“Business Challenge Fund”: an innovative approach to development

BUSINESS CHALLENGE FUND
Mr. Munir Masumov, General Director of JV “Khujand Packaging” explaining the process of the juice production; © UNDP AfT project (Tajikistan)

Tajik businesses, who work in the field of processing agricultural products, are not competitive for many reasons. Many enterprises still use outdated equipment and technologies. Without modernization of production facilities, these businesses are not able to focus on the export market. Furthermore, small and medium-sized businesses often face the challenge of limited funding when dealing with issues related to the expansion of production and the introduction of new technologies. Annual interest rates remain very high and range from 24 to 38 percent.

“One of the main problems of the agricultural sector in Tajikistan is the processing of products”, said Mr. Abdurahmon Huseinov, the chairman of the Association of Entrepreneurs of Sughd region. “It's not only about dealing with horticultural products. We still do not have facilities for processing cotton; as well as only a small assortment of vegetables and fruits. As a result, we have to import clothes, fabrics, juices and other beverages, canned products, and many other goods that could be produced from domestic raw materials.”

In order to change this situation, UNDP together with partners and the active participation of local authorities in the framework of UNDP’s Aid for Trade project introduced a new funding mechanism in Sughd oblast. The “Business Challenge Fund” will be used to support innovative business ideas that will modernize and renew production facilities, expand production, improve the quality of processing, manufacture new products, create jobs and increase export and import substituting goods. The applications for funding are reviewed not only by the organization issuing the credit but also by the Public Council - Project Proposal Evaluation Committee, comprising of representatives of business associations and oblast’s public authorities.

Highlights:

  • “Business Challenge Fund” created to support innovative business ideas
  • LLC “Elita Istaravshan” expected to increase the volume of exports by at least 50%
  • LLC “Elita Istaravshan” planning to employ 12 additional people of which at least eight will be females

One of the first beneficiaries is Munir Masumov, General Director of JV “Khujand Packaging”, who presented his idea to the “Business Challenge Fund”: “In recent years our export potential has significantly decreased. A few years ago, almost all of our products were sold to CIS countries; today the percentage reduced by almost half. The problem is not, that we are producing inferior quality products, but that in recent years the customer’s requirements on packaging and product range have substantially increased. Moreover, we bear big expenses due to the high energy intensity of the old equipment, which affects the cost of our products. We decided to install a new flexible production line, making it possible not only to increase the range, but to improve the quality of products and packaging. Through this funding, we will buy the equipment and the technology that will allow us to effectively control critical points to ensure compliance with the food safety requirements, in other words, to ensure compliance with international standards. We hope that with the help of BCF’s support we will restore our export potential”.

Another beneficiary who has received preferential loan from the established Business Challenge Fund, is LLC “Elita Istaravshan”. The enterprise is dealing mainly with processing fruits and vegetables and production of juices. In 2012 the company has produced 800 thousand jars, more than 412,000 of which were exported. Now “Elita Istaravshan” is installing a new technological equipment/line which became possible through the support from BCF. It is expected that production will increase to 1.5 million jars and the volume of exports will increase at least 50%. Moreover, the enterprise is planning to employ 12 additional people of which at least eight will be females.

“The quality of our products meets international standards. Moreover, we have an advantage compared to enterprises of Turkish, Iranian, Caucasian processing industries due to palatability of fruit and vegetables grown in Tajikistan”, says the General Director Ikhtiyor Abrorov. “Our main problem was the packaging. Thanks to the preferential loan that we received from the Business Challenge Fund, we have the opportunity to use new processing and packaging methods. Before the new harvesting season we hope to install and adjust a new production line, which should address not only the issues of quality, but also increase the production volume and improve food safety. We are hoping that in the next two years we will enhance our image, which will help us to open new markets for our products.

We will look at the markets of Ukraine, Belarus, Baltic States and other European countries and try to find partners to sell our products", said Chairman of the Board of Directors of LLC "Elita Istaravshan" Mr. Hairiddinov.

Essential to the idea of creating the “Business Challenge Fund” was the fact that the established mechanism does not only aim at upgrading the production facilities, but through this also addresses social problems such as unemployment and the sustainable use of natural resources. Vital social problems can only be solved by creating new and decent jobs, expanding the network of processing enterprises, increasing their export potential, refocusing on the foreign market and producing import-substituting goods. The production of competitive end products for the world market will become a source of income, which will raise the living standards and diversify domestic production. Moreover, the task becomes even more important in connection with recent accession of Tajikistan to the World Trade Organization (WTO) and the new opportunities for the development of new markets for Tajik entrepreneurs.