Study of Small and Medium Enterprises in Azerbaijan - IFC

Chart 4.5
45%
Percentage of
respondents
30%
who resorted to
unofficial payments
15%
to obtain a license
(percentage of respondents
who obtained a license) 0%
39%
Individual entrepreneurs
25%
SMEs
Another factor which makes the licensing procedure expensive for entrepreneurs is de
facto short validity period of some types of issued licenses. Pursuant to the Licensing
Rules, licenses shall be issued for the period of five years (for production of alcoholic
beverages and ethyl (drinking) alcohol - three years, for import - one year). However,
focus group results reveal that it is difficult to obtain some types of licenses. As a result
the entrepreneurs are forced to start operating without the appropriate license, which
leads to further informal arrangements. Usually, the period for which such approvals
are granted varies from 1 month to 1 year. A license for transportation of passengers
within cities (particularly taxi) is a vivid example of that. This in turn requires entrepreneurs
to allocate a significant amount of financial resources every month.
View from an entrepreneur:
“I am a taxi driver and I know that the license for transportation of passengers within
the city must be issued for five years. The problem is that along with other documents the
taxi drivers have also to submit the contract with the management of parking garage.
However, the management of parking garage is not interested in having such contracts.
This why the Ministry of Transportation refuses to issue a license. As result after bribing
the ministry’s official and without receiving any official document I have to get verbal
permission to carry out my activity every month.”
Although one in three entrepreneurs undergoing licensing procedures claims to have
made unofficial payments, almost 63 percent of respondents consider the overall
procedures as not being complicated. This also confirms the necessity of increasing
the legal awareness of entrepreneurs of their rights and obligations.
4.4 Economic impact of licensing
As survey results show, entrepreneurs obtaining a license have to allocate financial
resources as well as time and human resources in order to obtain a license. As a result,
their cost consists of: (i) direct costs for obtaining licenses and, (ii) indirect costs due
to allocation of labor resources for obtaining a license, and loss of profits for new
entrepreneurs, who cannot start their business without the needed licenses. According
to the economic data provided through the IFC survey, it has been calculated that
both individual entrepreneurs and small and medium enterprises lose on average 1
percent of their annual profits in the year the license is issued (see Chart 4.6).
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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