Kazakhstan Succeeds in Boosting Small, Medium Businesses

Oct 03. The Astana Times

By Bekzhan Kalibekov

Kazakhstan Succeeds in Boosting Small, Medium BusinessesThe decisive factor in stimulating economic growth of any country, especially in a post-crisis period, is private enterprise. As international experience shows, small and medium businesses are broadly represented in developed countries and serve as a backbone of their economies. So since the first days of its independence, Kazakhstan has focused on the creation of a market economy based on protecting the institution of private property and the full support of entrepreneurship initiative.

Conducting a focused and coherent policy to support small and medium enterprises (SMEs) in Kazakhstan and the creation of a specific base for their development is a priority in the government’s economic strategy. In general, reduction of the taxes, legalisation of property and assets, simplification of administrative procedures and sanctions, protection from bureaucratic obstacles, facilitating access to credit and other measures are among those taken by the state to support and create favourable conditions for entrepreneurship.

According to World Bank estimates, between 2008 and 2011, Kazakhstan has improved its position in “Doing Business” rating around the world from 80th place up to 59th. At the same time Kazakhstan topped the list of countries with the most improved business conditions in 2011.

Measures such as introducing the registration of SMEs during one business day, maximum reduction of number of documents required for opening a business, reducing the requirements for minimum capital amount from $1,000 to $65, have all had a positive impact on rating improvement.

Today, we do continue our work to further improve the business environment. As a result, according to specialists, Kazakhstan now has the most favourable conditions for doing business compared with the other member states of the Customs Union, Belarus and Russia.

The growth of number of branches and representative offices of Russian companies (rising to 469 branches and 512 offices in 2010), and the growth of registered enterprises in Kazakhstan with the participation of Russian capital (from 3,025 to 3,422 units in 2010) shows the interest of Russian companies to do their business here.

The establishment of the Customs Union and the ongoing formation of the Single Economic Space (SES) of the three countries have expanded the market for Kazakhstan’s goods. It has improved conditions for competition development among manufacturers, promoted the transport and transit potential of the participating countries, curbed red tape and reduced the cost of doing business for domestic and foreign investors.

The review of status and dynamics development of SMEs shows that Kazakhstan has all the necessary preconditions for their accelerated development and transformation into a strategic factor in the nation’s socioeconomic development.

Also, because of the measures taken by the government to simplify business registration procedures, the number of SMEs had increased. Today almost 1.2 million SMEs are registered in Kazakhstan, representing 93% of total number of enterprises, while their contribution to GDP makes 33%. The number of their employees is 2.5 million people or 31% of the total employed population, which means that there are 41 SMEs per one thousand inhabitants of the country.

The Damu Entrepreneurship Development Fund was established in 1997 to promote quality development of private entrepreneurship in Kazakhstan, as well as the expanding of entrepreneurs’ access to finance and credit facilities. Its function is to coordinate the government’s support for SME development in the country by constantly evolving financing instruments.

Proactive state policy in supporting businesses has had a positive impact on the development of SMEs during the period of global economic downturn. The amount of state financial assistance provided to SMEs in Kazakhstan for the past four years is unprecedented, and the efficiency of these measures of support is notably higher than in neighbouring countries. During the implementation of support programmes, 11,000 SMEs have received more than $3.7 billion as loans from banks. More than 20,000 jobs were created.

To meet the challenges of post-crisis development, Kazakhstan has launched a comprehensive business development programme “Business Road Map 2020”. This programme is the most ambitious initiative to achieve sustainable and balanced development of regional entrepreneurship in the non-oil sectors of the economy, assisting in maintaining existing and creating new jobs.

The Damu Fund is the programme’s financial administrator. It provides interest rate subsidies on loans to entrepreneurs, and provides bank guarantees to entrepreneurs in obtaining credits. The implementation of the “Business Road Map 2020” is carried out in the following areas:

1) Providing financial support for new business initiatives by subsidising interest rates and loan guarantees for launching new industries in the regions;

2) Helping the recovery of the business sector by subsidising interest rates on previously issued problem loans and deferment of debt tax payment without incurring penalties;

3) Supporting export-oriented industries through interest rate subsidies on existing loans of businessmen who export products to foreign markets.

The implementation of the fourth direction, “Strengthening the entrepreneurial potential”, began in 2011 and includes training for new entrepreneurs, service and consulting support for doing business, foreign training, improving the competence of top management of private enterprises, etc.

The main focus of the “Business Road Map 2020” is on the maximum use of market institutions. All measures of financial support are provided through commercial banks, thereby avoiding excessive state intervention in market relations. To date, over 450 contracts on subsidies and guarantees totalling KZT 178 billion, or $1.2 billion, were signed as a result of implementation of the “Business Road Map 2020”.

In order to improve the mechanisms of state support of SMEs and create conditions for sustainable business development the government of Kazakhstan must seek new tools of supporting business. The government must strengthen entrepreneurial potential, and facilitate the economic progress of society. At the same time, we understand that the main function of the state is to create an enabling business environment where private capital is able to independently implement its business ideas.

Only then will SMEs be able to help in the development of competitive environment and increase the interest of private capital in innovation. Then the SMEs can truly become an important factor in the country’s transition to innovative development.

The author, Bekzhan Kalibekov is Vice President of the Damu Entrepreneurship Development Fund, Kazakhstan’s government-run entity to facilitate the progress of small business in the country.