Dana Zhunusova, Deputy Chairman of the Board of the Atameken NCE RK, told about imperfections in the practice of issuing industrial certificates and future changes for business.

- Dana Beisenovna, business representatives are actively discussing the Industrial Certificate developed by the National Chamber in social networks. Ould you explain what an Industrial Certificate is and why do we need it?

- An Industrial Certificate is a document confirming that a company has the production. The certificate shows the nomenclature of production, the production capacity of the company. In other words, the presence of an Industrial Certificate is a kind of guarantee that the company is really a manufacturer.

- Why is it important? It is important from the point of view of the maintenance of fair competition between enterprises.

- In the past, we have repeatedly faced situations when false enterprises, without any equipment for production and camouflaging as domestic producers, enjoyed preferences and support measures, won in government and other purchases.

The issuance of the Industrial Certificate is a new function of the National Chamber. Since January 1, 2019, it was enshrined in the Law “On National Chamber of Entrepreneurs”. Full issuance of Industrial Certificates began in March 2019.

In the period from March 1 till present, the Atameken NCE RK has issued 238 industrial certificates including 121 certificates to light industry enterprises, 29 certificates to furniture enterprises, 48 certificates to mechanical engineering enterprises, 15 certificates to IT enterprises, 15 certificates to construction enterprises, 13 certificates to chemical enterprises, 1 certificate to a medical enterprise, 1 certificate to a cellulose and paper enterprise. 

Globally, we strive to form a unified and reliable register of domestic manufacturers to understand our real production capabilities at the level of the Republic. Of course, this is extremely important for the formation of an effective industrial policy and development of support measures.

- What are the advantages of the Industrial Certificate?

- With the support of the Government and the Deputies, we have achieved significant privileges for holders of the Industrial Certificate.

For example, since 1 July 2019, the public procurement of the light and furniture products is carried out only through the Prequalification Selection, which requires an Industrial Certificate. As a result, in H2,2019, purchases for more than KZT 4.3 billion were held only among domestic producers.

In particular, purchases of the light industry goods were made for KZT 2.9 billion among 39 domestic manufacturers, furniture industry - for KZT 1.4 billion among 22 domestic manufacturers.

We plan to carry out similar work in other sectors as well.

Also, from January 1, 2020, the availability of the Industrial Certificate along with CT-KZ allows entering the Register of commodity producers of the Samruk-Kazyna holding, and from March 31, 2020 - it will be enough to have only an Industrial Certificate. This is a great opportunity for domestic commodity producers, given that the annual volume of procurement of goods by the Fund is about KZT 1.9 trillion.

At the same time, it should be understood that an Industrial Certificate is a document that confirms the availability of production, but does not determine the share of local content and origin in a particular batch or unit of goods. Thus, the Industrial Certificate is not an analogue of the CT-KZ certificate.

Priority to domestic producers with an Industrial Certificate is now also provided in the state defense order.

In addition, a number of measures of state support for export promotion, such as reimbursement of expenses for advertising, participation in exhibitions, maintenance of trade areas and warehouses, delivery, certification abroad, will be provided only to enterprises that have confirmed their status as manufacturers with the Industrial Certificate or with the CT-KZ certificate.

We plan to continue working on expanding the scope of the Industrial Certificate, both for the purpose of access to procurement and in general to analyze the level of technological development of enterprises and develop other support measures based on this.

- The issue of the financial component has been raised. Is the issuance of the Industrial Certificate chargeable?

- The issuance of the Industrial Certificate consisted of two stages:

1. An analysis of the state of production by an industry expert appointed by the industry association;

2. Formation of the register of domestic producers of goods, works and services and issuance of the Industrial Certificate by the Regional Chamber of Entrepreneurs.

At the insistence of the branch associations, the work of the branch expert at the first stage is carried out on a paid basis: at a rate up to 10 MCI or KZT 26,510 for one working day. The flight and accommodation of the branch expert are also paid separately: about KZT100,000-150,000. In total, if you take an average of 7-10 days to conduct the examination, you get about KZT200,000-400,000.

The actual issuance of the certificate by the National Chamber, i.e. the second stage, is free of charge. Thus, the Atameken NCE RK does not receive a single tenge for the issuance of an Industrial Certificate. This despite significant expenses of the organization such as maintenance of the Electronic Certification System (KZT 80 million annually), maintenance of additional staff (about KZT 110 million annually), verification and audit procedures, participation in legal proceedings (more than KZT 8 million annually).

At the same time, we see that there are various questions about the requirement to pay the Mandatory membership fees (MMF) to obtain the Industrial Certificate. It is necessary to stop the substitution of notions.

The Mandatory membership fee is not a fee for obtaining the Industrial Certificate. By law, private entrepreneurs are required to pay the mandatory membership fee as members of the National Chamber. At the same time, by the decision of the Congress of the Atameken NCE RK,  small business is exempt from paying the MMF until 2022. Thus, in fact, only 2 per cent of all business entities are subject to the obligation to pay the contribution.

Moreover, 58 companies, about a quarter, out of 238 enterprises that have already received the Industrial Certificate are exempt from the MMF.

- How were the Rules for issuing the Industrial Certificate developed? Have all opinions been taken into account?

- The discussions on the Rules began more than three years ago. We held more than 50 meetings, round tables, videoconferences, etc. Of course, all interested persons were involved in this work - business, associations, government agencies.

The rules were developed for so long, partly due to the fact that there were a number of fundamental disagreements.

If we recall, one of the main issues in the discussion of the draft Rules was who would conduct the examination of the technological process of enterprises. The associations expressed the position that they, as branch associations with relevant specialists and experts, should conduct an expert examination of enterprises.

In the end, the National Chamber came to the conclusion that the Rules included a norm - to conduct an expert examination of the technological process by industry experts recommended by the associations.

- What difficulties did you encounter in practice in issuing the Industrial Certificate?

- As I mentioned above, today the Industrial certificate is implemented in public procurement, procurement by the Samruk-Kazyna Fund, as well as the state defense order.

And the effect for companies - owners of the Industrial certificate is really significant.

At the same time, during the analysis of the effect for domestic producers from the application of the Industrial certificate, we have encountered cases of unfair participation in government procurement and misuse of the Industrial Certificate.

Thus, for example, there are facts of participation of companies that received the Industrial Certificate as a producer of light industry products in purchases of furniture industry goods.

Moreover, such companies took part and were determined as the winner and delivered the goods.

Another example is that a company working in the furniture industry received an Industrial Certificate and was included in the Register of qualified suppliers.

However, the application for participation in the purchase of chairs indicated the country of origin of the supplied goods - the Republic of Ukraine, which does not meet the purpose of the Industrial Certificate in procurement.

As part of our joint work with the Center for Electronic Finance on monitoring of public procurement, we identified this fact. After that, we proposed to improve the Public Procurement Portal by establishing the format and logistics control.

In addition, we are also working with the Ministry of Finance on amendments to the Rules for Public Procurement in terms of establishing a clear requirement to provide only CT-KZ certificate for the delivery of goods purchased by way of tender with the Pre-qualification and selection stages.

 - Why are the Rules for issuing the Industrial Certificate changed? What is the essence of these changes and what will it do?

- It can be stated that during six months the practice of issuing the Industrial Certificate allowed identifying defects in the process of issuing certificates.

Problematic issues have arisen since the first stage of issuance, i.e. from the selection of a sector expert to getting the conclusion of the sector expertise. It is possible to allocate the basic from them.

First, there is an acute shortage of sector experts, especially in the regions.

As of today, for example, the Union of Machine-Builders of Kazakhstan has allocated only 6 experts to conduct an expert review. At the same time, there are more than 2.2 thousand enterprises in the machine-building industry in Kazakhstan. It turns out that this is one expert per 375 companies.

Similarly, there are only 15 experts per 1,030 companies in the light industry and 7 experts per 905 companies in the furniture industry.

The shortage of experts at the stage of sectoral expertise has become a kind of "narrow neck" for entrepreneurs. Therefore, taking into account the opinion of the business, we consider it necessary to establish in the Rules the requirement to define at least one industry expert in each region.

Secondly, it is a lack of clear industry criteria for conducting an analysis of the state of production. For example, there is no classification of types of activities by codes by industry, there is no gradation of enterprises by size - small, medium, large. Thus, everything boils down to a subjective assessment by an expert in the industry, which entails certain risks.

In this regard, we insist on the approval by the Associations for each industry criteria for the analysis of the state of production, with the approval of the Committee of Industrial Development and Industrial Safety of the MIID RK and the Atameken NCE RK.

It is worth noting that the Association of Furniture and Woodworking Industry of Kazakhstan is the only industry association that has developed such industry criteria and expresses an active and constructive position on improving the mechanism for issuing an Industrial Certificate.

Unfortunately, other industry associations are not so active in this area.

Thirdly, there is a lack of clear regulation of the inclusion or exclusion of industry experts by the Associations, as well as regulation of their interaction.

As of today, there are no even qualification requirements, attestation and approval procedures for candidates. The rights and obligations of experts and Associations, fines for violations, reporting, mechanisms of control over the activities of the expert are not defined.

Fourth, the process of interaction of associations and experts with applicants for the Industrial Certificate is not regulated. That is, the terms and procedures of the expert examination, the amount of payment, etc. are not defined.

To solve these problems with a view of the maintenance of transparency and assignment of responsibility of the involved parties, we suggest carrying out automation of all business process with the inclusion of all participants.

To solve these problems, in order to ensure transparency and accountability of the involved parties, we propose to conduct automation of the entire business process with the inclusion of all participants in the mechanism, as well as to introduce electronic standard contracts with the indication of work regulations, responsibilities, qualifications, terms, fines for failure to comply, etc.

Fifth, at present the Industrial indicates the codes of the unified nomenclature reference of goods, works and services for each produced product. However, the unified nomenclature reference of goods, works and services is not a state codification system, it is not a static and comprehensive reference book. New codes can be created on a daily basis.

Accordingly, businesses will have to make the Industrial Certificate changes for each minor change in the codification or after each addition of new codes to participate in the procurement. This is costly and impractical. Therefore, we propose to exclude the unified nomenclature reference of goods, works and services’ codification field from the Industrial Certificate.

In addition, other changes and additions to the Rules include:

- control by the Chamber’s central office to identify risks of irregularities in the issuance of the Industrial Certificate;

- strengthening qualification requirements for industry experts;

- strengthening the responsibility of experts, associations and regional chambers of entrepreneurs, etc.

 I would like to note that the Industrial Certificate is potentially one of the most effective tools to support real producers in Kazakhstan. We see that the Government is taking concrete measures on this issue.

But it is also important for entrepreneurs and industry associations to understand the responsibility of this work, taking into account that the domestic manufacturers open access to procurement of the state and quasi-sector with huge budget funds. As the President noted at the enlarged session of the Government on July 15 last year, one should not forget about counter commitments, so the domestic manufacturers and business, in general, should meet the Government.