Study of Small and Medium Enterprises in Azerbaijan - IFC

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Introduction Geography, history and demographics The Republic of Azerbaijan is an independent country located in the Caucasus region of Southeast Europe, encompassing a total area of 33,440 square miles. The country shares borders with the Russian Federation’s province of Dagestan to the north, Georgia to the northwest, Armenia and Turkey to the west and southwest, Iran to the south, and the Caspian Sea to the east. 22 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
Capital: Baku Country’s population: 8.5 million Ethnic groups: Azeri 90.6 percent, Legzin 2.2 percent, Russian 1.8 percent and others Area: 33,440 square miles (86,600 sq. km) Principal language: Azerbaijani Principal religion: Islam Political divisions: 66 administrative divisions and 1 autonomous republic Currency unit: Manat (exchange rate to US Dollar: US$ 1 = AZN 0.81) The capital and largest city of Azerbaijan is Baku. Azerbaijan Republic includes one Autonomous Republic of Nakhchivan and 66 administrative regions (rayons). About one fifth of the territory of the Republic of Azerbaijan, including Nagorno-Karabakh region and 7 rayons adjacent to this area have been occupied by Armenian military forces. In 2006, Azerbaijan’s population reached a level of almost 8.5 million, an increase of 2.9 percent since 2003. The increase stems from the high cumulative growth of Azerbaijan’s urban population, which accounted for 4.9 percent within the same period, in contrast to 0.7 percent cumulative growth among the rural population. The working age in the country is set between 15 and 61 years old for men and 15 to 56 for women. More than half of the population has reached secondary level education by age 15. 11.3 percent of citizens obtained higher education, specialized secondary education was completed by 11.9 percent and secondary by 52.2 percent 1 . Secondary and higher education levels have shown modest increases since 2004. Azerbaijani Economy Since independence, Azerbaijan has gone through a transition process that has been more dramatic than other ex-Soviet and EU accession countries (Table 1), characterized by a deeper recession at the beginning of the 1990s, followed by a catch-up period: Azerbaijan’s GDP per capita (in PPP) was 51.5 percent of the Ex-Soviet/CIS average in 1992 and 73 percent in 2007. Before the oil boom, this recovery process has been permitted by steady non-oil GDP growth, at 4.3 percent on average between 1997 and 2001 and in double digits in 2002-2004 (Table 1), driven by services and construction. In 2004, the non-oil economy still accounted for 68.4 percent of total GDP. It was a stable economy, with inflation in low single digits and consolidated expenditures representing 37.7 percent of non-oil GDP 2 . 1 Data from US-Azerbaijani Chamber of Commerce: Investment Guide to Azerbaijan 2007. 2 Source: combined official Azerbaijani statistics and the World Bank 2008 data. Aze r b a i j a n Bu s i n e s s En a b l i n g En v i r o n m e n t Pr o j e c t 23
Page 1 and 2: Study of Small and Medium Enterpris
Page 3 and 4: Study of Small and Medium Enterpris
Page 5 and 6: 5. Business Permits................
Page 7 and 8: Foreword and Acknowledgements IFC,
Page 9 and 10: critically examines all areas of op
Page 11 and 12: of each formality. Special attentio
Page 13 and 14: Policy Recommendations Business Reg
Page 15 and 16: Problems Sources of Problem Recomme
Page 19 and 20: Business Taxation Problems Sources
Page 23: Problems Sources of Problem Recomme
Page 27 and 28: The state, ultimately responsible f
Page 29 and 30: 1. Methodology 1.1 Background The s
Page 31 and 32: the share of economically active co
Page 33 and 34: Scope of activity Official statisti
Page 35 and 36: 2. SMEs in Azerbaijan The aim of th
Page 37 and 38: Meanwhile, the number of small and
Page 39 and 40: Table 2.2 Statistical information o
Page 41 and 42: The “typical” small enterprise
Page 43 and 44: According to the IFC survey, more t
Page 45 and 46: 2.5.3 Legal disputes Most entrepren
Page 47 and 48: 3. Business Registration In January
Page 49 and 50: According to the law previously in
Page 51 and 52: 3.4 Economic impact estimate Accord
Page 53 and 54: tion duplicate is addressed to the
Page 55 and 56: the local tax inspectorate for regi
Page 57 and 58: 3.10.3 Introduce the electronic reg
Page 59 and 60: 3.10.7 Simplify the liquidation pro
Page 61 and 62: Business registration before ‘one
Page 63 and 64: Process map of one-stop-shop busine
Page 65 and 66: Registration for individual entrepr
Page 67 and 68: 4.1 Licensing: the legal framework
Page 69 and 70: Chart 4.1 Number of activities requ
Page 71 and 72: While the Rules specify limits for
Page 73 and 74: Chart 4.6 Economic impact of licens
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Annex 4.1 Checklist of issues for d
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Based on the IFC survey estimates,
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5.2 Permits coverage The Azerbaijan
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Box 5.4 An example of overlapping p
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5.4 Permit expenses Azerbaijani leg
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Chart 5.9 40% Average percentage of
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2.4. Specifying in the law a unifor
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Annex 5.1 Procedure for obtaining c
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Annex 5.2 Checklist of issues for d
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The most significant legal act in i
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6.1.2 There is no effective mechani
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6.1.4 Entrepreneurs are not aware o
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IFC’s analysis showed that only h
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6.2.2.1 The inspections process and
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View from an entrepreneur: “The s
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Chart 6.11 Average registration in
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going in the opposite direction. In
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clearly defined circumstances, or a
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Annex 6.2 Presidential Decree No. 7
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The bulk of individual entrepreneur
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Items 1-9 are collected at the firs
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The IFC survey reveals that one in
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Table 7.5 Main tax obligations of a
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Chart 7.3 IFC Survey: Complexity of
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7.3.2 Tax inspections negatively af
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7.3.5 The cumbersome VAT administra
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• Introducing clearer and more el
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Chart 8.1 Development of Credit Ins
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More than 90 percent of entrepreneu
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Chart 8.9 The loan interest rates o
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Case study of a Baku-based glass an
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View from a bank employee: “One p
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Box 8.2 Examples of a successful cr
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Box 8.3 Examples of alternative mec
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9. Foreign Trade The volume of fore
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Box 9.1 Customs regimes under the C
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As Chart 9.1 illustrates, 98 percen
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Table 9.1 A comparison of the proce
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The comprehensive system of mandato
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Table 9.2 Average costs for imports
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Box 9.5 Customs payments The Custom
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Box 9.8 An excessive number of docu
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Moreover, due to the underdeveloped
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Expected impact More comprehensible
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9.5.6 Accelerate WTO accession of A
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Chart 9.5 Goods importable upon app
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Azerbaijan has been long pending a
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List of Laws 1. The Tax Code of the
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Statistical Annexes Aze r b a i j a
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Chart A1.3 Individual Entrepreneurs
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Chart A1.7 Individual Entrepreneurs
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Chart A1.14 Three Major Types of Ob
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Registration Chart A2.1 Entrepreneu
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Chart A2.8 Three Major Problems Occ
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Chart A3.3 Existence of Licenses by
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Chart A3.9 Three Major Obstacles to
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Chart A4.4 Obtaining of Any Permits
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Chart A4.10 Time Required to Obtain
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Chart A5.4 Application for Credit o
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Chart A5.12 Average Interest Rate (
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Chart A6.3 Entrepreneurs That Under
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Chart A6.8 Authorities That Made In
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Chart A6.13 Breakdown of Number of
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Chart A6.19 Average Duration of One
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Chart A6.25 Small and Medium Enterp
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Chart A7.3 Small and Medium Enterpr
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Chart A7.8 Reported Share of Busine
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Chart A8.3 Usage of Optional (not c
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Azerbaijan Business Enabling Enviro
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Study of Small and Medium Enterprises in Azerbaijan - IFC

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