Investment and Competitiveness in Central Asia - Focus on the Kyrgyz Republic


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Presented 14 November 2013, in Bishkek, Kyrgyz Republic.
Launched in March 2013, the Kyrgyz Project of the OECD Central Asia Initiative seeks to support the Kyrgyz Republic in increasing its competitiveness.

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Investment and Competitiveness in Central Asia - Focus on the Kyrgyz Republic

  1. 1. CENTRAL ASIA INITIATIVE INVESTMENT AND COMPETITIVENESS IN CENTRAL ASIA Focus on the Kyrgyz Republic 3rd Steering Committee Meeting Bishkek, 14 November 2013 With the financial assistance of the European Union
  2. 2. Expected benefits of the project REMINDER 1. Enhancing country competitiveness • Assessing country policies on human capital, access to finance, investment and trade promotion • Developing targeted and practical action plans for reforms • Following-up on implementation and building capacity 2. Providing global visibility • Reviewing policies and reform action plans with OECD countries • Showcasing the Kyrgyz Republic’s reform agenda as a model in Eurasia OECD Private Sector Development 2
  3. 3. The main objective of today’s meeting is to prepare for the peer review of project results in Paris in December 1. To agree on the results of the assessment of policies for competitiveness in the Kyrgyz Republic 2. To agree on the action plans for competitiveness reforms in the Kyrgyz Republic 3. To agree on practical next steps from now to February 2014 OECD Private Sector Development 3
  4. 4. OECD Eurasia Ministerial conference in Warsaw, June 28 Kyrgyz Republic volunteered to be reviewed by OECD peers A National Co-ordinator was further appointed by Kyrgyz Republic government OECD Private Sector Development 4
  5. 5. What is peer review and why is it effective? An examination of one state’s performance or practices in a particular and welldefined area by other states  Peer review relies on mutual trust among the states involved, as well as their confidence in the process  Peer review is a discussion among equals with no enforcing mechanisms  Peer reviews encourage open dialogue and knowledge-sharing on policies under review  Peer reviews are highly effective due to peer advice and pressure Peer review mechanisms are the main discussion platform among OECD members CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 5
  6. 6. The Kyrgyz Republic in the peer review process OECD members to comment on current policies and action plans for reform March-November 2013 Country work on 1. 2. 3. Human Capital Access to Finance Investment and trade promotion for SMEs 3-4 December 2013, OECD Headquarters in Paris Presentation of the country work to OECD peers Turkey 2. OECD 3. OECD reviewer to Finance 1. OECD reviewer on Human Germany reviewer on Access Korea on Investment and Capital Trade Promotion Eurasia Competitiveness Roundtable Project Steering Committee Kyrgyz Republic Kyrgyz Republic The peer review process is expected to stimulate the policy reforms implementation in the Kyrgyz Republic OECD Private Sector Development 6
  7. 7. Project results to be peer reviewed include a policy assessment and action plans for reform in skills, access to finance and internationalisation of SMEs A Assessment of 3 policies for competitiveness B Action plans for 3 targeted competitiveness reforms  How to improve workplace training schemes in agribusiness ? 1 Human Capital Development 2 Access to Finance for SMEs  How to set up warehouse receipts financing for agricultural producers? Investment and trade promotion for SMEs  How to help textile and garment producers to move up the valuechain? 3 OECD, GIZ and public-private working groups to support the on-going work, with in-depth involvement of civil society and business associations OECD Private Sector Development 7
  8. 8. A What are the major policy challenges for competitiveness in the Kyrgyz Republic? OECD Private Sector Development 8
  9. 9. OECD peer review methodology 34 policy indicators have been assessed across three major policy areas Assessment of three policy areas to define priorities for reform implementation Dimensions 1 • Legal and regulatory framework • Sources of external finance • Financial literacy Access to finance for SMEs 1.1 Sub-Dimensions 1. Access to Finance for SMEs Legal and regulatory framework 1.2 Sources of external finance Sub-dimensions 3. Investment and export promotion • Strategy and institutions • Credit guarantee schemes Indicators Level of Reform 1 2 3 4 5 Credit guarantee schemes Indicators Tools and public-private partnerships to promote skills for jobs 1.2.1 Indicators • Education policy framework for business needs Indicators 5.3 ACAAs 1.1 Sources of external finance for SMEs 2. Skills development • Sub-dimensions Public start-up funding Investment and export promotion tools Supply-chain financing Each policy indicator is assigned a score ranging from 1 to 5 to measure the level of policy development and monitor progress in implementation over time OECD Private Sector Development 9
  10. 10. Skills for Private Sector Development - Need to enhance public and private sector co-operation to implement the national education strategy 5 4 3 2 1 2.1 Education policy framework for business needs 2.2.5 Training quality assurance 2.2.4 Access to training 2.2.3 Existence of workplace training (internship/apprenticeship) schemes 2.2.2 Development of a workrelated system of continuing education and training 2.2.1 Skills gap analysis 2.1.4 Responsiveness of the university system to business needs 2.1.3 Development of the VET system 2.1.2 Workforce skills strategy: design and evidence 2.1.1 Consultative processes in the education system 0 2.2 Tools and public private partnerships to promote the skills for jobs Implementation of workplace training schemes has been selected as a tool to enhance public-private dialogue in education Private Sector Development CONFIDENTIAL – NOT FOR DISTRIBUTION OECD 10
  11. 11. Skills for private sector development Initial recommendations Sub-dimension 1 Support the implementation of the national education strategy: Education policy • Framework for • business needs Tools and public • 2 Enhance public private partnerships in education: • private partnerships to promote the skills for jobs Allocate a budget to enable main stakeholders to implement activities to achieve defined goals Identify mechanisms to enhance private sector contribution to education and training provision, for example through VET programmes Monitor the implementation of the strategy and hold regular public-private consultations with social partners • Develop and implement efficient workplace training programmes (e.g. internship/apprentice schemes) as a mechanism to enable students to acquire first practical knowledge and skills for their future jobs during their university studies Extend the usage of skills gap analysis beyond pilot projects that already exist in Naryn, Jalal-Abad and Osh regions to assess supply and demand for skills CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 11
  12. 12. Access to Finance for SMEs – Need to further strengthen the legal and regulatory framework and diversify sources of external finance 5 4 3 2 1 0 1.1.1 Cadastre 1.1.2 1.1.3 Collateral and Registration provisioning systems for requirements moveable assets 1.1.4 Credit 1.1.5 Laws and 1.1.6 Creditor 1.2.1 Credit 1.2.2 Financial 1.2.3 Supply1.2.4 information procedures on rights guarantee support chain Microfinance services distressed schemes services for financing Facilities companies, start-ups instruments receivership (vouchers, (warehouse and grants, etc.) receipts, bankruptcy contract farming, etc.) 1.1 Effective Regulatory Framework 1.2.5 Credit 1.2.6 1.2.7 Leasing 1.3.1 Financial Unions Availability of literacy Risk Capital (e.g. venture capital, private equity funds) 1.2 Access to External Finance 1.3 Other factors that affect demand and supply of finance Implementation of warehouse receipt financing has been selected as a pilot project to improve usage of movable assets as collateral OECD Private Sector Development 12
  13. 13. Access to Finance for SMEs Initial recommendations Sub-dimension Effective 1 • • • • regulatory Framework 2 Access to • • finance 3 Streamline procedures for registration of moveable assets Review current legislation on collateral and provisioning requirements Extend availability of credit information services Strengthen creditor rights and enforcement mechanisms Diversify and expand external sources of finance: • external Other factors Further strengthen the legal and regulatory framework for access to finance to stimulate lending to SMEs: Implement pilot projects to develop supply-chain financing instruments, such as warehouse receipts Expand activities of existing credit guarantee funds Explore opportunities to attract risk capital (e.g. through business angel networks and private equity funds) Enhance financial literacy through targeted education programmes, for example in business planning and financial reporting to enable SMEs to prepare higher quality loan applications to banks. CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 13
  14. 14. Investment and export promotion for SME – Need to strengthen the institutional framework for investment and export promotion 5 4 3 2 1 3.1 Investment and Export Promotion Strategy and Institutions 3.2.8 National export/investment promotion events 3.2.7 Financial support for export promotion activities 3.2.6 Export promotion programmes 3.2.5 Public-private consultations with investors 3.2.4 Business linkage programmes 3.2.3 Free economic zones (FEZs) 3.2.2 Aftercare services 3.2.1 One Stop Shop for investors 3.1.3 Monitoring and evaluation of the agency 3.1.2 Investment/Export Promotion Agency 3.1.1 Investment/Export Promotion Strategy 0 3.2 Investment and Export Promotion Tools Business linkage programmes have been selected as a pilot tool to upgrade and integrate the CONFIDENTIAL – NOT FOR DISTRIBUTION global value chainsPrivate Sector Development garment industry into OECD 14
  15. 15. Investment and export promotion for SMEs Initial recommendations Sub-dimension Investment and 1 Strengthen the institutional framework: • strategy and Approve the 2013 – 2017 Export Development Strategy • export promotion Strengthen investment promotion efforts, for example by setting up an investment and export promotion agency with sector expertise, and by defining clear roles and responsibilities to implement related activities institutions 2 Further develop investment and export promotion tools: Investment and • Implement business linkage programmes, as a mechanism to establish linkages between SMEs and foreign investors and facilitate the participation of domestic companies in global value chains • Assess private sector needs for government support and identify investment and export promotion support mechanisms that can be implemented with limited resources at hand export promotion tools CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 15
  16. 16. B How to implement competitiveness reform in the Kyrgyz Republic? OECD Private Sector Development 16
  17. 17. Despite being a relatively simple mechanism, the internship contract and its regulatory framework among players are key aspects to consider WORKPLACE TRAININGS IN AGRIBUSINESS REGULATORY FRAMEWORK FRAMEWORK TO: Service and contract Students Wage and training Training report Monitoring • Provide certainty to employers FIRMS (PRIVATE PLAYERS) Convention Educational institutions Feedback on CVs • 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 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 17
  18. 18. Action plan for the establishment of workplace training schemes in WORKPLACE TRAININGS IN agribusiness AGRIBUSINESS 1 Strengthen the legislative framework and set incentives • Introduce an internship/ apprenticeship convention/ contract • Agree on a duration and on a minimum remuneration for workplace training Short term 2 • • • • • 3 Medium term Long term Ensure the engagement and ownership of the private sector 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 places • 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 4 Promote education in agribusiness • Adjust educational institutions’ curricula based on recommendations of agricultural firms • Market agribusiness as an attractive career option for students CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 18
  19. 19. Warehouse receipt financing can improve access to finance providing benefits to both agricultural players and to the banks financing them WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS Warehouse receipt financing Agricultural supplier/ producer/ processor/ distributor/ trader Deposited goods Warehouse Warehouse receipt Benefits to agricultural players •Manage price volatility •Access to working capital finance without having to sell crops at times of low prices Benefits to banks Warehouse receipt Loan Financial institution Examples of production used as collateral: seeds, fertilizers, grains, sugar, potatoes, fresh fruits and vegetables, processed fruits and vegetables, dairy products Reducing the risk by shifting the risk from the borrower to the warehouse operator Sector benefits •Increases transparency and efficiency in commodity markets •Addresses collateral and liquidity constraints •Encourages the development of warehouses and the logistical network around warehouses Source: World Bank, FAO (2009), The use of warehouse receipt financing in agriculture in transition countries OECD Private Sector Development 19
  20. 20. There are two approaches to the development of warehouse receipt financing in agribusiness 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, cooperatives and other associative bodies •Willingness to accept innovative forms of financing •Examples: Malawi, Madagascar OECD Private Sector Development 20
  21. 21. Draft action plan for the establishment of warehouse receipt financing in agriculture WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS 1 Short term Identify and engage partners • • • 2 Put in place elements to ensure the credibility of the scheme • • Medium term 3 ensure access to agricultural information support the development of a wider range of insurance products for agricultural sector Set up the legal and regulatory framework • • • • Long 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 4 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 system • Build a warehouse/logistical centre based on a public-private partnership CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 21
  22. 22. The challenge is to sustain the industry’s development in the long term INVESTMENT AND TRADE PROMOTION IN TEXTILE/GARMENT Improved company capabilities and business environment Improved business connections Capabilities Large/foreign firm •e.g. improved skills and knowhow through human capital development • e.g. improved equipment and technology through better access to finance •e.g. improved knowledge of markets and suppliers Value-added business relationships, e.g. FOB contracts, long-term contracts, investment Increased integration in regional/global value chains •e.g. improved collective capabilities through co-operatives Business environment •e.g. trade and tariff agreements, investment policy, tax policy Local firm Local firm Local firm •e.g. infrastructure, Technopolis Increased financial resources, knowledge transfer and ultimately higher added value products Sources: OECD ECP OECD Private Sector Development 22
  23. 23. Draft action plan on fostering the development of the garment industry in the context of global value chains INVESTMENT AND TRADE PROMOTION IN TEXTILE/GARMENT 1 Focus on areas of strength • • • 2 Decrease the number of actions in the strategic documents • By evaluating past industry development initiatives, including the “patent” system • By taking stock of the priorities of government and potential donors Focus on garment production • For textile production, rely on agricultural development and investment attraction Focus first on Russia, Kazakhstan and other CIS markets Enhance the capabilities of companies • • • 3 Focus on the development of technical skills Improve access to equipment through basic schemes Foster the creation of co-operatives Ensure that the Bishkek light industry Technopolis brings the expected results • • 4 Ensure that the planned project responds to actual business needs • Through a feasibility study Not only provide infrastructure, but also collective organisation Increase trade promotion and start sector-specific investment promotion • • Continue and scale up existing trade promotion efforts Start investment promotion for the sector OECD Private Sector Development 23
  24. 24. What are the next steps? OECD Private Sector Development 24
  25. 25. Next major step is the peer-review session of these results OECD Headquarters, Paris, 3-4 December 2013 2013 July Working level 2nd WG Meeting Work-in-progress Foreign experts invited 16-17 July, Bishkek Steering Committee level Meeting Follow-up on the Ministerial Update on the country work 17 July, Bishkek International level November 2014 December OECD reviewers’ visit and 3rd WG meeting Finalisation of the horizontal assessment Finalisation of the 3 targeted reform plans February Meeting Capacity-building workshops on « How » to implement the 3 targeted reform plans 12-14 November, Bishkek Meeting Endorsement of the 3 peerreviewed targeted reform plans Launch of 3 OECD Policy Handbooks Meeting Review and endorsement of the country work – horizontal assessment and 3 targeted reform plans 14 November, Bishkek Eurasia Comp. Roundtable Peer-review of the country work 3-4December, Paris OECD Private Sector Development 25
  26. 26. Key decisions 1. Approve the results of the assessment of policies for competitiveness in Kyrgyz Republic in: o o o Enhance public-private sector co-operation in the implementation of the national strategy for education Strengthen the legal and regulatory framework for access to finance and diversify sources of external finance Strengthen the institutional framework and implement targeted tools to promote investments and exports 2. Approve the targeted action plans for competitiveness reform o o o 3. Workplace training for agribusiness: framework and incentives, business ownership, matching, promotion of careers in agribusiness Warehouse receipts for agribusiness: partners, credibility, regulatory framework, investments Textile and garment: focused strategy, company capabilities, cluster creation, promotion of the sector Practical next steps o o December 2013: Kyrgyz Government delegation to come to Paris and discuss the results with OECD peer countries and other Eurasia countries February 2014: Capacity building events to further support implementation of the 3 targeted plans for reform OECD Private Sector Development 26
  27. 27. Background information OECD Private Sector Development 27
  28. 28. Each policy indicator is assigned a score ranging from 1 to 5 to measure the level of policy development The policy development path of each indicator is typically structured around the following lines: • Level 1: There is no framework (e.g. law, institution, project, initiative etc.) in place to cover the area concerned. • Level 2: There is a draft or pilot framework and there are some signs of government activity to address the area concerned. • Level 3: A solid framework is in place for this specific policy area. • Level 4: Level 3 + some concrete indications of effective policy implementation of the framework. • Level 5: Level 4 + some significant record of concrete and effective policy implementation of the framework. This level comes closest to good practices as identified by OECD standards. OECD Private Sector Development 28
  29. 29. Design of targeted reforms is on agribusiness and textile/garment since both sectors have strong potential for SMEs, FDI and exports growth How could the OECD Project help ? Agribusiness Garment / Textile REMINDER SMEs FDIs Exports Other barriers Access to Finance Human Capital Investment and trade promotion Energy Energy prices distortion ! Mining Limited impact on employment ! Tourism Infrastructures first ! Logistics Infrastructures first ! CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 29