World Bank Survey: Afghanistan’s private sector still facing significant challenges to survive

WASHINGTON—Afghan businesses report a growing sense of apprehension about the country’s economic future, according to the World Bank’s latest Private Sector Rapid Survey (PSRS), released today.

Businesses are still contending with a severely constrained banking and financial sector and lack of consumer demand. But in this third round of the PSRS, there has been a noteworthy increase in the share of respondents citing uncertainty about the future as a major constraint, as well as concerns about restrictions on women’s economic activities.

Afghanistan’s private sector has the potential to significantly contribute to economic revitalization and the creation of employment opportunities, particularly for women. This third survey, with interviews conducted in Spring 2023, provides an updated snapshot of the business environment and the challenges that formal small, medium, and large firms in Afghanistan are facing.

Afghan businesses struggle to reach pre-August 2021 levels of operations, although the private sector shows signs of recovery since the first round of this survey in November 2021. Over one-third of surveyed firms report operating below capacity and 8 percent, primarily women-owned, are either temporarily or permanently closed.
Most surveyed firms experienced a decrease in demand for goods and services in 2023, with four out of five firms reporting a decline over the past six months (at the time of the survey). Small and medium firms were particularly affected, with 80 percent reporting reduced demand, compared to 69 percent among large firms.
Small and women-owned firms are more prone to closure, indicating their heightened vulnerability to economic shocks compared to men-owned businesses.
Surveyed firms reported employment levels significantly below those of August 2021. Many Afghans are either leaving the country or entering the informal job market. Shrinking demand has forced many firms to reduce investments and lay off employees, nearly doubling unemployment figures in the surveyed firms since August 2021.
There has been a notable decline in female employment in this round, with a majority of women now working for women-owned businesses. Consequently, the number of firms without any women employees reached 50 percent of those interviewed in March 2023, compared to 10 percent of firms reporting that they employed no men.
Challenges in the banking sector are affecting both domestic and international transactions. Correspondent banks have limited transactions with Afghan banks, directly affecting private sector trade activities and increasing transaction costs. Firms are largely relying on the Hawala payment systems and cash-based transactions.
Survey findings indicate a low level of unofficial payments and bribes, with 92 percent of surveyed firms stating they did not have to make these payments in the past 6 months at the time of the survey.
Surveyed firms indicate that engagement with the interim Taliban administration (ITA) has not effectively resolved their business issues, with over 60 percent experiencing unresolved problems. Women-owned and small businesses encounter more difficulties engaging with the ITA and are less likely to have their issues resolved compared to men-owned and larger businesses.
The Private Sector Rapid Survey (PSRS)—a publication under Afghanistan Futures—provides ongoing insights into how businesses in Afghanistan have been affected since August 2021. PSRS Round 1 phone survey was conducted in October-November 2021, and PSRS Round 2 phone survey was conducted in May-June 2022. Round 3 collected data largely (91%) through in-person interviews with a significantly expanded sample of 422 firms in the five provinces of Afghanistan with the highest concentration of formal businesses: Kabul, Balkh, Herat, Kandahar, and Nangarhar.

Afghanistan Futures is the World Bank’s program of research, monitoring, and analytical reports on the state of the Afghan economy and society. It seeks to inform the international policy dialogue as the international community assesses how it can support the people of Afghanistan. A monthly economic monitor; regular surveys on private sector, household welfare, and gender; and sectoral reports inform the biannual Afghanistan Development Update.