BizCLIR

The ability to create and enforce contracts under a clear, consistent legal framework is a critical component of economic growth. Where there is widely held expectation that agreements freely entered into between businesses or individuals will be subject to enforcement by a court or other tribunal, a marketplace can be transformed. Namely, what was once mere hope for performance based on a personal relationship or vague insinuation becomes a legitimate expectation of delivery. When business partners are in fact required to do what they have said that they will do – pay money, deliver goods, provide services, and so forth – risk diminishes and the recipients of a promise can better plan for the future. With decreased risk, the cost of doing business goes down, thereby elevating the private sector’s prospects for profit.

At the time of this Diagnostic, Afghanistan was presumed to be nearing the passage of a new Law on Contracts, the fifth in line among the ten commercial laws prioritized for enactment through the Afghanistan National Development Strategy (ANDS) -initiated system of benchmarks. Although the draft law is strong and comprehensive – as well as reportedly compliant with the requirements of Sharī’ah – there can be no mistake that it remains far from being a truly Afghan law. That is, the development of the new law appears to have involved only minimal engagement of the Afghan legal community.

Thus, once enacted, the impact of the new Law on Contracts is destined to be weak. This will be the case until significant effort is made to educate the legal and business communities in the concepts, obligations, and opportunities the new law presents, as well as to clarify the process for redress when disputes arise. The contrast between the relative simplicity of the new contract law and the old one’s complexity, opacity, and unmistakable bias against enforcing contracts is stark. Accordingly, the process of teaching lawyers, judges and others to view contracts differently will not be easy.

Fortunately, the draft law itself constitutes a very strong teaching document, with clearly defined terms and principles drawn somewhat from Afghan legal tradition and, to a greater extent, from international best practices. If and when the new law does become integrated into the legal culture and business environment, it will set a vastly improved stage for the creation and enforcement of contracts in Afghanistan.

In addition to a system of private sector contracts, economies benefit from sound and transparent contracting practices by the state. Strong law and enforcement in the area of government procurement can result in increased public confidence in the work performed on behalf of the government and in diminished public risk arising from malfeasance and cronyism. In Afghanistan, a new Law on Procurement was enacted in 2005. Plans for its implementation are more clearly defined than those pertaining to the Law on Contracts. On the other hand, commitment to genuine reform in government contracting is, at this time, underwhelming.