investment and competitiveness in tajikistan

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

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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


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


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


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


OECD Eurasia Competitiveness Roundtable, Paris, 4 December 2013 Tajikistan agreed to be next to be peer reviewed, in November 2014


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


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


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?


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

SME

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Share of Tajikistan’s

GDP


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 Mongolia0%

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%*

SME

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Share of Tajikistan’s GDP


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.

SME

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Policy instruments can help leverage migrants’ financial and knowledge resources


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

SME

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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

1,400,0001998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

co

nsta

nt

20

00

so

mo

ni

Net value of agricultural production

24%

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Share in GDP Share in employment

SME

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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)

SME

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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

SME

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Project Steering Group Private 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


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


Roles and responsibilities for the Steering Group and Working Group members


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

CO

UN

TRY

LEV

EL

2 Working Groups (one for

each area)


REG

ION

AL

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


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


Annex Examples of action plans in the Kyrgyz Republic


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

OECD Private Sector Development 23 CONFIDENTIAL – 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


Action plan for the establishment of workplace training schemes in agribusiness

Strengthen the legislative framework and set incentives 1

Ensure the engagement and ownership of the private sector 2

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 places 3

• 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 agribusiness 4

• Adjust educational institutions’ curricula based on recommendations of agricultural firms • Market agribusiness as an attractive career option for students

WORKPLACE TRAININGS IN AGRIBUSINESS


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


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



Draft action plan for the establishment of warehouse receipt financing in agriculture

Identify and engage partners 1

Put in place elements to ensure the credibility of the scheme 2

Set up the legal and regulatory framework 3

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 system 4

• Build a warehouse/logistical centre based on a public-private partnership


investment and competitiveness in tajikistan

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