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Kyrgyz Republic - Competitiveness recommendations
 

Kyrgyz Republic - Competitiveness recommendations

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OECD Eurasia Competitiveness Roundtable, 4 December 2013

OECD Eurasia Competitiveness Roundtable, 4 December 2013

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  • To provide a good basis for today’s discussion, I would like to quickly recall the situation of the Kyrgyz Republic regarding foreign direct investment and foreign trade.First, on FDI:The Kyrgyz Republic receives a comparatively small amount of FDI, with only 3% of the total FDI inflows into the Central Asia region. FDI inflows amounted to about 700 M USD in 2011, which remains small in comparison of neighbouring economies that have a sizeable oil and gas industry.Second, on international trade:The Kyrgyz Republic exported about 2.3bn USD of goods in 2011, and imported more than that, about 3.9bn USD. This leads to a current account deficit, which amounted to 600 M USD in 2011.It is to be noted that a large share of recent FDI inflows and a large share of exports are related to the exploitation of one large gold mine in Kumtor, which strongly impacts the data presented here.
  • This was the overall macroeconomic vision. Now, from a business perspective, there are a number of policies that affect FDI and exports, in particular for SMEs.On the one hand, there is a necessary institutional setting, and on the other hand there are specific tools that can be used.On the institutional side, the assessment run by our team looked at the overall investment and export strategy, the responsible agency and the monitoring and evaluation.Regarding tools: the implementation of 8 tools was assessed, including for example the creation of one stop shops centralising in one single place all government services necessary for foreign investors, or business linkage programmes, which aim to foster business between foreign firms and domestic SMEs.
  • [Volker may take the floor here]Now, what were the results of this assessment?As you may notice, the overall policy landscape is slightly less advanced on this dimension than on access to finance or skills development.Two specific tools have been implemented already: Free economic zones, with four economic zones already existing, and also structured public-private consultations with private investors.Most other classic tools, such as business linkage programmes or export promotion programmes, are still in a design phase.One key reason explains this situation: as you can see from indicator 3.1.2., there is no operational dedicated investment or export promotion agency. Today, the prerogatives of such an agency are with the Ministry of Economy.
  • This is why our first recommendation is to strengthen the investment and export promotion institutional framework.Concretely, this means approving the Export Development Strategy, which was drafted by the Ministry of Economy with the assistance of our colleagues from the International Trade Center and GIZ. Official endorsement of this strategy will clear the way for the creation of new institutions and the immediate implementation of specific promotion tools.This also means setting up an investment and export promotion agency. We are well aware that in the past, previous attempts to set up such specialised agencies in the Kyrgyz Republic proved unsuccessful. However, we are confident that lessons have been drawn and that such an agency can now be created ,based on international good practices.This is the first priority. However, more targeted activities can also be launched immediately. An example that I will develop in a minute is the implementation of specific programmes by industry, in order to help local companies liaise with international business partners.
  • To demonstrate how specific initiatives can help local companies connect to regional or global value chains, the OECD team selected the clothing industry as a pilot.Clothing production has existed in the Kyrgyz Republic since Soviet times. After independence, the inherited industry rapidly declined. However, since 2006, the industry has bounced back and now represents about 400 M USD in turnover and 200 000 jobs.The recent dynamic development was based a several comparative advantages, including an attractive cost of labour.
  • In a cost-driven and globalised industry, this cost advantage is an important starting point, but cannot guarantee sustainable development over the long term. For sustainable development, two improvements need to happen: local company have to become more competitive and they have to develop closer links with foreign clients, suppliers and investors.Becoming more competitive includes improving skills in the workforce, accessing better equipment, improving market knowledge, and creating collective organisations such as co-operatives to catalyse that evolution. It also necessitates an more favourable business environment.Improving business connections is necessary because the dynamics of the clothing sector are largely determined by large international buyers. To pay off, improved company capabilities need to translate into improved connections with foreign business partners, hence enabling local companies to specialise into higher-value products or higher-value tasks.
  • Based on the analysis of the clothing industry globally and on local specificities in the Kyrgyz Republic, a plan in four points is proposed.First, policymakers should focus their policies on the areas where the local industry has the most potential. People say ‘less is more’, and this really is the idea here. This means focusing on specific activities only, on regional export markets only and also simply reducing the number of industry development initiatives. In a context of scarce government resources, focus is key to ensure that the actions undertaken achieved the expected impact on the ground.Second, support should be provided for local companies to improve their capabilities. We recommend putting emphasis on technical skills development, basic schemes for access to equipment and most importantly on the creation of co-operatives to drive a collective modernisation effort.Third, and this is more specific to the local situation, there are plans to create a light industry technopolis near the capital city Bishkek. This would create a cluster gathering clothing SMEs of the region. This ambitious project has much potential to improve the competitiveness of local companies, and also to improve the lives of local employees, who often work in difficult conditions in unadapted premises. To make sure this project achieves the expected impact, an in-depth feasibility study should be run to ensure that the project is actually adapted to business needs. Also, on top of providing the appropriate infrastructure, this project should include the creation of a local industry organisation.Finally, industry promotion efforts should be enhanced. Promoting local companies and their products on foreign markets is already being done, with some success, and should be continued. In contrast, not much is currently being done to promote the Kyrgyz Republic to foreign investors in the clothing industry specifically. Specific activities could be started immediately and in the mid-term, as was already mentioned, the creation of an investment promotion agency is necessary.

Kyrgyz Republic - Competitiveness recommendations Kyrgyz Republic - Competitiveness recommendations Presentation Transcript

  • CENTRAL ASIA INITIATIVE INVESTMENT AND COMPETITIVENESS IN CENTRAL ASIA Focus on the Kyrgyz Republic Peer Review at OECD Eurasia Competitiveness Roundtable Paris, 4 December 2013 With the financial assistance of the European Union
  • 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 2
  • 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 1 Access to Finance for SMEs 2 Human capital development 3 Investment and trade promotion for SMEs B Action plans for 3 targeted competitiveness reforms  How to set up warehouse receipts financing for agricultural producers?  How to improve workplace training schemes in agribusiness ?  How to help textile and garment producers to move up the valuechain? 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 3
  • 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 4
  • 1 What are the major policy challenges in access to finance for SMEs in the Kyrgyz Republic and how to implement reforms? OECD Private Sector Development 5
  • Access to finance for SMEs in the Kyrgyz Republic - status quo analysis Access to finance for SMEs Key facts and figures • Domestic credit to private sector (% of GDP) Skills for private sector development 200 • 85.1% of loans in the Kyrgyz Republic require collateral 150 • The average amount of collateral required for a loan in the Kyrgyz Republic is 127.8% • Investment and export promotion 27.9% of firms identify access to finance as a major constraint to doing business Only 17.9% of firms use bank financing OECD average**, 15 7% 100 50 0 12.4% • Real interest rates for bank loans to agricultural sector averaged 15% from 2007 onwards • 43.8 % of loans from microfinance institutions and credit unions were given to agricultural producers in 2011 Loan portfolio of Kyrgyz financial institutions, 2011 30 Real interest rates for bank loans to agriculture Real interest rates for bank loans to agriculture % 20 Microfinance Institutions 31% 10 19.3 Annual avg. inflation 2.8 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -10 Credit Unions 3% Source : BEEPS, 2009, World Bank, National Bank of Kyrgyzstan Commercial Banks 66% CONFIDENTIAL Source: World Bank, 2013, World Development Indicators; National Bank of the Kyrgyz Republic statistics ** For the OECD average data for following countries was used: Australia, Canada, Chile, Czech Republic, Estonia, Hungary, Iceland, Israel, Italy, Japan, Mexico, Netherlands, New Zealand, Switzerland, United kingdom, United States – NOT FOR DISTRIBUTION OECD Private Sector Development 6
  • Access to finance for SMEs Assessment framework to evaluate access to finance for SMEs in the Kyrgyz Republic Access to finance Legal and regulatory framework • Collateral and provisioning requirements • Registration systems for moveable assets • Financial support services for start-ups (vouchers, grants) • Supply-chain financing instruments (warehouse receipts, contract farming, etc.) • Credit information services • Microfinance facilities • Laws and procedures on Investment and export promotion Other factors affecting demand and supply • Credit guarantee schemes • Cadastre Skills for private sector development Sources of external finance • Financial literacy • Credit unions distressed companies, receivership and bankruptcy • Creditor rights • Availability of risk capital (e.g. venture capital, private equity funds) • Leasing CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 7
  • Access to finance for SMEs Access to Finance for SMEs – Need to further strengthen the legal and regulatory framework and diversify sources of external finance 5 4 3 Investment and export promotion Skills for private sector development 2 1 0 1.1.5 Laws moveable assets 1.1.2 Collateral1.1.3provisioning requirements procedures on distressed companies, receivership andservices for start-ups (vouchers,Microfinance Facilities 1.1.1 Cadastre and Registration systems forand information services 1.1.4 Credit 1.1.6 Creditor rights1.2.3 Supply-chain financing instruments (warehouse receipts, contract 1.2.2 Financial support schemes 1.2.1 Credit guarantee 1.2.4 grants,Availability of Risk Capital (e.g. venture capital, private equity funds) 1.2.6 etc.) 1.2.5 Credit Unions 1.2.7 Leasing Financial literacy 1.3.1 bankruptcy farming, etc.) 1.1 Effective Regulatory Framework 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 8
  • Access to Finance for SMEs Initial recommendations Skills for private sector development Access to finance for SMEs Sub-dimension 1 Effective • • • • • regulatory Framework 2 Access to • • Investment and export promotion finance 3 Streamline procedures for registration of moveable assets Review current legislation on collateral and provisioning requirements Review impact of the law on usurious activities on the microfinance sector 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 9
  • Warehouse receipt financing can improve access to finance by facilitating the use of agricultural production as collateral Investment and export promotion Skills for private sector development Access to finance for SMEs WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS Warehouse receipt financing Agricultural supplier/ producer/ processor/ distributor/ trader Warehouse receipt Deposited goods Warehouse Warehouse receipt Loan Financial institution Examples of production used as collateral: seeds, fertilizers, grains, sugar, potatoes, processed fruits and vegetables Benefits to agricultural players • Allows the farmer to pledge movable assets and inventory to get financing for working capital, leaving the necessary fixed assets to pledge for long-term financing of capital expenditures and investments • Ensures increased access to working capital finance without having to sell crops at times of low prices, thus decreasing their exposure to price volatility Sector benefits • Increases transparency and efficiency in commodity markets • Reduces collateral and liquidity constraints • Encourages investment in warehouses and the development of the logistical network around warehouses CONFIDENTIAL – NOT FOR DISTRIBUTION Source: World Bank, FAO (2009), The use of warehouse receipt financing in agriculture in transition countries OECD Private Sector Development 10
  • Access to finance for SMEs Financial institution perspective: Potential risks to be mitigated Risk „Commodity” definition Skills for private sector development Legal title „Leakage” risk Investment and export promotion Storage conditions Information and liquidity Issue  Homogeneous goods, no individual labeling  Price transparency  The ownership rights must be secured by adequate legal solutions  Risk mitigation for potential frauds  Proper storage conditions to protect to value  Insurance against external risks (flood, fire, etc.)  Financial institution (bank, MFI) secured with necessary supervision CONFIDENTIAL – NOT to finance, Bishkek, November 2013 Source: Presentation from Marek Komorowski, OECD Working Group on Access FOR DISTRIBUTION OECD Private Sector Development 11
  • Draft action plan for the establishment of warehouse receipt financing in agriculture Investment and export promotion Skills for private sector development Access to finance for SMEs WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS 1 Set up a pilot project • • • • • Short term Define the scope of the pilot project by focusing on one or two products Identify reliable storage facilities and bulking sites at strategic locations Support the development of trade and distribution services in agricultural co-operatives Set up the agreements for financing in co-operation with banks Disseminate information about financing opportunities to farmers Scale up to national level: 2 Medium /Long term 3 Set up the regulatory framework • Develop technical standards for warehouses • Establish a warehouse certification agency and ensure compliance of warehouses to the standards • Streamline procedures for registration of moveable assets Ensure the credibility of the system • Build reliable systems for collection and dissemination of agricultural information • Support the development of a wider range of insurance products for agricultural sector • Establish an indemnity fund CONFIDENTIAL – NOT FOR DISTRIBUTION 4 Promote investments in the warehouse system • Promote investments in warehouse business • Consider building a warehouse/ logistical centre based on a publicprivate partnership OECD Private Sector Development 12
  • 2 What are the major policy challenges in skills development in the Kyrgyz Republic and how to implement reforms? CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 13
  • Skills for private sector development in the Kyrgyz Republic - status quo analysis Investment and export promotion Skills for private sector development Access to finance for SMEs Key facts and figures • Literacy rate among adult population in the Kyrgyz Republic is 99% for male and female population. For young people (15-24 years) literacy rate is 100% • 30.9% of employers in agriculture declare insufficient employees competence • 51.7% of the unemployed in 2011 had secondary education 25% Education spending (% of all government expenditure), 2009 20% 15% OECD average 11.6% 10% 5% Labour force by level of education, 2012 0% 5.7% 2.1% Higher education 18.8% 1.6% Unfinished higher education VET II Kyrgyzstan 30 Kazakhstan Tajikistan Mongolia Expenditure per student, tertiary (% of GDP per capita), avg 2007-2010 25 VET I 20 Secondary education 15 12.7% Primary education 49.0% OECD average, 2 6.4% 10 5 10.1% No education 0 Kyrgyz Republic Source : World Bank, National Statistical Committee, EU report on skills CONFIDENTIAL – NOT FOR DISTRIBUTION shortages in agriculture in the Kyrgyz Republic Kazakhstan Mongolia Tajikistan OECD Private Sector Development 14
  • Investment and export promotion Skills for private sector development Access to finance for SMEs Assessment framework to evaluate skills for private sector development in the Kyrgyz Republic Skills development Policy framework for business education Policy tools to promote skills for jobs • Consultative processes in the education • Skills gap analysis system • Workforce skills strategy: design and evidence • Work-related system of continuing education and training • Development of the VET system • Workplace training schemes • Responsiveness of the university system • Training quality assurance to business needs CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 15
  • Investment and export promotion 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 Skills for private sector development Access to finance for SMEs 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 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 16
  • Access to finance for SMEs Skills for private sector development Initial recommendations Sub-dimension 1 Education policy • Framework for • Skills for private sector development business needs Investment and export promotion Support the implementation of the national education strategy: 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 17
  • Access to finance for SMEs Workplace training is one type of public-private partnership in education that brings learning directly into the workplace and reduces the skills gap WORKPLACE TRAININGS IN AGRIBUSINESS REGULATORY FRAMEWORK FRAMEWORK TO: Service and contract Investment and export promotion Skills for private sector development Students Wage and training Training report Monitoring Firms (private players) Convention Educational institutions Feedback on CVs • 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 Despite being a relatively simple mechanism, the contract for workplace training and the regulatory framework are key aspects to consider CONFIDENTIAL – NOT FOR DISTRIBUTION • Provide internships which are relevant to the players and of high quality OECD Private Sector Development 18
  • 1 Investment and export promotion 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 Skills for private sector development Access to finance for SMEs Action plan for the establishment of workplace training schemes in WORKPLACE TRAININGS IN agribusiness AGRIBUSINESS 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 19
  • 3 What are the major policy challenges in investment and export promotion in the Kyrgyz Republic and how to implement reforms? CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 20
  • Iran, 1.16% China, 1.90% Uzbekistan, 2. 39% Tajikistan, 0.9 1% 6% 300 4% 200 United Arab Emirates, 17.9 9% Source : World Bank, National Statistical Committee, The Observatory of Economic 2% 100 0% 2011 2010 2009 2008 2007 2006 -100 2005 0 -2% Foreign direct investment, net inflows (% of GDP) 400 Foreign direct investment, net inflows (BoP, current US$) Foreign direct investment, net inflows (% of GDP) Other, 4.83% Current account balance of the Kyrgyz Republic (BoP, MLN current USD) Switzerland, 2 3.10% Kazakhstan, 1 0.21% France, 14.85 % 8% 500 Exports of the Kyrgyz Republic by destination, 2010 Turkey, 2.50% Investment and export promotion 10% 600 2004 • Gold represented 40% of exports from the Kyrgyz Republic in 2010, chemical elements 15% , petroleum oils 4% 700 2003 • Exports amounted to 2.3 billion USD and imports to 3.9 billion USD in 2011 12% 2002 • 46% of FDI inflows went to the manufacturing sector and 32% to the real estate sector 800 2001 • 89% of FDI inflows originated from CIS countries in 2012 Foreign direct investment in the Kyrgyz Republic 2000 Key facts and figures • FDI in the Kyrgyz Republic represents only 3% of the total net FDI inflows in the Central Asia region Foreign direct investment, net inflows (BoP, Million USD) Skills for private sector development Access to finance for SMEs Investment and export promotion (SME internationalisation) Status quo analysis Russia, 19.39 % 2005 2006 2007 2008 2009 2010 2011 2012 0 -200 -400 -600 -800 -1000 -1200 -1400 -1600 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 21
  • Investment and export promotion Skills for private sector development Access to finance for SMEs Assessment framework to evaluate investment and export promotion in the Kyrgyz Republic Investment and Export promotion Strategy and Institutions Investment and Export promotion tools • One Stop Shop services for investors • Aftercare services • Investment / export promotion strategy • Investment / export promotion agency • Monitoring and evaluation • Free economic zones • Business linkage programmes • Public-private consultations with investors • Export promotion programmes • Financial support • National export promotion events CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 22
  • 3.1 Investment and Export Promotion Strategy and Institutions 3.1.3 Monitoring and evaluation of the agency 3.1.2 Investment/Export Promotion Agency 3.1.1 Investment/Export Promotion Strategy Skills for private sector development 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 Investment and export promotion Access to finance for SMEs Investment and export promotion for SMEs – Need to strengthen the institutional framework for investment and export promotion 5 4 3 2 1 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 23
  • Access to finance for SMEs 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 Skills for private sector development institutions 2 Further develop investment and export promotion tools: Investment and export promotion 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 24
  • Production in the textile and garment sector doubled from 2009 to 2012 Apparel production (official) Miillion USD Skills for private sector development Access to finance for SMEs The Kyrgyz garment industry displays high potential 180 165 120 112 1.50 105 1.00 100 0.50 80 58 60 40 3.00 2.00 140 116 Estimated cost of labour in the garment industry1, 2010 2.50 142 55 2004 2005 0.00 27 20 0 2003 Investment and export promotion USD/hour 160 160 The Kyrgyz Republic enjoys a cost advantage 2006 2007 2008 2009 2010 2011 The actual garment production is estimated around USD 375bn (2010) Among countries benefitting from an attractive cost of labour, compared capabilities are key 1. Cost of labour estimates for the Kyrgyz Republic are preliminary calculations by the OECD ECP, based on ILO data. Cost estimates for other countries were compiled by the World Bank. Source: National Statistical Committee of the Kyrgyz Republic , USAID, WorldBank estimates, ILO, OECD ECP calculations CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 25
  • The challenge is to sustain the industry’s development in the long term Skills for private sector development Access to finance for SMEs 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 •e.g. improved collective capabilities through co-operatives Value-added business relationships, e.g. FOB contracts, long-term contracts, investment Increased integration in regional/global value chains Investment and export promotion 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 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 26
  • Access to finance for SMEs Draft action plan on fostering the development of the garment INVESTMENT AND TRADE PROMOTION IN industry in the context of global value chains TEXTILE/GARMENT 1 Focus on areas of strength • • Investment and export promotion Skills for private sector development • 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 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 27
  • What are the next steps? OECD Private Sector Development 28
  • 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 29
  • Background information OECD Private Sector Development 30
  • In the Kyrgyz Republic, 34 policy indicators have been assessed across 3 policy dimensions Skills development Access to finance Legal and regulatory framework Sources of external finance • Cadastre • • Collateral and provisioning requirements Credit guarantee schemes • Financial support services for startups (vouchers, grants) • • • • Registration systems for moveable assets • Credit information services Laws and procedures on distressed companies, rec eivership and bankruptcy Supply-chain financing instruments (warehouse receipts, contract farming, etc.) • Microfinance facilities • Credit unions • Leasing • Financial literacy Policy framework for business education Consultative processes in the education system • Workforce skills strategy: design and evidence • Development of the VET system • Responsivenes s of the university system to business needs • Skills gap analysis • Work-related system of continuing education and training • • Workplace training schemes Creditor rights Strategy and Institutions Investment and Export promotion tools • Investment / export promotion strategy • One Stop Shop services for investors • Aftercare services • Investment / export promotion agency • Free economic zones • Business linkage programmes • Public-private consultations with investors • Export promotion programmes • Financial support • • Policy tools to promote skills for jobs National export promotion events • Monitoring and evaluation Training quality assurance Availability of risk capital (e.g. venture capital, private equity funds) • Other factors affecting demand and supply Investment and Export promotion CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 31
  • 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. Example Indicator Credit guarantee schemes 1 No credit guarantee scheme in place. Level of Reform 3 2 Credit guarantee scheme facility under consideration. Credit guarantee facilities in place. (Government initiative and state controlled). CONFIDENTIAL – NOT FOR DISTRIBUTION 4 5 Credit guarantee facility operating under contract to the private sector but state-funded. Number of mutual or mixed credit guarantee schemes in place under private managers able to finance themselves out of fees alone. OECD Private Sector Development 32
  • 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 33