To address corruption as a fundamental investment barrier in Central Asia, CIPE conducted an in-house program in 2002 that included a series of business-only roundtables on “Administrative Barriers to Entrepreneurship.” Six local NGOs coordinated the gathering of 120 businessmen and representatives of business associations in Almaty, Bishkek, and Tashkent to discuss direct barriers to democratic and economic reform that cultivate corruption.

Typical barriers cited during the course of discussion that hinder the development of small-and medium-sized enterprises were:

1. Constant and unfounded interference of government structures in the private sector
2. Limited access to financial resources
3. Voluminous and confusing licensing system
4. Confusing and suffocating taxation and accounting systems
5. Excessive penalties for entrepreneurs
6. Legal illiteracy on behalf of entrepreneurs
7. Lack of access to information
8. Little access to credit and harsh crediting terms (interest rates too high, collateral assessment questionable)
9. Incompetence of government officials
10. Hampered access to raw materials
11. Lack of transparency in state purchases and tenders
12. Lack of communication channels between big businesses, which include foreign enterprises, and small and medium-sized businesses in Kazakhstan
13. Weak financial and credit policy
14. Little technological support for enterprises
15. Lack of training availability for workers and technical-engineering staff for many industrial sectors
16. Few instruments of economic regulation
17. Few channels of communication between government and NGOs
18. Lack of a national registry
19. Lack of a advocacy mechanism for industries
20. Lack of standardization of criteria for market entry for small and medium-sized business
21. Lack of inclusion of private sector representatives into public procurement commissions
22. High VAT for import of production equipment and introduction of new technologies
23. Lack of government-sponsored training for workers and technical-engineering staff in different industrial sectors
24. High import and customs duties for raw materials and components used for production that are currently not manufactured domestically

CIPE organized a regional roundtable to bring together Central Asian business associations that offered a wider forum for discussion and a possibility to network. A pillar of this program was to promote regional cooperation on fostering economic growth and regional stability. View photos of the event

Strengthening Business Associations and Fostering Information Flow for Afghanistan's Transition to a Market Economy

Afghanistan faces a variety of physical and institutional barriers to its renewal and reconstruction. While physical infrastructure is relatively easy to replace, experience from other post-war transitional environments shows that renewal (the creation of new institutions and values) is vital but more elusive. In December 2002, CIPE sponsored three business round tables in Afghanistan on obstacles to reform and economic development. In Kabul and Kandahar, the Afghan-American Chamber of Commerce (AACC) gathered business men and women who communicated their concerns regarding the high costs of doing business in Afghanistan. A similar round table took place in the northern city of Mazar-i Sharif, organized by the Foundation for Central Asian Development (FCAD). Specifically, the following problems were emphasized:

• Inefficient banking system
• Weak rule of law
• Poor infrastructure
• Little protection of private property
• Few property rights
• Lack of standardization for goods

CIPE is supporting the AACC to set up offices in Kabul and Kandahar and raise awareness of the private sector’s role in reconstructing Afghanistan by promoting an open-market economy.

Read reports on these roundtables:

• Doing Business in Afghanistan: Report on Meetings with Afghan Entrepreneurs in Kabul and Kandahar, Afghanistan, by the Afghan-American Chamber of Commerce (December 2002)
• Private Enterprise in Afghanistan: Conference Report. The Foundation for Central Asian Development (FCAD) held a conference entitled Private Enterprise in Afghanistan in December 2002 in the city of Mazar-i Sharif
  

In May 2003, CIPE held a training session for Afghan businessmen and business associations from Kabul, Kandahar, Herat, Jalalabad and Mazar-i Sharif. CIPE staff and trainers worked with business leaders from across Afghanistan to identify their role in society and strategies to participate in its democratic reconstruction. Energy, intent, and vision were present at the training event, however it was clear that 30 years of war and isolation left few organizations prepared to operate on a sustainable level, let alone constructively advance the interests of Afghan business. In response to the immediate task of rebuilding and reforming Afghanistan’s economic sector based on democratic values, CIPE is planning to establish a project office in Kabul to raise awareness within society regarding market and democratic values.

Combating Corruption and Decreasing Administrative Barriers to Entrepreneurship in Kazakhstan

As a result of CIPE’s regional program where businessmen identified corruption as the primary obstacle to reform, the Almaty Association of Entrepreneurs (AAE) has strengthened its approach to combat corruption and decrease administrative barriers to entrepreneurship in Kazakhstan. With a CIPE grant, AAE is currently working to correct the flaws of the Administrative Code, which is considered to be the single-most important legal document regulating the relationship between government and entrepreneurs, to rid it of corruption points and to steer the country toward democratic reform. Their research indicated that 60% of small businesses consider the numerous unjustified inspections by state authorities to pose the largest problem for business development. This is also the basis for corruption and extortion by the government. AAE is galvanizing public support behind reforming the Code and reducing the loopholes in the legislative framework that foster corruption. By engaging the government into an effective debate with the business community on how to address the problems associated with the Code, AAE plans to create a participatory form of decision-making in Kazakhstan.

Strengthening Business Association Advocacy in Kyrgyzstan

In all transitional countries, and Kyrgyzstan is no exception, the challenge of building an effective and sustainable public-private dialogue rests on two pillars: Engaging a government that is ill-disposed to such a dialogue and preparing a business community that is ill-prepared to advocate its causes. Excluded from the political process, local businessmen contend that unless substantial changes are undertaken aimed toward improving the business climate, Kyrgyzstan will continue its plunge into poverty and despair, while SMEs submerge into the informal economy. This project addresses the problem of rampant corruption and the growing shadow economy in Kyrgyzstan by strengthening the voice of business associations. CIPE will work with two local business associations to engage the local entrepreneurs in the effort to revise the Tax Code, which is blamed for much of the corruption. Informing the business community on the importance of business advocacy and empowering organizations to responsibly represent the private sector is a fundamental pillar of this project. The current opaque regulatory framework leaves ample opportunity for corruption, undermines the rule of law and weakens the legitimacy of the government. Recognizing that the business community is not homogenous, CIPE’s strategy in Kyrgyzstan spans across several sectors of the business community who have a stake in a more effective economic reform and a more transparent and open bureaucratic process.

Reducing the Informal Sector by Combating Corruption in Tajikistan

Rampant corruption prevents democracy from taking root by undermining the rule of law, the efficacy, governance and reinforcing society’s mistrust of government. Widespread tax evasion clearly indicates that citizens are not obeying the law and have few incentives to do so, promoting a culture of extra-legality. In addition, an excessive tax burden drives most businesses into the informal economy or out of business completely. According to recent research by the National Investment Consulting Agency in Tajikistan, 45% of entrepreneurs indicated that “tax pressure barriers” are the biggest impediment to business development. In addition to the excessive tax rates, bribe-seeking inspectors intimidate entrepreneurs. The National Association of Managers and Marketologists (NAMM) has begun to develop a strategy that will aim to reduce the informal sector by combating corruption. NAMM will also develop a Code of Ethics for tax collectors and taxpayers and in the process bring the Tajik society a step closer to a participatory form of governance. This includes a significant amount of visits by inspectors, who intimidate entrepreneurs into bribing them. This project aims to close the loopholes in the tax code that foster corruption and to improve the relationship between the business community and the government tax agencies by developing and enforcing a Code of Ethics, and, in the process, strengthen the voice of the private sector in the policymaking process.

Protecting Private Property in Uzbekistan

As a result of international pressure, recent legislation aimed to reduce the shadow economy. In reality, these regulations had an extremely traumatizing effect on local business, consumers, and the citizenry at large. The new regulatory framework that emerged as a result of these laws practically devastated the local economy, particularly small-and medium-sized enterprises. In an effort to help develop a vibrant private sector and a strong middle-class in Uzbekistan, CIPE has continued working with the Tashkent Business Club (TBC) to help level the playing field for all who want to participate in Uzbekistan’s economy. A key strategy for achieving this is by protecting the private property rights of entrepreneurs who work within the official economy, allowing them to retain the fruits of their labor by educating them on their rights, and teaching them how to handle various legal and administrative violations of their rights.

This includes also those entrepreneurs who tend to stay within the boundaries of the gray sector because they are not able to enter the official market due not only to financial disincentives, but also to a lack of a protection mechanism for their property. Of the numerous infractions on their property, the following eight were cited by SME owners as the most grave:

1. Restricted access to cash
2. Limited access to raw materials
3. Limited venues to sell small quantities of products
4. Insurmountable barriers to exporting locally manufactured goods
5. No distinction between a small and large wholesale business
6. Lack of a realistic currency convertibility for export/import purposes
7. Little protection for entrepreneurs when their goods are confiscated at Customs
8. Few incentives for competition and artificially high prices on goods that reduce competitiveness

CIPE has had a three-year relationship with the Tashkent Business Club during which TBC developed a comprehensive set of tools to design and promote the National Business Agenda in Uzbekistan. Focusing on business advocacy, TBC’s activities have brought together over 500 business journalists, government officials, and representatives from business associations and financial institutions in Uzbekistan. As a result of many productive roundtables and numerous seminars, TBC developed a National Business Agenda, which was published in 2001. The Small Enterprise Development Coordination Center of the Cabinet of Ministers and the State Committee on State Property Management and Entrepreneurial Support have reviewed the Business Agenda and are working on incorporating its elements in their future Strategic Plans. TBC is also working with the Tashkent Mayor's office on promoting and implementing the Business Agenda in the small business development plan of the Mayor's office.

Numerous policy recommendations that TBC submitted to the Cabinet of Ministers have been adopted into law through specific decrees and numerous amendments to existing legislation. TBC has worked closely with many government structures, including the Chamber of Commodity Producers and Entrepreneurs to build a constructive public-private dialogue to support the National Business Agenda. Through its roundtables around the country, TBC continues to galvanize support within the business community behind the most critical issues that drive economic reform. In the process, TBC works closely with the media to persuade them of the importance of their role in supporting the private sector in improving the economic and democratic condition of their country.

Read more in the following publications:

CIPE Feature Service Articles
CIPE Overseas Report Articles