Small and medium size businesses in Kazakhstan: current state and perspectives for development

Table of contents: The Kazakh-American Free University Academic Journal №4 - 2012

Author: Nurmukhametov Nurbakhyt, Kazakh-American Free University, Kazakhstan

Strategic policy of the republic's leadership aimed at being reckoned among the fifty most competitive countries in the world leads to the development of small business as a powerful economic force. In the implementation of the Concept of Transition of Kazakhstan to Sustainable Development for the period of 2007-2024 particularly importance is placed on efficiency and sustainability of small businesses, the establishment with their participation of new economic relations, including the foreign economic relations, activation of the production and innovation.

Small businesses receive this close attention of the state due to the desire to achieve positive economic, political and social impact on society.

The economic result is that small businesses form a competitive environment, help fill the market with domestic goods and services, and become the foundation for development of medium-sized and large businesses.

The political result is that small businesses form the middle class as the basis of social stability.

Social result is that small businesses contribute to solving the problem of unemployment.

In the countries with market economy the state does not set an objective to create and develop small businesses, as they have formed in a natural way over hundreds of years. In Kazakhstan, the economy sector has formed almost in several years. Thanks to the initiative of the active and business-oriented people, granting guarantees of the state support of entrepreneurship have paid off which is evidenced by the growing dynamics of small businesses and their contribution to the economy over the years.

Like many other countries, Kazakhstan signed the UN Millennium Declaration and assumed certain liabilities, in particular, the fight against poverty. No one denies the fact that in recent years there have been positive changes in economic and social spheres of the country. The UN report said about this: "There is sufficient capacity to solve socio-economic issues of the country." However, the report recognized that "this potential should be used in a more productive way; the labor market situation remains tense and does not have adequately contribute to reducing poverty despite the overall growth in employment and incomes." Small businesses help to break the vicious circle of poverty and raise the cost of work force. It feeds, in the literal and figurative sense, millions of Kazakhstanis, giving them a sense of stability and independence.

In all civilized countries, the economy rests on the middle class, and that, in its turn, on the small and middle-sized business (hereinafter – SMB). Prosperity of the state depends on its "stability". The Strategy of Industrial and Innovation Development of Kazakhstan for 2003-2015 provides for the economic growth of at least by 8.8 - 9.2% per year. This will increase the volume of GDP 3.5-3.8 times in 2015 compared to 2000.

Small and middle-sized enterprises in the Republic of Kazakhstan have become a mass and relatively dynamic phenomenon. Over the past seven years, the number of registered SMBs increased by more than 70% compared to 2005 and by the end of 2011 to 1.3 million units, accounting for about 95% of all businesses in the country. In addition, the share of registered SMBs in the total number of business entities increased to 95% in 2010-2011.

The annual rate of growth of registered SMB entities prior to 2009 averaged 12%. In 2009, there was a reduction in the number of registered SMB entities by 9%. But in 2010-2011 the increase in the number of SMB resumed. Growth in the number of active SMBs in 2005-2009 occurred at almost the same rate as growth in the number of registered ones. But in 2009, it also had a negative dynamics (-6%). In 2010 the number of active SMB entities remained virtually unchanged. 2011 witnessed a considerable increase in the number of active SMB (by 13%) which was accompanied by the general recovery processes.

In absolute terms, the number of active SMBs at the end of 2011 increased by 242 thousand units compared to 2005 while the share of active SMBs in the total number of registered SMBs decreased from 68% in 2005 to 56% in 2011.

If we consider the structure of active SMBs we shall note that the dominant form is an individual one - it is an individual entrepreneur, the number of which amounted to 500.6 thousand units or 67% of the total number of active SMBs by the 1st of January, 2012. The number of individual farms was 174.7 thousand, or 23%, and legal entities - enterprises of SMB - 73.5 thousand entities, or 10% of the total number of active SMBs.

The dynamics of active SMBs in the context of business form in the period from 2005 to 2011 can be traced in the following trends:

1. The number of individual entrepreneurs increased by 68%. The share of entrepreneurs in the structure of active SMBs has gradually grown from 59% in 2005 to 67% in 2011.

2. The number of farms has increased by 11%. Herewith the participatory share of farms in the structure of active SMB has the tendency for decreasing (31% in 2005; 23% in 2011).

3. The number of SMB has increased by 38% since 2005. Since 2005 the participatory share of SMB in the structure of active SMB remained stable and in 2011 it constituted 10%.

The analysis of employment index in SMB characterizes the importance of Kazakhstani enterprises in employment issues. Specific density of population actively participating in SMB constituted 32% of general population participating in economy in 2011. The dynamics of this index within 2005 to 2011 has a tendency to increase. The participatory share of population in SMB in relation to 2005 increased by 6%.

In overall figures the population engaged in SMB is permanently increasing and it constituted 2 674 people in 2011 which is 42 % higher than it was in 2005.

Flow of output produced by active subjects of SMB in absolute money terms demonstrates general tendency to grow during the last years. An expansive growth was observed in 2008, it was twice as much in comparison with the previous year. It happened due to the alteration in legislation concerning private enterprises. New criteria defining medium enterprises were developed. Due to this fact some enterprises earlier considered to be large now was involved in them.

Since 2009 the participatory share of output flow of SMB in Gross National Product (GNP) has remained approximately stable and constituted 30-33%. Herewith the bigger part of SMB output was produced by SMB enterprises (88%).

According to the National Bank of the Republic of Kazakhstan in 2011 the volume of credit funds lent by the banks of the second level to economy and to the small enterprises showed positive dynamics of growth. In 2011 the volume of credit funds to the economy constituted 5 778 billion tenge. That is higher than in 2010 and 2009. The same situation is observed in small enterprises, their volume constituted 794 billions tenge.

Industrial enterprises supply diversified economy of the country.

In Kazakhstan the bigger part of active subjects of SMB are involved in trade (41%) and in farming (26%). According to the data of 2005 the share of subjects of SMB in trade increased by 5% and in farming decreased by 6%. There are 7% of active subjects of SMB in transport and communication, and 3% in engineering and industry.

Thus, the analysis of sectoral structure of SMB active subjects’ quantity does not reveal the tendency for national economy diversification. The history of private enterprises in Kazakhstan is shorter than 20 years, the majority of enterprisers started working in trade and services which is characterized by low risk and small initial capital. With the growth of businesses the entrepreneurs began to open up in manufacturing, this happens when business becomes bigger. That`s why they all are potential manufacturers. The employment volume index shows the role of SMB subjects in solving the problem with unemployment. The growth of SMB active subjects proportionally solves employment problems. In 2010 the dynamic also shows tendency in decreasing in SMB involved in farming in comparison to 2005 by 10%. Otherwise there is 4% of growth in engineering, and 1% in industrial, transport and communication spheres. This circumstance proclaims the expansion of SMB activity in the last three spheres of economy. Thus trade and farming reveal their ineffectiveness in Gross National Product growth even if their output increases.

SMBs engaged in transport and communication might solve the economic problem of GDP growth by increasing production. Development and normal functioning of the business sector is closely related to credit, the main source of working capital. Financing reduction of private businesses leads to reduction of the rate of GDP growth. State support of the priority sectors of the economy does not allow the portfolio reduction and even leads to increase of its size in such sectors as industry, transport, communication and services.

Private enterprise is the "keystone of development" of economical processes and sustainable development in most developed countries. Peculiarity of SMB is creation and implementation of innovation, which become a key factor of competition in the world market. For example, in the EU, U.S., Japan the share of innovative enterprises is about 40% of the total number of SMB companies. Comparative analysis of the development of the SMB sector in Kazakhstan and other countries demonstrates a noticeable lag in contribution of SMB to GDP and employment of our country. In the U.S., the EU countries there are over 20 million businesses, in China there are about 40 million SMBs, while in Kazakhstan - twenty times less.

The share of the annual output of SMBs in the United States, the European Union and Asia (China) ranges from 52% to 67%. In Kazakhstan it is almost half as much and accounts for 32%. In Kazakhstan, the share of the population employed in the SMB sector in total employment figures is also much lower than in developed countries. Thus, in comparison with developed countries there is a small contribution of medium business of Kazakhstan in the production of value added and job creation due to the current sectoral structure of production.

In the EU the largest number of SMBs is concentrated in the service sector - 23%, while in the construction industry and commerce - 33%, and in the industry it accounts for 7%.

We need to reconsider drastically the economical paradigm, where small and medium-sized businesses performed a role of economic drivers. Thereafter, one of the key issues is competitive relationship and conditions favorable for business. Such reforms would succeed if we changed society’s attitude to entrepreneurship. It is necessary to make an analysis of region’s economy to find out their opportunities. With the goal of Kazakhstan innovation system improvement the following things should be done: involvement of highly skilled specialists for innovations, state order for innovative production development, and etc.

The SMB sector development is uneven on account of socio-economic and demographic peculiarities. According to the statistics concerning SMBs active subject number as of 01.01.2012 the situation with the amount of SMBs in Kazakhstan is the following: the leading regions are: Southern Kazakhstan (124.000), Almaty region (109.000) and Almaty city (81.000), while Kyzylorda (19.000), North Kazakhstan (22.000) and Mangystau (24.000) regions are at the bottom of the list. 70% of all SMBs registered subjects are active, so, 300.000 of subjects remain passive. As regards to business stability there is the following statistics: Almaty (70%), Northern Kazakhstan (60%) and Zhambyl (60%) regions.

The analysis shows that the higher is the share of active SMB entities in the region, the better are the conditions for their stable development. The highest performance indicator here as of 01.01.2012 belongs to Almaty (25%) followed by Astana (9%), East Kazakhstan (8%), and South Kazakhstan (8%) regions.

Individual enterprises dominate in Almaty (12%), South Kazakhstan (12%), and Almaty regions (11%). The best available conditions for development of farming are made in South Kazakhstan (35%) and Almaty (28%) regions. They account for 63% of all Republic’s agriculture.

Making an analysis of SMBs development level in regions, it is necessary to take into account the size of the population. A number of proactive subjects per 1.000 people of economically active population in 2011 shows the following: Almaty region (115), Almaty (109), South Kazakhstan region (92), and Astana (102).

The total number of population employed by SMBs in 2011 accounted for 2 674 people, 6% more than in 2010.

SMBs subjects of Almaty and Astana make the biggest contribution to production output: 1 958 and 887 billion tenge respectively in 2011. At large, these 2 cities production output is one third of the country’s total output. Among the other regions the biggest production output level was provided by West Kazakhstan (622 bln.tenge) and Almaty (584bln.tenge) regions.

Among SMBs registered in Astana the share of private enterprises (hereinafter – PE) accounts for 67, 7% (58, 7 thousands), the share of SSB – 32, 3% (28 thousands). There are 14 farms registered in the city, that is an insignificant share in the given structure. In the structure of the current operating SMB in Astana the share of PE amounts for 83% (33, 8 thousands), SSB share - 17% (6, 9 thousands). Among registered farms only 1 farm is active.

The last seven years showed the following tendencies in the dynamics of active SMBs:

1) The number of SSB units after the decrease by 1.8 thousands in 2006 started to increase in a stable manner from 2006 to 2011. By the 1st of January 2012 it reached 6,9 thousands.

2) The number of PE had been increasing till the end of 2008, after that in 2009 it decreased sharply – by 25%. In 2010-2011 PE units growth resumed and reached its maximum in 2011 – 33, 8 thousands, that is two times as much compared to 2005.

3) The number of FE is insignificant in comparison to SMBs and PEs. At the same time, in 2006 there were 9 units, whereas in 2011 only 1 operating FE unit remained active.

The results of the given review highlight the necessity of the following SSB state coordination in order to correct and improve negative tendencies of the SSB development by using financial and other tools.

Fiscal and monetary tools can be concerned as the main financial mechanism of the SSB development. For the self-development the main non-financial tool is business-formation. That is why the SSB development in Kazakhstan in many ways depends on qualified staff in the organization of entrepreneurial business.

At present the system of Kazakhstan development follows the model of manpower development in business formation, taking into account the specificity of each region economic development. Also it is necessary to improve the structure of the specialist education in business sphere with the goal of increasing the quality preparation, re-training and advanced training.

In occurred situation the main aim of the staff preparation throughout economic specialties in S. Amanzholov EKSU University is to support correlation between theoretical and practical activities for the next generation of specialists. To solve the given problem on the basis of S. Amanzholov EKSU University new sub departments were introduced: “Business and administration”, “Entrepreneurship support center” jointly with joint-stock company “Entrepreneurship development fund «DAMU» and “Business-incubator” for students.

Sub departments, as the university in general, set high requirements to the content of educational programs, level of teaching, presence of learner’s guides, modern means and non-traditional forms of teaching in the educational process. This allows preparation of specialists in the sphere of business in line with the demands that market and region economy put forth.

ESC in S. Amanzholov East-Kazakhstan State University was opened on the 8th of October 2010. (Agreement #11/2010 as of 17.09.2010).

The aim of ESC is the arrangement of a department with informational and consulting services and knowledge in business development for the business class in order to support qualified SMB development. As the result of the given goal the university has to become the base of correlation of education, science and manufacturing.

Practical skills that teachers obtain in the course of interaction with small business owners are successfully integrated into the learning process. In the line with this students have an opportunity to realize their own business projects by means of business incubator and thus test their business ideas to determine whether they are ready or not to start their own enterprises.

Taking into account everything mentioned above we can conclude that the following steps should be taken to develop SMB:

1. Monitoring of factors that can possibly threaten local businesses under conditions of the Customs Union

2. Improvement of economic relations of small businesses in production with the purpose of ensuring their competitiveness in the global market.

3. Both state and market price regulation on products of small and medium size businesses with the goal to raise demand among the population and increase competitiveness of local businesses both on the domestic and foreign markets.

4. Implementation of the guaranteed minimum prices system, which can provide the sufficient level of profitability for small businesses.

5. Tax concession exemption for small businesses, which invest in the priority industries or are committed to the sustainable development principle observing ecological standards.

6. Moderate protectionist policy of small businesses advocacy.

7. Growth of small businesses’ investment attractiveness, various privileges implementation, which promote re-equipment of material and technical base of small businesses.

8. Control over export and import turnover of the main strategic items produced by small businesses.

9. The priority industries reconstruction and development by means of special-purpose programs to make it possible for small businesses to take the largest part of market share.

10. Direct financing of the small businesses investment projects by the government.

11. The regional franchising pattern (when a parent enterprise deals with the certain territory) fits enterprises of Kazakhstan. The main franchising for this region is involved in division of payment and fees for common advertising fund. Also it pays license and advertising fees direct to the parent franchising company. It’s necessary to change current law regarding the issues of franchising activity registration. In European countries the franchising registration is performed by the franchise buyer, while in Kazakhstan it is performed by the buyer. It is necessary to formalize in legislation the liability for unauthorized use and copying of trademarks and brands, because it undermines the general development tendency in Kazakhstan.

BIBLIOGRAPHY

1. Concept of sustainable development of the Republic of Kazakhstan for 2007-2024. Adopted by the decree of the President as of November 14th , 2006 (№ 216). – Astana, 2006.

2. Analytical investigation of national measures of small businesses in the Republic of Kazakhstan. // the official site of “DAMU” Entrepreneurship Development Fund.



Table of contents: The Kazakh-American Free University Academic Journal №4 - 2012

  
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