KYRGYZ REPUBLIC

Issue 1, April 2015 The USAID Business NEWSLETTER Growth Initiative (BGI)

VALUE CHAINS APPAREL SECTOR COURTS RUSSIAN Dignitaries from both the Kyrgyz Republic and the United States attend BGI’s launch. Right FASHION RETAILERS to left: Mr. Valeriy Dil, Vice Prime Minister of the Kyrgyz Republic; Mr. Dan Rosenblum, Page 3 Deputy Assistant Secretary, US Department of State; Ms. Pamela Spratlen, US Ambassador to the Kyrgyz Republic; Mr. Michael Greene, USAID Mission Director; and Mr. Paul Hamlin, USAID Senior Economic Development Advisor.

USAID LAUNCHES BGI PROJECT WHILE COMMEMORATING REFORMA ACHIEVEMENTS On October 14, 2014, USAID of- the Civil Aviation Agency were among ficially launched the Business Growth the 30 partners from government, the Initiative (BGI), a four-year, multi-fac- business community and civil society eted economic development project who commented on REFORMA’s con- BUSINESS designed to strengthen the competi- tributions in strengthening the busi- ENVIRONMENT tiveness of Kyrgyzstan’s apparel, tour- ness and investment climate since the ism and construction materials value project’s launch in October 2011. CABINET OF MINISTERS chains and improve the overall busi- ness enabling environment. “I would like to acknowledge the APPROVES MINING high quality work of the project. There STRATEGY More than 100 counterparts from was clear identification of priorities that Page 7 the Government of the Kyrgyz Repub- we jointly discussed to improve the lic, business associations, local imple- business environment and investment menting partners and other stake- climate. I would also like to emphasize holders attended the half-day session the high level of professionalism of that introduced BGI’s objectives and the project team, and specifically, the acknowledged the closing of USAID’s project’s timely responsiveness to our business environment improvement requests for assistance. We have had project, REFORMA. a good relationship with the REFOR- After opening remarks from Vice MA Project and would like to express Prime Minister Valeriy Dil and visiting gratitude for the work done,” the Prime HUMAN CAPITAL US Department of State Deputy As- Minister said. sistant Secretary Dan Rosenblum, the In the video, USAID Mission Di- BGI SEEKS TO IMPROVE agenda featured a 10-minute video rector Michael Greene said, “The US WORKER SKILLS entitled, REFORMA Through the Eyes Agency for International Develop- of Our Partners. THROUGH EDUCATION ment (USAID) is delighted with the ALIGNED WITH SECTOR In the video, Prime Minister work done by the REFORMA Project DEMAND Page 10 Joomart Otorbaev, Minister of Econ- over the last years, mostly because omy Temir Sariev, and Directors of REFORMA assisted in achieving the both the State Geology Agency and goals outlined by the Government.The REFORMA approach, based on build- ing a partnership between the Govern- ment and private sector, worked out policy directions that were supported by both sides. Such a process ensures sustainability of reforms, and I think this approach will be acknowledged through the adoption of long-term pro- grams and policies.” Mr. Greene at- tended the launch event accompanied by US Ambassador to the Kyrgyz Re- public, Pamela Spratlen. While the first half of the program featured presentations by counterparts USAID Mission Director Michael Greene presents awards of appreciation to REFORMA’s highlighting REFORMA’s achieve- local implementing partners. Mr. Valentin Bogdetsky accepts the award for the Kyrgyz ments in mining strategy development, Mining Association. VAT administrative reforms, aviation In introducing BGI to stakeholders, finance for small firms and build stron- safety initiatives, and institutional and USAID Senior Economic Development ger relationships between educational human capacity development of gov- Advisor Paul Hamlin said the project institutions and value chain firms to ernment agencies, the second half will work with individual firms and sec- improve workforce and management outlined BGI’s future activities. BGI tor stakeholders in the selected value skills. will continue the business environment chains to improve productivity, prod- initiatives launched by REFORMA, but uct offerings, branding, input sourcing, In the following pages, this news the project will focus primarily on build- new market access, quality control, fi- bulletin highlights initial activities BGI ing and strengthening the competitive- nancial management, and other critical has pursued since its October launch. ness of Kyrgyz firms and value chains components of internationally competi- BGI will highlight expanded activities in to promote business growth, job cre- tive value chains. It will introduce ac- its quarterly bulletin throughout its proj- ation and economic development. tivities to improve access to long-term ect life, ending in June 2018.

BUSINESS LEADERS DISCUSS ECONOMIC CHALLENGES WITH VISITING USAID EXECUTIVE

On December 8, BGI hosted a round table meeting with representa- tives of the business community to discuss their outlook on Kyrgyz eco- nomic development with USAID As- sociate Administrator Mark Feierstein. The session introduced Mr. Feierstein to the challenges and opportunities for Kyrgyz businesses in the current economic environment, particularly in light of the Kyrgyz Republic’s imminent accession to the Eurasian Economic Union (EEU). Representing the Kyrgyz business community were Mr. Emil Umataliev, Senior USAID official, Associate Administrator Mark Feierstein (second from left) visits devel- President of Kyrgyz Concept, Mr. Ak- opment projects in the Kyrgyz Republic, including BGI. tilek Tungatarov, Executive Director of the International Business Council the business environment, they stated Regional Trade Advisor to ATAR, a (IBC), Mr. Uluk Kydyrbaev, CEO of that many challenges remain in the ar- USAID project that seeks greater trade the Chamber of Tax Consultants and eas of tax, inspections, trade and prop- integration of Afghanistan with Central Chairman of the think-tank BizExpert, erty rights, among others. Asian countries. and Mr. Kuban Ashyrkulov, Adviser to the President of the Central-Asian Cor- USAID Mission Director in the Kyr- Associate Administrator Feierstein poration. Participants discussed the gyz Republic, Mr. Michael Greene, also is the third most senior executive of took part in the meeting with several challenges and advantages that EEU USAID in Washington, DC, and the membership will bring to Kyrgyzstan. members of his USAID Economic De- highest ranking USAID official ever to One participant noted that the eco- velopment staff and representatives of nomic landscape is rapidly changing the U.S. Embassy. Trade Specialist Mr. come to the Kyrgyz Republic. His visit so the ultimate impact of joining the Farhat Y. Farhat provided background demonstrates the U.S. Government’s customs union is currently unclear. Al- information on the genesis of the EEU interest in continuing to support growth though they observed that the Govern- and its predecessor, the Eurasian and development of the only parlia- ment has shown commitment to reform Customs Union. Mr. Farhat serves as mentary democracy in Central Asia.

2 The USAID Business Growth Initiative (BGI) Project KYRGYZ APPAREL SECTOR COURTS RUSSIAN FASHION RETAILERS

On February 18, BGI hosted a pre- term health of Kyrgyzstan’s textile/ap- sentation of the production capabilities parel sector, currently experiencing of the Kyrgyz apparel industry to Rus- falling sales after nearly 10 years of sian retailers in a business-to-business rapid growth. The meeting highlighted (B2B) meeting conducted in associa- the production demands of Russian tion with the Russian Tekstilegprom retail buyers, which Kyrgyz producers apparel exhibition in Moscow. will need to meet to compete in this market segment. This was the first time that Kyrgyz producers engaged a captive audi- An immediate result of the pre- ence of 24 Russian retail brands and sentation was that two Russian retail- designers’ studios, most of which had ers provided BGI with detailed buying Ms. Larisa Popkova, Director of Larisa never previously contracted with Kyr- specifications while two Kyrgyz firms Fashions, outlines Kyrgyzstan’s advantag- gyz apparel makers. The presentation reported that serious discussions are es in product sourcing to representatives of highlighted Kyrgyz advantages in flex- underway with three other significant Russian retail brands. ible product development and produc- brands. The following week, BGI fa- tion capabilities, lower logistics costs cilitated the first purchase mission of way they do business and adjust to and shorter lead times than many in- a sizable Russian apparel chain to the the demands of large-volume buyers ternational mass-market competitors. Kyrgyz Republic and is now negotiat- to conclude supply contracts with this

Feedback also revealed that joining ing contracts with two Kyrgyz firms. A new market segment. VALUE CHAINS the Eurasian Economic Union could smaller, but more upscale retailer visit- offer immediate price advantages for ed Kyrgyzstan in mid-March also keen In the long run, however, Russian Kyrgyz apparel producers who sell to to find sources of previously untapped retail chains may be the most prom- retailers within the economic bloc, de- supply. ising target for Kyrgyz apparel firms, spite widespread fears that tariff hikes who have found that traditional bazaar But terms may be difficult for Kyr- on Chinese fabrics would destroy Kyr- gyz manufacturers to meet. While it is trade has plummeted in recent years. gyz competitiveness. evident that there is substantial Rus- BGI is poised to help Kyrgyz producers Responding to the changing tastes sian interest in sourcing from Kyrgyz- tap into this expanding segment, which and purchasing characteristics of the stan, it has also become clear that now represents to 70 percent of the Russian market is critical to the long Kyrgyz firms will need to change the Russian market.

BGI OUTLINES STRATEGIES AND OPPORTUNITIES TO APPAREL MAKERS

BGI held its first meeting with ap- parel manufacturers and other value chain stakeholders on January 29 to introduce the project’s vision for help- ing firms transition beyond current market challenges. After opening remarks from USAID Senior Economic Development Advi- sor Paul Hamlin and Fatima Sadamku- lova, Head of the Department of Light Industry of the Ministry of Energy and Industry, BGI Apparel Sector Program Manager Artur Aliev presented a cur- rent assessment of the Russian and Belarussian apparel market entitled, Crisis – A Problem or an Opportunity? In his presentation, Mr. Aliev dis- cussed how the Russian retail apparel market has undergone a huge trans- formation in the past few years, with bazaar sales losing significant market share to large retail chains and inter- net sales, and retailers expanding to BGI presents initial activities to assist the apparel value chain to meet current market chal- smaller cities across Russia. lenges.

The USAID Business Growth Initiative (BGI) Project 3 “Ten years ago, bazaar sales ac- el, which would constitute new distribu- counted for 70 percent of the appar- tion channel for Kyrgyz producers. el market – it is now 30 percent and Fred Levitan, BGI Competiveness shrinking with the growth of vertically Team Leader, followed Mr. Aliev’s integrated retail brands – both Rus- market analysis with BGI’s proposal sian and international – and an annual to conduct an initial presentation of doubling of growth in internet sales,” Kyrgyz manufacturing capabilities to he said. Most Kyrgyz producers have Russian retailers attending the Febru- traditionally relied on bazaar sales ac- ary Tekstilegprom trade exhibition in cessed through wholesale channels Moscow, which was described in the Mr. Artur Aliev presents the current state of that sprung from Chinese re-exports previous article. the Russian apprel sector and opportuni- through Dordoi Market. ties for Kyrgyz Suppliers. As part of the presentation, repre- “Combined with the 100 percent sentatives from Central Asian Interna- makers need more support than ever ruble devaluation against the dollar in tional Consulting (CAIC) and M-Vector before. the past few months, this has created a introduced preliminary findings from “This project is vital for the devel- real crisis for Kyrgyz apparel makers.” studies sponsored by BGI on the char- acteristics of the apparel sector and an opment of the apparel industry in the But even with shifts in marketing country. In today’s presentations, ex- channels and recessionary pressures, assessment of the types of skills re- perts highlighted the real problems Russia remains a viable market for quired for sector development and the ability of Kyrgyzstan’s educational in- Kyrgyz producers, with annual apparel and challenges we currently face, and, stitutions to develop these skills within sales of US $50 billion, Mr. Aliev said. what is more, experts know how to ad- the future workforce. Further, many Russian retail brands dress those problems. This is exactly seek to diversity their source of sup- Owners of Kyrgyz apparel firms what the apparel/textile industry needs ply and could be interested in direct noted that BGI has been launched at a today,” said Lubov Ardamina, Director wholesale purchases of Kyrgyz appar- time of market downturn when apparel of the Ardamina Company.

TOURISM PLANNING NEEDS COLLECTION OF RELIABLE STATISTICS

The collection of accurate tourism statistics has been a challenge for the Kyrgyz Government partially due to the absence of a tourism data collec- tion methodology that meets interna- tional standards. But reliable statistics are critical for business planning and essential for macroeconomic analysis and policymaking. Consequently, a component of BGI’s support for the development of the tourism value chain is to improve the ability of Government institutions to collect and report statistics on both in- ternational and domestic tourism. The first initiative of BGI’s program was to Members of the Kyrgyz delegation attend the UNWTO Tourism Statistics Workshop in support a group of Kyrgyz stakehold- Ankara, Turkey. ers to participate in a workshop on Tourism Statistics and Tourism Satel- In total, 50 participants attended insight on the challenges and solu- lite Accounts (TSA), held in December the workshop representing national tions experienced by other countries in Ankara, Turkey. statistical offices, government tour- in implementing a rigorous program of ism departments, central banks, and collecting tourism statistics. The workshop organizer was the tourism business associations from The workshop emphasized that United Nations World Tourism Orga- the CIS and the Middle East. Four del- countries cannot produce good tourism nization (UNWTO), which is a global egates represented Kyrgyzstan from statistics without the development of a agency that promotes the development the National Statistics Committee, the well-functioning, inter-institutional data of competitive and sustainable tourism Department of Tourism, the Kyrgyz collection and reporting platform. BGI policies, distributes market knowledge, Association of Tour Operators (KATO) plans to conduct a number of activities fosters tourism education and training, and the BGI project. and encourages investment in tourism in order to enhance the Kyrgyz Repub- as an effective tool for economic de- The workshop was particularly use- lic’s collection of tourism statistics, in- velopment and job creation. The UN- ful because it helped Kyrgyz stake- cluding hiring a former United Nations WTO developed its satellite accounts holders to understand the scope of Statistics Division official to conduct a system to standardize the collection how much needs to be done in order baseline assessment of the capacities of statistical data around the world to improve tourism statistics to bring of the Kyrgyz Government to generate for comparative analysis of the global them up to international standards. It statistics critical for monitoring sector tourism sector. also provided an opportunity to gain development.

4 The USAID Business Growth Initiative (BGI) Project BGI HITS THE ROAD TO LAUNCH DESTINATION MANAGEMENT PROGRAM

based tourism clusters lack connec- tions to various links of the national tourism chain. This was apparent to the BGI road show teams, which re- ceived widespread feedback from local communities that there is little commu- nication among local providers of tour- ism products and services – let alone with firms delivering services nationally such as tour operators and transporta- tion companies. By creating a network of success- ful destination management initiatives, BGI will connect community groups to each other and to national tourism delivery systems to build tourism prod- Tourism sector stakeholders attend launch of BGI’s Destination Management Program ucts that will appeal to various tourism in Bishkek. segments, both international and do- On February 25, BGI launched its level. Their success hinges on creating mestic. During the course of the proj- Tourism Destination Management Pro- grass-roots organizations that lever- ect, BGI will publicize the innovations VALUE CHAINS gram as a foundation upon which the age resources and build social cohe- of selected projects and their impact project will assist tourism stakeholders sion around strategies and initiatives on destination development for repli- to prioritize and implement strategies to boost tourism in local communities. cation in other venues throughout Kyr- for developing the tourism value chain gyzstan. Activities to improve tourist experi- in the Kyrgyz Republic. ences may include conducting cultural More than 300 local stakeholders Following a presentation to ap- fairs, implementing basic improve- from a wide range of organizations at- proximately 100 tourism sector stake- ments in light infrastructure and sanita- tended BGI’s destination management holders in Bishkek, two BGI tourism tion, upgrading museum displays, ex- presentations in Talas, Osh, Jalal- teams conducted road shows to cities panding handicraft retailing, employing Abad, Batken, Naryn and Karakol.Pre- throughout Kyrgyzstan to introduce the better and multi-lingual signage, and sentations explained key program con- Destination Management concept and development of small businesses to cepts, qualification requirements and solicit proposals from local stakehold- deliver services better targeted toward how to apply to the program. Among ers to develop community-based tour- tourism development, among many those participating were representa- ism strategies. Once BGI has received others. Through this program, BGI tives of guest houses, hotels, restau- applications in mid-April, the team will hopes to broker partnerships for wider rants, tour operators, transportation select 2-3 proposals to obtain techni- engagement of local businesses and companies, souvenir producers, natu- cal assistance and grants to realize citizens as key stakeholders in com- ral parks and preserves, ski resorts, IT proposed strategies. munity tourism development strate- companies, associations, municipali- gies. ties, NGOs and other organizations. Destination management strate- gies have been employed internation- Despite associations of tour opera- The concept of developing a spe- ally as a way to develop improved tour- tors, hotels, restaurants and others, cific destination drew genuine inter- ism products and services at the local many firms are unaligned, and local- est from the tourism community and many expressed their intention to de- velop and submit their concepts. The program will allow communities to ad- dress the development of the destina- tion in many different ways. BGI will announce the winning com- munities in May and begin to work with local stakeholders to further develop and implement their proposed destina- tion management plans, which are ex- pected to generate greater income for local destinations as well as contribute to the development of the Kyrgyz tour- ism sector as a whole. Based on the experience of selected stakeholder groups, BGI will expand opportunities A participant from Batken reviews procedures for Destination Management applications. to other communities during the life of the project.

The USAID Business Growth Initiative (BGI) Project 5 TOURISM DEPARTMENT AWARDS CONTRIBUTORS TO DEVELOPMENT

ists/entrepreneurs exhibited and sold handicrafts before the presentation and during the buffet following the cer- emony. Guests acknowledged the useful- ness of such an awards ceremony in providing incentives for stakeholders to engage in innovative activities to promote tourism and to improve tour- ism product and service offerings. Participants expressed hope that the event will be expanded in the future USAID receives an Honorable Mention by the Tourism Department as one of the best and attract even broader participation donors in tourism. Members of the BGI team with Deputy Minister of Culture, Information of sector stakeholders. Several noted, and Tourism, Maksat Chakeev. however, that the opportunity to nomi- The Tourism Department of the over a period of eight months. Winners nate award candidates must be better Ministry of Culture, Information and were determined by an Evaluation promoted and that criteria for award Tourism recognized firms and organi- Committee consisting of journalists, selection be more widely publicized. zations whose activities and service NGO representatives, and tourism en- The US Agency for International have promoted tourism development trepreneurs. Development received an honorable efforts at an awards ceremony that Vice Prime Minister Damira Niyaza- took place on January 23. mention for its active contribution to lieva gave a keynote address to more tourism development in Kyrgyzstan Deputy Minister Maksat Chakiev than 180 participants, including mem- initiated through its REFORMA project presented grand prizes to award recip- bers of Parliament, Government of- and continuing through the activities of ients in 15 categories for the greatest ficials, business associations, NGOs, BGI. USAID believes that tourism has achievements in developing tourism representatives of the business com- in 2014. Each category acknowledged munity and international donors. Host- great potential to become one of the a grand prize winner, while recipients esses in Kyrgyz traditional costume leading sectors of economic growth in second place received an honor- greeted guests, while the ceremony in Kyrgyzstan and has dedicated sub- able mention. Any industry stakeholder featured a cultural presentation of stantial support to sector development could nominate candidates for awards Kyrgyz music. Several NGOs and art- through the BGI project. WINNERS OF THE 2014 TOURISM AWARDS

Award Category Grand Prize Honorable Mention/Certificate Best Ski Resort Karakol Ski Base Orlovka Ski Base Karagat Fest – annual summer fruits and Best Tourism Event Project World Nomad Games at Issykul Lake berries fest Culture Center Rukh Ordo named after Baibol-Ata – Eco Tourism Complex in Best Tourism Complex Chingiz Aitmatov Talas oblast Keremet-Resort – Entertainment and Spa Best Hotel Green Yard, Karakol Complex in Jalal-Abad region, Ak-Bermet Hotel – Issyk kul resort Best Tour Operator Ak-Sai Travel Osh Travel Trip to Kyrgyzstan; www.triptokyrgyzstan. Best Tourism Internet Project com Visit Karakol “Clean WC - Happy Tourist” by Kyrgyz- Best Idea on Tourism Promotion Turkish University “Manas” Silk Road Fest

Best Diplomatic Mission on Tourism German Embassy and General Consulate Promotion of the KR in Istanbul Embassy of Japan in the Kyrgyz Republic Kyrgyz Economic University named after Best Educational Institution for Tourism M. Ryskulbekov - Kyrgyz-Turkish Manas University Best Oblast for Tourism Development Naryn Oblast Batken Oblast Best City for Tourism Development Osh - Kabar News Agency, Best Media Outlet for Tourism Promotion K-News Vlad Ushakov – Photographer Askar Salymbekov – President of the Best Partner/Sponsor MP Karganbek Samakov Dordoi Association Best Donor in Tourism Development Helvetas USAID Best Expert in Tourism Gulmira Karymshakova Vladimir Komissarov

6 The USAID Business Growth Initiative (BGI) Project CABINET OF MINISTERS APPROVES MINING STRATEGY

On February 20, the Cabinet of Ministers resolved to adopt the Medium- and Long-Term Develop- ment Strategy for the Mining Sector for 2015-2035, which the Ministry of Economy created with the help of lo- cal experts funded by USAID’s RE- FORMA Project. The strategy, developed in re- sponse to deterioration of the busi- ness and investment environment for mining since 2010, sets forth a policy vision based on international practic- es in mineral resources development. Key policy changes include engaging BUSINESS ENVIRONMENT REFORMA conducted a number of policy discussions in the process of developing the Min- local communities in resource alloca- ing Strategy of the Kyrgyz Republic. tion decisions, providing transparent information to both the Kyrgyz public strategy during 2012-2013 based on and potential investors, and consoli- sible approach,” said Minister of widespread input from stakehold- dating site inspections for environ- Economy Temir Sariev. ers. The Government’s approval fol- mental and safety compliance, among lowed months of public discussion many others. Adoption of the strategy signals to investors a positive change in govern- and circulation of the strategy among “The strategy is built on the funda- ment policy while ensuring that profits Kyrgyz ministries and agencies. BGI mental principle that extracting bene- from mining activity are widely distrib- will continue USAID’s support to the fits from developing mineral resources uted, he said. sector and will provide assistance in is possible only by taking a long-term, implementing key components of the The USAID REFORMA Project socially and environmentally respon- strategy. financed the development of the

BGI INITIATES GROUNDBREAKING STUDY OF THE CONSTRUCTION MATERIALS VALUE CHAIN Despite the surge of construction projects throughout the country over the past few years, the composition, competitiveness and growth potential of the Kyrgyz construction materials value chain has never been adequate- ly studied. Consequently, BGI chose the Inter- national Business Council (IBC), with its subcontracting team, the Young Entrepreneurs Association (JIA) and Serep, to work with international con- sultants to undertake a comprehensive Mr. Aktilek Tungatarov, Executive Director of IBC, and Member of Parliament, Mr. Samatbek study of its third selected value chain Ibraev, share their vision for sector development with participants of BGI’s kickoff event for for development assistance. The other assistance to the construction materials sector. BGI value chains are the apparel and tourism sectors. sector. The value chain study began in However, during the discussion Mr. On February 26, the BGI team March, with research results to be pre- Aktilek Tungatarov, Executive Director launched an initial round table discus- sented in July. of IBC, urged participants to consider possible risks that may arise in the de- sion on the Problems and Develop- “To date, growth of the construction velopment of the construction materi- ment Prospects of the Construction materials sector is associated with the als industry, particularly changes that Materials Sector in Kyrgyzstan. BGI construction boom in Kyrgyzstan, and may occur with accession to the Eur- presented the goal of the research, its therefore, the importance of this sec- asian Economic Union. Mr. Tungatarov objectives, principles and methodology tor of the economy should not be un- also highlighted the need to create through with the study will examine the derestimated,” said Samatbek Ibraev, conditions for further development of key value chain players, major manu- MP and member of the Committee for the sector in the Kyrgyz Republic. facturers, characteristics of production Transport, Communications, Architec- and supply chains, and the state of the ture and Construction of the Jogorku Mr.Temirbek Azhykulov, Chairman business environment surrounding the Kenesh. of the Construction Committee of the

The USAID Business Growth Initiative (BGI) Project 7 Young Entrepreneurs Association (JIA) “One of the priorities of this study The USAID BGI Project believes noted that the share of the construc- is to identify the potential for both ex- that it can develop and implement a tion materials industry in Kyrgyzstan’s ports and import substitutions of con- clear and detailed program of activities GDP is 5-7 percent and its share of the struction materials. Kyrgyzstan, with to improve the competitiveness of the country’s industrial production is more its abundance of natural resources in construction materials value chain and than 12 percent. Currently, more than construction materials, has the ability reduce construction costs, both locally 200 business entities are engaged in to increase the contribution of the sec- and throughout Central Asia. The val- the production of construction materi- tor in the development of the economy ue chain study will identify which activi- als and approximately 10,000 people as a whole,” said Timur Gainanov, BGI ties will yield greater results in sector work in the sector. Program Manager for Mining and Con- development when it is completed this struction Materials. summer.

MINISTRY OF TRANSPORT AND COMMUNICATIONS SUBMITS DRAFT OF NEW AIR CODE On March 23, the Ministry of Transport and Communications pre- sented the draft of the new Air Code for Government review, circulation and submission to Parliament. Three days later, the draft was posted to the Kyrgyz Government’s website at http://www.gov.kg/?p=52354 for pub- lic discussion. The new Air Code, developed by a public-private working group under the Civil Aviation Agency (CAA) and Members of the civil aviation community review the provisions of the draft Air Code. supported by BGI’s predecessor proj- ect REFORMA, brings Kyrgyz avia- on December 4, 2014, with partici- the need to adopt the new Air Code to tion legislation in line with the air safe- pation of nearly 60 Kyrgyz aviation journalists and members of the mass ty standards of the International Civil stakeholders, including members of media. Aviation Organization (ICAO). Adop- the Association of Civil Aviation Enter- tion of the new Air Code is considered prises, which has been instrumental It is expected that ministries and the first step in efforts to release Kyr- in promoting initiatives to address the agencies will endorse the draft and gyz airlines from a ban on flights to flight ban. the Prime Minister’s office will submit the European Union. it to Parliament by the end of April. The CAA subsequently organized Stakeholders seek to obtain Parlia- Kyrgyzstan’s existing Air Code was three round tables which solicited 159 mentary approval of the Air Code prior deemed an inadequate foundation for stakeholder comments on the pro- to the summer recess so that its pas- adopting the full package of ICAO visions of the draft Air Code, which rules and regulations governing inter- were further addressed by the drafting sage is not delayed by elections this national aviation safety by the working committee prior to submission to the fall. Upon adoption, BGI intends to group upon the advice of international Government. One of these took place support harmonizing ICAO rules with aviation consultants and Kyrgyz law at the offices of Vecherniy Bishkek, the new Air Code and help build the firm, Kalikova & Associates. where stakeholders discussed the capacity of the CAA to ensure flight The first public discussion of the genesis of the EU flight prohibition, safely by implementing international draft Air Code took place at the CAA the difficulty of removing the ban, and regulatory procedures.

VAT REFORM CONTINUES UNDER BGI

BGI, through subcontractor МF Consulting, continues to support the efforts of the State Tax Service (STS) and the Ministry of Economy in imp- roving Value-Added Tax (VAT) admi- nistration. Following public discussion and approval by line ministries, the Ministry of Economy in January sub- mitted a package of amendments to the Tax Code on VAT to the Govern- ment for review and further submis- sion to the Parliament. The proposed tax amendments are expected to be Fiscal policy experts discuss options for developing a comprehensive Fiscal Policy Concept passed by July 1 of this year. for the next five years

8 The USAID Business Growth Initiative (BGI) Project Proposed legislative changes in- ber of documents required for VAT 2020 and an Action Plan that deter- clude greater STS scrutiny of firms refund will be reduced from seven to mines government policy priorities upon VAT registration to prevent fal- two. New legislation will also allow re- regarding taxes, social contributions sified VAT refund applications. The gional tax offices to make decisions and mandatory non-tax payments amendments streamline VAT crediting for refunds up to 1 million som, from and identifies challenges that must and refund processes to allow consci- the current ceiling of 300,000 som. be overcome to achieve them. In No- entious taxpayers to reduce time and vember 2014 and February 2015, BGI In addition, MF Consulting is pro- effort in claiming VAT overpayments. sponsored off-site meetings of the viding support to the Ministry of Econ- The STS will also replace the highly public-private Methodological Council omy in revising tax legislation in light burdensome procedure of obtaining to discuss reform proposals in fiscal of the upcoming accession to the Eur- VAT paper invoice forms by assigning policy. asian Economic Union (EEU). These electronically generated invoice num- revisions will eliminate potential legal The earlier National Midterm Strat- bers, which will spare taxpayers from controversies by harmonizing indi- egy for Tax Policy covered the period physically coming to the tax office. rect tax administration procedures for 2006-2008, but since adoption of the The USAID REFORMA project pro- trade transactions with EEU member Tax Code in 2009, no such visionary vided assistance to the STS to adapt countries. To familiarize VAT payers documents have been developed in its information systems to issue these with the EEU-mandated legal and pro- the fiscal policy field. The adoption of electronic numbers to VAT payers. cedural changes, BGI supported the the Fiscal Policy Concept for 2015- Overall, the adoption of the pro- conduct of four workshops in Decem- 2020 will help the Government pursue BUSINESS ENVIRONMENT posed changes will significantly re- ber 2014 for 111 large VAT payers. consistent fiscal policy during the next duce taxpayers’ administrative bur- five years. The concept is currently As part of its tax reform program, dens by reducing the number of days being circulated for comment by min- BGI is also supporting the Ministry of they must wait for obtaining VAT re- istries and agencies. Economy in the development of the funds, from 60 to 45 days. The num- draft Fiscal Policy Concept for 2015-

BGI ENHANCES TAX LITERACY THROUGH DECLARATION CAMPAIGN

BGI has continued the public edu- cation campaign initiated by REFOR- MA to improve tax literacy in prepa- ration for the 2016 introduction of universal tax declaration. For the second year, BGI has sponsored the broadcast of REFOR- MA’s animated television commercials and radio announcements that edu- cate citizens on the current reporting requirements for uniform declaration and build awareness of the upcoming universal tax reporting mandate. Beginning February 7 and ending March 31, twelve television channels and three radio stations across the Kyrgyz Republic aired the video and audio ads. BGI’s implementing part- ner, the Chamber of Tax Consultants Ms. Tatiana Kim, Chairperson of the Chamber of Tax Consultants, Mr. Oktyabr Abdykaimov and Mr. Ysabekov Kybanychbek of the Ministry of Economy’s Tax Policy Division discuss (CTC), also published and distributed UTD forms with the business community. informational leaflets and posters and placed banners on popular local web- Jalal-Abad. The CTC subsequently sites during this period. selected candidates attending these BGI’s support of tax declaration seminars to participate in a training- also includes simplifying tax declara- of-trainers program that took place in tion forms and improving the capacity April.These trainers will then deliver of State Tax Service (STS) officials to seminars and provide consulting ser- assist the public in uniform tax report- vices to colleagues and taxpayers in ing. regional tax offices. The CTC conducted a one-day The CTC is also working with the seminar for tax officials on the re- STS and tax policy officials to improve quirements, procedures and forms for and further simplify the declaration processing uniform tax declarations, forms, particularly for first-tme filers beginning in Bishkek on February following adoption of universal decla- ration in 2016. BGI’s animated moderator informs taxpay- 10 and continuing through March in ers of declaration requirements. Osh, Naryn, Cholpon-Ata, Talas, and

The USAID Business Growth Initiative (BGI) Project 9 BGI SEEKS TO IMPROVE WORKER SKILLS THROUGH EDUCATION ALIGNED WITH SECTOR DEMAND Many Kyrgyz firms claim that uni- of apparel and tourism firms, M-Vector versities and vocational schools do has obtained information to determine not adequately prepare workers for the which skills the private sector deems job market, and they must be further most critical to effectively compete in trained at substantial expense to the the market and the degree to which employer. This is particularly burden- educational institutions are able to pro- some for small firms and in sectors that duce future workers with these skills. experience high rates of attrition and M-Vector also conducted interviews seasonality. Insufficient communica- with faculty and administrators to un- tion and a historical lack of partnership derstand what relevant knowledge and between employers and educational skills they impart to future workers and institutions is one reason why this de- where gaps may exist. M-Vector re- ficiency persists. The educational sys- viewed the development programs of tem needs to build skills demanded by international donors to determine in the business community to ensure that what ways their programs target im- Kyrgyz firms can compete in the global proving higher education and vocation- marketplace. Mr. Nail Haibulin, General Director of al skills to meet sector demand. Over- M-Vector, presents preliminary results of the For this reason, BGI launched a all, the study reviewed ways in which survey to assess the demand and supply study of the demand for and the sup- both industry and education stakehold- of skills for the tourism and apparel value chains. ply of workforce skills to support the ers communicate and how to promote apparel and tourism value chains. BGI better alignment of workforce educa- narrow these gaps by strengthening the selected the market research firm, M- tion with the demands of the market. capacities of educational and vocation- Vector, to undertake this study in De- al institutions to meet the skills require- Analysis of the results will enable cember and will present its conclusions ments of value chain firms. In creating BGI to quantify the size and nature of and recommended solutions at stake- this plan, BGI will build on the activities the managerial and workforce skills of other donors that are working to im- holder events in late April. gaps of each value chain. From this prove vocational education targeted to Through surveys and focus groups analysis, BGI will develop a strategy to the apparel and tourism sectors.

GEOLOGICAL MANAGEMENT SYSTEM PROMOTES EFFICIENCY AND TRANSPARENCY BGI’s predecessor project, RE- developing a new electronic module FORMA, implemented a comprehen- that optimizes the work of the licensing sive data management system for the committee and will enable information State Geology Agency that has helped on license holders and licensing de- staff to significantly shorten document cisions to be uploaded directly to the processing times for issuing mining li- Agency’s website at http://geology.kg. censes and generate timely reports on The Agency is now upgrading the web- license activity and tax payments. site on its own after REFORMA pro- vided initial assistance two years ago. “Before this automated system was developed, we spent hours and days Additionally, BGI has been work- in manual calculation of information ing with Agency staff to create a formal on existing or annulled licenses to be student internship program with the able to draft our periodic performance Mining Institute that arose informally reports to the Government. The new during implementation of the data system significantly drove change in management system. On April 2, the the way we work and made us aware Agency organized an open door event that we can be more efficient when for 22 third- and fourth-year students to responding to various requests by cli- familiarize them with the role and the ents,” said Ulan Ryskulov, Deputy Di- mandate of the Agency so they will be rector of the State Geology Agency. better prepared for internship opportu- The Licensing Department of the State nities and future employment. Students Geology Agency demonstrated the To further boost the efficiency, pro- functions of the data base management were introduced to the responsibilities system to students from the Mining Institute. ductivity and transparency of the li- of key departments followed by depart- censing department, BGI and its local mental tours. This activity is a first step performance solutions supported by subcontractor, Education and Career towards strengthening cooperation and Development Fund – Art Pro, is now USAID, has improved the overall im- communication between the Geology age of the agency and increased the helping the Agency to standardize ad- Agency and educational institutions. ministrative processes and the types of transparency of our operations,” said information collected and maintained “The development of the geological Duishenbek Zilaliev, Director of the by the department. The project is also management system, along with other Agency.

10 The USAID Business Growth Initiative (BGI) Project BGI TEAMS WITH GGPAS TO PROMOTE ACHIEVEMENTS IN CAPACITY DEVELOPMENT On December 16, BGI worked with the USAID Good Governance and Public Administration Strengthening (GGPAS) Project to conduct a joint, one-day conference on Improving In- stitutional Efficiency in the Public and Private Sector. The conference highlighted the var- ious Human and Institutional Capacity Development (HICD) methodologies and approaches that have been in- troduced within several Kyrgyz public sector organizations by both GGPAS Mr. Feliks Shapiro, a member of the IT team implementing the data management system at and BGI’s predecessor project, RE- the State Geology Agency, presents REFORMA’s work at the HICD conference. FORMA, and the achievements of the projects to date. development licenses issued by the ing the quality of government services, USAID created the HICD method- Agency. developing human resources manage- ment systems, and managing effective ology specifically for use in its devel- Ms. Nazgul Sydygalieva, Head opment projects around the world. It is communications with stakeholders un- of the Strategic Planning Unit at the a holistic approach that builds the ca- der their HICD programs. HUMAN CAPITAL Ministry of Economy, and IT expert, pacities of implementing institutions as Vlad Tkachov, also delivered a pre- During the afternoon, conference a framework to promote improvements participants worked on case studies in in individual employee performance. sentation that highlighted REFORMA’s implementation of a monitoring and small groups in which they proposed Deputy Director of the State Geol- evaluation system to measure the how to improve both institutional and ogy Agency, Mr. Ulanbek Ryskylov, achievement of the Ministry’s Internal individual performance by employing a and REFORMA’s local consultant, Mr. Development Strategy as part of its range of practical tools for increasing Feliks Shapiro, delivered a presenta- HICD program. capacity. Case study materials were tion on implementing the automated developed by a team of local consul- management system at the Agency. GGPAS’s counterparts and their tants who had implemented projects The presentation focused on how the consultants at the Ministry for Social under REFORMA and GGPAS. The Agency was able to operationalize the Development, the Agency for Local conference was attended by 99 repre- system by implementing a well-devel- Self-Government, the State Tax Ser- sentatives from ministries, agencies, oped process to track the scanning vice and the State Personnel Service associations and local consulting and and input of data on exploration and also made presentations on improv- research companies.

INSTITUTE OF MANAGEMENT CONSULTANTS CONDUCTS FOURTH NATIONAL FORUM Improving the local capacity of management consultants is one of the objectives of the BGI project, which hires local organizations, firms and in- dividual consultants to deliver the ma- jority of technical assistance to coun- terparts. To further this goal, BGI agreed to co-sponsor the Fourth National In- stitute of Management Consultants (IMC) Forum on Developing Profes- sional Standards in Consulting that took place in Bishkek on December 17, 2014. Other sponsors of the event were the European Bank for Recon- struction and Development (EBRD) Ms. Chnara Mamatova, USAID Project Management Specialist, welcomes consultants to the and the Embassy of Switzerland in the IMC’s Fourth Annual Forum. Kyrgyz Republic. national certification, such as Certified Nearly 120 consultants and other At the Forum, local and internation- Management Consultant (CMC), Proj- stakeholders attended the day-long al experts discussed the development ect Management Professional (PMP), Forum, during which IMC announced of professional standards in consulting, Certified Performance Technologist the award of ongoing prizes to those with a focus on ways to obtain inter- (CPT), and others. participants who collected the most

The USAID Business Growth Initiative (BGI) Project 11 likes and tweets on electronic media Almaty, Kazakhstan; and (2) Certified presented work that was done under based on their real-time posts. After- Performance Technologist Certifica- the USAID REFORMA Project. wards, IMC placed a five-minute video tion, delivered by Tanja Georgievska, The following day, BGI also spon- of highlights of the Forum on Face- Leader of BGI’s Human Capital De- sored a discussion seminar on PMP book. velopment Component. The BGI proj- certification, which provided general ect also sponsored its own exhibition BGI sponsored two presentations information about the procedures and stand, as did many IMC member firms at the Forum: (1) Project Management criteria for obtaining the designation. and representatives from other donors Professional and the PMP Chapter BGI continues to work with IMC and and projects. BGI’s exhibit provided in Kazakhstan, delivered by Vladimir helped the association to print its 2015 information about the new project’s Zotolokin from the Potential Chapter Directory of Consultants, which was objectives and first year activities and of the Project Management Institute in published in April.

BGI’S TECHNICAL ASSISTANCE PROJECTS UNDERTAKEN WITH IMPLEMENTING PARTNERS

No. Project Name Implementing Partner Central Asia International Consulting 1 Kyrgyzstan Textile / Apparel Value Chain Study (CAIC)

Assessment of the Supply and Demand for 2 M-Vector Skills Development in the Tourism and Textile Value Chains 3 Approval Process for the Draft New Air Code Kalikova & Associates 4 Introduction of New VAT Administration Procedures MF Consulting, LLC Continued Capacity Development Support to the Education and Career Development Fund 5 State Geology Agency for Geology – ART PRO

Implementation of New Methodologies and Draft Laws Supporting 6 EcoPartner, LLC the State Inspectorate of Ecology and Technical Safety

Promotion of Tax Literacy for the Introduction 7 Chamber of Tax Consultants of Universal Tax Declaration 8 Broadcasting of Video and Audio Commercials for Tax Literacy VZGLYAD.KG, LLC 9 Value Chain Study for the Construction Materials Sector International Business Council (IBC) 10 Consulting on Entering the Russian Retail Apparel Market Fashion Consulting Group 11 Analysis of Leasing Practices in the Kyrgyz Republic To Be Determined Survey And Economic Analysis on Contribution Rates for Social 12 To Be Determined Insurance

USAID BUSINESS GROWTH INITIATIVE (BGI) PROJECT

BGI is a four-year, multi-faceted project that builds and strengthens the competitiveness of Kyrgyz firms and value chains to promote business growth, job creation and economic development. BGI will work with individual firms and sector stakeholders in the apparel, tourism and construction materials value chains to improve their productivity, branding, product offerings, input sourcing, access to markets, quality control, financial man- agement, and other critical components of internationally competitive value chains. The project will expand upon the business enabling environment reforms initiated by the USAID REFORMA Project in VAT administration, licensing, business inspections, mining and civil aviation. Work with government agencies will continue to reinforce reform implementation by strengthening human and institutional capacity (HICD) and monitoring whether key reforms implemented in practice. It will also introduce activities to improve access to long-term finance for small firms. Finally, the project will build stronger relationships between educational and training institutions and value chain firms to improve workforce and management skills.

The USAID Business Growth Initiative (BGI) 15 Razzakov Street, Office 6, Second Floor, Bishkek, 720040, Kyrgyz Republic Tel/Office: +996 312 30 07 37; Fax: +996 312 30 02 18 e-mail: [email protected]

USAID BGI Project