BISHKEK (TCA) — Conflicts between investors and the local population are the result of poor interaction between the relevant state bodies and local authorities, as well as the lack of outreach with the population. “This significantly reduces the opportunities for attracting foreign investors,” President of Kyrgyzstan Sooronbai Jeenbekov said at the conference “National Dialogue on Regional Development” held on February 27-28 in Bishkek.
“You are hindering the investors’ work at the initial stage, hoping to get some benefits from them. Instead of creating conditions for those who want to work, you, on the contrary, strive to kick them up,” the President said, addressing the regional leaders.
The President informed on measures to create a favorable business environment in the regions and the problems faced by businesses and investors. These include increased internal migration, unemployment, lack of clean drinking water, inefficient work of officials, and deep-rooted corruption.
The forum was attended by leaders of all government branches, business representatives, experts and donor organizations.
The participants developed recommendations to improve the business environment and investment climate in the regions, including the involvement of civil society in public control over the implementation of national regional policy.
“Corruption has taken roots in our country much deeper than we expected. Many facts [of corruption] have already been revealed, and more will be revealed in the near future. Without cleansing society from corruption, we will not be able to pull the country out of the economic swamp,” the President said.
The fight against corruption will only be effective when it is supported by the people. To this end, a law has entered into force providing protection for the citizens who would inform on acts of corruption.
The President urged local authorities not to be passive as observers but to provide comprehensive assistance to businesses.
Connecting to the engineering infrastructure is among the major obstacles to businesses in the regions. There were cases when entrepreneurs were forced to go through the procedures of approval and obtaining permission for more than a year or two which significantly increased their expenses.
Due to the lack of approved master plans for settlements, it is almost impossible to allocate production zones for the creation of new enterprises and expansion of the existing ones.
The head of state stressed the complexity of the procedures for submitting permits for construction. Excessive bureaucracy generates local corruption. There are too many obstacles for investors and businesspeople to obtain permits from architectural institutions and power grids, President Jeenbekov stressed.
The lack of an industrial development program creates obstacles for locating production in the regions and attracting investments. There are no exact criteria for the selection of investment projects of entrepreneurs in the regions, their priority and financing.
The Government and local authorities should immediately begin to address these issues, the President concluded.
About 24 percent of the country’s economy is in the shadow, Prime Minister Mukhammedkaly Abylgaziyev said at the conference. Each year, due to the shadow economy, the state budget does not receive about 40 billion soms of taxes.
If at least 20 billion soms are removed from the shadow economy, then the problem of the lack of schools, kindergartens and the renewal of road infrastructure could be solved in three years, he added.
Support for business
According to President Jeenbekov, the State has fulfilled many tasks aimed at creating a favorable environment for business development in the regions.
To reduce unreasonable business inspections, a moratorium on inspections by state regulatory authorities was imposed for two years. New enterprises were exempted from inspections for three years.
To stimulate the priority sectors of the economy, changes were made to the tax legislation. Local enterprises processing agricultural products were granted an 80% VAT exemption. Trade and logistics centers and agricultural cooperatives were provided with benefits on income tax, VAT and property tax.
Industrial enterprises established in subsidized areas are exempt from income tax, sales tax, land and property tax for a period from five to ten years.
Importers of technological equipment are exempt from customs duties.
The Government has adopted a Resolution reducing the social tax from 27% to 12% for enterprises of the garment industry, and it is now necessary to adopt a special law.
A business ombudsman institution will be created to protect the interests of entrepreneurs.
Funds from international financial organizations and the national budget were attracted to develop the regional infrastructure.
Last year, RSK Bank, Aiyl (Agricultural) Bank, and Russian-Kyrgyz Development Fund with the support of the State Guarantee Fund provided loans and guarantees worth 25 billion soms.
To increase the number of new enterprises, the Russian-Kyrgyz Development Fund has reduced the direct funding threshold from $1 million to $200 thousand. As a result, last year, the number of projects financed through the Fund in the regions was increased six-fold. More than 50% of that money was allocated to the processing industry.
Many people in the regions complained that they could not obtain loans due to the lack of collateral. In 2016, the State Guarantee Fund was established to help them solve this problem.
The use of modern IT technologies is a priority in the development of regions, the President said. Digitizing state services will eliminate corruption.
The population was forced to visit many offices to obtain various certificates or other documents. This practice should remain in the past.
“The necessary information should be found by the officials, but not the citizens. The human factor in the provision of services will be eliminated,” the President added.
He stressed the need to carry out large-scale work to explain to the general population, especially in rural areas, the advantages of using new technologies.
Support from commercial banks
President Jeenbekov advised the National Bank of Kyrgyzstan to offer incentives to commercial banks to finance regional projects.
Through the introduction of digital technologies, it is necessary to provide cheap loans in a short time without bureaucratic delays.
“The provision of services by commercial banks is very weak in the regions. If commercial banks in each region support one large project, the number of enterprises will increase,” the President said.
Regional development coordination
To coordinate the consistent development of the regions, Jeenbekov advised to identify a single state body. There are more than a hundred legal acts regulating the activities of local authorities. In fact, local leaders do not know these regulations well, and do not always use them.
If the work on coordinating the regional development is entrusted to a single state body, the legislative framework would improve faster. Help from donors is also needed.
“I think the time has come to develop and adopt a code on local self-government,” Jeenbekov stressed.
A well-known entrepreneur Jumadyl Egemberdiev suggested to get rid of inactive and initiative-free heads of the regions.
“If heads of regions and provinces are elected by the local population, you will see a real picture in the regions,” he addressed the President. “Local governors submit you beautiful reports, but they do not work in fact,” Egemberdiev added.
Last year was declared by the President as the Year of Regional Development. However, it is impossible to achieve significant results over one year, and this work requires much more time. Kyrgyzstan is an agrarian country in which 70% of the population lives in rural areas, but in the regions agricultural cooperation is still in its infancy. To make the regions strong, it is necessary to develop agricultural cooperatives that would help create new jobs and produce competitive goods.
The President proposed a strong economic incentive for business development in the regions — 70% of the income tax paid by companies operating in the region should remain there. Thus, the local authorities will be interested in creating additional jobs, expanding or creating new enterprises, attracting investors and protecting their interests to avoid conflicts with the local population.