TABLE window” principle implementation, strengthening of mutual activity

OF CONTENTS – Short Summary – Global Trends – Analysis of the current
situation – SWOT analysis of Small and Medium enterprises – Strategic
objectives – Some ways to stimulate SMEs – Conclusion SHORT SUMMARY Small and
medium-sized enterprises (hereinafter – SME) development, economic
diversification, increase of competitiveness, employment, consumer demand for
goods and the payment of local resources in order to ensure economic
development is of particular importance. Thus, when considering the share of
SMEs in the developed countries in GDP and employment, it can be concluded
that transformation of the COS to the main driving factor in sustainable
economic development in Azerbaijan is one of the main challenges ahead. The
following can be identified as a strategic target in achieving strategic
objectives and maximizing the use of appropriate capacities in the country: •
Increasing the knowledge and skills of SMEs, accelerating the application of
advanced practices • Promoting innovation, expanding research and development
activities for SMEs subjects • Improve the business environment and
regulatory base for SMEs activities • Provision of profitable and efficient
access to financial resources of SMEs • Internationalization of SMEs and
increasing access to foreign markets Directions like improving the
legislative framework in relation to SMEs in Azerbaijan, enhancing the
financial and tax policies, enhancing access to financial resources,
strengthening the technical and information base and optimizing the
localization of SMEs on the territory, the development of market
infrastructures, and the “one window” principle implementation,
strengthening of mutual activity among the subjects representing this sphere
and so on. can be a major stimulus for entrepreneurship development. GLOBAL
TRENDS In most developed countries of the world, SMEs have a leading position
in promoting economic growth and employment. Thus, according to the World
Bank, the share of SMEs in GDP in developed countries is more than 50 and 60
per cent respectively. Strengthening the economic sustainability of the
world’s developing countries, to increase competitiveness and to ensure
economic activity is carried out systematic measures for the development of
SME. As a result, competitive market relations are formed, which in turn
creates a demand and supply balance in the market, stabilization of prices,
increased competitiveness of products and services, effective application of
economic instruments, economic stability and flexible absorption of external
influences. The global trends in the field of SMEs are as follows: • SMEs
create horizontal and vertical clusters for the purpose of maintaining their
position in the markets and reducing their production costs. Thus, through
these clusters, SMEs achieve a scale effect through their cost optimization;
• High risk factor for SMEs restricts their access to financial resources. As
a result, developed and developing countries apply a special approach like in
connection with the establishment of a guarantee fund for SME financing,
application of unsecured financing, risk insurance and so on; • Global value
chains by connecting the states of SMEs, multinational companies and their
products to operate as separate components to support the various initiatives
carried out by supplier. states are implementing the global value chain of
SMEs various initiatives to support transnational companies as a supplier of
separate components of their products. Thus, transnational companies produce
almost the majority of their components by ordering small and medium
enterprises located in different geographical areas around the globe; • To
ensure proper coordination of support to the SMEs and to create a favorable
environment for SMEs, which in many countries around the world set up a
centralized organization. ANALYSIS OF THE CURRENT SITUATION In the past
period, a number of measures have been implemented to support
entrepreneurship development in Azerbaijan. Thus, according to the Decree of
the President of the Republic of Azerbaijan No 610 of June 24, 1997 and No.
753 of August 17, 2002, the “State Program on Assistance to Small and
Medium Enterprises in the Republic of Azerbaijan (1997-2000)” and ”
State Program for the Development of Small and Medium Enterprises in the
Republic of Azerbaijan (2002-2005) “was adopted and implemented. April
25, 2016 by the Decree of the President of the Republic of Azerbaijan dated
April 21, 2016, aimed at promoting the role of entrepreneurs in strategic
issues such as employment, non-oil exports, business environment development,
promotion of entrepreneurship support in society. It has been established as
“Entrepreneur’s Day” in Azerbaijan. At the same time, termination
of inspections in the field of entrepreneurship for 2 years, the number of
licenses and permits for entrepreneurial activity, and the amount of fees
paid, simplification of procedures for issuing permits, including the
continuation of work on creation of electronic portal in this field,
establishment of Appeal Councils on the protection of entrepreneurs’ rights,
implementation of the principle of “one window” for the
transportation of transit cargoes across the country, tax and customs
privileges for 7 years with a view to promoting investment in the country,
further expansion of electronic customs services in order to simplify customs
procedures during import-export operations, minimizing the number of required
documents and procedures, the creation of “Green Corridor” for the
conveyance of goods and means of transport across the customs border and
other existing systems of international experience, improvements in public
procurement, establishing Call Centers that provide direct response to
entrepreneurs’ appeals in public bodies, providing information and advisory
services, and so on. works were carried out. The business environment in
Azerbaijan has been further improved and the country has achieved high
results in some of the World Bank’s “Doing Business 2017” report (example,
starting a Business, 9 Property Registration). With the creation of
e-government portal in line with international experience, public services
have been expanded. Innovation framework for SMEs has been improved through
both infrastructure (example, industrial parks, technology parks and business
incubators) and financial support (creation of a special fund for information
and communication technology (ICT) sector). According to the State Statistical
Committee of Azerbaijan, the share of small business entities in the non-oil
sector is 5.8% in value added, 0.7% in total income, 6.5% in annual average
and 9.2% in fixed capital percent. These data cover legal entities and
individuals considered as subjects of small entrepreneurship, and as of July
1, 2016, 83017 units or 79.7% of enterprises operating in the country
accounted for these enterprises. At the same time, the major part of small
enterprises operating on the country operated on trade (31.2%), construction
(12.1%), agriculture (10.7%) and other services (13.5%). It should be noted
that the development of the SME quite serious issue.For this reason, from the
macroeconomic policy, there is a need to take measures that address a number
of issues, including clear objectives, from the perspective of Azerbaijani
citizens, especially entrepreneurs and related government officials.
Therefore, the implementation of institutional changes that support the
development of SMEs and the creation of favorable conditions for the
development of their strategic importance. SWOT ANALYSIS OF SMALL AND MEDIUM
ENTERPRISES Strengths • the price of energy carriers is cheaper than in
neighboring countries; • presence of a legislative base in the field of entrepreneurship;
• State support for the development of SMEs; • achieving substantial progress
in key indicators on global competitiveness; • availability of favorable
infrastructure; • opportunities to start a business is easy; • simplifying
foreign trade rules; • continuous expansion of e-government coverage; •
achieving progress in reforms in the business environment in recent years
(“one window” principle, “electronic government” and so
on). Weaknesses • difficulties in access to international and regional
markets; • the absence of specific provisions to support the participation of
SMEs in public procurement; • implementation of targeted state support policy
towards SME subjects on different criteria; • any level of public-private
partnership in this area and the lack of coordination; • the lack of
coordination on SME specialized government agency; • the interaction between
the public and private sector cooperation in vocational education
institutions are weak; • the number of government agencies and private
institutions to support SMEs is limited; • incomplete counseling services for
SME subjects; • termination of the shortage of business rules; • low level of
international trade habits; • research and innovation in the field of
cooperation between enterprises, SMEs are weak; • poor communication between
business entities of different sizes; • business skills, particularly in the
middle management level, low level of skills; • difficulties in accessing
financial resources; • insufficient development of products and services
offered in the financial sector; • weakness of the monitoring and evaluation
system to determine the impact of the state support mechanisms for
entrepreneurship; • lack of highly qualified specialists. Opportunities •
availability of potential workforce; • increasing access to financial access,
private credit bureaus and have the opportunity to create a register of
movable property encumbrance; • increasing the level of use of potential SMEs
in the development of the non-oil sector; • diversification of production
areas and diversification of the economy; • establishing training centers
based on the principle “lifelong learning” on different
specialties; • increasing business and vocational education opportunities
that meet market needs; • establishing centers for the provision of
consultation services and essential documents for the SME subjects; •
providing additional support to SMEs by expanding access to opportunities for
various international programs; • the involvement of SMEs in public
procurement and infrastructure projects. Threats • application of rules
restricting access to foreign markets by separate countries; • SME subjects
do not pay due attention to vocational education; • difficulties in providing
employment; • the tax exemptions offered to residents in newly created
industrial parks reduce the competitiveness of non-resident SMEs; • the
impact of possible foreign economic factors (financial crisis, decline in
demand in international markets, etc.); • weak competitiveness of local SMEs
in international markets. Implementation of measures for the development of
the SME creation of innovative-oriented regional cluster, organization of
special trainings for at least 1,000 small and medium entrepreneurs
throughout the year, eliminating the financial illiteracy, support for
creation and development of startup projects, creation of business incubator,
creation of model enterprises, increasing the acceptance of movable property as
a subject of collateral by banks, improve the pre-trial settlement of
disputes among SME subjects may stimulate its current status. These targets
help to improve strategic objectives. STRATEGIC OBJECTIVES SME’s strategic
objectives are as follows: • Forming a more favorable business environment
for SME development; • SME competitiveness and enhance the role of the
economy; • Achieving the creation of all possible parts of the country’s work
and services, especially the intellectual part, through the development of
SMEs and, ultimately, innovations; • Increasing the role of SMEs in
employment provision; • Achieving basic consumer goods produced by SMEs; •
Increasing the share of goods exported by the SMEs in the country’s total
exports. Some ways to stimulate SMEs Minimizing the dependence of the economy
on oil, and increasing the competitiveness of production capacities based on
SMEs in the future will require additional measures. For this reason,
continuing reforms to further improve business and investment climate have
been identified as one of the key strategic targets and it is important to
develop state-entrepreneurial relations, to support business and investment
climate to achieve this goal. For this purpose, the priority will be the
elimination of illicit interventions and artificial barriers to
entrepreneurial activity, improvement of administrative rules and procedures
for state regulation of entrepreneurship, application of incentive mechanisms
and expansion of coverage of e-government services. The creation of a
centralized SME’s – Small scale of SMEs and vulnerability to market changes
necessitates more government support. Thus, SMEs face difficulties in
obtaining certain information, as well as access to a number of business
services. Some SMEs are starting to operate unawares of the requirements of
the legislation, business risks, the situation in the existing sector, which
sometimes causes them to fail. In Azerbaijan, various government agencies
currently provide various services to SME subjects (including consultancy,
sales and other support) within their competence. Nevertheless, according to
international experience, rendering such services from a single center to
SMEs would provide better access to these services and, thus, to their
development. The creation of special industrial zones and clusters of SMEs –
Study to obtain the services of a number of SMEs in Azerbaijan, as well as
manufacturing and other difficulties faced in obtaining information for
various purposes. Such services include utility, logistics, laboratory and
business services, obtaining statistical information on sectors, and so on.
examples can be shown The application of the cluster model in the country
industry is now available. Although these clusters are formed on the basis of
a vertical industrial cluster (cluster reflecting the supply chain from the
product to the final consumer), the effectiveness of such clusters is not
satisfactory. However, it is important to emphasize one point that in future
special economic zones, industrial parks, industrial neighborhoods and so on.
creating incentives for the creation of public funds not only by the state,
but also by the private sector will create new opportunities. Establishment
of a guarantee fund for SME loans- Local SMEs tend to use credit facilities,
especially when they are engaged in financing. The world-wide market of
securities market instruments has not spread among the SMEs in Azerbaijan. At
the same time, investments in SMEs are quite limited. In the annual “Doing
Business” report reflecting the World Bank’s business environment
affordability assessment, entrepreneurs’ access to credit has been weakened
in recent years. Thus, according to the 2017 report, Azerbaijan ranks 118th
out of 189 countries for ease of access to credit. In 2010, Azerbaijan ranks
15th out of 183 countries in terms of obtaining loans, followed by 46th in
2011, 48th in 2012, 53rd in 2013, 99th in 2015, 104th in 2015 and 118th in
2016. At present, the level of refusal of credit applications by the SMEs in
Azerbaijan is high. For example, in 2016, a quarter of the loan applications
in the field of agriculture were rejected. Moreover, banks have refused to
provide loans to 36% of microcredit entities’ credit applications. –
Establishment of a loan guarantee fund – Increasing the financial literacy of
SMEs – Improve property performance and improve financial accessibility –
Expanding the use of alternative financial instruments (FORVARD, FUTURES,
Option, SWOP, FACTING, etc.) in the financing of SMEs Internationalization of
SMEs and increasing access to foreign markets – The share of the non-oil
sector in Azerbaijan’s exports is very small and constitutes 13.8 percent of
the total export. The majority of non-oil-producing enterprises are large
enterprises that show that SMEs share in exports is insignificant. Expanding
financial services for SMEs in international trade operations and attracting
direct foreign investment, establishing export associations in separate sectors,
increasing the knowledge and skills of SMEs, accelerating the application of
advanced practices can increase access to foreign markets. Increasing the
knowledge and skills of SMEs, accelerating the application of advanced
practices – In recent years, many activities have been undertaken to educate
entrepreneurs, to acquire modern business methods, and to strengthen their
business capacities in general. The Business Training Center, operating under
the Ministry of Economy of the Republic of Azerbaijan, has organized various
trainings and seminars for entrepreneurs, differentiated the topics of the
trainings to meet the needs of entrepreneurs. The level of participation of
entrepreneurs operating in the regions of the country has increased regularly;
numerous educational events have been organized in the regions and in Baku.
The Business Training Center has been established in 7 cities and districts
of the Republic (Ganja, Gazakh, Yevlakh, Goychay, Lankaran, Sheki, Khachmaz).
At the same time, the Baku Business Center located at the Seaside National
Park has provided opportunities for small and medium-sized enterprises to
participate in exhibitions and conferences, to participate in international
events with participation of foreign investors, opening and presentation
ceremonies and business meetings. One of the major problems is the lack of
entrepreneurial thinking and the high level of the spirit, especially among
the women entrepreneurs. Also, the widespread lack of support mechanisms for
startups in Azerbaijan hampers implementation of innovative initiatives.
Development of women entrepreneurship – The increase in women’s economic
initiatives in Azerbaijan, their representation in a wide range of
socio-economic development of SMEs, as well as in terms of employment is very
important. But, unfortunately, women entrepreneurship has not yet developed
at the desired level. Prepare of developed incentive mechanisms for the
development of women entrepreneurship, development of information support for
women entrepreneurship, establishment of female entrepreneurial associations
and professional organizations and so on, examples can solve this problem.
CONCLUS?ON Strengthening of the SME Azerbaijan’s economic potential will
increase, as a result of which the competitive environment will be fully
ensured in the country and thus, Azerbaijan will become one of the most
favorable countries for both local and foreign investors. Further
strengthening of the competitive environment in the economy will create a key
factor for economic efficiency, which will inevitably lead to the transfer of
some businesses and services from large entrepreneurs to SMEs. As a result,
the size of the SME subjects in which they operate and expanded coverage


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