KAZAKHSTAN: GOVERNMENT REDOUBLING EFFORTS TO MAKE

UNCLAS SECTION 01 OF 03 ASTANA 002474 SIPDIS STATE FOR SCA/CEN, EEB STATE PLEASE PASS USAID E.O. 12958: N/A TAGS: PGOV ECON EINV KZ SUBJECT: KAZAKHSTAN: GOVERNMENT REDOUBLING EFFORTS TO MAKE PROGRESS ON WORLD BANK DOING BUSINESS INDICATORS ASTANA 00002474 001.2 OF 003 ¶1. SUMMARY: Prime Minister Masimov has redoubled the Government of Kazakhstan's commitment to reforms to improve the legal environment for business, making this a top priority since the September release of the 2009 World Bank Doing Business (WBDB) report. In November, Masimov ordered each relevant ministry to prepare a comprehensive action plan on improving the business environment through a focus on the indicators used in the WBDB report. On December 10, Masimov and Stefka Slavova, Senior Economist of the World Bank's Doing Business Reform Unit, chaired a USAID-organized conference on the government's WBDB action plan which was attended by over 150 representatives of the public and private sectors and the media. We expect Kazakhstan's reforms to significantly improve the underlying business environment measured by seven of the ten WBDB indicators: Trading Across Borders, Protecting Investors, Getting Credit, Starting a Business, Registering Property, Dealing with Construction Permits, and Closing a Business. Additional reform work is also underway in areas not covered by the WBDB report -- including licensing and permitting systems and inspections. END SUMMARY. ORGANIZED FOR REFORM ¶2. The Government of Kazakhstan established a Commission on the Reduction of Administrative Barriers in March 2008 to deal with a wide range of reforms to improve the business environment. With the publication of the 2009 Doing Business report in September, Prime Minister Masimov ordered more focused work in key areas highlighted by the WBDB report and tasked Deputy Prime Minister Yerbol Orynbayev to facilitate the creation and implementation of action plans by the relevant government ministries. Orynbayev established a working group with senior-level representatives from a number of ministries and government agencies -- including vice ministers of justice, finance, and industry and trade -- as well as representatives of private sector business associations and USAID's Business Environment Improvement (BEI) and Regional Trade Liberalization and Customs (RTLC) projects. ¶3. There are five expert groups under the working group which are focused on WBDB indicators: Starting a Business and Registering Property; Closing a Business (Bankruptcy); Dealing with Construction Permits; Trading Across Borders; and Protecting Investors and Getting Credit. Each expert group is led by a specific ministry and also includes representatives from other affected government agencies, the Atameken business association, the Forum of Entrepreneurs, and USAID's BEI or RTLC project. CONFERENCE HIGHLIGHTS ACTION PLANS ¶4. During the December 10 conference in Astana, each expert group presented initial action plans on reforms in their areas, with specific targets for improvements in Kazakhstan's ranking on the WBDB indicators. ¶5. Vice Minister of Economy and Budget Planning Marat Kusainov presented highlights from the action plan for improving the Trading Across Borders indicator. For the short term, his ministry proposes, among other things, to make amendments in the Customs Code to reduce the number of required customs documents and to limit the time frame for customs processing to two days; introduce the one-stop shopping principle for import/export procedures; increase public access to information on import/export procedures, regulations, service providers, and tariffs; implement electronic declaration of goods; and shorten the list of goods subject to licensing. ¶6. Deputy Head of the Agency for Financial Control Alina Aldambergen introduced highlights from the action plan for the Protecting Investors indicator. Proposed reforms include requiring the publication of additional information in corporate financial reports. ¶7. Deputy Head of the Agency for Financial Control Alina ASTANA 00002474 002.2 OF 003 Aldambergen was the presenter regarding the Getting Credit indicator. The proposals for improving this indicator included simplifying the process of gathering information on the credit histories of legal entities, and reducing the administrative expenditures of credit information suppliers and credit bureaus. ¶8. Vice Minister of Justice Marat Beketayev presented highlights of the action plan for improving the Starting a Business indicator. Proposals in this action plan included reducing the time frame for registering a business to three days and limiting the time for issuing a tax registration to one day. ¶9. Beketayev also introduced the highlights of the action plan for the Registering Property indicator. The proposals to the improve this indicator included reducing the time required for confirmation of property to one day by allowing documents to be provided electronically at public service centers and via the internet; reducing costs for notary registration of documents to 6,000 tenge (approximately $50); and reducing the time required for registration of ownership rights to ten days. ¶10. Vice Minister of Finance Ruslan Dalenov discussed plans for improving the Closing a Business indicator, for which work has only just begun. The Finance Ministry presented a series of questions to the World Bank in early December. When a response is received, the ministry will formulate more concrete proposals. In any event, Dalenov said he tentatively aims to improve this indicator by 30 percent. ¶11. Vice Minister of Industry and Trade Yedel Mamytbekov presented highlights of his ministry's 2008 work on the Dealing with Construction Permits indicator, and plans for additional reforms. The construction permitting process has already been significantly modified by reforms. The time required to receive technical conditions for connection to water, sewage, and telephone utilities has been reduced from ten to five days. Requirements to obtain approvals from local fire departments, the sanitary and epidemiology service, and the seismological agency have been eliminated. Requirements to obtain certain permits from local architecture and town planning authorities have been removed. Fees have been eliminated for electrical connections by small and medium businesses. The requirement to obtain local government approval prior for putting a building into service has been eliminated. A number of other reforms have also been instituted. ¶12. Mamytbekov's future actions include amending regulations in three legislative acts and four government decrees. In total, he expects that existing and proposed changes will reduce the construction permitting process to 11 procedures from 38, the timeframe for constructing permitting to 81 days from 231, and the cost from approximately $87,800 to about $3,200 -- a reduction due mostly to savings in electrical connection fees. COMMENT ¶13. Government will for these reforms is strong, in part due to the global financial crisis, which has affected Kazakhstan's growth and brought greater public attention to the need to improve the business environment. The role of Prime Minister Masimov and Deputy Prime Minister Orynbayev in diligently pursuing specific, WBDB-related reforms cannot be underestimated. In addition, the appointment of the USAID BEI project's country manager to the position of special advisor to Masimov has also been helpful. The December 10 conference allowed for public airing of the action plans. Masimov's supportive remarks at the conference underscored the seriousness with which he is approaching this issue. As Masimov put it, "improvement of the investment environment, establishing absolutely new forms of profitable partnerships between the state and private sectors, is always one of the most important parts of the government's work." It is important to note that despite Kazakhstan's WBDB efforts, U.S. and other foreign companies still ASTANA 00002474 003.2 OF 003 face many difficulties doing business in Kazakhstan, especially with local officials, who have their own interests and are not always fully supportive of the central government's efforts to improve the country's business climate. END COMMENT. HOAGLAND