What can stimulate small entrepreneurship in Azerbaijan in current volatile situation? According to the developed world economy we can cite that small enterprises have a significant role in the economy of the country.
They get the huge portion of employment in the giant industrial and developed countries. Throughout they also account for a disproportionately large share of new jobs, especially in those countries which have displayed a strong employment record, including the United States and the Netherlands. They are main participator of sustainable domestic growth. As well as it also has relative share in the Azerbaijan economy.
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However, current macroeconomic condition impedes the operation of small enterprises in Azerbaijan. “What are the reasons of that?” is big question in this case. What should we do as a corrective action in order to stimulate small entrepreneurship? First of all needless to say, small entrepreneurs have inevitable financial problem such as creating venture capital. Reasons for insufficient capital are high rates, higher values of collaterals (mainly real estate) and rejection of funding by creditors and lenders. Loans for start-up are almost unavailable.
Overall, lack of sustainability in the securities market is one of the factors impeding small businesses access to financial sources. According to the World Bank in the world economy more than half of the small enterprises lack access to finance, which hinders their grows. In Azerbaijan according to the report BEEPS V even in 2013 14.6 percent of surveyed enterprises had got loan or a line of credit down from 19.9 in 2009. Moreover 4.
7 percent of surveyed enterprises financed their capital with bank loan while rest 92.8 percent financed itself with through private internal funds. As a corrective action we have to accelerate loan programs for small enterprises.
Offering soft-loans and guarantees for start-ups are important steps by funds and banks in this uncertain economic condition. A percentage of the loan is guaranteed by the state so that, in the event of default, the loss to the financial institution is only a proportion of the sum at risk. In return, the charge paid by the borrower on such loans is higher than under normal arrangements since an additional premium is paid to the state to cover expected losses. Even so, the Small business is able to access funds from a financial institution without access to collateral. Additionally Government’s subsidies, tax concession and reducing administrative costs will stimulate the small business fields. Moreover new laws have to be prepared on private credit bureaus and registry of moveable assets, because there is backlash in centralized register of pledges as well which force business owners not to get loan from banks. There is no single centralized register of pledges in Azerbaijan.
Once the property pledged as collateral is notarized, it is registered by the State Service for Registration of Real Estate. However Secured Centralized Transaction Registries ensure that small business owners can provide moveable collateral as a basis for more lending. Private Equities can also help the small business to increase its capital.
Under the help of Private Equity Funds these businesses can increase its value and cash flow simultaneously. This partnership method is widely accepted all over the world and it will be crucial step for small businesses if we apply this in Azerbaijan. Additionally, increasing initiative to use exit mechanism and applying sales to portfolio investors will revive small businesses that have liquidity problem.
All in all the government should complement and support the development of the private-capital industry and financial markets including increasing the skills of the people involved in undertaking this task. A danger is that “excessive” public interference (including spending) will crowd out or retard the development of private financial intermediation. Second obstacle is the lack of financial illiteracy and strategic action plans to support start-ups.
According to the worldwide experience we can see that top countries enhance quality of managers through trainings and providing access to advisory and consultancy services. One of the main reasons of Japanese extreme development is these extensive assistances to small business managers. Nevertheless recent years this problem is getting solved by government. Public Participation Law (adopted in 2014) provides hearing, consultation, written consultation via Internet in a legal basis for public.
Till 2015 159 draft legal acts from 20 state agencies had been posted in the platform. In October 2011 opened platform helps entrepreneur to become aware of which kind of documents and legal permits they need for operating. Moreover, the Ministry of Economy and Ministry of Taxes often organize meetings with entrepreneurs in both the capital and the regions of the country. These recent steps show that we are actually on the right track; however there is not such system or a web portal that shows previous consultations or current outcomes of these meetings.
As a result of this case they can’t compare results and measure the efficiency of used method. Establishing this system will surely help the entrepreneur who did not attend in these consultations and also authorities will track the methods that are used. According to the MSME (Access to Finance Demand and Survey in Azerbaijan) , over 35 percent of small business holder do not keep financial records or conduct future cash flow planning . Notwithstanding these facts fact financial literacy is not integral part of school curriculum. This will require mutual internal partnership within education system. Linkages among business life and education are generally good and moving entrepreneurial learning will show its affect on future business activities.
It is crystal clear that we have to implement more techniques in agriculture sector because it has untapped potential as a non-oil sector.(roughly more than 5% of GDP and app. 35 % of jobs) There should be courses for the farmer to help the lead their occupation and increase production capability. Recent years Azersun Company applies this rule and organizes such events for its suppliers. (Mainly farmers) As a third step improving general technology receptor capacities of firms especially assisting them in R&D project and creating sustainable business environment will help to compete in international business environment. According to the last years’ data as a country our R spending share of GDP is approximately 0.2% and it is relatively small number.
Nevertheless we have to increase this amount because at the time the firm has established, innovation is vital for growth. For instance, company who makes simultaneously R has to get tax cut by government, this can be considered as a subsidy and contribution for innovation. The fastest growing entrants are those that translate strategy into action in the form of R, innovation and training, put great emphasis on hiring skilled employees and motivating employees, and balances the enhancement of their capabilities in different areas — the last being particularly important in high-knowledge sectors.
Additionally collaborations can be a key element of any R project, and is often crucial to achieving success. Collaboration can take place between your business and another enterprise, local universities. It allows for transfer of skills and knowledge, and access to facilities, expertise and potentially new ideas. For facilitating business environment legislations have to seek the most cost effective means of satisfying legal requirements. As an initial step new regulations should be examined in a systematic way.
Those chosen legislative change should have to clearly justify any new procedures. Economic side effects, such as differential compliance costs according to firm’s size, showing are estimated and quantified. Massive use should be consisting of information technology. Increased utilization of information technology creates opportunities for decreasing bureaucratic burdens on small businesses. For example, enterprises could be given a single number for use in all their dealings with government. This would prevent the duplicating information to a variety of government departments such as taxation, business registration or employment agencies. The problem with this is that, whilst wider acceptance of electronic data interchange (EDI) would be particularly useful to smaller enterprises, it is precisely these firms that are the least likely to have access to expertise in this area.
They therefore run the risk of being significantly and increasingly disadvantaged. In the final steps as a country we have to prepare our program that provides governmental promotion of technological and innovation management for small businesses. For instance Ireland has FORBAIT this is for overall diagnosis of firms, Austria has MINT program for innovation, US has PBS service that is for benchmarking firm’s performance. I strongly believe that the program that involves innovation and benchmarking in it will help our small business in global competitive market. Considering purchasing power of overseas we have to implement much more policies that focus on easy access of small businesses to foreign market rather than locally. In conclusion, as developing and young country we have to thrive our economy not only oil sector, for this reason we should create chance for small businesses like Japan has done before.
That is why it is appropriate to apply all the programs simultaneously that mentioned in this writing. Both Government and small business holders have to collaborate in order to implement financing programs (especially creating sustainable financial market), R (increasing spending, collaborations), increasing use of technology and mainly enhancing financial literacy. Government on by its own has to create sustainable business environment, increase the internal competition and finally help the businesses to operate at overseas.