Investment and competitiveness in Tajikistan


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The OECD Tajikistan Project is working towards enhancing country competitiveness: by developing targeted and practical action plans for reforms; and following-up on implementation and building capacity.

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Investment and competitiveness in Tajikistan

  1. 1. CENTRAL ASIA INITIATIVE INVESTMENT AND COMPETITIVENESS IN CENTRAL ASIA Focus on Tajikistan First Steering Group meeting Dushanbe, 17 February 2014 With the financial assistance of the European Union
  2. 2. OECD Private Sector Development 2 The OECD at a glance A forum where governments can compare policy experiences and address the economic, social and governance challenges of globalisation as well as to exploit its opportunities 34 Member countries Broad policy expertise Horizontal policy areas  Competitiveness and Investment  Public Governance and Territorial Development  Entrepreneurship, SMEs and Local Development  Employment, Labour and Social Affairs  Trade  Education  Tax Policy and Administration Sector-specific policy areas  Agriculture  Industry  Science and Industry  Financial and Enterprise Affairs Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map
  3. 3. OECD Private Sector Development 3 Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova, and Ukraine Eastern Europe and South Caucasus Initiative Afghanistan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan Central Asia Initiative The OECD Eurasia Competitiveness Programme OECD Council Mandate covering two regions and thirteen countries The OECD Eurasia Competitiveness Programme was launched in 2008 and aims at contributing to economic growth and development in eleven countries of the former Soviet Union as well as Afghanistan and Mongolia. This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map
  4. 4. OECD Private Sector Development 4 Objectives of today’s meeting 1. To present the new OECD project with Tajikistan and its expected benefits 2. To agree on project governance 3. To agree on project focus 4. To agree on project schedule and next steps
  5. 5. OECD Private Sector Development 5 Expected benefits of the project 1. Enhancing country competitiveness • Developing targeted and practical action plans for reforms • Following-up on implementation and building capacity 2. Providing global visibility • Reviewing reform action plans with OECD countries • Showcasing Tajikistan’s reform agenda as a model in Eurasia
  6. 6. OECD Private Sector Development 6 OECD Eurasia Competitiveness Roundtable, Paris, 4 December 2013 Tajikistan agreed to be next to be peer reviewed, in November 2014
  7. 7. OECD Private Sector Development 7 This project will focus on assessing two policy areas, while designing two targeted action plans for competitiveness reforms Access to Finance for SMEs Investment and trade promotion for SMEs Analytical work Overall assessment of 2 policy areas Practical work Design of 2 targeted action plans for reform 1 2 A B 2 targeted reforms to be selected, based on:  Consultations with Government in Tajikistan  Other stakeholders’ views  OECD and GIZ expertise
  8. 8. OECD Private Sector Development 8 Tajikistan in the peer review process OECD members to comment on assessments and action plans for reform Project Steering Group Tajikistan Eurasia Competitiveness Roundtable 2. OECD reviewer on Investment/ Trade promotion 1. OECD reviewer on Access to Finance Tajikistan Presentation of the country work to OECD peers In 2015, draft action plans for reform to be finalised and followed by implementation with OECD support Jan. 2014 – Nov. 2014 November 2014, OECD Headquarters in Paris
  9. 9. OECD Private Sector Development 9 Project Steering Group The focus of the two Working Groups will be on leveraging remittances to develop private sector and on supporting export of agribusiness SMEs Suggested focus How to use remittances from migrant workers as a source of financing for SMEs and entrepreneurship? Working Group 2 Investment and Trade Promotion for SMEs Working Group 1 Access to Finance for SMEs Suggested focus How to help agricultural SMEs tap into international markets and further support post-WTO accession ? Areas to be further investigated  Business services: How to provide SME development advice or information on investment opportunities for returning migrants?  Transfer of remittances into savings: How to improve the transfer of remittances into savings in Tajikistan? Areas to be further investigated  Export promotion: How to promote export of the agribusiness sector?  Certification and standardisation: How to support certification and standardisation of agribusiness products for better exports?
  10. 10. OECD Private Sector Development 10 Remittances are a highly relevant source of external revenue Their share to GDP is higher than FDI, Exports and Aid combined Bilateral Aid FDI Remittances Exports 0% 10% 20% 30% 40% 50% 60% 70% 2003 2004 2005 2006 2007 2008 2009 2010 2011 Remittances and other sources of external revenue as a share of Tajikistan’s GDP Remittances amounted to more than 3.6 billion US Dollars in 2012, 87% of which are channelled through low cost formal channels, mainly Money Transfer Organisations Sources: World Bank, World Development Indicators SMEIntern.inAgribusinessRemittances Share of Tajikistan’s GDP
  11. 11. OECD Private Sector Development 11 While access to finance is limited, remittances are rarely used for private sector development in Tajikistan Remittances do scarcely enter the financial system for credit to the private sector Sources: Buckley and Hofmann (2012), World Bank: Tajik Living Standards Monitoring Survey, World Development Indicators; * Calculation based on WDI data and ILO (2010) Migrant remittances to Tajikistan the potential for savings, economic investment and existing financial products to attract remittances Growing remittances inflows are not translated into higher shares of credit to the private sector Lending to the private sector as a share of GDP is small compared to other countries in Eurasia 13% 20% 37% 38% 43% 52% 0% 10% 20% 30% 40% 50% 60% Tajikistan Azerbaijan Kazakhstan Moldova Armenia Mongolia 0% 10% 20% 30% 40% 50% 60% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Remittances: 46% Domestic credit to the private sector: 13% Of which: long term savings: 5%* Savings from remittances: 11%* SMEIntern.inAgribusinessRemittances Share of Tajikistan’s GDP
  12. 12. OECD Private Sector Development 12 Good practices show that remittances can be used for private sector development Sources: Ibabanji (2012) Program on attracting remittances into the economy “PARE 1+1”. Presentation at the ETF seminar “Migration and Skills”, 6 – 7 March 2012 , Torino; UN in Moldova Magazine (2012) Building Future at Home; FIRCO – Proyecto para fortalecer el potencial económico de los migrantes y el uso productivo de las remesas: ¡Paisano, Invierte en tu tierra! The programme has the following objectives: • Enhance awareness of remittance senders and beneficiaries of business opportunities in Moldova • Increase entrepreneurial skills among migrants and remittance beneficiaries • Stimulate SME establishment and development by migrants and remittance beneficiaries • Facilitate access of migrants and remittance beneficiaries to financial resources required to establish/develop SMEs in Moldova • Remittance investments obtained through PARE 1+1 are 2.7 times the value of programme investments The programme consist of the following : • Target population are farmers in Mexico or abroad that want to invest in Mexico using remittances. • Market knowledge of (former) migrants is leveraged through the creation of new enterprises and the connection of existing ones to the US market by tapping the diaspora market. • The programme provides financial support for storage, cooling, packaging, processing and marketing. • Services also include the creation of business plans or export certification. • Beneficiaries are reached through Mexican associations in US cities as well as information provided in Mexico. Republic of Moldova: PARE 1+1 Remittances are a major source of financial inflows to Moldova, which is why PARE 1+1 was launched in 2010. Mexico: ¡PAISANO, INVIERTE EN TU TIERRA! Objective is to facilitate remittance transfer to productive use through investments in businesses by migrants or their families. SMEIntern.inAgribusinessRemittances Policy instruments can help leverage migrants’ financial and knowledge resources
  13. 13. OECD Private Sector Development 13 Areas to be further investigated Rationale Examples • Providing SME development advice or information on investment opportunities for migrants  SME creation by migrants can generate employment and growth, and involve knowledge transfers, but migrants often lack knowledge and skills  Remittances can be invested in home countries, however, migrants often lack information on investment opportunities  Equip migrants with the skills and knowledge to save and start a business (e.g. Mexico)  Match remittances with subsidies to enhance investment (e.g. Moldova)  Provide information on investment opportunities prior to migration as well as in host countries (e.g. Philippines ) • Improving the transfer of remittances into savings  Remittances are rarely deposited at banks, deteriorating access to finance, but targeted policies can facilitate the transfer of remittances to savings  Improve the co-ordination between MFIs and MTOs (e.g. Mexico)  Develop remittances-related financial products (e.g. El Salvador) Suggested focus could be on leveraging remittances to enhance investment and access to finance for SMEs SMEIntern.inAgribusinessRemittances
  14. 14. OECD Private Sector Development 14 Agricultural sector in Tajikistan has been growing over the last years and accounts for a major share of GDP and employment •Net agricultural production sector grew on average by 5% since 1998 and accounted for more than 1/3 of GDP growth since then •A large part of the population depends on agriculture for employment and income – the sector accounts for 67% of total employment in the economy •WTO-related SME internationalisation in the agribusiness sector can be one of the best ways to improve the economic situation in Tajikistan Sources:State Statistical Committee of the Republic of Tajikistan; Akramov and Shreedhar (2012), Economic Development, External Shocks, and Food Security in Tajikistan, International Food Policy Research Institute Discussion paper 01163 Share of agriculture in GDP and employment, 2011 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 constant2000somoni Net value of agricultural production 24% 67% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share in GDP Share in employment SMEIntern.inAgribusinessRemittances
  15. 15. OECD Private Sector Development 15 Tajikistan Government has put agribusiness exports as a priority in the WTO post-accession plan Items of the Tajikistan’s WTO Post accession plan related to SMEs in agribusiness: • Item I.18 Expand the state support on promotion of Tajik good into markets • Item I.20 Active use of perspective support programs in context of accession to the WTO • Item I.24 Provide conditions for the reduction of interest rates on bank loans to the average level for the developing countries of the world • Item VII.1.3. Support domestic agricultural producers by stimulating demand in both domestic and foreign markets (Partial funding of events for the promotion of products: exhibitions, workshops, assistance in obtaining certificates) SMEIntern.inAgribusinessRemittances
  16. 16. OECD Private Sector Development 16 Suggested Instrument Rationale Example • Strengthening export promotion of agribusiness SMEs  Agricultural products (excluding cotton) represent less than 5% of Tajikistan’s exports  Export promotion activities in Tajikistan appear not be sufficient to help farmers tap the opportunities created by the WTO accession  Information on export opportunities and national marketing are limited  Create a provincial brand as a marketing instrument for the promotion of agribusiness products in Trentino (Italy)  Customise assistance of the Czech Trade Promotion Agency (CzechTrade) to agribusiness SMEs • Supporting certification and standardisation of agribusiness products for better exports  Tajikistan’s agricultural products are often not in compliance with good international practice  Complicated product certificates procedures can constitute a genuine barrier to entering a new market  Promote vertical coordination between agribusiness firms and SMEs to improve the quality of products in China  Set up a grant scheme to support agribusinesses’ internationalisation via product certificates in Poland Suggested focus could be on WTO-related support to the internationalisation of SMEs in the agribusiness sector SMEIntern.inAgribusinessRemittances
  17. 17. OECD Private Sector Development 17 Project Steering GroupPrivate sector representatives Relevant ministries and government agencies Chaired by Deputy Prime Minister OECD (including relevant experts) Proposed governance for the project would include 2 public-private Working Groups reporting to a Project Steering Group OECD Secretariat, GIZ and Ministry of Economic Development and Trade of Tajikistan European Commission Chaired by relevant Deputy Ministers by topic (e.g. MinEco) Working Group 2 Investment and Trade Promotion for SMEs GIZ Working Group 1 Access to Finance for SMEs
  18. 18. OECD Private Sector Development 18 1. Provide data (e.g. data request, questionnaires) 2. Co-operate in developing the analysis 3. Review materials 4. Suggest directions of work Working Group Members 1. Co-ordinate the project 2. Analyse data and develop materials with the support of international experts 3. Draft key conclusions and propose recommendations for discussion WG Secretariat: OECD and GIZ 1. Sets overall priorities of the project 2. Reviews and comments on progress accomplished by the Working Groups (approves proposals, recommends adjustments) 3. Decides on recommendations to be implemented Project Steering Group Roles and responsibilities for the Steering Group and Working Group members
  19. 19. OECD Private Sector Development 19 Project Steering Group: 3 meetings are suggested for 2014 The objective is to get ready for the peer-review process in November 2014 2013 2014 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec COUNTRYLEVEL 2 Working Groups (one for each area) Project Steering Group REGIONAL Eurasia Competitiveness Roundtable 1st Roundtable Peer review of action plans for reforms in the Kyrgyz Republic 2nd Roundtable Peer review of two action plans for reforms of Tajikistan 1st Meeting Decision on two areas of focus and set up of two thematic working groups 2nd Meeting Review of two draft action plans for reform and review of initial results from the horizontal assessment 3rd Meeting Endorsement of two action plans for reform and review of final results from the horizontal assessment 3 meetings will be conducted for each of the two Working Groups Design of draft action plans for reform in each of the two areas of work Building on the business survey designed specifically for the project
  20. 20. OECD Private Sector Development 20 Points of decision and next steps Points of decision: 1. To agree on project governance 2. To agree on project focus – remittances and support to export of agrifood SMEs 3. To agree on the project schedule Practical next steps: 1. Set up the 2 project Working Groups 2. Appoint Working Groups chairmen and vice-chairmen 3. Plan the first Working Group meetings, 1st week of March is suggested 4. Start for Working Group members to collect data in co-operation with GIZ and OECD
  21. 21. OECD Private Sector Development 21 Annex Examples of action plans in the Kyrgyz Republic
  22. 22. OECD Private Sector Development 22 To raise project visibility, a clear and actionable communication plan is suggested TOOL ACTION TIMEFRAME Web site Create web page for the project including  Description of the project  Key upcoming dates  Facts about the country  Project press release MARCH Moving forward the page can be enriched to include  Meeting highlights  Links to partners  Video and photo materials (ex interview with TJ policy makers) MARCH 2014 – NOV 2014 Press Press events and conference as useful for key milestones in project (tbd) MARCH 2014 – NOV 2014 Social media Identify key stakeholders interested in TJ to disseminate key facts about Kyrgyz Republic and achievements of the Project JULY 2013 – FEB 2014 Liaise with EU, GIZ on supporting the promotion of dissemination around certain events OECD publications to be launched in Dushanbe early 2015
  23. 23. OECD Private Sector Development 23CONFIDENTIAL – NOT FOR DISTRIBUTION Despite being a relatively simple mechanism, the internship contract and its regulatory framework among players are key aspects to consider FIRMS (PRIVATE PLAYERS) Educational institutions Convention Students Wage and training Service and contract Training report Monitoring Feedback on CVs REGULATORY FRAMEWORK FRAMEWORK TO: • Provide certainty to employers • Protect students (e.g. medical coverage, insurance) and employers (e.g. confidentiality) • Rule the interaction between Universities and private players • Promote the Schemes • Provide internships which are relevant to the players and of high quality WORKPLACE TRAININGS IN AGRIBUSINESS
  24. 24. OECD Private Sector Development 24CONFIDENTIAL – NOT FOR DISTRIBUTION Action plan for the establishment of workplace training schemes in agribusiness Strengthen the legislative framework and set incentives1 Ensure the engagement and ownership of the private sector2 Long term Medium term Short term • Introduce an internship/ apprenticeship convention/ contract • Agree on a duration and on a minimum remuneration for workplace training • Set up career services within agricultural institutions • Build a database (through alumni and company visits) • Organise outreach events, career fairs • Consider creating financial incentives for employers that offer workplace training • Provide workplace training opportunities on a competitive basis Ensure that students are efficiently matched with training places3 • Create a formalised platform to match supply and demand • Monitor the practical experience using a feedback report on the match of student skills for firm needs Promote education in agribusiness4 • Adjust educational institutions’ curricula based on recommendations of agricultural firms • Market agribusiness as an attractive career option for students WORKPLACE TRAININGS IN AGRIBUSINESS
  25. 25. OECD Private Sector Development 25 Warehouse receipt financing can improve access to finance providing benefits to both agricultural players and to the banks financing them Source: World Bank, FAO (2009), The use of warehouse receipt financing in agriculture in transition countries •Increases transparency and efficiency in commodity markets •Addresses collateral and liquidity constraints •Encourages the development of warehouses and the logistical network around warehouses •Manage price volatility •Access to working capital finance without having to sell crops at times of low prices Benefits to agricultural players Reducing the risk by shifting the risk from the borrower to the warehouse operator Benefits to banks Sector benefits Examples of production used as collateral: seeds, fertilizers, grains, sugar, potatoes, fresh fruits and vegetables, processed fruits and vegetables, dairy products Warehouse receipt financing Agricultural supplier/ producer/ processor/ distributor/ trader Warehouse Financial institution Deposited goods Warehouse receipt Warehouse receipt Loan WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS
  26. 26. OECD Private Sector Development 26 There are two approaches to the development of warehouse receipt financing in agribusiness National Sub-national Implementation at national level with the development of all the elements in parallel Implementation at regional level with certain banks farms or warehouses and scaling up of the schemes later on Key factors: •Institutional setting at national level •Ability of the banking sector to quickly adopt innovative forms of financing •Examples: USA, Bulgaria Key factors: •Capacity of farmers to organise •Strength of local associations, co- operatives and other associative bodies •Willingness to accept innovative forms of financing •Examples: Malawi, Madagascar WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS
  27. 27. OECD Private Sector Development 27CONFIDENTIAL – NOT FOR DISTRIBUTION Draft action plan for the establishment of warehouse receipt financing in agriculture Identify and engage partners1 Put in place elements to ensure the credibility of the scheme2 Set up the legal and regulatory framework3 Long term Medium term Short term • reliable storage facilities at strategic locations • development of trade and distribution services in agricultural co-operatives • dissemination of information about financing opportunities among farmers • ensure access to agricultural information • support the development of a wider range of insurance products for agricultural sector • establish a certification agency • establish an indemnity fund • ensure compliance of warehouses with the standards • build reliable systems for collection and dissemination of agricultural information Promote investments in the warehouse system4 • Build a warehouse/logistical centre based on a public-private partnership WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS