1. CENTRAL ASIA INITIATIVE
INVESTMENT AND COMPETITIVENESS
IN CENTRAL ASIA
Focus on the Kyrgyz Republic
Peer Review at OECD Eurasia
Competitiveness Roundtable
Paris, 4 December 2013
With the financial assistance
of the European Union
2. The Kyrgyz Republic in the peer review process
OECD members to comment on current policies and action plans for reform
March-November 2013
Country work on
1.
2.
3.
Human Capital
Access to
Finance
Investment and
trade
promotion for
SMEs
3-4 December 2013, OECD Headquarters in Paris
Presentation of
the country work to OECD peers
Turkey
2. OECD
3. OECD
reviewer
to Finance
1. OECD
reviewer
on Human
Germany
reviewer
on Access
Korea
on Investment and
Capital
Trade Promotion
Eurasia Competitiveness Roundtable
Project Steering Committee
Kyrgyz Republic
Kyrgyz Republic
The peer review process is expected to stimulate the policy reforms implementation
in the Kyrgyz Republic
OECD Private Sector Development
2
3. Project results to be peer reviewed include a policy assessment and action plans
for reform in skills, access to finance and internationalisation of SMEs
A
Assessment of 3
policies for
competitiveness
1
Access to Finance
for SMEs
2
Human capital
development
3
Investment and
trade promotion for
SMEs
B
Action plans for
3 targeted competitiveness
reforms
ď How to set up warehouse
receipts financing for
agricultural producers?
ď How to improve workplace
training schemes in agribusiness ?
ď How to help textile and garment
producers to move up the valuechain?
OECD, GIZ and public-private working groups to support the on-going work, with
in-depth involvement of civil society and business associations
OECD Private Sector Development
3
4. OECD peer review methodology
34 policy indicators have been assessed across three major policy areas
Assessment of three policy areas to define
priorities for reform implementation
Dimensions
1
â˘
Legal and regulatory framework
â˘
Sources of external finance
â˘
Financial literacy
Access to finance for SMEs
1.1
Sub-Dimensions
1. Access to Finance for SMEs
Legal and regulatory framework
1.2
Sources of external finance
Sub-dimensions
3. Investment and export promotion
â˘
Strategy and institutions
â˘
Credit guarantee schemes
Indicators
Level of Reform
1
2
3
4
5
Credit guarantee schemes
Indicators
Tools and public-private partnerships to
promote skills for jobs
1.2.1
Indicators
â˘
Education policy framework for business
needs
Indicators
5.3
ACAAs
1.1 Sources of external finance for SMEs
2. Skills development
â˘
Sub-dimensions
Public start-up funding
Investment and export promotion tools
Supply-chain financing
Each policy indicator is assigned a score ranging from 1 to 5 to measure the level of
policy development and monitor progress in implementation over time
OECD Private Sector Development
4
5. 1
What are the major policy challenges in access to finance for
SMEs in the Kyrgyz Republic and how to implement
reforms?
OECD Private Sector Development
5
6. Access to finance for SMEs in the Kyrgyz Republic - status quo analysis
Access to finance for
SMEs
Key facts and figures
â˘
Domestic credit to private sector (% of GDP)
Skills for private sector
development
200
â˘
85.1% of loans in the Kyrgyz Republic require collateral
150
â˘
The average amount of collateral required for a loan in the Kyrgyz
Republic is 127.8%
â˘
Investment and
export promotion
27.9% of firms identify access to finance as a major constraint to
doing business
Only 17.9% of firms use bank financing
OECD
average**, 15
7%
100
50
0
12.4%
⢠Real interest rates for bank loans to agricultural sector averaged 15%
from 2007 onwards
â˘
43.8 % of loans from microfinance institutions and credit unions were
given to agricultural producers in 2011
Loan portfolio of Kyrgyz financial institutions, 2011
30
Real interest rates for bank loans to agriculture
Real interest rates for
bank loans to
agriculture
%
20
Microfinance
Institutions
31%
10
19.3
Annual avg.
inflation
2.8
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10
Credit Unions
3%
Source : BEEPS, 2009, World Bank, National Bank of Kyrgyzstan
Commercial
Banks
66%
CONFIDENTIAL
Source: World Bank, 2013, World Development Indicators; National Bank of the Kyrgyz Republic
statistics
** For the OECD average data for following countries was used: Australia, Canada, Chile, Czech
Republic, Estonia, Hungary, Iceland, Israel, Italy, Japan, Mexico, Netherlands, New
Zealand, Switzerland, United kingdom, United States
â NOT FOR DISTRIBUTION
OECD Private Sector Development
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7. Access to finance for
SMEs
Assessment framework to evaluate access to finance for SMEs in the
Kyrgyz Republic
Access to finance
Legal and regulatory
framework
⢠Collateral and provisioning
requirements
⢠Registration systems for moveable
assets
⢠Financial support services for
start-ups (vouchers, grants)
⢠Supply-chain financing
instruments (warehouse
receipts, contract farming, etc.)
⢠Credit information services
⢠Microfinance facilities
⢠Laws and procedures on
Investment and
export promotion
Other factors affecting
demand and supply
⢠Credit guarantee schemes
⢠Cadastre
Skills for private sector
development
Sources of external
finance
⢠Financial literacy
⢠Credit unions
distressed companies,
receivership and bankruptcy
⢠Creditor rights
⢠Availability of risk capital
(e.g. venture capital, private
equity funds)
⢠Leasing
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OECD Private Sector Development
7
8. Access to finance for
SMEs
Access to Finance for SMEs â Need to further strengthen the legal and
regulatory framework and diversify sources of external finance
5
4
3
Investment and
export promotion
Skills for private sector
development
2
1
0
1.1.5 Laws moveable assets
1.1.2 Collateral1.1.3provisioning requirements procedures on distressed companies, receivership andservices for start-ups (vouchers,Microfinance Facilities
1.1.1 Cadastre and Registration systems forand information services
1.1.4 Credit
1.1.6 Creditor rights1.2.3 Supply-chain financing instruments (warehouse receipts, contract
1.2.2 Financial support schemes
1.2.1 Credit guarantee
1.2.4 grants,Availability of Risk Capital (e.g. venture capital, private equity funds)
1.2.6 etc.) 1.2.5 Credit Unions
1.2.7 Leasing Financial literacy
1.3.1
bankruptcy
farming, etc.)
1.1 Effective Regulatory Framework
1.2 Access to External Finance
1.3 Other
factors that
affect demand
and supply of
finance
Implementation of warehouse receipt financing has been selected as a
pilot project to improve usage of movable assets as collateral
OECD Private Sector Development
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9. Access to Finance for SMEs
Initial recommendations
Skills for private sector
development
Access to finance for
SMEs
Sub-dimension
1
Effective
â˘
â˘
â˘
â˘
â˘
regulatory
Framework
2
Access to
â˘
â˘
Investment and
export promotion
finance
3
Streamline procedures for registration of moveable assets
Review current legislation on collateral and provisioning requirements
Review impact of the law on usurious activities on the microfinance sector
Extend availability of credit information services
Strengthen creditor rights and enforcement mechanisms
Diversify and expand external sources of finance:
â˘
external
Other factors
Further strengthen the legal and regulatory framework for access to finance to
stimulate lending to SMEs:
Implement pilot projects to develop supply-chain financing
instruments, such as warehouse receipts
Expand activities of existing credit guarantee funds
Explore opportunities to attract risk capital (e.g. through business angel
networks and private equity funds)
Enhance financial literacy through targeted education programmes, for example
in business planning and financial reporting to enable SMEs to prepare higher
quality loan applications to banks.
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OECD Private Sector Development
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10. Warehouse receipt financing can improve access to finance by facilitating
the use of agricultural production as collateral
Investment and
export promotion
Skills for private sector
development
Access to finance for
SMEs
WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS
Warehouse receipt financing
Agricultural supplier/
producer/ processor/
distributor/ trader
Warehouse
receipt
Deposited
goods
Warehouse
Warehouse
receipt
Loan
Financial
institution
Examples of production used as collateral:
seeds, fertilizers, grains, sugar, potatoes, processed
fruits and vegetables
Benefits to agricultural players
⢠Allows the farmer to pledge movable
assets and inventory to get financing for
working capital, leaving the necessary fixed
assets to pledge for long-term financing of
capital expenditures and investments
⢠Ensures increased access to working
capital finance without having to sell crops
at times of low prices, thus decreasing
their exposure to price volatility
Sector benefits
⢠Increases transparency and efficiency in
commodity markets
⢠Reduces collateral and liquidity
constraints
⢠Encourages investment in warehouses
and the development of the logistical
network around warehouses
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Source: World Bank, FAO (2009), The use of warehouse receipt financing in agriculture in transition countries
OECD Private Sector Development
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11. Access to finance for
SMEs
Financial institution perspective: Potential risks to be mitigated
Risk
âCommodityâ definition
Skills for private sector
development
Legal title
âLeakageâ risk
Investment and
export promotion
Storage conditions
Information and liquidity
Issue
ď§ Homogeneous goods, no individual labeling
ď§ Price transparency
ď§ The ownership rights must be secured by adequate legal solutions
ď§ Risk mitigation for potential frauds
ď§ Proper storage conditions to protect to value
ď§ Insurance against external risks (flood, fire, etc.)
ď§ Financial institution (bank, MFI) secured with necessary supervision
CONFIDENTIAL â NOT to finance, Bishkek, November 2013
Source: Presentation from Marek Komorowski, OECD Working Group on Access FOR DISTRIBUTION
OECD Private Sector Development
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12. Draft action plan for the establishment of warehouse receipt financing
in agriculture
Investment and
export promotion
Skills for private sector
development
Access to finance for
SMEs
WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS
1
Set up a pilot project
â˘
â˘
â˘
â˘
â˘
Short
term
Define the scope of the pilot project by focusing on one or two products
Identify reliable storage facilities and bulking sites at strategic locations
Support the development of trade and distribution services in agricultural co-operatives
Set up the agreements for financing in co-operation with banks
Disseminate information about financing opportunities to farmers
Scale up to national level:
2
Medium
/Long
term
3
Set up the regulatory
framework
⢠Develop technical
standards for warehouses
⢠Establish a warehouse
certification agency and
ensure compliance of
warehouses to the standards
⢠Streamline procedures
for registration of moveable
assets
Ensure the credibility of
the system
⢠Build reliable systems
for collection and dissemination
of agricultural information
⢠Support the development
of a wider range of insurance
products for agricultural sector
⢠Establish an indemnity fund
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4
Promote investments
in the warehouse
system
⢠Promote investments
in warehouse business
⢠Consider building a
warehouse/ logistical
centre based on a publicprivate partnership
OECD Private Sector Development
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13. 2
What are the major policy challenges in skills development in
the Kyrgyz Republic and how to implement reforms?
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OECD Private Sector Development
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14. Skills for private sector development in the Kyrgyz Republic - status quo
analysis
Investment and
export promotion
Skills for private sector
development
Access to finance for
SMEs
Key facts and figures
⢠Literacy rate among adult population in the Kyrgyz
Republic is 99% for male and female population. For
young people (15-24 years) literacy rate is 100%
⢠30.9% of employers in agriculture declare
insufficient employees competence
⢠51.7% of the unemployed in 2011 had secondary
education
25%
Education spending (% of all government
expenditure), 2009
20%
15%
OECD
average
11.6%
10%
5%
Labour force by level of education, 2012
0%
5.7%
2.1%
Higher education
18.8%
1.6%
Unfinished higher
education
VET II
Kyrgyzstan
30
Kazakhstan
Tajikistan
Mongolia
Expenditure per student, tertiary (% of GDP per
capita), avg 2007-2010
25
VET I
20
Secondary education
15
12.7%
Primary education
49.0%
OECD
average, 2
6.4%
10
5
10.1%
No education
0
Kyrgyz Republic
Source : World Bank, National Statistical Committee, EU report on skills
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shortages in agriculture in the Kyrgyz Republic
Kazakhstan
Mongolia
Tajikistan
OECD Private Sector Development
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15. Investment and
export promotion
Skills for private sector
development
Access to finance for
SMEs
Assessment framework to evaluate skills for private sector
development in the Kyrgyz Republic
Skills development
Policy framework for business
education
Policy tools to promote
skills for jobs
⢠Consultative processes in the education
⢠Skills gap analysis
system
⢠Workforce skills strategy: design and
evidence
⢠Work-related system of continuing education
and training
⢠Development of the VET system
⢠Workplace training schemes
⢠Responsiveness of the university system
⢠Training quality assurance
to business needs
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16. Investment and
export promotion
2.1 Education policy framework for business needs
2.2.5 Training quality assurance
2.2.4 Access to training
2.2.3 Existence of workplace
training (internship/apprenticeship)
schemes
2.2.2 Development of a workrelated system of continuing
education and training
2.2.1 Skills gap analysis
2.1.4 Responsiveness of the
university system to business needs
2.1.3 Development of the VET
system
2.1.2 Workforce skills strategy:
design and evidence
2.1.1 Consultative processes in the
education system
Skills for private sector
development
Access to finance for
SMEs
Skills for Private Sector Development - Need to enhance public and private
sector co-operation to implement the national education strategy
5
4
3
2
1
0
2.2 Tools and public private partnerships to promote the skills for jobs
Implementation of workplace training schemes has been selected
as a tool to enhance public-private dialogue in education Private Sector Development
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OECD
16
17. Access to finance for
SMEs
Skills for private sector development
Initial recommendations
Sub-dimension
1
Education policy
â˘
Framework for
â˘
Skills for private sector
development
business needs
Investment and
export promotion
Support the implementation of the national education strategy:
Tools and public
â˘
2
Enhance public private partnerships in education:
â˘
private
partnerships
to promote the
skills for jobs
Allocate a budget to enable main stakeholders to implement activities to
achieve defined goals
Identify mechanisms to enhance private sector contribution to education
and training provision, for example through VET programmes
Monitor the implementation of the strategy and hold regular public-private
consultations with social partners
â˘
Develop and implement efficient workplace training programmes (e.g.
internship/apprentice schemes) as a mechanism to enable students to
acquire first practical knowledge and skills for their future jobs during
their university studies
Extend the usage of skills gap analysis beyond pilot projects that already
exist in Naryn, Jalal-Abad and Osh regions to assess supply and demand for
skills
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17
18. Access to finance for
SMEs
Workplace training is one type of public-private partnership in education
that brings learning directly into the workplace and reduces the skills gap
WORKPLACE TRAININGS IN
AGRIBUSINESS
REGULATORY FRAMEWORK
FRAMEWORK TO:
Service and contract
Investment and
export promotion
Skills for private sector
development
Students
Wage and training
Training
report
Monitoring
Firms
(private
players)
Convention
Educational
institutions
Feedback
on CVs
⢠Provide certainty to
employers
⢠Protect students (e.g.
medical coverage, insurance)
and employers (e.g.
confidentiality)
⢠Rule the interaction
between Universities and
private players
⢠Promote the Schemes
Despite being a relatively simple mechanism, the contract for
workplace training and the regulatory framework are key
aspects to consider
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⢠Provide internships which
are relevant to the players
and of high quality
OECD Private Sector Development
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19. 1
Investment and
export promotion
Strengthen the legislative framework and set incentives
⢠Introduce an internship/ apprenticeship convention/ contract
⢠Agree on a duration and on a minimum remuneration for workplace training
Short
term
Skills for private sector
development
Access to finance for
SMEs
Action plan for the establishment of workplace training schemes in
WORKPLACE TRAININGS IN
agribusiness
AGRIBUSINESS
2
â˘
â˘
â˘
â˘
â˘
3
Medium
term
Long
term
Ensure the engagement and ownership of the private sector
Set up career services within agricultural institutions
Build a database (through alumni and company visits)
Organise outreach events, career fairs
Consider creating financial incentives for employers that offer workplace training
Provide workplace training opportunities on a competitive basis
Ensure that students are efficiently matched with training places
⢠Create a formalised platform to match supply and demand
⢠Monitor the practical experience using a feedback report on the match of student skills
for firm needs
4
Promote education in agribusiness
⢠Adjust educational institutionsâ curricula based on recommendations of agricultural firms
⢠Market agribusiness as an attractive career option for students
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OECD Private Sector Development
19
20. 3
What are the major policy challenges in investment and
export promotion in the Kyrgyz Republic and how to
implement reforms?
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OECD Private Sector Development
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21. Iran, 1.16%
China, 1.90%
Uzbekistan, 2.
39%
Tajikistan, 0.9
1%
6%
300
4%
200
United Arab
Emirates, 17.9
9%
Source : World Bank, National Statistical
Committee, The Observatory of Economic
2%
100
0%
2011
2010
2009
2008
2007
2006
-100
2005
0
-2%
Foreign direct investment, net
inflows (% of GDP)
400
Foreign direct investment, net inflows (BoP, current US$)
Foreign direct investment, net inflows (% of GDP)
Other, 4.83%
Current account balance of the Kyrgyz Republic
(BoP, MLN current USD)
Switzerland, 2
3.10%
Kazakhstan, 1
0.21%
France, 14.85
%
8%
500
Exports of the Kyrgyz Republic by destination, 2010
Turkey, 2.50%
Investment and
export promotion
10%
600
2004
⢠Gold represented 40% of exports from the Kyrgyz Republic
in 2010, chemical elements 15% , petroleum oils 4%
700
2003
⢠Exports amounted to 2.3 billion USD and imports to 3.9
billion USD in 2011
12%
2002
⢠46% of FDI inflows went to the manufacturing sector and
32% to the real estate sector
800
2001
⢠89% of FDI inflows originated from CIS countries in 2012
Foreign direct investment in the Kyrgyz Republic
2000
Key facts and figures
⢠FDI in the Kyrgyz Republic represents only 3% of the total
net FDI inflows in the Central Asia region
Foreign direct investment, net
inflows (BoP, Million USD)
Skills for private sector
development
Access to finance for
SMEs
Investment and export promotion (SME internationalisation)
Status quo analysis
Russia, 19.39
%
2005
2006
2007
2008
2009
2010
2011
2012
0
-200
-400
-600
-800
-1000
-1200
-1400
-1600
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OECD Private Sector Development
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22. Investment and
export promotion
Skills for private sector
development
Access to finance for
SMEs
Assessment framework to evaluate investment and export promotion
in the Kyrgyz Republic
Investment and Export promotion
Strategy and Institutions
Investment and Export promotion tools
⢠One Stop Shop services for investors
⢠Aftercare services
⢠Investment / export promotion strategy
⢠Investment / export promotion agency
⢠Monitoring and evaluation
⢠Free economic zones
⢠Business linkage programmes
⢠Public-private consultations with investors
⢠Export promotion programmes
⢠Financial support
⢠National export promotion events
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OECD Private Sector Development
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23. 3.1 Investment and Export Promotion
Strategy and Institutions
3.1.3 Monitoring and evaluation
of the agency
3.1.2 Investment/Export
Promotion Agency
3.1.1 Investment/Export
Promotion Strategy
Skills for private sector
development
3.2.8 National export/investment
promotion events
3.2.7 Financial support for export
promotion activities
3.2.6 Export promotion
programmes
3.2.5 Public-private consultations
with investors
3.2.4 Business linkage
programmes
3.2.3 Free economic zones (FEZs)
3.2.2 Aftercare services
3.2.1 One Stop Shop for investors
Investment and
export promotion
Access to finance for
SMEs
Investment and export promotion for SMEs â Need to strengthen the
institutional framework for investment and export promotion
5
4
3
2
1
0
3.2 Investment and Export Promotion Tools
Business linkage programmes have been selected as a pilot tool to upgrade
and integrate the CONFIDENTIAL â NOT FOR DISTRIBUTION global value chainsPrivate Sector Development
garment industry into
OECD
23
24. Access to finance for
SMEs
Investment and export promotion for SMEs
Initial recommendations
Sub-dimension
Investment and
1
Strengthen the institutional framework:
â˘
strategy and
Approve the 2013 â 2017 Export Development Strategy
â˘
export promotion
Strengthen investment promotion efforts, for example by setting up an
investment and export promotion agency with sector expertise, and by
defining clear roles and responsibilities to implement related activities
Skills for private sector
development
institutions
2
Further develop investment and export promotion tools:
Investment and
export promotion
Investment and
â˘
Implement business linkage programmes, as a mechanism to establish
linkages between SMEs and foreign investors and facilitate the
participation of domestic companies in global value chains
â˘
Assess private sector needs for government support and identify
investment and export promotion support mechanisms that can be
implemented with limited resources at hand
export promotion
tools
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OECD Private Sector Development
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25. Production in the textile and garment sector
doubled from 2009 to 2012
Apparel production (official)
Miillion USD
Skills for private sector
development
Access to finance for
SMEs
The Kyrgyz garment industry displays high potential
180
165
120
112
1.50
105
1.00
100
0.50
80
58
60
40
3.00
2.00
140
116
Estimated cost of labour in the
garment industry1, 2010
2.50
142
55
2004
2005
0.00
27
20
0
2003
Investment and
export promotion
USD/hour
160
160
The Kyrgyz Republic enjoys a
cost advantage
2006
2007
2008
2009
2010
2011
The actual garment production is estimated
around USD 375bn (2010)
Among countries benefitting from an attractive
cost of labour, compared capabilities are key
1. Cost of labour estimates for the Kyrgyz Republic are preliminary calculations by the OECD ECP, based on ILO data. Cost estimates for other countries were compiled by the
World Bank.
Source: National Statistical Committee of the Kyrgyz Republic , USAID, WorldBank estimates, ILO, OECD ECP calculations
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26. The challenge is to sustain the industryâs development in the long term
Skills for private sector
development
Access to finance for
SMEs
INVESTMENT AND TRADE PROMOTION IN
TEXTILE/GARMENT
Improved company capabilities
and business environment
Improved business connections
Capabilities
Large/foreign
firm
â˘e.g. improved skills and knowhow
through human capital development
⢠e.g. improved equipment and
technology through better access to
finance
â˘e.g. improved knowledge of
markets and suppliers
â˘e.g. improved collective capabilities
through co-operatives
Value-added business
relationships, e.g. FOB
contracts, long-term
contracts, investment
Increased
integration in
regional/global
value chains
Investment and
export promotion
Business environment
â˘e.g. trade and tariff
agreements, investment policy, tax
policy
Local firm
Local firm
Local firm
â˘e.g. infrastructure, Technopolis
Increased financial resources, knowledge transfer and ultimately higher added value products
Sources: OECD ECP
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27. Access to finance for
SMEs
Draft action plan on fostering the development of the garment
INVESTMENT AND TRADE PROMOTION IN
industry in the context of global value chains
TEXTILE/GARMENT
1
Focus on areas of strength
â˘
â˘
Investment and
export promotion
Skills for private sector
development
â˘
2
Decrease the number of actions in the strategic documents
⢠By evaluating past industry development initiatives, including the âpatentâ system
⢠By taking stock of the priorities of government and potential donors
Focus on garment production
⢠For textile production, rely on agricultural development and investment attraction
Focus first on Russia, Kazakhstan and other CIS markets
Enhance the capabilities of companies
â˘
â˘
â˘
3
Focus on the development of technical skills
Improve access to equipment through basic schemes
Foster the creation of co-operatives
Ensure that the Bishkek light industry Technopolis brings the expected results
â˘
â˘
4
Ensure that the planned project responds to actual business needs
⢠Through a feasibility study
Not only provide infrastructure, but also collective organisation
Increase trade promotion and start sector-specific investment promotion
â˘
â˘
Continue and scale up existing trade promotion efforts
Start investment promotion for the sector
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OECD Private Sector Development
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28. What are the next steps?
OECD Private Sector Development
28
29. Next major step is the peer-review session of these results
OECD Headquarters, Paris, 3-4 December 2013
2013
July
Working level
2nd WG Meeting
ď§Work-in-progress
ď§Foreign experts
invited
16-17 July, Bishkek
Steering
Committee
level
Meeting
ď§Follow-up on
the Ministerial
ď§Update on the
country work
17 July, Bishkek
International
level
November
2014
December
OECD reviewersâ visit and 3rd WG
meeting
ď§Finalisation of the horizontal
assessment
ď§Finalisation of the 3 targeted
reform plans
February
Meeting
ď§Capacity-building
workshops on
ÂŤ How Âť to
implement the 3
targeted reform
plans
12-14 November, Bishkek
Meeting
ď§Endorsement of
the 3 peerreviewed targeted
reform plans
ď§Launch of 3 OECD
Policy Handbooks
Meeting
ď§Review and endorsement of the
country work â horizontal
assessment and 3 targeted reform
plans
14 November, Bishkek
Eurasia Comp.
Roundtable
ď§Peer-review of
the country work
3-4December, Paris
OECD Private Sector Development
29
31. In the Kyrgyz Republic, 34 policy indicators have been assessed
across 3 policy dimensions
Skills
development
Access to finance
Legal and
regulatory
framework
Sources of
external
finance
â˘
Cadastre
â˘
â˘
Collateral and
provisioning
requirements
Credit guarantee
schemes
â˘
Financial support
services for startups
(vouchers, grants)
â˘
â˘
â˘
â˘
Registration
systems for
moveable
assets
â˘
Credit
information
services
Laws and
procedures on
distressed
companies, rec
eivership and
bankruptcy
Supply-chain
financing
instruments
(warehouse
receipts, contract
farming, etc.)
â˘
Microfinance
facilities
â˘
Credit unions
â˘
Leasing
â˘
Financial literacy
Policy framework
for business
education
Consultative
processes in
the education
system
â˘
Workforce
skills strategy:
design and
evidence
â˘
Development
of the VET
system
â˘
Responsivenes
s of the
university
system to
business needs
â˘
Skills gap
analysis
â˘
Work-related
system of
continuing
education and
training
â˘
â˘
Workplace
training
schemes
Creditor rights
Strategy
and
Institutions
Investment
and Export
promotion tools
â˘
Investment /
export
promotion
strategy
â˘
One Stop Shop
services for
investors
â˘
Aftercare services
â˘
Investment /
export
promotion
agency
â˘
Free economic
zones
â˘
Business linkage
programmes
â˘
Public-private
consultations with
investors
â˘
Export promotion
programmes
â˘
Financial support
â˘
â˘
Policy tools
to promote
skills for jobs
National export
promotion events
â˘
Monitoring and
evaluation
Training quality
assurance
Availability of risk
capital (e.g. venture
capital, private
equity funds)
â˘
Other factors
affecting demand
and supply
Investment and
Export promotion
CONFIDENTIAL â NOT FOR DISTRIBUTION
OECD Private Sector Development
31
32. Each policy indicator is assigned a score ranging from 1 to 5 to measure
the level of policy development
The policy development path of each indicator is typically structured around the following lines:
⢠Level 1: There is no framework (e.g. law, institution, project, initiative etc.) in place to cover the area
concerned.
⢠Level 2: There is a draft or pilot framework and there are some signs of government activity to address the
area concerned.
⢠Level 3: A solid framework is in place for this specific policy area.
⢠Level 4: Level 3 + some concrete indications of effective policy implementation of the framework.
⢠Level 5: Level 4 + some significant record of concrete and effective policy implementation of the framework.
This level comes closest to good practices as identified by OECD standards.
Example
Indicator
Credit
guarantee
schemes
1
No credit
guarantee
scheme in place.
Level of Reform
3
2
Credit guarantee
scheme facility
under
consideration.
Credit guarantee
facilities in place.
(Government
initiative and state
controlled).
CONFIDENTIAL â NOT FOR DISTRIBUTION
4
5
Credit guarantee
facility operating
under contract to
the private sector
but state-funded.
Number of mutual or
mixed credit guarantee
schemes in place under
private managers able to
finance themselves out
of fees alone.
OECD Private Sector Development
32
33. Design of targeted reforms is on agribusiness and textile/garment since
both sectors have strong potential for SMEs, FDI and exports growth
How could the OECD
Project help ?
Agribusiness
Garment /
Textile
REMINDER
SMEs
FDIs
Exports
Other barriers
Access to Finance
Human Capital
Investment and trade
promotion
Energy
Energy prices
distortion
!
Mining
Limited impact on
employment
!
Tourism
Infrastructures
first
!
Logistics
Infrastructures
first
!
CONFIDENTIAL â NOT FOR DISTRIBUTION
OECD Private Sector Development
33
Editor's Notes
To provide a good basis for todayâs discussion, I would like to quickly recall the situation of the Kyrgyz Republic regarding foreign direct investment and foreign trade.First, on FDI:The Kyrgyz Republic receives a comparatively small amount of FDI, with only 3% of the total FDI inflows into the Central Asia region. FDI inflows amounted to about 700 M USD in 2011, which remains small in comparison of neighbouring economies that have a sizeable oil and gas industry.Second, on international trade:The Kyrgyz Republic exported about 2.3bn USD of goods in 2011, and imported more than that, about 3.9bn USD. This leads to a current account deficit, which amounted to 600 M USD in 2011.It is to be noted that a large share of recent FDI inflows and a large share of exports are related to the exploitation of one large gold mine in Kumtor, which strongly impacts the data presented here.
This was the overall macroeconomic vision. Now, from a business perspective, there are a number of policies that affect FDI and exports, in particular for SMEs.On the one hand, there is a necessary institutional setting, and on the other hand there are specific tools that can be used.On the institutional side, the assessment run by our team looked at the overall investment and export strategy, the responsible agency and the monitoring and evaluation.Regarding tools: the implementation of 8 tools was assessed, including for example the creation of one stop shops centralising in one single place all government services necessary for foreign investors, or business linkage programmes, which aim to foster business between foreign firms and domestic SMEs.
[Volker may take the floor here]Now, what were the results of this assessment?As you may notice, the overall policy landscape is slightly less advanced on this dimension than on access to finance or skills development.Two specific tools have been implemented already: Free economic zones, with four economic zones already existing, and also structured public-private consultations with private investors.Most other classic tools, such as business linkage programmes or export promotion programmes, are still in a design phase.One key reason explains this situation: as you can see from indicator 3.1.2., there is no operational dedicated investment or export promotion agency. Today, the prerogatives of such an agency are with the Ministry of Economy.
This is why our first recommendation is to strengthen the investment and export promotion institutional framework.Concretely, this means approving the Export Development Strategy, which was drafted by the Ministry of Economy with the assistance of our colleagues from the International Trade Center and GIZ. Official endorsement of this strategy will clear the way for the creation of new institutions and the immediate implementation of specific promotion tools.This also means setting up an investment and export promotion agency. We are well aware that in the past, previous attempts to set up such specialised agencies in the Kyrgyz Republic proved unsuccessful. However, we are confident that lessons have been drawn and that such an agency can now be created ,based on international good practices.This is the first priority. However, more targeted activities can also be launched immediately. An example that I will develop in a minute is the implementation of specific programmes by industry, in order to help local companies liaise with international business partners.
To demonstrate how specific initiatives can help local companies connect to regional or global value chains, the OECD team selected the clothing industry as a pilot.Clothing production has existed in the Kyrgyz Republic since Soviet times. After independence, the inherited industry rapidly declined. However, since 2006, the industry has bounced back and now represents about 400 M USD in turnover and 200 000 jobs.The recent dynamic development was based a several comparative advantages, including an attractive cost of labour.
In a cost-driven and globalised industry, this cost advantage is an important starting point, but cannot guarantee sustainable development over the long term. For sustainable development, two improvements need to happen: local company have to become more competitive and they have to develop closer links with foreign clients, suppliers and investors.Becoming more competitive includes improving skills in the workforce, accessing better equipment, improving market knowledge, and creating collective organisations such as co-operatives to catalyse that evolution. It also necessitates an more favourable business environment.Improving business connections is necessary because the dynamics of the clothing sector are largely determined by large international buyers. To pay off, improved company capabilities need to translate into improved connections with foreign business partners, hence enabling local companies to specialise into higher-value products or higher-value tasks.
Based on the analysis of the clothing industry globally and on local specificities in the Kyrgyz Republic, a plan in four points is proposed.First, policymakers should focus their policies on the areas where the local industry has the most potential. People say âless is moreâ, and this really is the idea here. This means focusing on specific activities only, on regional export markets only and also simply reducing the number of industry development initiatives. In a context of scarce government resources, focus is key to ensure that the actions undertaken achieved the expected impact on the ground.Second, support should be provided for local companies to improve their capabilities. We recommend putting emphasis on technical skills development, basic schemes for access to equipment and most importantly on the creation of co-operatives to drive a collective modernisation effort.Third, and this is more specific to the local situation, there are plans to create a light industry technopolis near the capital city Bishkek. This would create a cluster gathering clothing SMEs of the region. This ambitious project has much potential to improve the competitiveness of local companies, and also to improve the lives of local employees, who often work in difficult conditions in unadapted premises. To make sure this project achieves the expected impact, an in-depth feasibility study should be run to ensure that the project is actually adapted to business needs. Also, on top of providing the appropriate infrastructure, this project should include the creation of a local industry organisation.Finally, industry promotion efforts should be enhanced. Promoting local companies and their products on foreign markets is already being done, with some success, and should be continued. In contrast, not much is currently being done to promote the Kyrgyz Republic to foreign investors in the clothing industry specifically. Specific activities could be started immediately and in the mid-term, as was already mentioned, the creation of an investment promotion agency is necessary.