Center for Economic Research (Uzbekistan) September 23, 2014

Baku, Azerbaijan

Small entrepreneurship in Uzbekistan :

financial capacity and transformative effects

Uzbekistan: Stages of SME Development

Early 1990s:

Private sector represented by shuttle-traders

Goal – to address the problems of shortages and gluts of consumer goods in the domestic market, prevent a sharp drop in living standards.

2-nd half of the 1990-s – beginning of the 2000-s:

Catalytic role of SME for introduction and effective implementation of market mechanisms and respective institutional transformations

Since the 2000-s:

SME as a main factor of accelerated structural reforms and transformations: economic growth, diversification and growth of exports, employment generation.

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Landscape of SE Development

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

• The absence of the “medium-sized businesses” term in the legislation

• New development stage of the small

entrepreneurship: transition from quantity to quality

Sectoral structure of SE (%), 2000- 2013

48,9

46,1

71,5

98,1

28,1

37,9

45,9

37,0

72,4

11,3

0,0 20,0 40,0 60,0 80,0 100,0 120,0

Сфера услуг

Розничный товарооборот

Строительство

Сельское хозяйство

Промышленность

2000

2013 г.

Industry Agriculture Construction Retail turnover Services

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

создано, тыс.ед.

ликвидировано, тыс.ед.

Created, thousand ent. Dissolved, thousand ent.

Creation and dissolution of SE entities, 2000- 2012

Micro-firms, 55%

Small enterprises,

6%

Individual Entrepreneurs, 39%

SE Structure by entities (%), 2013

The Role of Small Entrepreneurship in Economic Development

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

GDP growth rate and SE share in GDP (%), 2000-2013

Working-age population и SE share in employment, 2000-2013

Industry growth rate, SE share in Industry (%), 2000-2013

Foreign trade turnover and SE share in export and import, 2000-2013

17

,9

19

18

,9

18

,5

17

16

,7

18

,6

18

,3

18

,7

18

,9

19

,8

20

,3

20

,7

21

,2

13

,1

14

,8

15

,7

16

,5

18

,6

21

,5

23

,5

27

,4

29

,5

31

,2

32

,7

33

,7

33

,9

34

,6

0,0

2,0

4,0

6,0

8,0

10,0

12,0

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

доля малых предприятий и микрофирм, % доля индивидуального предпринимательства, % темп прироста ВВП, % (правая шкала)

Share of small enterprises and micro-firms, % Share of individual entrepreneurship, % GDP growth rate, % (right scale)

50,0

52,0

54,0

56,0

58,0

60,0

62,0

64,0

40,0

45,0

50,0

55,0

60,0

65,0

70,0

75,0

80,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Удельный вес МП в численности занятых, % Доля трудоспособного населения, % (правая шкала)

Share of SE in the total number of employed, % Percentage of working-age population, % (right scale)

Global financial crisis

Global financial crisis, 2008-2010

0,0

5,0

10,0

15,0

20,0

25,0

30,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Удельный вес МП в промышленности,%

Темп прироста продукции в промышленности,%

Global financial crisis, 2008-2010

Share of SE in Industry, % Industrial production growth rates,, % (right scale)

10,2

24,1 27,4

42,4

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0

0

5000

10000

15000

20000

25000

30000

35000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Внешнеторговый оборот, млн.долл.США (левая шкала) Доля МП в общем объеме экспорта, % Доля МП в общем объеме импорта, %

Мировой финансовый кризис 2008-

2010 гг.

Foreign trade turnover, mln.US dollars, (left scale) SE share in the total export volume, % SE share in total import volume, %

Financial Capacity of the Small Entrepreneurship: Support Measures by the Government

Integrated approach: financial effects

Decrease in transaction costs:

• Business environment

Creation of demand for goods/services:

• State infrastructure projects

Access to resources:

• Government procurement

Access to finance:

• Bank lending

• Non-bank credit institutions

• Leasing

• Taxation

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Decrease in transaction costs : Business environment

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

15

2

Issuance of a permit to connect to the water and sanitation networks

Presidential Decree (PD-4455, July 18, 2012) ”On measures to further radical improve the business environment and providing

greater freedom of entrepreneurship “

From August 1, 2012 reduced the time requested for:

30

10

Works to provide access to telephone network

10

3

Customs clearance and issuance of the certificate of origin for goods

30

15

Work authorization for highly skilled foreign nationals

• «Doing Business 2014»: Uzbekistan improved its ranking by 10 positions (from 156 to 146), including requirements for business registration by 66 positions – which is the 21st place among 189 countries included in the rating.

Measures Program to improve the business environment and providing greater freedom of entrepreneurship for 2013-2014

Measures Measures

results

Indicators of the top ten countries according to the "Doing Business“ ranking

Reducing the number of procedures to register a new enterprise

from 6 to 3 procedures

1-6 procedures

Reducing the time spent for the registration of new businesses

from 14 до 4 days

1-13 days

Lower initial costs of creating new businesses

from 27,2% of per capita

income to 0%

0-25% of per capita income

Reducing the number of procedures to obtain construction permits

from 25 to 12 procedures

5-17 procedures

Reducing the number of procedures for connecting to the power supply system

from 9 to 5 procedures

4-5 procedures

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Decrease in transaction costs : Business environment

Measures Measures

results

Indicators of the top ten countries according to the "Doing Business“ ranking

Reducing the number of procedures to register the property

from 12 to 1 procedure

1-7 procedures

Reducing the time spent on the procedure of property registration

from 78 to 7 days 2-38 days

Reducing the number of tax payments from 41 to 7 payments

3-29 payments

Reducing the number of documents for export

from 6 to 4 documents

3-7 documents

Reducing the number of documents for import

from 11 to 5 documents

3-5 documents

Reduction in legal costs to enforce contracts from 22,2% to 9% of claim cost

8,2-26,9% of claim cost

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Measures Program to improve the business environment and providing greater freedom of entrepreneurship for 2013-2014

Decrease in transaction costs : Business environment

Creating demand: Government Procurement

UZEX turnover dynamics, 2004-2014, bln. sum

UZEX turnover dynamics, 2004-2014, bln. sum

UZEX Trade turnover structure,%, 2013 г.

• UZEX (2004): the stock market of wholesale trade of commodities and raw materials, 730 brokerage firms, 2 thousand. traders.

• Online auction of non-exchange goods without the procedure of exchange listing (exhibition trades).

• SE access to obtain public contracts for the supply of goods: electronic trading in government and corporate procurement.

• Share of small business: 83% of goods and services supplied under the public procurement (2013).

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Stock exchange trade 83%

Corporate procurement

1%

Government procurement

6%

Exhibition trade 10%

Engineering production

27%

Production of ferrous and non-

ferrous metallurgy

22% Chemical industry production

4%

Agriculture 5%

Construction materials

14%

Light industry goods

3%

Polymers, plastics, and its products

7%

Cultural purposes goods

4% Others

14%

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(I)

Access to resources and the creation of new markets for SE: Infrastructure Projects

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Market infrastructure:

• Free Industrial Zones (Navoi, Angren, Djizak).

Transport Infrastructure

• International Intermodal Logistics Center (Navoi). • Construction and reconstruction of 2306 km of roads. • Modernization of railway transport, construction of new sections (1,030 km.)

Public Utilities Infrastructure

• Modernization, construction of 3800 km of water and 175 km of sewer networks.

Social infrastructure

• Building of 1396 professional colleges and 143 of academic lyceums. • Construction of 2958 rural health units.

• Construction of individual housing in rural areas (9-10 thousand homes annually), engineering and transport communications, social and market infrastructure.

Microcredits from foreign credit lines:

Interest rate: 12-18% per annum

• Creation of new

enterprises; • Processing of the

agricultural products; • Infrastructure

development: • processing of local

raw materials

Access to finance: Banking

Bank microcredits from own resources

Interest rate: not more that ½ from refinancing rate of the Central Bank (10%)

Microcredits from non-budget funds

Interest rate:

• Development of farms-1/3 from CB refinancing rate;

• Production - 40% of CB refinancing rate;

• Services – 45% CB

refinancing rates;

Bank credits, 74%

SE credits, 26% • Microloans: 100 minimum wages

• Microcredits: 1000 minimum wages

• Micro leasing: 2000 minimum wages

• Law "On microcredit organizations"

• Law "On Microfinance"

Credits for SE in the total volume of bank credits, %

Fund for preferential

crediting banks

Interest rate:

5% per annum

Financing of high-tech manufacturing and innovative projects of productive SE and farms in remote and inaccessible areas, as well as in regions and cities with the excess of labor force

Microcredits, 21%

Total credits allocated to support SE, 79%

Microcredits in the total volume of bank credits, allocated to support

small businesses, %

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Microcreitbank 83 branches, 100 agencies, 234 mini-banks

Interest rate:

3% - formation of start-up capital

6% - development of business and развитие бизнеса и financing working capital

5% -micro-leasing

• Colleague graduates projects

• Family business

Credit Unions

Abolished in2012 году. Before liquidation occupied about 30% of total microcredit portfolio

Microcredit organizations -24

Interest rate:

microcredits: 3-4% per month

microloans - 6-7% per month

• Trade

• Industry

• Agriculture

• Handicraft

• Repairing works

Methodology of individual and group lending

Pawn Shops -41

Interest rate:

0,5-1% per day

• secured by the moveable property

Access to finance: nonbanking credit institutions (MFIs)

Total volume of microcredits,

78,7%

Microcreditbank, 21,3%

Share of the Microcredit bank in the total volume of micro-crediting (%), 2013

Trade and catering Transport and

communications

Industry

Agriculture

Others

Structure of microcredits to legal entities (%), 2013

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Access to finance: Leasing

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Leasing companies, 68%

Banks, 32%

The structure of the leasing on the value of property, %, 2013

Agro-machinery,

37,5%

Auto, 24,8%

Real estate16,3%

Equipment, 21,4%

The structure of transactions by type of fixed assets, %, beginning of 2000s and 2013

Equipment

5,5%

Agro-machinery, 94%

Auto 0,5%

Growth factors of leasing market:

• High demand for mini-technologies.

• Development of industries with the high growth and export capacity (electrical, textile, food, tourism etc.).

• Implementation of transport and communication projects, construction and re-construction of transport infrastructure, development of road infrastructure.

• Tax preferences

• Interest Rate -16-20% per annum.

The structure of transactions by the type of equipment, %

Polygraphy 4,1%

Textile and sewing

equipment 7,8%

Food production

2,6%

Trade, 6,8%

Medical, 4,2%

Construction, 23,1%

Irrigation 15,4%

Others 16%

Access to finance: Tax policy

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Taxes Maximum

tax rates in 1992-2009

2014 Dec-

rease

Corporate income tax 45% 8% 5,6

times

Individual income tax 13%-60% 7,5%-22% (from Jan. 2011)

1,7-2,7 times

Value added tax 30% 20% 1,5

times

Single social payment 40% 25% 1,6

times

Single tax payment for small enterprises

15,2% 6%

Industry-5% 2,5

times

Individual property tax 5% 4% 1,3

times

Dynamics of tax burden in 1993-2010 (as % to GDP)

Tax preferences to Small Entrepreneurship: • Simplified tax regime: the single tax payment (STP) instead of a number of state and local taxes and fees. • Export promotion: 1) share of export 15-30% - STP and property tax below 30%; 2) share of export 30% and more - STP and

property tax below 50%. • Localization Program: exemption from STP and the property tax till January 1, 2017. • Modernization: Reduction of tax base on STP for the cost of new purchased equipment , but no more than 25% from taxable

base for 5 years. • Free Industrial Zones: exemption from taxes. • Milk and Meat processing: STP below 50%. • Production of non-food consumer goods: exemption from STP.

0

5

10

15

20

25

30

1995 2000 2005 2013

29,7 28,5

22,6

20,5

Structural effects of SE: Transformation of Economic and Society

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

Poverty and Income Structure , %, 1991-2030 гг.

Production, productivity and the volume of imports of cereals, 1991-2013

Social Structure of Society: emerging middle class

5,5 5 0,4

18 19,1

12,5

45 48,2

43,4

16,8 14

9,2

10,6 10

18,9

4,1 3,7 15,7

0

10

20

30

40

50

60

70

80

90

100

Respondentsstratification,

N=2122

Distribution of allfamily members

by strata, N=11736

Enterpreneurs

Upper class

Upper-middle class

Low-middleclass

Middle classreserve

Poor

Very poor

The share of middle and upper class in the population - 27.7% Among entrepreneurs - 43.8% (CER, Family assets mobilization)

Structural reforms: Food security and life quality

0

10

20

30

40

50

0%

20%

40%

60%

80%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

социальные трансферты

доходы от собственности, предпринимательской деятельности и другие

оплата труда

уровень малообеспеченности (доля населения с доходами ниже $1.25 в день по ППС), %, правая шкала

Social transfers Income from property, business activity and other Wages Poverty level (share of population with the income less 1.25 USD per day on PPP), %, right scale

1908

2257

2142

2467

3215

3562

3777

4148

4331

3929

4072

5551

6103

5869

6402

6547

6643

6622

7293

7404

7054

7520

7805

0

10

20

30

40

50

0

2000

4000

6000

8000

10000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

валовой сбор, тыс.тн импорт, тыс.тн урожайность, ц/га, правая шкала

Gross harvest, thousand tons Import, thousand tons Land productivity, c/ga, right scale

Vision 2030: Cooperation with Large industrial enterprises

Auto Industry Cluster:

• Increased demand for the products of small business: Income growth

• Multiplicative sectoral effects from the growth of demand for small business products: transport, chemical, gas & oil processing, machine building, construction.

CENTER FOR ECONOMIC RESEARCH IQTISODIY TADQIQOTLAR MARKAZI ЦЕНТР ЭКОНОМИЧЕСКИХ ИССЛЕДОВАНИЙ

https://www.facebook.com/CER.Uzbekistan Visit us for more info:

http://www.cer.uz

CER’s Flagship Initiatives of 2014:

Looking beyond the horizon: guidelines and best practices in formulating national visions http://vision.cer.uz

Uzbekistan Towards 2030: A New Social Protection Model for a Changing Economy and Society

Food Security in 2025: Availability, Accessibility and Nutrition

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