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The Afghanistan Investment Climate in 2008 : Growth Despite Poor Governance, Weak Factor Markets, and Lack of Innovation(World Bank, 2009-08-12) World BankThis survey report will help the government of Afghanistan think through its approach to private sector development. Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy. This report reviews the constraints that firms currently operating in Afghanistan face and provides a basis for possible policy recommendations to address these constraints. It is hoped that the report will be a useful tool to support investment climate reforms and enhance the private sector dialogue in Afghanistan. The report also identifies a group of emerging issues that include the interlinked issues of competitiveness, innovation, and diversification. Despite strong growth, policymakers should be concerned about the lack of entry of new firms, especially foreign firms, and the lack of innovative behavior. These two factors indicate a lack of competitiveness and warrant further research. An undiversified manufacturing sector that is overwhelmingly linked to the agriculture and agro-processing sectors are also of concern. The strong growth trend itself needs more evaluation. A country that has weak governance, poor factor markets, and firms that are not innovative is unlikely to achieve sustainable long-term growth. The report discusses the issues noted above, summarizes the status of reforms, and suggests some next steps, including further analytic work on a number of topics, public private dialogue on certain issues, and stronger government reform efforts.