g. wool, hides)

7.8

5.9

(75%)

1.9

(24%)

Crop production

(million tons)

Cereals

Vegetables

Fruits

Nuts

Other

5.9

3.7

(63%)

0.9

(15%)

1.0

(16%)

0.3

Crop categorization

Cereals are the staple crops which include:

• Wheat

• Maize

• Rice

• Barley

Higher value crops include:

• Vegetables: onions, potatoes

• Fruits: raisins, apples, etc…

• Nuts: almonds, walnuts

• Other: aniseed, sugarcane, etc..

Cereal crops represent nearly 75% of total agricultural production in Afghanistan

Source: FAO STAT, 2008

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Afghan diet and nutrition levels

13Note: “Other” includes oils, sugars, beverages, and nuts.

Source: FAO STAT; National Risk and Vulnerability Assessment, 2007/08; IFPRI, “Agricultural Diversification and Smallholders in South Asia,” 2007

Current Afghan Diet

(56%)

Cereals

Vegetables

Fruits

Dairy

Meat

Other

AfghanistanAsia

(Developing countries)

AsiaDeveloped countries

WHO

minimum guideline

(400 g)

Total daily fruit and vegetable consumption (grams/day) Total daily per capita consumption

(grams/day)

Afghan diet is predominantly based on cereals

Afghan diet does not meet WHO nourishment guidelines

Afghan consumption by income quintile

Afghan diet composition

Source: National Risk and Vulnerability Assessment, 2007/08; USDA

33%

18%

9%

6%

9%

13%

3% 3%

6%

42%

15%

10%

7%

9%

8%

4% 3%

2%

47%

12%

10%

8%

8%

3% 4%

3% 5%

52%

9%

10%

8%

8%

3% 4%

3% 3%

56%

6%

10%

9%

8%

2% 3%

3% 3%

Bread and cereals

Meat and fish

Dairy

Oils

Vegetables

Fruit

Sugar

Beverages

Other

Income quintiles (1= poorest)

Afghan diet composition

STAPLES

Examples of common Afghan food

• Unleavened bread is a critical part of any meal and the average

Afghan consumes at least two loaves a day made of wheat, barley or maize

• Rice is also widely consumed and is another key staple in the Afghan diet and forms the basis of the national dish “palao”

• Dough dumplings (“khamerbob”) are also made on special occasions

VEGETABLES, FRUITS & NUTS

• Eggplants, okra, potatoes and other locally available vegetables are often used as side dishes

• Tomatoes and onions are widely used in both main and side dishes

• Fruits and nuts are also widely used in main dishes (ie. “palao”)

MEATS

• Lamb, goat and cow meat are the most popular options and are either cooked in a stew (“qorma”) or in a kebab

• Chicken meat is also used but is not as popular

YOGHURT

• Yogurt is an important part of an Afghan meal and can be used in the preparation of the main meal or as a side dish

Side dishesMain dishes

Source: UNDP; SAARC Tourism: Afghanistan

Nutrition sources

136000

W h e a t

R ic e

M a iz e

C a s s a v a

C a b b a g e

M a n g o

B a n a n a

O n io n s

G re e n le a fy

T o m a to

K a le

Vitamin A content (mcg / 100g)

0.1 0.30.2

3.1

0.5 0.9

0.2

0.8

1.2

0.6

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

M a n g o

B a n a n a

O n io n s

G re e n le a fy

T o m a to

K a le

C a b b a g e

C a s s a v a

M a iz e

R ic e

W h e a t

Iron content (mg / 100g)

Current portfolio focus

“Mass market” horticulture

0.0

0.20.2

0.4

0.1 0.2

0.1

0.3

1.0 1.1

0.7

0.0

0.2

0.4

0.6

0.8

1.0

1.2 M

a n g o

B a n a n a

O n io n s

G re e n le a fy

T o m a to

K a le

C a b b a g e

C a s s a v a

M a iz e

R ic e

W h e a t

Zinc content (mg / 100g)

141915

M a n g o

B a n a n a

O n io n s

G re e n le a fy

T o m a to

K a le

C a b b a g e

C a s s a v a

M a iz e

R ic e

W h e a t

Folate content (mcg / 100g)

Note: Green leafy based on cassava leaf nutritional information (illustrative)

Source: World Food Dietary Assessment System Version 2.0 (Kenya Database)

Some leafy greens (especially indigenous vegetables) have high iron and folate content

Overview of macronutrients and micronutrients

Note: *Requirements vary significantly by age, gender and health status; mean is based on weighted average across subgroups; †List of micronutrients is not exhaustive (focus is on most significant)

Source: Humanitarian Charter and Minimum Standards in Disaster Response (2004 Edition); World Health Organization; medscape.com

Macronutrients Micronutrients

Function: Provide structural material and energy

Recommended ratio of energy sources:1

Carbohydrates

72%

Fat 17%

Protein

11% Total Calories

(Mean requirement:

2100 Calories*)

Types: • Carbohydrates

• Fats

• Protein

• Fiber

• Water

Function:

Types (not exhaustive)†:

Together account for total caloric intake

Necessary for digestion and fluid balance

• Act as coenzymes and cofactors in numerous metabolic processes

• Many are directly or indirectly involved in gene expression

Minerals

• Calcium

• Magnesium

• Iodine

• Iron

• Selenium

• Zinc

Vitamins

• Vitamin A

• Vitamin C

• Vitamin D

• Vitamin E

• Vitamin K

• B Vitamins

Bulk minerals

(electrolytes)

Trace minerals

(catalysts)

Fruits and vegetables are the best source of macronutrients and micronutrients

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Afghan poppy production overview

Source: FAO Stat; UNODC

3,658

3,329

3,207

3,171

(95%)

3,076

(96%)

3,417

(95%)

3,567

3,463

(97%)

3,465

(95%)

3,582

Licit Crop Production

Poppy Crop Production

Agricultural Cultivation

Farm-gate value

(2010)

0.6

(13%)

Licit Agricultural GDP

(2008)

0.6

(13%)

Drug trafficking revenue

(2010)

3.4

(74%)

Agricultural GDP and Poppy Industry

(Thousand hectares)

($ billions)

Net export value, 1.2

Afghan poppy production income

Poppy cultivation and income

Reasons for cultivating opium (2010 survey n=392)

(000s hectares)

Other

14%

Poverty / improve living condition

28%

Income potential

58%

Source: UNODC Opium Survey, 2010

104.0

122.5

157.3

193.0

165.0

131.0 123.1

Rest of the country

Helmand

Kandahar

1,000

2,000

3,000

4,000

5,000

6,000

Wheat income (USD/ha)

Poppy income

(USD/ha)

Reasons for stopping (2010 survey n=1,507)

Against Islam

13%

Low yield

11% Other

27%

Banned by/ fear of Gov’t

41%

Elders/Shura

8%

Reasons for never cultivating (2010 survey n=2,460)

Other

23%

Banned by/ fear of Gov’t

11%

Against Islam

66%

Afghan poppy production by geography and volume

Badakhshan

Badghis

Baghlan

Balkh

Bamyan

Daykundi

Farah

Faryab

Ghazni

Ghōr

Helmand

Herat

Jowzjan

Kabul

Kandahar

Kapisa

Khost

Kunar

Kunduz

Parwan

Logar Nangarhar

Nimruz

Nuristan

Orūzgān

Paktika

Samangan

Sar-e Pol

Takhar

Wardak

Zabul

Laghman

Paktya

Production > 1,500 mt

Production > 500 mt

Production > 100 mt

Production < 100 mt

Opium free

Poppy cultivation in 2010:

Source: UNODC Opium Survey, 2010

Afghan poppy production by geography and security level

Source: UNODC Opium Survey, 2010

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Staple imports to Afghanistan

241. Import data does not include non-staple food products such as refined sugars and oils, processed beverages, tea, coffee, and spices

Source: FAO STAT, 2008

Crop and livestock output has seen little or no growth…

…increasing the need to import staple crops¹

1.8

~1.7

(97%)

1.1

~1.1

(93%)

1.3

~1.1

(86%)

1.2

~1.0

(89%)

0.8

~0.7

(84%)

Cereal

Fruits & Vegetables

Meats & Dairy

(Tons, millions)

2004 2005 2006 2007 2008

0.0

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Domestic Livestock production

Domestic Crop production

(Tons, millions)

Afghan trade balance

Source: UNCTAD STAT

-3,336

-936

-973

-2,933

-267

-3,500

-3,000

-2,500

-2,000

-1,500

-1,000

-500

1,000

20092000

-1,039

-1,176

-701

Trade Balance

Imports

Exports

Exports and imports of merchandise and services, including agricultural products

($ million)

Significant

Foreign Trade

Limitations

Afghan agricultural imports

26Note: „Other‟ includes wool and skins, refined sugars and oils, processed beverages, tea, coffee, and spices

Source: FAO STAT

2,404

(6%)

1,561

(65%)

(26%)

1,800

(51%)

(8%)

(36%)

1,941

(44%)

(13%)

(33%)

1,790

(48%)

(10%)

(35%)

1,356

(38%)

(12%)

(40%)

1,276

(50%)

(17%)

(25%)

1,446

(66%)

(16%)

(14%)

1,620

1,150

(71%)

(18%)

(9%)

1,319

(69%)

(17%)

(11%)

Fruits

Vegetable

Meats & Dairy

Cereal

Other

Wheat

Total Agricultural Imports (tons, thousands)

Afghan agricultural exports

Source: FAO Stat

(48%)

(19%)

(34%)

(56%)

(76%)

(12%)

(20%)

(57%)

(8%)

(53%)

(20%)

(68%)

(20%)

(59%)

(9%)

(63%)

(59%)

(15%)

Nuts

Cereal

Vegetable

Other

Fruits

Total Agricultural Exports (tons, thousands)

Afghan export trends, by product

Export trends for key products,1961-2008

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

55.0

50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

95.0

90.0

85.0

80.0

75.0

70.0

65.0

60.0

Metric tons, thousands

Onions

Pomegranates1

Raisins

Apricots

Grapes

Onion exports have grown tremendously since 1990 but cultivation is very dependent on water availability

1. Reported by FAO as „Fresh fruit, nes‟ which may include limited quantities of other fresh fruits

Source: FAO STAT

Grapes and raisins are traditional Afghan exports, and while raisins have reached previous export levels, grapes are recovering much more slowly

Pomegranates are well suited to the

Afghan climate but have not recovered to its historic export levels

Over the past two decades, apricots have emerged as a high value export alternative

Regional imports of agricultural products

2008 agricultural imports (tons, million)

4,024

(23%)

1,830

(63%)

(1%)

2,670

(66%)

2,927364

(9%)

(18%)

India

1,675

Pakistan Bangladesh

1,335

(36%)

3,730

1,012

(27%)

Nepal

1,101

(30%)

(12%)

(57%)

(28%)

Sri Lanka

Vegetable

Fruits

Other Cereal

Wheat

Meats & Dairy

Nuts

Note: „Cereals‟ include rice, and other grains; Other agricultural products excluded including wool and skins, refined sugars and oils, processed beverages, tea, coffee, and spices

Source: FAO STAT

Regional exports of agricultural products

2008 agricultural exports (tons, millions)

Note: „Cereals‟ include rice, and other grains; Other‟ includes wool and skins, refined sugars and oils, processed beverages, tea, coffee, and spices

Source: FAO STAT

(4%)

Other South Asia

11,518

Pakistan

3,909

2,852

(73%)

(8%)

(6%) 6,954

(60%)

(<1%)

2,759

(24%)

(7%)

(5%)

India

Nuts

Vegetable

Fruits

Meats & Dairy

Other Cereal

Afghan food aid

Overall food aid to Afghanistan

(tons, thousands)

Food categories for food aid

(tons, thousands)

~85

~225

~200

~200

~310

3.3

~7

~110

~110

~130

~85

~10

Triangular purchase

Local purchase Direct transfer

2008: Increase in food aid due to severe drought

~200

~140

~10<1 ~25

~25 ~3

~140,000 tons of wheat and wheat flour were distributed in

2009; equivalent of

~3% of domestic production

1. Local purchase food aid includes: rice (33%); wheat (31%); salt (18%); beans (6%); other (12%)

Source: World Food Programme

Meat & Dairy

Vegetable

Other

Local purchase¹

Other cereal

3. Consumption and nutrition

4. Poppy cultivation

5. Imports, exports and food aid

6. Private sector and business environment

Afghan foreign direct investment

1- Foreign direct investment (FDI) is defined as an investment involving a lasting commercial interest in and control by a resident entity in one economy of an enterprise resident in a different economy

2- Represents both foreign and domestic sources including contractors of the UN, USAID, foreign NGOs or other donor agencies.

Source: UNCTAD, “Investment Horizons: Afghanistan” April 2005, AISA Annual Report (2008)

Afghanistan inward FDI 1999-2009¹ Representative MNC investments

2009200820072006200520042003200220012000

• Transport and logistics (DHL)

• Food processing (Coca Cola)

• Banking (Standard Chartered Bank, National

Bank of Pakistan, Habib Bank Ltd., and

National Bank of Punjab)

• Tourism (Hyatt Hotels and Serena Hotels)

• Manufacturing and trade (Toyota Motors and

Alcatel Trade International)

Total private investment by sector

2003-2009²

($, millions)

Industry

28%

Agriculture

9%

Services

29%

Construction

35%

Overview of Afghan infrastructure installments

Source: MRRD Provincial Development Profiles; FEWS NET; AISA; Reuters

Kabul

Mazar

Kandahar

Herat Jalalabad

Kunduz

• Supply hub for west

• 24-hour electricity

• Herat Industrial

Park established in

2003 and still growing

• 95% of urban area has constant access to electricity

• Mazar industrial park opened in 2004

• Only ~35% have access to grid electricity

• Industrial park has had difficulty attracting investment because of remote location

• Only ~6 hours of electricity a day

• Industrial park is lagging due to security concerns

Greater than 75%

Between 50% and 75%

Between 25% and 50%

Less than 25%

No data

Major city

Industrial park

% of roads open all season:

• Only ~60% of urban population has access to electricity

• Industrial park planned

Afghan business environment indicators

Source: World Bank Doing Business Report, 2011

Category Ranking Sample Indicator(s) Afghanistan Regional average

Starting a business 25 Number of procedures 4 7.1

Paying taxes 53

Payments (no. per year) 8 31.1

Total tax rate (% profit) 36.4 39.9

Getting credit 128 Depth of credit information

(0-6) 0 2.1

Enforcing contracts 162 Time (days) 1,642 1,059

Registering property 170 Time (days) 250 99.8

Protecting investors 183 Strength of investor protection index (0-10)

1.0 5.0

Trading across borders 183 Time to export (days) 74 32.3

Cost to export ($/container) $3,865 $1,512

Closing a business 183 N/A N/A N/A

Indicators of particular interest for agribusinesses

Developing agribusinesses will be challenging, particularly if they are export-oriented

Afghan private sector access to finance (microfinance)

Source: MixMarket, 2009; Afghan Research and Evaluation Unit

Overview of microfinance in Afghanistan

Gross loan portfolio ($, millions)

Pakistan

Afghanistan

Uzbekistan

Tajikistan

% of portfolio at risk > 30 days

1%

4%4%

16%

Return on assets

11%

1%

-2%

-15%

MFI’s portfolios are relatively small and only reach about ~10% of the farming population…

…and those that are, face serious repayment issues from their clients…

…which combined with high asset costs (due to security), impacts

MFIs’ sustainability

Key challenges to increasing access to microfinance

• Lack of local players: The majority of microfinance institutions are international which limits capacity building and sustainability of the sector

• Perception of agriculture as a risky investment: Agriculture is regarded by existing local players as an unstable investment due to rapidly shifting weather patterns and yields

• Insecure environment: Successful microfinance models leverage face-to-face contacts which is not possible in Afghanistan

• Weak banking system: Money transfers are difficult as banking infrastructure rarely exists outside of urban areas

Afghan private sector access to finance (SME finance)

1. A series for banking laws passed in 2003 established the commercial banking sector which had been non-existent during the rule of the Taliban;

2. Outstanding SME credit estimates reported by USAID in 2010, likely based on 2009 levels; 3. Represents loan recipients from partners of the Microfinance Investment Support Facility for

Afghanistan (MISFA)

Source: USAID, “Agriculture, Rural Investment and Enterprise Strengthening (ARIES) Final Report” (2010); National Endowment for Democracy, “Afghan Business Attitudes on the

Economy, Government, and Business Organizations 2009-2010 Survey” (2010); Flag International Afghanistan, “Small Business Assessment for Ghazni City” (2011)

Overview of SME finance in Afghanistan

Key challenges to increasing access to finance for SMEs

• Banks are reluctant to lend generally, but in particular to agricultural producers which they consider too risky: Banks are more conservative than microfinance institutions due to deposit and regulatory requirements. As a result, ~80% of loan recipients are traders based in urban areas3

• Limited human resource capacity to expand the financial services sector: In conflict-affected countries that have experienced significant emigration and have limited educational opportunities, significant time and investment is required to build local capacity to manage and lead formal financial institutions

Most SME lending is provided by the commercial banking sector which is young and still developing

Outstanding SME credit is ~$45m, representing less than 1% of market potential2

• Commercial banking deposits in Afghanistan have reached

~$2-2.5bn since 20031

• 17 commercial banks were licensed in Afghanistan between

2003 and 2009

• Commercial banks are active in 30 out of 34 provinces, with more than 250 branches across Afghanistan

• Commercial lending has reached nearly 80,000 businesses in

Afghanistan since 2003, most of which are SMEs

• ~$60m in loans were dispersed by commercial banks to SMEs between 2003 and 2009, compared to demand in Ghazni alone estimated at ~$30m

• Greater than 50% of business owners report approaching friends, relatives and business partners for loans before private banks

Afghan farmer extension survey

Source: National Risk and Vulnerability Assessment, 2007/08

~25%

~30%

Other

~15%

Too far away

~5%

~20%

~5%

Could not afford

Service would not work with me

Did not know how to find/ obtain

Did not need advice

~15%

~10%

Did not know how to find/ obtain

Could not afford

~15%

Did not need help

~20%

Too far away

~20%

Had too few animals

~25%

Other

~2%

Service would not work with me

% of people who didn’t use farming extension services because…

% of people who didn’t use veterinary extension services because…

Capacity building at the provincial level must address gaps in extension services