Uzbekistan : Horticulture Value Chain Development Project

Agriculture, natural resources and rural development / Agricultural policy, institutional and capacity development - Agro-industry, marketing, and trade - Land-based natural resources management

Finance / Small and medium enterprise finance and leasing

Agricultural gross domestic product (GDP) grew at an annual average rate of 9.8% over the period 20102013. In spite of its decline during the past 10 years as a reflection of the strong growth in other sectors, agriculture still plays an important role in employment creation and as major source of cash income and wellbeing. During the period 20052015, the horticulture sector has witnessed dramatic change and increased importance to the economy. Production areas have increased significantly (vegetable by 41%, melons (and watermelons) by 53%; fruits and berries by 28%). The government aims to enhance the horticulture value chain to increase export of horticulture produces from 0.6 million tons in 2015 to 2.2 million by 2020. It is estimated that this effort will require a budget of approximately $500 million to finance farmers and enterprises to improve and/or set up intensive orchards, cold storages, processing and packaging equipment.

As part of the export promotion strategy, a farm size optimization program targeting horticulture sector announced in December 2015 has resulted in more registered farmersan increase of 57,969 farmers in the horticulture sector alone. Under this program, numbers of registered horticulture and grape producers increased by 196% while for farmers registered as producing fruits and vegetables, the change in numbers was increased by 86%. This program addresses inequities in rural employment and to bring more unemployed people into the workforce as registered farmers.

However, small farm sizes bear risks of inability to attract credit because of issues with levels of fluctuating profitability, available cash flow, lack of suitable levels of security and collateral to access finance as well as inefficiencies of scale. Although bank credit outside the capital city represents about 65% of total credit, universal access to finance for private individuals and small businesses in rural areas is constrained by weak rural branch networks and limited mobile banking services. Also, most available bank loans carry a short tenor of up to one year, which do not match farm cash flows generated by the typical multiyear agricultural product cycles. Farmers and small businesses have limited business sophistication and skills, which impede their growth, with surveys indicating that they lack access to information on market opportunities, suppliers, competitors, technology, and banking products. Low financial literacy of small businesses and low-income households, many of which are led by women, limit their access to financial services and their ability to invest and grow.

Significant cost of funding, perceived risks, and administrative costs associated with lending require banks to charge interest rates that range from 11%25% for local currency and 6%15% for foreign currency loans. Especially individuals and small businesses borrow at higher rates. Traditional bank credit processes restrict the use of cash flow-based lending and emphasize recourse to collateral. Insufficient collateral limits the size of loans, thus restricting small businesses from borrowing.

The financial system is dominated by banks, which control 94% of finance sector assets. Eight state-owned banks control 75% of banking assets and provide the bulk of credit to state-owned entities. During 20112015, bank credit to small businesses substantially increased from 4.5% to 7.1% of GDP, reflecting a compound annual growth rate (CAGR) of 34.1%. However, lending to small businesses still represents less than one-third of overall bank credit, which is insufficient given their economic significance. Eighty percent of small businesses are still being funded by family and friends and informal resources. Access to finance remains a key constraint for private business growth.

Contribution of horticulture sector to inclusive economic growth and rural employment improved (Presidential Decree UP-4707)

Production and marketing of horticultural products increased

Finance to the horticulture sector increased

Loan 3471-UZB (original loan). The cumulative: (a) disbursement is $152.9 million, accounting for 99% of total loan proceeds; and (b) commitment (liquidation) is $152.4. Funds released to PFIs for sub loan financing is $151.4 million, of which $151.2 million has been disbursed by PFIs to sub borrowers. The remaining $0.2 million has also been committed to eligible subprojects. The average size of the sub-loan is $0.9 million. The project has supported 166 horticulture subprojects through sub loans. Of the subprojects financed to-date, 74 with a sub loan value of $88.1 million have been for production, and 92 with a sub loan value of $63.3 million have been for post-harvest storage and processing. The project has helped to establish 3,509 hectares (ha) of intensive orchards and 136.6 ha of water- and energy-saving greenhouses and increased refrigerated storage capacity by 69,400 tons, post-harvest processing capacity by 122,291 tons, packaging material manufacture of 13.5 million m2, and procurement of 179 units of agricultural machinery. Given the nature of subprojects financed, in both production and post-harvest activities, the project will have a positive effect on the production and marketing of horticultural produce. During the implementation of these subprojects, 3,558 new jobs have been created, of which 2,272 are for men and 1,286 for women (36%).

Loan 3673-UZB (additional financing). The cumulative: (a) disbursement is $187.8 million (95%); and (b) commitment (liquidation) is $138.5 (70%). Funds released to PFIs for sub loan financing is $187.8 million, of which $186.3 million has been disbursed by PFIs to sub borrowers. The project has supported 177 horticulture subprojects through sub loans. Of the subprojects financed to-date, 131 with a sub loan value of $141.9 million have been for greenhouses, 18 with a sub loan value of $22.2 million have been for processing, 18 with a sub loan value of $17.3 million have been for cold storage, 2 with a sub loan value of $2.7 million have been for packaging, 7 with a sub loan value of $1.5 million have been for intensive orchards and 1 with a sub loan value of $0.5 million have been for agricultural machinery. The project has provided financing to establish 399.1 hectares (ha) of water- and energy-saving greenhouses, increased refrigerated storage capacity by 35,100 tons, post-harvest processing capacity by 97,437 tons, packaging material manufacture of 7.5 million m2. During the implementation of these subprojects, 3,978 new jobs have been created, of which 2,502 are for men and 1,464 for women (36.8%).

Three (3) consulting services packages worth $600,000 for the following: (i) technical advisory services for PFIs; (ii) capacity development for project beneficiaries, including gender development; and (iii) Uzagroexport capacity development.

One (1) package for project financial audit worth $150,000