International Conference on "The Role and Importance of Small Business and Entrepreneurship in the Implementation of the Socioeconomic Policy in Uzbekistan"

Remarks by ADB Vice-President Xiaoyu Zhao on 14 September 2012 in Tashkent, Uzbekistan

Introduction

Excellency President Karimov, Distinguished Ministers, Conference Delegates, Ladies and Gentlemen: I am pleased to be in Uzbekistan, and I welcome the opportunity to participate in this high level international conference.

Before sharing my thoughts on the important role of small businesses and entrepreneurship, I would like to extend my personal congratulations on the 21st anniversary of the independence of the Republic of Uzbekistan.

Only 21 years young, Uzbekistan's progress and achievements have been impressive. As highlighted by President Karimov in his anniversary address to the nation, "Uzbekistan's economy has grown nearly 3.7 times, per capita real incomes have multiplied sevenfold", and "life expectancy has risen by seven years". Equally noteworthy are Uzbekistan's significant social development achievements and year-onyear improvements in the social well-being of the country.

Congratulations on your anniversary and proud achievements.

I would now like to briefly discuss three issues: (i) the increasing role of small businesses and entrepreneurs in Uzbekistan in economic growth and sustainable job creation, (ii) key government reforms and programs that have helped to enable the growth of small businesses in Uzbekistan, and (iii) ADB's support for small business development.

The important role of small businesses and entrepreneurs in economic growth and sustainable job creation

Small and medium enterprises, or SMEs, play an increasingly critical role in the global economy, especially in job creation. In high-income countries, formal SMEs, with less than 250 employees, contribute to 50 percent of global GDP on average and up to 70 percent of employment – reaching higher percentages in non-OECD countries. In the developing world the private sector is primarily comprised of MSMEs – micro, small and medium enterprises – which are generating jobs for millions of people.

A recent IFC study covering 132 economies estimates that around 500 million or 97% of the world's businesses are MSMEs, over 80% of them are micro enterprises, and the vast majority are informal enterprises. Formal MSMEs are estimated at 125 million and three out of four operate in emerging markets.

In Uzbekistan, small businesses and entrepreneurs have played an important role in sustaining the country's high rates of economic growth through the recent global financial and economic crisis, and in diversifying the economy.

Over the last decade, small businesses and entrepreneurs have substantially increased their contribution to Uzbekistan's GDP growth -- growing from 30% of GDP at the start of the millennium to more than 50% of GDP by end 2011. They play an important role in the agriculture, construction, and commercial services sectors, and are increasing their presence in the manufacturing and light industry sectors.

Small businesses and entrepreneurs are creating job opportunities in Uzbekistan. About three out of every four persons employed work for small businesses. Each year about half a million new jobs are created by small businesses. More than 60% of these jobs are in rural areas.

The development of small businesses and entrepreneurship is instrumental in ensuring Uzbekistan's growth is broad based, gender inclusive and sustainable. Their development will support the acceleration of Uzbekistan's rise into the ranks of higher income countries in the region.

Uzbekistan's educated and young work force, its abundant natural resources, and its strategic location at the crossroads of Central Asia, offer considerable potential to further develop small businesses. To take advantage of this potential and to underpin sustained economic growth, Uzbekistan's reforms and programs for advancing small businesses are vital.

Key government reforms and programs that have helped to enable the growth of small businesses and entrepreneurs in economic growth and sustainable job creation

The Government of Uzbekistan has adopted a number of such reforms. These include an enabling legal framework for the establishment and operation of small businesses, an application–based procedure for business registration and a new simplified Tax Code. The Government has also significantly reduced business tax rates.

President Karimov declared 2011 the "Year of Small Business and Private Entrepreneurship", raising the public profile of the important role of small businesses and entrepreneurs in the economy. During that year, the government launched a program of targeted measures to create favorable conditions for the development of small businesses and entrepreneurs, aiming to attract new investment and create new jobs.

Building on these reforms, two important Presidential Decrees have been adopted this year to further simplify registration and licensing procedures, reduce requirements for statistical and financial reporting, and streamline export and import procedures. The government is also implementing important measures to clarify property rights, which will help improve the business and investment climate.

Under a number of programs, the government continues to provide targeted credit lines to financial institutions for onlending to small business and entrepreneurs to improve access to finance and address a key constraint to development. However, limited financial products are not specifically tailored to credit and financial coverage needs of small businesses and entrepreneurs, so credit demand by small businesses have yet to be met. Continued government support is needed in this area.

The government is implementing a number of programs to promote the development of small businesses and entrepreneurs in rural areas. One notable example is the rural development program. Under this program, the government is developing the rural housing market, including local construction sector and rural housing finance throughout the country. The program includes the development of rural housing communities and related infrastructure and services, and the creation of micro and small business opportunities within each community. Each new rural community will offer retail and commercial space for new shops and services to cater to residents, and each newly constructed house opens opportunities for home-based businesses such as a bakery, tailor shop or small repair garage. Related programs will improve access to finance for rural home and business borrowers to help them avail of these new opportunities. The program aims to create job opportunities for around 1,000 small rural contractors and 40,000 skilled tradesmen and construction workers annually, including women. About 2,000 micro or home-based businesses and 10,000 rural jobs are targeted annually.

These reforms and programs promote the development of small businesses and entrepreneurs. They will help reduce the cost of doing business and should lead to higher and more predictable returns on investment. They will also help promote national competiveness and create more jobs.

ADB's support for small business development

Since 1998, ADB has been supporting micro and small enterprise development in Uzbekistan, including support for finance sector development to improve access to finance. ADB's support complements government priorities and efforts to promote small businesses and entrepreneurs, and to ensure inclusive growth through employment and income generation.

Technical assistance has been provided in the areas of banking, rural savings and credit unions, insurance, prudential regulation and supervision, and capital markets.

The primary focus of ADB's ongoing support for small businesses and entrepreneurs is through credit lines and related technical assistance to help improve the capacity of financial institutions to lend to such businesses. ADB is currently implementing a Second Small and Microfinance Development Project and technical assistance project to facilitate access to credit by micro and small enterprises across Uzbekistan. Activities financed by the ADB loan are expected to generate up to 30,000 new jobs through the creation of business opportunities in the micro and small enterprise sector. The ongoing program includes outreach to women entrepreneurs.

ADB is also supporting the government's Housing for Integrated Rural Development Program through a series of financial intermediation loans to be on lent for housing loans in rural areas. This will help kick start development of the rural housing market, enable development of the local construction sector, and promote greater access to finance in rural areas.

Under a regional financial sector technical assistance project, ADB is working with the government to explore options for developing the electronic payments system and the insurance market, and for improving access to finance for micro and small enterprises. The study will highlight new opportunities and areas where ADB can provide future support.

ADB and the government of Uzbekistan recently completed the preparation of a new country partnership strategy which supports Uzbekistan's sustained and inclusive economic growth. Assistance will continue to support accelerated economic diversification, private sector development, and creation of new jobs for women and men in both urban and rural areas.

Under the strategy, ADB will continue to support access to credit for micro, small and medium enterprises, including women entrepreneurs. A deeper financial sector and enhanced financial intermediation will expand access to finance to allow businesses to start, develop and explore export potential.

We look forward to continuing our strong partnership and support for Uzbekistan and commend the government's efforts in organizing this important conference.

Thank you.