Complex support of small and medium-sized businesses in Kazakhstan continues

http://kp.kazpravda.kz

Yevgeni Hong, research associate of the KISR under RK President

Realizing the importance and necessity of small and medium enterprise (SME) development in Kazakhstan, every year in his address the President makes a special emphasis on creating favorable and attractive conditions for strengthening the position of domestic entrepreneurs. The state-of-the nation address-2012 in which President Nursultan Nazarbayev noted positive results of the program "Business Road Map 2020", and set the goals and directions for future is no exception.

Today in developed countries small and medium business is the foundation and guarantee of rapid socio-economic growth due to the fact that this sector is characterized by flexibility, and ability to quickly adapt and reorganize itself in the face of changing trends. In the EU and the U.S., SME provides about 50-60% of total GDP. Moreover, the industry occupies a key position in the formation of new jobs. According to the Organization for Economic Cooperation and Development (OECD), two-thirds of the total economically active population works in companies with fewer than 250 employees.

In Kazakhstan, on the results of last year 2.7 million people or 31.8% were engaged in the activities of SME, but their contribution to the total output of goods and services remains relatively small. Over two decades of sovereignty Kazakhstan economy continues to grow mainly in a "raw" way, and growth rates are determined by the world prices for commodity exports. Under the circumstances of increasing competition and Kazakhstan's long-term goal to become one of 50 most competitive countries we need to accelerate the process of economic diversification and development of strategically important industries. Here the great role should be given to the SME sector.

Today for that a large-scale state program for accelerated industrial-innovative development of RK for 2010-2014 was adopted in Kazakhstan, within the frames of which the program "Business Road Map 2020" is being implemented to strengthen the position of domestic enterprises. The main objective of this mechanism is to ensure sustainable and balanced growth of regional businesses in non-oil sectors of economy, as well as to maintain existing and create new permanent jobs. Particular emphasis is placed on the support of the most pressing business initiatives and export-oriented enterprises, improvement of the business sector. The program provides a partial guarantee and subsidies for interest rate on bank loans for new and existing projects, development of production (industrial) and infrastructure, service support to business, training, organization and social practices of youth employment. These measures are especially necessary in the light of Kazakhstan's membership in the Customs Union and the creation of the Single Economic Space.

It should be noted that today favorable conditions for SME development have been created in the country and the adopted programs and reform are successful. In the annual evaluation report of the World Bank's “Doing Business” Kazakhstan in 2012 shifted by 11 positions - from 58th to 4th place among 183 countries that indicates the country’s more attractiveness for establishing and conducting business. Moreover, comparing the positions of the neighboring states, we see a significant advantage of Kazakhstan in the sphere of improving the systems of legal regulation of business.

Detailed analysis shows that on seven out of ten key indicators of conditions for SME, Kazakhstan is ahead of the average figure of the region of Eastern Europe and Central Asia. Particularly should be noted the success in investors’ protection (10th place in 2012 to 44th in 2011), which strengthened due to the change of requirements related to the approval of transactions between interested parties.

Another important aspect of the developing domestic business is favorable tax climate in Kazakhstan (13th place), which in comparison with other post-Soviet countries is recognized more attractive and soft. For example, the VAT in Kazakhstan today is 12%, in Russia - 18%, in Belarus - 20%. Improvement of tax climate is particularly important in the Customs Union and Single economic space. One more positive example is relatively low interest rate on business profits for medium-sized businesses, which is 28.6%, while in OECD states this figure is 42.7%.

Despite significant achievements in creating attractive business environment, Kazakhstan as a young and developing country should continue work in these directions.

Especially we need to strengthen diversification of SME sector through creation of enabling environment and providing financial assistance, as it is done in developed countries. The low diversification of the SME poses a threat to Kazakhstan's economy in the long term. The sectoral structure shows the SME subjects operating in trade have the lion share of the specific weight - 41.5%, which is also confirmed by the high proportion of lending to this sector by the second tier banks - 30.9%. In this situation, the provision of tax incentives and preferential financing of priority sectors of the economy will be most effective "leverage" of the state.

No less important for SME subjects is the limited access to financial resources connected with the inefficiency in the distribution of funds. One of the major reasons is the refusal of commercial banks, which directly consider an application for credit, to participate in highly risky and poorly thought-out business projects, as well as the lack of borrower collateral base. In this regard, it is necessary to consider the opportunity to create a separate specialized financial institution (bank), which will focus on lending and review of projects exclusively for small and medium-sized businesses. Creating a specialized state institution will allow to concentrate attention on the financing of SME and will increase the efficiency and speed of funds’ distribution.

In addition, the situation in the field of administrative barriers, corruption and unfair competition also requires urgent measures. First of all it is necessary to reduce administrative burden and this policy should become systematic and strategic. They should establish contacts with employers, primarily in order to take into account their wishes and views on the proposed reforms.

Conducting joint activities by the authorities and entrepreneurs, where the latter will be able to voice their concerns and to evaluate the effectiveness of taken measures, as well as the effectiveness of the responsible authorities, must be also systematic. For example, such events should be held every six months, and their results must receive extensive coverage in media. The results of these meetings should be necessarily taken into account in future development plans and programs. Along with that it’s necessary to organize the work of analytical structures of "Damu" Fund, involving representatives of SME for the continuous monitoring and analysis of the business climate in Kazakhstan and its problems.

At present, the government should pay attention to the problem of providing the SME with professional and technical personnel, and the need to reorganize and improve the system of vocational education is obvious.

One of the incentives may be reduction of the tax rate to enterprises engaged in supervising and training of college students, as well as providing space for practice.

In parallel to this, we should create a commission on educational reform and monitor the quality of vocational education, which should include both officials from the Ministry of Education of RK, and business representatives.

The most important mechanism is the increase of funding for colleges to upgrade equipment, paying competitive wages to qualified teachers, and increase the number of grants and scholarships to attract young people.

In conclusion, it should be noted that success of small and medium-sized businesses is largely determined by the conditions created by the state. Over two decades of independence Kazakhstan has made significant steps in creating an attractive business climate, which is confirmed by the international assessment and significant growth in the sector of small and medium business. The government should continue to provide comprehensive support, which takes into account first of all wishes of the participants, in order the SME sector will become a real "engine" of economy.

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