Report No. 38637-TJ Republic of Tajikistan Private Sector Development Strategy Prepared in Collaborationwith The Government of Tajikistanand The Donor Coordination Council April 9,2007 Private andFinancial SectorDevelopmentUnit Europe and Central Asia Region Document of the World Bank CURRENCYAND EQUIVALENTS UNITS (Exchange Rate EffectiveJanuary 2007) CurrencyUnit = TajikistanSomoni(TJS) TJS 1.00 = US$0.2957 US$ 1.00 = TJS 3.38 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1to December 31 ABBREVIATIONS AND ACRONYMS BEEPS BusinessEnvironment and EnterprisePerformance Survey DCC Donor CoordinationCouncil FDI Foreign Direct Investment IFC-FIAS InternationalFinanceCorporation- Foreign InvestmentAdvisory Service MEP Monitoring and EvaluationPanel MET Ministry of Economy and Trade MIGA MultilateralInvestmentGuarantee Agency OECD Organisation for Economic Co-operation and Development PDPC Programmatic Development Policy Credit PPIAF Public Private Infrastructure Assistance Facility PRS Poverty Reduction Strategy PRSP PovertyReduction StrategyPaper PSD Private SectorDevelopment SCIPM State Committeeon Investment and Property Management SIG StrategyImplementationGroup USAID United States Agency for International Development WTO World Trade Organization Vice President: ShigeoKatsu CountryDirector: AnnetteDixon SectorDirector: Fernando Montes-Negret SectorManager: Gerardo Corrochano ACKNOWLEDGEMENTS This Private Sector Development(PSD) Strategyhas been prepared by the World Bank, at the request of the Governmentof Tajikistan, in coordination and close consultationwith the Ministry of Economic Development and Trade and the members of the Donor Coordination Council, which represents the bilateral and multilateral developmentinstitutionsactive in the country. This Strategy,based on the findings of severalmissions to Tajikistanbetween April 2005 and November 2006, is an integral part of the Government's PRSP and congruent with many of the donor programs on PSD in the country. Many elements of the study have already enteredthe policy dialoguebetween the DCC and the Governmentof Tajikistan. This paper is intended to facilitate furtherprogress in this dialogue and to allow broader disseminationwithin the country and donor community. The principal author of the report was SudheeR. Sen Gupta, with input and guidancefrom GaryJ. Fine (task team leader). Contributions were received fiom Neil Spooner(DFID), the MIGA-FIAS project on Investment.Climateand the European Delegation. Additional comment and guidancewas provided by Sudharshan Canagarajah, Cevdet Denizer, Mehmet Gokay, Aziz Haiderov, Jariya Hoffman, Firuz Kataev, Ramin Shojai,Mehrnaz Teyrnourian,Utkir Umarov, Gokhan Akinci (IFC), AndreaMario Dall'Olio (IFC PEP), Ruth Andreyeva (DFID), Neeraj Jain (ADB) and others. Administrative support was provided by Veronika Grushevskaya and Zenaida Kalinger. The team wishes to thank the Government of Tajikistan for constructive discussions during and after the various missions, as well as comments provided on the various drafts of the report. The team is particularlygrateful for the inputs provided dtuing the process by NemadjonBuriev, Senior Adviser to the President on Economic Policy, Marouf Safiev, First Deputy, State Committee for Investment and Property Management (SCIPM), Isroel Nasirov, Directorof Privatization, SCIPM and others in Government. The team is also grateful for helpful comments and guidance from the peer reviewers, Qimiao Fan and Pedro Rodriguez. Finally, the report benefited enormously fiom the active participationand advice of Cevdet Denizer, World Bank Country Manager for Tajikistan. Table of Contents Executive Summary............................................................................................................ v I. Background................................................................................................................. 1 I1. Conceptual Framework And Prioritization................................................................. 3 111. The Strategy............................................................................................................4 IV. ReducingRisk for Entrepreneurs............................................................................5 And Investors ...................................................................................................................... 5 A. MakingProperty and Use Rights more Secure...................................................5 B. Making Contracts more Enforceable.................................................................6 C. Reducing the risk of non-renewal of licenses.....................................................9 D. ProvidingAccess to Information on Laws and Regulations.............................10 V. Removing Barriers That Prevent Entry.....................................................................11 A. Reducingthe Barrier of Licenses,Permits and other Approvals......................11 B. Simplifying BusinessRegistration and Removing Official Discretion............ 14 VI. Reducing Cost And Improving The Environment For Business.......................... 17 A. ProvidingRecourse........................................................................................... 17 B. EliminatingUnnecessary Inspections...............................................................18 C. Rationalizing Standards and Certification........................................................20 D. ProvidingQuick and Simple Customs Clearance.............................................21 E. Enabling Reasonable Access to Credit ............................................................. 23 F. Simplifying the Tax System.............................................................................. 27 . . G. MakingBusinessExit Reasonableand Easy.................................................... 28 VII. SupportingPrivate SectorTo Increase Productivity And Human Capacity To Drive Growth .................................................................................................................... 31 A. Facilitating Access to Markets.......................................................................... 32 B. Making Business Services Available................................................................ 32 Business Services Center..........................................................................................32 C. Transport and Cornrnunications........................................................................33 D. Visa Regime......................................................................................................34 E. EnterpriseSupport ........................................................................................... 35 F. FacilitatingForeignDirect Investment .............................................................37 G. Education and Tramng..................................................................................... . . 39 H. Making Available a Well-Trained Work Force................................................40 I. Addressing Sector-Specific Issues to Support Growth.....................................41 VIII. Making The Institutional ArrangementsFor Implementation..............................47 The SteeringCommittee......................................................................................47 The PSD Strategy ImplementationAgency..........................................................48 Monitoring and Evaluation Panel .........................................................................50 ANNEXes ......................................................................................................................... 51 EXECUTIVE SUMMARY Introduction A well-functioningcompetitiveenvironment is essentialto encouraging investment to propel private sector development,job growth essential and poverty alleviation. Whetherthey are local entrepreneursinvesting smallsums in micro, small and medium-sized companies,or foreign investorsinvestingmore significantsums, they require a business climatethat providesan effective and impartial legal framework and judicial regime, is not characterized by excessivegovernment interferencethat raises their costs of doing business and increasestheir risk, and one that provides open access to information, so necessary for effective decision-making. With so many potentialinvestment locations available, countriesmust act to createa well function and effectivebusiness environment. Investorsmust have the confidencethat their property rights are protected and that they are free from harassment fiom rent-seekingbureaucratsand predatory behavior fiom larger, more well-connected businesses that would impede the growth of theirbusinesses. Despite Tajikistan's significant and consistent economic growth in recent years and its progress in various areas of economic reform (suchas the privatizationof most state-owned enterprises), investmentrates, including foreign direct investment (FDI), have averaged only four percent of GDP between 2001 and 2004, despite the introduction of tax breaks, incentives for technologicalupgradesof production lines and full hard currency convertibility, and the private sector accounts for only about 50 percent of GDP private sector investment. In Tajikistan, the private sector faces an arrayof issues that hamper their growth. Legal and regulatory barriers often stiflethe establishmentand development of new firms and constrain enterprise accessto finance, while rent-seekingbureaucrats drain entrepreneur's time and resources, businesses lack effective accessto due process and entrepreneurs lack accessto business services and training opportunitiesfor workers. The country's weak institutionsand poor governancedo not provide an environment conduciveto domestic and foreignprivate investment or efficient public servicedelivery, and weak public administrationand the undeveloped financial sectorhamper the nurturing of an investmentclimateneeded for private sector development. Recognizing these constraintson private sectordevelopment-particularly on the developmentof small and medium enterprises-and the need to address these issues as part of its poverty reduction strategy,the Government has indicatedits intentionto develop a comprehensive strategyfor private sector development. The recommendations set out throughout this report are intendedto provide the Government with the key actions it will need to implement to makethe strategy a success. Many of these actions- suchas eliminatingrestrictionson the term of licenses and reducing the number of licensesto 65 -can be accomplished in lessthan a year and should show rapid results, thus demonstratingthe Government's credibility in conductingreforms and strengthening business and investor confidence that improvementsin investment climate are now a reality. To sustain economic growthover the medium and long-term,Tajikistanwill clearlyneed to attractinvestment and further diversify its economy. Realizingthis potential, however, will require significant improvementsits investment climate, not only the continued modernization of it legal and regulatory framework,but the institutional capacity to implement the reforms they were intended to realize. Otherwise, the private sector in Tajikistanwill continueto have to cope with an unclear and overly cumbersome regulatory and institutionalhimework that stifles competition,increases the cost and risk of doing business, and discouragesinnovation and risk taking. Background Tajikistan has made several advancesin the developmentof its private sector. Privatization of small enterpriseshas been completed, while divestitureof medium and large enterprisesis ongoing. More than half of state and collective farmshave been dismantled and land certificatesissued to private farmers. In spite of these advances, however, the stateremainsintricately involved in a wide range of commercial and productive activities, which continues to hinder the development of competitivemarkets. The delivery of public services,including social and economicservices, remains inadequate for longterm growth and poverty reduction. As part of its PovertyReduction Strategy (PRS), the Governmentwishes to develop a comprehensive strategyfor private sector development, and the donor communityin Tajikistan is assisting the Government in this. The donorshave reached the conclusion that unless they have a coordinated and well orchestrated approach to their assistance to the country, the utilization of valuable aid resourcesmight be less than optimal. Thus a donor coordinationcouncil has been formed and this council is assisting the Governmentin developing its PRS in a concerted manner. The donor coordination council, in connection with the PRS, is also assistingthe Government in developingits strategy for Private SectorDevelopment (PSD). This document is the outcomeof this coordinated effort. As a first steptowards developing the PSD strategy,the donor council agreed with the government on a conceptual framework for the PSD strategy. This document outlines the rationale for the specific goals set for each element and the actions needed in order to reach those goals. Conceptual Framework and Prioritization The key impediments to investment, business development and growth in Tajikistanare risk, barriers to entry and the cost of dealingwith goverment. It is useful to look at these problemsin the contextof the following simplifiedconceptual rationale for selectingand prioritizing solution options. Investors and entrepreneursworry about the factors that are not within the control of the finn. Of the factors that are not within the controlof the firm, some are purely commercial but somecan be determined or controlledby Government policies, laws, regulations and administrativeprocedures. Thus one key objectiveof the Government's strategy for private sector development should be to focus on those risks and costs that are under the control of Government and specificallythose policies, laws, regulations and administrative procedures that result in the greatest risk, pose the greatest barrier to entry or to cost of dealingwith Government,for the firm and thus are the greatest impedimentto investment and private sector development. Risk It is the unknown or the unforeseen in Tajikistan that dissuades investors and entrepreneursthe most. Thus the elements of the investmentclimate in the country, under director indirect control of the Government, whichpose the greatest risk (uncertainty)for the investor or entrepreneur are the ones that need the highest priority attention fiom policy makers and the administration. Barriers to Entry. A key issuethat businesses face is the barriers that mightprevent their entry. Thesebarriersmay in particular obstruct small,medium-sized or largebusiness and can include issues such as licensing,complexity,predatory behavior by competition or government, and cost that might dissuade an entrepreneuror potential investor. Cost of dealing with Government. Once abusiness is underway or an investment has been made, most Tajik businesspeople try to cope with or make adjustmentsto tackle the higher cost or difficultyin doing business resulting fiom governmentpolicies and actions,as long as these are somewhat known and do not make the business unprofitable or unviable. There is now, however, a considerablebody of evidence that also shows that the lower the cost of dealing with government and the greater the ease of doing business, the higher the growth rate for the economy. Ongoing supportfor the Private Sector. Once the constraintsin the investmentclimate and the environmentfor doingbusiness have been addressed,in the longterm the Government should consider additionalways to supportthe private sector to drive growth through programs that would facilitate foreign investmentas well access for Tajik forms to foreignmarkets and also help to developlocal capacity for business services, education and training. The Strategy While the Governmentcannotcontrol commercialrisk or costs of a business, the Governmentcan take actionto modulate and deploy its policy legal, regulatory, administrativeand institutional b e w o r k for implementingsuch a strategy. Thusthe Government's private sector development strategyneeds to be comprised of four elements: Reducing risk and uncertainty for the potential investor or entrepreneur; Removing barriers that actuallyprevent entry; Reducing the cost of doingbusiness in Tajikistan, including entry and exit costs; and Over the long tenn, supportingthe private sector to increase productivity and human capacity to drive growth. The strategy alsoneeds to include arrangementsto monitor and communicate progress in implementingthe strategy In the short term (up to three years), the Government's primary focus needs to be on the first three elementsof its strategy, namely reducing risk, removing barriers that actuallyprevent entry and reducing the cost and difficulty of doing business, while not neglectingthe fourth. The short term tasks and actions are congruentwith those in the PRS. In the medium term (up to six years), the Governmentneeds to completetasks which take longer to complete (e.g.,judicial reform) and should not detract from implementing short term tasks, which should be the priority for the first few years. As the first three elements of its strategy begin to have an impact, the Government needs to increase quickly its focus and emphasis on the second two elements, specificallyM e r reducing the cost of doing business and making the business environment more conduciveto growth. In the long term (up to nine years), the Government can devote more resources to supportingthe private sector to improveproductivity and human capacityto encourage economic growth. The followingis a brief review of the strategicgoals that the Governmentneeds to set for itself and the tasks the Government ought to undertake to strengthenits legal, regulatory, administrativeand institutional framework in order to achieve these goals. The specific actionsthat the Government is taking or plans to take are contained in the body of the report and in the matrix in Annex I, which is the PRSP matrix forPSD, and in Annex 11,the timetable for implementation. Reducing Risk for Entrepreneurs and Investors There is a need for the Governmentto put in place policies, laws and regulations that will reduce the risks of operations, thereby helping to make the business climate more stable and attractive. Of all the risks that entrepreneurs and investorsperceive in developing countries, risks to the securityof property rights -including the right to use property as owners see viii fit-are perhaps the most serious. Country-level studiesconsistentlyshow that less secure property rights are correlatedwith lower aggregate investment and slower economic growth. InTajikistan,the constitution guaranteesprotection against expropriation except in the national interest and then only with proper compensation. In practice, however, owners can be arbitrarilydispossessed, and registration of property in Tajikistanis archaic and ofteninaccessible. Property rights protection also depends on an objective,independent and efficient judicial system, as does the ability to enforce contracts. While a comprehensiveprogram ofjudicial reform is needed in the long run, in the short run small fixesin thejudicial system-such as separatingcommercial cases from more complex criminal cases, increasingjudges' salaries,randomly assigningjudges to cases-can go a long way to improve contract enforcement, as can the implementationof an alternativedispute resolutionregime, which can operate outside the formaljudicial system. Securityof a licenseto conduct a business activity is akin to the issue of the security of property rights. In Tajikistanthis issue is further aggravatedwhen a license is granted for a shortperiod of time (threeto five years), or when the renewal process for licenses is not transparentand provides the opportunityfor rent-seekingbehavior. These concerns all contributeto greater businessrisk and thereby lower levels of investment. Measures that would contributeto reducing the risks of enterprise operations include: Makingproperty and use rights more secure by implementing the constitution and enacting legislation (including the StateLand code)to ensure against seizure, expropriation,and loss of use rights due to 'improper usage'; preventing forced relocation withoutjust compensation;and modernizing the property title and collateral registration systems; Making contracts more enforceableby strengtheninglaws pertaining to contract enforcement, instituting the means for full disclosure of court decisions, developingstandardizedlegal contracts,introducing out of court arbitration and, as a first step towardsjudicial reform, formulateand approve ajudicial reform pro&ram; Reducing the risk of non-renewal of licensesby making legislative changes removing restrictions on license durationwhile ensuringtransparency and due process; Providing access to information on laws and regulationsby enforcinglaws on public announcementsof draft legislationand simplifyingpublic access,through databases and websites. Removing Barriers that Prevent Entry In addition to excessivebut controllablerisks are potentialbarriers in Tajikistan that could prevent entry of new businesses. Thesecould range from excessivecost and complicationto predatorybehavior which prevents entry or forces exit, and to sector and natural resource laws and codesthat prevent entry. Some of these issues are embedded in the political economy and difficult to address while others, such as registration, are less complex and can be handled more expeditiously. Recent research using objective measures of business regulationsin 135countries has established that countrieswith better regulations grow faster.' By not grantinga license,permit or other approval, governmentscan prevent entry of new enterprises. Sometimesthis could be for legitimate reasons to protect the public interest but often it has the potential of being an instrument for inappropriate activities notjust by government officialsbut the private sector. Accordingto the 2005 BEEPSsurvey, at least 22 percent of enterprisesin Tajikistan must make unofficial payments to receive a license,and anecdotal evidence indicatesthat the figure is likelyto be much higher. Even more insidiousis the situation when entrenched or vested interests co-opt a government agency or department and use licensing as a means to keep out potential competition. In recent years, Tajikistanhas made significant progress in reforming its licensing regime. Until recently, there were 32 types and 1,000subtypesof business activitiesthat required licenses in Tajikistan. These were set forth in 43 laws and 41 normative acts. A new licensing adopted in 2005 and later amended2to reduce fiuther the number of activitiessubject to licensingto 65 and to streamlinethe procedures. Despite this progress, new businesses still face numerous difficultiesin obtaining licenses, including the lack of comprehensive and reliable information on the applicationprocess and criteria for approval, the need for multiple licenses, longprocessing times and the high cost of licenses(including unofficial payments). The procedures to register a companyneed to be simple and inexpensive, and shouldnot be subject to the decisions of officials, which would turn it into a licensing process rather than simpleregistration. Recent worldwide experience showsthat where it is easyto register a business, more new businesses register. In Tajikistan, a new law on companyregistration was adopted in 2003 but only partially implementedto date, in part because the main goal of the law - standardizingprocedures and forms and creating a "one-stop shop" for registration-requiresclarificationof institutional roles and tasks. Companyestablishment in Tajikistan is costlyand involvesseparate registration with at least five stateinstitutions. At least 12steps should be completedby businesses to go through the registration process. The Government should aim to increasebusiness registrations by 25 percent through the implementationof the tasks set forth below: Improving flom the worstquartileof business regulationsto the best implies a2.3 percentage point increase in annualgrowth. Growth and Regulation,WorldBank,March 17,2006. Legislationwas amendedwith support of the WorldBank under PDPC 1, and implementationofthis new legal and regulatory fiameworkis being supportedby technical assistancefromWorld Bank Group units including the InternationalFinance Corporation(IFC),IFC Private Enterprise Partnership(PEP),Foreign InvestmentAdvisory Service(IFC-FLAS)and the Multilateral InvestmentGuaranteeAgency (MIGA). Improving the regimesfor licensingby removing any upper limits to the term of a license; amendingother laws and regulationsto be compliant with the amended licensinglaw, pennits and other approvals; strengtheningregulations for the amended competitionlaw to prevent predatorybehavior as well as to build the institutional capacityof the Anti-MonopolyAgency; andproviding a recourse mechanisms for businesses and individualswith grievances. Employing these measures, the Government should adopt the following targets for improvingthe licensingregime: > reduce licensesto no more than 65, > reducethe number of days to obtain a licenseto under 100, > reducethe number of procedures to under 10, reduce the period of issuanceto not less than five years, and > reducethe cost to under 100percent of per capita income. SimplzfLing business registration by removing officialdiscretion fhm the registration process, limitingminimum capital requirements and setting a maximum number of days for completion of the registration process; and by implementinga 'single window' business registrationprocess utilizing standardizeddocuments. Employing these measures, the.Governmentshould adopt the following targets for improving registration: 9 reduceregistrationcoststounder 50percent ofper capitaGDP, P reduce the number of days to registerto under 20, 9 reducethe numberofprocedures to under 10,and 9 improveitsrankingofeaseof startingabusinesstounder30. Reducing Cost and Improvingthe EnvironmentforBusiness Recent research, using objectivemeasures of business regulations in 135 countries, shows that in general countrieswith better regulations grow faster. Improving fiom the worst quartileof business regulations to the best implies a 2.3 percentagepoint increase in annual growth3. Taken together, the recommended actions in this section are intendedto reduce the time enterprise management spends dealing with the Government. The Government's goals in this regard shouldbe to reduce this to less than four percent of management time, and bring the country's ease of business ranking to under 100. In Tajikistan, action in the following areaswould contribute to the development of a more efficient environment for business: Based on worldwideaverages. Growth and Regulation. The World Bank March 17,2006. Providing legal recourse. It is important for business to have an avenuefor appeal and recourse of decisionsby courtsand officials, or to complain about incorrect or poor treatment. In a 2005 BEEPS study, however, nearly 15percent of Tajik firms interviewed said that they are never able to do this, and informal anecdotal evidenceseemsto suggestthat the number couldbe much higher. The Government should aim to reduce the percentage of firms statinglack of recourse to under five percent. In the short term, an AdministrativeCouncil to hear small cases and an ombudsman's office focusingon largecases should be set up, and in the longer term the Governmentwill need to undertake a comprehensiveprogram of systematic regulatory reform to reduce or eliminate unnecessaryregulations. Simplzfiing the tax system. The burden of a tax systemisnot just in the taxation rate but also in the complexity of the filing and the number of taxes that a business pays. The more complex and numerous the tax system, the higher is the rate of evasion and escape into informality.In Tajikistan, simplifying the tax system-by amendingthe tax code to reducethe number of taxes being paid and the time it takes to prepare, file and pay taxes-can significantlyincrease tax collectionsand fiscal revenue generation. Eliminating unnecessary inspections. Currently,the inspectionregime in Tajikistan reflects an uncertain and nontransparentprocess that can often result in arbitrary suspensionor closure of business. Tajikistan's businesses are subject on averageto 12inspectionsper year.4 Firms are inspectedfor a single issueby multiple agencies,and multiple inspectionsby a single agency are also common. The Governmenthas established new rules and procedures for inspections through a new law on inspections and amendmentsto the tax code, and has indicated it will adopt the necessary regulatory framework to implement the new law on inspections. The Governmentshould aim to reducethese to no more than two per year. Rationalizingproduct standards and certification. Compulsory certificationin Tajikistan creates trade barriers and discourages foreign companiesand investors while placing a largeburden on local small and medium-sized enterprises. The Government's two-fold objectiveto reform the standardizationand certification process includesthe reform of the legalbasis for certificationand the agency (TajikStandard) tasked to oversee it, with the goal of reducing the number of goods for which import or export certificationis needed by 75 percent. Providing quick and simple customs clearance. New trade researchSbased on the data provided from theDoing Business 2006 report findsthat on average worldwide, each day of customsdelays reduces a country's export volumes by BEEPS 2005. Trading on Time, Djankov,Freund and Pham, January 2006. xii about one percent. In Tajikistan,it takes 72 days to process export documents and 44 days to process import documents, in a landlocked remote country where distancesto market and the cost to export and import are already quite high. Needed actions includethe reform of the customs code and reducing the tariff bands, and by introducing electronicfiling, which reduces the opportunity for rent-seeking behavior. Enabling reasonable access tofinance. Enterprisesrequire access to credit for various aspects of their operations, fkom short-term seasonaloperating requirementsto long-terminvestment in productive assets. Tajikistan needs to create a financialsector that is able to function as financialintermediary, attractingprivate savings and meeting the financialneeds of private domestic enterprises. Of particular importance to enterpriseaccess to credit is the strengtheningof the mortgage and collateral laws and establishing a nationwide credit information system. Making business exit reasonable and easy. Productivityof the private sector will grow if less productive and less efficient firms are continuously replaced by more productive and more efficient firms. If less productive firms continue to linger the overall productivity of the private sectorwill be lower. Making the bankruptcy process more efficient and equitable can significantly improvethe resolution of financialdistress. For a start,this can be approached by amending bankruptcy laws and providing training for bankruptcyjudges, and in the long term by setting up bankruptcy courts or sections. Supporting Private Sectorto Increase Productivity and Human Capacity Development Once the investment climateand the environment for doingbusiness have been sufficientlystrengthened,the Governmentmight wish to provide selected non- distortionarysupport to the business environment to drive growth. In a country like Tajikistan, where markets and market access are insufficientlydeveloped, a number of interventionssuch as the followingmight be considered. Taken together, the measures set forth should have as their goal the increase of the private sector contribution to GDP by 10percent. Facilitating access to markets. With trade liberalizationand impendingWTO accession,the local SME cannot surviveunless it is competitive, and this requires increased productivityand minimum economiesof scale. For this to happen, the Government must focus on (i) improvementsin transport and communications,in particular through reform of the aviation sector and investment in the telecommunications sector; (ii) making the customs and visa regimes more efficient and enterprisesupport for outreach to external firms; and (iii) initiating a range of enterprise supportinterventions,such as brokeringactivities, vendor support schemes and facilitatingpartnering relationshipswith foreign firms. ... Xlll Facilitatingforeign direct investment (FDI). Despite the availabilityof natural resources for export, an optimal FDI strategy for Tajikistan would not solely focus on the natural resource sectorsbut would target a broader spectrumof industry and sectors,which may be more beneficial for a countryin creating a more broadly based and more sustainablepattern of investments that could create more employment and growth. In its early stages, such a program would focus on two key steps,making the necessary institutional arrangementsto facilitate FDI and conductingan awareness campaign to target countries kom which FDI might be most promising. Business support services. In addition to lawyers and accountants, businesses need several other services in order to operate effectivelyand be more productive. These services could include servicessuch as product and market creation, sales and marketing development,advertisingservicesand many others. By helping to create both the demand for these services as well as the supply, possible through a matchinggrant scheme and the creation of business service centers, a vibrant business servicesmarket could emerge to help supportthe growth and development of the SMEs. Education and training. For Tajik enterprisesto be competitiveand to grow, there needs to be availablea well-trained work force. Development of training courses, curricula and programs requires extensiveconsultation with the private sector to assessthe needs of the sector. Vocational training centersmight be establishedin existing educational facilities,with each center having its own placement service,with a centralized clearinghouse and database in Dushanbe. Institutional Arrangements The institutionalarrangementsfor implementingthese actions need to include a high-level steering committee to overseethe implementation of the PSD Strategyand the development of capacity at the StateCommittee on Investment and Property Management as the implementingunit for the PSD strategy. The Donor Council in conjunction with the steeringcommittee will set up a monitoring and evaluationunit which will provide periodic reportsto the Donor Council and the steering committee on progress and emerging issues if any, and if any change is needed in the strategy. xiv I. BACKGROUND 1. Tajikistan is a small economy in Central Asia with 6.7 million inhabitants and a per capita income of US$310. The economy, which has been growing on average at 10 percent during 2001to 2004, dependsheavily on exports of cotton, aluminum and hydroelectricity,and on growing remittancesof migrants to Russia conservatively estimated at 25 to 40 percent of GDP. Poverty, although decliningsteadily, remains very high. In 2003, the headcount was 64 percent using purchasing power parity poverty line of USs2.15. 2. After independencefrom the USSR in 1991,Tajikistan suffered a prolonged civil war through mid 1997,when it was resolved with a peace accord. A long period of political stabilizationand consolidation followed. It was not until 2005 that parliamentary electionsreturned Tajikistan's first non-coalition government since the end of the hostilities and the United Nations graduatedTajikistan from post-conflict status. 3. The extended political consolidation did, however, complicate key elements of the economic transitionagenda. As such, Tajikistan has made little progress in transforming its public sector from a centralplanning and state production apparatus into an instrument for encouragingprivate investment in human, social and physical capital. Economic growth acceleratedto 10.2percent in 2001 and has averaged 7 percent through 2005. This growth reflects recovery in capacityutilization,primarily in agriculture,favorable world prices of cotton and aluminum, strong growth in Russia and other trading partners and increasingremittances from Tajik migrants, mainly from Russia. 4. Despitethis growth, investmentrates, including foreigndirect investment (FDI), have averaged only four percent of GDP between 2001 and 2004, despite the introduction of tax breaks,,incentives for technological upgrades of production lines and full hard currencyconvertibility, and the private sector accounts for only about 50 percent of GDP. Concerned about the current vulnerabilityof Tajikistan's economyto a change in external conditions,the Governmenthas outlined a comprehensiveprogram of structural and institutional reform aimed at sustaining growth and reducing poverty. This program, which is being incorporated into the upcoming second PRSP, centers on (a)public sector management reform; (b) development of private sectorand attractinginvestments;and (c) developmentof human potential. 5. The countryis rich in natural resources, sigmficantlywater, hydropower and some minerals, including gold, silver, precious stones and uranium. These resources provide great potential for virtually all sectorsof the economy. Cotton and aluminum, traditional sectorsof the Tajik economy, provided 80percent of total export earnings in 2004. Yet their contribution to total output has sincedeclined steadily, due to the increasingcost of business in these sectorsas well as fUrther diversification of the economy, includinga growing textiles and servicessector (the latter equaling 41.9 percent of GDP in 2005 compared to 33.7percent in 2000). 6. Remittances. Tajikistan also has a high level of out migration, estimated as high as 1.2 million people. Thesemigrants remit a significantportion of their incomeback to families in Tajikistan, in the aggregate accounting for as much as 12.0percent of GDP accordingto Government estimates, with other estimates significantlyhigher. While remittanceshave contributedto short-term economicgrowth and poverty alleviation through increased domestic demand, their contribution to longer term growth through investmentin productive activitiesis limited in large part by the unfavorable business environmentthat constrainsthe development of micro enterprises and SMEs. A recent World Bank report6recommended a set of policies aimed at optimizing the long term impact of remittancesby improving the investment climate and by strengtheningthe role of financial intermediaries for mobilizingsavings and investment. 7. Privatization. Tajikistan has been successful in transferring most of its state- ownedbusiness, a legacy of the previousregime, to private hands, Privatization of small enterpriseshas been completed, while divestitureof most medium and large enterprisesis expected before the end of 2007.~More than half of state and collective farms have been dismantled and land certificates issued to private farmers.' In spite of these advances, however, the state remains intricately involved in awide range of commercial and productiveactivities,which continues to hinder the development of competitive markets. Formal fmancial intermediationremains very low and the accumulated cotton farm debt is also impedingthe efficient allocation of resources for productive activity. Finally, the deliveryof public services, including social and economic services,remains inadequate for long term growth and poverty reduction. 8. Development of this PSD strategy. As part of its.poverty reduction strategy, the Government wishes to develop a comprehensivestrategyfor private sector development. The donor community in Tajikistanis assisting the Government in this effort. The donors have reached the conclusion, however, that unless there is a coordinatedand well- orchestrated approach to their assistance to the country,the utilization of valuable aid resources might become less than optimal. 9. Thus a donor coordinationcouncil has been formed, and this council is assisting the Government in developingthe PRS in a concertedmanner. As part of this PRS, the donor coordinationcouncil is also assisting the Governmentin developing its strategyfor private sector development. This document is the outcome of this coordinatedeffort. 10. As a first step towards developingthe PSD strategy,the Donor Council agreed with the Government on a conceptual framework for the PSD strategy. This involved prioritization not only of the different elementsof its strategy but also of the specific actionswithin each element. Upon settingup the criteria for prioritizing actions, the document outlines the rationale for the specificgoals set for each element and the actions needed in order to reach those goals. TajikistanPolicy Note: Enhancing the DevelopmentImpact of Remittances; WorldBank,2006. 7Medium and large scale enterprisesare stillbeing privatized. Enterpriseshave been groupedinto three categories. Category one covers 449 mediumand large enterprisesto be privatizedthrough auction; categorytwo covers a further 102 large enterprisesto be privatizedthroughtender procedures, and category three covers 37 strategic infrastructureand other enterprises.Those in the first and secondcategoriesare expectedtobe fully privatizedby end2007. Restructuringplans have beenprepared for the third group, but in order to attractprivate participationin these strategicenterprises these plans need to be improved. 8TheWorld Bank has supportedthe pilotrestructuringof several state and collective farms. 11.CONCEPTUALFRAMEWORK AND PRIORITIZATION 11. The key impediments to investment,business development and growth in Tajikistan are risk, barriers to entry and the cost of dealing with government. It is usefbl to look at these issues in the context of the following simplified conceptual rationale for selecting and prioritizing solutionoptions. 12. Investors and entrepreneurswony about the factorsthat are not within the control of the firm. Someof these arepurely commercial but somecan be determinedor controlled by government policies, laws, regulationsand administrativeprocedures. Thus one key objectiveof the Government's strategyfor private sector development shouldbe to focus on those risks and costs that are under the control of Government and specificallythose policies, laws, regulations and administrativeproceduresthat result in the greatest risk, pose the greatest barriers to entryor are the most costlyfor firms to deal with and thus are the greatest impediment to investment and private sector development. 13. Risk. It is the unknown or the unforeseen in Tajikistan that dissuades investors and entrepreneursthe most. Thus the elements of the investment climatein the country, under direct or indirect control of the Government,which pose the greatest risk (uncertainty) for the investor or entrepreneur are the ones that need the highest priority attention fiom policy makers and the administration. 14. Barriers to entry. A key issue that businesses face in Tajikistan is the barriers that might prevent their entry. Thesebarriers generally obstruct small firmsjust getting started and can includeissues like licensing,predatorybehavior by competition or government, complexityand cost that might dissuadean entrepreneur or potential investor. 15. Cost of dealing with Government. Once a business is underway way or an investment has been made, most Tajik business persons try to cope with or make adjustments to tackle the higher cost or difficulty in doingbusinessresulting from governmentpolicies and actions, as long as these are somewhat known and do not make the business unprofitableor unviable. 16. Supportfor the Private Sector. Once the constraints in the investmentclimate and the environmentfor doing business have been addressed, in the long term the Government also needs to look for additional ways to support the private sectorto improveproductivityand human capacity to drive growth. 17. Prioritizingactions. In orderto prioritize the actions it deemsnecessaryto take, the Government needs to answer the following questions: What is the impact of this actionon poverty reduction? What will be the magnitudeof the impact? What will be the scopeof the impact, i.e., how many people might benefit? How sustainablewill the impact be? How feasible is this action in the light of: Thepolitical economy The Government's capacityto implement In terms of human resources In terms of financialcapacity, both donor and fiscal. The time that will be required to implement the action 111. THE STRATEGY 18. While the Government cannot controlcommercial risk or cost for a business, it can take action to modulate and deploy its policy legal, regulatory, administrativeand institutional framework for implementingits strategy. Thus the Government's private sectordevelopment strategyneeds to be comprised of four elementsin order of priority: a) Reducing risk and uncertainty for the potential investor or entrepreneur b) Removingbarriers that actually prevent entry c) Reducing the cost of doing business in Tajikistan including entry and exit costs d) Supportingthe private sector increaseproductivityand human capacity to drive growth. 19. The strategy also needs to include arrangements to monitor, evaluate and communicatethe progress in implementingthe strategy. 20. In the short term (up to three years), the Government's primary focus needs to be on the highest priority elements. These includethe first three elementsof the strategy, namely reducing risk, removingbarriers that actuallyprevent entry, and reducing the cost and difficultyof doing business. Some work might also start in the fourth element, supportingthe private sectorto increaseproductivityand human capacity to drive growth. The short-term tasks and actions are congruent with those in the PRSP. 21. In the medium term (up to six years), the Government needs to continue to implement the tasks which were important enough to have been initiated in the short term, but would take longer to complete (e.g., judicial reform). As the first three elementsof its strategybegin to have an impact, the Governmentneeds to increase quickly its focus on the second two elements,specificallyfurtherreducing the cost of doing businessand making the business environment more conduciveto growth. 22. In the long term (up to nine years), the Government canbegin to devotemore resources, both fiscal and through donors, to support the private sector to improve productivityand human capacity to drive growth. 23. The followingpages present a review of the strategicactionsthe Government needs to undertakein terms of strengtheningits legal, regulatory, administrative and institutional fiameworkin orderto achieve these goals. Some of the tasks and actions serveto achievemore than one goal. IV. REDUCING RISK FOR ENTREPRENEURS AND INVESTORS 24. This section deals with policies, laws and regulations which could reduce the risks of doing business. A. Making Property and Use Rights more Secure 25. Of all the risks that entrepreneurs and investors perceive in developing countries, property rights are perhaps the most serious. This applies to both movable and immovable property. Country-level studies consistentlyshow that less secureproperty rights are correlated with lower aggregateinvestment and slower economic growth. In a survey9of small manufacturingfinns in fivetransition countries, the entrepreneurs reinvested less of their retained earnings in the business if they perceived their property rights to be insecure. Those entrepreneurswith the least secure property rights re- invested nearly 40 percent less of their retained earnings than those with the most secure property rights. 26. Another dimension of property rights protection is the issue of use rights. Once the property is acquired or is in possession of the entrepreneur(or farmer), will the entrepreneurbe allowedto use this property as he sees fit, or will the entrepreneur's right to use the property be hampered by laws and regulations or administrativeinterventions? Will there be a risk of expropriation by government or local officials or even rival entrepreneurs? This sort of risk alsopreventsthe entrepreneur from making investments in the property. Secureproperty and use rights would also allow this property to be used as collateral and thus improve accessto finance. 27. Different countrieshave tried to addressproperty rights issues in different ways. Improvements in the property registrationprocess and titling systems are a basic requirement. Making propertytransferable also reduces this risk. In countrieswhere privateownership of land has not been politically acceptable, governmentshave turned to long-term leases to meet investors' needs. (For example, China's government offers renewable and transferable long-term leasesof 40 to 70 years.'0) Access and land use planning processes have also been improved in some countries, and others have instituted judicial reform to ensure that disputes are resolved accordingto law. 28. In Tajikistan, the constitutionguarantees protection against expropriation except in the national interest and then onlywith proper compensation. In practice, however, owners can be arbitrarily dispossessed. For example,land use rights of farmers canbe revoked if the local authorities(hukumats) decidethe land is not being used appropriately. PropertyRights andFinance,Johnson,McMillan and Woodruff,1997 loLandMarkets, Muir and Shen,October 2005. 5 29. Registrationof property in Tajikistan is archaic and often inaccessible. The present system of three different registries is inefficient. While a new pledge law is being enacted, there is as yet no provision to record pledges or liens. Most serious is the lack of an adequate, reliable and trustworthyjudicial system to ensureownership rights. 30. The Government's strategy to secureproperty and userights consists of five actions", in which the Government will: a) implementthe constitutionby introducing and enacting legislationto make ownershiprights more secure and protect against expropriation and seizure; b) amend zoning regulationsin different parts of the countryand introduce provisionsto prevent forced relocation withoutjust compensation; c) amend the State Land code so that the hukurnats and other local authorities will not have the right to remove land use rights for "improper use;" d) strengthen(under its program to improve access to finance)the registrationof movable and immovable propertyby modernizing the system, anh install regulationson the establishmentof a centralized,computerized database to record pledges on movable and immovableproperty, where such security interestswill be open for public search; and e) over the long term, undertake a comprehensivereform of thejudicial system, beginningwith the formulationand approvalby the Government of ajudicial reform program. B. Making Contracts more Enforceable 31. In order for marketsto hction there must be somemeans of assuring that promiseswill be kept. Everybusiness transaction involves some form of agreement or contract,be they formal or informal. These could range from trading agreements,to capital purchases, financing agreements, shareholder agreements, the purchase or sale of real estate or even that of entirebusinesses. In every contractthe parties deploy resources to fulfillthe obligationsunder the contract. In the event of default, these resources are in jeopardy if the contract cannot be enforced. 32. Entrepreneurs are reluctant to deploy resources unless there is some certainty that contractswill be enforceable. Uncertainty of contract enforcement impedesbusiness formation,discouragescompanies fiom doingbusiness with lesser-knowncontenders and in other ways reduces the incentive for small businessesto make the transition from informalityto formality. 33. In most countries, the primary contract enforcement mechanism is thejudicial system. The legal "enforceability" of contractsdepends on factors such as the efficiency,fairness and independenceof thejudicial system. Small contractsare less enforceableif they are treatedthe same as other cases and become part of the backlog - and the cost and time to enforce begin to exceed the value of the contract. Special provisions need to be made for these. Clarity and standardizationof contractswhich "Inrecentyears,theGovernmenthasworkedcloselywithinternationalpartnersonaddressingmanyof these issues. Inparticular, USAID hasbeen supplyingtechnical supportfor the legislativereformprocess and SIDA hasprovided supportfor the designofa land registrationsystem. 6 unambiguously indicatethe rights and obligations of the parties are more likely to be more enforceable,even in a weak court system, than contractslacking these attributes. 34. Third-party arbitration is an alternativeoption for contract enforcement in a weak court system if the institutional mechanisms for this practice are in place. The formation of business associations or networks can be anotherenforcement mechanism in which reputational risk and loss of privilege canmake contractsself enforceable. These associationsalsoprovide third-party arbitration,e.g., in Russia and Ukraine. 35. In the long run,however, it is thejudicial system that provides the best assurance to an entrepreneur that contractswill be enforceable. While a comprehensiveprogram of judicial reform (See Box I), is needed in the long run,in the short run small fixes in the judicial system can go a long way to improve contract enforcement. Recognizing this, many developingcountries have undertaken various "quick win" judicial reforms: a) Peru separated the resolution of simplecommercialcases from more complex civil and criminalcaseswith great success for small business. b) There was no provision for defaultjudgments in FYR Macedonia. The country introduced this and reduced the time to enforce contracts from 509 to 385 days.'' C) Similarly Armenia, Estonia and Ukraine accelerated disposition of undisputed cases. d) In many transition economies, comption in the court system is one of the greatest impedimentsto contract enforcement. Georgiahas successfullyreducedjudicial corruption with aggressiveprosecution. 36. There are other measures as well which can help, such asjudicial salaries, randomly assigningcasestojudges, requiringjudges to disclose their assets, introducing a transparent and objectiveselectionprocess, publicizing cases ofjudicial corruption, and so forth. 37. Contract enforcement in Tajikistan is difficult. Thejudicial system cannot provide adequate certaintythat contractswill be enforced. Not only are court proceedings slow and unpredictable, but there can be serious casesof bias where the influential can receive l2DoingBusiness 2007, World Bank BOX I: Judicial Reform: GeneralFactors for Consideration Factor I: Jndld.1 QuaUButlon and Rc~antlom I Judga hsve f d inivmity-lcvsl leml tkining and have .macticcdbeforer n b d or, b c h taking thebench, arc q u i d (withoutcostto thejudger) to take rckvant w v n a umcrmingbasic subslantiveand p m d d meaofthe law, the mk of thejudge in saicty, and culturalsensitivity. Factor 1: Se*etlonlAppolniment Procrm J u d e en appointai b e d an objectivecritcns, suchar pwgcofan exam p e r f o m s in law school, 0th- mining, crperimce,pokssional'irq and repuMion in the legal ' wnanunity. Whilepolitid clnnrnu m y be in~lvadthe owrll rynem should fosterthe leMiof indqmdat. inpanvl judges. Factor 3: Contlaulng Lqal Ednutlon Judga must unclcrgo. on arcguhrbsli andwithoutcostto lhcqprofarionally prcpmul Mllinuing lepl educationwuno, thesubjm m m ofwhich amgenmlly dc(mninedby thejudga rhmaelvu and which informt hof clung= and hvelopnmu in the LN. Factor 4: Mlnorlly and Gender Repramt.Uon Ethnic and rcligiour minorities, as well ssboth sendas, vs rspcrcatcdymn(l.1 the pml ofnominorand in thcjudiciq g m d l y Factor 5: J n d W lb*krr of Legbbtlon Ajudiskl o m hu the powa to daarnine the ultimatemailutionality of ~ s l u i oand official x u , mdsuch dccuionr m enforced n Factor 6: ~ n d i ocv~d g b t or ~dn(nlnrdvemetkc Thejudiciary has the power to mCw dminimivc anr ~d to m n p l the govrmmmt ta oa where a Lg.1 dutym aa e x k Factor 7: JndJEL.1JnddIR10n ovuClVU UbertIu Thejudiukry h u excluivq ultime juridiction o w all wed c o m i n g civil righu and libcnia. Factor 0: Syrtm of Appellate Revlcr Judicialdecitiow m y bc r e donly h g h thejudicialqpellllc procus. Factor 9: ContcnpVSubpoend Enforameat Judges have adcquatc subpoma,contrmpl. ~ d / mlorcnm poaren. which me utilized. ud the%powen mrespectedud suppMed by&k h e s afgovrmmmt. w Factor 10: B o d w r y Input Thejudisiy hu a mcminghl oppcrtunity to influence them u n t ofrmncy alkxacdto il by the lcgulative d m executivebranches, an4 once fun& arc allocated to the judiciary. thejudiciary harumml over iu o m hdgn and b w such lundr arc nrpmdcd. FlaOr 11: Adcqnaq 0fJUdkLI %h* ,Judicial ralaria arc garrally tufficimt m atbaa sld reuinqualifiedjudges, mabling them to s u e their h i l i e s and live in a rraronablynaurcmvironmnt, wahout having mharrronvretoahcrrounaofinmm. Factor 1 k JudlcW Bulldbg Judicialbuilding6 arc conveniently bcQdd cacyto lin4and they providea rapcaabkmvironmnn fDIthe dkpmmtiirmo f j u t kwith adcquotcinhstmctm Factor 13: Judldrl SersrlIy Sufficientr a o m arc albcakd to put- judga bornthreats such ac hsrssamcnt. . s ~ u land agsssination & Factor 14: G w n t a d Tmum Smior kvclju&a m sppointcd fw fixedtrmaUlslp o d a pmmtad mure.which u pmktcd until rrtirmMtagea the arpimwn ofa &fined tmn of aubslgltial duration. Factor IS: Obj&ve JudlcW Advancemat Crlterh Judga arc advancedh u & thejudicial systemon Ihebubof objeaivcaacMsuch m ability. integrity, and cxpaimce Fmctor 16: Judldal ImmunlIy for 0fIiel.l Amonr Judges haw immunity lor actions takenin their official csprity. Factor 1'1:Removaland D M p L e ofJ m d p Judga m y bc m v e d 6omoffice aahcrvheplnthcd only lor rpssiiied officialmiendun and Utrovghabampamt pnxaa, g o dby objectivecritain Factor I): C u e Aulgt~mmt Judges m assignedto wa by anobjmive mahodsuch u by bncry, or d g tothcirnpccifurrrp of e x p k , ud they m y bc ren~vcdonly f agood cause,such ea a conflictof inlerrna w unduly hurvywokbd. F d r 19: JudkW ~~ An ssaocLtDnaim,the tok lim of which u to pmm andpmmte the imcrauof thejudiciary, and thk orpaintion irtk. Factor 20: Judkhl Dslrla~ Improper blluscc d Judicial dcciaio~m bud alely on the fMsmd law without any undue influenceh m seniorjudgn (e.g..wurt pmidmu).privateintcrcsu.or a h a branchesof gwsmmsnl. Factor 21: Code of Ethlca Ajudicialcodeofcthicae x h to h hue8rush eaconflicu of i n t m , apanemmnunisations. and inappropriatepoliticdl mivity, uuijudges err rcquircd to nu@ mekmining d n g thia codeboth beforetdrihg off^ and duriwthcirtenure Factor 22: Judldal CoudrrctCompLL.t Pmccu A meaningfulproscsr erbu under which otherjudga. lawyen. and thepubliu m y registeremrplunu wncaning judicial mnducl Factor U:Pubk and M d L Acem to RWtdln~s Coumccinpmmcdineserr o pto, and fanacornnodate, the plblic and the media Facmr M:h b k t b n orJndldd IkcMon Jdiial dcciiiomarc gcncnlly 1ma of public record, andsignificanl appllue opmwnr m prblihsd d open to &c and public amtiny Factor U:Mnhteuallee ofTrW R.rordr A m ' p t orsomeahareliablerecordof mvldmmpfueahp b mehieid uui u aniLMc to theplblic Pactor 16: C o d Sopport St.11 Euhjudge hasthebaic human raovrcssuppat -vy to & his or herjob,e.g., adcqwte support M t o handle douurnnarionand kgal mMh. Factor 2 2 Judld.1Praltlom A synmeximu lorhat newjudicial pmitimu uc natcd ea nkded. Famr 1): Cue Flhg and Tncldng SI.(rrm Thejudkial rystm m'ntmb a use filing andtncting system rhg apumuw mhuni in reaavbly efficient-. I, Pactor 29: Compnta m d OmQ Eqnlpmut Thejudicial rynanoperates wilh a sufficimtnumbsofconpltas and 0th- cquipmnnto aubk it m hudle iu w b a d in 1rcoorvbly cfiiml n a ~ . Fador 30: M.trlbntb. and Lnddug ofCnnmt l a w A rynemcxiab wherebyallj u b a receive awmt domaticlam djurirprudmfe in a h l y manna,d thsc M a nutionally raognirrcd ryrtrmlor ickntifymgm!d olgmlidnpsb.ngcr hthelaw. Source:ABAICEELI decisionsin their favor, irrespectiveof the merits of the case. Opinions and decisions are often secret and not revealed to the parties, and the prosecutor's office has the ability to influencejudges. Many disputesare settled out of court. Accordingto the BEEPS 2005 survey,lessthan 10percent of firmshave used courts in the past three years. 38. The Government of Tajikistan, realizing the importanceof contract enforcement for entrepreneursand for the investment and growth that it brings, has indicated its interest in including the following actions in its strategy to develop the private sector: a) In the short run,introducing an out-of-court arbitrationprogram, including membership in the New York Conventionon enforcementof foreign arbitral decisions; b) Reviewingthe body of law that pertain to contracts and contract enforcementand make the necessary amendments so that contractscan be enforced; c) Putting into place mechanisms to ensure that the rightsof small plaintiffs are upheld; d) Institutingfullpublic disclosure of all court decisions,includingjudges' opinions and rulings; e) Settingup, with donor assistance, standardized contracts for a selected group of transactions (e.g., small commercial transactions,rental or lease agreements) which are easilyprosecutable; and f ) Enact the Enforcement Provisions Code governing enforcementof court proceedings. C. Reducing the risk of non-renewal of licenses 39. Security of a licenseto conduct a business activity is akin to the issue of the securityof property rights. After a license has been obtained and investmentsmade in the business, should the licensebe revoked for some reason or not renewed, the investor stands to take a significant loss. The problem is fiuther aggravatedif the license is granted for a shortperiod of time. The entrepreneurwill be tempted not to make needed investmentsto the business but may instead exploit the opportunityto his best advantage, preparing to exit when the license expires. Thus, the shorterthe term of the license, the lower the investment that can be expected. 40. These risks can be mitigated by either making the tern of the license sufficiently long or by making the renewal automatic unless there is probable cause or otherwise making the renewal process sufficientlytransparent with provisions for appeal and compensation in cases of unreasonable non renewal. In countries with weak institutional structures,however, the latter measures are likely to be viewed with skepticism, and this risk will not be sufficientlymitigated. 41. In Tajikistan, the renewal process for licenses, which are granted for three to five years, is not transparent and providesthe opportunityfor rent-seekingbehavior. Investors face significant uncertainty as to whether the licensewill be renewed at all. 42. The Governmentwill try to addressthis issue by undertakingthe following actions: a) Removing fiom the amendments to the licensing laws any restrictionson the duration of the licensethat can be granted; b) Putting in place the implementingregulations for the amended LicensingLaw to ensure transparency, objectivity and due process in the renewal process; and c) Reviewingthe AdministrativeViolations Code to ensure that these regulations are hlly reflected there. D. ProvidingAccess to Information on Laws and Regulations 43. Uncertainty about regulations that are not published or readily availableposes a significantrisk for the entrepreneur. The entrepreneur does not know where he or she might go wrong or be accused of violations that might have been inadvertent,and the penalty for whichmight significantlyundermine the invested resources. The nebulous nature of theregulatory framework is likely to keep the entrepreneurfrom investingor encourage him to minimize his investment. Regulatorycomplianceor adherence to the rule of law is not possible absent disseminationandaccess to regulations in force. 44. In most countries, for regulations to have effect and be enforceable, they must be made publicly available through accessiblemedia. These formal requirements do exist in Tajikistan.The Law on Normative and Legal Acts stipulatesthat laws, obligatory legal and normativeacts and international legislation recognized by Tajikistan come into effect only aftertheir officialpublication. The law also defines publicationprocedures for official govemment and Majlisi Oli newspapers and bulletin^.'^ 45. In practice, however, compliancewith this requirement is absent. Acts issuedby the Government or local agencieshave not been published since 1991,and the backlog, mostlydue to lack of capacity at the Ministryof Justice, is over 3,000.~ 46. The Government is becoming increasingly aware of this problem and is ensuring that all such regulationsare submitted to the Ministry of Justice for registration and dissemination. Furthermore the Govemment is taking the followingactions: a) Implementing and enforcingthe Law on Normative Acts. b) Creatingand consolidatinga register and databaseof all regulations in force (includingeliminatingthe backlog of regulations awaitingregistration and official promulgationin the Ministry of Justice) and provide access through an MoJ website. c) Publicizingthe existence of the databaseand the website. 13Strengthening Investment Climate and Investment Facilitation Capacity, FIAS-MIGA,August 2006. 10 V. REMOVING BARRIERS THAT PREVENT ENTRY 47. Once the risks have been deemed to be sustainable,and the .decisionhas been made to invest in or enter a certain business, there could be barriers that could prevent entry. These could range fiom excessive cost and complicationthat stops the small business entrant, to predatorybehavior which prevents entry or forces exit and sector and natural resource laws and codes that prevent entry. Some of these issues are embeddedin the political economy and difficultto address, while others, such as registration, are less complex and should be handled expeditiously. 48. With the realization of the tasks set forthbelow, the Government should aim to increase business registrations by 25 percent. A. Reducing the Barrier of Licenses, Permits and other Approvals 49. By not granting a license, permit or other approval,governmentscan prevent entry of new enterprises. Sometimesthis could be for legitimatereasons to protect the public interest but often it has the potential of being an instrument for inappropriate activities not just by government officialsbut the private sector. Sometimesthe complexity, cost and the time it takes to obtain a license or permit might make acquiring a license or permit prohibitive. No matter how transparent the process and clear the rules, there is alwaysthe potential for rent seeking,and when agreement cannot be reached on the terms of such rents, entry is prevented. 50. According to the 2005 BEEPSsurvey, at least 22 percent of enterprisesin Tajikistan must make unofficial payments to receive a license, and anecdotal evidence indicates that the figure is likely to be much higher. Even more insidious is the situation when entrenchedor vested interests co-opt a government agencyor department and use licensing as a means to keep out potential competition. 51. Severalcountrieshave begun to reform their licensingregimes. In the CIS counties, Armenia, Georgia,Moldova and Ukraine have all embarked on reform of their licensinglaws and regulations. One of the most popular reforms in 2005-2006was the introduction of statutorytime limits for issuing licenses. Last year, Ukraine reviewed 1,000licenses and eliminated half of them. Georgiacut licenses from 909 to 144.14 Another approachto eliminate these difficultiesis the introductionof "silence (on part of the licensing authority, i.e, lack of timelyresponse) is consent." Seven of the top ten countries featuringease of licensinghave such rules. Other optionsto avoid corruption in licensingmight include settingup a recourse mechanism for rejectionsof license applicationsand making publicly available information on reasons for rejecting a license and the identity of the official making the decisionto reject. 52. In recent years, Tajikistan has made significantprogress in reforming its licensing regime. Until recently, there were 32 types and 1,000subtypesof business activities that - -- - - - - - l4Doing Business 2007, World Bank 11 required licenses in Tajikistan. These were set forth in 43 laws and 41 normative acts. The need for annual renewals and the arbitrarysuspension of licenses created additional uncertainties surroundingthis process and encouragedbusinessesto make unofficial payments. In 2005, the governmentadopted a new licensing law that reduced the number of activitiessubject to licensing from some 1,500to about 113,updated application processing requirements and harmonized licensin fees. It also adopted a regulatory framework to implement and administerthe law.I f 53. Several of the 113activitiesincludea number of subcategorieswhich continue collectivelyto pose significantbarriers to entry. With support of the World Bank under PDPC 1,the Parliamentpassed in July 2006 legislationamendingthe current licensing law to reduce fiuther the number of activities subject to licensingto 65 and to streamline the procedures. Under PDPC 2, the Governmentwill submit to Parliament draft amendmentsrelated to ministry and agency laws to ensure compliancewith the new law on licensing. In addition, in cooperationwith the IFC Private Enterprise Partnership program, the Government is reviewing the administrativeviolations code and draftingthe necessary amendments to ensurethat this code takes into account the above amendments to therespectivelaws and regulations. 54. Presently, Tajikistan is reportedly well ahead of its 28 comparator countriesin eastern Europe and Central Asia when it comes to licensingand is closer to the OECD benchmarks then its comparator countries. Data provided in theDoing Business 2006 report also indicates an improvementin its ranking, from 87 to 85 among the 175 countries surveyed. A summaryof the key indicators for dealing with licenses is provided below: Exhibit 1: Dealing with Licenses - ----- - --- Tajikistan Region OECD Rank Procedures (Number) Time ( Days) Cost (%of incomeper capita) 154.7 564.9 72 Source: Doing Business 2006 For a countryat Tajikistan's level of income and development,however, the licensing regimeneeds to better enablemarket entry, breed less conuption and encourageprivate investment. In spiteof the progress made in recent years, anecdotal evidencesuggests that new businessesstill face numerous difficultiesin obtaining licenses. These include the lack of comprehensiveand reliable information on the application process and criteria Is Implementationof this new legal and regulatoryframeworkis being supportedby technical assistance from World Bank Group units, including the hternational Finance Corporation(IFC) Private Enterprise Partnership(PEP), Foreign InvestmentAdvisory Service(IFC-FIAS) and the Multilateral Investment GuaranteeAgency (MIGA). 12 for approval, the need for multiple licenses, long processing times and the high cost of licenses (includingunofficial payments).16 55. Where licenseshave been eliminatedunder the new law, this risk might still persist dueto the activity being subject to a myriad of permits and other approvals which forcefirmsto face a less than transparentor objective renewal process. The Government has yet to tackle the issue of permits and other approvals. 56. The Government should set as its goal to: a) reduce licenses to no more than 65, b) reduce the numberof days to obtain a licenseto under 100, c) reduce the numberof procedures to under 10, d) reduce the period of issuanceto not lessthan five years, and e) reduce the cost to under 100percent of per capita income. 57. To achievethese goalsthe Government should adopt the followingmeasures: a) Amending laws and regulationsto be compliant with the amended licensing law; b) Removing anyupper limits to the term of a li~ense.'~ c) Ensuringthat the licensingregulationsprovide for adequatetransparency and accountability; d) Conductinga comprehensivereview of permits and other approvals, identifying the reforms needed and implementingthese reforms, including a review of the laws and regulationson permits, approvals, and so forth, to introducethe necessary amendmentsto eliminate unnecessary ones and to ensuretransparency and dueprocess; e) Strengtheningregulations for the amended competition law to prevent ' predatory behavior; strengtheningthe institutional capacityof the Anti- Monopoly Agencyto prevent and prosecute predatory behavior; and publicizing the competitionlaw and the Anti-MonopolyAgency as an institution of recourse for victims of predatory behavior; and f) Providing a recourse mechanism by setting up the Administrative Council under the Administrative Procedures Code, which will give citizens and businesses somerecourse in the event they feel abused by stateofficials. l6 Over 50 percent of respondentsinthe 2003 IFCPrivate Enterprise Partnershipsmall andmedium enterprisesurvey cited lack of informationas aproblem The lack of informationwas most acute in aylture; 83 percent of respondents cited this as aproblem. ' This move, while inthe right direction,impartsmore discretion to licensing officialsbut is still better thanhavinga definedbut too short license period. As mentionedin the previous section, the risk is much higher in the latter case althoughthe unofficialcost for the former mightbe higher. This couldbe viewed as a reasonabletrade-offif the regulationshave sufficientprovisions fortransparency. B. SimplifyingBusiness Registration and Removing Official Discretion 58. One might think that while time, cost and complexitymake the registration process difficult, thesemay not prevent entry unless the difficulties become insurmountable or the requirements are circular. Recent experienceshows, however, that where it is easy to register a business,more new businesses register. Five times as many businesses register annually in El Salvadorsince the country simplifiedits business registration process. New entryjumped 78 percent after reforms in FYR Macedonia, 55 percent in Georgiaand 25 percent in ~ithuania.'~It might be argued that someof this was merelytransition from informalityto formality, though even this has benefits, as formalbusinesses are free to grow bigger and also pay taxes. 59. What can also prevent entry is a process that gives the registrationauthority discretion. In best practice,the official mayverifythat all the required informationhas been provided and then the process of grantingthe registration shouldbe effectively automatic. There should be no substantiveconditions to be fulfilled and no evaluation of the applicant's capacityto engagein the activity. There shouldbe no valuejudgment involved. If this is not the case, the registrationbecomes a de-facto licensingprocess - which it is not intended to be -with the same problems and issues as discussed in the previous section. Sometimesminimum capital requirements can also become an effectivebarrier to entry. 60. Discretion on the part of officialsmay often be self generated and not be in the statutesor regulations. Rent-seeking officials may delay the applicationindefinitelyand thus effectivelyprevent entry. Many countrieshave addressed this possibility by introducing two measures: a) Setting strict time limits by which the registration must be complete,unless informationrequired is missing. Several countries have done this including, Slovakia,which has set a five-daytime limit. b) Settingup a "silence is consent" rule also forces the issuancein Serbia,where the registryno longerhas the authority to check the authenticity of the data or refuse registration if the application is complete. 61. Minimum capital requirements are also a deterrent to entry for some. Seven countriesreduced or eliminatedminimum capital requirements in 2005 (China, Georgia, Japan, Lao PDR, Madagascar, Micronesia and ~orocco).'~While somebelieve that minimum capital requirements are important as an indication of creditworthiness, especiallyfor lenders, in factmost lenders are more concernedwith the ability of a companyto generate sufficientcash flow to repay its debts over time, rather with initial capital contributions, and creditors prefer to guarantee their legal rights through the securitizationof collateral. Even in countries like Tajikistan, where certain types of corporateorganizationalstructures already exclude minimum capital requirements, these structuresmay not be appropriate for all companies and shareholders. Registration can also be simplified by standardizing registration forms and creating"one-stop shops" for ''Doing Business, World Bank Doing Business, World Bank 14 registration. Eight countries in 2005 created a single-windowregistrationprocess, includingCroatia, Lithuania, FYR Macedonia, and Ukraine. 62. The current system of registration of legal entities in Tajikistan (introduced by the law "On StateRegistrationof Legal Entities" No. 5 of 22 April 2003) transferred the state registrationof legal entities from the public notaries to the Departmentof Registration of Legal Entities of the Ministry of Justice and its territorial departments. Onlyby mid-2005 had this change actuallytaken place.20 63. Other changes, however, such as an attempt to further simplifyprocedures, required interviews and documentationrequirementsas foreseen in this law have not yet been implemented. The main goal of the law was the partial establishment of the "single- window" principle for stateregistrationby incorporating statisticsand tax registration into the stateregistrationprocedureperformed by the Ministry of Justice. 64. Implementation of the "single-window" principle in practice is hampered by many administrativeand financialproblems. In particular, lack of progress with the actual simplificationofthe business registration can be attributedto the lack of clarity as to which institutionshould lead this reform, how and by whom the interaction required for the "single-window" approach to work should be organizedand which institution shouldbe developingthe singledatabase and intergovernmental communicationrequired for such a system to work. There is also a certain fear of loss of control and thus a resistance by officialsto changes that might lead to reducing the existingscope of their authorityto control businesses and ec.onomicactivities. 65. Companyestablishment in Tajikistan is costly and involves separate registration with at least five state institutions(the Ministryof Justice, the tax inspectorate of the Ministry of State Revenues and Duties, the State StatisticsCommittee,the Fund for Social Protection of Population, the Ministry for Internal Affairs) and visits to a few more public and private organizationsfor various permits and services (i.e., a newjoint stock company must register its shareswith the Ministryof Financebefore the actual sale of its shares). At least 12 steps should be completed by businesses to go through the registrationprocess. 66. Despite the attemptsto simplify the company registrationprocedure, in comparisonwith the other reformingtransition economies, in Tajikistan there are quite excessiverequirements that inevitablydemand increased attention and resources from businesses: 20The followingfourparagraphs areadapted fiomFIAS-MIGAdocuments. 15 Exhibit 11: Startinga Business Tajikistan Region OECD Rank 166 Procedures(Number) 14 9.4 6.2 Time (Days) 67 32 16.6 Cost (%of Incomeper capita) 75.1 14.1 5.3 Minimum Capital (o/,of Incomeper 378.6 53.9 36.1 capita) Source:Doing Business 2007 67. The Government of Tajikistan,recognizing the importanceof a simple and low cost registrationprocess, has indicated its intentionto take the strategicactions set forth below to simplify the businessregistrationprocess in Tajikistan, with the goal of a) reducing registrationcoststo under 50 percent of per capita GDP, b) reducing the number of days to register to under 20, c) reducing the number of procedures to under 10,and d) improving its ranking of ease of starting a business to under 30. > Develop and implement a plan, with clearroles and accountabilities,to introduce a "single window" registration process for all categories of businesses and in all regions of the country. (This window would be staffed by authorized representativesfiom each of the agencieswith whom the applicationhas to be registered.) > Introduce a standardpackage of required documents,preferably not more than one or two forms which are readily availableon the internet. > To make the registration process more streamlined,efficient and equitable, introduce changes such as (a) setting a stricttime limit of 30 days for completion of the registrationprocess; (b)eliminatingthe minimum capital requirement for registration; (c) introducinga singlebusiness identification number; and (d) eliminatingthe requirement for a business seal and removing anytax payment requirementsuntil after the business has started operations. > Introducea Governmentresolutionthat includesthe above and the provision that registrationcannot be refused if the forms are completed and, in parallel, amend the administrativeviolation procedures code to increase compliance with existing laws and regulations. > Publicize the new registrationsystemin the national and regional media. VI. REDUCING COSTAND IMPROVINGTHE ENVIRONMENTFOR BUSINESS 68. Recent research,using objectivemeasures of business regulationsin 135 countries, shows that in general countries with better regulations grow faster. Improving from the worst quartile of business regulations to the best implies a 2.3 percentagepoint increasein annual growth2'. 69. Taken together, the recommended actions in this section are intended to reduce the time enterprise management spendsdealing with the Government. The Government's goals in this regard shouldbe to reduce this to less than fourpercent of management time, and bring the country's ease of business ranking to under 100. A. Providing Recourse 70. While it is important to reduce the legitimatecosts that businesses incur while dealing with government and governmentregulations, it is equally or more importantthat businesses can go to another official or to a superior or someone, if a government agent acts againstthe rules, in order to get the correct treatment without recourse to unofficial payments or gifts. In a 2005 BEEPS study, nearly 15percent of Tajik firmsinterviewed said that they are never ableto do this22. Informal anecdotal evidence seems to suggest that the number could be much higher. 71. Large, well connected firmsare more likely than SMEsto have greater access to bureaucratic recourse and pay a lower percentageof their sales in administrative payments. Smaller and foreign firms are more likely to have less such bureaucratic recourse and pay a larger share of their sales in administrativepayments. There needs to be some administrativemechanism in place to provide bureaucratic recourse for these smaller firms23.The institutional arrangement for providing this recoursemust have the necessary independenceand authority to pursue complaints and implement the provisions of the administrativeviolations code if needed. 72. The Governmentof Tajikistan intends to address this issue by implementing the following measures, with the goal of reducing the percentage of firms stating lack of recourse to under fivepercent: ''Based on worldwide averages. Growth and Regulation. The World Bank March 17,2006.Authors: SimeonDjankov, Caralee McLiesh, and Rita Rarnalho(PDF, 169KB) ''Itis importantto M e r explore the significanceof this statistic.A distinctionis made here between administrative(petty) payments and private payments in cash or in kind to higher officialsto gain immunity and advantage ("state capture"). The questionwas most likelyto have been interpreted as the involving the latter. The intentionhere is not to condone state capture, but to tackle oneproblem at a time by givingpriority to protecting the more vulnerable smaller fvms first. Statecapture is an insidiousphenomenon which has an enormous socialcost to the overall enterprisesector-reducing the overall growth of sales and investment in the enterprise sectorby more than 10%over a three year period ( "Seize the State, Seize the Day" -Hellman, Jones and Kaufman September 2000). a) Settingup the AdministrativeCouncil under the Administrative Procedures Code, to handle smaller cases of administrativeabuse or violationswith the power to investigateand refer findings to the prosecutor's office24if needed. b) Settingup an ombudsman's ofice reporting directlyto the President to review largerand more seriouscases and refer these to the prosecutor's office if needed. c) Settingup a mechanism to make publicly available the findings of both the AdministrativeCouncil and the Ombudsmanusing accessible media. d) Amendingthe AdministrativeViolationsCode and make it compatiblewith other laws. 73. In the longer term (3-6 years) the Government will undertake a comprehensive program of systematicregulatoryreform to reduce or eliminateunnecessary regulations. This refonn program will include: a) Developing a clear and unified statementof principles for good regulation; b) Establishing appropriateinstitutional structuresto implementreform and ensure regulatory quality control; c) Ensuringthat existingregulatory qualityrequirements are properly communicated, complied with or enforced; d) Improving essentialregulatory qualitytools suchaspublic consultation, impact assessments of new regulation, and better access to information about regulation; e) Improving awareness and capacitiesamong governmentofficialsabout the benefits and rationale of a systematic approach to "better regulation" in the form of workshops, training; and f) Providing guidance to support existingregulatory scrutinyrequirements already set out in existing legislation. B. Eliminating Unnecessary Inspections 74. Currently, the inspection regime in Tajikistanis an uncertain and nontransparent process that can often result in arbitrary suspension or closure of business. Tajikistan's businesses are subject on average to 12inspectionsper year, with each lasting an average of 2.6 hours.25 Firms are inspected for a single issueby multiple agencies, and multiple inspectionsby a single agencyare also common. Although the shareof firms indicating that bribes are frequent fellbetween 2002 and 2005, Tajikistan continuesto rank below average on this indicator among CIS countries. For the stateto adequately protect the health and safety of its citizens,while maintaininga level playing field for investors, inspections of enterprisesmust be conducted in an objective, rules-based manner in accordancewith the intended purpose. 24Note thatthe reformof this officewill be one of the items onthejudicial reformagenda. 25BEEPS 2005. 18 75. As part of its private sector development strategy,the government aims to reduce the frequency,duration,and arbitrarinessof inspections. To both monitor the process and curtail arbitraryinspections,the government introduced in 2001 an Inspection Registration Book in which firms and inspectorswere to record their visits. However, not all businesses were issued a registrationbook, and the inspectors continued to intimidate them into not recording their visits.26 Table 1:BEEPSInspections BEEPS 2005 -Inspections The governmentestablishednew rules and procedures for inspections Number oflnspctlonr Awrage cbrlnw of In predous 12 m t h s lnspction~(hrs) through a new law on inspections and amendments to the tax code. Tnjlkirtan CIS ECA Tajikistan CIS ECA TaxInspectorate 3.1 3.1 2.4 6.7 8.0 6.4 (These amendments were necessary Fire & Wlilding Safety 3.1 2.0 1.4 2.9 2.2 1.7 to the tax code because tax Sanitation/Epidemiology 1.8 2.3 1.8 2.1 21 1.5 inspectionsconstitutemore than 50 Environmntal 1.3 0.8 0.6 2.0 1.1 0.8 Laborand SocialSecurity 1.1 1.0 1.0 3.6 53 5.0 percent of total inspection MunicipalPolice 0.9 0.8 0.9 0.8 0.7 0.5 activities). In addition,the Custom Agency 0.3 0.8 0.8 0.5 0.6 0.6 11.7 10.7 8.8 2 6 29 2.4 Governmenthas agreed to take the following steps, with the goal of reducing inspectionsto no more than two per year: a) Adopt government decrees and new regulations (at the inspecting agency level) to implement the law on inspections. b) Amend all laws, includingthe administrativeviolationprocedures code, covering inspections, to ensure compliancewith the new law on inspections and c) Develop manuals and checklists and train agency staff to assist in implementation. d) Set up a program to publicize the law on inspections,regulations and new procedures among businesses. e) In the long term, furtherreduce inspectionsby moving fiom a system of 100-percentinspection coverage to selective risk-based inspections. 26 IFC-PrivateEnterpriseProjectand the Swiss Economic CorporationOrganizationhave provided financial support to enable the governmentto increasethe coverageof the inspectionregistrationbooks distributedto enterprises (fiom 40percent to 80 percent). The IFC-PrivateEnterpriseProject surveyof small and mediumsize enterpriseswill monitorcompliance with the regulations andprocedures. C. RationalizingStandardsand ~ertification~~ 76. In 1970,the National StandardizationSystem was introduced in the USSR to set a single standardizationpolicy for the entire country by developingand approving standardsand technicalregulations, incorporating them into mandatory regulatory documents and determiningthe procedure for their implementationand monitoring. 77. After the break-upof the Soviet Union, the Republicof Tajikistan continued the practice of certifying all goods and services,and has not yet embarkedon a change towards internationalpractice, which implies that certificationis voluntary, except in caseswhere this canhave an effect on health and safetyof people, society and environment. Even in these cases, normally conformityto technical regulationsis not controlledby a specific 'standardization' agency but by relevant technical bodies. 78. Compulsorycertification in Tajikistan createstrade barriers and discourages foreign companies and investors while placing a largeburden on local small and medium-sized enterprises. Most certification and control is executedby TajikStandart, which fallsunder the Ministry of Economyand Trade, though the certification and control of certainseparategroups of goods is executed by other state organs (e.g. Ministry of Agriculture, Ministry of Communications, Ministry of Health). 79. The range of issueswhich has to be addressedunderscoresthe need for restructuringof TajikStandartas well as reform of the legal basis for standardizationand certification.Specific issues include poor accessto information(non-transparencyand inaccessibilityof documents), a too-large list of goods and servicessubject to mandatory certificationand re-certification of imported goods, short-term of validityof certain certificates,insufficientnumber of laboratories (meaningthat certificates are issued or rehsed without tests), no recognition of certificates of othercountries, high costs for the certificates and overlapbetween TajikStandart inspections and other technical inspections due to the fact that the sphereof application of compulsory standardizationand compulsorycertificationis near universal. 80. The Government has a two-fold objectivein its efforts to reform the standardizationand certification process in Tajikistan, with the goal of reducingthe number of goods for which import or export certification isneeded by 75 percent: a) Improve the legal environment through the adoption and implementationof a new Law on TechnicalRegulations, in conformitywith internationaland EUpractice. Specifically: With donor assistanceprepare a study and analysisof the currentproblems in the field of standardization/certification,with special emphasis on the certificationof services,and the re-certification of (imported) goods, includingrecommendations for concreteactions. ''Excerptedftom EU documentsfor assistanceto Tajik Standardso thatthis work becomes anessential part ofthe GovernmentPSDstrategy. 20 Finalize the development of the draft law on technical regulations, which was initiallyprepared with assistance of USAID,and promote its adoption. Prepare and adopt the necessarytechnicalregulations and other subordinate legislation. Monitor the activities undertaken for the adoption and implementationof this law and technical regulations. b) The reform of TajikStandartto bring it in compliancewith WTO requirements, including abolishmentof re-certification and abolishment of certification of services. Specificallywith donor assistance: Make an assessmentof the institutional hctioning of Tajikstandard and recommendations on its reform, in line with WTO requirements. Increasecapacity of Tajikstandardto implement the law on technical regulations and its subordinatelegislation,by providing extensive training to the staff of Tajikstandard. Conduct a conformity assessmentof certification of basic goods in developed countries. Abolish the certification of servicesand the re-certification of imported goods by Tajikstandard. Provide learning opportunitiesfor staff of Tajikstandard to gain exposureto best practices ftom WTO member states. D. Providing Quick and Simple Customs Clearance 81. New trade researchz8based on the data provided from the Doing Business 2006 report finds that on averageworldwide, each day of customs delays reduces a country's export volumes by about one percent. Delays often have a greater impact on a developingcountry's exports if they are concentrated in perishable agriculturalproducts. 82. According to the latestDoing Business 2007, as seen below, Tajikistan takes 72 days to process export documents and 44 days to process import documents. In a landlocked remote country where distancesto market and the cost to export (US$4,300/container) and import (US$3,550) are alreadyquite high, delays in processing export and import documents are an added penalty that the country inflicts upon itself to its detriment. 28Tradingon Time, Djankov,Freund and Pham, January 2006. 21 Exhibit 111:TradingAcross Borders Tajikistan Region OECD - -- ~ o c u m e sto Export s 14 7.4 4.8 Days to Export 72 29.2 10.5 Cost to Export US$/Container) ( 4,399 1450 811 Documents to import 10 10 5.9 Days to Import 44 37 12.2 Cost to lmport usucontainer) ( 3,550 1589 882 Rank Trading Across Borders 163 Source:DoingBusiness2007 83. There are many new ways to reduceprocessing delays. Serbiaadopted a new customscode that allowed electronicfiling of cargo documents and introducedrisk management s o h a r e for customsinspections.Standardizedcustoms and transit forms under regional trade agreements can also reduce delays. Pakistan now allowstraders to file cargo declarationsbefore shipments anive and to pay tariff and port fees electronicallyand has reduced the number of days to process imports fiom 39 to 19days. Risk management techniquesare now used to select which containersto inspect. Electronic filing of documentshave another advantage, as the traders do not see the inspectors face to face so the chances of demandinga bribe are reduced. Egypt established a single window for customsdocumentation and reduced the number of approvals h m 26 to 5, and the number of tariff bands from 27 to 6. Cutting tariff bands also reduced the potential for comption as an estimated 70 percent of bribes are paid to customsofficials in order to get a lower tariff band. Monitoring performance is also an effectiveway to reduce delays not only with customsbut also with police, phytosanitary authority,Ministry of agricultureofficials etc. 84. The Government shouldmove quicklyto reduce the time to process import and export documents to under thirty days, by: a) Reforming the customscode to reduce the number of documentsneeded for processing imports and exports to under seven and reducing the number of tariff bands to under five. b) Allowingelectronic filing of cargo documentsand submissionof cargo declarationsbefore shipment arrive at the customs checkpoint. c) Introducing risk management techniques to reduce physical inspection to under 25%. d) Introducing performanceindicatormonitoring for customsprocedures especially to measure the time it takes to process exportsand imports. e) Setting up a consultativegroup of exporting and importing companies to respond to issuesresulting h m institutingneeded changes to the customs process. E. Enabling ReasonableAccess to Credit 85. Enterprise accessto credit is importantnot only for businesses to be more productive and grow but is also an important direct factorcontributing to poverty reduction. In Bangladesh,nearly half the poor people who received credit escaped poverty but only four percent of those without credit did.29 Credit and accessto it also imposes disciplineon firms, forcingthem to perform, be more productive, and better manage risks. In developedcountries,higherproductivity is stronglyassociatedwith higher use of bank credit.30 86. Tajikistanneeds to create a financial sector that is able to function as financial intermediary,attracting private savingsand meeting the financialneeds of private domestic enterprises.Although steady development has been made in recent years, the financial sector still remainsweak, and has not yet provided the corporatesectorwith sufficient financingsources,especiallyfor small and medium enterprisesmicro and small enterprises. A particular focus needs to be on: a) the improvementin monetary policy implementationand greater exchangerate flexibility; b) effective risk based supervision,includingat the consolidated level, strengthened corporate governance in the banking system; c) the entry of foreign banks; d) the strengtheningthe protection of depositors, e) developing an interbank liquiditymarket, micro-credit, leasing, mortgage loan markets and capitalmarkets3'; and f ) improving the payment system for branch networks, fosteringpenetration of financialinstitutions in secondarycities, and thus increasing financial intermediationin rural areasand the agricultural sector. 87. While reform of the financial sector for better intermediationis a necessary condition for improvingavailabilityof credit, the credit worthiness of the borrower is also a factor which determinesaccess to credit. The Doing Business 2007report argues that of all the factorsthat contributeto better access to credit, the two most important are credit information systems and well functioning collateral, foreclosureand bankruptcy laws. 88. Though the Tajik banking sector is showing signs of strengthening,it remains among the smallest and most li-agilein the region.Until recently, commercialbank activities have been predominantly focused on providing short term trade financing,often to bank insiders and related parties. Low financialintermediationis de facto creating barriers to access to finance and limits private sector led growth and as a result, the financial sectorremains too small to function as an engine for growth. Despite anumber of measuresundertaken by the Central Bank of Tajikistanto strengthen the domesticbanking systemand its regulatory and supervisoryregime since 2000, the 29Doing Business 2007 30FIAS-MIGA "Strengtheningthe investmentclimateand investmentfacilitation capacity" - 3'IFCJPEP technical assistanceprograms have worked to build institutional capacity for leasing and supportedthe developmentof aregulatory framework conducive to the developmentof amortgageloan market. IMFrecommendsthat additional measures are needed to develop a more traditional banking sector to servicemedium to large enterprises. These includeopeningof the banking system to entryby major internationalbanks, development of a liquidity market, strengtheningcontract enforcement,improving internal governance and further development of microfinance initiatives. 89. Effective collateral systems, governed by adequate secured transactionslaws,help borrowers to obtain capital and lenders to ensurethey will be repaid. Suchlegal fiarnework allows lenders to mitigate their risk of non-payment and in return the borrowers are able to obtain credit at a lower cost. Without effective collateral,lending becomes more risky and thereforemore expensive.Lenders respond to the absence of adequate collateralby increasing the cost of credit to cover their risk and by lending less especiallyto more risky borrowers such as small firms and low income households. In addition to the legal framework, there needs to be recognized evidence of ownership and title to the collateral, and a centralized registration system for property that would be used as collateral and evidence of the existence of the lien, pledge or mortgage. 90. The inadequacyof the secured transactions laws is evidenced by banking practice in Tajikistan. Lending decisions are highly reliant on collateral and, due to ineffective enforcement, the averagevalue of collateral can go up to 200 percent for new borrowers. This rate is extremelyhigh given the significantlylow averagevalue of fixed assetsin the country.Allocation of bank credit is often not based on financialrisk assessments,but rather on connectionsand implicit guarantees. 91. In Tajikistan,the laws that governthe secured lending and hypothecation are oftenoverlappingand in conflict with each other. For example, the Land Codeprohibits the hypothecation of immovableproperty while the Civil Code (1999) and the Mortgage Law (1998) elaboratesprovisions for this. Other Codes and Laws which cover collateral issues are the Civil Procedures Code and the Pledge Law on Movable Property. This lack of coherency and redundancy leaves a lot of confusion as to the effectivenessof the collateral and thus dissuades lending and makes it expensiveboth'in terms of interest and loan to value ratio. The Law on the Registrationof Rights on Real Estate is currently under development.All these laws need to be harmonized so as to increase legal certainty for the creationand enforcement of secured interests. 92. Although Tajikistan is better than some comparatorcountrieswhen it cometo registeringproperty, as seen below, thereneeds to be a unified registrywhere pledges can alsobe "perfected". Thenumber of procedures involved is six, the time it takes to register property is 37 days and the cost is two percent of the value of the property. The comparators for eastern Europe and Central Asia and the OECD countries are shown in the exhibit below. The cost figure includes costs, such as fees, transfer taxes, stamp duties, and any other payment to the property registry, notaries,public agenciesor lawyers. The cost is expressed as a percentage of the property value, assuming a property value of 50times income per capita. Exhibit IV: Registering Property Rank 40 Procedures (Number) 6 6.4 4.7 Time Days) ( 37 102 31.8 Cost (%of PropertyValue) 2 2.7 4.3 Source:Doing Business2007 93. The Ministry of Justice is presentlyworking on developing a unified registry system for movable property to implementthe newly enacted law on movable property. Implementing regulations for the Registration of Pledged Movable property is also under development to address the technical issuespertainingto the registry system. 94. A critical institutionalelement supportinga well functioningcredit market is credit or consumer reporting firms and other types of public credit informationregistries that provide rapid access to accurate and reliable standardizedinformationon potential borrowers. Experience from other countriesshow that credit informationbureaus or registriesplay a significant role in expanding SME and retail customers' accessto credit by providing lenderswith information on the creditworthinessof potentialborrowers, thereby strengtheningborrowers' incentive to repay the credit. Credit registries make borrowers' reputations accessibleto other creditorsby facilitating information sharing among lenders, and reduce the cost of screening as well as facilitating correct loan pricing. 95. In Tajikistan,there is currentlyno credit bureau that allowsbanks to access credit payment history and outstandingbalance information. Apart fiom a small group of clientswith long credit history, banks do not have adequatemechanisms to assess the risk and credit worthiness of their clients. In this regard, to foster growth and maintain confidence in credit markets, the Governmentof Tajikistan needs to establishappropriate operation of credit bureaus, remove legal obstaclesto exchange credit information and create incentivesfor sharing and proper use of credit information.Once a credit registry becomes operational and utilized by the larger credit providers, it is likelyto provide a leap forward in improving access to finance. 96. Many countries are now workingto establish or improve their credit information systems. New credit bureaus were launched in Bulgaria, Georgia and Kazakhstan. Mauritius launched a public creditregistry. The Czech Republic launched a privatecredit bureau for non bank institutions (e.g., trade credit ).A new credit bureau law makes credit information available for seven years in Lithuania. 97. Severalcountries broadened the scope of their credit reporting. Romania now offers more information on loans and on time payments. Pakistan now records all loans in its credit registry expandingcoverageof borrowers about 18times32.Azerbaijan introduced a unified registry of charges over immovableproperty. To be efficient,there is 32Doing Business2007. 25 no need for legal review or authenticationof filings-thesejust serveto stall the registrationprocess. Open access to correct errors should be sufficient. 98. Ten countriesmadeit easierto create and enforce collateralin 2 0 0 5 . ~Several ~ countries also expanded the types of assets that can be used as collateral. Slovakiawent the farthestby making it possible to use all movable assets as collateral -both present and future, tangible and intangible- and sincethen more that 70percent of new business credit has been securedby movables and receivables.Armenia,the Kyrgyz Republic and Serbiamade it possible to enforce collateral out of court, as did India." 99. About 90 percent of the firms surveyed in the 2005 BEEPS surveyrelied on retained earningsto financeinvestments. In Tajikistanthe percent of new investment financed by formal credit was under fivepercent. Two-thirds of the firms surveyed by the EC find accessto financetobe a major constraint to doingbusiness. Underdevelopment of the financial sector, as well as a bankers' lack of understandingabout lending to SMEs, severelylimit accessto credit. The recent World Bank Investment Climate Assessment of Tajikistan suggeststhat more than three quarters of the working capital in surveyedTajik firms derives fiom internal funds or retained earnings, followedby loans fiom family and fiends. Bank credit in Tajikistan is costly and difficult to obtain. As seenbelow, the key problems limitingaccess to finance in Tajikistaninclude: inadequatebanking sector, absenceof credit reporting agencies,and the lack of a predictable legal framework for effectivecollateral systems. Exhibit V: Getting crediP3 Tajikistan Region OECD Strengthof Legal Rights Index(1-lo) 4 5.5 6.3 Depth of Credit Information Index (0-6) 0 2.9 5 Public Registry Coverage(% of ~dults) - 0 1.7 8.4 - Private Bureau coverage phof~du~ts) 0 9.4 60.8 Source: Doing Business 2007 100. It is the Government's goal to increase formal domesticborrowingto 15percent of new investment within the next three years, by improving accessto credit for businesses in Tajikistan. The Governmentwill take the followingstrategicactionsto meet these goals. (Reform and strengtheningof the banking sector will be addressed separately by the Governmentunder anotherprogram): a) Establish a nationwide credit informationsystem which is unified acrosstypes of loans both for bank and trade credit. The credit informationwill include outstandingloans, paid up loans, default both present and past, as well as bad checks. 33Doing Business 2007 b) Enact or strengthen the collateral and mortgage laws by harmonizing the legal fiat-neworkgoverning secured lending to provide consistency and bring them in linewith international best practice. The legal framework should provide for: a Broad scope of permissiblecollateral both present and fbture, movable and immovable, tangible and intangible. a Ease of creationwith agreementbetween parties being sufficient with no need for notarizationor other scrutiny or approvals. a Clear and comprehensiverules of priority of creditors' claims on pledged assets based on the order of "perfection" i.e., recorded in the fixed transaction registry. A centralized pledge registrationsystem with open access to all -with the days needed to registerproperty reduced fiom 6 to 4. Effective enforcement provisions, includingout of court enforcement of collateral. c) Strengthenthe registration of movableand immovableproperty by modernizing the system, and install regulationson the establishment of a centralized, computerizeddatabase to record pledges on movable and immovable property, where such security interests will be open for public search. F. Simplifying the Tax System 101. The burden of a tax system is not just in the tax rate ( e.g., the percentage of gross profit that a business pays in taxes) but also in the complexity of the filing and the number of taxes that abusinesspays. The more complex and numerous the tax system, higher is the rate of evasion and escape into informality. The burden is particularly onerous for small businesses. Simplifyingthe tax system can significantlyincrease tax collectionsand fiscal revenue generation. Although taxes are low in Peru by Latin American standards,the evasionrate is high because it takes 74 days and 53 tax payment to fulfill tax requirements34.Simplifying the tax regime also has a significant effect on corruptionin tax administration. Due to the tax reforms in Georgia, the perception of corruption among firms surveyed fell to 11%in 2005 fiom 44% in 2002~~. 102. By adopting some of the innovationsby other countries discussed above, Tajikistan can furtherboost the growth and development of the private sector. Thirteen countriesintroduced tax reforms in Eastern Europe and central Asia in 2005/6. The main motivation was competition to attract investors. Albania reduced its corporate taxes fiom 23% to 20% and Georgia and Lithuania abolished road taxes altogether. In Egypt businesses can file taxes electronically,as a result 2 million Egyptians filed taxes in 2005 doublethe number as in 2004~~.Croatia simplified its tax forms cutting 8pages of tax returns and shorteningthe time required to complywith tax regulations by 5 days. Slovakiaconsolidated its social taxes which are typically based on gross salaries. 34Doing Business2007 103. Although Tajikistandoesnot compareunfavorably with comparator counties on the time it takes to prepare, file and pay taxes, Tajikistan can still M e r simplify its tax systemto increase revenues and reduce informality. Presently it takes 55 payments and 224 days a year to complywith tax requirements.And taxes amount to 87% of gross profits( includingsocial and payroll taxes) as seen in the exhibit below: Exhibit VI: Paying Taxes Tajikistan Region OECD Rank 154 Pay-rIents (Numberper Year) 55 48.3 15.3 Time (Hoursper Year) 224 423 202 Total Tax Rate ./oofprofit) ( 87 56 47.8 Source: Doing Business 2007 104. Bytaking the followingactions,the Government intendsto simplifyits tax regime by reducing the number tax payments a year for small businessesto under 30and the time it takes to prepare, file and pay taxes to under 200days: a) Amending the tax code to systematicallyreduce the number of taxes being paid and the time it takes to prepare, file and pay taxes. b) Developing a plan to reduce informality, low collections and tax evasion by understanding the factors that contribute to these conditions. G. Making Business Exit Reasonable and Easy 105. Productivity of theprivate sectorwill grow if less productive and less efficient firms are continuouslyreplaced by moreproductive and more efficient firms. If less productive firms continue to linger the overall productivityof the private sector will be lower. If the cost of failureis high, entrepreneurswill hesitate to enter business and the growth of the private sector will be slower. One of the costs of failure, in additionto the stigmaof failureand other issues, is the cost and difficulty if closing a business. 106. Making the bankruptcyprocess more efficientand equitablecan significantly improve the resolution of financial distress. Speedingthe bankruptcyprocess also will increasethe recovery rate for creditors. While reorganizationyields thebetter recovery rates and survival of viable businessesin rich countrieswith sophisticatedlegal and institutional structures,in middle and low incomecountries simple liquidation (bulk sale of assets) or foreclosureoften works best, not only in terms of recovery rate but also in the likelihoodof saving a viable firm, as the exhibit below illustrates: Exhibit VII: Recovery Rates (cents on the dollar) Foreclosure Reor~anization Rich Countries 59.7 75 Middle Income 39 33.4 Countries Poor Countries 27 20 Source:DoingBusiness Database 107. To improve the bankruptcyprocess and to increasethe recovery rate as well as ensure that viable firms survive, creditors need to be given a greater role in the bankruptcy process. Creditors have an interest in rescuingviable companies and closing unviable ones -their recovery rate is higher in each case. Speed of the resolution is also important for as time goes on the finn's value deterioratesleaving less for all parties including employeesand suppliers. 108. Many countries have been improvingtheir bankruptcy laws in recent years. a) Reformsin the Czech Republic substantially reduced the time to go through a bankruptcy. b) Serbia introduced strict time limits and standardsfor bankruptcy administrators. Such reforms make it easier for firms to get credit as creditors know that they will recover if the business does not succeed. c) Creditorsgot more say in Romania and Slovakiawhere they can form a committeeto represent their interests. d) SouthKorea consolidated four bankruptcy acts into one, among other things givingcreditors more say. e) FYR Macedoniaintroduced reforms that set strict deadlines including for appeals and gave creditorsmore say. (At the sametime, Uzbekistan went in the opposite directiondowngradingsecured creditors' claims.) 109. Tajikistan does not compare unfavorably with comparatorcountries when it comes to closing a business. The exhibitbelow provides the benchmarking for this issue. It includes: a) average time to complete a procedure, b) cost of the bankruptcy proceedings, and C) the recovery rate, which calculateshow manycents on the dollar claimants (creditors, tax authorities, and employees)recover from an insolvent firm. Exhibit VIII: Closing a Business Taiikistan Region OECD Rank 50 Time (years) 3.0 3.5 1.4 COS~%of Estate) ( 9 14.3 7.1 RecoveryRate (cents on the 39.1 29.5 74 dollar) Source:Doing Business2007 110. It needs to be noted that in Tajikistanin particular, theburden of tax inspection and assessments upon closure are particularlyonerous, leadingbusinesses which are no longerviable to continue to lingeron as shell entities, thousands of which remain registered but may not be operating. The data in exhibit VIIImay not have captured these businesses. 111. As part of its PSDstrategy,the Government of Tajikistanwill take the following action to make closing a business easier, with a goal of reducing the time to close a business to under one year and cost under fivepercent of the estate: a) Review bankruptcy laws and make the necessary amendments to improve the ease, simplicity and cost of bankruptcyproceedings. b) Provide training forbankruptcyjudges and administrators. c) Implement amendedtax code for inspectionsupon closing. d) In the medium to long term, set up bankruptcycourts orbankruptcy sections in commercialcourts, giving them solejurisdiction in bankruptcy cases. VII. SUPPORTING PRIVATE SECTOR TO INCREASE PRODUCTIVITYAND HUMAN CAPACITYTO DRIVE GROWTH 112. The Tajik entrepreneur has littlecontact with the outside world. Although some of the old relationships fiom during the soviet era arebeing revived as privatized enterprises in other FSU republicsare beginning to prosper, this is more the exception than the rule. After the collapse of the Soviet Union, traditional trade linkages for the outputs of Tajik enterpriseswere severed, and remained severed during the civil war. During this period traditional trading partners reoriented their sourcesof supplyboth regionally and internationally.Continued growth and diversificationwill require that these trade links arere-established where viable and that new trade opportunities are identified and business opportunitiesare exploited. 113. Conventionallytradersplay an importantrole in integrating markets by communicatingopportunities, buyer requirements, standardsetc to producers. But in Tajikistan,trading activities have been poorly developed and those traders that have emerged lack access to working capital, storage and transport facilities'necessaryto grow their businesses. Other sourcesof market information forproducers are also lacking, with limitedpublication of market prices and no informationon buyer requirementsreadily available. 114. Input marketspresent similarproblems, limiting the availabilityof raw materials and suppliesnecessary for profitablebusiness, for exampleherbicides, pesticides and fertilizers in the agricultural sector. Lack of exposure and experiencewith market oriented business has also led to a lack of availability of criticalresources such as finance, and under developed skills in key areas such as business planning and strategy, sales and marketing, financial management and human resource management 115. The overall effect is to limit the dynamism and flexibilityof the private sector in respondingto new market opportunities,and a failure to take advantageof changesin traditional industries. The cotton sectoris an important example, where Tajikistan has not benefited fiom recent restructuring in world cotton markets. 116. Once the investment climate and the environment for doingbusiness has been sufficientlystrengthened, the Government might wish also to provide certain selected non-distortionary support to the private sectorto improveproductivity and human capacity to drive growth. In a country likeTajikistan,where markets and market access are insufficientlydeveloped, suchsupport might include makingbusiness services available on a demand basis, facilitatingor improving accessto markets, attracting and facilitating foreign direct investment, improvingthe skillsof the work force so that Tajik businesses can be more competitive and instituting reforms in the financial sector. 117. The measures set forth should have as their goal the increase of the private sector contribution to GDP by 10percent. A. Facilitating Access to Markets 118. Micro enterprises might offer a good start for climbingout of poverty, but with trade liberalization and impendingWTO accession, the local SME will not survive unless it is competitive. For SMEs to be competitive they must increasetheir productivity and reach a minimum economyof scale at which their business is competitive.The markets in Tajikistan are small. In orderto reach any sort of scale at which they are competitive, SMEsmust be able to access external markets both to sell their output and procure inputs and technology at a competitivecost. In order to accomplishthis, three issues become critical. a) Transport and communications in and out of Tajikistan must improve b) Non-physicalbarriers such as the customs and the visa regime must be efficient and facilitative c) Enterprisesneed to be supported with contacting external firms for trade and investment. The Governmentshould aimto improveits ease of trading acrossbordersto under 100. B. Making Business ServicesAvailable 119. In addition to lawyersand accountants, businesses need several other services in order to operate effectively and be more productive. Theseservices could include services for product and market development,process improvement, interior decoration and design, collection services,messenger and delivery services, advertising services, event management services, intermediaryservicesand many others. 120. This business-support service industry is as yet underdeveloped in Tajikistan, partly due to lack of demand and partly due to lack of supply. By helping to create both the demand for these services and the supply, a vibrant business servicesmarket could emergeto help support the growth and development of the SMEs. The Government should aim to increasethe number of servicebusinesses set up and operatingby 100 percentper year. 121. The scheme describedbelow is an option the Governmentwishes to interest donors in providing fundingto supportingthe emergingprivate sector. The proposed scheme,which would consist of an educationltrainingcomponent and a business services center for entrepreneurs and SMEs, would be in part financed through a "matching grant" scheme. Business Services Center 122. Thebusiness services center would be located in Dushanbebut be accessiblevia the internet for other regions. The main hction of the business servicescenter would be to provide a serviceto matchenterprises in need of particular expertise with business servicespecialists,both individuals and firms, and provide a scheme for financialsupport for the delivery of the services. The center would maintain a roster of specialists (both individuals and firms), includingthe alumni of training sessions, and publicize the availability of the services,inviting SMEsto utilize the services. The availabilityof a matching grant would also be publicized. 123. The Center would also support the establishmentof business associationsfor these service organizationsand the h e w o r k for accreditationand maintaininga roster of accredited service organizations. The box below provides details of the workings of the business service center and the matching grant scheme. Box Ti: How a Business Sewice Center andMatching GrantScheme wouldwork Upon expressionof interestby a firm,the Center would provide the f m with contact information for firms and individuals listed as service providers in their area of interest, as well as information about the matching grant scheme. It would thenbe up to the firm and the serviceprovidersto select each other on a competitivebasis. The Center would also maintain standardizedcontractsfor services that the firms might use. These would have been providedto the firmwith the packageof information. Upon reachingagreementthe firmand the serviceprovidawould signthe standardizedcontract, a copy of which would then be registered at the Center. The contract would specify all payment terms,and the Center would maintain a record of the transactionsconducted and report to the Monitoringand Evaluation Committee periodically on the results of the scheme (see section on Institutional Arrangements). The Center would be staffedandmanagedby consultantsthat the donor would select. The firm would pay the serviceprovider accord'i to the payment terms upon satisfactorycompletion of the service. Upon producing a proof of payment to the service provider, the Center would !knish the documentsto the Matching Grant fund, which would reimburse the firm asper the matching fonrmla. Mutching Grant Scheme. The donor would set up a MatchingGrant Scheme in the form of a fund that would be managed by an executiug agent(if the donordoes not wish to retain this functioninhouse). The agent could be an individual of fiduciary stature* a consul- or accounting firm or an NGO. It is importantto keep theMatchingOrant fimd and the Center at arm's length. The fund wouldreimbursefirmsusingthe businessservicesunderthe scheme, accordingto a formulato be developed. An example mightbe that the fundreimburses50%of fees up to a maximum of US$2,500 for each transaction. The center would need to submit the contract copy, the proof of payment,the t e r n of reference for the work and a completiozlrepart to the fund. The h d would then disburse directly to the firm The same firmmay not be supported by the scheme more thanonce every three years and up to a maximumof two times.A notionalsizeof such amatching grant fund mightbe aroundUS$2 million. The overall supervision of the scheme would be the responsibility of the donor. The scheme d d be implementedovera five yearperiod and ifthe fundis fully disbursedbefore then, the governmentwill seek alternativedonorsto continuethe shemeif it deemsthisto be worthwhile. C. Transport and Communications 124. The Governmentfully recognizes this issue as being critical for Tajikistan. The remoteness and the landlocked,mountainous terrain of the country makes air transport critical for generating and maintaining contact with the outside business world. In this regard the Governmenthas committed to taking bold steps to reform its aviation sector. It will : a) separate aviation policymaking from aviation technicalregulation, b) unbundle the airline airport and air traffic control, and C) gradually liberalizethe aviation sector so that more external airlines can fly to and fkom Tajikistan. 125. The separationof the policymaking function from technical regulationsis essential in orderto introducefree and fair competitionin the market. In aviation,since policymaking includesnegotiating bilateral agreementswith other countriesregarding access, co-minglingit with technical regulation opens opportunityto restrict other airlines from flying into Tajikistanon technical grounds. This problem is W e r complicated in the case of Tajikistan since the technical regulator had previously been part of the airline, and the regulatorsmostly alumni of the airline. 126. The separationof the airport from the airline is also fundamental. For as long as the airport and the airline are one,the latter can use the former to keep competition out - to the detriment of the country. The Government is currently preparing a plan to implement the separationand the separationitself is scheduledto be completedby the end of 2008. 127. The other area of concern is telecommunications. While the mobile part ofthe sector is growingrapidly, with four licenseespresently in operation, external communicationsis still a serious poblem for businesses. Sectorregulationsneed to be updated and there needs to be significant investment to bring the systemsup to modem standards. Alternatives to fixed-line communications and interconnections, also an important issue to be considered, are discussed further in the PRSP section on Infrastructure, Industry and Energy. D. Visa Regime 128. While the issue of customs simplificationhas alreadybeen discussed earlier in this report, there is a need to make the visa regime simpler and competitive with other countriesso that the external business person finds easy access to Tajikistan. 129. Many countries, in trying to compete for trade investment and tourism, have greatly simplifiedtheir visa regimes. Many have even abolishedvisas altogetherfor a select group of countries, e.g., Singapore,Hong Kong, Malaysia,UAE, and others. Many others, such as Egypt, Turkey and Azerbaijan, with the benefit of electronicprocessing, have made arrangementsto issue visas on arrival for the simplepayment of a fee with no formsto fill out. The Tajik visa regime, although greatly simplifiedform what it was previously, is still uncompetitive compared to some of the countries mentioned. 130. The Governmentas part of its PSD strategy will undertakethe following measures: a) Simplifythe visa regime to allow easier accessto Tajikistanfor business and tourism, includingby making visas available on anival for a select group of countries. b) Design and install a computerizedsystem for processing visas upon arrival E. EnterpriseSupport 131. Given the multiple supply-sideconstraintsthat have been identified, including lack of market information,obsolete technology, standards and quality issues and lack of finance, inward investment and the development of internationalcustomer/ supplier relationships will be critical to achieving short-term growth in the private sector. Consideringthe lack of information availableto domestic companies and potential international artners,it is likely that activitiesto broker these types of relationships will be important.?5 132. Other activitiesfocusing on enterprisegrowth may include vendor development, assistanceto small firms to improve the quality and reliability of their products in order to establishlinkageswith larger firms in the domesticmarket place and assistance to small enterprisesto organizethemselves effectivelyin orderto gain improved access to markets. These activitieswould appear to offer significant potential in light engineering products for the mining industry and also in out-grower schemes for agriculture and agro- processing. On the demand side, evidence form other countries indicatesthat information and support for large firmsto procure domestically,and assistance for entrepreneurs to structure business models can also be effectivewhere the private sector is thinly developed as in Tajikistan. 133. Business associationsare poorly developed, and those that do exist tend to be dominatedby vested interestsand politically connectedbusiness people. These existing associationsdo not therefore adequately represent the views and interests of independent small businesses and arenot effective in lobbying for change or providing services to their members. There may be scope for supportingthe developmentof new associations in key growth sectors as a vehicle for policy lobbying, informationprovision, business to business cooperation and for technical and management support. 134. A schemeis also needed to introduce the Tajik entrepreneursto firms in other countries, especiallyneighboring countries, so that trade, investment and collaborative relationships might develop. These relationshipscan take several forms. The Government should aim to have established at least ten internationalpartnerships. (See Box III, below.) 35 There is evidence from current programsoperatingon a small scale in the fruit processing sector that these can be effective in developingcommercial relationships. While transactionscostsrelatingto thesetypes of brokering activities are high, theywill have an important demonstration effect and can kick-start the private sector development process. ' Box m. Forms of Tradingor BusinessRduh'onships withEkternal Firms fipont relotionship, where the local fmsimplyexports itsproduct to the external finn. Private LabelManufacturing? where the external firm buys the output of the local firm and then sellsitunder itso m label. Cowact Manufacturing, where the foreign parmer provides working capital in the form of raw materialsand sometimesmoneyand off takesthe production while paying the enterprisefor the manufacturing time. TechnoIogy Transfer, where the foreign partner also puts in equipment or technology and sometimesworking capitaland receivesa shareofthe equity,profits orproduction inreturn. Fixed CopialInvestment, to upgradeand rehabilitateexistingplant to bring it into complimce with foreignmarket needs so as to enablethe partnerto obtain a returnthrough sales of the upgraded product for its own uses or in its own markets. 135. There are also a number of possible interventions which donors could h d that would be targeted at fosteringcommercial relationships with business people from outside the country. These include trade fairs, shows and missions, as well as a matchmaking assistance scheme,which would match the Tajik enterprisewith trained intermediaries who get compensatedmostly on results. These programs are discussed in more detail in Box N,below. BOXN:Programs for tradedeveiopmenffor SMEs A morckmrrRZng assistance scheme can not only facilitate the search for appropriate opportunistic and strategic trading or investment partners but also assist in properly presenting the Tajik opportmities in order to attract the potential foreign trading or investment partner to Tajikistan. This would involve preparing a project proposal or offwing document, samples if needed for the enterpriseand then trying to find strategicor other firmsin other countries who might be interested in the opportunitypresented by the enterprise. Oncepomtialpartaers have been located, they would have to be brought together with theenterpriseand kept together until the deal is c o n s m t e d Thus the services of the intemxdiaries would also need to include assistance in the negotiation and contract process, keeping the deal together Guring the due diligenceprocess allthe way to closingand subsequentfollowup duringtbe implementationphase. The compensationof the intermediary would consistof an initial retainerand a success fee. The feewould be shared with the fmaccordingto someformula The intermediariesshouldtypicallybe private and once retained would work with severalTajik enterprisesat the sametime. In addition to scherneslike this, the government also wishes to interest donors m fundingtMdtmissions where severalentrepreneursvisit companies in other countries to study their methods, exchange notes and perhapsbuild relationships for the future. Trade shows andfairs might also be organized in Tajikistan to which foreign co@s would be invited. The donors could also supportTajik enterprises io displaying theirjm&cts in foreigntrade fairsbydefraying part of the cost. 136. In the long run,severalotherquestions require attention. These includethe issue of ground transportation,which is addressed in more detail in the PRSP and NDS for Infrastructure, Industry and Energy. In order to attract equity capital to Tajik enterprises, the corporate governance regime for closely held or private companies must be strengthened in areassuch as protection of minority shareholders,entails international audit standards, disclosurerequirements, changes in the company law to include protections for the minority shareholders and provisions against fraudulent conveyance.36 Thesereforms while needed are not likely to be implemented in within the PRSPtime frame but will be addressed in the longer term. 137. In summary,to improve accessto markets, the Government's strategywould includethe following: a) In the shortterm, the Governmentwill initiate measures to facilitatepartnering with foreign (in particular regional) firmsto improve access to markets, technology and capital, specificallyfocusingon the development of investment, supplier and customerrelationshipsbetween Tajik and international and regional firms. Theseactivitieswould also include trade missions, studytours and the organization of trade fairs. b) In the longtern, in addition to the restructuringof sectorssuch as aviation and rail, which will increase access to the count~y(discussed elsewherein this section),the Governmentwill address improvementsin the country's corporate governanceregime. F. Facilitating Foreign Direct Investment 138. Experiencearound the world seems to show that if a countryhas a comparative advantage for certainsectorssuch as mining, metallurgy, energy and other natural resources, large scaleinvestors are generally aware of it and seek concessions if this fits their strategy. Certainly developingcountriestend to rely on investment in extractive industries when they are well endowed in particularresources as a means to use their natural endowments to propel economic growth. For example, Tajikistanhas the second largest silverdeposit in the world and the grade is very high by internationalstandards. If developed, this deposit would have the potential of generating significantroyalty income and local employment. 139. Nevertheless,while generally less sensitiveto the local investment climate, investments in natural resources, or 'primary' industries, tend to create lower levels of employment and ancillarydevelopmentper unit of investment than do investment in manufacturing, and a significantpart of the investment is likely to go to pay for external vendors and contractors. 36In general it can be said that small companies maynot need to move to international audit standardsorbe subject to disclosure requirementssimilar to larger listed companies. Small companies in Tajikistan,however, have limited debt capacityand ownersthat may not want to relinquish control of the companyto outside investors.Expansion capital thus may often be need fromminorityprivate investors,and in orderto attract such investors,the corporate governance regime needs to have provision to allow such investors to examinethe books andbe able to rely on their authenticity. 140. Over the longterm, an optimal FDI strategy would not solely focuson primary sector investmentbut would targeting a broader spectrum of industry and sectors, and diversityin terms of minimum scale, which maybe more beneficial for a country in creatinga more broadly based and more sustainablepattern of investmentsthat could createmore employment and growth. This approachwould also assume that particular sectorsin which the countrymay have a comparative advantage are'identified,based on factors such as workforceskills, history and so forth. 141. There is now some evidence that while in general there is no correlationbetween per capitagrowth rates and the share of total FDI in GDP,there is a strongpositive correlation between manufacturing FDI and per capita growth, and that economies featuringa range of manufacturing sectorstend to grow more rapidly than those investing primarilyin naturalresource extraction. FDI in manufacturing is more likely to create forward and backward linkageswith domestic finns and the spillovereffects lead, inter alia, to productivity improvements for domestic firmsthus increasingincomes and reducingpoverty. 142. Nevertheless, broad based investmentin manufacturing, though desirable, is generallymuch more sensitiveto the investment climate of a countrythan investments in the primary sector. Therefore,the actions recommended in this report need to be taken if any meaningful FDI promotion and facilitationstrategy is to be developed, and they need to be an integralpart of any such FDI promotion and facilitation strategy. There is today significant competitionbetween countries, and among CIS countries in particular to attract FDI and the main tool of competition is the improvement of the policy, legal, regulatory and administrativeenvironment.To be competitive,Tajikistan needs to strengthen this environment. 143. It also makes a difference as to which source countrythe Tajik FDI strategy targets. The so called South-South FDI now accounts for more than one third of all FDI goingto developing~ountries.~'Southern companies are more familiarwith challenging investment climates,often having lower overhead costs, geographic proximity and cultural similarities,making coordination of foreign operationsmore effective. Thus a regionalFDI strategyoffers a higher likelihood of successfor Tajikistan. 144. The success of investment promotion agencies in developingcountries is as yet unclear. International experience showsthat an agencyin a poor investment climate is less effective at attracting investment. Agencies devotingmore resources to policy advocacy are more effective because such activity is not onlybeneficial to foreign investorsbut to domestic investors as well. The agenciesthat have established reporting mechanismsto the country'shighest policymakers (thepresident or prime minister) or to the private sectorhave been systematicallymore efficient at attracting foreign direct in~estment.~~ 145. Investor conferences,which couldbe useful in creating awarenessand interest in the country, cannot do more unless the investment climate improves. On the other hand, - 37SouthernMultinationals a growingPhenomenon Battat, Aykut -The WorldBank Nov. 2005 38Jacques Morriset-The World Bank. these conferencescan be most beneficial when they are also linked to improvementsin the investment climate and used as an instrument to: a) generate investor awarenessof the country, in particular of its effortsto become an attractive and investor-friendlyinvestment destination; and b) obtain valuable feedback fiom potentialinvestorsto identifyimprovements in the investment climate and business environment they would require before investing in Tajikistan. c) fine tune and better direct the programs to improvethe investmentclimate,update its investment promotion messages and restructure,if needed, its investment related institutions. 146. If deployed in this way, investor conferencescan be a useful instrument for ' improvingthe investment climate while generatingawarenessamong foreign investorsof the Government's commitment to improve the investmentclimate. While some opportunistictransactions might emerge for an investors' conference, it is generally not an instrument for generatingtransactions. 147. Thus if the country is to have a viable FDI strategy, the Government plans to take the followingactions: a) Implement the PSD strategy and the investmentclimaterelated in particular, b) Emphasize a range of sectors for investment, c) Make the necessary institutional arrangements to facilitateFDI ( discussedmore fullyin the next chapter) d) Conduct an awareness campaign for regional source countries, which might include investor conferences. G. Education and Training 148. Under this component,the donor would provide training to qualified individuals in various types of businesses.These might includebusiness intermediation,preparing businessplans, cashbudgeting, productivityimprovement, credit and collections, preparing loan applications, sales and marketing techniques, advertising and communications, international accountingstandardsetc. 149. The training would be provided by expatriateconsultants as well as regional or local consultantsthrough thematic sessionsthat would each last two or threeweeks. The training sessions would be widely publicized in advance and applicants(both individual and those sponsored by a company)would be selectedbased on qualificationsand experienceand in the order in which they apply.Therewould be a small fee that the traineewould need to pay as earnest money other wise the training sessionswould be free of charge. At the end of the training sessionthere would be an examination and upon passing the test each candidate would be awarded a certificate of competence.The candidates would be encouraged to start their own companies for providing the services. H. Making Available aWell-Trained Work Force 150. For Tajik enterprisesto be competitiveand to grow, there needs to be available a well-trained work force. While lower labor costs can help to keep the cost of Tajik products low, if the workforce isnot skilled and productive the advantageof lower labor costsmay be lost, particularly as other low-cost producers upgrade the skills level of their own workforce. There is thus a need for vocationaltraining centersin the various regions of Tajikistanto train workers in the skillsthat are needed by the private sector. 151. In order to develop training courses,curriculaand programs, there needs to be extensiveconsultationswith the private sector to assess the actual needs and the changing needs of the sector. The programs should be flexible and change with changingneeds. The coursesoffered might include computer skillstraining, automotive,textile technology, mining, and so on. 152. In the short term, vocational training centersmight be established in existing educational facilities in the major urban centers. In the medium term, thesecould be extended to the regions so that ultimately there would be vocational trainingcenters throughout the country. 153. Providingtraining alone is not enough. As each trainingcenter must also play an activerole in placing the graduatesinjobs, each center would also have its own placement servicewith a centralized clearing house and databasein Dushanbe. Placement centers would be privatelyowned and would be compensated on the success of their placements. 154. On-the-job training, in which employeesreceive trainingin areas of specific relevance to their work, is also a necessary element of skills enhancement. The Governmentwishes to interest donors in establishinga matching grant scheme to help defiay the costs of salarieswhile employeesparticipate in on-the-job training.39 155. Thus as part of its PSD strategythe Government will make vocationaland on the job training availableby: a) Settingup specializedvocational training centers which eventuallywill be located in Dushanbe and in urban centers throughout the country, based on probable demand for their services. b) Settingup placement agencies in each of the centers. c) Settingup matching grant schemes to help defray enterprisecosts of on-the-job training. 39 Such a schemecould be set up on a slidingscalebasis, where the scheme would pay a steadilydecliningportion of the salaryof employees in training. The company would have to applyto the hnd in order to receive this assistance and fill out a formoutlining the type of training required and the salaryto be paid. Its employeeand wage records should be available to the fund for inspection if the fund sodesires.The fund could be run by consultantsor anNGO selected by the donor. I. Addressing Sector-SpecificIssuesto Support ~ r o w t h ~ ' Regulation 156. In additionto cross cuttingregulations which affect all or most sectors, each sector has its specific set of regulation which govern behavior in that sector. For example,the aviationsector has its own set of specificregulations, as does the power sector and the telecommunications industry. These sector-specificregulations can have a two-fold effect on the health and performanceof the sector. While they are needed to protect the public interest as well as the interest of players in the sector, they often tend to prevent investment and thwart growth, are often outdated given the technological advancementsin the sector, or are susceptible to being co-opted by vested intereststo prevent competition and preserve the statusquo. 157. There is a need thereforeto examinecarefully sector-specificregulations to determine if they are needed in the first place, and if so what is the best configurationto generate growth and development of the sector so that the users of the infrastructure servicescan receive the best service at the lowest cost whilethe interestsof investorsand the public are protected. This implies that, in additionto safety,equity and social issues, the objectiveof economicregulationwould be either to foster investment if this is needed and /or reduce cost sothat the consumer can enjoy lowertariffs at no detriment to service in then long run. 158. Increasedprivate participation in infrastructureworldwide has brought with it the need to have regulatory models in place to balancethe interestsof the public with those of the private participants. Typically,the regulatorymodels used to achieve this balance have been adapted fiom models in industrial countries. In order to be effective for developing countries, the regulatory modelsneed to be responsive to the relative priorities of investment and cost reduction, the possibility that regulatory intervention could be causing under-investment, and the stage of developmentof the sector and the country. 159. Exhibit IX provided below is illustrative of the regulatory priorities that need to be taken into account in the utility sectors,balancing levels of servicedemand with servicecoverage in order to provide the best senice at the lowestcost. The Government as part of its sectoral reform strategy intends to review the sector-specific regulatory framework in each of the infrastructuresectors and introduce a program of regulatory reforms aimed at increasing the level of investment in the sectorsto bring the service provision up to a level that allows the private sector to receive a reliable service at reasonable cost. This is direlyneeded in Tajikistan if the private sector is to grow and prosper ( see "infrastructure" section below). 40This subjectis discussedmore l l l y with respect to short term actions ( 1-3years) in the PRSP "Infrastructure, Industry and Energy*'section. 41 ExhibitIX: TheSector Prlorlty A &@.)y Smqw NeedsreM.a Coll Redwtbm ConllrdueUm MEDllJM LOW Law Lar HILL 160. Thus, as part of its PSD strategy,the Governmenthas indicated it will take the followingactions: a) Conduct structuredprivate public sector consultationsto identifypriority reforms in the sectors. b) Set up a prioritizedprogram of sector-specific regulatory reforms e.g., mining and minerals, aviation, telecommunications sectors. (For details see Industry section of PRSP.) Industry 161. At the enablingenvironment level, revision of the laws and regulationsgoverning the key primary sectors can have a positive impact on export growth, particularly in Tajikistan, where until recently, many of the natural resource reserveswere kept secret, and it is onlyrecentlythat some of the hidden value of theseresources are beginning to surface and could be wisely exploitedby the country. 162. Only in the long run,however, doesthe Government see it as important for Tajikistan to review its mining laws and licensing and concessionproceduresand address many of the impedimentsput up by the various agencies(Ministryof Industry, Department of Environment, Forests and Fauna, local administrations,etc.) that are involved in the approval process. The exampleof Zambia, however, provides an exampleof what can be achieved (see box below). Box V: Positiveimpactsfiom mining sector legal rejiorm: The Caseof Zambia For many years the mining sector was state-ownedunder the supervisionof Zambian Consolidated Fulines. The Mines and Minerals Act of 1995 opened the door to liberalization of the industry an4 as a consequence,led to a new wave of internationalinvestment. Thenew act createda ca~lduciveenvironment for mining investors through simplified licensing procedures and streamlining of royalty taxes while making provisionfortheswift and transparentresolutionof anyconflictsorhitchesthat arise. Withmining sectorinvestmentandproductionontheincreaseandZambianowin apositiontobecomethe world's leading copper producer, it has been benefiting fiom substantial increases in committed foreign investment.In 2005, investmentpledges in themining sector totaled $159.1 million?' Exploration projects are also u n d m y to tap into other umxploited mineral deposits of gold, silver, iron, tin, nickel and uraniumas weli as granite and marble stone. TheZambianexamplealsooffersimportantlessonsforthe future,ifsuchinitiativesaretobetaken.The mainlessonis that it is essentialto take intoaccount the socialaspectsof liberalization.Failureto do so in Zambia, accordingto (corroboratedbut not substantiated) anecdotalevidence led to increasesinthe accidentrates at the open pit mines but more insidiouslyto theincreased spreadof AIDS as retrenched minersreturnedto theirnativevillages. 163. In industries other than primary industry, e.g., manufacturing (includingagro- processing), there does not appear to be any detailed analysis of the value chains / supply chains in these potential growth sectors, except for cotton. In the Government's view, a detailedvalue chain analysisis a prerequisite both for identifying the main sector-specific constraints to growth as well as the potential linkagesbetween these growth sectors and' SMEs in general.There seems to be very littleunderstandingof how the value chains work in these potential growth sectors (outsidethe cotton sector), the nature of enterprises at different stages in the value chain, the constraints that these enterprises face, the linkages between enterprisesand market intermediationprocesses. Neither has there been significantwork on comparative and competitiveadvantage in these sectors in regional and international markets. The Government considers that practically oriented analysis of this type is an important startingpoint prior to other activitieswithin this component. 164. The Government would like to receive donor support to study in depth this issue, which would identifl both exogenous and endogenous constraints to enterprise Based on the results of such a study, the government would develop a strategyto attract trade and investment to fill the gaps in these value chains. Initial target sectorsmight include agribusinesswith cotton and textiles as a subsector,mining and building materials. 41Source: DFID 42 Exogenous constraints are those that are beyond the direct control of enterprise managers and include the regulatory and legal environment in the sector, access to finance, etc. Endogenous constraints are with the direct control of enterprise managers and include technical and managerial skills levels and production processes for example. 43 Infrastructure 165. Reliable infrastructure services are an essential ingredient of the investment climate and a contributorto growth. In Tajikistan, infrastructure services are not always reliable a d can significantlyincreasethe cost of doing business. In a 2005 BEEPS survey,27% of the firms surveyed said that poor access to electricity was a problem doingbusiness, while 13%said the same about transportation and 8% about telecommunications. Firms surveyed incurred losses on an average 6% of their sales due to power shortagesand 1%due to water shortages. In the rural areas, power is only available for roughly four hours a day. 166. The Governmentis addressing these issues on several fronts. It is working with donors to reform and restructure the provision of infrastructure services-with EBRD on telecommunicationand aviation, with ADB on railways, with the World Bank on power, gas, water and aviation, and with ADB and the Chinese Governmenton roads. It is also addressingthese infrastructure issuesthough its privatization strategic 167. The State Committeeon Investment and Property Management (SCIPM), under the authority vested in it by the privatization strategicplan, is assistingsector ministries to developrestructuringplans for the following fivemajor enterprises: TADAZ aluminum smelter, Tajik State Airline Company, Bark Tonic (the electricitydistribution company), Tajik Railways and Tajiktelecom. Further work is required, however, to place the emerging restructuringplans within the context of appropriatesector policies and regulatoryframeworks. Estimates of capital requirementsneed strongerjustification. In this context the World Bank, under the Public Private Infrastructure AssistanceFacility (PPIAF),has been working to strengthen the capacity of the SCIPM to ensurethat the plans are economicallyfeasibleand compatiblewith broader sectorpolicies. Approval for the revised restructuringplans will be soughtduring 2007. 168. The Governmentis moving to clarifythe role and authority of the SCIPMto ensurethat it is the ultimate body in implementingthe restructuring and privatization process and has set up a Restructuring High Committeechairedby Vice Prime Minister Gulyamov. As part of this mandate, SCIPM is responsible for coordinatingthe infrastructurereform efforts of various aid agencies to prevent overlap and conflict. 169. The Government would like to receive donor assistanceto improve and finalize the restructuringplans so that they are economicallyfeasibleand consistentin the context of the Tajikistan's social, economic and political objectivesin these strategic sectors. Specificallythe Governmenthas the following concerns with regard to the current restructuringplans of the five infrastructureenterprises. Briefly,they are: a) Each of the individual restructuringplans contains new capital investmentswith technical specifications,but do not includebusinessjustification for such "Smallenterpriseswerecompletelyprivatizedby2001. Mediumandlargescaleenterprisesarestillbeingprivatized based, on the 200312007 StrategicPrivatizationPlan. Enterpriseshave been groupedinto three categories. Category one covers449 mediumand large scale enterprisesto be privatizedthrough auction; categorytwo coversa further 102 large enterprisesto be privatized through tender procedures, and category three covers 37 strategic infrastructureand otherenterprises.Those in the first and second categories areexpected to be hllyprivatized by end 2007. Restructuringplans havebeen prepared for the third group, but in order to attractprivate participation in these strategic enterprisesthese plans needto be improved. investmentsor a strategy for the enterpriseor the sector. Asresult, in none of the plans, for example, are the proposed investment projects prioritized.There is no financingstrategyexcept for the assumption of fiscal largess. Furthermorethese capital investmentplans are not consistent with either the PRSP or the Public Investment Program. b) There is insufficient emphasis on improvingbasic accountingand management information systems,which would allow potential private investorsto be able to analyze differentbusinessesin the integrated enterprisesin a more transparent manner. C) The plans are all supply drivenwith little or no orientationtowards the needs of the user. For example there is no mention of, let alone a strategyto address, the fact that in non-urban areas electricity is availableonly for four hours a day in the winter. d) Sincethe infrastructure enterprisein most cases is the entiresector or sub-sector, restructuringthe enterprises would entail restructuringthe sector. This would require the inclusion of a sectorpolicy, strategyand regulatory framework in the restructuringplan. There is no capacityin the SCIPM or the various ministries to do this. e) Some of the plans ignore linkages among the correspondingsectors that require an integrated approachto reform. 170. The Government would like the objectives of infrastructurerestructuringto begin with the needs of the consumer of the services and what is to be done to meet those needs. That being the objective hction, the restructuringplan would then need to address the constraintsthat prevent reaching this objective.Addressingthe constraints encompasses many differentpossible activities,some of which may be relatively inexpensive, othersmay require relatively large amounts of financing. Early on in the process, there needs to be a determinationas to whether the funds will actuallybe available. If not, it is better to recognize this quickly and adjust the restructuring objectives to emphasize low cost improvements fiom the beginning. If low cost improvements will not meet the objectiveof meeting the needs of the consumer in the reasonable future and there is no fiscal headroom to provide the needed resources from the Government budget and donor bding, then the option of private sectorparticipation must be considered.The Governrnent urgently needs donor supportto revise the restructuring plans to address all of these issues. 171. Reliabilityof infrastructure servicesis very important to the private sector. As mentioned before, the private sector incurs losses up to 6% of sales due to service interruptions for power and 1%of sales due to service interruptionsin water. In the short term the Government would like to explorethe possibilityof having the utilities provide a planned schedule of load shedding for businesses, so that the businesses can plan their operations aroundthis. The feasibilityof such a measure is difficult to determine,since demand side data is not very well maintained at the utilities. However, having such a provision, especiallywith penalties for default, will force a certain amount of discipline upon the utility and in the short term might help to alleviate this very serious uncertainty for the private sector. 172. Thus the Government aspart of its PSD strategywill: a) Explore the feasibilityof settingup an accurate scheduleof electricity-, gas-, and heat supply for commercial and industrialconsumerson a contract basis with penalties for violations. b) Revise, strengthen and, initiaterestructuringplans for the fivemajor enterprises identified above while continuingto build institutional capacity for implementation. VIII.MAKING THE INSTITUTIONALARRANGEMENTS FOR IMPLEMENTATION 173. The institutional arrangementsforeseeresponsibilityand authorityfor the implementation of the country's PSD strategyresting in two key agencies. A high-level Steering Committeewill oversee the implementationof the strategyand the development of capacity, while the StateCommitteeon Investments and PropertyManagement (SCIPM),through a new unit organized for this purpose, will be charged with implementingthe PSD strategy. 174. The SteeringCommittee, in conjunctionwith the Donor Council, representingthe various donors interested in participatingin the PSD strategyimplementation process, will also set up a monitoring and evaluation unit to provide regular reports to both the Donor Council and the SteeringCommitteeon progress and emergingissues, recommending strategy adjustmentswhen needed. The SteeringCommittee 175. The SteeringCommittee will includeboth public and private sector representatives,in numbers to be determined. The committee would be chaired by the deputyPrime Minister or the Economic Advisor to the President, or the two might co- chair the committee. The committee will be composed of ministerial level officials and representativesof the offices of the president and the PM, and the SCIPM~~ aswell as representativesof the private sector and the Donors' Council. 176. The functions of the Steering Committeewould be to review and comment periodicallyand regularly on the progress being made regarding the implementation of the strategy, makingkey decisions regardingthe strategy, addressingobstacles or roadblocks if any to the implementationof the strategy, and authorizing a change in the strategyif one is needed. The committeewill operate on a consensusbasis but might decideto install its own procedural protocols as it sees fit. 44The Governmentmightchoose to include the Ministerof Economy and Trade, the Ministerof Justice, Ministerof Revenues and Taxes, Minister of Finance, the EconomicAdvisor to the Presidentwho might chair or co chair,the Legal Advisorto the President,the Chairman of the StateCommitteeon Investmentand Property Management. Exhibit X: Institutional Arrangements for ImplementingTajikistan's PSD Strategy Ministerial Level Steering - - Donor Coordination Committee Council - R, v State Committee 'I v ,' Progress for Investment hogai'.,, ' Report . Monitoring ' Rm and Property & Evaluation Panel Investment facilitation Department r Onhudsman - PSD StrategyImplementation office Group The PSD Strategy ImplementationAgency 177. The PSD StrategyImplementation Group in the SCIPMwill be the main implementing body for the Government's PSD strategywhich in the short term is congruentwith the PRSP for PSD. The Groupwill be composedof permanent staff in the SCIPM, and also a working group with representatives from the Ministries represented in the steeringcommittee,a representative from the Donors' Council, and a representative from the private sector. 178. The main function of the PSD StrategyImplementation Group (SIG) will be to implement the PSD strategyon a day-to-daybasis, interactingwith the Donors' Council as and when needed. It will report any dificulties, obstacles or roadblock^^^ to the steering committee at their monthly meetings and draft any orders or instructionsthat the steering committee needs to issue in order to remove the obstacle or roadblock. While the permanent SCIPM staff at the SIGwill work on day to day activities, the working group would be engaged on specificprojects which have an end point or deadline. The representative of the Donors' Council will keep the Council informed of the activities of the SIG, identify anyresourceneeds and prepare proposalsfor the Donors' Council on behalf of the SIG. Box VI: ThePSD Website The Ministry of Economy and Trade (MET)is in the process of setting up a PSD website, and intends to transfer this work to the SCIPM, Although it is still in the design stages, the website is expected to provide: Informofionon Rey laws m d reguWons of relevance to the private sector. This will include the laws and a summary of their key feature. This page will also be linked to the Ministry of Justice Web site which will containthe comprehensivelist of alllawsand regulations. lnfonnmion requiredfor starting a business, including registration, licensing,permits, and approvals by type of business, the steps involves and the required forms and where to submit them The registrationpage will eventuallybecomethe windowforregisteringon line. A link to the Aa'ministrative Council and the Ombudsman's Oflce. This page, which would be secure, will allowpeople to lodge their complaintselectronically,where they would be acknowledged, given a reference number and forwarded anonymously to the Administrative Council and the Ombudsman's office foraction. An eCedronic n e e ? onnew developmentsrelevantto the privatesector. An entrepreneurs' discussion space where entrepreneurs and others can discuss their problems and have achance to dialoguewithexpertsonkeyissues. 179. The SIG would also maintain the PSD website (see Box VI above), which will provide information on registering a business and will eventuallybecome a "one-stop window" for registering a company on-line (or downloadingthe form and submitting it in person). 180. The MET will also house the Investment Facilitation Agency which will initially be part of the SIA and start life as the one stop shop for business registration. The registration could eitherbe done in person or online through the PSD website -in which case the website would automatically submit the form to the one stop shop. The one stop shop would be staffed with representatives fiom each of the agenciesthat has to process the registration application and will have the due authorizationto do so. 181. The Ombudsman's Officewill initially also be linked with the SIA in the short term to facilitate its implementation.During this period it will report to the steering committee.Once it is hlly established and has acquired sufficient experience it will be separated form the SIG and report directly to the President. 45The term obstacleis used here toreflect any impedimentto the implementationwhich is due to technical or capacityrelated causeswhile the term roadblock is used to denote any impediment that is willfully created by any person or persons for whateverreason. 49 Monitoring and Evaluation Panel 182. The Monitoring and Evaluation Panel (MEP) will be composed of three individuals,one appointed by the SteeringCommittee,one by the Donors' Council and one by the private sector. Initiallythe private sector appointeewill be selected by consensus of the Donors' Counciland the steeringcommittee.Once business associations come into existence,the private sector representative will be appointed by one or moreof the business associationsby rotation. 183. The hction of the MEP will be to review progress in the implementationof the PSD strategywith the SIG and others, identifyand understand any issues, obstacles and roadblocks and report back to the SteeringCommitteeand the Donors' Council periodically ( e.g., every quarter) and make recommendations for action by the Governmentor support from the donors. ANNEX I: PSD STRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - - Ilcqrlndn u r a(11addlUw to tbr mnat b.&ei) C d d 8n.cl.l rasp O.tcomr ourpmt ~xrcot~ng T a l l mmmlhunt (MU.US4 Adlw tr Rm,Mw ~blwr l d l n t o r Imdkatr I~W' .pun fi-*d81 IndImInr mq.l-t' SIP B(u. USD! (UII.USD) F.11~~1DuDrl ,udcei Ldl0' 1) INVESTMENTCLIMATE IMPROVEMENTAND PRIVATE SECTOR DEVELOPMENT I ~ x a a e l.lhwcaaareRDp.rty Nosnsof R i n o D.ambip uldwe rilJvr apmpiatim S a l a a h cxupt b lbr Taak 1: M a t e ofGDP publ* intrrrrt Red.* I..&lut -* mdUIA j u t ..*.or& nIelilCDP dm 1mva.r.c Bumen hcreualo laivilyiDdamk 10%. mX P r i v ~SCCIO~ t ~ 1.1.1. inp!enmllhcmutimkmby L&lnimPd MJMA Lgrl Ild9 0.12 0.11 "mdnnltl Cooatllrat Development -.ad- ~cdshdmmm~ dd@~ ammi h d i and Public t m e ~ ~ d m . g ~ -I VA) Administration a p r o p r i . ~ d ~ Reform 1.1.1 ~*~~ ? -I& I&y 0.12 0.11 hd i h t p oofh-uyd R 4 . h lnlcnulioa intutdupmiIimlmpnsl1 .lrrndod .I-1 bmdrrlouhoikmjul -Y, mnpsluh l h I.I.I. Mwsuw~.ld~odesulchdad~MJMA L~UIU~Io.~/day 0.02 o.n a r U g i r a l ) r H ~ b m t l d u aandrd Cmrulml ollnlosrlnn~cylbrrigm tinr & r e n a M u r f i 6 b o b ' ~ mvel u.?' 1.1.4. (MEMO) 4. Wcr iu * P ~ ~ + ~ " ~ . o D c u @ ILcGalrnmrlrill slm+n tklUisI1limof n a r b k d i n m w a b k ~ b y m&niim~ 1*r).md i u m l l &lian m lkrs!&liInmt Ofa catnIi4 -&mbu. m r r r m l p l o l l r r m m a b k d i n l n w b k ~ , ~ l F L - k y b t a o m m U b c o p a k m pagelrrcb l . I . . a a J d ~ l R c h n M I G o . Lrm& S d y 5 I 1-1 lkhmPmOo. 1alouujm- (Applis,iIulliam1.1, 1 . 3 , d bmu*lrdad 11w 1.4) W b r Cmmlut -m ha 1 . 2 . ~ t l t ~ C D D l b?Ic a r t l l l d w i ~ & ~ d U r ~ p r a n i S ~ 1.2.1 .Rcnahom1*.mpmnou m I L c ~ i . l n n l y ~ m t * ~ h d l ) r ~ l L t c ~ ~ n 1 . 2 . 2 . R n h p b 1 k i n p k n m ~ ~ h n MlLgrI Ildy 0.03 0.03 rrg*lirmblJuallmkd P b L i c & n g L . w m ~ -&&- 1.2.3. Rniovtk*drrpi.wadve Adnhknlioa MI V * ~ C o d r P ~ U l b r u~ ~ d # 1 r g l l l D p r r Y l y I d l a l a I h d 1.24. R r v i r r l b r l r w d Un- M R l W l h h ~ @ t l , # p p W b po6lS c r . m i m h l h u ~ clidnuslrd u m b m u m e L i ~ u l a + u r ) l -Id m o d m - m u p a m w d -lposa8 hpoocu. m - w a ~ 1 3 . M I h n - a r N&d 9 - rnbcobk r'mainum I.doSO.Tnr mmdu200 1.31 b-GudCan M D a h MJ InClCar Ilday qpt 0.17 Rl? M i ~ p m C r n ( ~ -esp150 Tnnl oonpkhdkd+ialR&m o W W dd S U ~ # 20 -1 6rlimul 0.d - ANNEX I: PSD STRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - kqnlredrrwrw(lm rdM1onIS the m n n t budla) C..lllnud I.l.&l ?IS? (k'coan Outpr Ox-llnl T I analmaWII. USD) wm1-1 Seaorcuk A01-m - Un'trmb Piumdag .bids I.dlQf.f lapal u.r.a.l f , 'bouund ' Imdlslor WUlrnrrY. l.P USD WII. UsD; M m n I Domq USD1 Sum h.dl.l I) 1.3.1. JdnNn.Yart Cmvmlimm M&h@ ia Llr Runpi& ld En6mmudof New Yak F a d p Arbiml A m . Cnrmtia 1.3.3. Rnicvtbrbdydbnlhu Alllaw MJ LDulL lldayt 0.12 0.11 p a u i n m ~ m . m . o d o a m a miewdb Inmnatim- O.l/day m-l..d-l*n6alay CmDnrebtrd llLsll ~ a w ~ ~ u m a c m b c iuwd Cmrull..r ~ b . d m + & l y d & t h mnddn tine wuiay. m a t e 1.34~ u t i u c N l p u b l i s ~ yCanDrddmr MI c Web Site I W m d 0.1 0.1 .d r l l m m i ~ i i h c ~ Patrdm Web mdlTegpt mul Judgesopinirm.ndruling rite & S h r 13.5.Sd up. dlbdom ariruac* S u r d d x d PSD InfIh#aL lldsyusb 0.035 0.031 . rmdndidauactrhtr- mmmm Connil- Web rite sib pplpollmwc&ma.rhid~re d~siptdnd MI posting85. urilypmambk PO:& P s mWeb Sia 13.6. E.M E n ~T k 6 m l ? ~ loullrgl O.ll&y 0.01 0.01 Code&Q ~ ~ T MOfIWal I W WD cb!mlut -. a m m a rim final-l -a- m. ,, 1.4.EanrcIvllACEPI D hFmmtim.crpdallym Lam u d R@rLim 1.4.1. E n p l - l a d h t L c Webritein MJ ITSave 1 0.01 0.01 ~wmNorrmlivrkodSOw plrcad 4 mdsmpbratbr vrb "Is sth eMJ mxsmblcmall. c h l n m h - l i m s d . w* daic I.4,Z IhatcmdsrmcliOlca R+bx of Irhdcd &tad Lubwd11I R@I~L~I ~bwc ~ ~ b ~ ( i r & d i n g auldmd C t i ~ I k L c b u L l g o f rrd.mtia m & h l . " i b h g ~ b n d b.sLlq o m d l l p m d g m M i rli* dl,l,liE> 14.3. Publidntbr -oft* &ub.lrdlk*du TS*ZS w a r n 2.1 Rodvt BnimofLiuna, Em"". ~"tl... psniadahmppmrrb Banienl b r 1s- b he.( 9ntv 25% 2 . 1 . 1 . M t b r L i ~ i n s L a w m Nunbmd SuCZU#l 5.739 nmb.rburlhaurbsd h o l l d u c d miviriaroqulinlWI)65. 063 2.I.Z. ~ S m W l l h vd r ~ p h r b b c ~ l i n l r i L b I h madd l i h g lsw 2.l.3.Rni~.ldammLiqaU NoofOylP ~ ~ b ~ a bm b m b * -u c ~ v i a t b r m - h w . muds1oo. NKmKld mucbna du10,0110 d I m Y d prcqi* kam 1.1.4. ~ a n m i r y n ~ q p p ~w a a k ~ a 0 I k l s m 0 f . ~ *Nadh.rnl *utL.I3a5 F. 2.1.5. R m c r k hwud 'b==w MBf n W a t k s m p s l l i s s a n b *.dmklbr- - E d m m i a m u m l ~ l i n Y c u c l ~ r )-*Id r ~ d m ~ ~ d - l p m r u h r m . truprat ANNEX I. PSD STRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - h l u l r r d m a n m a (1. sdd(t1.m lo Ibr a- budge#) connm*d n.rul.1 (ktunr c*tp.t sz-~mg TM.1 remmkrn*rn (ML USD) NIISpl -*'- Actlo. Umhrou. Ilu,dml 8b)rrd.c Im&81w ,.dlcltv 1np.l Iu.d8l I.dk.1~ I","dd rrqdrnm"I I*P mu'VSD' (Mu. U!~D) EIUNI Donor( M.1 S) 2.1 6 Put inPI= lhrl q k n m b g R + h in S M W l *yl lldy 0.3 DJ rgula*lnl*mmld Plwr -em Isv lad.mwb lhrre rr(ulh m w m l m w w m k t o p r m n l ~ & m d new-my. 2.1.1. SumghllcbnCiubml S M q u b k o f SAh MJ IullQlu. 0.751day 0.075 0.073 m d r n ~ l ~ r i p o f l l cmi-ad Suw* b h C M r s m k a i q hat it mclknive~dal vilh ylinn m&mry aduriar W - Y beinvia c.+4m& by rrmrdor !J--=i- Z2.3.Public&* lw PobkRcladao S M Mcdi8 3 0.W3 ' 0.W3 lad he &ti-Mmqmly lpqua Fmpm m hrdmtimof- iLxviaimol I 8 d podi=Y~*pmotin mw. - -- 2.2 mwkk. q* lad 8inQk N* d b u r l a r * m l i m ~ slmuuld MSiiumSiPd B u i w bmla imcwam XPIIl 2.2.l.houWzza " m c d w " Noofdap u MPT Ll'ICma O . 7 y d y 0.075 O.W¶ mgbrmimpm~la l la&a M v ramdu b ofbmimma din allrrdQId 20. N n n k o f lhrLamy.ni8BirdwviU* pmsoduam ruRcdby =bind rrpeunutitu du 10, m e of i-dorl*.asi-*ritt.*ban~*. - llcspbbliobumam+md bushcurdm . 2 . 2 2 ~ ~ ~ 1 d m d p l c l&30 . o O t ~ . ~ u i m b d dmunms.pambipmnutsn m c a t w w f m ~ m ~ - nubbkmkbumd 2.2.3. Sa ai.*llinelim'lbr ~ k l i m 0 r ~ r r l i . m ~ posclrd l 0dav. 2.2.4. rrd,nb. aUU m &50% d aqiu GDP. 2.2.5. U h uUaaiimmclpiu nqukmalb*I"rirn 2.1.6.hcduua&khuiWI idmtificldanunkdnar.n)r U.~mil*klkt.k.?" b u n n r d o p u u i n 2.2.7. E l i ~ O l kb ~ l .-So.L 22.8. huc&cca(jarmnl dlioha1idmisIklbae . " l U r ~ ~ r . l i m a ' o S l l l M b o r d w l i f l k I m m r r map- Tuk 3: Ens ofddmg 3.1 R hTineux ofdmlia# wib h l o f S . C T m 0.453 L ~ O ~ ~ ~bul.rr nmk -mn~ I L I M-1 G.*m.ra Nutmunder timc¶pcalin RdlIeIICQ 1W. d a b*rib 8ndDimcully GmmMnll I0 dDe4nl Icnh4% .&a Im T.IIWmm I.l.l.Raidcraan~inc"Cd Ppeeu'eor mkiIlluxmml~(brsnnal Snnltlliq OtSdab U o l r a m Lllm b.la5% ANNEX I: PSD STRATEGY IMPLEMEMATIONFUNDINGREQUIREMENTS - Mcqmlnd ~ u m x Cma d d l l l r la Ibewrrm b.ds.0 T-l manurnam (MI#.USD) Nml-l-., C o a l l dIlusdnI mr -or 1m.kE;",: Outpll Exemtln; MIam R118ndng l d ~ , ~ we.q 1nP.t Ilusd.1 UZ 1mdlat.r I*P -In llSD (MILllSD) B(IL M w n l Donor( B,dlrt h.dlmg S) 3.1.1. m q tLcAdnindratiw G Colpdl &a he~ n u v r - ~ C o d c , m b t d k l k unusM.0f.dniDilPlti~~ h% u v i o b h w i L t b c ~ o i n s C i p ~ d & 6 ~ m ! k p o w t o r ' s olbsc if 3.1.1. 1mLiluu.n bmrluli oi%eofl* Gn. lal'lcwa. Itday cqpl 0.105 0,104 ~ w l m u ~ . l d r . l ~ i r mOubdlrmrr Ma-1 5 I b t a k & ~ f o l l i d m m dmlr su* - 5ubli.M d Pub- 3.1.4. ikMnirbntin &b&kmh MI IVC- VidltimsC&mdmLil riobliood PEP oapanlb* rilhO k tam, mp&d 1.2.4 Saw amalunianmmkc Web nuin MET IacMal m a Wliclymibbkth -of plre d lbwc Mbe*mdn &I md tcmsmikDan tbcombdmawiqaaasibk nulir 3.3. M l h c n d m o f -ad i u p s l i r m ~ ~ h&.&amor a d P irpartiolv( -In iuporoh.) m k d h 3 D m b i u l p a )rr 3.3.l. omlop ~kinplsnmutkm k@limt b MRT Im17Cou O.7Yd.y 0.W5 0.045 ~ ~ f v * l v * l r p o a p k d h. mfmai h&dsmti*5 r i o ~ r o d c mild 3.3.2. AnadoUll tam& m*volo&m IFCPEP i u p m o o r m a u u e ~ W Ianasmdd \nlht*M)l~. 3.3.4 Raide~brulfmlbc Inspu%n IPCPEP M y O d c l Tni.ld 3.3.5. saw rnm s r m m p a NW law, -~ wcPEP a heLeln,wdar+lv* rc@miomlod FaQpr-=sb.porcl. Puhb*hod 3.3.6. ImpdkJ. Ihm - 1 dnmealtha m b v e *h-adcD- -liPPrilhb.s*tar- h-i- 3 . 4 T o - t h a l m b a ~ ~ Rrdweth sudwiaacdw'lio6ca- n u d u d e &a. ( h i d a u d ~ PaSP)) tr*YELinpm * a+ mijsutia mddby 75% (hllca%+sjaim YRI) ANNEX I: PSD STRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - hmlndIUmIma (I. .ddltlolll. 11. m m a b.d,el) Crnlrnd n...cl.I rPSr a t n a r ~ t p t EXU~I.~ Tr.1 mu.USD) y:Lz c o m n l ~ a c Nrn,O.l -Ik Arclo. ,-; PIm,,dm a objealre Imdlcrlor lmdlcaler numhl mrtmcy 1.P W.' ,,,,, VSD (mu.= r m n r l amoa h8dI.l 1) - 3.41 -1- lkclcpl -1 MEr La'lCrm 0.7SIday 0.132 0 I32 0 m-1 k u L b Ik.dop6al rnvimanmlb bulrmu M Od iapl-uh ofD Law m s u d d i m d o n 01ld.y T-l Re&&u, ironhmiy.Ildd6& wi+ i n l p n ~ hmd EUpla*r inpmed.od l W b W n n h m T*l I. Wi+ &am urinmamLc r RWgllrtimt r u l y dmubsisd~kanal lublritMm pmbbmiaII.6eldof P a h u c slndrdidEPa'fiutio4 *ilk +DI~ h imIkd6udor. r of-, dIkdrultimof C i ) w.md - h b c m u c u &. Tbir ~ndy~bntdrllok b o 11herouquol+lofl*EiIIiq IiMIimbaodIkcba~d .bolidaomJdimbu b. Pimlk IbrdcrrbpmtolII. hl llvmushiat ~~. rhichw ioitiallyp~qmzdrim usis- dUSA(Ddpoaa.iu ap*. rpw-d=Wtlr-w l e E b d u l ~ U r m Dlkr d mbaba.8W*drll'im d. Mcmio. Ikmiritio . . . .. . . 3.4.1lbcrrbnnofTajiISudn0 Rosafhiim TS h u t ? i n g i l i n ~ b r i c h W 7 0 dinomrnd l b o n . reqdnmcau.inddq~totisluna~ rptirulIim Ik , o f d h u d a mdb l i r h m do f m v h csti6utimof--. Spdfic~IIy.botisMd . vichdmorurinrut: Trjiknmdd pr6som I.MakI mawm1101 II. - W l U hutittdmDl-of mnplipeo t.jiuudndA t r m . - mimrrbmmii8cwih'UrO rrql,imau. b. apui* ofT*jii- O i n p ~ l I k l n r m I d m i u l U U a i u s u b c d u e ~ h d c s 4 p m r i d o U a ~ mi+ mI k l u K o r T . j i k s ~ rCmduama&mi~morm~I ofcd6atimdbnk in de"dCp4 L lkcdl3udaof ra*adIkIc4mi6a~d wuoi~brti- c s d T*hln&d lURm * shdylarmrtbotpdallola m d DUU. 3.5.Raidrrq&dunpk Arrnptirm kummuUmdsk.nreposar rlcr-o brinpmr.odarpom d s 3 b -d -4km inpora 1.5.1. Mopl.nimpkmnling h~knmtio~ MRT In'lCPII 1M.y 0.1 0.1 rqplllimrErlbrur~IammdcrrOllltimria o OnvcIimii6ulbard glut N& ~ h l b r l I ~ o f Oflbama3lm &msmslu&mr*lolOln *l.d mdnduoctlrmmhofTsiR &dTriR B d I (hihlddwiqPUP) b8mbm& 5. ( *lmim YR 5) 3.5.2.Albvwbniuianofprlo h m m MRT IntlCar lMay 0.05 0.03 d a r l a r i m r b c b r r ~ l r r i ~-un Olfi(C Eppl at de wanckbpab~(Inii~M be lvbniM s e *rasp) piamI* 81 -om. ( CarplaioYR 5) 3.5.3.(~mo)h!suherirr -I MRT ~ n t ~ ~ o u . 1m.y 0.5 a t m - t ~ a ~iDlpombr e e p p t Equlp254 pbydUlhipaPlm-sdn25%( rOdYCOdmmdm SUlthl Ig(LTllmYR3-s) L(% ANNEX I: PSDSTRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - llqulrcd r m M On nddl&n m tbe mrnlbmdlrt) Cullmrdll... d.1 rnsr o.tc8,," hlp.1 ErecuHa( TDlrl romdtmeot (MU. USD) PlM g a l Smwtuk A d o m nm,wdag ob,rmve I d l u t m r 1.diut.r I ~ P Y ' .Ie.cy nm.d.1 tbwYmd Imdloator 8.P USD T:.'E;*c tinm.1 mmsrt lYdgd h h 1 4 I 3.5.4. ( MEMO)Nlow ekosmic 50% dauam MRT InslMcdin 0 fihgofcm@ &mam~u.(Lmsp -II 6kd .h e Tsm YR 14) k m E k U y 3.5.5. I m m & t c m Prrknrncc MRT lnl'lCmr. llday 0.15 0.11 idiuunmsiain~b~~~rom hdiuu p-cduacrpsialiym-~bc rrmi&' drmitulam--mi ~ m m p l " im. -8 0.- PRSP) (rmplda YR J) 3.5.6. Sdupa Cm~~ImIivoCmupRnircd MRT d&adiopold.l R c C a s n w @ c I d m m t h i u u a I P ~ ~ M . niwdddlhollliodhcwdby iari&qikcboso.ahdm dnplibkpoauo. 3 . 6 l a p m r o s ~ l m F n u Fmml V b -CImDYP l l % d m i a ~ o * ~ 3.6.1 r?lubli.hd h - . C n d i l R m InI'lCmr. ).75CWd1ytl 0.165 LIP ' MET , rdau+ In a ~ c n d i l A*wyraup ORicreqpc 01P ahmrka~m*U 6fid m%m .rmuypl,d&lwbbmk Sa*er r d W l d L T b d ' 1 i.hrrm~mllicWa~uatlq . - b.lu.p.irwlMm-w p u m t m l p u L l r r c l l n b d c h h 1.6.2.eaul~s~@mcLc Ma-mi NBTMJ htllgrl l&yind 0.12 0.11 m ~ a d r m r t p p ~ bm l l l t d l m bol- OI&Y b m m i l i W l k l r p l W i n p k ~ I w n d l c n d i . r r n p w i d c mIi,~rd*(besisk *irbmmmliaul bslrRIck 3.6.3. S- tktqi~ub T Ind~*ptMI nf W& dr IT 20107516.1 0.095 0.093 mvabkdimmnbkpmpry by mrrd1Iw r m i c a Inl' ndmi*lk-~iIuUI lCc?mynduc* Conrdult r r p l h i i m ~ ~ l k m t a b W n fmmda6llld4 a aamlinQcLvw"aind~ m w . b d p l ~ m l m r & k d i d k m , - + u c n d ~yb~brillbcopa6.. Wk& 1.6.4.I.p*mpla mudm Thd~mmNBT Tobc IplanrniriPsu60llndnb becavku WIOd damlie W l mulhls ndrodmlDdrr 3 d . F n d 4 m = w . 4.6.). C o l d m ~ n v i n r o f a U Snw~d, NET InflCou. I l d ~ y 0.15 0.13 ~ I * a a n . x k I L E e ~ f ~ b y ~~ a n q m i m h u i T ~ l i I ~ m m tplmdvdwd. b r n d n r ) n . L W I ~ l k ~ dllsrm*r.d a l l a y iabmlipl pp Bud- lLc IbMnri.rdmw.-m d d C Q d ~ c L c P ~ I lorn.s n ~ m i d d a ing-ie p b rl paidol mkweahnhobmip w m d dBmh mTGHIU ANNEX 1. PSDSTRATEGY IMPLEMENTATIONFUNDINGREQUIREMENTS - .rqulrsd -ma (hmddnlemlo berr.n.1 buds&) c n o dn.sd.1 Toul .*.mltnu8I @Ill USD) Nmjosl mlmme Chlpul Erallmg 6.dor 1a8k ArclOl udltd' Plm,dml I\o~.d.l obJecllvr I r d l r n w 13.1 .temp 1h'8md VSD Imdlmlor my rrqul- PP ml'. USD1 ~ I L Cams1 D D D O ~ ,Ydln he61.1 s) L 3.1.Rovidc a linplc d Toul lh6pm1 unbudcmomur9mcm mUIClm lrdulW h. nudwof PV=U a d m 40 3.1.1 M t b e u x d m N~&WOCUI MRT Wams. 0.75N.y 009 0.09 -ally wlhcn- orpa- urabd.lpnidaimmctbe, ~ r n ~ $in+iy ofbuposor. 30 3.11. R e p n s p l n br cbclm6c P b br Rlin'u,rmnenct.i~iabv) ckcmxkfilin' prp.rod 3.1.3. R n i r u l h c V U I Y I n B m A R p m Wilb MRT 1- 0 ~ p o 6 1 a ~ i n p u Rcmnesd.dcm l m *bore inbrrmliw-dauim 1iWc m d ~ i n ~ m m ~ u r t3wmmxnt ~.B-lbcmrcfdmi?gs T~IE.SL)C)OYS p buawu l"AsiDa8lwdul y m d a . I t lradssxor PUlC 3.8.1 R n i n b a h p y l n a m d m a y l a w SPCMJ I n n Cons. li&y 0.15 1.15 m h l h c ~ s . r y m n d ~mmdkl ~ ~ ~ U MET UK dwkiydmn4( bnbupe-. 1.1.2s a w t ~ l ~AI *ut wc b MJMPT ~ ~ inn C~M. 0.~1d.y 0.2 0.1 cblr~*mkM&h erbsovl Sp.cS IOImlb b-y-. . - &liftdin &h,,.& wad 3.8.3 ~oridr Mbr *Iluts MJMPT ~ n n c m ~ .II~Y 0.06 t.06 slt""-d BMbuplsy d.amnum i y d a a d l 0 stubiamrn nilud. 3 8 . 4 l ~ ~ m c u i c C w p i MRT . CS Ss-qmrk& WODI mnpiimlwith b u d m d T a l 4 i h l r a t e d e r 4.1 M&lbridirodt*lduu N e d SrLlUrl 1.07 h.*ld. pwhmd Saicomil~bkm~dmndbnis~mica Sm- l e w GDFlmcrola buinmsa b d a m hlOY PldC?-jlu k4ru.c -w lo D h IODXI)?~ GNmb I. Ilw MI* Saur 4.1.1. Salp mbdliI*rB W w FmEw MET Qdlida IOhmlb 0.435 0 . M buim~~d.iwymnhnq oWdtisW. WGma. +O.lSldey h w n . O r m M o a 4 . I . I . S ~ t l . ~ ~B lu ddn a r d MET I n l l h . .75/&y 0.0615 0.0674 BpLcn-drmhlLa m l a * t ~ r d t b e *Uod.tim, fhTc.0jtfmdudca.d cambbhl w a m u r d & u d A a d s h b y ~~. l.rhWd in p l v c 4.12. ES*I~.L. M m * R.dsubEl*d MET Innson. 2- + 2.4 11 l b c w ~ r d la(~m(i~d ~ F U ~ zwa ~ ~ m i ~ ~ herhblbh~ ~ d ~ m d N c k Q D l l m k 6 b & K d. savicu ANNEX I: PSDSTRATEGY IMPLEMENTATIONFUNDING REQUIREMENTS - Rqmlrcd~ u r s(In 8ddltlom to lben r n a budget] u C o m t l d I l r a d d Ourput Emcutiq Total cmmrnl(mr81 (MU. USD) Acllm udcdh Flaandot 1mae.t.r ,.dlutr ,m9 1 ~ ' (18..611 I.UC.I.1 mq.1"me.I P P ., Eneml Dom.r( V1I.IJSD1 lm- hmd1.g 4.2.Pldliuu oM a d w Enroibdns --( -)- Iw. 4.2.1. ~ o m ~ ~tklviltan l r r &pmdmor SPC ~nnmnr. zwm 0.5 0.3 #om. *h* .hpm &ATC coap- 4.22. A u m m e * v i u m s m fTmenwtin MFA InnCons. .5/&y + 1.55 133 th**tasnbcobuhdmrrivsL pl.amdri.u ITNCHOrll 1500 av$Lbk m niV.1. 4.2.3 bourn lhc SPC h l ' l h . 5W)ym 0 5 0.S T&eommk.tim &( DsdleinILchLuNsarrd I.muw-) 4 . 2 . 4 P r i t i l e l e p ~ v i L h N W I0 MET Inl'loplll. ZOWywfu 0.7 0.7 bdgo (inp d d r -1) 6nn iatsrvlimal FwJdw =)u* e i ~ u c m o ~ pammhip8 -0 2000of loc).lok.d SpaciTwlly, rrUblLhod &id500 ~ & m ~ d e v r k p m D 1 in PRSP in.rrrmt, qliu, mdaumrr . F-id mlslirmhipbsvrraTjik d i n ~ t i o n rRrrm l 4 . 2 . 5 . P d l u l e d s ~ ~ @ mAuodlSrm MET L f l h . -im 0 mmimof bbstry M d m h h hmadin at 4.1.1 rRolivelobbJ4mdvWonm I r u t b u -. i.dutM 4 . 2 . 6 , l a p ~ ta m s f T a b i a l MET hl'lh. 2SWp 0.25 0.23 ~ ~ ~ m n s w ml l b w i m n a m o r p u . r ~ ~FTouumiap~ ~ d w g . * c m d ~ i n o r d r r m . phinpondrnrtprd S U b l W ~ ~ 4.2.7. Imkmatr Chlbp MET hl'l (hcu UWF + 2.5 1.3 ~ I . l d h y m m m p a i d c M zoo0 ~ I m I ~ v p p m o sublirlrd - go.,i"'b",inaavbichsadb.lc mPRSPobjba. 4.2.1. Fwd sudy an b T1jik 10 llnn grim MET JOSW ZOP DI 0.6 0.6 -md-pnmr worn0 MI ww -trio i e T*. 4.3 MILo.ril.bk. .kilbdad P- U d b u YIM- rrd*hU slinivbda ,bwe 25% 4.3.1 S a p specblindnudolul Nbl2 MLSP Inl'l Crm+ l/d.~+lWO 1.61 1.61 ~ i u ~ i t " o i v~m~ l i . b bdli~ia (ofrrbisb + l l & l n u d t h a l l s l t b u i oak din^ mchm 1000im Ikllmbc bui- PUP) uubli*odi Pnkd+ T-W inw 1~~ WpsiDa ru* - - ~- L ANNEX I: PSOSTRATEGY - IMPLEMENTATIONFUNDINGREQUIREMENTS llcqmlnd maurm(1. addWomlo the a mbmdlu) Cullrllrd Lurndd rad 0.tp1 ErcaUag - I ~ ~ ( M I L USD) Adl. U*r- PL.l-l -zd I.&mlr alr,,n I.,,.' fi...d.l 1.dk.w P C n+- MII. USD; ~8). ~ f l . M" USD1 Brdld Ehmdlsgl n r n l 4.3.l.sa-p-1-0 b -IRIC MLSP ia6bdrdin a crholtbr imtiiula. 6omw d w l .bore nini,q i.ltit"m .I1-1 80% 4.32. saq Kmdasubidizsm NO.o f h MUP $1'1 Crm 25- + 0.75 0.71 t)rpblnk& oAsi.lmtk r f d Z m o T pb*oyu *5W 50% ml)rPRSP psiad . 4.4.~ m csaas+& n I= a S I ~ Grwtb ~ I 4 . 4 . 1 : ~ ~ N ; P m d p i v ~NIW IW 1 ~ MET Intl CW. Il&p 0.12 0.11 p " b l i s ~ ~ P I U ~ m IIC*&l Lncd i d m l i f , p m i l y ~ i n ~ Ffad 8lpolO .rum IC*SMIOLIX . - 4.4.2.b u y - 4.4.2.1.-up. piailid- R+Uy Scum Salnmutry P *.oo..poifrrWallWRfmm ICbrmproOun MiniJ.MIaJim o ~aiiryad-Is, . inidurdinkey Oav. V . ' lioolrosm(Pa I r l o ( o d s a m ( d c u i L ~ b u y ~ P 1 1 S P*rin'l"suyrd ) iahenmsc neuimb *uib 4r.r.z c a mI M ~ O m ~ a ~ n b u I . u 0.24 0.14 h d f y ~ m t.dV- ~ i il sld.rmlyrr myldbmWdgWblk roapWkr5 c c m m m i m a ~ ~ sdmdrorm ~ r u l + r t . i ~ I b c ~ w'k=@-Y h-=k B l l i n g p p m t b r n ~ ~ . (IuiIilUyula4 (5) )psm: * e i"ilLcoao.&Ted6 uImbaP.hay&Mmi.c Bui- Mamiahd 4.4.).M ? ~ U C ( U R R : N hof I ~ t * . a i c r d e l i ~ o f m - 1 iahaumrrsemiahpdml p o d 5 pao. 4.4.3.1.ldtiuenlnuriyol Reaowmkg SPC InnCotn 2Mpa 1 1 iohrmm#e maspisr.ArilPbs plrm VW am. Td ' ' .Pow.- *.I1 -1 h iIhdb*am. i n h n e o a a q w i l m l d rpporrd by r3vamut ANNEX I: PSDSTRATEGY - IMPLEMENTATIONFUNDING REQUIREMENTS Rqulnd Rlounu(la addlU.m lo lb.rmu( brdln) Cunrned n m u l ~ l raFT rnIC.p1 TMni NDSlrl 0mIp.l E x m l l q c o l l l t n n l g l l L WD) A ~ u Flnand~g 0bJd.e 1dde.r.r i m b t r mseaq IW*.( fluu*~.~ ' 1.dkat.r q m l n n u a P C mD' M~nlm.1 on.q (Mu. *.dl., I) 4.4.3.2.a d u p Sud.nl BTMl Int' COM 07SId.y 0.067 0.061 ofckricilr-,(u-.d In1 maarra v b u m m n h l d ~ l d m h m i ~ W l I ~ M b l i r l v l t L pmakiub "bhdou 4.9.Atamd 6ciliuleRda S olPDl pa MET S lWO dGDP Filnmma -a? 4.S.l.dmbp1rmogfa FMs- MET htlCmr. 1.Udry 0.2 02 ~ ~ m I . S n w m i d & .ppondb. --- (i)T.pPlirdr~ua mm~a, Gcn-nmml (ii e K c i u i m o r p i n r y ~ * ~ d r n a s l 0 f t b s I " u g y . liii) 0 l h r b . l VIA (iv) AmmmunpdpbKuu. makasa. l u k S ~ M * kPSDsmls&v , l y . I . I . S s l ~ t ! d ~ MS- ~ ~ S r C T d 13.6191 k-n inpiemnor &ma-lbr d u P r a d i . P ! u 1 ~ . ~ 0 r g r P S D s&LW ~ ~ wnCr*s I.LLofl0I.d .mw-, to Ilprac.1 lb?SD arreo 5 . l . ~ ~ a p r i l y i nCqriIy ~ ~ M o f k m u r v a a d l m e r n ~~~ h t ~ o CkPSD-. M i d @u-v.ld 7 - J-l.Z.hDaaCoDil8adrh @Wdy s ~ ~ c a r m r m n . poga,I9au. lnmi*mJcnbulim@ *.iumbutmILmom dlbr*oonminarn pDBcundinerilmy 7-1 l0rSeelor tom3 4.1.- CMma M I L C M i d M k s b M*ad ' MhU tbrnini'd nincnl * n m ? d g m h q m ktinsabLm ~ ~ p t m l h bl ~ B a p R s a h d dcvobpd Irr- M 14.- SQmlddd I . 4 h I L p k D l m - ~ h m ~ .loquay pmauia AnasObh6a&miy~bkzrigbbpivaw iavalmvld wus o a p m ' a ( m m m m ~ ) ~ ~ I l ANNEX 11 - PSD STRATEGY- IMPLEMENTATION TIMETABLE 1 Reducing risk for entrepreneurs and investors 1.1. Making Property and Use Rights more Secure The constitution guarantees protectionagainst expropriation except m the national interest and then only with proper compensahon The Government will implementthe constitutionby introducingand amendmg legislation to make ownershtprights more secure and protect agalnst expropriationand 1.1.1. seizure. Revise the Zoning regulahons m differentparts of the country and introduce 1.1.2. provisions to prevent forced relocation without just compensation. Amend the State Land code so that the Hukumats and or other local authority 4 1.1.3. the will not have the right to remove land use rights for "improper use". Db Under its program to improve access to finance, the Government will Strenghthenthe registration of movable and immovableproperty by modernizing the system, and Install regulations on the establishment of a centralued, computerizeddatabaseto record pledges on movable and immovableproperty, where such security interests will be open for public 1.1.4. search. Over the longerterm the Government will undertake a comprehensivereform of the Judicial Systemof the country (See Box 1. Applies ,mter alia to 1.1, 1.1.5. 1.3, and 1.4) 1.2. Reducing the License Risk Remove from the amendments to the licensing laws any restrictions on the 1.2.1. duration of the licensethat can be granted. Put in place the implementingregulations for the amended Licensing Law to *. 1.2.2. ensure transparency, objechvity and due process m the renewalprocess. Review the A b s t r a t i v e Violations Code to ensure that these regulations4 t 1.23. are fullyreflected there. Review the laws and regulationson permits, approvals etc ,and make the necessary amendments to elinmate unnecessary ones and to ensure 1.2.4. transparency and due process. 1.3. Making Contracts more Enforceable In the short run, introducean Out of Court Arbitration program (Pending completionof Judicial Reform Program) including membership m the New bb 1.3.1. York Conventionon enforcement of foreign arbitral decisions. ANNEX I1- PSD STRATEGY- IMPLEMENTATIONTTMETABLE (a) Strengtheningthe regulations for the amended competition law to prevent 2.1.6. predatory behavior to prevent competitionand entry; (b) strengthen the mtitutional capacity of the Anti-Monopoly Agency to prevent and prosecute 4 bb predatory behavior. (c) Publicue the competitionlaw and the Anti-Monopoly agency as an institutionof recourse for victims of predatory behaviour preventing entry. Publicizing the competition law and the Anti-Monopoly agency as an h~ 2.1.8. institution of recourse for victims of predatory behaviorpreventing entry 2.2. SimplifyingBusiness Registration and Removing Discretion Introduce a "one window" registrationprocess for all categories of businesses and in all regions of the country. This window will be staffed by authorized representativesfrom each of the agencies with whom the application has to be 2.2.1. registered. Introducea standard package of documentsrequired for documents, preferably not more than one or two fonns which are readily available on the 2.2.2. internet. Set a stnct tune limit for completion of the registration process of 30 days. 2.23. 2.2.4. Reduce the registrationcosts to under 50% of per capita GDP. Eliminatethe minimum capital requirement for registrahon. 2.2.5. Introducea singlebusiness identificationnumber and remove any tax 2.2.6. payments until after the business has started operations. 2.2.7. Eliminate the requirement for a Business Seal. Introduce a Government resolution that includesthe above and the provision 2.2.8. that registration cannot be refused if the forms are completed. 2.2.9. Publicize the new registration system in the national and regional media. bb 2-3- Reviewing Sectoral and Regional Laws, Regulations and Practices which PreventEntry (Moved to section 4) '3. Cost of doing business in Tajikistan ProvidingRecourse ANNEX I1- PSD STRATEGY -IMPLEMENTATIONTIMETABLE er and more serious cases and refer these to the prosecutors ofice if the field of standardisation/certification,with specialemphasis on the certificationof services, and the re-certification of (imported)goods, and including recommendationsfor concrete actions. This study should also look Finalize the developmentof the draft law on technicalregulations, which was initiallyprepared with assistance of USAlD and promote its adoption. c' Prepare and adopt the necessary techmcal regulationsand other subordinate legislation. d. Monitor the activitiesundertaken for the adoptionand implementation of this law and technical regulations. ANNEX I1- PSD STRATEGY- IMPLEMENTATION TIMETABLE The reform of TajlkStandart to bring it in compliance with WTO requuements,including abolishmentof re-certificat~onand abolishment of certificationof services. Specificallyw~thdonor assistance: Make an assessmentof the instituhonal functioning of TajikStandartand recommendationson its reform, in line with WTO requirements. b. Increase capacltyof TajikStandart to implement the law on techmcal A L, regulations and its subordinate legislation,by providing extensivetralnlng to \ cT the staff of TajlkStandart. C- Conduct a confomty assessment of certification of bas~cgoods in developed countries. d. Abolish the certificationof services and the re-certificat.lonof importedgoods by Tajikstandard. e' SendTajikstandardstaff on a study tour to see best practice from WTO member states. 3.4. Providing Quickand Simple Customs Clearance 3.4.1. Refonning the customs code to reduce the number of documents needed for processing importsand exports to under 7. I 3.4.2. AA Reduclngthe number of tariff bands to under 5. r 3'43' Allowing submissionof cargo declarationsbefore shipment arrive at the customs checkpoint. 3.4.4. With donor assistanceintroduce risk management techniques to reduce physical inspection to under 25% 3.4.5. With donor assistance allow electronic filing of cargo documents. 3.4.6. Introduce performance indicator monitoring for customs procedures especially to measure the time it takes to process exports and imports. 3.4-7. Set up a Consultative Group of exportingand importing cornpanlesand respond to the issues raised and dificulties discussed by instituting the changes needed to sirnpllfythe processes. 3.5. Enabling Reasonable Access to Finance 3.5.1. Establish, wlth donor assistance, a nahonwide credit information system wluch 1sunified across types of loansboth for bank and trade credit. The credit lnfonnation will include outstandingloans, paid up loans, default both present and past, as well as bad checks. ANNEX I1 - PSD STRATEGY-IMPLEMENTATION TIMETABLE framework govemng secured lending to provide consistency and bring them ine with Internationalbest practice. The legal frameworkshould provide and install regulahons on th d databaseto record pledges search. 3.5.4. Implement a transaction systemto international standards so that Time and steps to complete domestic financial transactionsreduced to under 3 days and 4 respectively. 3.5.4 Conducta review of all financial sector work done so far by all organizabons m Tajikistan in the last three years. Update the findingsof these reviews and fill any infonnahon gaps. Based on the above review develop a strategy to develop and strengthen the F~nancialsector. Strategyto Include implementation plan and provisions to license at least two foreign commercial --- Banks in Tajikistan. 3.6. Simplifying the Tax System 3.6'1. Amend the tax code to systematicallyreduce the number of taxes being pa~dto increasethe simplicityof the process. 3'6'2' Plan Fll~ng With donor assistance prepare a plan for electronic filing to commence within - -- 3'63. With donor assistancereview the total tax rate on gross profit to determine impact on informality,collections and evasion and net Impact on revenue. 3.7. Making Business Exit Reasonableand Easy. 3.7.1. Review bankruptcy laws and make the necessary amendments Improve the ease simplicityand cost of banlauptcy proceedings. 3.7.2. Set up bankruptcy courts or bankruptcy sections in commercial courts, in oblastsgiving them solejurisdict~onin bankruptcy cases. 3.73. -Providetraining for BankruptcyJudges and administrators. 3.7.4. Implement amendedtax code for inspections upon closing. 4. Supporting the private sector to increase productivityand human capacity to drivegrowth ANNEX I1 - PSD STRATEGY-IMPLEMENTATIONTIMETABLE 4.2-2. Improve the visa reglme to allow easier access to Tajikistan for business and tounsm 4.23. Restructure the telecommunica~onssector. 4.2.4. Initiate measures to facilitatepartnering with foreign(in particular reg~onal, firms) to improve accessto markets technology and capital. Spec~fically, focusing on the developmentinvestment,supplier, and customer relationships I between Tajik and internabonal and regional f m . Thls activity would also includetrade missions study tours and the organization of trade fairs. 4.2-5 Facilitate and strengthenthe formation of industry associations for effectme lobbying and supportto members. 4.2.6 Implement a program of technical support for smallbusinesses to organize themselvesand upgrade efficiency in order to galn improved market access and establish interfirmlinkages 4.2.7 Implement a ChallengeFunding program to prov~detechnical and financ~al support to growing businesses which contribute to PRSP objectives. 4.2.8 Fund study tours for Tajlk entrepreneursand business persons I In long term: 4.2.5. Restructurethe ground transport sector, e.g., railway enterprise, to Improve access to Tajikistanby land. 4.2.6. Improve the protectionof rmnonty shareholdersin closely held companies 43. MakingAvailable a Well Trained Work force. ANNEX I1- PSD STRATEGY-IMPLEMENTATIONTIMETABLE Set up specialized vocational training centers in major towns in all oblasts 43.1. with at least four in Dushanbe. Set up placement agencies in each of the centers. 4.3.2. AddressingSectorSpecificIssues to Support Growth (to be added) I I Conduct structured private public sector consultationsto identifypriority reforms in the sectors IndustrySectors Set up a prioritized programof sector specific regulatoryreforms e.g., mining and minerals, aviation,telecommunicationssectors (For details see Industry I= -b sectionof PRSP) Conduct sector studies to identify comparativeadvantages if any and how these might be converted to a competitiveadvantage,e.g., improvingthe sector specific regulatory framework, by filling gaps in the value chain . (Initiallytarget 4 (5) sectors: Agribusiness with Cotton & Textiles as sub sector; Industry& Mining; Building Materials etc. INFRASTRUCTURE: Improve the service delivery of infrastructure services in particularpower. Initiate restructuring of infrastructureenterprises. Aviation, . Telecommunication, Power, Energy (gas), Railroads, Roads, water. Iset up an accurate scheduleof electricity-, gas-, and heat supply for commercial and industrial consumers on a contractbasis with penalties for FacilitatingForeign Direct Investment. Implement the PSD strategy and the investmentclimaterelated in particular. I I 4.5.2. Make the necessary institutionalarrangementsto facilitateFDI ( discussed more fullv in the next chaoter) ANNEX 11- PSD STRATEGY - IMPLEMENTATION TIMETABLE the donors and the stee