Dialogue with business, occurring at various levels of government, helps to define and adjust economic policy in an optimal way, promoting the combination of business interests with the interests of society and the state, which is an important factor in the dynamic development of the economy.
An important format of interaction in the course of reforms in Uzbekistan in recent years has been the public Dialogue of the President with entrepreneurs. The first such Dialogue was organized on August 20, 2021, and this day, at the suggestion of the Head of State, became the annual Day of Entrepreneurs.
Over the past years, this format has proven its high effectiveness as an effective tool for improving economic policy. It is thanks to this dialogue that important steps have been taken both in improving regulatory relations and in developing business itself.
Business Development in the Dynamics of the Last Year
The effectiveness of such a mechanism as the Dialogue between the Head of State and entrepreneurs is evidenced by the dynamic and qualitative development of entrepreneurship over the past year, since it was the decisions taken during previous dialogues that provided the necessary conditions for this.
This year alone, the turnover of entrepreneurs increased by 25% compared to last year. Medium and large enterprises developed especially dynamically, the number of which doubled compared to last year. The number of medium-sized enterprises reached 14.5 thousand, and large enterprises – 2200. The number of enterprises employing more than 100 people reached 3 thousand.
If earlier, due to various problems, the activities of 60% of new entrepreneurs ceased in the first year, now the share of enterprises operating for more than three years is 76%, and for the first time reached 300 thousand. This also applies to 100 thousand individual entrepreneurs. Over the year, the number of jobs increased by 440 thousand, which is a significant contribution to solving the problem of unemployment and improving living standards.
There is also a significant improvement in the quality of business: the number of enterprises that received high marks “A” and “B” in the entrepreneurial rating increased by 91 thousand. At the same time, 170 thousand enterprises were able to overcome the lowest category “D”, which indicates their successful development and increased efficiency.
Decisions Made During the Fourth Dialogue
Let’s take a closer look at the decisions that were made as a result of the recent fourth Dialogue between the President and entrepreneurs. This Dialogue took place on August 20th in the city of Nukus, Republic of Karakalpakstan, and was attended by 300 entrepreneurs and investors from all regions. Additionally, 3,000 business representatives participated via video link from regional studios. During the Dialogue, the Head of State announced new initiatives across five key areas.
Increasing Financial Resources for Small and Medium-Sized Businesses. Given that all banks and microfinance organizations will be able to participate in supporting small and medium-sized businesses, the size of microloans will be tripled. The collateral requirement for a significant portion of the loan will be removed, which will significantly simplify the process of obtaining microloans for aspiring entrepreneurs. The establishment of microfinance banks will become possible. These banks will be focused on supporting small and medium-sized businesses. Microfinance organizations will be allowed to provide services to entrepreneurs in foreign currency and operate as payment organizations based on a license.
Factoring organizations will also be able to serve clients in foreign currency. Factoring will allow entrepreneurs to receive financing by selling their accounts receivable, which is particularly relevant for businesses that operate with deferred payment terms. As a result, additional financial resources are expected to become available to support working capital and export-oriented enterprises. A law on Islamic finance will be developed, enabling the provision of new financial services and contributing to an influx of investments, potentially creating an additional $5 billion in resources.
The practice of transferring state-raised funds to large enterprises will be phased out. The provision of such funds will be reduced by at least 40% within 2 years. As a result, banks will direct significant financial resources toward the private sector.
Providing Businesses with Infrastructure, Land, and Energy. Two thousand appeals received during the open dialogue were related to land and infrastructure. To stimulate business investment and reduce the financial burden on entrepreneurs, it has been decided to abolish the VAT on land purchases at auctions. In Tashkent and regional centers, payment for acquired land will be allowed in installments for up to three years. In other regions, the installment period will be up to five years, and for districts in the 4th and 5th categories, it will be up to 10 years.
From January 1, 2025, Uzbekistan will implement a unified classifier of land plots and capital construction objects. This classifier will clearly define for each land plot which types of activities can replace the main activity and which auxiliary structures can be placed, allowing entrepreneurs to use their land more efficiently. When allocating new land, deadlines from building design to project completion will be mandatory.
Restrictions on electricity and natural gas for industrial enterprises will be eased. The base tariff will remain even if electricity and gas consumption exceed the limit by 20%. Additionally, utility payments will not be suspended even in the presence of collection issues. This means that even in the face of financial difficulties, businesses will be able to continue their operations.
Competitive Environment and Access to Foreign Markets. Exclusive rights in the metallurgical, chemical, energy, and telecommunications sectors have already been abolished. Now, price priority for products purchased for production will be removed from corporate procurement. Both state-owned strategic enterprises and private enterprises, as well as foreign investors, will operate under equal economic conditions. The process of joining the World Trade Organization will continue. The private sector will be involved in the management of regional electricity grids.
An increase in the share of domestic products in public procurement will be encouraged. By the end of the year, entrepreneurs will be given access to 300 deposits and sites for development. To cover the need for sand and gravel, 172 deposits with reserves of 110 million cubic meters will also be allocated.
A decision has been made to allocate $200 million from funds intended for the development of industries to pre-export financing. Of these, $50 million will be provided as guarantees for bank loans. Thanks to these funds, an additional $1 billion worth of products will be exported within a year.
The “E-logistics” platform for cargo transportation will be launched, which will allow exporters to conclude direct contracts. From now on, an electronic certificate from the customs authority confirming export will be the basis for VAT refunds, and other unnecessary documents will not be required.
Cooperation between exporting enterprises and our compatriots with extensive experience in doing business abroad will be expanded.They will act as “trade and investment advisors,” providing consultations, helping to establish contacts, and assisting in the implementation of joint projects.
A New Impetus for the Service Sector. The creation of a comprehensive ecosystem to support startup projects was announced. One of the key elements of the new ecosystem will be the establishment of venture capital funds. The state will also provide a resource of one dollar for every dollar of investment that a startup attracts from abroad. Expenses such as patenting startup developments and registering trademarks will be covered by the state. $50 million will be allocated to finance projects in this area. A program will be developed to expand the participation of local enterprises in the service maintenance of large enterprises.
From October 1, 2024, hotels and tour operators will be able to receive 20% of the VAT they paid back in the form of a “cashback,” and from January 1, 2025, catering establishments will join them. The income tax for restaurants and cafes that have switched to paying this tax will be halved.
In addition, from December 1, restaurants and cafes will be able to purchase agricultural products for cash and hire employees on short-term employment contracts. The functions of consulting centers will be fully transferred to the private sector.
Reducing Barriers and Obstacles for Businesses. To eliminate barriers to entrepreneurship, a register of criteria that pose a real threat to the life and health of the population will be developed. Officials who suspend the activities of an entrepreneur based on a criterion not included in the register will be held accountable.
A decision has been made to double the amount of unpaid taxes that can serve as a basis for initiating a criminal case against an entrepreneur. If the outstanding debt is less than 15% of the collateral value, recovery will not be directed at the property. Currently, this threshold is 300 times the basic calculated value.
Conclusion
In conclusion, it is appropriate to examine how decisions made during the dialogue process, that is, taking into account the opinions and needs of businesses, are reflected in the regulation of entrepreneurial activity and what this provides for business and the economy as a whole.
Thus, following the first Dialogue, measures were taken to increase the capital of banks and to lend to entrepreneurs in sums regardless of the currency in which banks attract resources. State-owned properties began to be sold along with the land, which entrepreneurs began to own on the basis of private property rights. For small businesses, connections to power grids began to be carried out through an electronic platform. The processing of permits for starting a business began to take place online.
Based on the decisions of the second Dialogue, separate approaches were introduced to support enterprises according to the size of their business and based on the conditions of different regions and cities. Duplicate control functions of 26 departments and criminal liability for violation of trade rules were abolished, and the ability of entrepreneurs to apply to courts was expanded. The Chamber of Commerce and Industry was removed from government subordination and became an independent advocate for the interests of entrepreneurs.
During the third Dialogue, a decision was made to create a holistic ecosystem to support small and medium-sized businesses. “Qishloq Qurilish Bank” was transformed into the “Business Development Bank” with 14 regional small business centers. New approaches were established to support entrepreneurs wishing to move from small to medium-sized businesses, in connection with which the activities of business support funds changed. A system of industrial mortgages was established. An open rating of entrepreneurs was introduced. Disputes between entrepreneurs and tax authorities were transferred to the jurisdiction of the administrative court.
No less significant changes will occur in the country’s economic sphere as a result of the fourth Dialogue between business and the president, which ended in Nukus. It will be possible to create microfinance banks. A law on Islamic finance will be developed. State strategic enterprises, private enterprises, and foreign investors will operate on an equal economic footing. The private sector will be involved in the management of regional electricity grids. Entrepreneurs will be given access to 300 fields for development. The functions of consulting centers will be completely transferred to the private sector. A comprehensive ecosystem to support startup projects will be created.
Just listing the innovations due to the format of the dialogue with business shows how quickly the economic life of the country has changed under their influence in recent years, how quickly regulatory mechanisms are being improved and new practices are being introduced. And this is the most striking criterion for the demand for this format of interaction between business and the state, which makes a very important contribution both to the promotion of reforms and to ensuring the dynamic economic development of Uzbekistan.
And it is the dynamic development of business, thanks to the conditions created by the state, that has ensured the country’s overall economic success. Thus, recently, Uzbekistan’s gross domestic product exceeded $100 billion for the first time. In the first six months of this year, the volume of foreign direct investment doubled compared to last year and reached $14 billion. Such indicators have not been observed in the entire 33-year history of independent development.
Obid Khakimov, director of theCenter for Economic Research and Reforms under the Administration of the Republic of Uzbekistan
