Giorgi Tskhakaia is an International Consultant with up to 17 years of demonstrated working history in the management consulting industry. While serving on the highest executive positions in Georgia for over 8 years, such as Deputy Minister of Economy, Deputy Minister of Justice, Director General of Revenue Service of Georgia/Deputy Minister of Finance, Deputy Mayor of Tbilisi, etc., led primary institutional and legal reforms of the country. Since 2012, after leaving the governmental job, for 10 years as an International Advisor and/or Team Leader Giorgi has been working on major regulatory and institutional reforms in 18 countries in recognized donor funded projects, such as World Bank, IFC, USAID, etc. Giorgi is a PhD candidate in management and holds his Master’s Degree in Economy and Finance (2005 — 2007). Giorgi completed Executive Management program at Stanford Graduate School of Business (2011 — 2012).

Licensing reform rarely occurs in isolation. Often, improving the business licensing system is only one of the points of a country’s reform program aimed at improving the business and investment climate. Complex, repetitive, duplicative, lengthy, costly, and multi-step procedures and processes become a heavy burden on business, which consequently becomes a serious obstacle to doing business in many countries. Those trying to improve the business climate in their countries are putting the modernization of the licensing system at the heart of their reforms.

Licensing reform should aim to cut the number of permits and licenses to a possible minimum, reduce coverage of licensing (the share of businesses requiring licenses or permits) with only the necessary licenses remaining in place; the reform also should strive to streamline and simplify a myriad of requirements along with the procedures for issuing licenses.

In Uzbekistan, there were a total of more than 260 public services related to the issuance of licenses and permits, most of which were provided offline and took up to 6 months to process. To reduce the bureaucratic burden and the risk of corruption, UNDP and the EU, in cooperation with the Ministry of Justice, within the framework of the joint project “Improving Public Service Delivery and Enhanced Governance in Rural Uzbekistan”, supported the Government in the digitalization of the licensing system through the creation of an online licensing platform — the “License” information system. Since the launch of the portal in 2021, more than 310,000 applications have been processed online, saving billions in applicant amounts and more than 750,000 sheets of paper.

A good licensing regime is usually based on framework laws that protect the licensing system from constant and unwarranted changes in the regulatory framework, which in turn provides transparency, stability, and predictability for businesses.

The Law defines the types of activities subject to licensing, defines the criteria for obtaining licenses and introduces the fundamental principles for the prevention of corruption and the streamlining of the licensing system, such as:

  • introduction of an exhaustive list of all applicable licenses in the country,
  • conversion of licenses into simple notification procedures and/or information type acts,
  • the introduction of a mandatory “Single Window” principle that changes the behavior and organizational culture of licensing authorities and fundamentally reforms the way they provide services, transforming them into a more service-oriented organization;
  • the introduction of a mandatory principle, such as “silence means consent”, allows for the establishment of strict deadlines and detailed procedures not only for applications, but also for the processing of applications and the issuance of licenses and permits within the legal deadlines, thereby transforming public authorities into an efficient and responsible organization, always complying with legal obligations and deadlines;
  • introduction of a risk-based approach to licensing regulation;
  • placing the burden of proof on public authorities wishing to preserve the rules to prove their worth, etc.

After re-engineering each business license, as a final step, the full implementation of electronic applications and payment systems for business licensing should be facilitated.

Rationale behind the business licensing system reform

Business environment reforms, including licensing reform, in general, should aim to enhance the business climate and increase transparency and accountability in the process of starting and operating a business, cut the number of permits and licenses to a possible minimum, reduce coverage of licenses (the share of businesses requiring licenses or permits) with only the necessary licenses remaining in place.

The reform also should strive to streamline and simplify a myriad of requirements along with the procedures for issuing licenses, and in a result of all reform initiatives, a complex, time-intensive and costly system, leading to a high level of bureaucracy and sometimes to corruption, shall be transformed into a systematized and simplified licensing regime brought under a rational and efficient regulatory and legislative framework.

It should be noted that within the scope of the business licensing reform falls a wide variety of licenses (the word “license” is used throughout the document as a broad term, as any document providing the entrepreneur with a right to perform a certain activity), such as the issuance of licenses and all types of documents of a permissive nature, prior authorization, prior approval, accreditation, certification, prior declaration, notification, registration, or inclusion in state registers, etc.

The fundamental intention of a licensing system to be pursued should be to prevent the materialization of the potential risks inherent to the economic activity carried out by a private business subject to regulations. Thus, a modern and viable business licensing system should be of service to achieve the legitimate regulatory objectives pursued by the government and safeguard the public from materializing potential dangers.

But how to measure the legitimacy of a licensing regime? There is a very simple way — by taking the list of questions provided herein, it gets easy to find the answers to this issue:

  • Why is a particular license needed?
  • Is this used to protect public health, human lives, and/or health?
  • Is it vital to protect public safety?
  • Or is it of use for protecting the environment and preventing pollution?
  • Maybe helpful for protecting national security?
  • Or in the service of allocating scarce resources, including natural resources?
  • If the license protects against risks, then is this the best regulatory option to be used, or are there other regulatory options that would be more cost-efficient and aimed at preventing those risks?
  • Would simple notification provided to the inspection body and performing planned and unplanned inspections be as effective and efficient as a license tool?
  • Would different types of official controls, such as documentary checks, physical checks, sampling, laboratory analysis, monitoring, and market surveillance, be more low-cost options than licensing tools?
  • Would complete or partial deregulation and/or passing over to self-compliance schemes be an effective answer and more practical solution?
  • How the application of the above-mentioned regulatory models would impact the business behavior — would the overall compliance, as well as a level of safety, improve or decline?

If not designed properly, the licensing regime becomes a major obstacle to doing business in a country. Complicated, repetitive, duplicative, lengthy, costly, and multi-step procedures and processes become a heavy burden for the business community to comply with, or if compliant — then it is achieved with a high cost for businesses, especially for SMEs, which constitutes an overwhelming majority in the corporate structure of an economy.

Descending from over-regulation and red tape, profits and incomes of businesses are cut, and employment and job creation go downwards, which in turn lowers the levels of productivity and wealth accumulation and facilitates increasing the informality and shadow economy and creating a corruption-favorable environment.

But above all, these are done at the cost of public health and human lives, public safety, national security, and the environment, which means that an improperly designed licensing system not only fails to serve the legitimate regulatory objectives but also puts at risk the aforementioned values and national interests.

Reform design and implementation (step-by-step approach)

  1. Inventory, analysis, and study of each existing license/permit issued by governmental agencies.
  2. Assess the regulatory impact of each existing permissive document on the business community, especially on SMEs.
  3. Study all the related processes and procedures for issuing each permissive document.
  4. Assess different scenarios and risks associated with the abolition of each license or transformation into a different regulatory mechanism
  5. Study institutional capacities of the issuing authorities, including available ICT tools and level of digitalization.
  6. Assess the potential of transferring official regulation on each type of entrepreneurial activity into the hands of the business community associations and organizations when and where self-regulation is considered feasible and a more efficient mechanism.
  7. Assess the feasibility of transferring controlling functions over conditions of licenses to independent third-party organizations.
  8. Cancellation or conversion of those licenses that do not serve legitimate purposes or do not prevent risks to human life or health, the environment, property, etc.
  9. Develop a regulatory framework for the remaining activities subject to licensing and permitting, based on best practices and considering the context and realities of the country.
  10. Determine an appropriate control system and appropriate procedures for obtaining licenses and permits in accordance with their level of economic, social and environmental risk.
  11. Development of an appropriate appropriate legal framework, introducing a number of innovative mechanisms and founding principles for preventing corruption and streamlining the licensing/permitting system.
  12. Digitization and transformation into online/digital services.

High-hierarchy framework law on licensing

Properly designed and smoothly running licensing systems usually rest on high-level legal instruments such as framework laws setting forth the guiding principles of the business licensing regime. Such top-ranking legal acts are a good illustration of a nationwide consensus between all branches of the government, especially when drafted and initiated by the executive branch and approved by the country’s legislature.

To develop a properly designed complete version of an image of the regulatory framework, it is vital to search for the matching pieces of the puzzle — policy, legislation, licensing, permitting, authorizations, certifications, registrations, inspections, etc. ensures security in the country.

It is also worth considering the best practices of other countries in the field of licensing, where significant progress hasalready been made by optimizing approaches to the issuance of licenses and permits. The study of international experience allows you to adopt the best practices and avoid repeating the mistakes made by other countries.

According to the best international practices, to achieve the goal of safety and security, the governments shall deploy different available regulatory tools, such as:

  • Policy priorities should be clearly and decisively stipulated in the high-hierarchy law, with introducing the obligatory applying risk-based principles towards all regulations and regulatory mechanisms — not risky, not regulated;
  • All mandatory requirements should be made public and easily accessible for all businesses and the public — not published, not in force;
  • The high-hierarchy law on licensing should lay down the fundamental principles: silence is consent; single window; digital licensing;
  • The high-hierarchy law should provide for an exhaustive list of all permissive documents, their types, and applicability — not included in the framework law, not existent;
  • The high-hierarchy law should provide for an exhaustive list of all inspection bodies and their realms of activities — not in the framework law, not existent;
  • Should encourage self-compliance and advanced and timely reporting.

The poor business regulatory climate is “a lose-lose” scenario for the authorities and the public, as the public loses more jobs, incomes, profits, productivity, and wealth, while the authorities lose more taxes, revenues, and wealth, but primarily, they lose public confidence. Such a mutually disadvantageous model should be avoided by providing a strong ground of a well-designed licensing system embodied in the top-level framework law, setting out key guiding principles of a properly-functioning and risk-based licensing system.

In general, the focus of the reform leadership at a high political level and the support of the country’s top officials is what is key and ensures tangible progress towards successful reforms in any area of the public sector. Therefore, it is important that high-ranking officials in Uzbekistan support licensing reform in the relevant ministries or government agencies.

The author’s point of view may not necessarily reflect the editorial opinion.