Annex L: SUMMARY OF CPF CONSULTATIONS
CPF consultations were held in ten of Uzbekistan’s twelve oblasts and the city of Tashkent
during October 13-23, 2015 and online consultations took place from October 6 to November 3, 2015.
Participants included representative of civil society, non-governmental organizations (NGOs), the
private sector, project beneficiaries, and regional and local governments. They all expressed
appreciation for WBG support and displayed keen interest in sharing their views on the proposed CPF
and program. The most important issues discussed were as follows:
Uzbekistan has achieved good results in economic development, but job creation is vitally
important to sustain growth and address the needs of the poorest segments of the population.
Participants expressed strong support for the CPF’s principal objective―to help the
government create new productive jobs through private sector development and
modernization of the agricultural system. However, some concerns were voiced about the
feasibility of creating such a large number of jobs (500,000 annually), especially in labor-
intensive industries. Participants shared specific proposals on the need for a study about
matching demand for and supply of labor, and about job retention practices, vocational
training centers, and training programs for new professions especially those related to the
latest technologies.
Participants agreed about the potential of agriculture and agro-processing to create jobs
through investments in value chains and diversification. They confirmed that there was
significant untapped potential in fruit, vegetables, and livestock development that could
generate growth and employment. There was a need to accelerate the transformation of
agriculture to fully capture this potential by promoting more efficient production of cotton
and wheat, i.e. higher yields, and by allocating more land and water to new alternative crops
and livestock.
Private sector representatives recognized several positive changes in the investment climate.
Participants were nearly unanimous in feeling that Uzbekistan has the potential to be an
excellent market – the population size, young age, location, and natural resources were all
cited as long term drivers of competitiveness. However an attractive market with a largely
manageable investment climate is being undermined by fiscal and monetary policies. There
was a remarkable level of consistency is the feedback from private firms – both in terms of
the market potential of the country as well as in the constraints that are limiting greater
investment. Firms generally feel that the investment climate is improving over time and there
is government commitment to continuing such reforms, but that the real constraints to growth
are in the areas of (i) currency controls and convertibility; and (ii) fiscal policies that do not
incentivize firm growth and rather lead to a high degree of informal employment. The private
sector would like to see policies put in place that incentivize long term firm growth from
small to mid to larger size firms as well as incentivizing formal employment.
Given the large range of private companies and sectors represented in the consultations
throughout the country, there were many issues raised as limitations to greater investment
and job creation. However, the following three issues were coming up in nearly all of the
consultations:
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a) Convertibility and cash management are the leading obstacles to increasing private
investment. The biggest issue by far that was raised in consultations is currency
convertibility and multiple exchange rates. The limitations on convertibility give rise
to multiple exchange rates and erode competitiveness. Lack of convertibility is the
critical issue for foreign investors servicing the domestic market due to inability to pay
dividends. Two of the largest employers in Uzbekistan, both owned by foreign
shareholders, said that this policy has led them to suspend all new investment, despite
seeing profitable investments that they would otherwise be making.
b)
Tax issues are at the core of competitiveness and job creation. Most of the participants
acknowledged progress by the government in improving both tax administration and
tax policy. Key reforms cited included the automation of filing and the reduction in the
unified social payment (from 25% to 15% for the employer contribution). However,
the structure of the tax system remains highly skewed toward businesses operating
under a simplified regime rather than a general regime, which affects growth and hiring
as well as limiting the utility of instruments such as VAT.
c)
Despite progress, some investment climate issues are still problematic. The issue of the
regulatory burden came up in most discussions, although usually as a ‘nice to improve’
rather than a binding limitation. Firms recognize the improvements in the investment
climate and feel that the momentum on e-governance will continue to lead to
improvements.
Rural entrepreneurs also mentioned poor infrastructure, insufficient warehouse and cold
storage capacity, irregular electricity supply, as well as poor extension services.
Representatives of international NGOs actively involved in online consultations urged the
WBG to focus on reforms that would ensure agriculture contributed to the overall
development of the country, rather than benefitting only a few vested interests. They also
requested that WBG financing be provided only when the government was fully committed
to eliminating risks of forced labor and when a monitoring system was in place.
The above feedback contributed to the selection of strategic focus areas for WBG engagement and the
CPF’s specific objectives.
