Study of Small and Medium Enterprises in Azerbaijan - IFC

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Chart 2.7 The individual entrepreneur is more often involved in trade Individual Entrepreneurs by Sector Transport, 11% Public and personal services, 7% Hotels and restaurants, 6% Agri processing, 2% Agriculture, 2% Other, 3% Trade, 69% 2.2 Small enterprises A small enterprise is a private legal entity meeting the requirements of the Cabinet Council Decree on Criteria for defining SMEs. By the beginning of 2006, there were about 12,000 small enterprises registered in the country, which corresponds to 6.6 percent of the whole SME sector. The annual growth indicator from 2005 to 2006 was 2 percent. This indicator is lower than the corresponding growth of the sector, reflecting the small number of entrepreneurs that opt to become more structured by registering their business as a legal entity. As in the case with individual entrepreneurs, smaller firms are mainly located in large cities. Thus, the total number of small enterprises in Baku, Sumgayit, and Ganja equals 56 percent of the total number in the country. (Sumgait is included in the Aran region, Ganja is included in the Ganja-Gazakh region). Chart 2.8 Half of the small enterprises are concentrated in the country’s capital Baku Aran Ganja-Gazakh 9% 15% 48% Absheron 7% Nakhchivan 7% Lankaran 5% Sheki-Zagatala 4% Guba-Khamaz 3% Yukhari Garabakh 1% Dagliq-Shirvan 1% 0% 10% 20% 30% 40% 50% 38 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
The “typical” small enterprise has the following characteristics: Table 2.3 Statistical information on SME activity Average annual turnover AZN 250,000 $309,000 Average profit AZN 30,000 $37,000 Employees number 15 people (full and part-time) Average monthly salary AZN 150 $185 Unlike individual entrepreneurs, legal entities are involved in a much greater variety of economic sectors. Thus, if 69 percent of individual entrepreneurs are involved in trade, then, among legal entities only 28 percent are in trade. Chart 2.9 Unlike individual entrepreneurs, small enterprises are diversified across sectors Enterprises by Sector Agriculture, 18% Trade, 28% Public and personal services, 15% Real estate services, 9% Car and domestic appliances repair, 7% Construction, 7% Other, 9% Agri processing, 4% Transport, 3% 2.3 Main source of investments: own funds One important indicator for measuring the growth of the SME sector is the level and the source of the investments made by entrepreneurs into their businesses. Research shows that local entrepreneurs seldom make capital investments in expanding their business. Thus, in 2007, only 28 percent of entrepreneurs invested in their enterprises. A large portion of these investments are financed from the entrepreneurs’ personal money. Only a small number of entrepreneurs apply for external financing with the purpose of receiving financial support for investments. The chapter on Access to finance elaborates on the reasons for the low level of commercial funding and provides recommendations on overcoming the current limitations. In the entrepreneurs’ opinion, the stable growth in income, the potential for market development, as well as their business experience allows them to achieve satisfactory turnover. However, as seen in the course of focus group discussions, a significant part of their profit is spent on rent. The number of entrepreneurs in Baku that lease some premises for their business activity equals more than half , while in the regions only 26 percent of entrepreneurs rent their commercial premises. 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 39
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 and 36: 2. SMEs in Azerbaijan The aim of th
Page 37 and 38: Meanwhile, the number of small and
Page 39: Table 2.2 Statistical information o
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
Page 87 and 88: 2.4. Specifying in the law a unifor
Page 89 and 90: 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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