Will the New Initiatives of the Cabinet of Ministers Boost Small and Medium Business in Uzbekistan?

The September 11 events in the United States have put everything else to the background. Today, critical military and political situation in Central Asia, as well as Uzbekistan's participation in the anti-terrorist coalition are the focal point of the media reports. Meanwhile, during the summer months and the month of September Uzbekistan was further turning toward stimulating small and medium business seeing it as the pledge of the country's economic development.

Several resolutions that the government of Uzbekistan has passed over the past few months are aimed at stimulating the development of small enterprise. For instance, the resolution issued on 22 August 2001 provides for such a change in the registration procedure that should considerably ease the process of setting up new enterprises (1). In particular, the resolution provides for the registration of the new entities "through one window", i. e., it eliminates the need to spend many days on going from one office to another obtaining permissions to operate. Besides, the timeframe for the state registration has been significantly reduced: it should not exceed 12 business days for legal entities and 8 business days for individual entrepreneurs and peasant farms (farming units).

Following this resolution the Cabinet of Ministers issued another two resolutions in September directly related to the small and medium business: "On additional measures concerning financing, material and technical supply, customs privileges, banking and other services rendered for small enterprises, peasant farms and farming units"; and "On the implementation of the micro-credit program carried out together with the European Bank for Reconstruction and Development" (2). The first resolution obliges the GosKomImushchestvo [GKI - State Privatization Committee], the Chamber of Producers and Entrepreneurs, the Association of Peasant Farms and Farming Units, the Private Enterprise Support Fund and commercial banks to provide "comprehensive support to newly created small businesses, farming units and peasant farms in forming their start up capital" (3).

The first of the two resolutions has been fortified by the decision about financing channels for small and medium business. Thus, not less than 50 percent per annum of the credit resources of the "Business Fund" and the Peasant Farms and Farming Units Support Fund shall be diverted for opening target credit lines in commercial banks for creating start up capitals of micro-firms, small enterprises, peasant farms and farming units. The provision and repayment of credits shall be made with substantial privileges for newly created enterprises and farms. Income tax rate for the "Business Fund" and the Peasant Farms and Farming Units Support Fund has been reduced by 50 percent, and the resources that thus become available shall be used to provide financial support to small and medium business.

The second resolution covers the procedure of implementing a pilot micro-credit program for small enterprises, which is being carried out through the EBRD's technical assistance. EBRD's first tranch is US$20 million, and the primary funding purposes have been determined to be: (1) the development of small industries processing domestic raw materials and agricultural produce; (2) creating additional jobs; (3) supporting the development of small business in labor excessive regions, as well as home-based labor of unemployed women (4). The size of micro-credits should not exceed [the equivalent of] US$5,000 per one borrower (in the national currency of Uzbekistan). Another important aspect is that micro-credits could be obtained in cash, because this particular problem has always been the most critical for small business.

These resolutions were preceded by a number of other events, the most important of which was the address of the President Islam Karimov at the Cabinet meeting in July 2001. Summarizing the results of the progress Uzbekistan made over the first six months of the year 2001, the president emphasized the issues related to the development of small and medium business. Having noted that providing jobs to the growing population of Uzbekistan is one of the highest priorities of the economic development, Islam Karimov said that "The most effective way to solve this problem is the forestalling growth of the number of small and medium enterprises and the utmost stimulating of private enterprise". The reason for this is that "the majority of the country's population lives in the rural area. Given their rate of return and profitability, we cannot install large industrial complexes in the villages"(5). At the end of his address President Karimov said: "Summarizing the above we arrive at the only conclusion: small and medium business and private enterprise shall become not only the key element in building the country's gross domestic product, but also the most important factor in terms of employment and source of income for the population, the means for securing the nation's welfare"(6).

It should be noted that the issue of developing small and medium business has been discussed in Uzbekistan since the very first days of the country's independence. And this is not the first time when the problems obstructing the development of small and medium business are raised and discussed. The analysis performed by the experts from the Chamber of Producers in 2000 showed that 70 percent of SMEs were not operational due to insufficient financial resources - both in assets and in working capital (7). According to the experts another major problem hindering the development of small and medium business has always been excessive bureaucracy in the procedure of registering an enterprise, as well as a huge number of unfounded checkings of the entrepreneurs' activity.

Thus, the resolutions issued by the Cabinet of Ministers of Uzbekistan over the past few months and the address made by President Karimov are aimed at removing obstacles impeding the development of small and medium enterprise, streamlining the procedure of registering small and medium size enterprises and organizations, as well as providing financial aid (in the form of micro-credits) for their coming-to-be. At the same time it is obvious that any - even the most progressive - reform in Uzbekistan has always been opposed by the strong army of nomenclature which so far has successfully blocked any change it could not benefit from or ruined the possibilities for real reform by drowning them in the huge mass of extra procedures. Therefore it may turn out that the recent government resolutions concerning the development of small and medium business will again get bogged down in bureaucracy which the top authorities have not been able to get rid of - for want of either strength or will. Clearly, any reform should be supported by measures anticipating the responsibility of the government officials on all levels for failed or inadequate execution of laws and decrees. Only in this case one can hope to see successful reforms.

Footnotes
(1) "Narodnoe slovo", 23 August, 2001.
(2) "Narodnoe slovo", 11 September, 2001.
(3) Ibid.
(4) Ibid.
(5) "Narodnoe slovo", 18 July, 2001.
(6) Ibid.
(7) "Business-Vestnik Vostoka", 16 February, 2000.