BEI Year 5 Quarterly Report 1 October - December 2010 Final.pdf

BUSINESS ENVIRONMENT

IMPROVEMENT PROJECT

QUARTERLY REPORT #1

OCTOBER 2010 – DECEMBER 2010

January 14, 2011

This report is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of The Pragma Corporation and do not necessarily reflect the views of USAID or the United States Government.

BUSINESS ENVIRONMENT IMPROVEMENT PROJECT

QUARTERLY REPORT #1

OCTOBER 2010 – DECEMBER 2010

Contract Number: 176-C-00-06-00007

CTO/USAID/CAR: Lora Kudaibergenova Erin Cole PROJECT MANAGER: Mohammad Fatoorechie Acting Chief of Party: Jonathan Crum

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

TABLE OF CONTENTS

PROJECT RESULT #1 UPDATE: WORLD BANK DOING BUSINESS INDICATORS 1

PR1. DOING BUSINESS PROCESSES

Year 4 Doing Business Activity Kazakhstan

Year 4 Doing Business Activity Kyrgyz Republic

Year 4 Doing Business Activity Tajikistan

KAZAKHSTAN

GENERAL

TECHNICAL

DOING BUSINESS

National Activities Sub-National Activities

NON-DOING BUSINESS

National Activities Sub-National Activities

UPCOMING EVENTS

KYRGYZ REPUBLIC

GENERAL

TECHNICAL

DOING BUSINESS

National Activities Sub-National Activities

NON-DOING BUSINESS

National Activities

UPCOMING EVENTS

WORK PLAN STATUS REPORT

BEI PARTICIPANT TRAINING REPORT (OCTOBER 2009 – DECEMBER 2010)

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 1

The Business Environment Improvement Project (BEI) is pleased to submit its first 5th-year quarterly report to USAID detailing progress and achievements for the period October 2010 – December 2010.

Due to the late (November 4, 2010) release of the World Bank Doing Business 2011 Report, the Project Result #1 analysis is presented again from BEI’s Year 4 Annual Report, in updated form, preceding BEI’s Year 5 first quarter report.

PROJECT RESULT #1 UPDATE: WORLD BANK DOING BUSINESS INDICATORS

Doing Business 2007, based on 2006 data revised in fall 2010, provides the baseline figures from which the project will achieve at least an aggregate 25% improvement over 4 years. In calculating the 25% average improvement, the underlying variables are equally weighted and calculations are based on DB 2007 versus

DB 2011.

As the World Bank retroactively revises historic data each year to reflect methodological changes and other factors, the updated historic figures are provided in the table below.

The table below compares published Doing Business 2011 Report indicators over time, tracking change versus baseline (revised WBDB 2011 Report data for 2006), and percent variance to date versus baseline.

Positive percent variance represents an improvement in the specific indicator. In the case of Tajikistan’s “Protecting Investors” measurement, change against baseline increases from a value of zero (0) on the 10-point scale, and a percentage increase is provided against that scale of 80% and 30% for indicator values of 8 and 3, respectively.

Modifications for the Doing Business 2011 Report

In addition to changes in indicator measurement results, the World Bank in their Doing Business 2011 Report has made a series of significant modifications to the survey itself. These include methodological changes and revisions of 2007 Report (2006 data) information used as a baseline by USAID/BEI for performance measurement purposes. These revisions take in account reviews by the World Bank of previous years’ data, and efforts to harmonize previous results with methodological updates for comparison purposes across years. BEI notes important baseline changes in order to make its own reports more comparable from one Doing Business Report year to the next.

The Doing Business 2011 Report makes the following significant revisions to 2006 year baseline data measurements:

Kazakhstan

Increases the time required for Dealing with Construction Permits from 231 days to 259 days, and cost (GNIPC) from 2,350.7% to 230%, Reduces the steps for Registering Property from 8 to 7, and

Increases the Legal Rights Index of the Getting Credit indicator from 4 to 5, Kyrgyz Republic

Increase the number of process steps required for Dealing with Construction Permits from 22 to 23, time required from 332 days to 338 days, and reduce the cost (GNIPC) from 816.5% to 786.3%, Republic of Tajikistan

Increase the time required for Starting a Business from 67 to 80 days, USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010

Increase the number of process steps required for Dealing with Construction Permits from 32 to 33, time required from 221 to 234, and cost (GNIPC) from 2,425.2% to 2,820.8%, and

Decrease the time required for Closing a Business from 3 years to 1.7 years, and increase the recovery rate (cents per dollar) from 23.6 to 36.

In addition, the Doing Business 2011 Report discontinued ranking for the Employing Workers indicator and its sub-measurements, pending methodology revisions. BEI presents percent change for the Employing Workers indicator for the period 2006 (baseline) to 2009, using available data. The 2011 Report includes the new Getting Electricity indicator for 176 countries, but does not incorporate it into country rankings nor are other indicators (such as Dealing with Construction Permits) modified from inclusion of the new measurements. As such, ratings for Getting Electricity are excluded from BEI reporting consideration.

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 3

Indicator

Kazakhstan Kyrgyz Republic Tajikistan

Notes 2006 2008 2009 2010 Change 2006 2008 2009 2010 Change 2006 2008 2009 2010 Change

PR1. DOING BUSINESS PROCESSES

Starting a Business For World Bank “Doing Business” Indicators, an average net improvement of 25% is targeted for the life of the project for at least 5 of 9 indicators per country addressed by BEI as reflected by activities in the annual work plan.

BEI will track these data as reported by the World Bank annually, but not set forward-looking annual targets for individual processes.

Final comparison data is from the “Doing Business 2011 Report”, excepting the Employing Workers indicator, for which final data is from the 2010 Report.

Highlighted indicator data represents areas of BEI’s activity during each year of work;

however change percentage is calculated over the life of the BEI project. Highlighted change percentages indicate the best “5 of 9” indicator results for areas that received BEI Project

Procedures (Number) 8 8 7 6 25.00% 9 4 3 2 77.78% 14 13 12 8 42.86%

Time (days) 21 21 20 19 9.52% 21 15 11 10 52.38% 80 49 25 27 66.25%

Cost (% GNI) 7 5.2 4.8 1.0 85.71% 10.7 7.4 5.2 3.7 65.42% 75.1 27.6 24.3 36.9 50.87%

Min Capital (% GNI) 23.1 15.9 13.4 0.0 100.00% 0.5 0.4 0 0 100.00% 378.6 216.8 9.9 8.5 97.75% Total Indicator Change (average %) 55.06% 73.89% 64.43%

Dealing with Construction Permits

Procedures (Number) 38 38 37 34 10.53% 23 14 13 13 43.48% 32 32 31 30 6.25%

Time (days) 259 259 239 219 15.44% 338 165 143 143 57.69% 234 334 229 228 2.56%

Cost (% GNI) 230 142.9 123.7 119.8 47.91% 786.3 449.5 184 153.9 80.43% 2820.8 1,615.1 1,165.2 996.1 64.69% Total Indicator Change (average %) 24.63% 60.53% 24.50%

Employing Workers

Difficulty of Hiring Index 0 0 0 N/R 0.00% 33 33 33 N/R 0.00% 33 33 33 N/R 0.00%

Rigidity of Hours Index 40 20 20 N/R 50.00% 40 20 20 N/R 50.00% 80 73 73 N/R 8.75% Difficulty of Redundancy Index 20 30 30 N/R -50.00% 40 30 0 N/R 100.00% 40 40 40 N/R 0.00% Rigidity of Employment Index 20 17 17 N/R 15.00% 38 28 18 N/R 52.63% 51 49 49 N/R 3.92% Redundancy costs (weeks of salary) 9 9 9 N/R 0.00% 17 17 17 N/R 0.00% 22 30 30 N/R -36.36% Total Indicator Change (average %) 3.00% 40.53% -4.74%

Registering Property

Procedures (Number) 7 4 4 4 42.86% 7 7 4 4 42.86% 6 6 6 6 0.00%

Time (days) 52 40 40 40 23.08% 8 8 5 5 37.50% 37 37 37 37 0.00%

Cost (% value) 1.2 0.1 0.1 0.1 91.67% 1.9 3.9 2.8 2.3 -21.05% 1.9 1.8 4.6 5.5 -189.47% Total Indicator Change (average %) 52.53% 19.77% -63.16%

Getting Credit

Legal Rights Index 4 4 4 4 0.00% 7 7 10 10 30.00% 3 3 3 3 0.00% Credit Information Index 4 5 5 5 10.00% 2 3 3 3 10.00% 0 0 0 0 0.00%

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010

Public Registry Coverage (% adults) 0 0 0 0 0.00% 0 0 0 0 0.00% 0 0 0 0 0.00% assistance.

Private Registry Coverage (% adults) 5.5 25.6 29.5 29.9 24.4% 0.4 3.7 5.9 11.9 11.5% 0 0 0 0 0.00%

Total Indicator Change (average %) 8.60% 12.88% 0.00%

Baseline data are from the Doing Business 2007 report (2006 data), as revised in 2010, for World Bank Indicators, and 2005 for BEEPS.

Protecting Investors

Disclosure Index 7 7 7 8 10.00% 8 8 8 8 0.00% 0 4 6 8 80.00%

Director Liability Index 1 1 1 1 0.00% 1 7 7 7 60.00% 0 1 3 3 30.00%

Shareholder Suits Index 9 9 9 9 0.00% 9 8 8 8 -10.00% 5 5 5 6 10.00% Investor Protection Index 5.7 5.7 5.7 6 5.26% 6 7.7 7.7 7.7 28.33% 1.7 3.3 4.7 5.7 235.29% Total Indicator Change (average %) 3.82% 19.58% 88.82%

Paying Taxes

Payments (Number) 9 9 9 8 11.11% 75 75 75 48 36.00% 54 54 54 54 0.00%

Time (Hours) 271 271 271 271 0.00% 202 202 202 202 0.00% 224 224 224 224 0.00% Total Tax Rate (% profit) 44.4 41.7 35.9 29.6 33.33% 67.2 61.4 59.4 57.2 14.88% 82.1 85.5 85.9 86 -4.75% Total Indicator Change (average %) 14.81% 16.96% -1.58%

Enforcing Contracts

Procedures (Number) 38 38 38 38 0.00% 39 39 39 39 0.00% 34 34 34 34 0.00%

Time (days) 390 390 390 390 0.00% 260 260 260 260 0.00% 430 430 430 430 0.00%

Cost (% debt) 22 22 22 22 0.00% 29 29 29 29 0.00% 25.5 25.5 25.5 25.5 0.00% Total Indicator Change (average %) 0.00% 0.00% 0.00%

Closing a Business

Time (years) 1.5 1.5 1.5 1.5 0.00% 4 4 4 4 0.00% 1.7 1.7 1.7 1.7 0.00%

Cost (% of estate) 15 15 15 15 0.00% 15 15 15 15 0.00% 9 9 9 9 0.00% Recovery Rate (cents on the dollar) 39.3 40.6 40.6 43.3 10.18% 14.7 14.2 14.2 15.3 4.08% 36 37.5 37.5 37.4 3.89% Total Indicator Change (average %) 3.39% 1.36% 1.30% Total Change WBDB (average %, of nine indicators) 18.43% 27.28% 12.17%

Percent improvement in 5 of 9 indicators (average %, best 5 worked during years 1-4) 31.13% 42.86% 35.81%

Note: PR1 data is taken directly from the World Bank Doing Business reports. Baseline data is from the 2007 report (2006 data) as revised in 2010.

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 5

Inspections (BEEPS) Incl. fire, SES, police, environment, tax, customs and labor inspections. No exact data were available for the number of labor inspections per year;

data est. taken from 2005 BEEPS graphs.

Inspections (Number) 11.65 NR NR NR 13.93 NR NR NR 11.64 NR NR NR

Time (hours) 16.92 NR NR NR 58.47 NR NR NR 17.08 NR NR NR

Bribes (% frequent) 23 NR NR NR 52.8 NR NR NR 21.3 NR NR NR

NR = Not Reported. According to the EBRD, data for 2007 has reportedly been collected, but has not yet been published.

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 6

Year 4 Doing Business Activity Kazakhstan

During Project Year 4 BEI continued efforts with ministerial working group on improving the Doing Business indicators for: Starting a Business, Dealing with Construction Permits, Registering Property, Protecting Investors, Getting Credit, and Closing a Business, as well as the umbrella expert group under Vice-Prime Minister Orynbaev directing the overall WBDB-related reform effort. Direct technical assistance was provided by BEI to the Ministry of Justice, Ministry of Economic Development and Trade (MEDT), Construction Agency, Agency for Financial Control and Ministry of Finance. These efforts were bolstered by the first year of increased engagement in Kazakhstan from the World Bank Doing Business Reform Team, which developed its own reform memo with the Government, increased monitoring of reform efforts and positioned the Bank to take the lead on bankruptcy procedure improvements.

The World Bank’s Doing Business 2011 Report, published on November 4, 2010, recognized Kazakhstan as the best-performing reformer of the 2009-2010 reporting year with a total ranking improvement of 15 places, from 74th to 59th. Additional details on improvements to indicators noted by the Report are below.

Following are short summaries of BEI-facilitated reforms in Kazakhstan during the 2009-2010 project year related to WBDB indicators. Due to the survey nature of the WBDB indicators, not all changes may be fully reflected in the Doing Business report even if they took place prior to the WB data-collection cut-off date of June 1. Though the WBDB records changes this year in multiple indicators, a portion of the relevant legal changes were enacted and implemented during the previous, 2008-2009 BEI project year, and are not reproduced here.

Starting a Business 2009-2010

Law #239-IV of January 20, 2010, “Amendments and additions to some legislative acts of the RK regarding simplification of state registration for legal entities, branches and representative offices”, and Laws #257-IV and #258-IV of March 19, 2010, “On state statistics” and “On modification and additions in some acts of Republic Kazakhstan concerning state statistics and taxation” are designed to affect the measured Starting a Business (SaB) process in the following manner:

1) Reduce initial charter capital requirements for new businesses from 141,300 KZT (100 “Minimum Calculation Indexes” or about $961) to 100 tenge (about $0.68)

2) Eliminate SaB procedure #2 (Open bank account and deposit initial capital; pay registration fee into the account of the Ministry of Justice)

3) Reduce time required for SaB procedure #3 from 14 to 12 days (State registration of legal entity, statistical, and tax registration with the local department of Ministry of Justice)

4) Eliminate SaB procedure #5 (Notarize certificate of state registration and other post-registration documents)

These changes are designed to eliminate 2 procedures, 4 days and 8,500 KZT in costs (about $58), from the registration process based on World Bank evaluations in the Doing Business 2010 Report, reducing time from 20 to 16 days and cost from about $294 to $236. The changes also remove about $960 in charter capital costs, based on the 2010 Report model company.

The Doing Business 2011 Report favorably evaluated improvements to SaB in Kazakhstan, recognizing the reduction in charter-capital requirements to effectively zero (to $0.70, point #1, above) and elimination of foundation document notary requirements (point #4, above). However, the Report did

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 7 not yet recognize streamlined Ministry of Justice registration procedures, including elimination of bank account requirements (point #2) and improved processing times (point #3). Improvements to SaB reflect a reduction in procedures from 7 to 6, time from 20 days to 19 days, cost from 4.8% (about $323) to 1.0% ($67) of GNIPC, and the elimination of the 13.4% GNIPC (about $903) charter capital requirement, based on the Doing Business model company and revised Gross National Income Per Capita estimates of $6,740. These improvements provide an SaB indicator ranking improvement of 38 places, from 85th to 47th worldwide.

Dealing with Construction Permits 2009-2010

Government Decree #1467 of September 29, 2009, “On amendments and additions to Government Decree #425 of May 6, 2008, ‘On Some measures for improving issuing construction permits for building’”, Government Decree #1468 of September 29, 2009, “Some issues of implementation of The Law RK ‘On construction’”, and Government Decree #1656 signed October 23, 2009 “On adoption of rules for typing of buildings and constructions as technically complicated sites and on amendments to Government Decree of the Republic of Kazakhstan #918 of August 19, 2002” are designed to affect the measured “Dealing with Construction Permits” (DwCP) process in the following manner:

1) Reduce the time required for DwCP Procedure #1 from 20 to 10 days (Request and obtain land allocation permit from Akim of Almaty City)

2) Merge DwCP Procedure #2, Procedure #3, Procedure #4 and Procedure #7, reducing total time from 17 to 8 days (Request and obtain technical conditions from the water and sewage authority, Request and obtain technical conditions from the telephone authority, Request and obtain technical conditions from the electricity authority and Request and obtain architectural planning Assignment (APZ))

3) Eliminate DwCP Procedure #5 (Notarize documents)

4) Reduce time required for DwCP Procedure #14 from 30 to 15 days (Request and obtain expert examination of project documentation)

5) Reduce time required for DwCP Procedure #16 from 14 to 7 days (Request and obtain Rendering Building and Assembly Jobs Permit from the State Architectural Supervision Authorities)

6) Eliminate DwCP Procedure #31 (Request acceptance of the building from Working Commission)

7) Eliminate DwCP Procedure #32 (Receive inspection by the Working Commission)

8) Eliminate DwCP Procedure #33 (Obtain Act from Working Commission)

9) Eliminate DwCP Procedure #36 (Obtain Akimat approval of State Acceptance Commission decision)

These changes eliminate 8 procedures, 84 days, and 29,663 KZT (about $201) from the permitting process based on World Bank evaluations, reducing time from 211 to 127 days, and cost from 1.006 million to .976 million KZT (about $6,643). Following discussions with and additional research work by World Bank Representative Igor Artemiev, these changes are expected to be considered in the DB 2011 Report, along with uncounted construction reforms from 2009.

The Doing Business 2011 Report included some, but not all changes adopted during BEI Year 4, including the reduction in processing time for Almaty City land permits (point #1, above), merging of steps for obtaining technical condition documents (point #2), reduction in time required for expert review of project documents (point #4), and elimination of Akimat approval of the State Acceptance Commission’s decision (point #9). The reduction in time to obtain a rendering building and assembly jobs permit was reduced by 3 days, a partial realization of point #5. The Report, however, did not yet recognize the streamlined process for Working Commissions (points #6-8). The Report also added

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 8 two procedures relating to the Registering Property indicator, for obtaining a land registration document for the model property procedure (step #32 Obtain a technical passport (30 days, 800 KZT) and #33 Receive inspection for the technical passport (1 day, 48 428 KZT)), which significantly impaired improvement to Kazakhstan’s DwCP ranking. Improvements to DwCP reflect a reduction in procedures from 37 to 34, time from 239 days to 219 days (according to revised data), and cost from 123.7% to 119.8% of GNIPC, a savings of $262 based on the Doing Business model process. These improvements provide a DwCP indicator ranking improvement of 9 places, from 156th to 147th worldwide.

Registering Property 2009-2010

Government Decree #393 of May 7, 2010 “On additions and changes into some decisions of the Government of Republic Kazakhstan” is designed to affect the measured “Registering Property” (RP) process in the following manner:

1) Reduce time required for RP procedure #5 from 17 to 5 days (Registration of the title at the Registration Service Committee)

This change will eliminate 12 days time from the process from the registration process based on World Bank evaluations, reducing days required from 40 to 28.

The Doing Business 2011 Report did not yet recognize this improvement, however the World Bank reassessed data on the Registering Property indicator and retroactively reduced the number of steps required by one. Kazakhstan improved its ranking by one place, from 29th (revised) to 28th based on changes in rankings for other countries.

Protecting Investors 2009-2010

The Doing Business 2011 Report recognizes an improvement adopted during the 2008-2009 BEI Project year, requiring disclosure of related-party transactions in periodic filings. This change improves the measure “Whether disclosure of the transaction in published periodic filings (annual reports) is required?” from 0 to 1, and the “Strength of investor protection index” from 5.7 to 6. Kazakhstan improved its ranking by 13 places, from 57th to 44th worldwide.

Year 4 Doing Business Activity Kyrgyz Republic

Following results of the WB Doing Business 2010 Report, BEI and the expert group on DB reforms assisted the Bakiev government to develop its implementation plan for Phase 3 WBDB reforms, the Government’s Action Plan on Doing Business approved in Resolution #101 of February 12, 2010, which continued work on all 10 indicators. Implementation of the Action Plan was suspended following the collapse of the Bakiev government and in light of the immediate stabilization needs of the Interim GoKR, before adoption of planned legislative and regulatory improvement packages.

In January 2010, the Doing Business Reform Team in Washington responded positively, in part, to an official KR Government request for assistance supporting indicator reform efforts in 2010-2011, and BEI assisted the Ministry of Economic Regulation (MER) and the Investment Council under the KR President in negotiations and consultations with WB experts on adjustments data not included in the 2009-2010 report and methodology, for all indicators.

Despite the KR’s political and stability crisis and lagging impact from reforms adopted during BEI Year 3, and with continued reconciliation discussions between the GoKR, BEI and the World Bank, the Kyrgyz

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 9

Republic improved overall and in key areas of BEI focus. Changes recognized by Doing Business 2011 notably include areas below, and costs for procedures are further reduced by an increase of about $129 in estimated Gross National Income Per-Capita (GNIPC) over the previous year.

Starting a Business 2009-2010

The Doing Business 2011 Report recognizes the removal of the step Notarize company foundation agreement, and overall savings of 1 day and 1.5% of GNIPC (or a $6.34 difference). The Kyrgyz Republic, however, had no change in rank (14th worldwide) over the previous report.

Dealing with Construction Permits 2009-2010

The Doing Business 2011 Report recognizes no new changes during the past year to DwCP in KR, however baseline changes for 2006 data and other revisions increase the number of procedures by 1, time required by 6 days, and reduce cost by 11.3% of GNIPC (to 153.9%, but actual dollar increase of $114.81). Despite these predominantly negative reassessments, the Kyrgyz Republic improved in rank from 46th to 43rd worldwide, thanks to declines in other countries.

Registering Property

The Doing Business 2011 Report recognizes only one change during the past year to Registering Property: a decrease in cost of 0.5% of the model property value, to below OECD average. This decrease in cost is due to the increase in GNIPC (property value of 50 times income per capita). The Kyrgyz Republic improved its ranking by 2 places, from 19th to 17th worldwide.

Getting Credit

The Doing Business 2011 Report recognizes an increase in private credit bureau coverage from 5.9% to 11.9%, but no other improvements. The Kyrgyz Republic decreased in rank by 1 place, from 14th to 15th worldwide.

Year 4 Doing Business Activity Tajikistan

Collaboration with the Government of Tajikistan on needed changes under the “200 Days of Reforms” campaign continued in fall of 2009 and 2010, though not all Government bodies responded as quickly as the President desired. The RT campaign was aimed at improving the business and investment climate, international rating of Tajikistan in the World Bank Doing Business global survey, and in focusing attention on macro-economic sustainability via monetary, credit, taxation, and budgetary policy reform, sectoral economic development (including of the SME sector), and improved conditions for foreign and domestic investment. The end goal for all reform efforts was to support the labor market and attract as many new jobs as possible to it.

On May 29, 2010, the Government adopted a new “Plan of further measures of the Government of the Republic of Tajikistan on improving investment climate and indicators of the Republic of Tajikistan in international ratings”, designed to focus government attention more strongly on results for the reform campaign. The Plan contained actions for work on improve the World Bank Doing Business indicators of “Starting a Business”, “Dealing with Construction Permits”, “Getting Credit”, “Paying Taxes” and “Trading across Borders”. BEI focused the indicators of “Starting a Business”, “Dealing with

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 10

Construction Permits”, “Getting Credit”, “Paying Taxes”, “Closing a Business”, and “Protecting Investors”.

During the year several World Bank Doing Business Reform Team missions visited RT to observe ongoing reforms and assess results for the Doing Business 2011 report. These occurred during February, May, June and July, 2010, and generated additional media and community attention for reform efforts as well as continued high-level contact between the DB Team and the Government of RT that will aid future WB reform work in the country. The DB Team has verified implementation in practice of 2009 reforms not counted during the 2010 Report.

The World Bank’s Doing Business 2011 Report, published on November 4, 2010, recognized the Republic of Tajikistan as the 6th best-performing reformer of the 2009-2010 reporting year with a total ranking improvement of 15 places, from 151st to 136th. Additional details on improvements to indicators noted by the Report are below.

Following are short summaries of BEI-facilitated reforms in the Republic of Tajikistan during the 2009- 2010 project year related to WBDB indicators. Due to the survey nature of the WBDB indicators, not all changes may be fully reflected in the Doing Business report even if they took place prior to the WB data-collection cut-off date of June 1. Though the WBDB records changes this year in multiple indicators, a portion of the relevant legal changes were enacted and implemented during the previous, 2009-2010 BEI project year, and are not reproduced here.

Starting a Business 2009-2010

The streamlined business registration process launched on July 2009 with the Law On State Registration of Legal Entities and Individual Entrepreneurs required additional measures during the past year in order to improve the registration system and harmonize all relevant NLAs with new Law. With BEI’s assistance, 14 of 28 needed legal and normative acts were approved by the Government in amended form and the remainder is under review and approval by 2011. Despite delays in Government adoption of the harmonization amendments, the World Bank records significant improvements to Starting a Business based on 2009 changes now reflected in the Doing Business 2011 Report.

These improvements have resulted in a decrease in the number of procedures from 12 to 8, time from 38 days (revised data) to 27 days, and decrease in the minimum charter capital requirement from 9.9% to 8.5% of GNIPC. The cost for Starting a Business, however, increased from 24.3% to 36.9% of GNIPC, or by about $113. The Republic of Tajikistan improved its ranking by 15 places, from 151st to 136th worldwide.

Dealing with Construction Permits 2009-2010

Government Regulation #531 of October 1, 2009 On the connection rules to engineering networks and use of public services, Law #589 of January 12, 2010 On Amendments to the Law of RT ‘On Ecological Expertise’, Law #590 of January 12, 2010 On Amendments to the Administrative Code of RT, and Government Regulation #105 of February 27, 2010, On amendments to Government regulations: ‘On preparation, registration, transfer, replacement and about cancellation of the certificate of the land usage rights and certificate of the land share’, ‘On preparation, registration and transfer of the sanitary and epidemiologic conclusion’, and ‘On the State fire inspection in RT’ are designed to influence the Doing Business “Dealing with Construction Permits” (DwCP) process as follows:

1) Eliminate DwCP step #2 (Request and obtain fire safety clearance from state anti-fire agency under Ministry of Domestic Affairs)

2) Eliminate DwCP step #3 (Request and obtain environmental approval)

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 11

3) Eliminate DwCP step #4 (Request and obtain Sanitary Hygienic Service approval from state Sanitary Hygienic Service under Ministry of Health)

4) Merge DwCP step #5 (Request and obtain clearance from State Electric Agency (Barki Tojik) and DwCP step #6 (Request and obtain project clearance from the Water and Sewage Agency of Dushanbe) using streamlined processes into a single request and receipt. Expected title of new step is “Request and obtain technical conditions and architectural and planning tasks”, and reduce time and cost required for new step from 20 to 15 days and from 2,270 to 500 TJS

5) Eliminate DwCP step #7 (Request and obtain project clearance from Ministry of Transport and Communications)

6) Eliminate DwCP step #8 (Request and obtain project clearance from State Auto inspection (GAI))

7) Reduce time and cost required for DwCP step #9 from 45 to 20 days and from 22,474 to 8,495 TJS (Request and obtain approval of project design drawings by the State Department Expertise of Construction Projects)

8) Reduce time and cost required for DwCP step #10 from 10 to 5 days and from 229 to 0 TJS (Request and obtain final project clearance from the Construction and Architecture Department)

9) Eliminate DwCP step #11 (Receive a periodic inspection from Sanitary Hygienic Service (SES)

10) Eliminate DwCP step #12 (Receive periodic inspection from Fire Safety Agency)

11) Eliminate DwCP step #14 (Receive electricity inspection)

12) Reduce time required for DwCP step #15 from 13 to 5 days (connect to electricity)

13) Eliminate DwCP step #17 (Receive inspection from water services)

14) Reduce time required for DwCP step #18 from 29 to 5 days (Connect to water)

15) Eliminate DwCP step #19 (Receive a periodic inspection from the Ministry of Environmental Protection)

16) Eliminate DwCP step #22 (Receive a periodic inspection from the Prosecutor’s Office)

17) Eliminate DwCP step #23 (Receive a periodic inspection from the Labor Authority)

18) Eliminate DwCP step #24 (Receive a periodic inspection from the Tax Authority)

19) Eliminate DwCP step #25 (Receive a periodic inspection from the Ministry of Transportation and Communications / GAI)

20) Reduce time for DwCP step #26 from 15 to 10 days (Request and receive a decision by Review Commission)

21) Eliminate DwCP step #27 (Request State Acceptance Commission decision)

22) Eliminate DwCP step #28 (Receive inspection by the State Acceptance Commission)

23) Reduce time required for DwCP step #29 from 43 to 30 days (Obtain decision of the State Acceptance Commission/ final decision of the Mayor)

24) Eliminate DwCP step #30 (Request telephone services (Voluntary))

25) Eliminate DwCP step #31 (Receive inspection from the Department of Project Adjustment and Technical Inspection of Dushanbe Telephone Service (station) of the open joint stock company Tajiktelecom and connect to telephone line (Voluntary))

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 12

In summary these changes are intended to reduce the number of procedures from 32 to 14, time from 250 to 194 days, and cost from 25,780 to 10,822 TJS, saving about $3,430, as measured by the World Bank.

The Doing Business 2011 Report included some, but not all changes adopted during BEI Year 4, including the elimination of step #7 (Request and obtain project clearance from Ministry of Transport and Communications, point #5 above), step #24 (Receive a periodic inspection from the Tax Authority, point #18 above) and step #30 (Request telephone services (Voluntary), point #24 above), and the reduction in time from point #23 of 13 days (Obtain decision of the State Acceptance Commission/ final decision of the Mayor).

The 2011 Report also partially recognizes the decrease in time from point #7 above (13 of the 25 days reduction to Request and obtain approval of project design drawings by the State Department Expertise of Construction Projects), but does not recognize the cost reduction associated with that change. Though the Report does not recognize the elimination of step #31 (point #25 above), it does record a 5-day decrease in the time required for Receive inspection from the Department of Project Adjustment and Technical Inspection of Dushanbe Telephone Service (station) of the open joint stock company Tajiktelecom and connect to telephone line (Voluntary)).

These improvements, plus the elimination of a periodic State Architecture inspection from previous reforms, are partially offset by the addition of two new procedures, steps #9 and #30 in the 2011 Report, and revisions to previous data that increase the time and cost for the indicator. The Republic of Tajikistan’s DwCP ranking did not change from 178th worldwide, despite reflecting a net reduction in procedures from 32 to 30, time from 250 to 228 days, and cost from 1162.5% (revised) to 996.1% of GNIPC, which is however a net increase in costs of $44.43 based on the Doing Business model process.

Getting Credit 2009-2010

Government Regulation # 62 of February 12, 2010, amending the Regulation "On Licensing of Separate Types of Activities" is designed to influence the Doing Business “Getting Credit” (GC) process as follows:

1) Enable creation of private credit bureaus, increasing private credit bureau coverage from zero.

The WBDB 2010 report did not assess changes during BEI’s 3rd Project Year, citing a need for the establishment of a functioning credit bureau as enabled by the Law On Credit Histories of March 2009.

With the adoption of Resolution #62, the final legal piece needed for licensing of a functional private credit bureau is complete, and on April 19, 2010, the First Credit Bureau opened its doors. Due however to the late operation of the new credit bureau, the Doing Business 2011 Report did not yet recognize its functioning. Now that a credit information bureau is operational, BEI-facilitated changes are expected to improve the Credit Information Index from 0 to 6 in time for the Doing Business 2012 Report.

Protecting Investors 2009-2010

The Law #585 dated January 12, 2010, On Amendments and changes to the Law ‘On Joint Stock Companies’ is designed to influence the Doing Business “Protecting Investors” (PI) rank as follows:

1) Increase the PI rating: “Immediate disclosure to the public and/or shareholders” from 0 to

2) Increase the PI rating: “Disclosures in published periodic filings” from 0 to 1

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 13

3) Increase the PI rating: “Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit” from 0 to 2

4) Increase the PI rating: “Shareholder plaintiff’s ability to hold the approving body (the CEO or board of directors) liable for damage to the company” from 0 to 1

The Doing Business 2011 Report recognizes these changes as improving RT’s measurement for the Extent of Disclosure Index from 6 to 8, the Ease of Shareholder Suits Index from 5 to 6, and Strength of Investor Protection Index from 4.7 to 5.7, but does not recognize yet the increase to the Extent of Director Liability Index expected now for the 2012 Report. The Republic of Tajikistan improved its ranking significantly by 49 places, from 108th to 59th worldwide.

Closing a Business

BEI, in collaboration with the State Committee for Investment and State Property Management, provided the WBDB team with data from a number of completed bankruptcy cases and implementation of the Law “On Insolvency (Bankruptcy)” adopted in 2009. The WBDB team did not consider previous BEI assisted reforms in Closing a Business sufficient as no bankruptcy practice existed in RT. These data justified corrections of Closing a Business historical data in Tajikistan for the DB 2011 Report, which reflects a revision in the recovery rate from 25.4 to 37.4 cents on the dollar and time from 3 to 1.7 years. However as these are historical corrections for accuracy rather than legal and process improvements, the Republic of Tajikistan declined in rank worldwide from 61st to 64th.

KAZAKHSTAN

GENERAL

On December 7, 2010, the Kazakh Government approved a package of 17 documents forming the legal framework for a Common Economic Space (CES) between Kazakhstan, Russia and Belarus. These agreements coordinate economic policy and the free movement of capital, services and labor as well as on natural monopolies. Major topics include: customs cooperation, tax tariffs, disputes and legal proceedings, license suspension and termination procedure, income legalization and other issues related to border crossing and interactions with fiscal and customs authorities. These agreements and their implementing technical regulations will affect permit procedures (licensing, certification, mutual recognition and etc.), and the trade and SME development environment. Effects from implementation may be mixed, as the CES simplifies commodities transmission through the border but will require additional harmonization work and affect the business environment with uncertainties.

Work Plan Tasks October – December 2010 Quarter

Work Plan Tasks Oct. 2010 – Sept. 2011 Contract Year

Total Planned Completed In Progress Total Planned Completed In Progress

19 14 5 19 14 5

Percent Completed Variance Percent Completed Variance

73.6% 26.4% 73.6% 26.4%

TECHNICAL

During October the MEDT requested USAID/BEI provide a comparison of administrative barriers in the Common Economic Space members (Belarus, Kazakhstan and Russia), in advance of adoption of CES documents for a common legal environment, in December. This comparison identified improvements for Kazakhstan through simplification of the permitting and licensing, construction, USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 14 fire prevention and sanitary standards, following the Belarusian model, and through introduction of the tax risk-assessment system for legal entities, following the Russian model. This analysis was provided as part of contingency assistance planned under the Program for Economic Development work plan for calendar year 2010.

During December, at the request of USAID and DAMU, BEI revised and updated an SME survey originally developed by BEI and its partner, the Fund for Information Support for Society Development (FIPRO) in Oskemen, between 2005 and 2007. This survey focuses on business development in Kazakhstan and is designed for use in creating a local business environment Index of Entrepreneurship Support covering issues of starting, operating and closing a business, relations between business and local authorities, administrative burdens and etc. for a region or city. KZ Country Director Sergey Pizikov (who was one of authors along with people from PA) revised and updated this methodology. The updated version revision reflects methodology changes capturing recent legal amendments for state inspections, licensing and permitting, and risk management systems. The updated survey and methodology was submitted in December to USAID for provision to DAMU. This activity was provided as part of contingency assistance planned under the Program for Economic Development work plan for calendar year 2010.

At the request of Vice-Prime Minister Orynbaev and in cooperation with the Forum of Entrepreneurs of Kazakhstan, BEI provided the Prime Minister’s Office during October 2010 with input into “revolutionary new ideas for reform” as will be considered by the Government for their reform planning through 2013. BEI’s key recommendations for further business environment improvement include:

o implementation of risk management principles into Government entrepreneurship regulation of licensing, permitting, certification and accreditation of businesses;

o elimination of duplicate approvals, permissions and certification controls on businesses; and o revision of the human resource and incentives systems of state inspectorates to shift work focus from acquisition of fines to quality of public safety.

These recommendations were also presented in December to the Nur-Otan Party, at their request, for inclusion with their ideas to Government. BEI’s recommendations received a very positive reception from VPM Orynbaev, however the Government has not yet provided additional feedback on the development of its planning. BEI expects this to be a renewed priority for 2011 following completion of the Asian Games, in February. This activity was provided as part of contingency assistance planned under the Program for Economic Development work plan for calendar year 2010.

DOING BUSINESS

On November 9, 2010 the Government of Kazakhstan and the World Bank conducted a joint conference to announce the World Bank “Doing Business 2011” ratings. At the conference the BEI Country Director Sergey Pizikov outlined BEI’s work within the experts groups for improving the indicator ratings of: registering property, Starting a Business, Dealing with Construction Permits, and Protecting Investors, all of which saw significant improvements recognized in the Report.

National Activities

On November 20, 2010, at the request of the Government and the Ministry of Economic

Development and Trade (MEDT), BEI presented its recommendations for further improving the Starting a Business and Registering Property WBDB indicators during 2011. The Government included BEI recommendations in the draft Government SME Development Program Through 2014, USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 15 and implementation will begin once the Program is approved, by April 2011. These recommendations include for Starting a Business:

o focusing on introduction of electronic registration for legal entities, o elimination of notary requirements and introducing an alternative electronic digital signature and bar-code for documents, and o creation of a common legal entity database among state authorities (Tax Committee, Ministry of Justice, Statistics Agency and notary chambers).

Recommendations for improving the Registering Property indicator include:

o development of electronic, integrated cadastre for real estate;

o creation of electronic transaction databases; and o to enable obtaining information statement with a bar-code on-line through electronic digital signatures.

Full implementation of BEI’s recommendations in Starting a Business could reduce procedures for business registration from 6 to 3, time required from 19 to 5 days, and cost from about $67 to $24.

BEI recommendations regarding Registering Property could similarly improve the Registering Property process from 4 procedures to 2, from 48 days to 6, and from about $192 to $96. – KZ 01

During the November 2010 World Bank Doing Business mission in Kazakhstan, BEI assisted Senior Private Sector Development Specialist Mr. Thomas Moullier to prepare for his meetings with the Government. BEI briefed him on Kazakhstan reforms to the construction permits system differences between enacted measures and recorded changes in DB, discussed future reform work directions in Kazakhstan, and facilitated discussions with the Construction Agency, State Architectural Supervision Authority of Astana, and the State Architectural and Planning Authority of Astana. These meetings greatly aided resolution of differences between the World Bank and BEI’s GoKZ partners, and in setting reform directions for 2011 related to the DwCP indicator. – KZ 02

In December 2010 the Majilis Parliament adopted and sent to the Senate the draft law “Concerning Introduction of Fiduciary Liability of JSC Directors”, developed in cooperation between BEI, the Financial Supervision Agency, Government, World Bank, and Association of Financiers. During the past period BEI and partners facilitated discussions and provided a series of additional presentations for Parliament and the Majilis Committee for Budget and Finance to address issues the Majilis had regarding the draft law. This draft law:

o reduces the threshold level for large-scale transactions from 25% of a company’s assets to 10%, as well as change the approvals and notifications for large-scale transactions that requires review by special meetings of shareholders;

o requires external audit for large-scale transactions, required prior to approving the transaction;

o provides clear definition of the company director’s responsibilities;

o stipulates director responsibilities for transactions between related parties and for repayment of income received from those transactions;

o allows shareholders to file a claim against related parties and require compensation of losses and repayment of income once a JSC has been proven to receive losses and reduced profits as the result of such transactions, when a particular transaction could have been made at better terms; and o allows courts to declare a transaction between related party invalid if they have been proven to have caused damage to a company, and could be made at better terms without the interest involved.

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 16

The above draft law and the draft law “On Making Changes and Amendments to the Certain Regulations on Mortgage Lending and Protecting Rights of Financial Services Consumers and Investors”, under review by Parliament since April 2010, could improve Kazakhstan’s position in the Protecting Investors indicator by up to 20 places, from 44 to 24, for the Doing Business 2012 Report. Both draft laws are expected to be adopted by Parliament and signed in early 2011, delaying completion of work plan activities KZ 06.1.1 and 06.1.2. – KZ 06

Sub-National Activities

During November, 2010, BEI provided to the Committee for Registration Service and Legal Assistance under the Ministry of Justice its recommendations from the monitoring report on business and property registration improvements in Public Service Centers (PSCs) of Almaty, Astana, Oral, and Oskemen. As BEI reported previously, report findings advocate for improved quality of PSC employees and trainings. For implementation, BEI and the Committee developed services quality assessment indicators and questionnaires, and following appointment in November of new leadership in the Committee, it has requested BEI assist in developing a course of study for PSC employees. BEI is now preparing with the MoJ a draft scope of work contracting creation the courses, which will be completed in January, 2011. According to the agreed action plan with the MoJ, following phases include recruitment of development contractor (February), creation of course with regular progress reports (February-March), presentation of course to MoJ (March-April), and pilot with final updates in June and July 2011. – KZ 01

On November 11, 2010, BEI and the Ministry of Justice conducted a joint seminar in Oral city for representatives from regional PSCs, PSC branch offices, and oblast and city administrations including the statistics, tax, law, and land departments and committees of the Atyrauskaya, West Kazakhstan and Aktubinskaya regions. Deputy Chairman of the Registration Service Committee under the Ministry of Justice Mr. M.E. Seksembayev presented work by the Ministry of Justice to improve performance of the PSCs and BEI Advisor Ms. Krupochkina presented legislation details applicable to the WB Doing Business indicators, and implementation monitoring findings. PSC administrators were recommended to improve customer information regarding PSC operations and procedures, improve the quality of their PSC operations, and improve PSC management by emphasizing quality of services in akimat oversight. – KZ 01

An additional round table was conducted in Almaty on November 19, 2010, by BEI and the Ministry of Justice regarding improvements to registration of legal entities and registration of property rights, attended by representatives of NGOs, the business community, government authorities, and the top managers of 8 PSCs in Almaty city. Discussion included implementation of legislative changes within Almaty and the results of the Doing Business 2011 Report for “Starting a Business” and “Registering Property”. Resulting recommendations include for PSCs to provide timely updates to the information on legislative changes, enhance interactions with business community and media, improve placement of information and provide training seminars for PSC employees. – KZ 01

On December 6, 2010, BEI presented to the Construction Agency its draft review and monitoring report on implementation of construction legislative changes in all 14 regions of Kazakhstan, with feedback from the business community. Key recommendations include changing territorial rules for construction and eliminating oblast procedures that are not part of the national legislation. Based on the final report the Construction Agency will issue recommendations for changes and amendments to national construction legislation, and during January and February 2011 BEI and the Construction Agency will present the monitoring results and its recommendations for representatives of regional authorities. – KZ 02

USAID Business Environment Improvement Project Quarterly Report #1 October 2010 – December 2010 17

NON-DOING BUSINESS

Nationa…