Crisis as an Opportunity for Reform

Crisis as an Opportunity for Reform

Crisis as an Opportunity for Reform

The FINANCIAL -- Quick reform of business regulations is required by Tajikistan in order to deal with external shocks that are undermining its economic growth prospects, the Asian Development Bank has said. Many legally registered companies are currently facing heavy taxation burdens and irregular tax collection methods that have created opportunities for corruption.

The Central Asian nation’s economy has been hit hard by the recession in Russia, where many Tajik migrants earn money to send back home, and slowdowns in the economies of other major partners such as China.

“Urgent reforms are needed to improve Tajikistan’s economic competitiveness and diversification by unleashing the country’s potential for entrepreneurship and creativity. This may be achieved through creating an enabling environment for businesses, particularly for small and medium-sized enterprises that can provide the bulk of the employment the country needs,” said Chang Ching Yu, ADB Country Director for Tajikistan.

The FINANCIAL met with Chang Ching Yu in Dushanbe, Tajikistan, where ADB hosted reporters from over ten countries.

In 2015, ADB provided USD 60 million to promote reforms to reduce the costs of doing business, strengthen protection of business from misappropriation, and increase innovation and knowledge of external markets. However, businesses continue to face challenges in Tajikistan, and further reforms need to be pursued with greater vigour and pace. “For example, many legally registered companies are currently facing heavy taxation burdens and irregular tax collection methods that have created opportunities for corruption. On the other hand, a large number of businesses are operating underground, without paying taxes. Firms also face challenges in foreign exchange restrictions, high financing costs, and poor power supply during the winter months.”

Q. What is ADB’s general approach to reducing poverty in Central Asia and in particular in Tajikistan?

A. ADB projects are designed to help improve the lives of people and ensure they continue to benefit from development. For example, an ADB-financed road improvement project in Tajikistan enabled about 260,000 residents in the Rasht Valley to access distant markets, increase income, and boosted businesses and agriculture. It helped increase trade in the region, as well as economic growth in the Rasht Valley and Dushanbe, and created a sustainable regional and national road network. Infrastructure, particularly regional infrastructure, is a key component of ADB operations in the landlocked countries in Central Asia. ADB also helps improve business environment by supporting government-led reforms and skills training which help attract more private sector investments and create more jobs. In addition, ADB’s work in improving irrigation and rural infrastructure helps improve the country’s food security and climate adaptation.

Q. How does ADB support women’s activity in business?

A. ADB is firmly committed to promoting gender equality. Empowering women economically and socially and giving them a ‘voice’ is crucial for achieving ADB’s goals of poverty reduction and inclusive development. There are many initiatives in Tajikistan to empower women economically, with most focusing on increasing women’s entrepreneurial activities through business training and, in some cases, small grants. ADB is providing training and grants to assist vulnerable women to launch businesses under two CAREC projects: along the Ayni-to-Uzbekistan border highway (training on business development, financial management, and business plan preparation) and in Tursunzade (training plus 135 conditional grants from USD 1,000 to USD 5,000 for women-led start-ups).

Q. What are the main obstacles for women resulting in their lesser activity in business?

A. Male and female entrepreneurs face many common problems in starting and running businesses, such as access to finance, relatively high taxation, and poor infrastructure. Furthermore, despite an increasing number of women engaged in entrepreneurship, it is still a male-dominated activity. Women entrepreneurs are more disadvantaged by limited access to information and markets, lack of financial literacy and management, education, and cultural norms.

Q. This year ADB’s President has named jobs, poverty reduction, and climate change as the main issues to be solved in the countries of its operation. Do you get sufficient support and willingness from Tajik officials to meet these challenges?

A. ADB has been privileged to partner with Tajikistan in reducing poverty and achieving inclusive and sustainable growth since 1998. Our partnership has become stronger and more fruitful. The Tajik Government has always provided full support to ADB’s operations in the country and ADB’s portfolio in Tajikistan is one of the best across ADB. The Government recognizes the importance of creating domestic higher-paying jobs. The National Development Strategy 2016-2030 includes creation of productive employment as a key strategic goal. Tajikistan is one of the most vulnerable countries in the world to climate change, and building climate resilience, together with food security, is one of the three thrusts of ADB’s new country partnership strategy covering 2016-2020 (in addition to infrastructure and investment climate improvements).

Q. When did ADB issue the largest sum of investments in Tajikistan?

A. Currently, ADB is the largest multilateral development partner in Tajikistan with a total approved assistance of over USD 1.4 billion in loans, technical assistance, and grants. ADB’s annual approval for Tajikistan reached an all-time high in 2013 with a total approval of USD 249.3 million, all in grants.

Q. There are some countries among the post-Soviet states which have managed to overcome poverty and get quite satisfying economic results. There are also countries which are characterized by a high poverty level. Regardless of natural resources, what is the key aspect for achieving economic activity?

A. I have been living and working in Tajikistan for the past four years and have witnessed the progress and challenges the country faces. Tajikistan has many unique competitive advantages including hydropower, mining, agribusiness, and ecotourism, just to name a few obvious ones. The country has achieved extensive economic growth since 1997, averaging more than 7% per year. To maintain sustainable growth rates in a turbulent external environment, Tajikistan needs to ignite new “growth engines”, increase private investments, absorb excessive labour forces, and diversify exports. Other challenges are related to its land-locked location and regional geopolitics, resulting in limited transport connectivity and acute winter energy deficit. ADB will continue working with the Government and people of Tajikistan and other development partners to build a prosperous and progressive Tajikistan. We strongly believe in Tajikistan’s bright future and stand ready to continue assisting Tajikistan in unlocking the country’s potential. The key to achieve all these is to carry out far-reaching reforms to create a favourable business environment. Some countries in the region, for example Georgia, have accumulated a lot of experience in this area which may be useful for other countries. There is scope for mutual experience-sharing among ADB’s developing member countries that ADB will continue to support.