OSH TRIP: MEMBERS OF BUSINESS COMMUNITY DISCUSS

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000994 SIPDIS DEPT FOR SCA/CEN E.O. 12958: DECL: 09/29/2018 TAGS: PGOV PREL PINR KG SUBJECT: OSH TRIP: MEMBERS OF BUSINESS COMMUNITY DISCUSS ECONOMY WITH AMBASSADOR BISHKEK 00000994 001.2 OF 002 Classified By: Ambassador Tatiana C. Gfoeller for Reasons 1.4 (b) and ( d). ¶1. (C) Summary: On September 17, representatives of Osh Oblast's business community met with Ambassador to convey their concerns about the overall business climate in the south. The participants discussed a range of topics, including efforts to prepare for the upcoming winter, the difficulties obtaining small business loans, the effects of frequent power outages, new legislation governing the treatment of businesses, and U.S. assistance to the region. The participants provided an insider's perspective on the many obstacles facing small and medium businesses and how the coming winter's expected food and energy shortages may drive local entrepreneurs, and the wider population, to the brink. End summary. LOBBYING GOVERNMENT ON BEHALF OF LOCAL BUSINESSES -------------- -------------- ¶2. (C) Ambassador traveled September 16-17 to the southern city of Osh. She held a roundtable discussion with local business leaders. Aziza Yuldasheva, Executive Director of the Association of Agribusinessmen of Kyrgyzstan (AAK),a business lobbying group, described the pitfalls farmers face when applying for small business loans. Yuldasheva said that farmers need "affordable" loans to support their operations, and she noted that community banks refuse loans to farmers because they are "high risk applicants" and not recognized as established businesses. She asserted that "even Bay Tushum," a microfinance agency initially started with USAID funding, charges borrowers 30 per cent interest, making loans "unaffordable" for farmers and other small businesses. (Note: Bay Tushum, along with two other USAID-established micro-finance organizations, approves a significant number of loans for farmers; market rates are currently around 30 per cent. End note.) POWER OUTAGES AFFECT BUSINESS COMMUNITY -------------- ¶3. (C) Yuldasheva described how frequent power cuts have led to reduced output and the loss of perishable products for local businesses. She said that milk products are no longer sold in the stores because of problems with refrigeration. Milk products sold on the street, Yuldasheva continued, are dangerous due to poor quality controls. She said that food processors are limiting their purchases of raw fruits and vegetables because of reduced operating hours and the lack of proper storage facilities. The end result, she added, is that both processors and farmers are incurring significant losses due to the power cuts. OSH PREPS FOR THE UPCOMING WINTER -------------- ¶4. (C) Abdusatar Sarybayev, Director of the Osh branch of the National Chamber of Commerce, concurred with Yuldasheva and added that the rest of the population saw heating their homes as the greatest challenge this winter. Sarybayev said that citizens have opted to build smaller homes and install coal-burning stoves as the main source of heat. He noted that the price of coal has risen in the south, where homeowners pay twice as much as their northern compatriots. Sarybayev said that city apartment dwellers do not have the option of switching to coal and are completely dependent on the Osh thermal power station (TETS). He speculated that the government's inability to deal with heat and electricity shortages could spark public unrest or even a "revolution." ¶5. (C) Khusanbay Saliyev, President of the Young Lawyers' Association, which provides legal consultation to entrepreneurs, said that some Osh City residents had chosen BISHKEK 00000994 002.2 OF 002 to close their TETS hot water heating lines and install electric heating systems for their apartment buildings. Saliyev said that citizens in the Osh suburbs were frustrated last winter by low water temperatures from TETS, which proved to be an ineffective source of heat. These same citizens, he claimed, are now faced with a difficult decision: whether to rely on the poor output from TETS or risk inconsistent electric heating due to reduced power supply. NEW GOVERNMENT REGULATIONS WELCOMED BY BUSINESSES -------------- -------------- ¶6. (C) Saliyev applauded the government's adoption of new regulations governing registration and a law on business inspections. Saliyev said that the government introduced a "single window" concept for business registration, which offers a one-stop shop that facilitates the approval of charter applications within ten working days. Saliyev said that businesses appreciated the government's adoption of the law regulating the inspection business structures, which limits the amount of checks the government can conduct on a business each year. Saliyev warned that parliament was currently reviewing a new national tax code, which allows for a higher limit of business inspections. He believed that the code would take precedence over the law on business inspections. APPRECIATION FOR U.S. ASSISTANCE -------------- ¶7. (C) Ambassador asked for suggestions from the group on ways the U.S. could help the Kyrgyz population overcome the winter. Although appreciative of U.S. assistance, Yuldasheva quickly noted that they did not want "aid that comes for free, without any requirements placed on the government" for reforms. Regarding USAID plans to provide up to 280,000 tons of seed to local farmers, Yuldasheva said that the Ministry of Agriculture (MOA) rejected the proposal that agricultural associations distribute the seeds, instead demanding that distribution be controlled by the Ministry. She noted that control of the assistance would allow for corrupt practices on the part of the Ministry. (Note: Since this meeting, the MOA has rescinded its request and USAID implementers are once again in charge of seed distribution. End note.) COMMENT -------------- ¶8. (C) Ambassador welcomed the candid discussion from members of the Osh business community. The latest reforms on the treatment of businesses seem to be a step in the right direction. While listening to the group describe the impact of power outages on businesses across the south was troubling, hearing about citizens taking charge and proactively preparing their homes with coal-burning heating systems was encouraging. The group agree that there were no good options for the significant amount of Osh City apartment dwellers that rely solely on the TETS for heat. GFOELLER