Azerbaijan-2023: focus on small and medium-sized enterprises Review by Caliber.Az

A favorable external environment over the last two years contributes to the growth of the non-oil sector of Azerbaijan and the expansion of industrial and agricultural exports. Large industrial enterprises of electric power, petrochemical, metallurgy, textile, construction complexes, and plants created in industrial areas are leading here. At the same time, according to the Strategy for Socio-Economic Development of Azerbaijan for 2022-2026, the key goal is to increase the share of production of small and medium enterprises (SME) up to 35 per cent of GDP. On December 28, SME development tasks and new tools for their support were discussed at the ceremony of awarding the Dayaq Prize.

The "National Priorities for Socio-Economic Development: Azerbaijan 2030" programme has identified five basic areas as priorities: ensuring sustainable growth and competitiveness of the economy; creating a dynamic, inclusive society based on social justice; building competitive human capital and attracting modern innovation; a Great Return to the liberated territories; development programmes to ensure a clean environment and "green growth" countries.

Among the main goals of the national priorities and strategy, the economic transformation is highlighted: among others, it is planned to further ease the business climate by creating an ecosystem with effective incentives for the private sector and to create new financial instruments to support entrepreneurs. It is also planned to expand public-private partnership initiatives, including involving SMEs in public tenders and contracting, to continue labour market reforms, ensuring digitalisation of all mechanisms in the employer-employee сhain. The above areas, which provide for a fundamental transformation of the business environment, are being progressively developed within the framework of the reforms initiated by the Ministry of Economy and implemented in recent years with the active participation of the Ministries of Labour and Social Protection, Transport and Digital Development, and Agriculture and Energy.

An interim summing up of the work done in this area took place on December 28 during the presentation ceremony of the Dayaq Award, which was given to entrepreneurs for the first time this year. The award was initiated by the Small and Medium Enterprise Development Agency (KOBIA) and is intended to reward local companies that have distinguished themselves throughout the year for their innovative and modern business practices, as well as for the production of export-oriented goods and services.

"The development of entrepreneurship in the republic has been identified as the main driver of growth of the domestic economy. Particular attention is focused on the development of micro, small and medium enterprises, which is designed to increase the interest of domestic and foreign investors in the country's economy and expand non-oil exports," Shahmar Movsumov, head of the Department of Economic Affairs & Innovation Development Policy of the Presidential Administration of Azerbaijan, said at the Dayaq Award presentation ceremony. The Department's head emphasized that according to the four-year strategy for the socio-economic development of Azerbaijan, one of the main goals is to increase the share of small and medium-sized businesses in GDP in the non-oil sector to 35 per cent, as well as to increase the employment rate in the SME segment of the non-oil sector to 60 per cent.

Here it should be noted that the share of the private sector in Azerbaijan's GDP has reached 83.5% and continues to grow. At the same time, it is difficult to overestimate the importance of SMEs as well as individual entrepreneurship in the development of the country's economy - today it is 99 per cent of the country's economic entities, and their share in employment and investment value-added is steadily increasing.

However, small businesses are still predominantly present in trade, services, intermediary services, construction, and the agricultural sector. While the participation of SMEs in innovative production, start-ups, and other areas of the digital economy has increased somewhat in recent years, their overall share is still not high enough. The participation of SMEs in non-resource exports is currently only a little over one-quarter of total foreign exports, and there remain many unexploited opportunities for growth. The lion's share of non-oil exports is accounted for by large state and private companies in various sectoral and other holdings. According to the Center for Analysis of Economic Reforms and Communications (CAERC), the list of leading non-oil exporters includes State Oil Company SOCAR and its processing companies, Azeraluminum LLC, gold mining structures - AzerGold CJSC and Azerbaijan International Mining Company, Baku Steel Company LLC, MKT Istehsalat Kommersiya LLC, and Azerpambig LLC, etc.

As a matter of fact, this is why the most important task of the reforms implemented in the country is to bring SMEs into a new, higher orbit, by increasing their participation in innovative projects, expanding their participation in export programmes, and connecting them to new tools of preferential financing.

What innovations in this area should we expect next year?

"So far our main tool has been concessional lending to entrepreneurs through the Entrepreneurship Development Fund (SIF), covering thousands of projects, but working with only one tool does not meet today's demand," Economy Minister Mikail Jabbarov said in his speech at Dayaq Awards event. - Therefore, our goal for 2023 is to expand the activities of the SIF and introduce new financial and credit mechanisms in line with the modern requirements of the national economy. In the first quarter of next year, we will make an appropriate presentation of such mechanisms, including new grant tools".

Next year it is also planned to further strengthen the participation of SMEs in public procurement, including those conducted by JSC Agrarian Procurement & Supply through an electronic portal, expand participation of entrepreneurs in various public tenders, including expanding their participation in contractual works on infrastructure development in the reviving Karabakh region. Another tool to support SMEs will be the Law "On public-private partnership", which was recently approved by the head of state: this document supports innovative IT projects and will help small and medium entrepreneurs to master new ventures in manufacturing, tourism, agricultural sector, ICT, especially in the liberated territories of Azerbaijan, while improving the situation in the area of voluntary payment of taxes, social obligations of businesses, etc.

"In 2023, Azerbaijan will take practical steps to create cluster SME companies, which are covered by a number of tax benefits, new mechanisms to support entrepreneurs will be introduced," said another presentation participant, chairman of the Small and Medium Business Development Agency (KOBIA) Orhan Mammadov. The matter concerns the implementation of initiatives resulting from the decree of the head of state on December 15, 2022, approving the Model Regulations on Clusters of Micro, Small & Medium Entrepreneurship. KOBIA head also said that next year it will be implemented a project on training and education of SMEs to improve practical knowledge in the organization and management of the business and continue work on the implementation of the pilot project "model enterprise", which has been successfully used in international practice. According to Mammadov, steps are also planned to develop an active platform for the cooperation of public and private sectors, including the return of the SME sector in the liberated areas of the country.

Finally, comprehensive programmes for reform of the economy and expansion of the business space in the Nakhchivan Autonomous Republic (NAR) will be implemented in the future and subsequent years. According to Minister of Economy Mikail Jabbarov, in this regard, a large event with the participation of entrepreneurs is planned to be held in NAR next year. "Our goal is to hold an effective discussion between state agencies and entrepreneurs about the economic, human potential, economic relations with brotherly Türkiye, which we failed to realize in Nakhchivan," the Economic Minister said, urging businessmen to take part in this forum.