Supporting the Kyrgyz Government and Kyrgyz partners in their efforts to develop the private sector and to create jobs is a priority of the Kyrgyz-Swiss cooperation. Switzerland, together with the World Bank and the EBRD, has been supporting several programs to expand access of small and medium-sized enterprises (SMEs) to finance, Veronique Hulmann, Ambassador of Switzerland to Kyrgyzstan, said at the investment forum held by the European Bank for Reconstruction and Development (EBRD) on May 31.
According to the Head of the Cooperation Section of the European Union Delegation to the Kyrgyz Republic Charlotte Adriaen, the issue of SMEs’ access to financing is acute in Kyrgyzstan.
The EU has increased investment in private sector development in cooperation with its partners, and the EBRD is the main one, Adriaen said. The point is not only in financing but also in support from the state through consulting and technical regulation. Business indicators are growing thanks to the help of donors and financial institutions, and the EBRD has very rich experience in this area.
According to Neil McCain, EBRD Director for Central Asia, about half of Kyrgyzstan’s SMEs have difficulties in gaining access to finance.
To date, the EBRD has invested over US$ 825 million in the economy of the Kyrgyz Republic, with a majority of investments supporting private entrepreneurship.
The current portfolio of the EBRD projects in Kyrgyzstan is 176 million euros, including 71 active portfolio projects. Of these, 5% of projects are in the energy sector, 24% — in financial institutions and 18% — in industry, trade and the agricultural sector. The share of projects in the private sector is almost 53%.
Kyrgyzstan’s Government, together with the EBRD, has carried out significant work on the entrepreneurship development in the country, an important outcome of which is the creation of the Business Ombudsman institution to protect entrepreneurship, Kyrgyz Deputy Prime Minister Zamirbek Askarov said. The EBRD supports the activities of the Business Development and Investment Council under the Government, which is an effective platform for public-private partnership.
“We highly appreciate the bank’s investments through direct participation in the companies’ capital. This is an important tool of trust, allowing direct investing in businesses without collateral. We welcome the bank’s efforts to upgrade the infrastructure of settlements in the regions including modernization of engineering communications networks — heat and water supply and sewage,” Askarov said.
The forum hosted the ceremony of awarding the best practices in investing SMEs projects, as well as plenary discussions on the cooperation of various institutions to finance and support SMEs.
Several banks operating in Kyrgyzstan were awarded with diplomas as well Director General of the Kaindy Kant sugar factory, Alexander Shalyuta. In cooperation with the EBRD, the plant has increased production by 40% over the past four years.
The bank provided the company with highly qualified specialists who helped to set up production and reduce production costs, the Director-General told local media. Thanks to a €600 thousand loan, Kaindy-Kant acquired new equipment. In addition, the plant received a $166 thousand grant from the bank to support production.
The State pays special attention to the SMEs development as part of regional development in Kyrgyzstan, said President Sooronbai Jeenbekov, who declared 2019 the Year of Regional Development and Digitalization of the Country.
According to the President, favorable conditions for entrepreneurship development have been created in the regions. Financial, credit, budgetary policy is focused on the regions, and special attention is paid to the creation of new jobs.
A moratorium on unreasonable business inspections has been introduced. New enterprises are exempt from checking for three years. For enterprises engaged in processing of agricultural products, the VAT was reduced by 80%. To raise the export potential, new certification and standardization laboratories are being built, and the old ones have been repaired.
Export-oriented enterprises and enterprises for processing, energy and assembly production are exempt from income tax, sales, property and land taxes from five to ten years. Entrepreneurs importing technological equipment are exempt from customs duties.
A simplified tax regime was introduced for machine and tractor stations, trade and logistics centers and agricultural cooperatives.
To support new enterprises in the regions, the Russian-Kyrgyz Development Fund reduced the direct funding threshold from $1 million to $200,000. More than half of the Fund’s loans are directed to the processing industry and agro-industrial sector.
Under the Agriculture Financing program, 11 commercial banks issued over 11 thousand agricultural loans totaling 5.5 billion soms. The loan rate for crop and livestock production is 10% per annum, for processing — 6%, and for horticulture and livestock — 8% per annum.
The system of state support for SMEs could be more effective when applying a phased approach in a gradual rejection of over-regulation of the SMEs activities at all levels, experts believe. To improve the tax policy, experts advise to create more incentives for the SMEs development.
According to local business associations, lack of finance is the main problem of SMEs in Kyrgyzstan. The banking system is developed in the country, but interest rates are very high, especially for entrepreneurship. As a result, SMEs have no opportunity to attract long cheap money.
In developed countries, the share of SMEs in the economy is 50-70%. In Kyrgyzstan, it is about 40% of GDP, providing solid revenues to the budget and permanent jobs for tens of thousands of citizens.
To increase the share of SMEs in the service sector, a steady increase in the standard of living of the population and an increase in its effective demand is needed.
“For any sector to develop, it needs buyers who have money. If people do not have money, entrepreneurs have no sales, and this hinders the sector’s development,” head of the JIA business association Temirbek Ajykulov said.
In the regions, it is difficult for SMEs to interact with local authorities due to the lack of mutual understanding. The problem is that the regional officials either have a negative attitude towards the business or use strict administration policy towards the business.
Capacity building is also a problem of many businesspeople. They have to improve their knowledge and skills to be able to competently manage capital and properly organize business processes. For this, they should constantly learn attending various pieces of training, courses, and seminars.
