The technical assistance is supporting the government in the design and implementation of a program of economic policy reforms that can improve the investment climate and business environment in Tajikistan. These reforms are expected to (a) mitigate risks that investors and businesses face when operating in Tajikistan, particularly legal and regulatory risks; (b) upgrade productive enterprises; and (c) facilitate and encourage investments. The technical assistance is preparing detailed blueprints for missing institutional mechanisms that can mitigate investors' risks, help productive enterprises expand, and attract investments. Possible institutional mechanisms to be supported include regulatory impact analysis for businesses, investment protection framework including partial credit and investment guarantee schemes, support to international quality certification, support to innovation diffusion, and support to business incubators.
The technical assistance has been implemented based on a two-stage approach. First, diagnostic and consultation on the feasibility of different institutional mechanisms are conducted. This helps understand stakeholders' buy-in for different economic reforms. Second, the technical assistance supports the government in designing and implementing the most feasible and effective economic policy reforms.
The TA is taking forward previous ADB support provided to the investment promotion agency (IPA) and aims to achieve quality certification for its management system. Consultants will guide the IPA in business process reengineering, including development of basic knowledge transfer tool such as document management system (simple document repository), handbooks, guidelines, and a database for client investors. The TA will finance (i) production of a limited quantity of investment promotion materials, (ii) upgrading of the IPA's website design and content, and (iii) a program of training on image-building, investor facilitation, and investor servicing (including expediting registration and approval processes, providing necessary documentation for tax purposes, and other assistance in obtaining sites, utilities, etc.).
The TA will support a pilot business incubator for women entrepreneurs and the expansion of training courses to address new needs (e.g. basic accounting, given new Tax Code requirements). Resource persons will provide short-term entrepreneurship training to women entrepreneurs throughout the country. A competition among women entrepreneurs on innovative business proposals will select promising candidates for a 3-month practical business course (a mini-MBA).
|Project Rationale and Linkage to Country/Regional Strategy
Notwithstanding a significant increase in the last two decades, Tajikistan has the lowest gross national income per capita in Central Asia ($860 in 2012). Limited employment opportunities in Tajikistan have encouraged up to 40% of the working population to seek jobs abroad. Economic growth has been mainly driven by consumption fueled by remittances. Investment is relatively low at about 20% of gross domestic product (GDP), which limits future economic growth and job creation. Investment is mostly funded by the government and development partners (private investment is estimated at 4% of GDP in 2012). Given government's fiscal constraints and limited borrowing capacity, the private sector needs to play an increasing role in investment. Tajikistan can benefit from increasing the share of remittance inflows that are allocated to investment and job creation rather than to consumption.
Despite efforts to increase Tajikistan's Doing Business ranking, long-term private investment continues to be constrained by an unfavorable business environment that imposes high uncertainty. Arbitrary taxation reduces prospects of fair competition. Financing is expensive and short-term, limiting private investors' capacity to expand and compete internationally. Energy supply is unreliable and large parts of the country do not receive electricity during the 6-month winter period. Businesses have very limited knowledge of modern production techniques and of external markets. Just 16.7% of firms in Tajikistan reported having an internationally recognized quality certification (2008). Tajikistan ranks 134th out of 144 countries in cluster development. Other challenges to businesses include access to markets, with the natural mountain barriers with the People's Republic of China in the North and the security concerns in Afghanistan presenting transit barriers to the east and the south. Overall, Tajikistan's country risk is very high. As a result, the private sector has not been the engine of growth that Tajikistan requires. Its share of GDP has remained stable at an estimated 55% over the past decade, lower than Kazakhstan (65%) and the Kyrgyz Republic (75%) but higher than Turkmenistan (25%) and Uzbekistan (45%).