Study of Small and Medium Enterprises in Azerbaijan - IFC

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Box 2.1 Definition of small business units According to the Cabinet Council Decree of the Azerbaijan Republic on Criteria For Defining Small and Medium Enterprises Based Upon the Economic Activity #57, dated April 20, 2004, the following legal entities are considered “small business units”: • Construction and industry: number of employees of less than 40 people and annual turnover of less than AZN 200,000 (~$247,000) • Agriculture: number of employees of less than 15 people and annual turnover of less than AZN 100,000 (~$123,500) • Wholesale trade: number of employees of less than 10 people and annual turnover of less than AZN 300,000 (~$370,500) • Other sectors: number of employees of less than 5 people and annual turnover of less than AZN 100,000 (~$123,500) The increase in the SME sector reflects its growing importance to the country’s economy. This is clearly demonstrated in the expanding number of registered entities, but even more so the increasing number of employees, either hired or formally registered. Nevertheless, approximately 90 percent of all the labor force within the entrepreneurship community is employed by IEs. Table 2.1 Number of employees of IEs and SMEs 2004 2005 2006 No of subjects Total No of employees No of subjects Total No of employees No of subjects Total No of employees Small Enterprises (legal entities) 17,028 68,565 11,982 73,447 12,232 90,134 Individual Entrepreneurs 144,406 292,654* 166,558 687,848* 171,776 922,215* Total 161,434 361,218 178,540 761,294 184,008 1,012,348 * Official sources do not contain information on the average number of employees working for individual entrepreneurs (IE). This calculation was done based upon the empirical evidence, using the formula: (Average number of employees per small enterprise – 2) x number IE = Total number of employees working for individual entrepreneurs. According to the State Committee for Statistics’ data and some calculations based upon these indicators, the role of SMEs in the country’s economy is growing, particularly in its contribution to the private sector. Chart 2.2 From 2004 to 2006, the share of people employed in small and medium enterprises from the total labor force has increased from 9 percent to 25 percent 30% 25% 20% 15% 10% 5% 9% 20% 25% 0% 2004 2005 2006 34 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
Meanwhile, the number of small and medium enterprises (SME) per 1,000 residents shows that there is potential for the sector to grow even more, providing a significant contribution to the GDP and enterprise growth. Chart 2.3 How Azerbaijan’s SME sector measures up compared to other countries (SMB Indicators) 100 80 60 40 20 0 SME number per 1000 residents SME share in employment, in % 78 73 55 59 49 20 22 25 24 6 Ukraine Azerbaijan Estonia Russia Italy Source: IFC report on Business Environment in Tajikistan as seen by Small and Medium Enterprises, 2006. 2.1 Individual entrepreneurs The individual entrepreneur is an individual person (sole owner), who is involved in entrepreneurial activity without forming a legal entity and has unlimited liability. Individual entrepreneurs represent the majority of the SME sector, as far as the number of enterprises and the number of employed are concerned. According to the State Committee for Statistics’ data, 93 percent of the local entrepreneurs are registered as individual entrepreneurs. Chart 2.4 Individual entrepreneurs form the majority of the private sector in Azerbaijan (% of respondents) Distribution of business entities by legal status 7% Individual entrepreneurs Small+Medium and Large companies 93% 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 35
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 25 and 26: Capital: Baku Country’s populatio
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: 2. SMEs in Azerbaijan The aim of th
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
Page 75 and 76: Annex 4.1 Checklist of issues for d
Page 77 and 78: Based on the IFC survey estimates,
Page 79 and 80: 5.2 Permits coverage The Azerbaijan
Page 81 and 82: Box 5.4 An example of overlapping p
Page 83 and 84: 5.4 Permit expenses Azerbaijani leg
Page 85 and 86: 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
Page 91 and 92:
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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