ITCC Afghanistan -Report

Information Technology Market Study

for Afghanistan

2018

December 2018

in cooperation with Kabul UniversityKabul Polytechnic UniversityHerat UniversityBalkh UniversityNangarhar UniversityQandahar University

Support

Center for international and intercultural Communication at Technical University Berlin

ImprintEditor:Dr. Nazir Peroz

Co-Authors:Prof. Dr. Hassan Adelyar, Asst. Prof. Rafiullah Momand, Prof. Mirza Mohammad Mirza, Asst. Prof. Ahmad Nawid Mustafazada, Jahid Zaheer Ahmadi, Asst. Prof. Naweed Rahmani, Asst. Prof. Ahmad Zia Sharif, Asst. Prof. Abdul Sattar Kakar

ITCC Afghanistan:IT Competence Center of Afghanistan, Ministry of Higher Education, Kart-e-Char, Kabul, Afghanistan

http://www.itcc-afghanistan.orginfo@itcc-afghanistan.org

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IntroductionIn 2018 the IT Competence Center of Afghanistan (ITCC Afghanistan) has

conducted a survey on the Afghan Information Technology (IT) market with the

support of the Center for international and intercultural Communication (ZiiK) of

the Technical University Berlin (TU Berlin). The survey is focusing especially on

the development of small and mid-sized companies. It also investigates the

local job markets for trained IT personnel and the challenges young start-up

companies are facing.

This survey was accomplished in close cooperation with six Afghan universities.

The ITCC Afghanistan would like to explicitly thank all contributors:

• Prof. Dr. Hassan Adelyar & Asst. Prof. Rafiullah Momand, Kabul University

• Prof. Mirza Mohammad Mirza & Asst. Prof. Ahmad Nawid Mustafazada, Kabul Polytechnic University

• Jahid Zaheer Ahmadi, Herat University• Asst. Prof. Naweed Rahmani, Balkh University• Asst. Prof. Ahmad Zia Sharif, Nangarhar University• Asst. Prof. Abdul Sattar Kakar, Qandahar University

For this study questionnaires were sent out to companies in five Afghan

provinces. In total, 74 companies answered questions about their business

status, their well-being as a company, their development, and the challenges

they face. The following report consolidates the findings of the survey. It

contributes to an understanding of how local and often informal IT companies

function in Afghanistan, laying the groundwork for a more effective support of

these entrepreneurial initiatives within this challenging framework.

General background The information and communication sector has opened up new opportunities for

the economic, cultural and social participation of a broad population in

Afghanistan. Particularly in view of the trend towards an increasingly globalized

and knowledge-based world economy, the use of modern IT to implement

development strategies and achieve development goals has become

increasingly important in recent years. In particular, many cooperation countries

with Afghanistan see IT as an important instrument for its development.

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In 2002, Afghanistan had no IT supply system, no qualified IT staff and no IT

management system. A rudimentary telecommunications system only existed in

and around large cities. Afghan citizens often had to leave the country in order

to use a telephone service in neighboring Iran or Pakistan. For this reason, the

Afghan government gave top priority to building a strong national IT sector,

which has since developed enormously.

Thanks to the efforts of private sector investors, the Afghan government, the

German government and other international partners, the Afghan IT sector

continues to grow. The Federal Foreign Office, the DAAD, TU Berlin and other

national and international groups have supported the development of the IT

sector in Afghanistan through a variety of projects and programs.

Private investors supported the development of telecommunications services in

Afghanistan. In 2012 there were four major commercial telecommunications

service providers in Afghanistan: Afghan Wireless Communications Company,

Roshan, Etisalat and MTN had invested more than 1.5 billion US dollars in and

owned most of the infrastructure for mobile services and wireless connections.

These efforts greatly changed the country's IT and communications

infrastructure. According to the Afghan Ministry of Communications and

Information Technology (MCIT), an estimated 27 million Afghans have access to

mobile phone services today. Work in all Afghan government institutions and

authorities is also unthinkable without this IT support.

Nevertheless, the "digital divide" in Afghanistan is still large. One reason for this

is the availability of internet connections that is still restricted or very slow and

unreliable for many parts of the population, especially, but not only, in rural

areas. Although there has been a large progress in terms of infrastructure, IT

development in Afghanistan still leaves much to be desired.

In order to develop a broad overview of the largely informal economy

surrounding small and midsized IT enterprises, and especially start-ups, the

ITCC Afghanistan commissioned this Information Technology Market Study.

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This report describes the IT landscape of Afghanistan, taking into account the

many different factors contributing, or hindering, the development of IT

infrastructure in the region.

In the first chapter, the work of the ITCC Afghanistan will be particularly

highlighted as an example of a local institution that is working as a platform

between scientific and business institutions in order to strengthen the Afghan IT

landscape, thereby contributing to the reconstruction of the country. In the

second chapter, the conditions for small and mid-sized IT enterprises in

Afghanistan will be described. In the third chapter, the methodology and the

main results and major challenges of the Afghan IT market will be presented.

Finally, a conclusion will offer recommendations on how to support the fragile

Afghan IT market on its way to becoming a sustainable and self-sufficient

branch of the Afghan national economy.

I. Overview of the activities of the IT Competence Center AfghanistanThe IT Competence Center Afghanistan was established by the Center for

International and Intercultural Communication of TU Berlin with order (No.

27/7/1395) of His Excellency the Afghan State President, Dr. Ghani. It has been

opened in February 2016 by Mrs. Prof. Farida Momand, former Minister of

Higher Education, Mr. Markus Potzel, former Ambassador of the Federal

Republic of Germany in Kabul, and Dr. Nazir Peroz, Director of the ZiiK of the

TU Berlin.

The ITCC Afghanistan aims to offer a central platform to strengthen the

cooperation between scientific community and the business sector in the field of

IT in Afghanistan. It does so by integrating IT systems, supporting scientific

research, and promoting innovative student's projects. Since its foundation the

ITCC Afghanistan created a productive network of IT experts and computer

scientists and promotes technical and professional competences on a local and

global scale. This is achieved through the following activities:

• Promotion of ideas and innovations of student‘s IT projects

• Development of an expert network for computer scientists and IT specialists in Afghanistan

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• Close cooperation with the MoHE and the Afghan universities• Consulting and support of the MoHE in all IT projects• Concepts for the expansion of AfgREN • Development and implementation of HEMIS modules• Development of IT security concepts for the Afghan government• Contributions to the analysis of the IT supply system of the Afghan

authorities and universities• Creation of economic incentives, e.g. through cooperation with private

corporations• Establishment of a platform for the exchange of IT lecturers and IT

experts within the framework of the Afghan Society for Computer Science• Implementation and promotion of academic research in the field of IT and

computer science• Analyzing the IT situation in Afghanistan• Building a network with other institutions• Organization of the annual international IT conference in Kabul• Organization of workshops and IT exhibitions

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II Conditions for small to mid-sized IT entrepreneurs in AfghanistanIT entrepreneurship in Afghanistan currently ranges from many small,

independent enterprises in the subsistence sector and a few medium-sized

enterprises to the large national telecommunication providers. However, often

university graduates can not find employment at the larger tech companies of

the country, as competition for these (often foreign-paid) jobs is stiff. Therefore a

common reaction to the difficult job market is the start-up of a small business in

order to find a meaningful use for one’s skills. Understanding the challenges

faced by new entrants with specialized skills is very important to support the

local IT industries.

Strengths and weakness of Afghan IT entrepreneurs

Potential young entrepreneurs in Afghanistan have a low fear of failure, and with

job prospects low it is hardly surprising that the willingness to start a business is

comparatively high. It can be assumed that one factor that accelerates the

foundation of new small businesses is the generally poor job market in the

country. Often university graduates can not find proper employment at the larger

tech companies of the country. A common reaction to a difficult job market is the

start-up of own small businesses in order to find a meaningful use for the

individual skillset. At the same time larger tech companies, such as the main

phone and Internet providers, are able to pay higher salaries compared to the

businesses from this survey. In addition, the international organizations, NGOs

and foreign institutions working in Afghanistan are also in urgent need of

qualified IT staff and are able to pay salaries way above average market levels

sometimes between 5.000$ and 10.000$ per month. This leads to a fierce

competitions for the limited number of IT specialists in the country. Within this

competition especially the small privately owned companies or start ups are at a

disadvantage because of their limited financial resources.

According to the experience of the ITCC Afghanistan, start-up skills in

Afghanistan are also below the international average. Against this background,

the general level of education and the expertise of entrepreneurs in setting up

and running businesses plays a key role in creating sustainable businesses.

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The analysis of the survey will show that, in some parts of the country not even

half of the companies founded survive in the medium-term. This indicates a

clear divergence between the self-assessment of entrepreneurial potential and

the actual market.

Framework conditions for entrepreneurship in Afghanistan

The political and economic environment in Afghanistan remains difficult.

Uncertainty, poor infrastructure and a lack of stability in the political and

economic spheres are among the greatest obstacles to the creation of

entrepreneurship. Although there is international and government support, the

IT market in Afghanistan still does not seem strong enough to sufficiently

maintain a successful environment for start ups and small and mid range

businesses.

Policies to promote entrepreneurship

In addition to the issue of the general political situation and stability, there is a

partial lack of a specific policy to promote IT companies in Afghanistan. In

addition, most existing policies for strengthening entrepreneurship have been

developed for industrialized countries: merely transposing such strategies to

Afghanistan would hardly be fruitful. However, given that the IT sector is so

integral to the establishment of functioning government and civil institutions in a

modern country, it must be understood that Afghan civil society as a whole will

have no chance of participating in a steadily digitalizing world without the

advancement of the IT sector at all levels. Thus, the implementation of policies

to specifically promote entrepreneurship in this sector has repercussions

throughout the society.

Socio-economic factors

With regard to the socio-economic factors that are conducive to business start-

ups, it should be emphasized that the social significance of entrepreneurship in

Afghanistan is not widely documented and is often not well understood.

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Access to finance

The procurement of resources for start-ups in Afghanistan is a continuing

challenge. The difficult access to finance, which is severely restricted and a

serious obstacle to Afghan entrepreneurship, will only be highlighted through

analysis of the survey. For example, it is hardly possible for entrepreneurs in

Afghanistan to obtain seed capital through the banking system.

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III Methods and results of the surveyIn April 2018, six computer science faculties from Kabul University, Kabul

Polytechnik University, Herat University, Balkh University, Nangarhar University

and Qandahar University were commissioned by the ITCC Afghanistan to

investigate private small and mid-sized IT companies in these five major cities.

The main objective of the survey was to determine the main challenges small

and mid-sized IT companies are facing in Afghanistan. The analysis of the

survey also estimates to what extent these companies can meet the

requirements of the country or province and what the quality of their services is.

The data was generated mostly through a questionnaire that was provided to

representatives of small and mid-sized IT companies. The companies in

question offer various services in the field of IT. Some are working as educators

and train customers in working with computers on a basic user level (e.g.

operating systems, office applications); some are selling and installing hardware

(e.g. network technologies); and some are offering software solutions. Most of

the surveyed companies do not have a very specific portfolio: they often offer

various services in the field of IT, without being too specialized.

Overall, representatives of 74 companies within the five provinces answered the

questionnaire for this survey. The representatives of the companies were asked

to fill out questionnaires concerning the following topics:11

Figure 1: Provinces within this survey

• current status of the company (active/closed)• challenges of the IT market• government support• support by international organizations• start-up incubators• market demand• availability of experienced IT staff• salaries• participation in bids for government contracts• taxes

It is not possible to access official government documentation on the ownership,

size, or tax obligations of the various IT enterprises in Afghanistan, as many

companies operate on an informal level and this documentation often does not

exist. This is why the survey initiated by ITCC Afghanistan chose to send out

questionnaires to the IT enterprises known to them or their contacts at the

universities: these individual assessments provide access to critical data that

could not be acquired elsewhere, and thus these questionnaires were the most

appropriate research method for this situation. It is encouraging to note that

these surveys on individual self-assessment and attitudes towards

entrepreneurship show that Afghanistan potentially offers opportunities for

investment and innovation.

Results

All in all, the five cities surveyed have a notable level of entrepreneurship, even

if it is rather small by global standards. However, the survey size was also

limited to known contacts of the partner universities in Afghanistan, and

although one can assume this includes a majority of the IT enterprises in

operation, one must still keep in mind that a large proportion of the IT

companies in Afghanistan are not officially registered: several other companies

might not have received a questionnaire as their existence was unknown to the

executors of the survey. At the same time, within the relatively infant field of IT in

Afghanistan, it can be assumed that enterprises without any contact to the

universities will face even greater challenges in building a sustainable business

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or in bidding for government contracts: thus the results of this survey may be

seen as relevant also to the enterprises that were not directly questioned.

The study focuses on the small and mid-sized companies in their start-up phase

or shortly after. The major telecommunication companies are not part of this

survey, as they are not faced with the basic obstacles to mid-term survival that

start-ups have. The aim is rather to get an insight into the economical structures

of smaller businesses, and especially the challenges they are facing. This is a

field where, based on the findings of this report, economical and political

measures could be applied in the future in order to improve the circumstances

of IT entrepreneurs seeking to get a foot in the door.

Challenges of the Afghan IT market

Out of the 74 companies that replied to the survey, 19 companies had gone

bankrupt in the last years.

When asked, the following obstacles for successful business and reasons for

business failure were mainly named:

High governmental taxes

Poor economy

Lack of projects

No market demand

High costs for biddings for government contracts

Not having the right personnel

Insufficient funds / investor interest

No government support

Start up support wasn’t long enough

Low trust in smaller IT companies

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In Kabul, for example, the main challenges that were named were high

governmental taxes and the lack of financial support. The eight companies that

have closed there in recent years had all been partially supported by the

Afghanistan Ministry of Telecommunication in cooperation with the World Bank

and its ICT sector development project. The businesses had received support

by an incubator project called Ibtikaar,1 which is supposed to support young IT

entrepreneurs with their businesses during their startup phase. Ibtikar trains

computer science students, offers business advice, and provides them with

offices and internet facilities: however, Ibtikaar only offers support for the first 12

months of the start-up.

In Herat, four companies within the survey were supported by the USA through

a start-up incubator in 2011. When the financial aids were cut at the end of

2011, all the companies declared themselves insolvent.

One of the challenges the active technology companies are facing in Balkh is

the lack of professional and skilled computer scientists in their organizations. As

an example, one surveyed company has only one professional software

developer. This freelancer, who is mostly based in Kabul, develops untailored

information systems and delivers it to the company, who tries to sell it on the

1 http://ibtikaar.gov.af/14

Kabul

Herat

Balkh

Nangarhar

Qandahar

0 5 10 15 20 25 30 35 40

36

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8

6

7

8

8

1

2

Bankruptcies

Companies

Figure 2: Bankruptcies

market. Though this company has succeeded in implementing these systems,

most of the systems can not be tailored to the needs of the customers. As found

out through the survey, customer trust in IT as a way of improving efficiency in

work processes has been violated because of unprofessional service delivery

by the active companies in Balkh Province. This point poses a huge challenge

for the adoption and implementation of modern technology in society and needs

to be taken care of as soon as possible. This can only be fixed through better

qualified employees who are able to adapt information systems to customer

demands.

In Nangarhar six IT companies were surveyed. Two out of the six companies

had been declared bankrupt. The challenges they were facing were mainly the

lack of government support and the lack of customers. The IT companies in

Nangarhar suffer from the generally poor economy and thus a low market

demand. They also lack well trained IT experts

The trends of the surveyed markets shows that small new businesses in

Afghanistan are still highly dependent on support, especially in their start-up

phase. Fortunately, today there is more than one organization that supports

these IT startups: Ibtikaar, as already mentioned, as well as startup valley2 or

startup grind3. In addition there are organizations like Asra4 who are offering

support as business-to-business online market places.

Software Licenses

This survey also examined the status of the license culture within the observed

companies. It has been shown that almost no company is using licensed

software. The use of pirated software is the standard throughout the companies.

Asked for the reason, most companies argued with the high cost of software

licenses. In addition, many have also shown only small awareness for the

advantages of licensed software. Pirated copies of international software

products are available on the markets of the larger cities. A pirated copy of a full

Microsoft Office Suite is about 2$-5$ on the markets in Kabul, for example. For

companies with limited resources it is very tempting to reduce their costs for the

needed software by buying those cheap pirated versions. In general pirated

2 https://startupvalley.af/3 http://startupgrind.af4 http://asrab2b.com

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software implies security risks due to the lack of proper updates. This leads to a

security risk for the entire infrastructure and network of the IT companies

themselves as well as for their customers.

An Open Source software culture could be a solution for many problems that

occur with pirated and outdated software, and the ITCC Afghanistan

encourages the use of open source software. The survey has shown that these

efforts have had some effect: open source solutions are currently partly being

used in some of the surveyed places.

Nevertheless, pirated proprietary software, with all its disadvantages and

security risks, is still most commonly used.

Qualified Staff

Afghanistan as a conflict and developing country generally suffers from a lack of

highly qualified personnel. This consequently also leads to the challenge of IT

companies to find suited staff, which was a recurring problem for the enterprises

responding to the survey. The lack of well trained and experienced IT staff is a

major problem for young IT companies in Afghanistan. Although many young

talented persons have been graduating with a B.Sc. from the Afghan

universities it still seems hard to find fitting employees.

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Herat

Kabul

Kabul

Polyte

chnic

Univ

ersit

y

Balkh

Univer

sity

Nanga

rhar

Univ

ersit

y

Qanda

har U

niver

sity

0

40

80

120

160

B.Sc. Graduates per Year. approx.

Figure 3: B.Sc. Computer Science Graduates

The lack of qualified personnel is worsened by the ongoing brain drain.

Qualified specialists often find better job- and career opportunities outside the

country. Many of them are leaving Afghanistan when given the chance in order

to follow a career elsewhere. As the career chances and salaries are still

limited, the Afghan IT sector is also suffering from these brain drain effects. For

example, the surveyed companies pay salaries between 100$ -500$ per month

for junior IT experts. For senior experts it is between 500$ and 1000$.

Experienced senior IT experts with higher salary expectations wont work for

these smaller, privately owned companies because they can simply not afford to

hire them.

This lack of qualified staff has forced several companies out of this survey to

neglect or cancel orders from potential customers in the past.

Quality level of the IT services

The mentioned lack of experienced IT experts also has an impact on the quality

of the services the companies can offer. Almost all companies and experts that

have been contacted for this survey mentioned that the service quality is

generally low. The lack of infrastructure, of appropriate staff, of secure and up to

date software and of financial resources makes it often hard to fulfill the desired

standards.

Besides the limited finances it can be concluded that there is also a lack of

awareness for certain standards. A software license culture has not been

established and basic security standards are often not in place.

Reputation of local companies

All of the challenges that are identified in this report lead to a low trust into local

companies. The expectations on what services and what quality of service

those companies can deliver are generally low. As a result many larger

customers prefer to hire foreign companies for their IT solutions as long as they

can afford it. This problematic leads to a dilemma. The small local IT companies

are struggling with resources, appropriate staff and strong competitors. And

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they often have a problem with their reputation when advanced IT solutions are

demanded. Customers are often looking for more advanced foreign IT solutions,

even though those foreign IT solutions come with a much higher price.

In order to support the local companies it would be crucial to break through this

dilemma and to offer more direct help so they can compete better on the

market. Financial resources and qualified and experienced staff are the key

parts that could change and better the conditions in order to create a working

local market with smaller and mid-sized IT companies.

Lack of entrepreneurial and business skills

In the self-assessments of the survey, respondents also reflected on the lack of

resources directed to acquiring entrepreneurial and business skills. Although

enjoying some degree of specialization in IT technologies, the competencies to

start a business and gather resources for a start-up formed key obstacles to the

long-term success of these entrepreneurs’ endeavors. Within the framework of

existing educational programs, a greater focus on these skills could prove

helpful in supporting young IT specialists as they navigate the market.

Taxes

High government taxes were among the main challenges that were named by

many of the surveyed companies. When companies participate in a bidding for

government contracts they have to pay 20% tax on the entire revenue in case

their bidding was successful. Especially for smaller companies those high taxes

imply a huge burden.

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ConclusionThe survey has shown that within the different provinces and cities of

Afghanistan, similar challenges appear. IT companies are often supported by

the Afghan or foreign governments during their start-up period, and as soon as

this support is cut, many of the companies close due to financial problems. This

shows that, although there is a demand for IT technologies in Afghanistan, the

market for IT companies is still very fragile. It can be assumed that even though

there is a certain demand in IT services, the financial resources, especially on

the side of the customer, for those services are still limited.

It has also been shown that incubators that offer financial and structural support

are a great way to set impulses and help founding new businesses.

Nevertheless, it is crucial to also support small companies after that start-up

phase in order to create a slow but sustainable growth of the IT market.

Another challenge companies are facing is the lack of specialized IT staff. As

emphasized, especially in the survey in Balkh, qualified IT specialists are key to

a sufficient IT business. Some services (eg. tailored IT solutions for customers)

cannot be realized properly due to the lack of qualified staff.

In addition, companies also struggled with high governmental taxes. They are

operating at the limits of profitability. Especially in the start-up phase, high taxes

can challenge the entire business model.

Within this report several possible solutions to face those challenges were

already mentioned.

There is the possibility to generally extend the support of the different start-up

incubates. The IT market is not strong enough to be entirely self reliable.

Although IT is needed in so many sectors from government administration to

businesses or the education sector there often is not enough funding available

among the potential customers. Therefore additional support for small

enterprises is crucial in order to keep them in business. A start could be the

extension of the support period. As shown in the survey many start ups have

been supported by incubators for one year and went bankrupt after that support

stopped. These support periods could be extended in order to help young

enterprises to become more sustainable and self dependent.

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Another support from the government side could be to cut the taxes. The

already mentioned 20% tax on successful bids for government contracts often

makes an involvement in a potential project unprofitable. Especially smaller

companies with limited capital and funding are thus discouraged in participating

in biddings for government contracts.

Also a stronger cooperation of educational institutions such as the Universities

and the different IT companies could prove to be fruitful for the entire IT sector.

Together they could create better parameters for IT education, job opportunities

and advanced IT trainings and thereby strengthen the quality of the offered IT

services. After all it is the Universities where the next generation of computer

scientists is trained and it is the IT companies where their expertise is needed.

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