KAZAKHSTAN REDUCES BURDENSOME BUSINESS INSPECTIONS

UNCLAS SECTION 01 OF 02 ASTANA 001348

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TAGS: PGOV PREL ECON EAID SOCI KZ
SUBJECT: KAZAKHSTAN REDUCES BURDENSOME BUSINESS INSPECTIONS

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1. SUMMARY: Inspections of business enterprises in Kazakhstan have
traditionally served as disincentives to entrepreneurs due to their
intrusive and burdensome nature. Recognizing this as a drag on
business development and economic diversification, President
Nazarbayev ordered a moratorium on inspections of businesses for the
period of February 21, 2008, through December 31, 2008, which was
then renewed for the period of February 17, 2009, through July 1,

2009. During this moratorium, the Government of Kazakhstan worked
on developing and enacting new legislation to improve the
inspections' regime. On July 17, these business reforms were
realized when President Nazarbayev signed into law a series of
amendments which will serve as the foundation for a new, pro-growth,
and streamlined inspections' regime. END SUMMARY.


2. President Nazarbayev declared a moratorium on inspections of
businesses on February 21, 2008. This moratorium was based in part
on an analysis of the frequency and legality of inspections of
business enterprises by the Forum of Entrepreneurs of Kazakhstan
(the "Forum"),a Kazakhstani business association, the Prosecutor
General's Office, and the USAID Business Environment Improvement
Project, which showed that many inspections were not properly
registered, and/or exceeded their legal parameters. The moratorium
provided immediate relief to business and allowed time for the
government to develop improvements to the inspections' system.
Since that time, the Government of Kazakhstan has developed and
enacted comprehensive improvements to its inspections' regime in an
effort to reduce the level of intrusiveness, improve the
government's legal compliance, and improve the overall efficiency of
inspections.


3. A new Concept for Inspections, developed with USAID assistance,
was adopted that described the free market principles upon which the
new inspections' regime is based. This new approach analyzes the
risks of particular business activity according to objective
criteria and assigns appropriate resources for inspections. This
approach was designed to minimize the burden on compliant companies
and also increase the professionalism of government agencies
conducting inspections.


4. In March 2009, the Government of Kazakhstan established an
Anti-Recession Council reporting directly to Prime Minister Masimov,
which includes members from the Forum and nine ministries. This
Council was charged with (1) taking measures to immediately
stabilize the economy, and (2) improve the legal environment for
business to facilitate the growth of entrepreneurial activity. The
Council was also tasked with developing the package of legal reforms
needed for the implementation of the Concept on Inspections. To
support the Council's work on inspections, the USAID project
provided expert technical assistance based upon best international
practice in order to complete the necessary legal amendments.


5. On July 17, President Nazarbayev signed the Law "On
Modifications and Additions to Some Acts of the Republic of
Kazakhstan Concerning Private Entrepreneurship," and amendments to
the Law "On Private Entrepreneurship." These reforms introduced new
rules for inspections of business enterprises. Among other
improvements, the new legislation:
-- resolves legal confusion and ambiguity regarding the definition
of an inspection versus other forms of government-business
interaction by providing a clear definition of an inspection (i.e.
an investigation that can result in a fine) increasing clarity and
control of government action;
-- eliminates fines during the first visit by an inspector.
Business are now provided an opportunity to remedy any identified
violations with fines assessed only if violations are not corrected,
transitioning the inspections system to a regime that favors
compliance over sanction;
-- continues the transition from the Soviet-era command and control
legal system that resulted in 100 percent inspections, to a system
that reduces the number of business inspections through a
market-based risk management approach;

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-- requires all inspections and other forms of investigation be
consistent with the schedule developed using the approved risk
management system;
-- mandates that all investigations (except criminal investigations
and those occurring at established transit points, e.g. on roadways,
borders, etc.) be registered at least 30 days in advance with the
Committee on Legal Statistics of the General Prosecutor's Office;
-- sets terms limiting inspections of large businesses to 30 days,
medium businesses to 20 days, and small businesses to 10 days;
-- requires the development and use of standardized checklists by
each government inspectorate as a tool to guide inspectors based on
the agency's risk criteria, and prohibits any inspection conducted
without the use of such a checklist tool; and,
-- strengthens the rights of businesses in relation to government
inspectorates by, for example, permitting business entities to
refuse improper inspections and/or to record the inspectors'
activities.


6. The amendments require that each inspecting body under the Law
"On Private Entrepreneurship" identify the risk factors of activity
within its jurisdiction and develop criteria and risk-appropriate
oversight or inspection strategies for each category (i.e. serious,
medium, or low risk). Once adopted, government inspectorates will
use this framework to prioritize activities of inspectors, allocate
resources to activities of highest risk, and eliminate unnecessary
contact with businesses. Munavara Paltasheva, Executive Director of
the Forum of Entrepreneurs of Kazakhstan, expects that the full
implementation of the amendments to the law will be effective in
improving the operating environment for businesses working in, or
considering entering, the Kazakhstani market.


7. Prime Minister Masimov, in a government session held on July 21,
ordered all inspection agencies to complete the development of new
risk management systems and checklists within six months from the
Laws' publication (July 23, 2009). Based on a request from the
Ministry of Economy and Budget Planning, USAID has agreed to provide
technical support to a comprehensive reform process designed to
introduce risk management protocols into the operations of more than
50 government inspectorate agencies. USAID, through its several
economic growth assistance projects, will help develop
inspectorate-specific risk management policies, associated
sub-normative legal acts, and operational reforms for full and
effective implementation of the new laws, based on the needs
identified by the Government of Kazakhstan.
HOAGLAND