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

CENTRAL ASIA INITIATIVE

INVESTMENT AND COMPETITIVENESSIN CENTRAL ASIAFocus on the Kyrgyz Republic

3rd Steering Committee MeetingBishkek, 14 November 2013

With the financial assistance of the European Union

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OECD Private Sector Development 2

Expected benefits of the project

1. Enhancing country competitiveness• Assessing country policies on human capital, access to

finance, investment and trade promotion• Developing targeted and practical action plans for

reforms• Following-up on implementation and building capacity

2. Providing global visibility• Reviewing policies and reform action plans with OECD

countries• Showcasing the Kyrgyz Republic’s reform agenda as a

model in Eurasia

REMINDER


The main objective of today’s meeting is to prepare for the peer review of project results in Paris in December

1. To agree on the results of the assessment of policies for competitiveness in the Kyrgyz Republic

2. To agree on the action plans for competitiveness reforms in the Kyrgyz Republic

3. To agree on practical next steps from now to February 2014


OECD Eurasia Ministerial conference in Warsaw, June 28Kyrgyz Republic volunteered to be reviewed by OECD peers

A National Co-ordinator was further appointed by Kyrgyz Republic government

OECD GRS Private Sector Development 5CONFIDENTIAL – NOT FOR DISTRIBUTION

What is peer review and why is it effective?

An examination of one state’s performance or practices in a particular and well-defined area by other states

Peer review relies on mutual trust among the states involved, as well as their confidence in the process

Peer review is a discussion among equals with no enforcing mechanisms

Peer reviews encourage open dialogue and knowledge-sharing on policies under review

Peer reviews are highly effective due to peer advice and pressure

Peer review mechanisms are the main discussion platform among OECD members


The Kyrgyz Republic in the peer review process OECD members to comment on current policies and action plans for reform

Project Steering CommitteeKyrgyz Republic

Eurasia Competitiveness Roundtable

2. OECD

revieweron Access

to Finance

Country work on

1. Human Capital2. Access to

Finance3. Investment and

trade promotion for SMEs

1. OECDreviewer

on Human

Capital

3. OECD

reviewer

on Investment and

Trade Promotion

Kyrgyz Republic

Presentation of the country work to OECD peers

March-November 2013 3-4 December 2013, OECD Headquarters in Paris

The peer review process is expected to stimulate the policy reforms implementation

in the Kyrgyz Republic

Korea

TurkeyGermany


Project results to be peer reviewed include a policy assessment and action plans for reform in skills, access to finance and internationalisation of SMEs

Human Capital Development

Access to Finance for SMEs

Investment and trade promotion for

SMEs

Assessment of 3 policies for

competitiveness

Action plans for3 targeted competitiveness

reforms

How to improve workplace training schemes in

agribusiness ?

How to set up warehouse receipts financing for agricultural

producers?

How to help textile and garment producers to move up the value-

chain?

1

2

3

OECD, GIZ and public-private working groups to support the on-going work, with

in-depth involvement of civil society and business associations

A B


What are the major policy challenges for competitiveness in the Kyrgyz Republic?

A


OECD peer review methodology 34 policy indicators have been assessed across three major policy areas

Dimensions Sub-dimensions1 Access to finance for SMEs

Sub-Dimensions

1.1 Legal and regulatory framework

1.2 Sources of external finance

5.3 ACAAs

Sub-dimensions Indicators1.1 Sources of external finance for SMEs

Indicators

1.2.1 Credit guarantee schemes

Indicators Level of Reform

Indicators

1 2 3 4 5

Credit guarantee schemes

Public start-up funding

Supply-chain financing

Assessment of three policy areas to define priorities for reform implementation

1. Access to Finance for SMEs• Legal and regulatory framework

• Sources of external finance

• Financial literacy

2. Skills development• Education policy framework for business

needs

• Tools and public-private partnerships to promote skills for jobs

3. Investment and export promotion• Strategy and institutions

• Investment and export promotion tools

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 10CONFIDENTIAL – NOT FOR DISTRIBUTION

Skills for Private Sector Development - Need to enhance public and private sector co-operation to implement the national education strategy

2.1.

1 Co

nsul

tati

ve p

roce

sses

in th

e ed

ucati

on s

ys-te

m

2.1.

2 W

orkf

orce

ski

lls s

trat

egy:

des

ign

and

ev-id

ence

2.1.

3 D

evel

opm

ent o

f the

VET

sys

tem

2.1.

4 Re

spon

sive

ness

of t

he u

nive

rsit

y sy

stem

to

busi

ness

nee

ds

2.2.

1 Sk

ills

gap

anal

ysis

2.2.

2 D

evel

opm

ent o

f a w

ork-

rela

ted

syst

em o

f co

ntinu

ing

educ

ation

and

trai

ning

2.2.

3 Ex

iste

nce

of w

orkp

lace

trai

ning

(i

nter

nshi

p/ap

pren

tice

ship

) sch

emes

2.2.

4 A

cces

s to

trai

ning

2.2.

5 Tr

aini

ng q

ualit

y as

sura

nce

2.1 Education policy framework for business needs 2.2 Tools and public private partnerships to promote the skills for jobs

0

1

2

3

4

5

Implementation of workplace training schemes has been selected as a tool to enhance public-private dialogue in education


Skills for private sector developmentInitial recommendations

Education policy

Framework for

business needs

Tools and public

private

partnerships

to promote the

skills for jobs

Sub-dimension

Support the implementation of the national education strategy:• 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

1

2 Enhance public private partnerships in education:• 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


Access to Finance for SMEs – Need to further strengthen the legal and regulatory framework and diversify sources of external finance

Implementation of warehouse receipt financing has been selected as a pilot project to improve usage of movable assets as collateral

1.1

.1 C

adas

tre

1.1

.2 C

oll

ate

ral a

nd

pro

visi

on

ing

req

uir

em

en

ts

1.1

.3 R

egi

stra

tio

n s

yste

ms

for

mo

veab

le a

sse

ts

1.1

.4 C

red

it in

form

atio

n s

erv

ice

s

1.1

.5 L

aws

and

pro

ced

ure

s o

n d

istr

ess

ed

co

m-

pan

ies,

re

ceiv

ers

hip

an

d b

ankr

up

tcy

1.1

.6 C

red

ito

r ri

ghts

1.2

.1 C

red

it g

uar

ante

e s

che

me

s

1.2

.2 F

inan

cial

su

pp

ort

se

rvic

es

for

star

t-u

ps

(vo

uch

ers

, gra

nts

, etc

.)

1.2

.3 S

up

ply

-ch

ain

fin

anci

ng

inst

rum

en

ts

(war

eh

ou

se r

ece

ipts

, co

ntr

act

farm

ing,

etc

.)

1.2

.4 M

icro

fin

ance

Fac

iliti

es

1.2

.5 C

red

it U

nio

ns

1.2

.6 A

vail

abil

ity

of R

isk

Cap

ital

(e.g

. ve

ntu

re c

ap-

ital

, pri

vate

eq

uit

y fu

nd

s)

1.2

.7 L

eas

ing

1.3

.1 F

inan

cial

lite

racy

1.1 Effective Regulatory Framework 1.2 Access to External Finance 1.3 Other factors that affect de-mand and

supply of fi-nance

0

1

2

3

4

5


Access to Finance for SMEsInitial recommendations

Effective

regulatory

Framework

Access to

external

finance

Other factors

Sub-dimension

Further strengthen the legal and regulatory framework for access to finance to stimulate lending to SMEs:• Streamline procedures for registration of moveable assets • Review current legislation on collateral and provisioning requirements• Extend availability of credit information services • Strengthen creditor rights and enforcement mechanisms

1

2

3

Diversify and expand external sources of finance:• 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.


Investment and export promotion for SME – Need to strengthen the institutional framework for investment and export promotion

Business linkage programmes have been selected as a pilot tool to upgrade and integrate the garment industry into global value chains

3.1.

1 In

vest

men

t/Ex

port

Pro

moti

on

Stra

tegy

3.1.

2 In

vest

men

t/Ex

port

Pro

moti

on

Age

ncy

3.1.

3 M

onit

orin

g an

d ev

alua

tion

of t

he

agen

cy

3.2.

1 O

ne S

top

Sho

p fo

r in

vest

ors

3.2.

2 A

fter

care

ser

vice

s

3.2.

3 Fr

ee e

cono

mic

zon

es (F

EZs)

3.2.

4 Bu

sine

ss li

nkag

e pr

ogra

mm

es

3.2.

5 Pu

blic

-pri

vate

con

sult

ation

s w

ith

inve

stor

s

3.2.

6 Ex

port

pro

moti

on p

rogr

amm

es

3.2.

7 Fi

nanc

ial s

uppo

rt fo

r ex

port

pro

mo

-tio

n ac

tiviti

es

3.2.

8 N

ation

al e

xpor

t/in

vest

men

t pr

omo

-tio

n ev

ents

3.1 Investment and Export Promo-tion Strategy and Institutions

3.2 Investment and Export Promotion Tools

0

1

2

3

4

5


Investment and export promotion for SMEsInitial recommendations

Investment and

export promotion

strategy and

institutions

Investment and

export promotion

tools

Sub-dimension

Strengthen the institutional framework:• Approve the 2013 – 2017 Export Development Strategy• 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

1

2Further develop investment and export promotion tools:• Implement business linkage programmes, as a mechanism to establish

linkages between SMEs and foreign investors and facilitate the participation of domestic companies in global value chains

• Assess private sector needs for government support and identify investment and export promotion support mechanisms that can be implemented with limited resources at hand


How to implement competitiveness reform in the Kyrgyz Republic?

B


Despite being a relatively simple mechanism, the internship contract and its regulatory framework among players are key aspects to consider

FIRMS(PRIVATE PLAYERS)

Educational institutions

Convention

StudentsWage and training

Service and contract

Training report

MonitoringFeedback

on CVs

REGULATORY FRAMEWORK FRAMEWORK TO:

• Provide certainty to employers

• Protect students (e.g. medical coverage, insurance) and employers (e.g. confidentiality)

• Rule the interaction between Universities and private players

• Promote the Schemes

• Provide internships which are relevant to the players and of high quality

WORKPLACE TRAININGS IN AGRIBUSINESS


Action plan for the establishment of workplace training schemes in agribusiness

Strengthen the legislative framework and set incentives1

Ensure the engagement and ownership of the private sector2

Long term

Medium term

Short term

• Introduce an internship/ apprenticeship convention/ contract• Agree on a duration and on a minimum remuneration for workplace training

• Set up career services within agricultural institutions • Build a database (through alumni and company visits) • Organise outreach events, career fairs• Consider creating financial incentives for employers that offer workplace training• Provide workplace training opportunities on a competitive basis

Ensure that students are efficiently matched with training places3• Create a formalised platform to match supply and demand• Monitor the practical experience using a feedback report on the match of student skills

for firm needs

Promote education in agribusiness4• Adjust educational institutions’ curricula based on recommendations of agricultural firms• Market agribusiness as an attractive career option for students

WORKPLACE TRAININGS IN AGRIBUSINESS


Warehouse receipt financing can improve access to finance providing benefits to both agricultural players and to the banks financing them

Source: World Bank, FAO (2009), The use of warehouse receipt financing in agriculture in transition countries

• Increases transparency and efficiency in commodity markets

• Addresses collateral and liquidity constraints

• Encourages the development of warehouses and the logistical network around warehouses

• Manage price volatility • Access to working capital finance

without having to sell crops at times of low prices

Benefits to agricultural players

Reducing the risk by shifting the risk from the borrower to the warehouse operator

Benefits to banks

Sector benefits

Examples of production used as collateral: seeds, fertilizers, grains, sugar, potatoes, fresh fruits and vegetables, processed fruits and vegetables, dairy

products

Warehouse receipt financing

Agricultural supplier/ producer/ processor/

distributor/ traderWarehouse

Financial institution

Deposited goods

Warehouse receipt

Warehouse receipt

Loan

WAREHOUSE RECEIPT FINANCING IN AGRIBUSINESS


There are two approaches to the development of warehouse receipt financing in agribusiness

National Sub-national

Implementation at national level with the development of all the elements in

parallel

Implementation at regional level with certain banks farms or warehouses and

scaling up of the schemes later on

Key factors: • Institutional setting at national level• Ability of the banking sector to quickly

adopt innovative forms of financing• Examples: USA, Bulgaria

Key factors: • Capacity of farmers to organise• Strength of local associations, co-

operatives and other associative bodies • Willingness to accept innovative forms

of financing• Examples: Malawi, Madagascar



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

Identify and engage partners 1

Put in place elements to ensure the credibility of the scheme2

Set up the legal and regulatory framework3

Long term

Medium term

Short term • reliable storage facilities at strategic locations

• development of trade and distribution services in agricultural co-operatives• dissemination of information about financing opportunities among farmers

• ensure access to agricultural information• support the development of a wider range of insurance products for agricultural sector

• establish a certification agency • establish an indemnity fund• ensure compliance of warehouses with the standards• build reliable systems for collection and dissemination of agricultural information

Promote investments in the warehouse system4• Build a warehouse/logistical centre based on a public-private partnership



Improved company capabilities and business environment

Business environment

• e.g. trade and tariff agreements, investment policy, tax policy

• e.g. infrastructure, Technopolis

Improved business connections

The challenge is to sustain the industry’s development in the long term

Large/foreign firm

Local firmLocal firm Local firm

Value-added business relationships, e.g. FOB contracts, long-term contracts, investment

Increased integration in regional/global

value chains

Capabilities

• e.g. improved skills and knowhow through human capital development

• e.g. improved equipment and technology through better access to finance

• e.g. improved knowledge of markets and suppliers

• e.g. improved collective capabilities through co-operatives

Increased financial resources, knowledge transfer and ultimately higher added value productsSources: OECD ECP

INVESTMENT AND TRADE PROMOTION IN TEXTILE/GARMENT


Draft action plan on fostering the development of the garment industry in the context of global value chains

Focus on areas of strength1

Enhance the capabilities of companies2

Ensure that the Bishkek light industry Technopolis brings the expected results3

• Decrease the number of actions in the strategic documents• By evaluating past industry development initiatives, including the “patent” system• By taking stock of the priorities of government and potential donors

• Focus on garment production• For textile production, rely on agricultural development and investment attraction

• Focus first on Russia, Kazakhstan and other CIS markets

Increase trade promotion and start sector-specific investment promotion4

• Focus on the development of technical skills• Improve access to equipment through basic schemes• Foster the creation of co-operatives

• Ensure that the planned project responds to actual business needs• Through a feasibility study

• Not only provide infrastructure, but also collective organisation

• Continue and scale up existing trade promotion efforts• Start investment promotion for the sector

INVESTMENT AND TRADE PROMOTION IN TEXTILE/GARMENT


What are the next steps?


July November December

2013

Working level

Steering Committee

level

2nd WG Meeting Work-in-progress Foreign experts

invited

Meeting Follow-up on

the Ministerial Update on the

country work

Meeting Review and endorsement of the

country work – horizontal assessment and 3 targeted reform plans

International level

Eurasia Comp. Roundtable

Peer-review of the country work

Next major step is the peer-review session of these results OECD Headquarters, Paris, 3-4 December 2013

16-17 July, Bishkek 12-14 November, Bishkek

17 July, Bishkek 14 November, Bishkek

3-4December, Paris

OECD reviewers’ visit and 3rd WG meeting

Finalisation of the horizontal assessment

Finalisation of the 3 targeted reform plans

2014

February

Meeting Capacity-

building workshops on « How » to implement the 3 targeted reform plans

Meeting Endorsement of

the 3 peer-reviewed targeted reform plans

Launch of 3 OECD Policy Handbooks


Key decisions

1. Approve the results of the assessment of policies for competitiveness in Kyrgyz Republic in:

o Enhance public-private sector co-operation in the implementation of the national strategy for education

o Strengthen the legal and regulatory framework for access to finance and diversify sources of external finance

o Strengthen the institutional framework and implement targeted tools to promote investments and exports

2. Approve the targeted action plans for competitiveness reformo Workplace training for agribusiness: framework and incentives, business ownership, matching,

promotion of careers in agribusiness o Warehouse receipts for agribusiness: partners, credibility, regulatory framework, investmentso Textile and garment: focused strategy, company capabilities, cluster creation, promotion of the

sector

3. Practical next stepso December 2013: Kyrgyz Government delegation to come to Paris and discuss the results with OECD

peer countries and other Eurasia countries o February 2014: Capacity building events to further support implementation of the 3 targeted plans

for reform


Background information


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.

CONFIDENTIAL – NOT FOR DISTRIBUTION OECD Private Sector Development 29

Design of targeted reforms is on agribusiness and textile/garment since both sectors have strong potential for SMEs, FDI and exports growth

Agribusiness

Energy

Mining

Tourism

Logistics

How could the OECD Project help ?

Access to FinanceHuman Capital

Other barriers

!

!

!

!

Energy prices distortion

Limited impact on employment

Infrastructures first

Infrastructures first

SMEs FDIs Exports

Garment /Textile

Investment and trade promotion

REMINDER

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