Study of Small and Medium Enterprises in Azerbaijan - IFC

Conclusion
The government of Azerbaijan has taken major steps in reforming the business
environment in the last several years, passing the key laws and strengthening
the related institutions, which all has streamlined the business registration,
but also licensing system, property relations, investment protection, paying taxes and
contract enforcement. All this resulted in a dramatic improvement in the IFC/World
Bank Doing Business ranking, which now lists Azerbaijan as being the 33rd country
in the world in terms of ease of doing business and also the top global reformer in
the current year. While some of these enforcements and reforms immediately boiled
down to the ultimate beneficiary – entrepreneurs –others may take a little longer for
the effects to come to full fruition. Therefore, a number of other global comparative
instruments, relying more on the business sector perception may not have echoed the
sentiment of the Doing Business 2009 report.
Indeed, the SME survey conducted by IFC in late 2007 and early 2008 on a sample
of almost 1,800 IEs and SMEs, as well as the in-depth interviews conducted with the
private sector portray a picture of the numerous administrative procedures that remain
overly complicated and costly. This is particularly true in the area of business permits
and similar official authorizations, business inspections, taxation, etc., in which the
official authorities have a significant role to play in terms of further modernization,
simplification and reforms, but also access to finance, where the financial institutions
must do better in acquainting themselves with the private sector, so that lending can
be cheaper, faster, and better targeted.
The most cumbersome procedures remain business permits, where Azerbaijan is an
infamous leader in the number of estimated permits (but also various other opinions,
authorizations, approvals, etc.) required per each business, the costs associated with
their issuance, and lack of clarity in respect of their duration. Business inspections too
remain worrying: they are very frequent, the regulations of their conduct are nontransparent
and sanctions are most often arbitrary, resulting in a demand and supply
of unofficial payments. Taxation of commercial activities is insufficiently defined,
leading to maintenance of dual accounting records for SME tax evasion. Reforming
the policies, rates and the system, alongside further administrative simplification
would strengthen the fiscal revenues and elevate the public and business trust in this
important public authority.
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St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n