Sustainable Income Generation Project of the United Nations Development Programme

Government of the Republic of Uzbekistan

United Nations Development Programme

SUSTAINABLE INCOME
GENERATION
PROJECT DOCUMENT
Brief description

The overall objective of the Project is to strengthen capacities of national and local institutions to
conceive and implement employment generation and poverty reduction initiatives. This ultimate
objective should be addressed through a two-fold approach:

- to strengthen capacities of central and local government and non-government institutions in

cross-sectoral policy analysis and formulation through elaboration of a Regional Development
Strategy for Kashkadarya Region;

- to strengthen capacities of regional and local institutions in conceiving and implementing

employment generation and poverty reduction initiatives through training in institutional
development for existing institutions and piloting new initiatives to be advanced further within
the framework of UNDP’s new country programme for Uzbekistan for the period of 2005-
2009.

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CONTENTS

Part 1. Situation analysis 3

Part 2. Results and resources framework 5

Part 3. Execution modality and implementation arrangements 6

Part 4. Component monitoring and evaluation 7

Part 5. Legal context 8

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Part I. SITUATION ANALYSIS
The independence and onset of the transition in Uzbekistan coincided with a number of severe
shocks, including loss of Soviet budgetary support, the disruption of trade relations, deterioration in the
external terms of trade, the mass migration of highly qualified professionals and the chaos caused by
the institutional vacuum. To respond to these shocks and to transform its economic system
Uzbekistan followed a policy model different from that adopted in most other transitional economies
and known as gradual approach to transformation.

Though the national reform policy was heavily criticized by IFIs, the country outperformed the rest of
the region during the period of stabilization, sustained a moderate, but acceptable annual rate of
growth of GDP of 3.5-4 percent during the subsequent years.

These relatively encouraging developments are however obfuscated by a number of problems. First,
poverty increased sharply and, to an extent, unavoidably – during the period of contraction-
stabilization period, it then stagnated also during the subsequent recovery due to sluggish growth and
rising inequality. Secondly, inequality has escalated markedly since 1995-96 due to the policy bias that
favoured the urban based, capital intensive, medium and large size enterprises. Third, given the
capital intensive nature of the import substitution model followed since 1995, both the urban and rural
labour markets were unable to absorb into ‘decent jobs’ a rapidly increasing working age population
and labour surpluses existing in agriculture and the state owned enterprises.

The Government has recently been explicitly targeting poverty. In this connection, the Government
has initiated the development of a Comprehensive Mid-term Strategy for Improving Living Standards
with the support from ADB’s technical assistance. It is believed that the strategy would lead to
developing innovative policies, which would involve various national and international partners. The
strategy is considered as a precursor for a full-fledged PRSP and is being aligned to Uzbekistan
specific MDGs.

A wide range of programmes related to support the development of small and medium business and
micro-entrepreneurship has already been launched by the Government earlier. Some recent
commitments of the Government include reforms in agricultural sector, acceleration of privatisation
processes and public administration reform. Still, there is a strong need for further development of the
regulatory framework and adequate infrastructure, which could ensure a more enabling environment
for a vibrant private sector capable to create jobs and contribute to poverty alleviation.

This, among other measures, includes creation and strengthening of institutions, which provide
support to business start up through access to basic knowledge and information, business
consultancy and advice, training, as well as to premises, and access to finance including microloans,
microleasing and etc. Furthermore, both the Government and donors acknowledge the role of
community-based organizations in social mobilization and the need for increasing participation and
involvement of communities in sustainable and economic development at local levels.

In line with these priorities UNDP has supported initiatives related to creating a more enabling
environment for developing the SME and microfinance sector, including capacity building of local
NGO’s providing microcredits and support to emerging micro and small businesses. Ongoing activities
are particularly related to establishing a network of rural business incubators and support to
microfinance schemes in selected regions.

UNDP has supported the establishment of 13 business incubators in the form of NGOs. The business
incubators received renovated premises and were equipped with office equipment and furniture. 13
managers for business incubators were selected on a competitive basis and recruited to perform their

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managerial duties. Business incubators’ managers were trained on fundamentals of business
incubation, marketing, accounting and business planning.

UNDP has supported the development of the microfinance sector through: i) contributing to the
development of enabling regulatory framework for non-banking microcredit operations based on the
experience gained by UNDP in pilot microcredit schemes; ii) building the capacity of three NGOs
providing microcredits in Karakalpakstan and Kashkadarya regions.

Concrete operations at the local level have shown that local authorities and communities are very
much interested to contribute and participate in the implementation of employment generation
projects. Through this project UNDP will seize upon this opportunity and expand its interventions at
the local level.

Within the framework of the present project UNDP will continue its support in introducing and piloting
various alternative decentralized income generating schemes and initiatives in cooperation with local
authorities, community based organizations, micro and small enterprises. Particular focus will be made
on rural development, involving farmers and rural cooperatives and enterprises.

Success with such kind of pilots would enable UNDP to promote further policy dialogue and support
Government in policy formulation and in implementing the national medium term strategy of improving
living standards.

Special attention will be paid to ensuring effective coordination and synergy with other UNDP’s
initiatives both at the county level and sub-regional level, as well as, with programmes and initiatives
of other donors in the area of SME development. During 2004 UNDP will also start up the
implementation of EC funded projects aimed at improving the living standards in Karakalpakstan and
Ferghana Valley. These projects will be built on UNDP’s lessons learned and experience in
addressing poverty and employment generation through microcredit schemes and SME support. The
EC funded projects will also be closely coordinated with the present project in order to ensure
synergies, strengthened networks and exchange of experiences.

In Kashkadarya region, on a pilot basis, the project will apply more integrated regional approach
through elaboration of a pilot Regional Development Strategy. Elaboration of this regional strategy will
facilitate synergies between existing and planned programme activities and ensure a more effective
use of programme resources.

All the above will require upgraded knowledge, experience and institutional capacities of local
institutions, which should play a more active role in launching new income generating initiatives in
partnership and cooperation with other institutions and local authorities. This will also require capacity
building both at national, regional and local level in strategic planning.

Part II. STRATEGY

The Project will aim at consolidating and sustaining the results of the activities initiated within the
framework of the Preparatory Phase of the Sustainable Income Generation Project.

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The overall objective of the Project is to strengthen capacities of national and local institutions to
conceive and implement employment generation and poverty reduction initiatives. This ultimate
objective should be addressed through a two-fold approach:

- to strengthen capacities of central and local government and non-government institutions in

cross-sectoral policy analysis and formulation through elaboration of a Regional Development
Strategy for Kashkadarya Region;

- to strengthen capacities of regional and local institutions in conceiving and implementing

employment generation and poverty reduction initiatives through training in institutional
development and piloting new initiatives to be advanced further within the framework of
UNDP’s new country programme for Uzbekistan for the period of 2005-2009

In particular, the Project during the year 2004 will focus on the following four key components:

1. Strengthening institutional capacities of the existing microfinance and business advisory

institutions (BINCs) to ensure their operational sustainability. At the end of the Project the staff
and the core local partners of the 13 business incubators and 3 MFIs will have been equipped with
core management and accounting system and procedures, and will have prepared their respective
business plans and development strategies. The staff of involved institutions will be trained in
development of new products and services. Such kind of training would particularly make a focus
on strengthening capacities in needs assessment and evaluation of impact of piloting and
launching new schemes and products.

2. Development of new products (schemes, services) and strategies for employment creation,
promotion of micro and small entrepreneurship and improving livelihood in rural area based on
local initiatives and participation. Involved institutions will be encouraged through a series of
training to develop their own initiatives (sub-projects) offering new products and services for
employment promotion and social/community mobilization. The most well-conceived initiatives
(sub-projects) will be financially supported by the Project. Particular attention will be given to
initiatives that
- address issues of income generation and employment creating;
- are innovative;
- involve partnership of at least two local partner institutions;
- co-funded by local institutions to ensure strong ownership.

A scheme for funding of these local initiatives will be developed jointly by the project and partners in
central and local government. The scheme will include specific criteria and a monitoring/assessment
strategy. The Project Steering Committee will endorse the scheme, including detailed criteria of project
selection and the mechanisms of disbursements.

It is expected that the initiatives that prove to be most successful will be replicated at later stages in
other regions of the country.

3. Establishment of a coherent and meaningful partnership with respective national and regional
authorities and local institutions in Kashkadarya region in order to initiate development and
launching of a regional development strategy (TOR is attached). The Project will pioneer the
preparation of a regional development strategy in Kashkadarya. In line with this, key partners in
central and local institutions, including representatives from private sector and civil society will be
trained in instruments and tools for development and implementation of regional development
strategies. Such a Regional Development Strategy would be both a product and process oriented
exercise promoting capacity building at national and regional level in regional policy analysis,

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 strategy planning and dialogue at the regional level, and in elaborating regional and local
initiatives. The exercise will contribute input to the preparation of the National Human Development
Report (NHDR) 2004 on decentralization.

4. Elaboration, based on the lessons learned and experience gained, of a comprehensive vision for
UNDP cooperation in the area of poverty reduction and employment generation for the new
programme cycle. A programme formulation mission will be placed in the third quarter of 2004 in
order to formulate a new phase of the Project based on the lessons learned during the
implementation. The new Project will have to particularly ensure synergy with EU supported
programmes on Improving Living Standards in Karakalpakstan and Ferghana.

Part III. MANAGEMENT ARRANGEMENTS

The Project will be nationally executed by the Ministry of Economy, which will appoint a National
Project Coordinator. The National Project Coordinator will provide strategic guidance and oversight of
the Project. He (she) will approve annual work plan and other reporting and planning documents of the
Project. National Project Coordinator will have the authority to appoint Deputy NPCs to supervise
different Project components at the national and regional levels.

A Project Steering Committee (SC), chaired by the National Project Coordinator, will be established.
The SC will be responsible for strategic monitoring of the project and for linking the experience gained
by the project with government policy and priorities. The SC will include representatives of key
stakeholders, including representatives from:

- line ministries and agencies (Central Bank, Ministry of Finance, Ministry of Labor, GKI)
- regional authorities;
- NGOs, business associations;
- UNDP;
- Donor community.

At least three SC meetings are to be conducted during the current phase of the Project:

- within a month after the endorsement of the Project document for the approval of detailed
annual work plans for the Project and individual Project components’ baselines and indicators
to monitor the progress;

- in four months after the endorsement of the Project for the assessment of the progress in
Project implementation and approval of criteria for selection of schemes and mechanism of
disbursements of grants on a competitive basis;

- at least one month prior to the end of the current phase of the Project for overall assessment of
the Project and discussion of future steps.

A Project Manager (TOR is attached) will be recruited to plan, coordinate and monitor the Project
activities, ensure synergies and upstream dialogue, build strategic partnerships and networks,
organize Project communication and outreach activities. The Project Manager will receive overall
guidance from the National Executing Agency and will report to the UNDP Country Office
Management on substantive Project implementation matters. The PM will hold an overall responsibility
for day by day Project management and for the satisfactory achievement of the Project objectives.

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The Project Manager will be supported by a non-resident Chief Technical Advisor (TOR is attached). It
is particularly expected that CTA would concentrate his (her) efforts on development of new schemes,
products, services and initiatives aimed at community development, job creation and income
generation to be piloted by local institutions in partnership with private sector, civil society and local
authorities.

National experts on institutional development, business support, microfinance and regional

development strategy will coordinate different components of the Project respectively. The national
experts will provide advisory and facilitation support to activities in the regions and will be responsible
for elaborating the strategic approach of the Project in the respective areas.

Relevant Project outputs and activities will be implemented and coordinated locally in close
cooperation with the local authorities in Karakalpakstan and Kashkadarya. This approach will
contribute to building capacities at the local level for strategic planning and management, and will
ensure that activities are aligned with local priorities.

Field coordination units will be established in Nukus and Karshi in order to coordinate Project
implementation at the regional level.

An administrative support unit will be set up in Tashkent to provide financial management,

procurement and human resource support to all Project activities. The establishment of a centralized
unit in Tashkent will benefit from economies of scale and will enhance efficiency. The establishment of
a central administrative support unit within the Project will pilot the business center concept.

Part IV. MONITORING AND EVALUATION

Monitoring and evaluation of Project operations will take place regularly. This regular monitoring will
also include risk assessment at each step of programme implementation. The National Project
Coordinator will receive quarterly progress reports from Project Manager, CTA and national experts
against agreed indicators, according to the agreed time scale and within the agreed budget.

The Project Manager, on the basis of progress reports and plans of consultants, experts, sub-
contractors, will prepare quarterly workplans and reports to be approved by the NPC and UNDP
Resident Representative.

Project staff and its primary partners and stakeholders will meet on a monthly basis to discuss ongoing
project activities and adjust interventions as necessary.

An independent review and assessment of the impact of the project will be undertaken prior placing
Project formulation. This review will provide substantial inputs for the elaboration of the new
programme. At the onset of the project, the NPC, UNDP and Project Manager will agree on the
country programme outcome and output indicators, baseline, and targets.

A terminal tripartite review (TPR) meeting will be organized one month prior to the completion of the
project. A final report will also be prepared by the Project Manager, comprising a rating and textual
assessment of progress in achieving the project objectives and a presentation of issues risen by
stakeholders regarding implementation for consideration. It shall be prepared in draft sufficiently in
advance to allow review by all parties prior to this terminal review.

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Part V. LEGAL CONTEXT
The Project shall be an instrument referred to as such in article one of the Standard Basic Assistance
Agreement (SBAA) between the Government of Uzbekistan and the United Nations Development
Programme, signed on 10 June 1993. The host country implementing agency (or executing agency)
shall, for the purpose of the SBAA refer to the government cooperating agency described in the
relevant country agreement.

The following types of revisions may be made to this project document with the signature of UNDP
only, provided that the organization is assured that the other signatories of the project document have
no objections to the proposed changes:

(a) Revisions in, or addition of, any of the annexes of the project document;

(b) Revisions that do not involve significant changes in the immediate objectives, outputs or activities
of a project, but are caused by the rearrangement of inputs already agreed to or by cost increases due
to inflation.

SIGNATURE PAGE
Country: Uzbekistan

UNDAF Outcome(s)/Indicator(s): Strengthened national and local level capacity to develop,*

implement and monitor strategies for improving living
standards and reducing poverty
(Link to UNDAF outcome., If no UNDAF, leave blank)

Expected Outcome(s)/Indicator (s): Increased access to quality community based social

services improved and new sources of income created
(Those that are linked to the project, are extracted from the
CP and are linked to the SRF/MYFF goal and service line)

Expected Output(s)/Indicator(s): Regional/local institutions are strengthened to conceive

and implement employment generation and poverty
reduction initiatives
(Those that are linked to the project, are extracted from the
CP and are linked to the SRF/MYFF goal and service line)

Implementing partner: Local Authorities of Karakalpakstan and Kashkadarya regions

Business Incubators and MFIs
(designated institution)

Other Partners: _________________________

(formerly implementing agencies)
_________________________

*
UNDAF Outcome for the new programme cycle covering the period of 2005 – 2009.