A Study on Government‘s Basic Policies for Development of ICTs in
Kazakhstan and Uzbekistan
Elbek Musaev, Bae Jung Han
Elbek Musaev, Ph.D. Candidate
M.P. +82 10 2949 5275
Fax: +82 53 527 3143
E-mail: elbek007@yahoo.com
Bae Jung Han, Professor
Tel: +82 53 810 2762
Fax: +82 53 810-4653
Е-mail: jhbae@yumail.ac.kr
School of International Economics and Business
College of Commerce and Economics
Yeungnam University
214-1 Dae-dong, Geyongsan-shi, Geyongsanbuk-do, Republic of Korea (712-749)
JEL Classification: E600, E650, L880
Keywords: ICTs, government effectiveness, rule of law, anti-corruption, corporate
governance, secured transactions
I. Introduction
Nowadays, Information and Communication Technologies (ICTs) are playing a key role
in economic development of a country, as ICTs are at the heart of recent economic and social
transformations in both industrialized and most of the developing countries. In the
technological era, ICTs are used widely and becoming less expensive, so there are more
possibilities for developing countries to advance their ICTs and catch up with developed
nations in terms of economic progress.
Therefore, governments of the developing world are advised to pay higher attention for
development of ICTs through conducting relevant policies and strategies. In this concern, it is
stressed by UNCTAD, that "developing countries not only should have national ICT plans,
but also should review them thoroughly for effectiveness” [36], because “ICTs should be
regarded as tools and not as an end in themselves. Under favorable conditions, these
technologies can be a powerful instrument, increasing productivity, generating economic
growth, job creation and employability and improving the quality of life of all" [26. A. 9].
According to research of JICA, "Development of ICT is not a technical issue of constructing
telecom and Internet infrastructure and installing PCs. It is a change of economic system to
support the new business models based upon knowledge-intensive technologies" [16, 2004,
p.29].
Consequently, it is important to point out, that "developing countries should concentrate
on the progress of ICTs and, what is significant, regard ICTs not as necessity, but as an
essential tool of economic development". If developing countries, including Central Asian
(CA) [42] nations, will consider industry of ICTs as an important mean of their own economic
and social development, their own ICTs can produce fruitful outcomes and may be a drive for
their own anticipated economic developments.
CA developing countries also have chances to improve their economic growth with the
help of ICTs and by introducing domestic and international e-commerce. These landlocked
countries have no direct access to world markets through maritime routes. ICTs can give CA
Republics more possibilities to access world markets by faster, effective and cheaper ways.
Therefore, e-commerce and e-trade may play an important role in economic development of
CA region. These countries already have their own ICT policies, but development of ICTs in
the region is very slow at present. As far as government basic policies influence ICT
development mostly, basic policies should be examined and revised.
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Current background of ICTs in CA, especially in Kazakhstan and Uzbekistan, shows
that the "key issues in ICT development are about the practical steps the developing and
transitional economies can take right now with very limited resources at their disposal. ICT
Development in Central Asian Republics is held back not by policy frameworks, but more by
implementation problems" [25, 2005, p.5].
Thus, main problem of development of ICTs in Kazakhstan and Uzbekistan is that
government policies do not promote speedy development of ICTs in these countries, because,
until now ICTs in Central Asian Republics have been experiencing underdeveloped levels.
Number of Internet users in these countries do not reach 10% of total population.
Communication quality together with connectivity is low. Penetration of ICTs at schools also
remains underdeveloped. In addition, there is not much internet contents in national languages.
Therefore, main objective of this paper is to examine current condition of the
development of ICTs and relevant Government Policies in Kazakhstan and in Uzbekistan, and
through comparative analysis discover weak points in basic policies for development of ICTs
and propose recommendations for better progress of ICTs.
So, the research method in this work is based on applying research tool specified in the
Report of the International Seminar on "ICT Policy Reform and Rural Communications
Infrastructure" prepared by Japan International Cooperation Agency (JICA) in March 2005
(See Appendix 1). This tool is designed to evaluate and diagnose basic Government policies.
Each tool, which is developed by the World Bank Group and applied by JICA in the report,
has a number of questions. Answering these basic questions by identifying level of
Kazakhstan and Uzbekistan policies out of five will be assessing the status of government
policies in these countries. Main reason why these tools were used is that they best describe
and evaluate situation of the developing countries, especially countries that are in transition
from planned economy to market economy.
Thus, paper addresses current situation of ICT industry showing general picture of ICTs
in Kazakhstan and Uzbekistan. Then, examines basic government policies for development of
ICTs with given model research tools, and shows main problems that delay development of
ICTs. Finally it is concentrated on recommendations for improving and revising policies for
development of ICTs with the help of case studies of best practices in development of ICTs in
India, Malaysia and in Korea.
II. Current ICT Situation in Kazakhstan and Uzbekistan
-3-
It is generally accepted, that ICTs can be a drive for a social and economic development
through various applications and opportunities, but these opportunities and applications are
nothing without reliable ICT infrastructure. Therefore Governments of Central Asian
Republics should address the development of ICTs by means of various policies in order to
develop ICTs.
Thus, different governments took different ways of development of ICTs. For example,
development strategies in Kazakhstan are aimed at development of e-Governance, in which
Kazakhstan achieved considerable results in comparison with other CA nations. Uzbekistan
develops its ICTs by developing e-Commerce, however, government couldn't achieve
significant results in development of e-Commerce so far.
Table 1 Number of telephone lines per 1000 people in Kazakhstan and Uzbekistan, 2000-2005
Kazakhstan
Uzbekistan
2000
2004
2005
122
67
150
68
173
66
Source: Comparative Analysis of ICT Situation in some CIS Countries in 2005, "Expert" Consulting Agency, 2005,
www.expert.kg
It can be seen from the Table 1 that the increase of fixed telephone lines was slow,
especially in Uzbekistan. Average indicator of fixed telephone lines in developed countries
was 540 lines per 1000 people in 2004 [8].
One of the other indicators of ICT is the number of mobile users. Generally, most of the
developing countries successfully develop their mobile connectivity.
Table 2 Number of mobile users out of every 100 people in Kazakhstan and Uzbekistan, 2003-2005
2003
2004
2005
6.1
13
32.9
Kazakhstan
0.9
1.6
4.4
Uzbekistan
Source: Comparative Analysis of ICT Situation in some CIS Countries in 2005, "Expert" Consulting Agency, 2005,
www.expert.kg.
According to the indicators on Table 2, Uzbekistan stands last in terms of mobile users.
If Kazakhstan will keep current ICT development pace in existing conditions of social and
economic development, in the next five years it can approach the levels of developed
countries. Another important indicator is also the number of computers used by population.
Table 3 Number of computers for every 1000 people in Kazakhstan and Uzbekistan, 2000-2004
2000
2004
23
-*
Kazakhstan
7
23.6**
Uzbekistan
Source: "Information and Communications for Development 2006: Global Trends and Policies", World Bank, Washington
D.C., 2006, pp. 216, 220, 288.
Notes: * Data is not available.
** UNDP, (2005), “Review of Information and Communication Technologies Development in Uzbekistan 2005”, UNDP
Report, p.4.
-4-
This table shows that, Kazakhstan leads in terms of numbers of computers. Uzbekistan
considerably increased the number of computers. This figure may also be an indicator of
computer literacy, which means more people use computers to meet their demands.
According to the available data in Kazakhstan, computer literacy is 43,6% among men and
40,4% among women [23, 2006, p.97]. So almost half of the population of Kazakhstan can
use computers. Unfortunately, there is no such indicator on Uzbekistan.
According to the State Program on Decreasing of Digital Divide in the Republic of
Kazakstan in 2007-2009, there were 400.000 internet users in 2005 [1] or 2.7% of the total
population. In Uzbekistan, there were about 1.6 mln Internet users or 6.57% [22, 2006, p.3] of
total population.
Such difference among Internet users in Kazakhstan and Uzbekistan is explained by the
cost of Internet per hour and the composition of Internet access points, i.e. access at home,
work and public access points (Internet cafes).
Dial-up connection in Kazakhstan costs in the range between USD 0.40 and 1.62, what
is quiet expensive between comparing to Uzbekistan. In contrast to this, average cost of
Internet per hour in Uzbekistan gradually decreased from USD 1 in 2003 to USD 0.44 in 2005.
Table 4 Access points of Internet users in Kazakhstan and Uzbekistan in 2005, (in %)
Kazakhstan*
Uzbekistan**
Public Access Points
Work
Home
Library
10
34
54
2
26.5
47.2
26.3
-
Source: * UNDP, (2006), "Development of Information and Communication Technologies in Kazakhstan", Report prepared
by UNDP Office in Kazakhstan, Almaty, p.47.
** UNDP, (2006), "Review of Information and Communication Technologies Development in Uzbekistan 2005", Report
prepared by UNDP Office in Uzbekistan, Tashkent, p.3.
It can be seen from the table that the segmentation of access points differs considerably
in two countries. For example, most of Internet users in Kazakhstan prefer access Internet at
home (54%), in Uzbekistan less people would want to access Internet at home (26.3%),
mainly because of price for the services and low internet awareness. It explains why most of
Uzbek users prefer using internet at work than at home(47.2%). This means that people still
do not want to spend money on using Internet, due to costs or due to feeling that Internet is
not necessary, i.e. it is not used widely as means of information, learning and education.
Thus, it can be concluded that ICT indicators in Central Asian Republics show
considerable underdevelopment of ICTs, that require government’s revision of basic policies
to ensure rapid development of ICTs.
-5-
III. Evaluation of Basic Policies for Development of ICTs
ICTs in Kazakhstan and in Uzbekistan have been developing slowly, even though
governments of these countries have
adopted and conducted several policies
towards
improvement
and
development of ICTs.
However,
it
is
clear,
that
government policies is not the only
factor which influences development
of
ICTs.
Other
key factors
are
economic, social and technological.
For example, one of the reasons why
ICTs develop slowly in Central Asian
Republics, is lack of government funds
and
Figure 1 PEST Analysis of the impact of four factors (Political,
Economic, Social, Technological) on Development of ICTs
capital
to
invest
into
the
development of ICTs. Or, besides that,
people in a certain developing country, being unaware of Internet and computers, represent a
considerable barrier for successful progress of ICTs. How can number of Internet users
increase in a developing country, if people
have
poor
computer
literacy?
Factors,
influencing development of ICTs can be seen
in Figure 1.
Thus, Figure 1 shows that political
factor, to be more specific, government
policies, play greater role in development of
ICTs in a country. Because government
Figure 2 Model research tool for diagnosing basic
government policies
influences development of the other three
factors. For example, social awareness and computer literacy can be increased by
government's active policy towards broad use of internet and computers. The problem of
connectivity can be solved through attracting foreign capital by creating favorable investment
environment, which is also provided by government. This means, three factors depend on
political factors. Thus, we assume that government policies influence development of ICTs
most. Consequently, in order to develop ICTs successfully, some basic circumstances should
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exist like general favorable economic situation, government performance and effective
policies.
By defining that government policies can have biggest impact on development of ICTs
we should define the way how to measure government policies because they do not represent
figures and they are not specific.
In this regard, in order to measure government policies, their effectiveness and
enforcement there was used the research tool (Look Figure 2) presented in the report "ICT
Policy Reform and Rural Communications Infrastructure" [16]. It encompasses general
government policies, not only ICT policies, which makes the evaluation tool useful and
effective, because successful development of ICTs depends on general government policies,
as several sectors of economy have are interdependent with ICT industry.
1. Government Effectiveness (How effective is the government functioning?)
Government effectiveness can be evaluated by assessing inflation, national and external
budget performance, situation in foreign exchange transactions, privatization levels,
liberalization of prices and capital market regulations.
a. Inflation:
Figure 3 Inflation Rate in Kazakhstan,
1999-2005 (%)
Figure 4 Inflation Rate in Uzbekistan,
1999-2005 (%)
These graphs show that inflation rate in both countries is under control and has some
positive trends. However, inflation rate in Kazakhstan hasn't changed considerably and has
been increasing gradually since 2002. The reason for the sharp decline of inflation in
Uzbekistan in 2002 is that the calculation method of inflation was changed, but still the
indicator shows high inflation rates around 6-10% per year.
b. Budget Performance:
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Figure 5 Budget Balance of Kazakhstan, 2001-2005
(% of GDP)
Figure 6 Budget Balance of Uzbekistan, 2001-2005 (%
of GDP)
So far, budget balance in both countries has been in deficit and the recovery is slow [4].
Trade balance has positive trends in Kazakhstan [39] as well as in Uzbekistan [40].
Figure 8 Exports and Imports of Kazakhstan
(mln, USD), 1999-2005
Figure 7 Exports and Imports of Uzbekistan
(mln, USD), 1999-2005
Kazakhstan's main export commodities are raw materials, that is oil, iron and steel
which stand for considerable share of exports and, as a result, represent positive trade balance.
Uzbekistan's positive balance of trade can be explained by favorable price conditions in world
markets of gold and cotton, which are two main export items of Uzbek trade. Thus, it can be
said, that Kazakhstan has bigger amount of exports than Uzbekistan. Kazakhstan had in 2005
USD 26.5 bln, and Uzbekistan only USD 4.5 bln. Nonetheless, both Kazakhstan and
Uzbekistan are exporters of raw materials; they need to make accent on the development of
production output and shift to exports of products that are ready for consumption, but not on
raw materials.
c. Foreign Exchange transactions: Both countries introduced current account
convertibility, which is a big step towards liberalization of foreign exchange transactions.
Current account convertibility was introduced in Kazakhstan on July 23, 1996 [31], in
Uzbekistan on October 15, 2003 [32]. However, there is no capital account convertibility (i.e.
-8-
freedom in converting local financial assets into foreign financial assets and vice versa at
market determined rates of exchange) in reviewed countries.
Kazakhstan adopted revised Law on Foreign Exchange Regulation and Control on June
13, 2005. The new Law has several simplifications of foreign exchange regime:
 certain types of foreign exchange transactions that previously had to be licensed are
now have to be only registered;
 notification of a foreign exchange transaction to an authorized agency;
 direct investments made by residents outside of Kazakhstan shall be registered;
 any loans, extended by residents to non-residents and vice-versa for over 180 days
shall be registered, while such loans previously were to be licensed;
 the Law lifts restrictions for the export of foreign currency in cash from Kazakhstan,
previously residents could take only US$ 10.000 (US$ 3000 for non-residents) [5].
Herewith, it can be said that Kazakhstan considerably liberalized foreign exchange
regime and created favorable background for further liberalization of foreign exchange
transactions.
In Uzbekistan, despite the commitment to currency convertibility, some problems in
foreign exchange transactions still do exist: "First, enterprises reportedly have some
difficulties converting sums, Uzbekistan's national currency, into foreign exchange, since the
Central Bank of Uzbekistan makes foreign exchange available for the purchase of consumer
goods only during the first few days of each month. Any outstanding applications for
conversion after this initial period are held until the next month. Second, the conversion for
some goods faces longer delays than others" [14, 2005, p.6].
d. Privatization: Kazakhstan created State Property and
Privatization Committee on September 29, 2004. Share of private sector
in Kazakhstan's GDP (65%, 2003) shows that it proceeded significantly
in privatizing its main industries [41].
Currently, privatization process in Uzbekistan goes under
Resolution
of
the
President
"On
deepening
the
process
of
denationalization and privatization of enterprises in the years 2006-
Figure 9 Share of
Private Sector in GDP
of Uzbekistan, in 1995,
2003 (%)
2008". Thus, in 2006, 596 companies were privatized, number of public joint stock companies
with Government participation decreased from 1036 (in 2005) to 984 (2006). According to
the Program for privatization in 2006-2008, 83% of companies with government share will be
fully privatized. Only some of the companies (7.9%) of strategic importance will have 51% or
more of the government share [33].
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e. Capital Market Regulations: Kazakhstan: Regulations covering securities market
consist of Civil Code (March 1995, last amended in May 2005), Law on Securities Markets
(July 2003, last amended in July 2005) and Investment Funds Law (July 2004). The Securities
Market is supervised by the Agency for Regulation and Supervision over the Financial
Market and Financial Organizations established in January 2004.
Thus, according to the benchmarking of the legislation of securities markets made by
EBRD, Kazakhstan's securities legislation is in medium compliance with international
standards. However, according to later assessments made in 2005 Kazakhstan's legislation
scoring had improvements bringing it close to high compliance category. Specifically, there
were improvements in the protection of investors in the area of Collective Investment
Schemes. In particular, the Committee for Protection of Competition under the Ministry of
Industry and Trade has several means for protecting investors in situations where arise
conflict of interests [11, 2006, pp.41-42].
Uzbekistan: The Law on Exchanges and Exchange Activities (2001), Law on
Securities and Stock Exchange (1993, last amended in 2002), Law on Mechanism of
Operation of Securities Markets (1996, last amended in 2002), Law on Depositary Activities
and Securities Markets (1998, last amended in 2002), Law on Protection of Investor's Rights
and Securities Markets (2001) and Law on Joint Stock Companies and Protection of
Shareholders (1996, last amended in 2003) constitute legal framework of securities markets.
The Center for Coordination and Control of the Securities Markets established in March
1996 is the regulator of the Uzbek Securities Market.
Thus, EBRD assessment of Capital market regulations resulted in medium compliance
of legislations with international practice. Specifically, regulator's powers and on enforcement
of disclosure requirements and requirements in case of change of corporate control should be
strengthened. In addition, disclosure and transparency, non-prohibition of front-running
practices [43] in places defining investment service providers and preventing financial
difficulties of market intermediaries [12, 2005, pp.51-52]. It can be generalized, that
Uzbekistan's securities Market regulations do not comply with international best practices and
have many vulnerabilities [19].
In conclusion of this part, according to comparisons of indicators of inflation, budget
performance, foreign exchange transactions, privatization and capital market regulations of
Kazakhstan and of Uzbekistan, it can be said that government effectiveness of both of these
countries has almost equal position, but Kazakhstan has been improving its Capital market
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regulations, what puts Kazakhstan on the category level 4. Uzbekistan should be assigned to
level 3, because it hasn't introduced sound capital market regulations, and independent
regulatory bodies for public utilities. Nonetheless government effectiveness should be
improved in both of these countries in order to develop ICTs rapidly.
2. Rule of Law (To what extent do the government respect the rule of law?)
Rule of law is the principle that governmental authority is legitimately exercised only in
accordance with written, publicly disclosed laws adopted and enforced in accordance with
established procedure [37]. Rule of law, according to the report, can be evaluated by
examination of following indicators: existence of crimes, tax evasions, effectiveness of court
system, enforcement of law.
a. Prevalence of crimes: According to several reports and websites of different
organizations, organized crime is not prevalent in Kazakhstan and Uzbekistan [21, 2000,
p.171].
b. Tax Evasions: There is no distinct information on tax evasion in Kazakhstan, but
"the tax system of Kazakhstan is highly bureaucratic, and although internal audit systems are
in place they do not always function effectively. Still, in the last two years Kazakhstan has
dramatically improved its system of tax collection, and there are initiatives under way to
standardize and computerize the process further, which is unique for the region. Abuses of the
tax police appear to be decreasing" [18, 2004, p.10]. Thus it can be said that Kazakhstan
considerably improves the tax system.
According to the UNPAN Country Report on Uzbekistan "It also has been reported that
there is a widespread assumption within the Ministry of Justice and the Tax Service that many
non-profit enterprises are merely fronts for tax evasion. Taxation is the most problematic side
of civic activity. Tax avoidance, if not evasion, is commonly viewed as one of the primary
motivations of individuals involved in local NGOs" [24, 2003, p.11]. As it is said there do
exist tax avoidances for the reason that there are many kinds of taxes including "extra" taxes
[24, 2003, p.18], hindering development of Small and Medium Enterprises, which
consequences in underdevelopment of taxation system.
c. Effectiveness of Court System: Kazakhstan's Judiciary system is considered to be
fairly developed:
Table 5 Kazakhstan's Judiciary Power and Effectiveness, 2004
Factor 5
Judicial Review of Legislation
Negative
- 11 -
Factor 6
Judicial Oversight of Administrative Practice
Neutral
Factor 7
Judicial Jurisdiction over Civil Liberties
Negative
Factor 8
Factor 9
System of Appellate Review
Contempt/Subpoena/Enforcement
Negative
Neutral
Source: American Bar Association, (2004), Judicial Reform Index for
Kazakhstan, American Bar Association, Central and East European Law
Initiative (CEELI), February 2004, p.13. www.abanet.org/ceeli
According to the Table 5 it
can be seen that Judicial System
of
Kazakhstan
is
not
fully
independent, as indicators show
that Kazakhstan's Judiciary lacks
judicial review of legislation, jurisdiction over Civil Liberties, appellate review system,
however judicial oversight over administrative practice is at the neutral position.
Table 6 Uzbekistan's Judiciary Power and Effectiveness, 2002
What regards Uzbekistan,
Factor 5
Judicial Review of Legislation
Negative
Factor 6
Judicial Oversight of Administrative Practice
Negative
Factor 7
Judicial Jurisdiction over Civil Liberties
Negative
effectiveness of Uzbek Judicial
Factor 8
System of Appellate Review
Negative
system is not favorable, as
Neutral
Factor 9 Contempt/Subpoena/Enforcement
Source: American Bar Association, (2002), Judicial Reform Index for
Uzbekistan, American Bar Association, Central and East European Law
Initiative (CEELI), May 2002, p.13. www.abanet.org/ceeli
then it can be mentioned that
there are some deficiencies.
According to the same report, it
can be said, that Uzbekistan's judiciary does not have full jurisdiction over review of
legislation, administrative practice of legislation, system of appellate review. Thus, it can be
concluded that Judicial system of Uzbekistan is not fully independent. In my opinion, the
incomplete independence of judicial system cannot promote effective rule of law.
d. Enforcement of Law: In Kazakhstan, major laws have been adopted [38].
Generally, rule of law doesn't have stable status in Kazakhstan, according to the report of
European Bank for Reconstruction and Development [11, 2006, p.46]. Thus, Government
human rights record remains poor, freedom of the media is restricted. However, Kazakhstan
improves laws constantly in order to advance rule of law and provide effectiveness of laws. It
is Level 3, because laws are constantly improved in order to ensure implementation of laws.
In addition, laws on bankruptcy, judicial system, commercial law, concession law and law on
pledge were adopted.
What regards Uzbekistan, it can be pointed out that the Government of Uzbekistan
introduced measures to strengthen the enforcement of law, but the implementation efforts are
weak and there is no significant impact of the measures. It can be seen that although the
independence of judicial branch is shown clearly in the Constitution of Uzbekistan, judiciary
until now can't ensure it's independence, like in Kazakhstan. "Nor it is able to perform one of
its core functions - protecting individual rights" [30]. So Uzbekistan should be assigned to
the level 2. This decision was made by the following: even though Uzbekistan introduced
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main laws on bankruptcy, commercial law, concession law and law on pledge, it can't be
placed to the level 3 because there is poor implementation of national laws, which is an
essential element of modern regulations in the international practice.
3. Anti-Corruption (To what extent does the government address the corruption issues?)
a. Anti-Corruption measures: Kazakhstan: Initially, on July 2 1998, The Law on
Anti-corruption Efforts was adopted and further was amended several times (last amendment
was made in May 2004) [35]. Later on January 5, 2001 State Program for Anti-Corruption
Efforts for 2001-2005 was accepted and approved. In January 2005 the Kazakh Agency for
fighting economic crime and corruption was created [20, 2006, p.185]. Furthermore,
Kazakhstan, adopted decree of the President on April 14, 2005 "On measures to step up the
fight against corruption and to strengthen discipline in the activities of state bodies and
officials". Nonetheless, Kazakhstan hasn't joined yet the UN Convention on fighting
corruption [27], which makes anti-corruption efforts less persuading. Nonetheless, it is rather
clear that Kazakhstan has been making several attempts to combat corruption, thus,
Kazakhstan can be assigned to Level 3, because Kazakhstan, alongside with combating
corruption, introduced and formed Civil Service Affairs Agency to reform and improve the
country's administration [28], as well as the Law on Anti-corruption Efforts was adopted by
the government. However, Kazakhstan needs to address the combating corruption further by
clearly defining job positions, descriptions, set independent auditors on monitoring the
compliance. Therefore, Kazakhstan can't be moved to level 4.
Uzbekistan: Government measures to decrease corruption levels have been outlined in
works of the President of Uzbekistan [17, 1998, p.56], which has three parts: further
economic liberalization to reduce the opportunities for corruption; Strengthening the legal and
judicial system to ensure the rule of law and protection of individual rights; Moral and public
education of the evils of corruption.
In addition, new Country Strategy Program for Uzbekistan for the period of 20062010[3] has one of the key issues - combating corruption [2]. Thus, even though Uzbek
government introduced anti-corruption measures, but there is no real change in the situation
of civil servants and no real impact on the level of corruption. Because "there is evidence that
important government positions in Uzbekistan continue to be traded, sold, or distributed on
the basis of family, clan, or regional cliques. A public official who gains office through these
means may then be expected to “pay off” patrons with money collected through levying taxes,
- 13 -
fines, and service fees on those in subordinate positions. There are cases in which officials
have been removed from office and charged with corruption, but the details of these cases
remain sufficiently obscure to the public to create the impression of selective enforcement of
law rather than universal application of legal principles to combat corruption. The Uzbek
government has taken only modest steps to reduce these practices, and no comprehensive
measures have been adopted to deal with the problem of corruption in its full scope" [15,
2004, p.3]. Therefore, it is level 2. In order to move to the level 3 Uzbekistan should, at least,
actively act towards combating corruption on legislative basis, i.e. create anti-Corruption law
and reform civil servant system.
4. Corporate Governance (What is the level of corporate governance?)
Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled [37]. The evaluation of
Corporate Governance can be done through examination of the following issues: Registration
of private firms, protection of private firms by law, situation in tax evasion and in legal issues.
a. Registration of private firms: According to the report of the World Bank and
International Financing Corporation (IFC) Kazakhstan and Uzbekistan stand far from
countries with best practice, what can be seen on the following table:
Table 7 Some indicators of Kazakhstan and Uzbekistan on doing business, 2006
Kazakhstan Uzbekistan
Procedures to start a business
7
9
Time to start a business (days)
24
35
Cost to start a business (% of income per capita)
8.6
15.5
Procedures to register a property
8
12
Time to register a property (days)
52
97
Cost to register a property (% of property value)
1.6
10.5
Legal Rights Index (Protection)
5
5
Corporate Governance
5.0
4.7
Best Practice
2 (Australia)
2 (Australia)
0 (Denmark)
1 (Norway)
1 (Norway)
0 (Saudi Arabia)
10 (Hong Kong, China)
9.7 (New Zealand)
Source: Doing Business in 2006: Europe and Central Asia Region, IBRD/World Bank, 2006, pp.7-9,11.
www.doingbusiness.org
The table shows, that Kazakhstan in these terms has better situation at creating better
environment for doing businesses than Uzbekistan. Normally, 24 days are required to start a
business in Kazakhstan by passing through seven procedures, while same businessman in
Uzbekistan needs 35 days and deal with 9 procedures. So the cost for opening up a business is
consequently more in Uzbekistan than in Kazakhstan (15.5% of income per capita and 8.6%
respectively). So it can be easily seen that a businessman in Uzbekistan will pay almost
doubled cost, comparing to Kazakhstan, for opening up a business passing only two more
procedures that take 11 more days than in Kazakhstan.
- 14 -
b. Protection of private firms by law: Legal Rights indicator in the Doing Business
report shows that Kazakhstan and Uzbekistan have same level – 5 [10, 2006, p.21]. This
means that:




any legal or natural person may grant or take security over business credits;
security provides priority both in and outside bankruptcy;
parties may agree on enforcement procedures by contract;
creditors may both seize and sell collateral out of court, no automatic stay or “asset
freeze” applies upon bankruptcy, and the bankrupt debtor does not retain control of the
firm [10, 2006, p.18].
A minimum score of 0 represents weak legal rights and the maximum score of 10
represents strong legal rights. So firms in both Kazakhstan and in Uzbekistan have medium
level of legal rights protection. Most protected are firms in Hong Kong, China their level of
legal rights protection is 10 (See Table 7).
c. Tax Evasions: This issue was reviewed in the
d. Legal issues: Kazakhstan adopted new Joint-Stock Company Law on May 13,
2003, which replaced old 1998 Joint Stock Companies Law. It was amended in July 2005 to
improve the system of state regulation of Joint Stock Company activities and protect rights of
investors and shareholders. According to this Law “the division between 'open' and 'closed'
types of joint stock companies was eliminated, share registrars must be independent, as well
as accounting and financial reports should be in compliance with International Financial
Report Standards” [7, 2004, pp.7-8]. There are some weaknesses in this law as well.
According to OECD principles there are disadvantages in areas of Board Responsibilities,
Disclosure and Transparency.
There is complexity, difficulty of enforcement and length of proceedings in obtaining
executable court order. Considering the institutional environment Company information is of
good quality, auditors are relatively independent and legal framework is adequate.
Nevertheless, partiality of courts and market regulator and corruption remain to be major
problems [11, 2006, p.46].
Uzbekistan: Corporate governance legislation in Uzbekistan consists of Law on JointStock Companies and Protection of the Rights of Stockholders (April 26, 1996, amended in
1997, 1998, 2002 and 2003), Law on Companies with Limited and Additional Liability
(December 6, 2001), and other decrees of Cabinet of Ministers of the Republic of Uzbekistan.
Weak points of Corporate governance in Uzbekistan are: Independence of auditors is
not guaranteed, key executives are not determined by shareholders; boards do not include
certain number of non-executive and independent directors [12, 2005, pp.43-44]. Furthermore,
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according to the Report of the World Bank [6, 200, pp.19-20], system and financial system
business subsidies (so called budget constraints) should be reduced in Uzbekistan, national
accounting standards should comply with international standards [6, 200, pp.19].
To conclude, according to EBRD assessment, comparing to other countries in transition,
the overall Corporate Governance legislation has a good basis for the development of sound
corporate governance practices. Yet, when comparing Kazakhstan with Uzbekistan,
Uzbekistan was rated as a country with medium compliance of Corporate governance laws,
whereas Kazakhstan rated as a country with high compliance of Corporate Governance Laws.
Thus, competition in Kazakhstan is improving. What places Uzbekistan far behind
Kazakhstan, which constantly updated corporate law. Thus, Kazakhstan should be placed at
level 3. However international accounting standards are not applied in Kazakhstan's corporate
governance yet, as well as the system of disclosure requirement has not developed. By this
indicators Kazakhstan can't be placed at level 4. So Uzbekistan should be moved to the level 2
because it didn't update its corporate law to strengthen supervision functions of the board, as
well as credit and subsidy policies to corporate sector are not tightened. Additionally, the
assessment provided by EBRD leveled down Uzbekistan to level 2.
5. Secured Transactions (What is the legal and institutional environment regarding security of
transaction?)
Secured Transactions show how safely property rights transfer from one owner to
another. Thus several problems indicate the safety of transactions: Proprietary security and
legal framework of proprietary transaction.
a. Proprietary security General Environment in Kazakhstan shows that it is possible
to recover at least 80% of the market value of the assets taken as security in 6 months or less
[9, 2004, p.77].
In Kazakhstan, movable property has two main types of security: possessory
(possession of the collateral transferred to the creditor) and non-possessory (Debtor may
retain and use the collateral during the life of the security). Registration is mandatory for
specific types of assets like motor vehicles and aircraft. Notarization is generally not required.
Although, security over immovable assets - mortgages - are not required to be notarized,
they must be registered with the center for Registration of Immovable Property under the
Ministry of Justice of Kazakhstan. In case if owner of a property will not be able to pay off
his debts, the property will be sold in auction, with prior obligatory notification of the
property holder, and if the holder will not be notified, the case will be forwarded to court.
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In Uzbekistan, notarization of agreement of security over movables (pledge) between
parties is not compulsory, but recommended as it would constitute a "receiving order"
allowing the lender to start enforcement upon default without having to obtain a court
judgment. This can be understood as an inevitable notarization.
General system of registration of charges over movable property and the question of
priority and enforcement remains highly hazardous. Registration is required only when the
charged assets themselves are subject to registration, such as (intellectual property rights, and
vehicles).
In the case of security over immovable assets, perfection of the mortgage requires
notarization of the mortgage agreement and registration in the Land Registry.
Table 8 Comparison table of registration and notarization of security over movable and immovable assets
in Kazakhstan and Uzbekistan, 2005
Security over
assets
Movables
(pledges)
Regulation
Civil Code
(Dec 1994)
Kazakhstan
Registration
Mandatory for
specific types
of assets
(motor
vehicles and
aircraft)
Notarization
Not required
Regulation
Civil Code
(March
1997)
Pledge Law
(May 1998)
Immovables
(mortgages)
Uzbekistan
Registration
No general
system of
registration;
registration is
required for
assets that are
subject to
registration
[44]
Require
registration in
the Land
Registry
Notarization
Not
compulsory, but
recommended
(inevitable)
Presidential
Mandatory
Voluntary
Civil Code
Required
Decree on
(March
Mortgage of
1997)
Immovable
Pledge Law
Property
(May 1998)
(1995)
Sources: 1) EBRD, (2006), Strategy for Kazakhstan, European Bank for Reconstruction and Development, Approved by the
Board of Directors on November 21, 2006, pp.45-46.
2) EBRD, (2005), Strategy for Uzbekistan, European Bank for Reconstruction and Development, Approved by the Board of
Directors on July 26, 2005, pp.49-50.
It can be said according to the Table 8 that the process of registration of property is
easier in Kazakhstan than in Uzbekistan which creates fewer barriers for doing business.
b. Legal Framework for Secured Transactions. Generally, Kazakhstan, after
conducting Regional Survey [13], was included by EBRD to the group of countries which has
implemented major reforms: those have carried out a major overhaul of their laws but have
shortcomings or significant limitations either in the laws themselves or in their
implementation. Thus, the weakness of the courts, specifically the problem of corruption in
the courts, is regarded as a serious limitation.
The legal regime of security rights over movable and immovable assets is defined in the
Civil Code of 1 March 1997 and the Pledge Law of 1 May 1998.
- 17 -
Main problem in regulatory framework is that Civil Code contains general provisions
on security rights on property and is not always well coordinated with specific secured
transactions law. Therefore, Uzbekistan was included by EBRD Regional Survey to the group
of countries with deficient compliance [13].
To conclude this part: Kazakhstan, made little achievements, notwithstanding obstacles
of the court system, which has some deficiencies. "Kazakhstan provided very encouraging
overall results in terms of the return that a lender could expert from enforcing its security over
the charged assets and the time and simplicity involved in such process" [11, 2006, p.46].
Generally, Kazakhstan was included by EBRD to the group of countries which implemented
major reforms; those have carried out a major overhaul of their laws but have shortcomings or
significant limitations either in the laws themselves or in their implementation.
So Kazakhstan can be assigned to the Level 3 (The countries have made significant
reform efforts but the viability of taking security is still compromised by deficiencies in the
law and its implementation. In these countries full economic benefit of the reform work has
yet to be felt. There is a need to match improvements in the substantive law with progress in
implementation).
Uzbekistan, in contrast to Kazakhstan, as a country with deficient law reforms in
secured transactions, making security of transactions vulnerable, as well as implementation
can't place Uzbekistan at the level 3. In addition, selling indebted property through auctions is
not stipulated by regulations. The court has priority over secured credit. Moreover
enforcement is very slow and unsatisfactory,
which makes Uzbekistan to be on the Level 2
(Initial reform efforts have been made but much
still remains to be done).
Thus, it can be seen from the overall
picture that Kazakhstan does better in providing
Government Basic Policies than Uzbekistan.
However, in general picture these countries
have to do far more reforms in order to achieve
Figure 10 Results of the study of Government Basic
Policies comparison in Kazakhstan and Uzbekistan
better results in ICT. Thus, it can be conclude that the Government policies influence the
development of ICTs mostly which has shown the results. Kazakhstan has a better condition
of ICTs because of providing of more effective policies (See Figure 10).
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To summarize preceding chapter evaluating basic policies for development of ICTs it
can be said that both of these countries have considerable issues that delay speedy progress of
ICTs.
1) To start with government effectiveness, it should be pointed out that this indicator
has an average level which shows that inflation, national and external budget performance,
situation in foreign exchange transactions, privatization levels, liberalization of prices, capital
market regulations and banking infrastructure have medium level of development. In our case,
Kazakhstan has level 4 and Uzbekistan - level 3. This means that government policies are not
quiet effective in promoting and improving abovementioned issues, which are interrelated
with development of ICTs.
Thus, inflation is high in both of these countries. Budget performance has positive
trends, but main problem is that exports of Kazakhstan and Uzbekistan are based mostly on
raw materials and resources. Foreign exchange transactions in Kazakhstan are mainly
liberalized and Uzbekistan still has problems in providing freedom to foreign exchange
transactions, those are: difficulty of exchanging national currency into foreign, Central Bank
of Uzbekistan makes foreign exchange available for the purchase of consumer goods only
during the first few days of each month. Privatization processes go well in both countries,
however in both of these countries State Telecom operators have not been privatized yet and
although process of privatization was outlined legally, it is still very slow. For example,
Uzbekistan has started privatization of State telecom in 1999, but "without any apparent
success, recently backtracking on this initiative by reducing the available stake to a minority
holding" [12, 2005, p.52]. Both Kazakhstan and in Uzbekistan introduced number of laws
regulating capital markets, but Uzbekistan made less achievements. However, unlike
Uzbekistan, Kazakhstan has been improving its legislation scoring bringing it close to high
compliance category, classified by EBRD. EBRD assessment of Uzbekistan's capital market
regulations resulted in medium compliance with international practice. Several problems were
worsening the overall capital market assessment result: disclosure requirements, nonprohibition of front-running practices.
2) Rule of law is the problematic matter in Kazakhstan and Uzbekistan. Tax avoidances
exist in Uzbekistan due to non-effective taxation. Court system both in Kazakhstan and in
Uzbekistan is not completely independent. Consequently, there are problems with
enforcement and effectiveness of these laws. Concession laws protect interests of government,
but not interests of investors, especially in Kazakhstan State can change or terminate
- 19 -
concession contract unilaterally, ownership of property automatically assigned to state. In
Uzbekistan government can't change concession contract unilaterally, however it has
preemptive right to purchase the product from concessionaire.
3) Anti-Corruption
The problem of corruption is itself represents a big issue. Kazakhstan addresses anticorruption issues fairly well, nonetheless job positions and descriptions should be defined
clearly and the enforcement should be monitored by independent auditors. Uzbekistan needs
to combat corruption on legislative basis, i.e. the Law on combating corruption hasn't been
introduced yet.
In addition, as India's case study of India shows, there is possible to develop a zero
tolerance for corruption initiative [29]. According to this initiative, website provides practical
information on how to complain corrupt acts, it also published the names of officers, against
whom investigations have been ordered or penalties imposed for bribery.
4) Corporate governance has several problems in registration of private firms,
protection of private firms by law, taxation and legal issues.
It is rather difficult to register a new firm in both countries due to complexity of the
registration process. There are too many procedures to open a firm, and register a property,
which, in addition, takes a lot of time. Cost for opening new firm and register a property is
also very high, especially in Uzbekistan. Legal rights of firms are not strong: creditors may
sell collateral in case of bankruptcy and debtor does not retain controls of the firm. Regulation
on Corporate governance does not ensure transparency and disclosure of company
information, as well as partiality of courts and corruption remains to be main problems in
Kazakhstan. Uzbekistan also has many problems like independence of auditors, key
executives are not assigned by shareholders, financial reports are biased. Finally, national
accounting standards do not comply with international standards.
5) Secured Transactions of proprietorship are not ensured. Proprietary security and
legal framework for secured transactions have some problems mainly in Uzbekistan. The
pledges and mortgages have to be notarized, which takes more time and expenses. And there
is no general system of registration in Uzbekistan.
The legal framework for secured transactions shows that there is a serious barrier in
legal protection of secured transactions: that is weakness of courts, i.e. corruption in the courts.
In Uzbekistan there is another problem: Civil Code contains general provisions on security
rights on property and is not always well coordinated with specific secured transactions law.
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IV. Recommendations on Changing Basic Government Policies of Kazakhstan and
Uzbekistan
Similar to Kazakhstan, Uzbekistan has also been experiencing one-sided ICT
development effect, addressing development of e-Commerce only. However, recently
Uzbekistan started its work on promoting e-Government by working out the Program on
introduction of e-Technologies in governance in 2007. It is proposed to work out action plan
for enforcing and implementation of e-Government system, taken from the case study of
Kazakhstan. Like in Kazakhstan, special departments within Communication and
Information Agency should be created. They will be monitoring current situation of and
process of enacting goals set in programs and action plans. One department should be dealing
with e-Commerce, and another with e-Government projects.
1) Government Effectiveness. General problem existing in transition countries is
privatization of institutions providing communication services. Thus, Kazakhstan has already
started privatizing key service provider - National Operator. Uzbekistan, should be more
active in privatizing National Operator Uzbek Telecom. For this, on the one hand, it needs to
sell half (49%) of shares to foreign telecom provider in order to increase competitiveness
and quality of communication market. This situation exists presently in Kazakhstan. On the
other hand, Indian case can be followed, which indicates gradual opening up of mobile, fixedline and long-distance service markets.
Kazakhstan should further expand private sector, enforce competitiveness, and
create environment for entering of another national operator by opening up segments of
communication market.
2) Rule of Law. Laws should be revised constantly in cooperation with International
Organizations. It is clearly seen that regulations are enforced in Kazakhstan and Uzbekistan
slowly. Other countries in transition, as well as developing countries experience similar case.
Regulations for Judicial system should be revised by insuring its complete independence from
executive and law-making branches.
3) Anti-Corruption. It is important to work up specific anti-corruption law in
Uzbekistan. In long term, Uzbekistan should address the development of e-Government in
order to provide transparency, openness and effectiveness.
4) Corporate Governance. Kazakhstan should address issue of disclosure and
transparency in accordance with international principles. Additionally, the experience and
competence of courts, as well as market regulators should be dealt as priority issues. It is
- 21 -
important to increase experience and activity of courts, because court orders and procedures
take a very long time, sometimes more than a year.
Uzbekistan should revise accounting regulations in order to bring accounting
procedures to international standards. Auditors' rights and independence should be
guaranteed through amendments in laws. Key organization executives should be assigned by
shareholders.
5) Secured Transactions. Kazakhstan needs to reform the legal framework in order to
achieve progress in secured transactions, as well as draft collateral law so as to create
background for commercial transactions.
Uzbekistan has to apply selling indebted property in auctions, rights of possessors of
property should be protected.
Kazakhstan and Uzbekistan also needs to provide competition in telecoms by entry of
second national operator. Governments should create action plans for gradual elimination of
monopolies in communication, firstly by steady privatizing National Operator and then by
allowing entry of a second operator. Kazakhstan achieved privatization of national operator
by 49% and should address further privatization. Uzbekistan, needs to start privatizing Uzbek
Telecom by reviewing laws with assistance of international organizations.
Independent, separate from the Agency, ICT regulatory body should be created in both
Kazakhstan and Uzbekistan. Independent regulatory body will work effectively in addressing
tariffs, interconnection rules, licensing, concession fees, not allowing national operator
monopolise the market and government interfere with ICT regulation issues through
Ministries,
V. Conclusion
In conclusion, Kazakhstan's and Uzbekistan's policies are closely interconnected with
government activeness in developing ICTs. Government should address effectively not only
ICT regulations, but also create favorable investment environment, which considerably
blockades entering of foreign investors to the market, as well as be itself active in
development of general policies and ICT-related policies.
Evaluation tool has shown that Basic Government policies have weak development. So
Kazakhstan and Uzbekistan are advised to improve general policies by given
recommendations.
- 22 -
Corruption, corporate governance and secure transaction of property remain to be main
problems in developing of ICT infrastructure. These findings need to be addressed and
enforced in the nearest future in order to keep up with developing countries.
Political matter still plays great role in development of ICTs. Many governments do not
want to provide openness of information by effectively controlling access to internet. In
addition there is no government willingness to develop SMEs freely, because laws often
happen to provide insecurity and freedom, court system is not fully independent.
Recent tendencies in Central Asian countries show that all of the leaders of states tend
to get life-long rule of the government, like in Kazakhstan.
And finally, The evaluation tools can be applied for other developing countries,
especially those countries which are in state of transition from planned economy to market
economy, because starting points and general economic situation are similar to Uzbekistan's
and Kazakhstan's.
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42. Central Asia covers five countries of former Soviet Union (Kazakhstan, Kyrgyzstan,
Tajikistan, Turkmenistan, Uzbekistan) and Afghanistan
43. Front-running is a practice in which a dealer executes a trade for itself based upon impending
nonpublic information about a pending customer order. Brokers or dealers that have advance
knowledge of a block transaction in a particular security may improperly benefit from that
knowledge by predicting the effect of the transaction on the price of the security.
44. intellectual property rights, vehicles
- 25 -