Improving the Legal Environment for Business and Investment in Central Asia

Executive summary

Central Asia has proven relatively resilient to recent shocks

Recent economic shocks, including the COVID-19 pandemic and Russia’s large-scale aggression against Ukraine, and their effects, such as closed Chinese borders and the disruptions of global value chains, have affected the economies of Central Asia in a milder way than expected. Despite the region’s large economic dependence on its two large neighbours, the five Central Asian states have so far shown great resilience to the economic headwinds: remittances registered record-high figures in 2022, national currencies quickly rebounded to pre-war levels after an initial drop, trade significantly increased and an influx of skilled workers from Russia boosted demand for services and hospitality. However, as the medium-term effects of the sanctions against Russia, the global cost-of-living crisis, and China’s economic slowdown have started to unfold, Central Asia faces lingering uncertainty. The aftermath of these developments could also further impede income convergence with OECD and EU economies, which had already started to slow in the aftermath of the global financial crisis. Meeting these challenges requires addressing remaining gaps in the business and investment climate, foregrounding the need for long-term reforms to encourage investment and private sector development.

This report assesses progress made in improving the legal environment for business and investment

This report presents an updated analysis of the work carried out by the OECD in 2019-2020 along several crucial dimensions of the legal environment for a healthy business climate: the legal and regulatory framework for investment; tax regulations; land legislation; registration procedures; contract enforcement and dispute settlement; the operational environment for firms; trade facilitation, expropriation regimes; exit mechanisms; and public-private dialogue. Each priority area identified in each country in the initial report was updated following the monitoring.

Unleashing the potential of private sector development in Central Asia requires the stability and transparency of the legal environment for business as well as improved regulations. The implementation of predictable rules, the creation of a level-playing field between private firms and state-owned enterprises (SOEs) and a competitive environment are cornerstones to encourage companies to invest and grow in the region.

Implementation gaps and interpretation issues remain problematic

Many of the essential components of the business environment mentioned above are already in place at different levels in the region, but legislative gaps, inconsistencies and implementation challenges remain. The report finds that, while great strides have been made in areas such as digitalising government services and streamlining business procedures, governments’ efforts to undertake structural reforms have remained uneven and have been further impeded by the impact of external shocks requiring short-term responses. Issues most frequently mentioned by the private sector relate to the uneven implementation of de jure provisions, as well as disagreements related to the interpretation of the law, as is often seen, for instance, in tax policy. In addition, the need for the governments to ease the strain on public finances following afore-mentioned shocks has sometimes prevailed over the desire to ease the fiscal burden on firms.

Addressing the gaps highlighted in the report can help the region adapt to unprecedented environmental, social, and economic challenges

Filling the gaps in the legal environment for business will help increase the region’s resilience to future shocks. The risks associated with climate change have significantly increased in Central Asia, whilst inflationary pressures have downside effects on purchasing power and social stability. Implementing structural reforms to make the business environment more conducive to entrepreneurship and private sector development could help achieve the overarching goals of energy security, climate resilience and social inclusion and, more generally, unleash sustainable and inclusive growth over the long term. The governments of the region have committed themselves to a wide range of needed structural reforms. Delivering on these commitments will prove daunting but can lay the foundations for more resilient and inclusive economies and societies.