Tajikistan: Investment Climate Reforms

Sovereign Project | 47099-001

Summary

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.

Latest Project Documents

Title Document Date
Investment Climate Reforms Dec 2013

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Procurement Documents

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Project Name Investment Climate Reforms
Project Number 47099-001
Country Tajikistan
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8557-TAJ: Investment Climate Reforms
Japan Fund for Poverty Reduction US$ 1.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Private sector development
Sector / Subsector Industry and trade - Small and medium enterprise development
Public sector management - Economic affairs management
Gender Equity and Mainstreaming Gender equity
Description

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%).

Impact Improved investment climate and business environment
Project Outcome
Description of Outcome Program of economic policy reforms to improve investment climate in Tajikistan approved
Progress Toward Outcome The Government and ADB have drafted the Memorandum of Understanding for the program of policy reforms to support private sector development and improve the investment climate. The program will be the basis of an ADB policy-based grant to the government as budget support. The Government is reviewing the draft MOU since 26 January 2015. Consultants will support the design of some of the policy actions.
Implementation Progress
Description of Project Outputs

Institutional mechanisms designed for implementation of economic policy reforms to improve investment climate

Investment promotion agency's capacity developed

Business incubator for women entrepreneurs developed on a pilot basis

Status of Implementation Progress (Outputs, Activities, and Issues)

The institutional mechanisms to improve investment climate have been identified and proposed in Q4 2014.

The consultant is expected to draft blueprints for (i) regulatory impact assessment, (ii) investment legislation, and (iii) credit guarantee scheme for investments in innovation.

ADB is discussing business plans with local businesses for the development of one product where Tajikistan has comparative advantage. ADB will favor products in the agribusiness, textiles or tourism sectors.

The consultant has prepared the action plan for capacity development of the investment promotion agency.

NABWT business incubator initiated its activities. Discussions are ongoing with NABWT regarding support to specific curricula for training courses.

Geographical Location Tajikistan
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design The TA was requested by the government to ADB management in October 2012. The government highlighted the importance of private sector development and improvement of business environment to attract private investments. A reconnaissance mission was fielded in February 2013, followed by a consultation mission in March 2013. Discussions were held with government agencies (the President's Office, the Ministry of Economic Development and Trade, the Investment Committee, Tajinvest, and the Sugd Free Economic Zone), private sector players, business associations (Chamber of Commerce and Industry, National Association of Business Women), and donor organizations. The Executive Office of the President expressed its written concurrence to the technical assistance.
During Project Implementation A mission of ADB staff and international consultants was conducted in May-June 2014 to discuss binding constraints to private sector development with government, business associations, and development partners. The mission also discussed the proposed program of policy of reforms.
Business Opportunities
Consulting Services ADB will engage the services of a consulting firm and of resource persons that will be recruited in accordance with ADB's Guidelines on the Use of Consultants (March 2013, as amended from time to time). Quality- and cost-based selection (QCBS) will be employed in recruiting a firm using simplified technical proposals (STP) and a quality-cost ratio of 80:20. An estimated 72 person-months of consulting services will be needed of which 16 person-months will be international and 56 person-months national. Advance selection procedures will be used to recruit the TA consultants. Resource persons will be recruited individually.
Procurement ADB will finance purchase of limited equipment required for successful completion or project outputs, including hardware for the business incubator (laptops, printers, routers and scanners), software for IPA's website, and investment promotion materials. The hardware and software will become the property of the SCISPM and of the NABWT after TA completion. Procurement will be conducted in accordance with the ADB's Procurement Guidelines (March 2013, as amended from time to time).
Responsible ADB Officer Ruben Barreto
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Office of the PresidentMr. Davlatali Saidov, First Deputy Prime Ministermy-sarvazir@dip.tj80 Rudaki Avenue Dunshanbe Republic of Tajikistan
Timetable
Concept Clearance 29 May 2013
Fact Finding 15 Mar 2013 to 18 Mar 2013
MRM -
Approval 13 Dec 2013
Last Review Mission -
Last PDS Update 13 Mar 2015

TA 8557-TAJ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Dec 2013 14 Feb 2014 14 Feb 2014 30 Jun 2016 15 Jul 2016 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 1,000,000.00 0.00 0.00 0.00 0.00 1,000,000.00 13 Dec 2013 355,845.30
Title Document Type Document Date
Investment Climate Reforms Technical Assistance Reports Dec 2013

Safeguard Documents

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