Business environment in Tajikistan: what's new?

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Tajikistan_2Our second IFC report "Business Environment in Tajikistan as seen by Small and Medium Enterprises, 2006" spurred a new law designed to simplify licensing and registration requirements and promote the SME lending market.

So, is everything going well for Tajik SMEs? Unfortunately not. The positive changes highlighted above need to be strengthened and institutionalized. The inspection and licensing law need to be carefully implemented. Despite the reform, many laws exist only on paper. An example: most individual entrepreneurs need to register their business at start-up. Legally this is all they are required to do. Yet in practice, the registration bodies issue certificates with a limited one-year validity, forcing entrepreneurs to reregister every year and pay.

On the SME financing side, although the situation is improving with respect to 2002, there are still huge gaps to fill: only about one third of the SMEs needing funding obtain it from a bank or a microfinance organization. This is, to a great extent, due to unfavorable lending conditions such as an average real interest rate above 30%, loan duration of less than 1 year, and a collateral requirement of more than 100% of the principal amount.

There still are three problematic areas.

First, taxation is too complicated for entrepreneurs with limited accounting skills; the rules are non-transparent. In fact most of the regulations implementing the Tax Code have never been issued.

Second, the permit system is burdensome. It is mostly inherited from the Soviet time and overlaps with other licensing and certification procedures.

Last but not least, foreign trade procedures practically preclude SMEs from engaging in external trade. The DOING BUSINESS 2007 Report confirms this: Tajikistan ranks 163 out of 175 surveyed countries on the ease of trading.

What to do in this context?

First, given the lack of capacity of the government bodies, it would be best to focus on health and safety regulation. Additionally, streamlining and simplifying the overall administrative procedures would reduce the burden for businesses and stimulate economic activity.

Second, strictly linked to the first one, is a need to introduce transparency to the government agencies to fight corruption. Some countries have done so through the so-called “silence in consent” principle, according to which once an application has been officially filed a maximum time limit is defined for its review. During this time, the agencies can formally reject the application or request further documents. In the case of no response, after a set time limit, the application is deemed approved and may be used as an authorization document.

Third, there is a strong need to increase SME legal awareness: a law can only be effective if the citizens know its provisions.

It is a long way to go for the Tajik private sector to develop … but we are hopeful that some positive changes will be seen soon!


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