Special attention to SME development in Azerbaijan

Analysis Materials 29 October 2009 12:07 (UTC +04:00)

Today, in Azerbaijan, special attention is paid to the development of small and medium businesses. A stable and prosperous economy can not be built without favorable business investment climate. It is well known. As there is no doubt about something else: how comfortable would the business feel in the country depends on opening of new jobs, and consequently, improvement of the social situation of people. And, it seems, hard work is being done in this direction in Azerbaijan, both by government agencies and public organizations.

Today, according to official statistics, in Azerbaijan there are more than 89,960 small enterprises and facilities. Compared with the beginning of the year, the number of legal entities increased by 4.5 percent. The increase shows the result of the work. Thus, the number of opened facilities particularly increased after the introduction of the "single window" principle and the registration of entities by one agency.

Large attention is paid to the legal part of entrepreneurship activities. Domestic legislation has is already made a number of attempts to bring the legal and organizational provisions of SME to the necessary line of conduct. Currently the draft amendments to the law on business activity in Azerbaijan are devised and modified, which the international experience in the field of business regulation was not used sufficiently.

Work is being carried out by the National Fund for Entrepreneurship Development (NFED) under the Ministry of Economic Development of Azerbaijan, which now provides state support for entrepreneurship in the regions. Thus, recently more than 100 entrepreneurs in Azerbaijan's regions of Agjabedi, Fizuli, Beylagan, Zerdab, Barda, Yevlakh, Imishli, Ujar, Bilasuvar and Neftchala involved in agriculture received loans amounting to over one million manat .

However, still many serious barriers remain, which are solved by many businessmen with difficulty. The existing unsolvable problems, which restrain SME development, are connected with the instability of gross economic and legal conditions, the difficulties in obtaining investments, accommodations and information for small business, etc.

The corruption is associated with all other here. The activities of small businesses are linked to a number of inspections, requiring bribe. But it should be mentioned that after the introduction of the "single window" principle and the registration of entities by one agency - the Ministry of Taxes, the cases of corruption in business reduced. However, entrepreneurs are facing a situation where "must pay" after the registration, during work.

Other basic problem of small business is to open business in the financial plan. This is the issue of starting capital which is not available for everyone wishing to open business.  

According to a survey conducted by the International Finance Corporation (IFC) within the development of the business environment project in Azerbaijan amongst 1,800 small and medium enterprises (SMEs), the main problem is the limited business loans. According to the survey, it became clear that entrepreneurs are dissatisfied with high interest rates, as well as the huge number of formal and informal payments, which bring to the inhibition of the private sector.

Bank percentages for the commercial activity are maximally high (more than 20 percent), but privilege credits in the National Fund are unfortunately sufficient not for all. All these, plus to inflationary development leads to the fact that developing small enterprise is considered a risky matter.

According to a survey by IFC, in this situation, entrepreneurs provide 85-90 percent of the capital from their own savings or through debt to start and further develop business. According to the surveyed entrepreneurs, the situation could be discharged if at least short-term loans are provided.

The practice of world business testified that the small enterprises take an important place in the national economy of any state. Indeed, in many respects it determines the rates of economic growth, structure and quality of gross national product. In the developed countries of the world, the small and medium business (SME) has long ago been named the motor of the economy. In the budgets of these countries, significant share fell on SME. And, it is understandable that the governments of these countries in every possible way try to support and develop such enterprises.

Any steps directed toward the development of small business are useful because the activity of small enterprises, which makes it possible to timely redistribute human and material resources and timely react to changes in the demand. Small entrepreneurship is an important social tool to combat unemployment. It provides an opportunity to develop and adapt different forms of new technologies, prepare basis for the future development of industry, in the form of training qualified and semiskilled staffs.

Understanding these factors, Azerbaijan's concentration should be strengthened to fully engage in devising strategy and programs directed towards developing small and medium enterprise. The project of the Ministry of Finance and Ministry of Taxes, which proposes to re-consider the rates of profit tax and VAT, was postponed. The project proposes decreasing the rate of profit tax from present 22% to 20%, and VAT - from 18% to 17%. Besides the tax relaxations, special importance for the small business is the possibility of simplification in the delivery of account. Thus, for instance, in the West, all enterprises pass tax account in the year, which simplifies work in many respects, whereas Azerbaijani entrepreneurs make this quarterly.

There is other important moment. We expect joining the World Trade Organization (WTO), after which Azerbaijani market will be completely opened for the foreign products. Most probably, the market will be full of imported goods, which will be more qualitative and cheaper, and Azerbaijani producers will not be able to compete with them. It means that Azerbaijan's economy will directly depend on foreign products. Therefore already today Azerbaijan should develop production, make them competitive so that tomorrow when the borders are opened, Azerbaijani products could take solid niche in the commodity market of not only Azerbaijan, but also other countries. And certainly significant role in settling this problem belongs to the SME.