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Report No: ACS8834 Central Asia Mining Sector Work in Central Asia Public Disclosure Authorized Increasing Domestic Procurement by the Mining Sector in Central Asia May 2014 SEGOM EUROPE AND CENTRAL ASIA Public Disclosure Authorized Standard Disclaimer: Public Disclosure Authorized This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H - Page 2 – Final REPORT: Increasing Domestic Procurement by the Mining Industry in Central Asia, 2014 Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. - Page 3 – Final REPORT: Increasing Domestic Procurement by the Mining Industry in Central Asia, 2014 Increasing Domestic Procurement by the Mining Industry in Central Asia Prepared for the World Bank May 2014 Ana Maria Esteves Vera Ogorodnikova Cyrille Putz Bruce Coyne - Page 4 – Final REPORT: Increasing Domestic Procurement by the Mining Industry in Central Asia, 2014 Table of Contents 1. INTRODUCTION .............................................................................................................................. 6 2. APPROACH ..................................................................................................................................... 6 3. GLOBAL TREND REVIEW .................................................................................................................. 8 3.1 FRAMING DOMESTIC PROCUREMENT: DEFINITIONS AND SCOPE .................................................................. 8 3.2 DOMESTIC PROCUREMENT IN THE CONTEXT OF TOTAL MINING INDUSTRY CONTRIBUTIONS TO HOST NATIONS .... 10 3.3 TRENDS IN DOMESTIC PROCUREMENT POLICIES ADOPTED BY GOVERNMENTS ............................................... 11 3.3.1 Requirements for minimum domestic procurement targets .................................................. 12 3.3.2 Requirements for companies to produce domestic procurement plans ................................ 14 3.3.3 Requirements that give preference to locals without specifying targets............................... 15 3.3.4 Requirements to build local enterprise .................................................................................. 16 3.3.5 Government-led initiatives with voluntary industry participation ......................................... 16 3.3.6 Concessions on import tariffs and duties ............................................................................... 17 3.4 TRENDS IN INDUSTRY ‘GOOD PRACTICES’ .............................................................................................. 17 3.5 DOMESTIC PROCUREMENT INITIATIVES: BEST PRACTICE .......................................................................... 22 3.5.1 Linkage programs and the role of partnerships ..................................................................... 22 3.6 CLUSTERS AND CLUSTER INITIATIVES ................................................................................................... 23 3.7 TIMING OF DOMESTIC & LOCAL PROCUREMENT INITIATIVES .................................................................... 26 3.8 MONITORING OF DOMESTIC PROCUREMENT INITIATIVES ......................................................................... 27 4. KAZAKHSTAN, KYRGYZSTAN AND TAJIKISTAN: NATIONAL DEVELOPMENT PRIORITIES AND MINING ................................................................................................................................................. 29 4.1 OVERVIEW OF THE MINING SECTOR AND ITS CONTRIBUTION TO NATIONAL ECONOMIES ................................. 29 4.1.1 Kazakhstan ............................................................................................................................. 32 4.1.2 Kyrgyzstan .............................................................................................................................. 34 4.1.3 Tajikistan ................................................................................................................................ 38 4.2 MINING SECTOR INVESTMENT CLIMATE, REGULATION AND INSTITUTIONS .................................................. 41 4.2.1 Kazakhstan ............................................................................................................................. 42 4.2.2 Kyrgyzstan .............................................................................................................................. 46 4.2.3 Tajikistan ................................................................................................................................ 49 5. INDUSTRIAL AND SME DEVELOPMENT ......................................................................................... 52 5.1 KAZAKHSTAN .................................................................................................................................. 56 5.1.1 Industrial Development .......................................................................................................... 56 5.1.2 SME Development .................................................................................................................. 57 5.2 KYRGYZSTAN .................................................................................................................................. 60 5.2.1 Industrial development .......................................................................................................... 60 5.2.2 SME Development .................................................................................................................. 62 5.3 TAJIKISTAN..................................................................................................................................... 64 5.3.1 Industrial Development .......................................................................................................... 64 5.3.2 SME Development .................................................................................................................. 65 6. DOMESTIC PROCUREMENT POLICIES AND REGULATION .............................................................. 68 6.1 GOVERNMENT REGULATION AND GOVERNMENT-LED INITIATIVES .............................................................. 68 6.1.1 Kazakhstan ............................................................................................................................. 68 6.1.2 Kyrgyzstan .............................................................................................................................. 74 6.1.3 Tajikistan ................................................................................................................................ 76 7. DOMESTIC PROCUREMENT PRACTICE ........................................................................................... 78 7.1 KAZAKHSTAN CASE STUDIES .............................................................................................................. 78 7.1.1 Demand Analysis.................................................................................................................... 80 7.1.2 Barriers to Increasing Domestic Procurement ....................................................................... 81 7.1.3 Opportunities for Increased Domestic Procurement .............................................................. 83 7.1.4 Opportunities to Diversify Economy through Mining Supply Chains ..................................... 88 - Page 5 – Final REPORT: Increasing Domestic Procurement by the Mining Industry in Central Asia, 2014 7.2 KYRGYZSTAN CASE STUDY ................................................................................................................. 89 7.2.1 Demand Analysis.................................................................................................................... 93 7.2.2 Barriers to Increasing Domestic Procurement ....................................................................... 98 7.2.3 Opportunities for Increased Domestic Procurement ............................................................ 100 7.2.4 Opportunities to Diversify Economy through Mining Supply Chains ................................... 103 7.3 TAJIKISTAN DOMESTIC PROCUREMENT PRACTICES ..............................................................................