Guidelines for small and medium-sized businesses’ development in the Republic of Kazakhstan

Table of contents: The Kazakh-American Free University Academic Journal №11 - 2019

Author: Demidov Artem, Kazakh-American Free University, Kazakhstan

Small and medium-sized enterprises undoubtedly play significant role in the economic sector of any country and the Republic of Kazakhstan is not an exception in this regard. In accordance with the law, a category of business entity is classified in relation to annual average list of employees and average annual income. Business entities include:

- small enterprises, including micro-enterprises, with annual average list of employees not exceeding 100 people and average annual income up to 300.000 notional monthly units;

- medium-sized enterprises with annual average list of employees ranging from 100 to 250 people and average annual income from 300.000 up to 3.000.000 notional monthly units;

- large enterprises with annual average list of employees of over 250 people and (or) average annual income exceeding 300.000.000 notional monthly units.

Sustainable development of SMEs is a priority to the state bodies of the Republic of Kazakhstan. During the meeting on social and economic development of Shymkent held in August 2018 [1], the President of the Republic of Kazakhstan N.A. Nazarbayev put forward theses on the necessity of increasing the SMEs share in the economy up to 50%. According to the President this condition is a prerequisite for ensuring the states stability.

In an extended meeting attended by the President held in January 2019 [2], the government was also mandated to increase the SMEs share in the national economy to 28,8% by the end of 2019.

Such frequent reference to the given issue by the President implies of its extreme importance.

According to the 2018 results, SMEs' share in Kazakhstans GDP is expected to be around 27%. Figure 1 below presents a pattern of evolution of SMEs share in the GDP.

Figure 1. Pattern of evolution of SMEs share in the GDP

While in developed countries SMEs share in the GDP exceeds 50%. Table 1 presents structure of SMEs in various countries.

Table 1. Structure of SMEs in various countries

Such structure indicates that input of the SMEs of the Republic of Kazakhstan significantly lags behinds that of the developed countries.

According to data presented by the Statistics Committee of the Ministry of National Economy of the Republic of Kazakhstan [3] the biggest number of the SMEs is represented in wholesale and retail trade (35%) and agriculture (19%).

Furthermore, the aforementioned sectors are the ones most dependent on the movements in foreign currency exchange rates. Since United States dollar is predominantly the currency of the external economic affairs, figure 2 presents exchange rate fluctuations of the United States dollar against tenge for the period 2015-2019. The data have been collected from Kazakhstan Stock Exchange Inc. [4].

Figure 2. Exchange rate fluctuations of the USD against KZT

Such fluctuations of the exchange rate of the national currency has extremely negative impact on general state of the Republics SMEs. Since one third of the SMEs are involved in the distributive trade and the majority if the goods sold are of foreign origin, such fluctuations of the exchange rate of the national currency impede development of long-term business strategies.

Apart from qualitative indicators it is necessary to scrutinize historical and moral and ideological components of the SMEs state in the Republic of Kazakhstan.

Full emergence of the SMEs in the Republic of Kazakhstan commenced upon requisition of independence back in 1991. Furthermore, formation of the business as a sector literally started from scratch. The Soviet Unions development strategy stipulated neither separation of the business as a distinct category nor formation of private entrepreneurship in general. Hence absence of training whatsoever in this area. In actual fact the country lacked qualified experts in administrating SME as they were deemed unnecessary. Following the collapse of the Soviet Union and creation of a competitive market, formation of a business community comprising of the most ambitious and assertive workers representatives proceeded at a rapid pace. Closure of enterprises and lack of employment compelled former workers and farmers to learn a new area of expertise, i.e. entrepreneurship. Moreover, they did not possess any significant business-related knowledge, hence the losses sustained by the majority of the entrepreneurs of that period, which further deteriorated the already severe economic situation in the country.

An ideological component of the matter should be addressed separately. As stated above, the Soviet ideology did not entail any kind of entrepreneurship among the citizens. Moreover, aiming to form negative attitude among the population towards entrepreneurship, the state actively sought exposure of this type of occupation. Furthermore, RSFSR Criminal Code as of 10.27.60 included a section 154 Profiteering, which provided penalties in the form of imprisonment of up to two years for undertaking business activities.

Thus, first-generation entrepreneurs had to deal not only with economic difficulties but also with moral issues.

Guidelines for formulating strategy based on analysis of the SMEs current state can be provided in order to rectify the above-mentioned impediments. In our view, principal guidelines of the strategy development are as follows:

- ensuring competence of the SMEs chiefs;

- increase of Kazakhstans share;

- SMEs cooperation;

- participation of business in the dialogue with the state.

1. Ensuring competence of the SMEs chiefs:

Over the period of economic development, ordinary entrepreneurs found it difficult to obtain necessary knowledge. There were no special training courses accessible to general public.

However, as the time goes by the situation in the country undergoes changes. An open competitive market has been formed in Kazakhstan. The country is a member of such global associations as the WTO, SCO and the EEU. Thus, completely different business requirements have been issued. At present, to ensure successful competition and rapid development of a company, a manager possessing at least basic expertise in economics, management and forecasting skills is required.

Since the early 2000, training programmes for young people have been implemented at the state level. Various short-term business courses have been run by the DAMU fund; educational institutions provide different business sessions and courses. Nevertheless, measures taken have been efficient only for novice entrepreneurs intending to explore this area.

The range of possibilities for established entrepreneurs is much more limited. The program Employment Roadmap 2020 provides a component Training of senior management of small and medium-sized businesses. Yet, the program provides training only to managers involved in implementation of projects in priority economic sectors.

Moreover, the given programme is not accessible to the entrepreneurs, who implement projects in non-priority domains. We have mentioned in the analysis of the SMEs number that more than 35% of the SMEs operate in the wholesale and retail trade and provision of various services. Therefore, this group is not a recipient of state support.

Educational training in Business administration which are not supported by the government are currently in their infancy. Various MBA (master of business administration) available on the Internet have been gaining popularity. The complexity of such courses lies in the fact that they are run completely on-line and in most cases live communication with lecturers is limited to a couple of webinars.

On the other hand, demand breeds supply. It should be noted that the demand for such courses from established entrepreneurs is extremely low. There is a great number of educational institutions in the Republic which are capable of designing training programs and organizing them in relevance to business needs if the demand appears. Yet, the demand for such courses is highly limited.

For the reasons mentioned above, a kind of vicious circle has emerged: business wants to grow but is unable to, due to lack of knowledge, yet it is not willing to gain new knowledge.

In order to break this vicious circle, modernization of consciousness is required. Business needs to realize that in its current state with present competence, it has reached the limit of its development. Any further quantitative changes without qualitative ones will not yield results.

At the same time, as mentioned above, Kazakhstan unfailingly opens its markets through participation in various economic associations, and also reduces administrative obstacles and improves business environment. In the long run it will enhance competition and attract external actors to our market. It is going to be a definitely positive development for consumers, since enhancement of competition will reduce prices, and foreign companies will provide foreign quality standards. However, it remains to be seen whether local companies will be able to meet those standards or not.

On the basis of what has been stated above, qualitative improvement in chief managers competence should become a strategic development guideline for SMEs.

2 Increase of Kazakhstans share in procurement.

The issue of raising Kazakhstans share is mostly brought up when either public procurement or big businesses procurement is involved. SMEs, however, should not be disassociated from this trend.

Enormous resources for entrepreneurship development lie within the given component. Moreover, the use of this resource requires only transformation of the consumers consciousness.

In the case of acquisition of Kazakhstani goods, the funds will remain within Kazakhstans economy and will be used for its further development, and will not be irrevocably withdrawn abroad.

While minimal share of Kazakhstan in procurement, represented by large enterprises and state itself, is regulated by law, the SME are exempted from such obligations.

It should be noted that much effort has been made by the state in the promotion and encouragement of Kazakhstan-made goods consumption. A promotion Made in KZ has been launched; it requires that all the Kazakhstan-manufactured goods be marked with a special symbol. However, any significant achievements in this strategic field are improbable as long as the population and SMEs do not realize an importance of purchasing Kazakhstani goods.

3. SMEs cooperation.

Opening of the Kazakhstan market and digitalization of the economy have significantly increased competition within the market of Kazakhstan. Moreover, currently the competition in the sector has been undergoing qualitative changes. While previously price reduction through reduction of profit margins used to be the main instrument of competition, by now this tool has been virtually exhausted. The Internet enables direct purchase of goods from a dealer or manufacturer with the minimum mark-up. Therefore, another tool, i.e. cost reduction has acquired relevance in the competition. Moreover, in the current economic situation the reduction is funded due to savings in volume alone.

In other words, the cooperation strategy can be suggested as a development guideline for SMEs; it entails an association of businesses that are similar in activity. If this strategy is implemented, the following results will be achieved:

1) Decrease in administrative expenditures;

2) Decrease of competition in the sector;

3) Emergence of a major actor will enable suppliers to set more favorable terms.

The given strategy is fairly common among Western companies. In addition to traditional mergers, alliances and consortia are built, exchanging technology within themselves and capturing markets of interest.

However, in the case of Kazakhstan business, the implementation of this strategy will face mental difficulties. The problem is that our population is quite averse to any associations carrying threat of a potential loss of control over private property.

On the other hand, the market is not inactive, and while local businessmen compete with each other, a large participant might join the market, successfully capturing its major share. And without much effort, since he will have no real competitors. The capture might be effortless in the absence of effective competitors.

For all the above reasons, strategic direction of cooperation among SMEs should be considered as promising one in the present economic environment and conditions of business.

4. Participation of business in the dialogue with the state.

Taking into account a severe economic condition in the period of the state formation, Kazakhstani business is used to survive on its own. Due to their separate character SMEs avoided entering into any dialogues with the state. Upon gradual recovery from the crisis and stabilizing of the economy, the state itself commenced initiating a dialogue with the business. The start-up phase of this endeavor was the establishment of industry associations, such as the association of trade enterprises, of wood industry and others. Those organizations, having been not full-fledged representatives of the entire business community, could speak only on behalf of their own participants. A subsequently established Chamber of Commerce and Industry came to partially duplicate the associations functions. Still, this body also failed to become a full-fledged dialogue platform.

The matter of the dialogue platform establishment was brought to a final conclusion on September 9, 2013, when the National Chamber of Entrepreneurs of the Republic of Kazakhstan was established by a joint decision of the Government of the Republic of Kazakhstan and the NECK Atameken Union. Its activity regulates [5]. In accordance with subsection 2 of Article 4, the members of the Chamber of Entrepreneurs are all business entities registered in the Republic of Kazakhstan. Its activities are regulated by [5]. In accordance with subparagraph 2 of section 4, members of the Chamber of Entrepreneurs are all business entities registered in the territory of the Republic of Kazakhstan.

Section 3 states that the aim of the Chamber establishment is a formation of institutional framework for growth and further development of entrepreneurship in the Republic of Kazakhstan.

To date, however, participation of entrepreneurs in operating the Chamber of Entrepreneurs remains relatively mediocre. We believe that it is necessary to consider mobilization of civic engagement of business and full participation in the dialogue with the state as a development guideline for SMEs.

Summing up this article, it should be noted that the country's SMEs possess significant growth potential, moreover its a quality growth, allowing to assume a worthy position in the regional competition. The key to this potential is held by the business itself, which does not require the launch of additional state programes and allocation of the funds from the budget; implementation is achievable under the ongoing programmes. The business itself must acknowledge the need for changes, new knowledge and adoptiopm of advanced quality standards. Otherwise, the business will fail in being competitive. Modernization of the business representatives consciousness is to become a principal development guideline for SMEs.

REFERENCES

1. Nazarbayev N. SMEs' share in Kazakhstan's GDP must exceed 50% // Web-source https://kursiv.kz/news/ekonomika/2018-09/nursultan-nazarbaev-dolya-msb-v-vvp-kazakhstana-dolzhna-prevyshat-50

2. President requires to increase SMEs share in GDP to 28,2% by 2019 // Web-source https://vlast.kz/novosti/31484-dovesti-dolu-msb-do-282-k-vvp-v-2019-godu-porucil-prezident.html

3. Statistics Committee of the Ministry of national economy of the Republic of Kazakhstan // Web-source stat.gov.kz.

4. Kazakhstan Stock Exchange // Web-source kase.kz.

5. Law of the Republic of Kazakhstan of July 4, 2013 No. 129-V On National Chamber of Entrepreneurs of the Republic of Kazakhstan



Table of contents: The Kazakh-American Free University Academic Journal №11 - 2019

  
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