Techical Assistace Cosultat s Report Project Number: 44060-012 May 2013 Kazakhstan: Improving Capacity to Support SME Development (Financed by the ADB) SME Survey- A Needs Assessment Prepared by Akbota Jappar, Janar Jandosova Sange Research Center Astana, Kazakhstan For the ADB This cosultat s report does ot ecessarily reflect the ies of ADB or the Goeret cocered, ad ADB ad the Government cannot be held liable for its contents.
CURRENCY EQUIVALENTS (average 2012 annual rate according to the National Bank of Kazakhstan) Currency Unit Kazakhstani tenge (KZT) KZT1.00 = $0.00672 $1.00 = KZT148.7035 ABBREVIATIONS ADB Asian Development Bank BRIC country group of Brasil, Russia, India, China CNPC China National Petroleum Corporation CPI corruption perception index CU Russia, Kazakhstan, Belarus Customs Union EU-27 form of data presentation for 27 countries of the European Union EUR euro currency G-20, G-7, G-8 grouping of countries with the largest economies GCI global competitiveness index GDP gross domestic product JSC joint stock company IT information technology LLP limited liability partnership LTD limited MCI monthly calculation indicator used by the Kazakhstani government for calculaton of government payments for social benefits, taxes and penalties, in 2012 it was 1618 KZT MEDT Ministry of Economic Development and Trade of Kazakhstan OECD Organization of Economic Cooperation and Development PSC Centers rendering services for population RCC Regional Coordination Council SARK Statistical Agency of the Republic of Kazakhstan SLE small business (legal entities) SI satisfaction index SME small and medium enterprise SP sole proprietor TRACECA Transport Corridor Europe-Caucasus-Asia VAT value added tax 2
Table of content Abbreviations... 2 Table of content... 3 Summary... 5 Introduction... 14 Chapter 1. Macro-indicators of small and medium sized business of Kazakhstan... 15 Definitions... 15 Small and medium sized business Contribution to the Economy... 15 Active Entrepreneurs and Lending... 19 Doing Business in Kazakhstan... 23 Small Business Monitoring indicators used by government bodies across the country... 26 Summary: recommendations on indicators... 28 Chapter 2. Small and medium sized business Profile... 29 General characteristics of entrepreneurs... 29 Areas of SME Activities... 33 Annual Turnover and Business Prospects... 36 Reasons for success and failure in business... 40 Components of successful business... 42 SummКrв: KКгКkhstКni entrepreneurs profile... 43 Female entrepreneurship... 44 Summary: female business profile... 49 SME activity location... 50 Summary: Kazakhstani enterprises operate locally... 52 Information channels for entrepreneurs... 53 Summary: main channels of business information in Kazakhstan... 55 Chapter 3. Financial and Nonfinancial Programs for SME support... 56 Needs of SME sector by size of business... 56 Financial Services... 57 Financial sources... 57 Summary: Shortage in finances... 64 Bank services: assessment and needs... 64 Medium businesses... 66 Small businesses... 66 3
SPs... 66 Damu Fund financial services... 70 Summary: accessibility of banks... 71 Perception of financial institutions... 72 Comparative characteristics of financial institutions... 76 Interest rate/quality of rendered service... 77 Model of ideal financial institution (IFI)... 78 Summary: Indicators for monitoring financial services... 80 Needs in Nonfinancial services... 82 Information services suppliers... 83 Consulting services providers... 84 Training providers... 85 Summary: non-financial services needs... 87 Damu nonfinancial programs... 88 The profile of Damu non-financial services clients... 88 Damu Fund website and call center... 90 Business Roadmap 2020 Instruments... 96 Summary: Indicators for monitoring the effectiveness of Damu programs... 103 Recommendations for Damu from entreprenurs... 103 Chapter 4. Exports and imports by the SME sector in Kazakhtan... 106 Export and import ratio by SME sector... 107 Export and Import Structure... 108 SME activities in Russian markets... 110 Import substitution potential in SME activity... 112 Summary: SME sector reflects import oriented economy... 124 Appendix 1. Methodology... 126 Appendix 2. Regional preferences of information channels... Error! Bookmark not defined. Appendix 3. Demand of Russia frontiers regions... Error! Bookmark not defined. Appendix 4. Commodity groups of import from Customs Union and demand of Russia transfrontier regions... Error! Bookmark not defined. Appendix 5. Review of Aktobe, Mangistau and South Kazakhstan regions... Error! Bookmark not defined. Appendix 6. Terms of Reference for SME Survey in Kazakhstan... Error! Bookmark not defined. 4
Small and Medium Sized Enterprises in Kazakhstan Summary The survey was conducted from August to November 2012 for the Asian Development Bank (ADB) and Damu Entrepreneurship Development Fund by Sange Research Centre. The purpose of this study, based on a survey of 1600 entrepreneurs nationwide, was to assess the development needs of small and medium enterprises (SME) in Kazakhstan, and the access and efficiency of financial institutions and programs focused on the SME sector. The results of this study provide more accurate data on the status of small and medium enterprises, allow identification of the most informative indicators for monitoring the assessment of their status and the effectiveness of actions taken by the State to support SMEs, and allow preparation of a number of recommendations, including improvement of the legislation for business development and the reduction of administrative barriers. A description of the SME sector in Kazakhstan The SME sector in Kazakhstan is represented by sole proprietors, farms, small and medium business enterprises. In Kazakhstan, differentiation between small and medium businesses is done based on their annual asset values and number of employees, which for small businesses are limited to 0.68M USD and 50 employees; for medium businesses, annual asset value must be more than 3.3M USD, while the number of employees should be between 51 and 250 people. The form of the business determines its tax load and schedule. Despite the steady growth of small businesses reported by the Government of Kazakhstan, this is reached mostly at the expense of sole proprietors. According to official figures, 44% of registered SMEs are not active. To be fair, statistics are based on active enterprises; however, it reflects the problem of how difficult it is to close an enterprise legally: The procedure may last for several years. Inactiveness of enterprises is very often a reaction to the business conditions created by both central and local governments. Selective tax regulation on farms in 2012, for example, provoked a sharp decrease in the number of enterprises in agricultural regions. The totкl contriлution of smкll Кnd medium enterprises to KКгКkhstКn s GDP is Кround 20%, i.e. much less thкn in developed countries, where this indicкtor is Кround 50%. KКгКkhstКn s SME sector comprises 28.7% of the total employment in the economy, which is also less than in developed countries (around 60%). The Government of Kazakhstan has made several efforts to stimulate the growth of small and medium businesses and to diversify the economy, which is mostly based on extractive industries and is quite dependent on oil and mineral prices. The share of the SME sector in GDP has trended towards increase when oil prices are falling (as happened in 2007, 2009 and 2010), since with low oil prices the contribution of large enterprises to GDP is reduced. Therefore it is 5
necessary to distinguish the impact of oil prices and the development of small businesses in SMEs contribution to GDP. In the sub-factors Trading Across Borders of the WB Doing Business Kazakhstan holds the 182 nd rank out of 182 countries. In the Corruption Perception Index (CPI), Kazakhstan scores a 28 on the 100-point scale, putting it in 133 rd place out of 176 economies. The survey confirmed these ranks, for example the biggest proportion of entrepreneurs is faced corruption while dealing with customs: 23.2% of medium, 15.5% of small businesses, 16.7% of sole proprietors and 13.1% of farms. The profile of Kazakhstani entrepreneurs shows that male/female distribution is 54/46 and that business people are mostly married (73%), educated and from all age groups. 66% of businesses have been running for more than six years, and 60% of business people are spending over nine hours at their work. 33% of surveyed people are busy in trade, 16% in services, 11% in agriculture, and 9% in construction. People come into business mostly from private- or statecompany jobs (60%) and only extremely rarely from being unemployed (2%), since such people lack the primary necessity of motivation, and not just experience or financial resources. Half of the surveyed entrepreneurs have an annual turnover of not more than 50,000 USD, 15% have an annual turnover in the range of 51,000 to 100,000 USD, 14% in the range of 110,000 to 700,000 USD, and 20% of over 800,000 USD. Analysis of SME activities across regions shows that there is no strict primary specialization of regional SMEs. Trade and services are the most attractive entrepreneurial opportunities in all regions, while other areas remain underdeveloped. During group discussions, business people indicated the main factors in failure as being bureaucracy, corruption, incompetence of authorities, low professionalism of entrepreneurs, and a lack of financial support. Factors in success are innovative ideas, available finances and production means, the support of family and business allies, effective business planning, and strong leadership by the business owner. Although fewer women (30%) own businesses than men (51%), 19% are co-owners and managerial positions are held almost equally: 34% vs. 36%. More female entrepreneurs (27%) are single or divorced than male entrepreneurs (14%). Women are more involved in trade businesses (41% of women vs. 26% of men), in hospitality services (8% vs. 5%), consumer goods production (5% vs. 3%), and financial services (3% vs. 1%), while men prevail in farming and fishing (5% of women vs. 16% of men), construction (4% vs. 13%), and material production (4% vs. 7%). The particular problems for business women are the balancing of work with family and child care, coping with health problems provoked by physical exertion, and the social stereotype of the subordinate role of women. The description of women s Лusinesses in compкrison with men s is more positive in terms of ethics: decent, transparent, less prone to corruption, and more responsible. At the same time, the male-run businesses description emphasizes power, speed and complexity: high income and large loans; and a higher level of operations: complex, selects strategic directions, detailed, competent, technological and risky. 6
55% of entrepreneurs nationwide are optimistic about business prospects, while 4% have negative expectations. The most optimistic are business people from Astana (85%), the Aktobe region (81%), and West Kazakhstan (72%). The least optimistic are from the Atyrau (34%), Pavlodar (38%), North Kazakhstan (31%), and Kostanai (30%) regions. These regions border Russia and are thought to have expanded business opportunities within the Customs Union; however, the case seems to be otherwise. By type of business, medium enterprises (62%), small enterprises (59%), and farms (58%) are more optimistic than sole proprietors (48%). The highest capacity increase and turnover growth are expected by those entrepreneurs engaged in the manufacture and repair of equipment (74%), transport services, warehousing and repair of vehicles (68%), and construction (66%); the least by those in the processing industry (41%), information and communications (40%), and financial services, insurance, and real estate (32%). Business success is related to bright ideas, self-confidence, low interest rates for loans, the availability of finances, premises and equipment, and support from business allies and family. Business failure is associated with bureaucracy, corruption, low qualification of government officials, a lack of business and professional skills, information deficiency about business opportunities, and a lack of equipment. The majority (90%) of businesses in Kazakhstan is run locally, especially in the Aktobe, Atyrau, South Kazakhstan, and West Kazakhstan regions, where 98-99% of enterprises operate in local markets. Only 7% of Kazakhstani enterprises act nationwide, and they are mostly represented by the city of Almaty (25%), the regions of Karagandy (24%), Zhambyl (14%), Kostanai (12%) and Astana (13%). Only 4% of Kazakhstani enterprises operate in other countries, with such enterprises concentrated in the Kostanai (15%) and North Kazakhstan regions (12%), and in the cities of Astana (12%) and Almaty (11%). Nationwide-operating enterprises compose 21% of transportation and warehouse services, 18% of the processing industry, 16% of various materials production, and 16% of production or fixing of equipment. Within each sector, businesses operating in other countries compose 13% of transportation and warehouse enterprises, 6% of various services, 9% of material processing enterprises, 6% of farms, 5% of production or fixing of equipment, and 5% of IT and communications. Financial and Non-financial needs The main channels for business information are websites (45.5%), business partners or colleagues (33%), local newspapers and local television (26%). Rumors (11%) and social networks (7.9%) were indicated as information sources more often than were announcements by local administrations, state bodies, and market surveys (7.7%). Only 5.4% of entrepreneurs get information from business associations. There is not a large difference between medium enterprises, small enterprises, and sole proprietors in information channel preferences, but farmers have lower internet access and mostly rely on local television (48%), local newspapers (31%), central television (30%), announcements in akimats (20%), and information from banks (9%). 7
Market reviews and stock news are important to entrepreneurs in oil regions (Aktobe: 18%, and Atyrau: 11%), agricultural regions (Zhambyl, Kostanai, and South Kazakhstan: 10-11%), and for entrepreneurs in the city of Astana (14.5%). Information from banks and development institutions is more often in demand in the cities of Astana and Almaty. The survey showed that 50% of entrepreneurs have an annual turnover of less than 50,000 USD, while previous findings have indicated that the average bank loan size in the SME sector in 2011 was only 15000 USD 1. 92% of entrepreneurs reported that for development purposes they mostly mobilize personal funds (49%) and enterprise funds (27.5%), Кs well Кs relкtives Кnd friends moneв (15.9%). This survey shows that entrepreneurs more often (three times the desired amount) use their own funds, relкtives Кnd friends moneв, thereby restricting family and children by increasing their welfare. Enterprise fund use (about twice the desired funding amount) also results in improvement of working conditions, and wage and process modernization restraint in the economy. The remarkable fact is that 7.4% of entrepreneurs use consumer loans and 3.5% use a mortgage; that is, they instead use financial instruments assigned for individuals. Micro crediting with higher borrowing rates is used by 4.6% of entrepreneurs, which is not exactly beneficial. The smaller the business is, the more often entrepreneurs use their personal money and those financial resources assigned for individuals, such as consumer credits, mortgages and microcredits. Bigger enterprises are more likely to get business loans from banks, since they are able to provide collateral. The shortage in financial support, calculated as the difference between the percentages of those who are willing to use it and those who actually do use it, is higher for the following instruments: subsidies under a state program 16.6%; credits from the special business-support funds 12.5%; loan guarantees 5.4%; bank loans for business development 5.3%; leasing 4.6%; micro crediting 4.3%; trade credits 1.6%; and factoring 1.4%. The leasing needs of small business, sole proprietors, and farmers are not fully met (i.e. the proportion of those who wкnt to leкse is much higher thкn those who do leкse). FКrmers Кnd SPs needs of loans are higher than those of small and medium enterprises. Therefore, approaches to crediting and leasing should be revised to provide better financial access for farms Кnd sole proprietors. It is suggested to include sole proprietors in the monitoring of the SME s needs in bank lending conducted by the National Bank, in order to be able to monitor and improve the accessibility of credit for them. By region, the best situation in terms of access to loans is observed in Pavlodar for both small businesses and SPs. The worst situation for SPs is in Atyrau and East Kazakhstan, the city of Almaty, and West Kazakhstan; for small businesses, in North Kazakhstan, the Aktobe and Kostanai regions, and also in the city of Almaty. 1 Accessibility of bank lending services. Sange Research Center, 2012, 64 pages 8
Loan borrowers are producers of food and beverages, various materials, and services and trade. Leasing is mainly used by construction companies, and food and agricultural producers. Micro crediting is mainly related to trade. The most popular banks are Halyk, Kazkom, Kaspi, CenterCredit, Alliance and BTA, together making up more than 60% of the market. Although Damu Fund does not provide money directly to entrepreneurs, it was mentioned by 7% of entrepreneurs. The most accessible banks are Kaspi Bank and Temir Bank, both with a 4.2 score on a 5 point scale, followed by Alliance (4.1), Halyk Bank, Kazcom, and Nurbank (4.0 each), and Tsesna Bank and BTA (3.9 each). Service quality is most highly valued in Sberank (4.3), CenterCredit, Kazcom, Temirbank, and Nurbank (all at 4.2), Eurasian Bank and BTA (4.1 each), and Halyk, ATF, and Kaspi (4.0 each). The most common administrative barriers are high interest rates (56.4%), followed by entrepreneurs feкr of Лecoming dependent on the ЛКnk (26%), and long and complicated application and approval procedure (18%). The problems of high interest rates and lack of collateral result in the need to subsidize interest rates and loan guarantees (need mentioned 18.4% of respondents). Anti-crisis programs are also in short supply, such as anti-crisis micro crediting and short-term loans (15%), anti-crisis payment prolongation (10%), loan refinancing (9%), and the funding of female small businesses (14%). The need for funding innovations and new technologies was expressed by 11.5% of respondents, as well as the need for exporter support programs (9.3%) and energy saving (2.9%). Some entrepreneurs complained about the underestimated value of collateral by related appraisers (9.1%), the lack of useful connections in banks (6.5%), corruption (5.9%), and raiding (1.2%). Awareness about Damu Fund is measured at 58.5% out of 1,211 respondents: 41.5% said that they have never heard about the financial programs of Damu Fund, 8.9% had heard and participated in the program, and 49.6% had heard but did not participate. Reasonably, respondents are more often informed about conditional lending. Out of 126 respondents who answered the question on satisfaction, 81% were satisfied and 19% dissatisfied. During focus group discussions, the most popular financial institutions were mapped in regard to convenience, the availability of information, interest rates, and quality of services. Damu Fund has the best scores (8 and 8) for reasonable interest rates and quality of services. The survey assessed the need for non-financial services (information, consulting or training). 17% of respondents complain that there is no information about such services or suppliers, 10.2% say that the services do not meet the need, and 8.8% say that such services are not provided in their settlements. Only 4.6% report that such services are too expensive, and 2.6% say that transportation or accommodation is expensive. 9
Surveys repeatedly show that information presented in a suitable and accessible form, with minimum time lost, is the most important aspect for the entrepreneur. Consultations and training are also requested, but less so, due to their heavy time-loss. Unmet needs for information services are in new technologies, state support programs, seminars, customs procedures and tariffs, labor legislation, and management and business planning. Unmet consultation needs are in new technologies and state program support. Unmet training needs are in promotion and advertising, conducting of seminars and exhibitions, and state support programs. Tax services are the leaders among information services providers for entrepreneurs (27.3%). These services distribute information for entrepreneurs via the internet, through the tкxpквers virtual office, on the website www.salyk.kz, by booklets, and by telephone. In addition, the special consulting post of moderator has been created. Following tax services are akimats [the seat of local government in a town or city] (26.3%), Damu Fund (17.7%), and business associations (14.7%). Banks and other financial organizations are deemed as information services providers for only 6.2% of entrepreneurs. Tax departments provide free consultations on various issues and, as result, dominate among service providers: 25.8% respondents report using them and 16.5% of respondents receive private consultations. These departments are followed by akimats (18.9%) and business associations (16.5%). 13.6% of entrepreneurs use legal consulting. Consulting is used less in chambers of commerce and industry, customs services, and banks. Damu Fund branches were first by frequency of training mentioned (27.1%), followed by revenue services (16.2%) and business associations (15.6%). Consulting companies (14.7%), and business development committees and akimats (12.6%) also have sufficiently large shares. Female entrepreneurs needs in trкining Кre more distinct thкn men s, as women are involved in almost every sphere, except for new technologies and innovations and accounting procedures, in which men are more interested than women. The main reason for choosing a certain service provider depends on the type of service. For information to be consumed, it is important to establish personal contact and to provide information via a competent and experienced service provider for a low price; for consultation, the main aspects are experience and the competence of the service provider who personally contкcted the client. For trкining, the mкin needs Кre К neкrлв locкtion, the provider s good reputation, and persuasive advertising, often via personal contacts. To assess non-financial services provided by Damu Fund, 401 participants were surveyed to cover the following programs: Business Advisors (103), Service Support (106), Business Connections (107) and Top Managers Training (93). Receivers of services seek information from call centers rather than on the www.damu.kz website. AwКreness of DКmu Fund s cкll centers is 74%. SКtisfКction level is 70%. LLPs Кnd sole proprietors are among the most active users of call center services. The highest number (100%) of satisfied customers is in all the northern regions (Astana, East Kazakhstan, Kostanai, 10
Pavlodar, North Kazakhstan), while the highest numbers (30 and 40%) of dissatisfied customers are in the West Kazakhstan and Mangistau regions. According to the survey results, less than half of non-financial program participants use the www.damu.kz website (43%); other participants are informed about the website, but have never used it and are not able to assess its work (42%). Website users are mostly located in the city of Almaty (85%), the Karagandy region (78%), the city of Astana (69%), and the West Kazakhstan region (55%). In the South Kazakhstan and Mangistau regions, only 16-19% of participants use this website; in the Almaty region, 0%. 79% of users are satisfied with the weлsite s informкtion utility. The majority of website and call center users are satisfied with the quality of the services rendered, but there are certain aspects (feedback, updated information and an online forum on the website, wait time for a response, experts competence, and the completeness and relevance of the information received from call centers) that do not always satisfy customers. Damu Fund provides services in the fourth component of the Business Roadmap Program via outsourcing of business-accompanying services, training of top managers, assisting in the building of business links with other countries, and improving qualifications in highly-demanded specialties. Participants in the Business Accompanying Service Support, Business Advisor, and Business Links programs were satisfied with the services rendered and gave them a high rating based on selected attributes. In order to further improve services under these programs, special attention should be paid to certain aspects with which clients are less satisfied. In the Business Accompanying Service Support program, such areas as customs procedures and services related to governmental procurements should be considered, in order to increase their practical effectiveness and positive impact on enterprises. In the Business Advisor program, the improvement of training materials on doing business and of handouts should be considered. The Express Course for Beginning Entrepreneurs is less effective compared to the Express Course for Functioning Entrepreneurs, thus requiring appropriate adjustments. Franchising of the program s area has the least impact on businesses, thus requiring a more detailed analysis of its content and relevance to the current needs of entrepreneurs. In the Business Links program, the area of Training and Methodical Support seems to be more efficient and to show more substantial impact on businesses compared to the Internship Abroad. Such aspects as the trкiner s/pкrtner s quкlitв Кnd relevкnce to the needs of service users should be improved. SMEs and external trade The majority of enterprises sell their products and services in one or several regions of Kazakhstan; typically, these are their own or neighboring regions. Only 7% of enterprises carry out their activities all over the country, and foreign markets remain underdeveloped by 11
Kazakhstani enterprises: Just 4% of respondents operate in other countries, while exporting is not prevalent and exported goods comprise only 32% of total output. Entrepreneurs activity highly depends on foreign markets since a large part of raw materials and components are imported, resulting in the share of imported products far exceeding the share of exported ones (31.6% vs. 5.1%). Enterprises from the Kostanai and North Kazakhstan regions and from the cities of Astana and Almaty are more active in foreign markets, while enterprises from other regions are limited to their neighboring regions. Export and import transactions are more common for medium businesses: More than one-tenth of medium enterprises (11.2%) have the opportunity to sell goods and services to foreign markets. Various enterprises have different export volumes, but medium businesses, small businesses, Кnd sole proprietors exported goods profiles are similar; generally these are food products, consumer goods, social and consumer services, etc. Exceptions are farms that export agricultural products. Imported goods and services have a wider range and larger shares (in consumer goods, construction materials, equipment and components, transportation services, clothes, IT services, and chemicals and drugs). SMEs make a considerклle contriлution to KКгКkhstКn s imports. There are a number of goods that are relevant to local markets, and their demand is satisfied mostly by imports (stationary and consumables, chemicals, petrochemicals, clothes, food, etc.). Local entrepreneurs are interested in producing these products and might set up their own production given favourable conditions and external support, thus reducing import share of these goods. The range of goods that local entrepreneurs are able to produce is sufficiently wide, and includes not only usual agricultural primary products, but goods requiring high-tech and modern equipment (such as equipment and components, consumer goods, agricultural products, clothes, construction materials, etc.). Training in new technologies and information about new technologies are also relevant for entrepreneurs, along with financial support in the form of soft lending, tax remissions, infrastructure improvement such as good roads, and production facilities for successful production and promotion of products. The main barriers to the development of the SME production sector are the lack of technology, non-competitive prices related to high production costs, a lack of qualified staff, and the underdevelopment of infrastructure. Thus, efforts should focus on production technologies and qualified-staff training in terms of SME support; this is of equal importance for small and medium businesses, sole proprietors, and farms. Some recommendations for monitoring SME development Following are some suggestions on indicators for monitoring the development of the SME sector: 12
1. Analyze the reasons for the inactivity of many registered enterprises, and contribute to the lowering of their number by assisting in simplifying the shutting-down mechanisms or in revitalizing businesses. 2. Criteria for small and medium businesses used in regular statistics and by the National Bank are to be harmonized by size or turnover volume; sole proprietors are to be properly reflected in National Bank statistics; such criteria should be explained clearly in order for self-identification by each business. 3. TКke into Кccount oil prices when interpreting SMEs contriлution to GDP in Kazakhstan. 4. Global indicators used, such as Doing Business and GCI, are to be disaggregated to indicate the most problematic areas. 5. Together with absolute figures such as the number of employees, the volume of production by business type and sector, etc., relative indicators are to be used per production unit, per employee, and per enterprise. 6. It is necessary to relate business climate indicators to changes in productivity and profit. 7. Business indicators are to be enriched with some family-related data (children, dependants, healthcare status, marital status), ability to work from home and access to communication, and are to be presented by gender in order to understand what issues should be addressed with regard to social status, including opportunities to run entrepreneurial activity from home with telephone or internet use, etc. 8. It is very important to assess the effectiveness of communication, which can be done by monitoring the preferable source for getting business information; this survey showed that the most popular means are websites, local newspapers, and television. Unfortunately, very few references were made to the leaflets distributed under governmental programs of SME support, although the need for their information is high. 9. It is suggested to use an indicator of ratio or difference between the desirable sources and the used sources of finances (the credit needs satisfaction index). The National Bank, via its market-condition quarterly surveys, is doing something similar; however, it does not include sole proprietors in this assessment of small business needs. 10. It is suggested to extend business monitoring for those companies that have received financial assistance, in order to understand and analyze how their businesses were affected both in the short and long term, and in order to relate financial or non-financial assistance to changes in profit, turnover, number of employees, use of technology, etc. 11. All services provided by development institutions are to be assessed by customer satisfaction levels (the universal indicator), and disaggregated by the type of services, type of business, and features of services; they are to be related to the financial inputs and outcomes (by change in business indicators such as profitability, jobs, turnover, productivity, etc.). 12. International trade statistics are to be disaggregated by type of business, in order to monitor disaggregated SME sector contribution in types of commodities, including new technologies and high-technological equipment. 13
Introduction The small and medium sized business (SME) sector on a global scale is fundamental to the state welfкre, since it provides emploвment, households income, tкx revenues to the countrв Лudget, forms people s connections and serves as a platform for innovations. However, in Kazakhstan the proportion of the contribution of small and medium sized enterprises to GDP is not high, it does not rise above 20%, and the number of employed in SME sector is no more than 30%, therefore, small and medium sized businesses cannot serve as a stabilizer of economy during crisis times, especially when economy depends mostly on prices from extracted raw materials. As it wкs shown in OECD s SmКll Лusinesses, joл creкtion Кnd growth 2 in developed countries small and medium sized enterprises make the main contribution to employement and productivity growth, in the US, for example, small businesses create more than half of the nonfarm private gross domestic product, make up 97.3% of the all US exporters and account for 48% of employment 3. Small business ties up personal and business issues, so that financial and working problems are often solved at the expense of family and friends. The SME sector in Kazakhstan is not yet capable to play the role of a stabilizer of the economy and society, as it does in many other countries, due to the unresolved issues of entrepreneurs, such as endless inspections and over-regulation. On the contrary it creates social tension and stimulates entrepreneurs to solve problems informally and sometimes unlawfully 4. So, the small and medium-sized enterprises in Kazakhstan are the first to be affected by the consequences of the financial crisis, trade and fiscal policies, and administrative pressure. From the very beginning of the transition to a market economy in 1990s the Government policy has emphasized the development of small and medium sized enterprises, but the country's resource curse, dependence on world prices for the raw materials, lack of infrastructure, interference of government officials into enterprises Кctivitв together with КdministrКtive Кnd financial barriers have made attempts of the state to promote the sustainable development of SMEs ineffective. This is confirmed by the lack of increments in SME share in GDP, the weak transformation of small business into medium, low labor productivity. This study was conducted in August-November 2012 by Sange Research Centre for the Asian Development Bank (ADB) and Damu Entrepreneurship Development Fund. The study included the survey of more than 1,600 entrepreneurs in Kazakhstan to assess the development needs of the small and medium sized enterprises in regions, access and efficiency of financial institutions and programs. The results of this study allow us to provide more accurate data on the status of small and medium sized enterprises, to identify the most informative indicators for monitoring the assessment of their status and effectiveness of the actions taken by the State to support SMEs, and to prepare a number of recommendations, including the improvement of legislation for business development and reducing of the administrative barriers. 2 http://www.oecd.org/industry/smes/2090740.pdf 3 http://articles.washingtonpost.com/2011-12-11/business/35286873_1_small-business-small-business-small-firms 4 Interview with Entrepreneurship Union AtКmeken lкwвer VКsili ReгvКn http://www.grossbuh.kz/information/show/id/224.html 14
Chapter 1. Macro-indicators of small and medium sized business of Kazakhstan Definitions Under the Kazakhstani Law on Private Enterprise 5 small business includes sole proprietors with no legal entity comprised and with annual average number of employees not more than 50 people, and legal entities of private enterprise with an annual average number of employees not more 50 people and with an annual average asset value not more than 60,000 calculation index MCI (about 680 thousand US dollars). This definition of a small business is similar to that one of used in Russia, which also consolidates entities employing up to 50 employees and sole proprietors. In European Union small businesses include enterprises with less than 50 employees and an annual turnover of less than EUR 10 million 6. Medium sized businesses in Kazakhstan includes SPs employing more than 50 people and legal entities with 50 to 250 people and an annual average asset value 325,000 MCI (3.3 million dollars). In the methodological notes 7, the Kazakhstani Statistics Agency provides definitions for the agricultural enterprise as "a legal entity with the main activity in agriculture," and of the farms as "a family employment where the sole proprietorship is associated with the use of agricultural land for agricultural production, as well as processing and marketing of the products", thus, extending the concept of legal entities and sole proprietors on farms. Small and medium sized business Contribution to the Economy As of January 1, 2012, the number of registered small and medium sized businesses in Kazakhstan made up 1,225,790 units. 229,145 of them are legal entities, 796,569 sole proprietors (SPs) and 200,076 farms. As of February 1, 2012, the number of active enterprises comprised 753,828 units, implying that only 60% of enterprises were active. The most active enterprises are farms (82% active) and SPs (65% active), compared to small and medium sized enterprises as legal entities (only 30% active). The Ministry of Economic Development and Trade informs us that in the first half of 2012 the share of active SMEs in the total number of registered small and medium sized enterprises made up 56.1% 8. What does a large number of inactive enterprises imply? Most likely, it is the difficulties of doing business and inability to shut down an unsuccessful business. Such a criterion is not used among the World Bank criteria measuring the ease of doing business. The easiness of starting sole proprietorship (individual enterprise) or legal entity attracts potential entrepreneurs, which are caught then into an administrative trap made of disproportionate penalties for insignificant 5 http://online.zakon.kz/document/?doc_id=30044096&sublink=10000#scrollpos=628 6 http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/ 7 http://www.stat.kz/publishing/20121/pdf%20%d0%9c%d0%a1%d0%9f.pdf 8 http://www.minplan.gov.kz/economyabout/8174/44919/ 15
infractions or complicated procedure for closing a business, as it was reported by various entrepreneurs associations 9. The dвnкmics of Кctive entrepreneurs mainly reflects the dynamics of the increased number of sole proprietors. The number of active small businesses grew gradually up to 2008 and declined sharply in 2009-2010 and 2012. Figure 1. Small and Medium Sized Enterprise Dynamics in Kazakhstan in 2005-2012. 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2005 2006 2007 2008 2009 2010 2011 Nov/12 745,997 499,450 182,419 64,128 7,925 Total small business SPs Farms Small enterprises Medium enterprises The peak of SMEs contribution to GDP was in 2007, 2009 and 2010, during the decline in the number of entrepreneurs. This is connected with the oil price dynamics, which is extracted and traded by larger enterprises forming the basis of Kazakhstan's economy; their share in Kazakhstan's GDP fell with the drop in oil prices. Notwithstanding the fluctuations in the share of larger enterprises, the share of SMEs in GDP does not go beyond 20%, and in 2011 it fell to 17.5%, as oil prices rose again. 9 http://www.predictor.kz/?p=366, http://mirbiznesa.kz/prodvinutiy/biznes-master/nalogi-i-proverki/bolshayapetlya-dlya-malogo-biznesa/ 16
Figure 2. SME share in Kazakhstan s GDP, 2005-2011 SME share in Kazakhstan's GDP, % 20.4 20.4 20.2 18.6 17.8 17.5 17.5 2005 2006 2007 2008 2009 2010 2011 http://stat.kz/digital/mal_pred/pages/default.aspx Figure 3. Dynamics of Oil Prices, 2005-2011 (USD per barrel, Brent oil). 120.0 100.0 98.6 106.0 80.0 60.0 54.6 65.6 73.2 62.1 80.1 40.0 20.0 0.0 2005 2006 2007 2008 2009 2010 2011 http://news.yandex.ru/quotes/1006.html In developed countries, the contribution of SMEs to gross domestic product is more than 50%, while the shкre of emploвment in SMEs is more thкn 60%, whereкs its shкre in KКгКkhstКn s GDP is 17.5%, and only 28.7% in terms of share of employment. 17
Table 1. Contribution of SMEs to GDP of the Country and Employment in Comparator Countries SME Share in GDP, % SME Share in employment, % Great Britain* 56 52 Germany* 57 69 USA* 52 53 Japan* 55 78 Hungary* 52 65 Poland* 52 60 Russia* 11 13 G-20** 45 64 Non-OECD** 45 61 OECD** 54 77 BRIC** 42 60 G-8** 53 61 G-7** 54 63 EU-27** 58 67 Total world** 49 63 Kazakhstan*** (2011) 17.5 28.7 *- 2004, http://www.kazedu.kz/referat/121762 **-2009, http://www.accaglobal.com/content/dam/acca/global/pdf-technical/smallbusiness/pol-afb-sbaga.pdf (2010) ***-2011, http://www.zakon.kz/kazakhstan/4476058-v-kazakhstane-chislennost-zanjatykh.html With the general increase in the quantity of SMEs and employment in small and medium sized business, their share in total employment in Kazakhstan is only 28.7% (2.4 million out of 8.5 million employees in 2011). 18
Figure 4. Number of Employed in the SME Sector, 2005-2011 3000 2500 2000 1500 533.8 557.9 585.9 464.6 551.3 746.2 539.3 710.6 771.9 Small enterprises Sole proprietors 1000 571.6 622.7 733.5 828.9 874.4 Medium enterprises Farms 500 265.5 267.1 259.1 397.6 405.1 748.2 689.4 504.7 504.3 542.7 461.8 465.8 425.5 426.5 0 2005 2006 2007 2008 2009 2010 2011 http://stat.kz/digital/mal_pred/pages/default.aspx Active Entrepreneurs and Lending During the year the number of active entrepreneurs has also been uneven when judged by their statistics (legal entity) and tax (ST) reporting by region. Table 2. Number of active entrepreneurs in the beginning and end of the year Total Small Enterprises Medium Enterprises Sole Proprietors Farms As of 1.02.12 753828 64128 7831 499450 182419 As of 1.12.12 751953 62615 7925 516209 165204 Difference -1875-1513 94 16759-17215 For example, in the period from February to November the total number of enterprises decreased by 1,875 units, whereas small enterprises decreased by 1513, medium enterprises increased by 94, sole proprietors increased by about 17,000, and the number employed in farms fell by 17,000. 19
Table 3. Regional Difference in the Growth Dynamics and Reduction in the Number of Enterprises in the beginning and end of 2012. Total Change in Absolute Numbers Change in % Small enterprises Medium enterprises SPs Farms Total, % Small enterprises Medium enterprises Million Tenge Kazakhstan -1875-1513 94 16759-17215 -0.2-2.4 1.2 3.4-9.4 Akmola -51 138 15 168-372 -0.2 6.8 4.2 0.7-10.0 Aktobe 2082-20 34 1978 90 6.8-0.6 8.0 8.8 2.2 Almaty Atyrau -5785-667 -36-2247 -2835-5.3 SPs, % Farms, % - 16.3-8.3-4.3-5.4-10.4 5.2 17.3 1413-13 -30 1203 253 5.2-0.6 West Kazakhstan 1260 168 11 1110-29 5.2 9.8 6.2 5.9-0.8 Zhambyl -116-10 25 96-227 -0.3-0.7 14.0 0.5-1.5 Karagandy 1928 167-21 2728-946 3.9 3.7-3.2 7.3-15.3 Kostanai -458 168 24-245 -405-1.2 6.2 5.7-0.8-7.4 Kyzylorda 1288 185 2 1006 95 6.9 10.1 1.0 6.6 7.8 Mangystau 2401 29-3 2487-112 10.1 1.0-1.1 12.7-11.3 South Kazakhstan - 17691 1128 17-6755 -12081-13.5 21.0 3.6-11.7-18.0 Pavlodar 960 229 30 1034-333 3.5 9.0 9.2 4.8-10.7 North Kazakhstan 186 45 11 350-220 0.8 2.5 3.2 2.1-7.2 East Kazakhstan 1729-184 -3 2009-93 2.6-3.8-0.6 4.3-0.6 Astana City Almaty City 4728-263 23 4964 4 11.6-4.3 3.1 14.7-4251 -2613-5 6873-4 5.3 16.3-0.2 11.1 *short data *short data It should be noted that the year 2012 has been very difficult for farmers. South Kazakhstan, Almaty, Karagandy, Kostanai, Akmola and other regions have suffered severely. In South Kazakhstan, Almaty and Kostanai Regions the number of farms and SPs has reduced sharply. In Almaty and Almaty Region the number of small enterprises fell by 16%. One of the reasons could be the request of the Tax Committee of 1.01.12 to farmers to re-register from sole proprietorship to legal entity (limited partnership) with the loss of privilege to pay only 30% of VAT (i.e. 3.2% tax instead of 12%) as it was fixed for farmers. In general VAT in Kazakhstan, which appears to be not a big tax (only 12%) in reality is not a value added tax, but rather a sales tax that usually equals 4-5% in other countries. According to many experts 10, this tax is subject to corruption, since it promotes the appearance of one-day enterprises that suggest illegal contracts to avoid VAT. 10 http://www.grossbuh.kz/information/show/id/224.html (Interview with V.Rezvan, expert of NКtionКl ChКmЛer AtКmeken, journкl AccountКnt Кnd К lкw, #4, 2012) 20
Table 4. Small Business and Agricultural Loans (total volume) as of 1.12.12 Loans, 1.01.12, million Tenge Loans, 1.12.12 million Tenge Change Feb-Dec 2012, % Small businesses SPs Farms Small businesses SPs Farms Small businesses SPs Farms Kazakhstan 1012828 328557 336404 1069628 320881 287345 5.6-2.3-14.6 Akmola 10280 8952 9963 8562 8713 13363-16.7-2.7 34.1 Aktobe 23937 9359 2149 26332 9038 2260 10.0-3.4 5.2 Almaty 5901 9793 1676 11173 9546 1664 89.3-2.5-0.7 Atyrau 17010 14640 399 18430 14931 594 8.3 2.0 48.9 West Kazakhstan 8936 13168 1892 8470 14068 2240-5.2 6.8 18.4 Zhambyl 9344 12651 4781 10937 12484 4050 17.0-1.3-15.3 Karagandy 38000 22668 1526 51614 21368 7379 35.8-5.7 383.6 Kostanai 26695 15329 34985 29948 15430 42246 12.2 0.7 20.8 Kyzylorda Region 4432 6009 192 3898 7202 323-12.0 19.9 68.2 Mangystau 15305 14066 156 15042 12788 478-1.7-9.1 206.4 South Kazakhstan 16289 26870 3722 17517 27014 4312 7.5 0.5 15.9 Pavlodar 19499 18619 4876 27509 18998 6150 41.1 2.0 26.1 North Kazakhstan 14842 8453 5545 16682 8929 7309 12.4 5.6 31.8 East Kazakhstan 25748 38235 10725 26785 36620 10416 4.0-4.2-2.9 Astana City 696237 22267 118346 662695 79994 84662-4.8 259.2-28.5 Almaty City 80372 87478 135471 134032 23757 99899 66.8-72.8-26.3 http://www.nationalbank.kz/?docid=307 (bank loans for small businesses and sole proprietors) http://www.nationalbank.kz/?docid=823 (agricultural loans) Figure 5. Change in Total Lending and Growth of Active Small Enterprises by Regions 100.0 80.0 60.0 40.0 % of change for Small enterprises, Jan-Dec.2012, r=-0.263 loan increments to small enterprises increase in number of small enterprises 20.0 0.0-20.0-40.0 21
Figure 6. Change in total SP Lending and Growth by Regions 300.0 % of change for Sole Proprietors, Jan-Dec.2012, r=0.007 250.0 200.0 150.0 100.0 loan increments to SPs increase in number of small enterprises loan increments to small enterprises 50.0 0.0-50.0-100.0 Figure 7. Change in Total Lending to Agricultural Sector and Growth of Active Farms by Regions % of change in Farms, Jan-Dec. 2012, r=-0.312 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0-50.0 loan increments to farmers increase in numbers of farmers loan increments to small enterprises Figures illustrate a negative relationship between lending and growth, which means that when the total number of loans increases, the number of active small businesses decreases (r = -0.263), and the same is observed for loans to the agricultural sector (r = -0.312). Loans have practically no affect on the increase in sole proprietors activity (r = 0.007). It is not clear whether it is due to the fact that lending to one enterprise affects the competitiveness of other enterprises, or severe lending conditions sharply reduce the activity of enterprises. 22
Doing Business in Kazakhstan KКгКkhstКn is steкdilв improving its position in the World BКnk s Doing Business rкnking, having risen from 70 th to 49 th rank for 6 years, leaving many neighboring countries behind (Uzbekistan 154 rank, Russia 112, China 91, Turkey 71, Kyrgyzstan 70, Azerbaijan 67) 11. Figure 8. Ease of Doing Business in Kazakhstan 2008-2013, by World Bank. -40-45 -50 2008. 2009. 2010. 2011. 2012. 2013. -49-55 -60-65 -63-58 -56-70 -75-71 -70 However, it is clear that for some criteria Kazakhstan holds the doubtful last rank, especially in Trading Across Borders the last 182 nd rank, and Dealing with Construction Permits 155 th rank. Extremely disappointing is the steadily falling rкnk on Getting credits : from 69 th in 2010 to 83 rd rank in 2013. Paying Taxes has also fallen in ranking. The best among the former Soviet Union countries is Georgia, ranking 9 th, with 4th rank reached in Getting credits, and 38 th in Trading Across Borders. Table 5. World Bank Doing Business Ranking by Categories for Kazakhstan 2010-2013. Categories 2013 2012 2011 2010 General ranking 49 56 58 63 Starting a business 25 57 48 85 Dealing with Construction Permits 155 147 148 156 Getting Electricity 80 86 87 88 Registering Property 28 29 27 29 Getting Credits 83 78 75 69 Protecting Investors 10 10 44 57 Paying Taxes 17 13 26 53 Trading across Borders 182 176 176 182 Enforcing Contracts 28 27 26 36 Resolving Insolvency 55 54 49 54 11 http://data.worldbank.org/data-catalog/doing-business-database 23
The Ministry of Economic Development and Trade quotes figures of the reduced inspections in respect of private enterprises by 13% in its analytical report (the number of inspections in the first half of 2012 amounted to 116,534, for the same period in 2011-134,108) 12, but it is clear that the limiting factor for Kazakh business people is licensing and permits, including those for border crossing, construction etc. For example, in "Obtaining a construction permit", the number of procedures amounts to 32, takes 189 days, and costs more than 103% of income per capita. An entrepreneur spends 69 days to import goods and pays 4,665 U.S. dollars, for export - 29 days and 2,349 U.S. dollars. Global Competitiveness Index (GCI) Kazakhstan climbed from 72 nd to 51 st rank in Global Competitiveness Index 13 out of 144 countries last year scoring 4.4 points. Small and medium sized business development is related to the PillКr 6, Competition, as well as to some other factors such as education. Particularly, these are the indicators in the Educational Pillar related to professional education, specifically to on-job training 72 nd rank, 4.12 points and availability of research and training services 72 nd rank and 3.9 points. In Competition Pillar, Kazakhstan demonstrates fairly good results in Tax Rates (31 st rank) and Business Registration Procedures (47), but serious issues are observed in Intensity of Local Competition (113), Import as a % of GDP (125), Customer Orientation Level (104), Trade Tariffs (102) and Attitude toward Investors (100). Technology, innovation and financial services (availability) are important factors for business development. It is these subindicators that need to be monitored, i.e. tracing the most problematic issues affecting small and medium sized businesses should be the general principle for monitoring. Thus, it is proposed to trace the following indicators for Education, Competition, Technology, Development of Financial Markets, Business Development and Innovation Pillars. Table 6. Subfactors on GCI for use in monitoring of SMEs, 2012-2013 Research & training 72 Availability of venture capital 105 On-job training 68 Access to loans 110 Intensity of local competition 113 Financing via equity market 109 Effectiveness of antimonopoly 95 Affordability of financial services 78 policy No of days to start business 80 Availability of financial services 79 Trade barriers 64 Availability of latest technologies 90 Foreign investment impact 100 Firm-level technology absorbtion 91 Burden of customs procedures 77 Technological adoption 89 Import as a % of GDP 125 FDI and technology transfer 85 Soundness of banks 120 Value chain breadth 111 12 http://www.minplan.gov.kz/economyabout/8174/44919/ 13 http://www.weforum.org/issues/global-competitiveness 24
Corruption Perceptions Index (CPI) CPI has been measured for Kazakhstan since 1999 14. However, during this period and despite three anticorruption programs Kazakhstan had never scored higher than 3 out of 10 in the index, while other countries managed to pass the 4-point milestone from lower scores of 2. Corruption reflects the level of administrative barriers and the index serves as an indicator for the assessment of government, business and population cooperation efficiency. Figure 9. Corruption Perceptions Index dynamics for some counties 2003-2011 5 4.5 4 3.5 3 2.5 2 1.5 4.2 4.1 2.9 2.7 2.6 2.6 2.7 2.7 2.4 2.4 2.2 2.1 2.2 1.8 2003 2004 2005 2006 2007 2008 2009 2010 2011 Turkey Georgia Kazakhstan Russia Uzbekistan Low ranks in both corruption and international trade indicators are confirmed by the survey findings, according to which all type of businesses suffer from customs (13-23%) at the first place, but medium business is faced with corruption at the highest rate. The next problematic interactions are with taxation (7-13.5%), sanitary (8-10%) and fire (2-11%) inspection officers and akimats (4-8%) (see the table below). Fewer medium businesses (47%) operate without being involved in corruption in comparison with other businesses (56-60%). 23% of medium enterprises face corruption with customs, 13.5% with tax, 10.6% with fire inspection officers, 7.7%f with construction permit officers, 5.8% with akimкt s officers. The proportion of small enterprises faced with corruption with justice bodies and judiciary (4.7%) is higher than other businesses (1.6-2.4%). More sole proprietors and small enterprises (10%) are faced to corruption when dealing with sanitary inspections compare to medium business and farms (8%). Farms are suffering from land and utility services more (9.1%) than other businesses (3-6%). 14 http://www.transparency.org/ 25
Table 7. With what government or private organizations you had faced corruption? Medium Small enterprises enterprises SPs Farms None 47.3 55.7 59.5 55.6 Customs 23.2 15.5 16.7 13.1 Taxation bodies 13.5 11.5 10.4 7.1 Sanitary inspections 8.2 9.8 10.1 8.1 Fire inspection 10.6 6.8 7.9 2.0 City, town, rural districts akimats 7.7 7.3 4.1 7.1 Land services 8.7 4.4 2.7 9.1 Companies, rendering communal services 5.8 5.4 3.4 9.1 Construction and architecture bodies 7.7 3.7 3.2 4.0 Regional akimats 5.8 4.7 3.4 2.0 Justice bodies 2.4 4.7 1.6 2.0 Financial police 5.3 2.6 3.2 Judiciary 4.3 4.7 3.6 2.0 Central government bodies 3.4 1.6 1.1 National Companies 3.4 3.0 1.1 Development institutions 1.0 0.5 1.1 4.0 Banks 4.3 4.0 2.3 4.0 Transport control 4.8 1.2 1.6 2.0 Healthcare authorities 2.9 1.9 1.8 2.0 Deputies (legislature) 3.5 0.9 1.0 Veterinary or phyto-sanitary control 1.0 0.7 1.1 4.0 Prosecutor office 2.4 1.4 0.7 International organisations (donors) 2.1 0.5 Foreign Companies 1.2 0.7 NSC (National Security Committee) 0.5 1.6 0.2 Small Business Monitoring indicators used by government bodies across the country The Ministry of Economic Development and Trade (MEDT) quotes the following indicators in its Analytical Report on Small Business Development 15 : the share of registered and active entreprises. However, ideally, it would be better if these indicators matched. Why are 44% of registered entrepreneurs in Kazakhstan inactive? Why cannot so many enterprises shut down their businesses? The problem is that shutting down a business is a cumbersome and long procedure that can take years. Unfortunately, it is the very field which is used for extortion. The number of employed in SMEs is an indicator collected by the statistics, but, unfortunately, not sufficiently indicative. The problem is that under employment programs people are employed for a short period of time with a low salary, which allows local authorities report on increased 15 http://www.minplan.gov.kz/economyabout/8174/44919/ 26
employment, while in reality this does make proper employment. It is better to use production of goods per employed as an indicator. According to MEDT report the number of employed in the SME sector increased by 6.5%, while production increased by 2.9%, that is, production of goods per employed has decreased. The MEDT is planning the business climate assessment based on tracing the number of permits by quoting a 34% planned reduction in licensing procedures, 30% reduction in licenses (deadlines are not clear). The number of inspections is another indicator of business climate: during the first half of 2012 the number of inspections decreased by 13%. These are useful indicators, which can be complemented by entrepreneur satisfaction indicators, time costs measurements and increased productivity. The World BКnk s Doing Business indicкtors Кre Кt the MEDT s disposкl, which is a positive factor and allows us to have international and historical comparisons, as well as to keep the impartiality of the assessment. Financial support indicators are focused at the output indicators, such as disbursement of financial resources, but are not related to business productivity of enterprises or regions, change in profit or others. Creation of 35 thousand jobs is counted as a socio-economic effect. However, often it refers to one-day low-paid jobs. To avoid such overreporting an employment indicator is to be referred to not only how many workers are employed, but also for how many days and for which remuneration. It could turn that 35 000 jobs could be created just for one day of 35 workers with minimal salary. Assessing the Business Roadmap 2020 the Ministry indicated that this program operates in four directions: 1. Support of new business initiatives 2. Rehabilitation of companies, 3. Reduction of risk of exchange losses 4. Strengthening of entrepreneurship capacity. The first three are related to the financial support provided in the form of subsidies, while the fourth to non-financial support. The financial support is distributed to the regions unevenly. Again, it is not clear what share of entrepreneurs is affected, since the number of businesses differs by regions. 27
Figure 10. Subsidies to small businesses across regions and by directions (1, 2, 3), bln.tenge, 1 st half of 2012 0 20 40 60 80 100 120 140 160 180 Pavlodar Karagandy Almaty city Aktobe East Kaz South Kaz Almaty West Kaz North Kaz Kostanai Astana city Akmola Zhambyl Atyrau Kyzylorda Mangistau 36 72 78 90 68 59 50 50 56 54 54 8 4 101 117 89 13 13 10 5 2 150 137 6 15 11 11 2 13 17 13 20 12 26 4 9 4 19 36 15 2 14 2 13 15 6 1st direction 2nd direction 3 direction http://www.minplan.gov.kz/economyabout/8174/44919/ Under the program the production infrastructure improvement indicator (kilometers of roads, electric power lines, telephone penetration and etc.) is used. This needs to be converted into a more comparable format, namely to costs per investment, and supplemented by the results: how mкnв enterprises Лenefited from the infrкstructure improvement Кnd how these enterprises turnover increased as a result of infrastructure improvement. Business Advisor courses services that cover 10 thousand entrepreneurs per half-year, and establishment of Business Links (210 people per a half year) are used as non-financial support indicators. For these programs it is necessary to trace the effectiveness of a program in terms of improving business indicators such as increase in productivity, quality of goods and services, profitability of business or expansion of sales. Summary: recommendations on indicators 1. The most useful indicator for small and medium sized business development is its share in GDP. This indicator needs to be disaggregated across regions to trace its change in relation to gross regional product. Since the oil sector and oil prices substantially affect this indicator, it is reasonable to calculate the indicator separately for oil sector. 2. It is necessary to determine target indicators for SME share in GDP based not only on extrapolated past values, but on calculated simulation. 28
3. It is necessary to study the results of enterprise funding and its impact on business. Based on the shallow analysis (figure 7) loans may have a negative effect on the number or activity of enterprises, the reasons of which need to be determined. Moreover, it is necessary to harmonize small and medium sized business criteria used in statistics and banking to be able to compare financial and production indicators more accurately. 4. Despite the fact that the World BКnk s Doing Business indicкtors Кre used Лв government bodies to trace the small and medium sized business situation, more radical actions are needed to improve the situation with permits and licensing, export and import operations, and getting loans. 5. The same is with Global Competitiveness Index, certain indicators of which can be used to trace business climate in Kazakhstan, including availability of advanced training, financial support, availability of technology and innovation, and market development and competition. 6. It is recommended to include the Corruption Perception Index to monitor business environment. 7. The indicator of business activity as a proportion of reporting enterprises as the number of registered is to be supplemented with indicators of the shutting down enterprises (number of days, procedures, costs spent to closing enterprise or sole proprietorship down), as well as include these indicators to the corruption risk assessment system. 8. It is better to use relative indicators (per production unit, per employee, per enterprise) together with absolute figures to be able provide comparisons for sectors, years, etc. 9. It is necessary to relate the indicators that measure the business climate (for instance, number of inspections) with changes in productivity, profit or number of enterprises). Chapter 2. Small and medium sized business Profile General characteristics of entrepreneurs Knowing the specific features of Kazakh SMEs will enable us to plan a detailed strategy of business support and assess the adequacy and effectiveness of methods applied. A generalized portrait of a Kazakh entrepreneur obtained during the research, including socio-demographic characteristics and business peculiarities, might be useful. Data obtained indicates that the age range of people involved in entrepreneurial activity is quite wide: from 19 to 75 years old, but people doing business are mainly of mature and working age. Among the highlighted four age groups, the group from 40 to 49 years (31%) has the highest share, and slightly lower is the group from 30 to 39 years (29%). That is, entrepreneurship attracts people with experience and enough drive to implement their plans and ambitions. Most respondents are married (73%), and this fact indicates that the family is not an obstacle to doing business, but can rather be an additional resource. However, by gender, male entrepreneurs prevail (54% vs. 46%), and the reason is probably in the inequality of the capacity of men and 29
women in business, making it necessary to elaborate on female entrepreneurship, as described below. For most people, business is a field of professional knowledge realization since entrepreneurs level of education is often high; 49% have five-year university education and just a few have secondary education - 6%. Figure 11. Socio-demographic characteristics of entrepreneurs, % of enterprises, N = 1217 AGE GENDER 50+ 25% 20-29 years 15% Male 54% Female 46% 40-49 years 31% 30-39 years 29% MARITAL STATUS Live with a partner Widow 3% 3% Divorced 7% Live separate from a partner 1% Higher (Master) Incomplete Higher (Bachelor) Vocational EDUCATION 0 10 20 30 40 50 60 49% 23% 22% Single 13% Secondary Incomplete secondary 6% 0.5% Married 73% Academic degree 0.3% Entrepreneurs involved in the polling had a considerable experience since most of them (64%) had been doing business for more than five years. Only 8% of entrepreneurs had a relatively new business, less than one year. 30
Figure 12. Business duration, % of enterprises, N=1217 50 6-10 years, 40% 40 30 2-5 years, 26% over 11 years, 26% 20 10 less than 1 year, 8% 0 Business enables entrepreneurs to realize not only their knowledge, but also practical experience, skills, ambitions, and this opportunity attracts people from various fields. Trying to figure out which fields people often leave to start their own business, we found that first of all these are the people with relevant experience: staff that were employed at private companies (27%) or those who previously had their business (19%). A considerable share of respondents indicated state enterprises and public service as a previous employment (14% and 9%), the fields providing a stable but low income and strictly regulated. 10% were self-employed before starting their own business, a small percentage considering the fact that according to RK Statistics Agency they amounted to 1.215 million in Kazakhstan in 2012, and it is quite a great resource for SME development. Entrepreneurship rarely attracts housewives (4%), farmers (3%) and the unemployed (2%). This is because of the fact that entrepreneurship requires some specific features: motivation, knowledge and initial resources. Many unemployed are people have very low motivation to start own business, they are rather people which get used to be hired by others. Therefore, even if unemployed are provided by unemploвment services with trкining Кnd finкnces, theв Кre checked fist for self-driveness to be an entrepreneur. The abovementioned data shows that it is difficult to start a business with no relevant experience, and most often the same people are rotated in business moving from one position to another and the influx of new blood is not enough, the fact that should be considered when developing SME strategy. Figure 13. Previous place of work of entrepreneurs, % of enterprises, N=1217 Private company (employee) Private company (director, manager) State enterprise Self-employed Public service Public sector (school, medical institution and etc.) Housewife Farmer Student Unemployed National Company 4 3 3 2 1 6 10 9 14 0 5 10 15 20 25 30 19 27 31
Time spent each day on business and resources used are important additions to the portrait of the entrepreneur. Typically, the entrepreneurs working day is distinguished by a flexible schedule and lack of external control, allowing them to decide on their own how much time to spend on the job. The results show that on average entrepreneurs devote 10 hours a day to their business, and it is more than a standard working day. Herewith, nearly half of the respondents spend 9 to 13 hours (46%) at work and about one in ten (9%) devote almost all their time, 14 hours or more, to the work. Comparison of the answers of entrepreneurs from different settlements demonstrated that entrepreneurship in rural areas requires more time than in the city: the share of people devoting more than 9 hours a day to their business is much larger among rural entrepreneurs than that of urban ones (70% vs. 57%). Comparison of the answers of men and women showed that there are more men in business working for more than 8 hours a day (64% vs. 51%), which is understandable given the fact that a woman has a great burden associated with home and children and that she has to allocate her time considering other priorities. Figure 14. Time devoted to business by entrepreneurs by area and gender, % of respondents, N=1217 0% 20% 40% 60% 80% 100% Urban Rural Male Female 43 48 31 36 56 9 14 11 7 53 Intensive business can lead to difficulties in other areas of life, such as family and parental obligations. But, polling results showed that the majority of entrepreneurs is successfully fulfilling their parental obligations and facing no problems with child care (90%). Gender analysis enabled us to detect the presence of problems in this area: businesswomen note such difficulties twice more often than men (13% vs. 6%). Meanwhile, family is a serious resource for entrepreneurs. First of all, it is as a source of moral support (54%). Furthermore, entrepreneurs often use their families when they need labor force (13%), finance (9%), transport (8%), and etc. 49 44 up to 8 hours from 9 to 13 hours 14 hours and more 32
Figure 15. Types of family supports received by the entrepreneurs, % of respondents, N=1217 100 90 80 70 60 50 40 30 20 10 0 91 87 46 18 16 Urban Rural 19 18 13 13 14 10 5 3 Moral support Manpower Financial support Transport Information Premises Contact with authorities and etc. 6 It should be noted that for rural entrepreneurs various forms of family support, in addition to moral support, are more significant than for urban ones and thus, they are more often indicated. Difference in getting help in the form of manpower is especially noticeable; its share is significantly greater among rural entrepreneurs (46% vs. 18%). Areas of SME Activities Analysis of SME activity sectors enables us to determine areas that are more attractive for entrepreneurs and whether the SME area is capable to contribute to diversification of KКгКkhstКn s economв. According to the results obtained, SMEs are characterized by the trade sector prevalence: the share of entrepreneurs engaged in trade activities was more pronounced in sampling (33%). Another area that is attractive for Kazakh business is a wide range of services: housekeeping, design, beauty, security, fitness and etc. (16%). These areas (trade and services) are more accessible to entrepreneurs since they do not require special resources other than funds such as expertise, highly qualified personnel, advanced technologies, and they provide a relatively fast return on investment. Agricultural sector hкs КlwКвs Лeen the Кctivitв of KКгКkh entrepreneurs due to the countrв s agricultural specialization. It is the third largest sector (11%) involving SMEs. Active construction observed in the major cities of Kazakhstan provides an increasing demand for construction services, and promotes the development of enterprises operating in this sector (9%). In comparison with these areas (trade, services, agriculture and construction) the SME sector engaged in production is underdeveloped. However, if we combine producers of food products 33
(6%), consumer goods (5%), various materials (6%) and raw materials processing (2%), it can be stated that SMEs have potential in the production sector and these enterprises under favorable conditions can contribute to the diversification of the economy. From an in-depth interview with a head of business association: one wishing to become an entrepreneur is afraid of production, since he/she does not understand a lot. To become a good producer, you must be an expert yourself and have a team of experts, in addition to money and other things. Unfortunately, the human resources shortage affects the business strategy, particularly production. SME is also one-sided since people do not want to develop personally. For example, they see that trading is not so hard, with fast return on investment, and they go there. In order to produce, you need great patience, for the producers cannot develop themselves, they develop in chain depending on goods supply, staff, sales, and competition. And, as mentioned above, they always need money, otherwise the process will freeze, therefore, the production should be more reasonable, and better subsidized. And SMEs seeking to produce or recycle should be encouraged. Figure 16. SME activity areas, % of enterprises, N=1186 Trade Services Agriculture, forestry and fishery Construction HospitКlitв services (КccomodКtion, food Кnd Production of vкrious mкteriкls (metкl, glкss, Food, beverages and tobacco production Consumer products Social area Transport and warehousing, repair of vehicles Financial insurance, real estate Processing industry Manufacture and repair of equipment Information and communications Electric and water supply and etc. Mining and quarrying 6 6 6 5 4 3 2 2 2 2 0.4 0.2 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0. Analysis of SME activities by regions shows that the leading activity is trade, except for Atyrau, Zhambyl and Kyzylorda regions, where various services prevail (30%, 24% and 27% respectively). Similarly, there are a lot of enterprises providing accommodation services and food (25%) in the Mangystau region. Production related activity is fairly developed in North Kazakhstan region, where the share of enterprises producing food is 22%, and in East Kazakhstan, Karagandy and Kostanai regions, where various materials production is developed (11% 10% and 11%) and Atyrau region with consumer goods producing enterprises (10%). 9 11 16 33 34
Regions where construction enterprises are common are Aktobe (16%), Kyzylorda (19%), Pavlodar (20%). Agriculture and other such activities are typical for South Kazakhstan (17%), Kostanai (16%) and Akmola (16%) regions, where such enterprises are more common. Taking into account this data, in our opinion, there is no strict specialization profile of regional SME. Trade and services are the most attractive for entrepreneurial opportunities in all regions, while other areas remain underdeveloped, even with appropriate resources (climatic conditions, geographic location, infrastructure and etc.). Table 8. SME activity areas across regions, %, N=1186 Trade Hospitality service (accommodation, food, travelling) Financial insurance, real estate Social services (health, education, science) Consumer products Production of various materials (metal, glass, rubber) Manufacturing and repair of equipment Construction Transport and warehousing, repair of vehicles 1 Astana City 43 6 3 3 4 6 3 7 1 1 16 1 1 13 2 Almaty City 38 5 7 4 5 7 1 10 1 19 4 3 3 Akmola 46 5 4 4 3 8 5 11 1 3 16 4 Aktobe 37 9 2 7 5 4 4 16 5 2 7 9 5 Almaty 33 4 3 1 4 4 1 4 2 3 13 10 3 13 6 Atyrau 17 1 1 10 10 9 1 1 30 9 12 7 East Kazakhstan 38 3 1 3 8 11 4 9 4 11 3 9 5 8 Zhambyl 16 5 2 3 9 7 12 9 24 7 7 9 West Kazakhstan 53 7 3 5 2 3 7 9 3 22 3 9 10 Karagandy 35 5 1 3 4 10 2 8 2 1 14 1 5 8 Information and communications Other services Processing industry Food, beverages and tobacco production Agriculture, forestry and fishing 11 Kostanai 51 4 5 11 2 4 9 2 2 16 12 Kyzylorda 15 9 1 9 9 6 3 19 4 7 27 1 4 15 13 Mangystau 28 25 2 2 2 13 4 6 17 4 14 Pavlodar 24 2 5 2 8 2 20 5 5 14 2 12 15 North Kazakhstan 31 3 2 2 2 5 2 19 2 22 14 16 South Kazakhstan 26 17 1 4 7 3 5 3 9 9 17 Kazakhstan 33 6 2 4 5 6 2 9 3 2 16 2 6 11 35
Annual Turnover and Business Prospects Questions about the financial condition of the company are sensitive, and not every entrepreneur is willing to share this information. Thus, in the current research, only 10% reported the annual turnover. But even with this data we can make some assumptions. Every second SME is characterized with an annual turnover not exceeding 50 thousand dollars, 25% have no more than 10 thousand dollars and 26.7% from 11 to 50 thousand dollars a year. That is half of enterprises have rather weak capacities. 20% of companies are the most prosperous with the annual turnover of 800 thousand dollars a year or more. Figure 17. Annual turnover, US dollars, % of respondents, N=116 25% 27% 20% 15% 14% Below $10 thsd $11-50 thsd $51-100 thsd $110-700 thsd over $800 thsd Expectedly, medium sized businesses have higher annual turnover, and sole proprietors have the lowest turnover. Comparison of other groups shows that urban entrepreneurs often have a higher turnover than rural ones. Thus, 21% of urban and 11% of rural enterprises report a turnover of 800 thousand dollars. Moreover, data obtained on the SME annual turnover showed that enterprises run by men have a greater turnover in comparison with female-run companies. If 22% male entrepreneurs report the annual turnover of 800 thousand dollars, this share among women is 17%. In contrast, the turnover of up to 10 thousand dollars is characteristic of 35% of women and 18% of men. Perhaps, small, not complicated businesses, generating a steady income, are more accessible to women. 36
Figure 18. SME annual turnover by types of settlement and gender, %, N=116 21 14 13 27 11 11 22 28 22 17 13 15 10 18 25 28 24 28 18 35 Urban Rural Male Female under 10 thousand dollars from11 to 50 thousand dollars from 51 to 100 thousand dollars from110 to 700 thousand dollars 800 thousand dollars and above Important information is not only the current state of business, but also the presence of growth and development prospects. The entrepreneur s Кttitude to the future of his Лusiness serves Кs К touchstone of business environment. Research results show that most entrepreneurs are optimistic about the relative change of the annual turnover and business prospects. 46% are expecting that the company turnover will increase next year. Figure 19. Turnover forecast, % of respondents, N=1168 Don't know; 10% Fall; 13% Rise; 46% Remain unchanged; 31% A detailed overview of business expectations for the next three years showed that 28% of entrepreneurs expect to expand their production capacity, 27% expect to increase turnover with the same capacity, and 27% expect no change in their business. The share of entrepreneurs with negative expectations is only 4%, 2% of them will probably reduce the part of business or turnover and 2% will close or sell their business. Thus, optimistic attitude and hope to increase business opportunities prevail in this issue. 10% of respondents were not able to make any predictions, and perhaps these are the entrepreneurs having difficulty with planning the development of their business. 37
Figure 20. Business prospects perception by entrepreneurs for the next three years, %, N=1168 30 28 27 27 25 20 15 13 10 5 2 2 0 Going to expand production capacities Increase turnover with the same capacities Expect no changes Don't know Reduce the part of business or turnover Close or sell enterprise Analysis of business prospects perceived by entrepreneurs across regions showed that the situation varies considerably. The intention to expand production and increase turnover is more often expressed by entrepreneurs in Astana (62% and 23%), Aktobe region (65% and 16%) and West Kazakhstan region (11% and 61%). Apparently, entrepreneurs in these regions have some reasons to plan to expand their business. Entrepreneurs in the following regions are the least optimistic about expanding production capacity and turnover: Atyrau region (12% and 22%) and northern regions: Pavlodar (19% and 19%), North Kazakhstan (9 % and 22%) and Kostanai (8% and 22%). It should be noted that these are the regions bordering with Russia; they were supposed to obtain new business development and expansion opportunities with the CU, but the attitude of entrepreneurs suggests otherwise. Figure 21. Business prospects perceived by entrepreneurs for the next three years by regions, % of respondents, N=1168 Astana City Aktobe West Kazakhstan South Kazakhstan Karaganda Mangistau Almaty City Akmola Zhambyl Kyzylorda Almaty East Kazakhstan Pavlodar Atyrau North Kazakhstan Kostanay 11 26 48 37 36 30 18 28 20 24 19 12 22 9 22 8 22 19 62 65 61 40 25 32 23 39 24 22 28 0 10 20 30 40 50 60 70 80 90 38 13 23 16 Going to expand production capacities Increase turnover with the same capacities
Medium (62%), small (59%) sized enterprises and farms (58%) are more often going to expand production and increase turnover compared to sole proprietors (48%). In order to increase the capacity and turnover, certain volumes should already exist as a launching pad, being often not possessed by the sole proprietors. Table 9. Business prospects perceived by entrepreneurs for the next three years by the size of the enterprises, % of respondents, N=1168 Expand production capacities Increase turnover Do not expect any changes Reduce the part of business or turnover Close or sell the enterprise Do not know Medium 39 23 21 3 1 13 100 businesses Small businesses 31 28 27 1 2 11 100 SPs 21 27 30 2 2 17 100 Farms 27 31 30 3 8 100 Capacity increase and turnover growth are shown to be expected by the entrepreneurs engaged in manufacturing repair of equipment (74%), transport services, warehousing and repair of vehicles (68%), construction (66%). It should be noted that most entrepreneurs in production (equipment, food products, and various materials) expect growth, which offers hope for positive development of the production companies; those might hold a more prominent rank among SMEs in Kazakhstan in the future. Figure 22. Business prospects perceived by the entrepreneurs for the next three years by activity, %, N= 1168 Total Manufacture and repair of equipment Transport and warehousing, repair of vehicles Construction Social area (health, education, science) Agriculture, forestry and fishery Services (accomodation, food, travelling) Other services Food, beverages and tobacco production Production of vкrious mкteriкls (metкl, glкss, Trade Consumer products Processing industry Information and communications Financial insurance, real estate 12 37 23 40 40 30 33 24 33 36 26 28 23 25 20 18 15 45 30 25 32 22 19 28 22 21 26 37 Expand production capacities 0 10 20 30 40 50 60 70 80 Increase turnover with the same capacities 39
Reasons for success and failure in business Despite some problems with small business in Kazakhstan, 46% of entrepreneurs are sure that their turnover will increase. During focus-group discussions entrepreneurs discovered the main reasons for success and failure in business. Business failure Analysis of business failure is done based on constructing tree of problems or barriers on the way of sound entrepreneurship. Comments of focus group participants 1. The main barrier is a bureaucracy, which is everywhere. If some bureaucratic principles are left out, then there would be easier to do business. Bureaucracy absorbs time and energy, it is a virtual circle. 2. Corruption is arranged via unlawful inspections, they specially gang up to rob us. All profit settles down in the corrupt officials pockets. Kickbacks are bigger than official cost. 3. Government officials are paid low, they do not to work without payment, therefore, they are better placed to root up our business to extort necessary money. For example, many were faced with refusal to accept performed services or commission a project because allegedly premises are not situated in the right order. As result, because money is spent, everything is built we are not able to re-design the building, therefore we are paying bribes for acceptance. But all this could be avoided, if planning check and consultation was done before the work is done. 4. Lack of skills and information to do business professionally, although there is a willingness to do so. All information we are gathering by nuggets, no special sites, no appropriate literature, no experts that would give their time to consult business people. 5. The quality of many government officials is so low that it causes mistakes in official documents, what leads to penalties for businesses. It is impossible then to find a guilty person in government bodies, you never can prove it. The guilt is always on the entrepreneur. 6. There is not any privilege for single mothers or mothers with many children to start business or to those who has minor children. 7. No means to get new equipment, because the bank commission is very high, no information on leasing programs or bank interest is too high. 8. Very often we are not aware about SME support programs in our country, about new regulations, we do not know whom to address, who can be our partner, we are not aware about market demand; seminars are conducted by Damu and others, but we hardly hear about them, there is not system of training or permanent business center for consultation of small businesses. 40
Figure 23. Business problem tree Business failure No financial support Bureaucracy Corruption Low business skills, lack of experience, low professionalism Difficult to sell own produce No marketing No tax privilege Low quality of produce Difficult to get a credit in banks Long review and approval procedure Low professionalism of government officials Low salary of local government officials Business capture by state affiliated companies Lack of information, quality of information is low, limited access to complete information Lack of training programs Low consulting support Low access to business and professional trainings Нет оееых техоло Corruption in banks High commission, no initial installment Barriers with SME support state programs in second tier banks No legal protection of business Weak administrative governance Central government patronizes or turns blind eye on business capture Improper performance of the SME state support program Lack of alternative financial sources to support SMEs 41
Successful business Components of successful business 1. An idea and belief in self-efficacy, belief in oneself 2. Finances available (for initial business it is better to use own money, because it is difficult to know how business is going to develop). Or low interest lending (5%) 3. Premises, equipment 4. Allies, team of likeminded people 5. Family support 6. Health 7. Effective business planning 1) Business plan 2) Strategies for growth 3) Law-obedience, orderliness 8. Optimal work organization 1) Distribution of work and responsibilities 2) Adhere to time limits 3) Financial control 4) Strict documentation 5) Combination of work and rest time 9. Professional human resources 1) Competence 2) Punctuality 3) Politeness 4) Integrity 5) Communication skills 6) Business motivation 10. Leadership of the business owner or head of company 1) Competence (business, economics, psychology, marketing, accountancy, taxes, etc.) 2) Experience 3) Entrepreneurship sense 4) Sense of purpose 5) Persisting 6) Patience 7) Socializing 8) Communication 11. Marketing and effective advertising 12. Client orientation 13. Mutually beneficial and honest partnership with other businesses 14. Effective pricing 15. Sales management and planning 16. Effective management 42
1) Understand what you want from business and how you can reach it in real situation 2) Action plan development 3) Bold plans and ideas, their realization 4) New methods and technology introduction 5) Trainings, qualification improvement, exchange of skills 17. State support 1) Stable and operable regulation 2) Lowering of bureaucracy 3) Eradication of corruption 4) Optimal tax rate 5) Lending privileges, credit holidays 6) Financial support 18. Connections with influential people, their support for speeding problem solving Summary: Kazakhstani entrepreneurs profile Thus, the foregoing overview shows the main features associated with the Kazakh entrepreneurs, and this data indicate the following. The SME is an activity for middle aged people (30-49 years) having experience and enough energy to carry out their plans and ambitions. Typically, entrepreneurs have higher education (49%). Business more often attracts people with business experience and to lesser extent government agencies and public organizations employees, contributing constant rotation of the same people moving from one position to another and the influx of new blood is low. By gender, men prevail among entrepreneurs (54%), and opportunities for women in business are limited by less time devoted and difficulties with their family obligations and caring for children. At the same time, family is an additional resource for entrepreneurs; most of them are married (73%) and obtain moral support and other assistance in form of financial resources, manpower and etc. Entrepreneurship requires a wide range of resources (education, funding and family support) and time costs. Many entrepreneurs spend more than 9 hours a day at work (55%). SMEs in rural areas differ by more time spent on business by rural entrepreneurs and family support used such as manpower, transport and accommodation, and nevertheless, have less turnover than urban businesses. 20% of companies have an annual turnover of 800 thousand dollars a year or more. Typically, these are medium sized enterprises, while the turnover of small enterprises and sole proprietors is much lower: 25% of them have annual turnover less than 10 thousand USD. Most entrepreneurs are optimistic about changing the annual turnover and business prospects and hope for the turnover increase next year (46%). High prevalence of trade (33%) and services (16%) that are most attractive for business is characteristic of SME, since they do not require special resources other than funding and provide relatively fast return on investment. 43
Herewith, a positive trend is that most entrepreneurs in production (equipment, food products and various materials) are expecting growth in operating assets and production capacity in the future. Analysis of SME activities across regions shows that there is no strict principal specialization of regional SME. Trade and services are most attractive for entrepreneurial opportunities in all regions, while other areas remain underdeveloped. Future business prospects differ significantly across regions. In some regions (Astana City, Aktobe and West Kazakhstan regions) most entrepreneurs expect growth in capacities and turnover, in other areas (Atyrau, Pavlodar, North Kazakhstan and Kostanai regions) entrepreneurs do not expect any significant changes. 55% of entrepreneurs nationwide are optimistic about business prospects, while 4% have negative expectations. The most optimistic are business people from Astana (85%), the Aktobe region (81%), and West Kazakhstan (72%). The least optimistic are from the Atyrau (34%), Pavlodar (38%), North Kazakhstan (31%), and Kostanai (30%) regions. These regions border Russia and are thought to have expanded business opportunities within the Customs Union; however, the case seems to be otherwise. By type of business, medium enterprises (62%), small enterprises (59%), and farms (58%) are more optimistic than sole proprietors (48%). The highest capacity increase and turnover growth are expected by those entrepreneurs engaged in the manufacture and repair of equipment (74%), transport services, warehousing and repair of vehicles (68%), and construction (66%); the least by those in the processing industry (41%), information and communications (40%), and financial services, insurance, and real estate (32%). Female entrepreneurship As noted above, the share of women among entrepreneurs is less than the share of men, indicating more challenges and fewer opportunities for female entrepreneurship. Some of the abovementioned differences confirm these assumptions. For example, women spend less time on business, but often face difficulties in caring for children. In addition, the share of married businesswomen is much less than that of men (63% vs. 81%), and there are more single women (16% vs. 10%) or divorced (11% vs. 4%). There can be several reasons for that: (1) it is more difficult for a woman to reconcile entrepreneurship with family obligations; (2) women without male support in the family are forced to do business to keep a family; (3) single women have more freedom in choosing the area of activity. There may be other reasons as well related to the social status of women. It might have changed if there would be more jobs for mothers with children working from home with use of internet, for example, as it happens in other countries, where women have been starting businesses at a higher rate than men and tend to create home based micro (less than 5 employees) and small businesses 16. This data suggests that while family is an additional resource for men in doing business, it is more of a deterrent for women. 16 http://www.forbes.com/sites/work-in-progress/2012/06/08/entrepreneurship-is-the-new-womensmovement/2/ 44
Figure 24. Marital status of businessmen and businesswomen, % of respondents, N=1217 Divorced; 4% Men Single; 10% Live with a partner; 4% Divorced ; 11% Sive separatel y from a partner; 1% Widow; 7% Women Single; 16% Live with a partner; 2% Married; 81% Married; 63% Let us consider other aspects that might clarify this issue. Women are less likely to own a business than men. Among the surveyed, 51% of companies are owned by men, 30% are owned by women and 19% of enterprises are owned jointly. While the share of female managers is not much lower than that of males (34% and 36% respectively). That is, women have fewer opportunities to start their own business, but in carrying out management functions a businesswoman can be no less successful than a businessman. Figure 25. Shares of men and women among business owners and managers, % of respondents. Women; 30% Women; 34% Men; 51% Men; 36% Mixed; 19% Business owners (N=922) Mixed; 30% Managers (N=1178) Among businesswomen as well as businessmen there are more people with higher education, but the difference is that in comparison to men, there are more women with Bachelor's degree (25% vs. 21%) Кnd significкntlв less with completed higher educкtion or mкster s degree (45% vs. 51%). Also women slightly more often go into business from the public sector (9% vs. 4%), and there are less women than men among the ones who had their own business previously (16% vs. 22%). There are more women among sole proprietors (48% vs. 29%) and significantly less in the medium business (13% vs. 22%). Sole enterprises have lower annual turnover and less often hope for increasing the capacity and turnover in the future, indicating the need in extra support for female entrepreneurship. Farms are more often run by men than women (13% vs. 4%). 45
From focus-group discussion with businesswomen: Today they talk about supporting female business, but, unfortunately, there is no single program aimed at lending to female business. We are equal with men. It would be useful to develop a program for female business support concerning not only financial aspect, but training as well. For example, during the business courses, there has never been a suggestion to develop Businesswoman course, which would not only train women to do business, but also work-family balance. Women are willing to start their own business, but do not know what to do with children and how to balance business with the family. Business is not an 8-hour job, it is round-the-clock job. Table 10. Entrepreneurs education level by gender, %, N=1217 Education Level Men Women Incomplete Secondary 1 0.2 Secondary 6 5 Vocational 20 24 Incomplete higher (BКchelor s) 21 25 Higher (MКster s) 51 45 Academic Degree 0.5 0.2 Women are more frequently engaged in trade (41% vs. 26%) and their share is slightly higher in services sector: accommodation, food and tourism (8% vs. 5%), and other services (17% vs. 15%). In such areas as construction (4% vs. 13%) and farms (16% vs. 5%) the share of women is remarkably low. That is, we can say that there are male and female areas of activity - trade and services are represented by women, and construction and farms are represented by men. Concerning industrial SME the share of men and women in this are depends on the type of production. Men dominate in material production, (7% vs. 4%); women dominate in consumer goods production (6% and 4%) and food production (7% vs. 5%). The share of women in social services sector is slightly higher (healthcare, education and science) (5% vs. 3%). In other words, female areas of activity can vary and may not be limited by trade and services. It shows that there is a certain potential in female entrepreneurship. 46
Figure 26. Entrepreneurs areas of activity by gender, % of responders, N=1168 Trade Other services 17 Farm, forestry and fishing 5 16 Construction 4 13 MКteriКl production (metкl, glкss, ruллer, 4 7 Food products, beverage and tobacco production 7 5 Services (accommodation, feeding, tourism) 8 5 Transport and warehousing, transport repair 2 4 Consumer goods production 6 4 Communication 1 3 Social sphere (healthcare, education, science) 5 3 Processing industry 2 2 Equipment manufacturing and repair 2 2 Financial insurance activities, real estate activities 3 1 41 15 26 0 10 20 30 40 50 60 70 Women Focus-group discussions data suggest problems specific to female entrepreneurship. Besides problems that are typical for entrepreneurship such as access to funding, information, highly skilled personnel, there are other more specific problems related to: The need for balancing work with the family and child care; Limited ability in time and travel management; Huge physical exertion, hard work and tight schedule leading to health problems; Resistance of immediate environment and absence of family support; Social stereotypes and traditions requiring a woman to keep a more passive position. Men From focus-group discussion with businesswomen: Typically, many successful and beginner businesswomen have no families. It is becoming normal. Running business alone is very hard. There are problems related to equipment, personnel and others. But, the main difference is that a woman cares more about the family and children. Sometimes women have to be equal with men: strong, tolerant and even rude. Woman is more responsible, she always knows that she is responsible for work, family and children. Banks know no such a notion as gender, it does not exist, all are asexual, the only aspects which matter are business, turnover, pledge and financial solvency. If you are running a business and doing it by yourself, often, the family suffers, there is less time you can contribute for your children and there is permanent need for assistants. 47
It is hard; you always have to make choice between the family and the business: both are of high importance. Therefore, you always try to make progress, have to make strenuous efforts. I m always busy like a bee. A woman is able to cope with problems due to her will and ambition; it also depends on her personality. If she wants, she can handle it. 24 hours between home, family, husband and relatives. By analyzing the characteristics used by businesswomen to describe male and female business, we can highlight some differences in their perception. It is interesting to note that female business descriptions consists of more positive characteristics underlining ethical aspect of behavior: decent, transparent, less prone to corruption, responsible partner. However, male business descriptions include negative notions such as deceiver, blood-suckers, swear-words, they think more about their own pocketst, crime and others. At the same time male business descriptions differ by characteristics of great power: high income, large loans and higher level: complex, selects strategic directions, detailed, competent, technological and run risks. Business descriptions also include dynamic characteristics; female business is featured with active, light and slow progress, but male business differs by rapid progress, it is more impatient, hard and mechanical. Female business descriptions include characteristics underlining the role of family in female entrepreneurship: able to care for children, economic, able to balance family and work with the family participation. There are no such characteristics in male business descriptions, but it underlines friends participation. Thus, the analysis of qualitative and quantitative data shows that female entrepreneurship is different; particularly, differences are based on the pressure of family duties and less time that a woman can spend on business. Women are rarely business owners, but occupy managerial positions as often as men. Female business has lower cash flow. It is more represented by sole proprietorships and more often engaged in trade and services sector than male business. Businesswomen perceive male business as more dynamic, tough and progressive, and female business as weaker, but more ethical and interconnected with the family interests. Female entrepreneurship has certain characteristics, which cannot be treated as weaknesses or disadvantages, but as specific features, which require special approach in rendering of support. 48
Table 11. Characteristics of male and female business in businesswomen s perception Female business Active Successful Punctual Decent Monetary Communicative Interesting Transparent Accurate Specific Light Kind Beautiful Pleasant Less prone to corruption Less travels and trips Infrastructure Loyal Responsible partners Able to balance family and work Qualitative business plans More understanding managers Sociable Able to look after children Economic Careful Plain Low progress Detailed plans Technological Family participation Male business Hard Joyful Prone to adventures High income Large loans Hard Impatient Swear-words Flabby Make large concessions Abrasive Select strategic directions Deceivers Slave-drivers Criminal Allow sexual harassment Think about own benefit Enriching No salary paid Income Able to manage risks Aggressive Competent Complex Technological Risky Rapid progress Detailed plans Boring Mechanical Short-term Friends participation Summary: female business profile Although fewer women (30%) own businesses than men (51%), 19% are co-owners and managerial positions are held almost equally: 34% vs. 36%. More female entrepreneurs (27%) are single or divorced than male entrepreneurs (14%). Female business has lower turnover, it is more represented by sole proprietors. Women are more involved in trade businesses (41% of women vs. 26% of men), in hospitality services (8% vs. 5%), consumer goods production (5% vs. 3%), and financial services (3% vs. 1%), while men prevail in farming and fishing (5% of women vs. 16% of men), construction (4% vs. 13%), and material production (4% vs. 7%). 49
The particular problems for business women are the balancing of work with family and child care, coping with health problems provoked by physical exertion, and the social stereotype of the suлordinкte role of women. The description of women s Лusinesses in compкrison with men s is more positive in terms of ethics: decent, transparent, less prone to corruption, and more responsible. At the same time, the male-run businesses description emphasizes power, speed and complexity: high income and large loans; and a higher level of operations: complex, selects strategic directions, detailed, competent, technological and risky. SME activity location Capturing not only domestic, but also foreign markets is an indicator of rapid growth of an enterprise and its opportunities. The survey provides with the information on the place of SME activity and based on the results foreign markets remain under-captured and the majority of entrepreneurs sell goods and services only in their own regions. Mainly businesses (90%) in Kazakshtan are done locally. Only 7% of enterprises on average act nationwide and only 4% operate in other countries. 32% of production out of these 4% enterprises go for export. Amongst nationwide operating enterprises medium businesses are 15.4%, small businesses 10.6%, farms 4% and sole proprietors 1.1%. Amongst enterprises operating abroad 11.2% are medium sized businesses, 2.6% - small businesses and 1.8% - sole proprietors and 1% are farms. With only a few exceptions, the activity of many enterprises appears to be limited by the regions and the territory of Kazakhstan, and only the tenth part of medium businesses is able to extend its activity into foreign markets. Figure 27. Enterprises place of business, % of enterprises, N=1217 15.4% 10.6% 11.2% 1.1% 4% 2.6% 1.8% 1% Kazakhstan Other countries Medium business Small business SP Farms Among nationwide operating enterprises 21% deliver transportation and warehouse services, 18% operate in processing industry, 16% produce various materials, 16% produce or fix equipment. Regions differ in their business activities foreign markets. Certain regions are represented by enterprises operating only locally: Aktobe Region (99%), Atyrau Region (99%), South Kazakhstan Region (99%) and West Kazakhstan Region (98%). In Astana (69%) and Almaty 50
(68%) cities the share of such enterprises is lower; entrepreneurs from Astana and Almaty actively operate in Akmola Region (25%) and Almaty Region (20%) respectively. The share of enterprises working only in their own regions is lower in Karagandy Region (76%), Zhambyl Region (84%) and Kostanai Region (85%). Based on this fact, one can conclude that entrepreneurs in these regions have greater potential in comparison with other regions to work nationwide or in foreign markets. Enterprises whose activities cover entire Kazakhstan are mostly located in Almaty City (25%), Karagandy Region (24%), Zhambyl Region (14%), Kostanai Region (12%) and Astana City (13%). When judged by the share of enterprises that operate in other countries, import-export activities are observed more for SMEs in Kostanai Region (15%), North Kazakhstan Region (12%), Astana (12%) and Almaty (11%) cities. In other regions the shares are lower and in such regions as Aktobe, Atyrau, Kyzylorda, Mangystau and South Kazakhstan no enterprise indicated other country as the place of business. Table 12. Enterprises place of business across regions, % of enterprises, N=1217 Astana City Almaty City Akmola Aktobe Almaty Atyrau East Kaz Zhambyl West Kaz Karagandy Kostanai Kyzylorda Mangystau Pavlodar North Kaz South Kaz Kazakhstan Other countries 1 Astana сity 69 10 25 1 1 1 1 1 6 6 1 3 3 4 1 13 12 2 Almaty сity 12 68 1 20 5 1 1 4 1 5 1 3 3 25 11 3 Akmola 2 96 1 1 6 4 2 4 Aktobe 99 1 - - 5 Almaty 2 5 95 1 1 1 4 1 1 1 1 3 1 1 6 Atyrau 1 3 1 99 3 - - 7 East Kaz 3 1 95 1 5 1 8 Zhambyl 4 5 4 2 84 2 4 4 2 5 14 5 9 West Kaz 2 98 2 2 10 Karagandy 1 4 76 24 2 11 Kostanai 3 3 2 2 2 85 2 12 15 12 Kyzylorda 97 3-13 Mangystau 2 94 6-14 Pavlodar 12 2 2 2 97 2 2 2 15 North Kaz 2 2 2 2 2 3 93 7 12 16 South Kaz 1 2 1 1 99 1 Average 7 6 9 5 12 6 6 5 4 8 5 6 5 5 6 11 7 4 51
In spite of the fact that the share of enterprises operating in foreign markets is small, it should be noted that various enterprises render their services abroad, representing almost all sectors with the exception of financial, insurance and social services sectors. Mining enterprises (100%), enterprises providing transporting (13%) and other services (6%), raw material processing enterprises (9%), farms (6%), production of fixing equipment (5%), and information and communications enterprises (5) operate in the territory of other countries. From the in-depth interview with an entrepreneur: We export turkey to Chelyabinsk Region, Tambov, Voronezh, Moscow and Saint Petersburg. I should say that the demand for poultry meat is high. The share of poultry meat in Russian market is not higher than 10% and you always have the opportunity! Table 13. Enterprises place of business in various areas, %, N=1150. SME area of activity Place of business Kazakhstan nationwide Other countries Trade 6 2 Hospitality services (accommodation, food, tourism) 5 4 Financial insurance activity, real estate activity 4 - Social services (healthcare, education, science) 5 - Consumer goods production 11 4 Materials production (metal, glass, rubber, construction materials) 16 4 Equipment manufacturing and repair 16 5 Construction 8 1 Transporting and warehousing, transport repair 21 13 Information and communications 5 5 Other services 8 6 Processing industry 18 9 Food, beverage and tobacco production 3 4 Farm, forest and fishing 5 6 Summary: Kazakhstani enterprises operate locally The majority (90%) of businesses in Kazakhstan are run locally, especially in the Aktobe, Atyrau, South Kazakhstan, and West Kazakhstan regions, where 98-99% of enterprises operate in local markets. Only 7% of Kazakhstani enterprises act nationwide, and they are mostly represented by the city of Almaty (25%), the regions of Karagandy (24%), Zhambyl (14%), Kostanai (12%) and Astana (13%). Only 4% of Kazakhstani enterprises operate in other countries, with such enterprises concentrated in the Kostanai (15%) and North Kazakhstan regions (12%), and in the cities of Astana (12%) and Almaty (11%). The bigger the business is, the more likely it is to work nationwide or in other countries; or in other words, the wider the area of distribution, the easier it is for a business to grow. Within each sector, nationwide-operating enterprises compose 21% of transportation and warehouse services, 18% of the processing industry, 16% of various materials production, and 16% of production or fixing of equipment. Within each sector, businesses operating in other countries compose 13% of 52
transportation and warehouse enterprises, 6% of various services, 9% of material processing enterprises, 6% of farms, 5% of production or fixing of equipment, and 5% of IT and communications. Information channels for entrepreneurs This study was focused on finding channels of business information for entrepreneurs that play a key role for them. The good point is that websites are on the top (45.5%), followed by business colleagues (33%), then goes local newspapers and local television (at 26%). As it was proved by repeated studies on the consuming of information, the biggest demand among newspapers and magazines is for local ones, and what is more in each region for its own, and for the business information distribution local television is very important, the frequency of use of local TV is more than 2 times higher than of the use of central and more than 4.5 times higher that the frequency use of national newspapers. Rumors (11%) and social networks (7.9%) were indicated as information source more often that advertisements in local administrations, state bodies and market surveys (7.7). And only 5.4% of entrepreneurs get information from business associations. Figure 28. Communication sources of entrepreneurs, %. 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Internet sites Colleagues from the business Local newspapers, journals Local TV Information from other enterprises Central TV Gossips Specialized Kazakh journals, newspapers No need in information Social networks Information in akimats and other state bodies Market reviews, stock exchange news Foreign press Central press Others Business associations Foreign TV Information in banks Expret opinions No other ways Radio Information in People Service Centers Booklets, leaflets of Development Institutions Information in the Post Office 13.2 12.3 11.2 10.6 9.1 7.9 7.7 7.7 5.9 5.8 5.5 5.4 5.1 4.4 4.3 3.6 3.3 3.2 3.0 1.5 26.4 26.3 33.0 45.5 53
Information from Internet sites is the main source for the medium (52%) and small (51%) enterprises, less for SPs (sole proprietor) (42%) and quite significant for farmers (23%). Communication with business colleagues is on second place and almost the same for all entrepreneurs cкtegories (30-38%). Table 14. Business information sources by type of business, % From what sources do you get information for your business? Medium enterprises Small enterprises SPs Farm Mean (average) Internet-sites 52.1 51.2 42.0 23.2 45.5 Business partners, colleagues 38.9 30.2 32.4 35.4 33.0 Local newspapers, magazines 27.5 26.2 24.9 31.3 26.4 Local TV 25.6 23.3 24.7 47.5 26.3 Information from other enterprises 19.4 12.5 9.5 19.2 13.2 Central TV 15.2 9.4 12.0 20.2 12.3 Gossips, rumors 5.7 10.8 12.9 17.2 11.2 Specialized Kazakhstani newspapers, magazines 12.3 11.8 8.6 10.1 10.6 No need in information 7.6 9.0 10.9 5.1 9.1 Social networks 8.1 8.3 8.4 4.0 7.9 Information in akimats and other government bodies 12.8 5.2 5.0 20.2 7.7 Market reviews, exchange office news 10.9 8.0 5.4 10.1 7.7 Foreign print media 4.7 5.7 7.7 1.0 5.9 National print media 8.5 5.7 4.1 8.1 5.8 Other 7.1 4.5 5.2 8.1 5.5 Business associations 11.8 6.1 1.6 5.1 5.4 Foreign TV 5.7 6.4 4.5 1.0 5.1 Announcements / information in banks 4.7 4.2 3.4 9.1 4.4 Expert opinions 6.2 4.5 2.7 6.1 4.3 No means 5.2 3.1 3.4 3.0 3.6 Radio 3.8 4.0 2.7 2.0 3.3 Announcements/ information in Population Service Centers 4.7 2.6 2.3 7.1 3.2 Booklets, leaflets of Development Institutions 1.4 3.5 2.9 4.0 3.0 Announcements /information by post 2.4 1.7 1.4 1.5 Local newspapers and television are important for all (25-28%), but the TV is especially important for farmers (47%). Interestingly, that the stock news and market reviews are important for 11% of medium businesses and 10% of farmers. For 20% of farmers and 12.8% of medium business information they get from akimats and other government bodies plays a big role, while only 5% of SPs are interested in it. Entrepreneurs (2-5%) also are not focused on getting information in PSC (centers rendering services for population), except for the farmers, 7% of whom have indicated this source. Farmers (9%) also use the information and announcements in banks more, than other entrepreneurs (3-5%). Booklets and leaflets of development institutions as a source indicated 1-4% of entrepreneurs, and it shows that the distribution of printed media development institutions is not a sufficiently effective way to inform entrepreneurs. Business associations play a more important role for the medium sized enterprises (11.8%), to a less extent for small and farms (6.5%), and most miserable - for SPs (1.6%). Word of mouth is important for farmers and entrepreneurs, less important for small enterprises and very small for medium-sized. In terms of using Internet Zhambyl region is in the first place 67%, then Almaty, Mangystau, Astana, Atyrau, Kyzylorda, Kostanai oblasts (52-53% respectively). Low use of Internet (only 14%) and low appeal to colleagues (3.5%), but the maximum rate of reading the local newspapers (94.7%) to obtain business information was indicated in West 54
Kazakhstan region. Zhambyl region is also the champion for the information consumption from the central TV, national newspapers, specialized magazines and newspapers. Very low frequency of use of local newspapers and TV channels observed in Astana (6.5 and 9.7%) and Mangystau region (9.3% and 7.4%). Table 15. Preferable sources of getting business information by regions. Astana Almaty city Akmola Aktobe Almaty Atyrau East- Kazakhstan Zhambyl West Kazakhstan Karagandy Kostanai Kyzylorda Mangystau Pavlodar North Kazakhstan South Kazakhstan Internet-sites 53.2 53.9 48.1 43.6 39.1 53.7 41.4 67.2 14.0 45.8 51.7 52.3 53.7 35.0 47.5 38.7 Business colleagues 38.7 50.0 35.4 41.8 29.7 44.8 40.0 13.8 3.5 12.5 31.7 58.5 9.3 28.3 33.9 46.2 Local newspapers, magazines 6.5 14.5 31.6 21.8 27.5 23.9 32.9 27.6 94.7 14.6 38.3 26.2 9.3 28.3 16.9 21.0 Local TV 9.7 15.8 34.2 61.8 29.7 25.4 38.6 12.1 56.1 16.7 15.0 26.2 7.4 41.7 13.6 22.7 Information from other enterprises 22.6 15.8 16.5 14.5 17.4 16.4 17.1 3.1 3.3 20.0 13.0 16.7 16.9 13.4 Central TV 3.2 11.8 20.3 19.6 16.4 18.6 44.8 5.3 1.0 6.7 15.4 1.9 8.3 1.7 13.4 Gossips, rumors 6.5 15.8 17.7 25.5 14.5 17.1 1.8 3.1 11.7 18.5 5.6 3.3 8.5 19.3 Specialized newspapers, magazines 4.8 7.9 16.5 14.5 11.6 17.9 7.1 37.9 5.3 5.0 10.8 1.9 23.3 8.5 5.0 Social networks 6.5 6.6 2.5 16.4 9.4 1.5 5.7 1.7 4.2 18.3 24.6 13.0 8.3 1.7 8.4 Information in akimats and other gov. bodies 8.1 10.5 10.1 7.3 12.3 9.0 5.7 1.7 3.5 4.2 3.3 7.7 3.3 11.9 13.4 Market reviews, stock news 14.5 7.9 7.6 18.2 8.0 11.9 5.7 10.3 10.0 6.2 5.6 8.3 10.9 Foreign print media 3.2 9.2 6.3 9.1 3.6 9.0 4.3 1.8 2.1 5.0 23.1 14.8 3.3 4.2 National print media 2.6 3.8 5.5 2.2 11.9 2.9 43.1 1.8 2.1 1.7 10.8 1.9 6.7 5.0 Others 4.8 5.3 3.8 1.4 3.0 8.6 5.2 3.1 16.7 16.9 1.9 6.7 10.2 5.9 Business associations 4.8 5.3 2.5 5.5 2.2 23.9 5.7 5.2 3.1 3.3 10.8 16.9 2.5 Foreign TV 1.6 7.9 8.9 7.3 1.4 9.0 2.9 22.4 6.7 4.6 7.4 1.7 5.9 Information in banks 14.5 11.8 6.3 5.5 4.3 6.0 5.7 3.4 2.1 1.7 6.2 1.7 1.7 0.8 Expert opinions 3.2 5.3 2.5 3.6 1.4 13.4 1.4 3.4 3.1 8.3 10.8 1.9 3.3 1.7 5.9 No means 3.2 5.3 1.8 2.9 1.5 7.1 1.7 1.7 16.7 1.7 10.2 5.9 Radio 1.6 9.2 2.5 10.9 6.5 1.5 1.4 12.3 1.5 3.7 1.7 0.8 Information in PSCs 5.3 10.1 5.5 8.0 6.0 1.4 1.0 1.7 3.1 3.4 0.8 Booklets, leaflets of Dev. Institutions 9.7 5.3 1.3 5.8 6.0 5.7 1.7 1.0 1.7 4.6 1.7 Info in post office 1.6 7.9 1.3 2.2 5.0 4.6 1.7 Market reviews and stock news important to entrepreneurs of oil regions (Aktobe - 18% and Atyrau - 11%), agricultural regions (Zhambyl, Kostanai, South Kazakhstan 10-11%) and for entrepreneurs of Astana City (14.5%). Information from banks and development institutions is more often in demand in Astana and Almaty cities. Appendix 2 presents information on regional preferences for TV channels, print media and internet sources. Summary: main channels of business information in Kazakhstan The main channels for business information are websites (45.5%), business partners of colleagues (33%), and local newspapers and local television (26%). Rumors (11%) and social networks (7.9%) were indicated as information sources more often than were announcements by local administrations, state bodies, and market surveys (7.7%). Only 5.4% of entrepreneurs get information from business associations. There is not a large difference between medium enterprises, small enterprises, and sole proprietors in information channel preferences, but farmers have lower internet access and mostly rely on local television (48%), local newspapers (31%), central television (30%), announcements in akimats (20%), and information from banks (9%). 55
Chapter 3. Financial and Nonfinancial Programs for SME support Needs of SME sector by size of business Depending on the size businesses express various needs in financial and non-financial support. Table 16. Business needs by the size, % of respondents within each group. Medium enterprises, N=209 Small enterprises, N=416 SPs, N=440 Farms, N=99 Soft loans 46.9 Tax relief 36.5 Soft loans 43.6 Soft loans 63.6 Well roads 45.0 Well roads 35.8 Tax relief 35.7 Well roads 46.5 Tax relief 43.5 Soft loans 33.4 Well roads 29.1 Warehouses, refrigerators Training in new technologies Information on new technologies Consultations on technologies Production facilities Foreign technol. transfer 40.2 Training in new technologies 34.0 Information on new technologies 26.3 Consultations on technologies 26.3 Production facilities Credits, loans 23.4 Warehouses, refrigerators Lease of equipment Warehouses, refrigerators Engineering and comm. Infrastructure Access to electricity Modern equipment service Land for production facilities 31.5 Production facilities 26.4 Training in new technologies 46.5 24.8 Tax relief 35.4 23.6 Lease of equipment 26.2 Credits, loans 22.5 Information on new technologies 26.2 Information on new technologies 24.4 Credits, loans 22.8 Warehouses, refrigerators 22.5 Foreign technol. transfer 20.6 Engineering and comm. Infrastructure 18.7 Land for production 20.4 Consultations on technologies 14.2 Access to electricity 29.3 28.3 21.4 Access to water 28.3 20.9 Credits, loans 27.3 19.1 Land for production facilities 17.0 Training in new technologies 13.7 Access to water 14.1 Production facilities 12.5 Land for production facilities facilities 14.4 Access to water 11.1 Engineering and comm. Infrastructure 12.4 Access to electricity 12.4 Lease of equipment Access to water 11.5 Modern equipment service 9.9 Foreign technol. transfer 10.5 Engineering and comm. Infrastructure 10.2 Foreign technol. transfer 9.5 Access to electricity 8.7 Other 8.0 Consultations on technologies 8.4 Lease of equipment 20.2 19.2 18.2 14.1 13.1 13.1 12.1 6.6 Other 6.1 Licensing 7.7 Other 8.0 Licensing 5.7 Modern equipment service Other 7.7 Dealing 7.9 Modern 4.8 Licensing 4.0 programs equipment service Factoring 4.3 Licensing 5.8 Dealing programs 4.5 Other (indicate) 3.0 Dealing programs 4.3 Franchising 5.0 Franchising 3.4 Dealing programs 3.0 Franchising 2.9 Factoring 1.2 Factoring 2.5 Factoring 2.0 5.1 56
The highest needs represent financial, infrastructural and technological needs: soft loans, good roads, tax relief and training on new technologies. FКrms need in soft loкns is the highest: 63.6% in comparison with 44-47% of SPs and medium businesses. Farmers differ from other entrepreneurs in their demand for warehouses and refrigerators (46.5% vs 20.6%), as well as in access to water (28% vs 11-14%). Credits and loans in their current conditions for all sized businesses are not main need (22-27%). Information, consultation and training on new technologies is quite highly demanded by medium and small enterprises (26-40%), but rather moderately by SPs and farms (12-19%). Financial Services Financial sources 92% of entrepreneurs reported that they mostly mobilize personal funds (49%), enterprise funds (27.5%) Кs well Кs relкtives Кnd friends moneв (15.9%). This shows that entrepreneurs have to seiгe their own funds Кnd relкtives Кnd friends moneв more often (three times that of the desired amount) restricting family and children in increasing their welfare. Enterprise fund use (about twice exceeding the desired funding amount) also results in economy on working conditions improvement, wage and process modernization restraint. The remarkable fact is that 7.4% of entrepreneurs use consumer loans, 3.5% mortgage, that is, they use financial instruments assigned for individuals. 4.6% of entrepreneurs use microlending with higher borrowing rates, which is not sufficiently beneficial. The smaller is business, the more often entrepreneurs are using their personal money and financial resources assigned for individuals, such as consumer credits, mortgages and microcredits. Large size enterprises are more likely to get business loans from banks, since they are able to provide collateral. 32.3% of surveyed entrepreneurs are willing to get loans, this figure indicates the need in bank loans for business development. 27.5% of surveyed entrepreneurs already use business development bank loans, the shortage is 5%. For other financial sources the shortage is much higher, for example, 19.6% of entrepreneurs are interested in subsidies under the state programs, while only 3% of them are getting such subsidies, 14.1% are willing to get loan guarantees, while only 1.6% of them get those, 7.5% eager to get leasing, while only 1.6% of entrepreneurs are using leasing schemes, 6.4% want to have loan guarantees and only 1% enjoy those. 57
Figure 29. Use of Financial Sources, N=1682, multiple responses, %. Own money Own enterprise means Bank loans for business development Assistance from relatives or friends Consumer credits Retained earning None Microcrediting Trade (commercial) credits Mortgage Subsidies under the state programs Leasing Partner share in capital Credits of the special business support funds Loan guarantees Other Grants Factoring Bank overdraft 17.5 16.4 15.9 3.5 7.4 3.5 7.3 3.7 7.2 10.6 4.6 8.9 4.1 5.7 3.5 4.2 3.0 19.6 2.9 7.5 2.8 6.4 1.6 14.1 1.0 6.4 0.8 1.5 0.6 4.1 0.6 2.0 0.4 1.1 27.5 27.0 32.3 Use Would like to use 49.0 92% use personal funds Use of various funding sources is related to the size of an enterprise: it is easier to obtain loans for medium enterprises due to the availability of pledges and large sums, and they are the ones using leasing most often. Farms mostly take subsidies under state programs. The most disadvantaged are sole proprietors: the proportion of them is much less than of medium businesses, as well as of small businesses and farms. They have to use their personal funds due to the lack of collaterals or property compared to other entrepreneurs that can use enterprise funds. Table 17. Use of Funding Sources, %, multiple choice. Medium Business Small Business SP Farmers Bank loans for business development 41 27 19 30 Subsidies under state programs 7 1 1 13 Lending assurance 3 1 1 Enterprise funds 39 32 15 35 Equipment leasing 9 2 0 3 Personal funds 31 45 61 50 RelКtives Кnd friends funds 6 13 23 20 The demand for loans is met the least for sole proprietors, 32% of which would like to get a loan but only 19% of them really use it; the same is applicable for farms: 42% would like to get a loan, but only 30% obtained it. For medium businesses reality exceeds the wish: 41% use loans but only 37% would like to get it; looks like medium businesses is saturated by loans. 58
Table 18. Proportion of businesses that use or wish to use loans and leasing, %. Medium Business Small Business SP Farms loans leasing loans leasing loans leasing loans leasing Use 41 9 27 2 19 0 30 3 Wish to use 37 10 28 7 32 5 42 16 Difference 4-1 -1-5 -13-5 -12-13 The wish to use dкtк cкn Лe interpreted Кs Кn indicкtor for for loкn/leкsing need rкte: for example, the need of medium business in loans is 37%, that means 37% of medium entrepreneurs wкnt to get loкn Кnd 10% wкnt to leкse equipment. The difference Лetween wish to use Кnd use figures cкn indicкte the sкtisfкction/ shortкge rкte. As cкn Лe seen from the table, the need in leasing for small business, sole proprietors and farmers is not fully met (proportion of those who wants to lease is much higher, than those who uses). The farmers and SPs needs in loкns Кre even more desperкte (negкtive figures in the tклle). These dкtк differs from NКtionКl BКnk s monthlв monitoring data 17 on enterprises needs in loans showing that the share of enterprises wishing to get a loan was the same in 2011 and was 21.8%-23.2%. 19% of enterprises were going to get a loan in the 3 rd quarter of 2012. The set interest rate in 2011 in tenge was about 13%, and the desired one 9.5%, in foreign currency 11% (set) and 8% (desired), in 2012 for tenge 12% (set), - 9% (desired). National Bank does not include sole proprietors (SPs) and possibly farms, which have a higher need in loans. Thus, it is important to meet the sole proprietors Кnd fкrmers needs in loans and equipment leasing, the most of which express their interest in loans compared with that of small and medium sized businesses. The less met demand for loans is in consumer production and for equipment leasing in various materials production (metal, glass, and construction materials), agriculture and fishery, services, and processing industry in terms of sectors. Knowing the fact that there were 64,457 small enterprises and 589,640 sole proprietors in Kazakhstan in 2012, and that as of January 2012 small businesses got loans in the amount of 1,012,828 mln tenge and that individuals (sole proprietors) got 328, 557 mln tenge, we can estimate the number of small enterprises and SPs that received loans, provided that small enterprises comprised 27% and SPs comprised 19%. We can then estimate the unmet needs of small enterprises and SP, that is, 37.5 bln tenge for small enterprises and 224.8 bln tenge for sole proprietors. The average amount of loans to small enterprises equaled 58.2 mln tenge, to sole entrepreneurs equated to 2.9 mln tenge. Table 19. Assessment of Unmet Financial Needs of Small Enterprises and SPs Small ent. that got loans (27%) SP that got loans (19%) SE wishing to get a loan (assess ment) SP wishing to get a loan (assessment ) SE with unmet need (assessme nt) SP with unmet need (assessmen t) SE lacking loans amount, mln. tg (assessme nt) SP lacking loans amount, mln. tg (assessment) 17,403 112,032 18,048 188,685 645 76,653 37512.1 224802.2 17 http://www.nationalbank.kz/?docid=883 59
According to the Accounting Committee report the volume of available resources of the second tier banks has increased in 2011 for 13.5% and at the end of the 2011 were 8 781.4 bln tenge. However, high interest rate has resulted in reduction of the share of credited individuals from 29.1% in 2009 to 26.7% in 2011 and reduction of the share of small businesses from 22.3% in 2009 to 15.3% in 2011 18. The table below shows the unmet needs in loans across regions for small enterprises and sole proprietors. The best situation is among entrepreneurs in Pavlodar: the number of obtained loans is higher than the desired amount; fairly good situation is in Karagandy. Other regions have the low satisfaction in loans, especially for sole proprietors. Table 20. Difference between those who answered Using a loan and Wish to get a loan, % Small Businesses, N=437 SPs, N=458 Astana City 19.3-11.5 Almaty City -10.7-23.1 Akmola 13.1-10.7 Aktobe -26.7-14.3 < (-30) Almaty -4.0-12.8 (-20.01)-(-30) Atyrau 0.0-30.7 (-20)-(-10.01) East Kazakhstan 21.0-25.3 (-10)-(-0.01) Zhambyl 7.8-1.9 0-10 West Kazakhstan -1.9-20.8 >10 Karagandy 12.2 0.0 Kostanai -26.3-10.4 Kyzylorda -8.7-13.8 Mangystau 11.8-15.7 Pavlodar 19.7 31.2 North Kazakhstan -27.0-19.5 South Kazakhstan -2.5-7.0 Total: 0.1-12.1 The worst situation with loans for SPs is in Atyrau and East Kazakhstan, Almaty city and West Kazakhstan, for small businesses in North Kazakhstan, Aktobe, and Kostanai regions and Almaty city as well. When not grouping by enterprises across regions, loans are most frequently used in Atyrau, Pavlodar and East Kazakhstan regions; the highest unmet needs (difference between real and desired amounts) is in North Kazakhstan, Aktobe, Almaty, West Kazakhstan, Kyzylorda, and Kostanai regions. Pavlodar is the only region where the number of those wishing to get a loan is (18%) substantially less than those who the loans (41%). 18 Report of Accounting Committee of Kazakhstan for 2011, http://esep.kz/userfile/1/d8cdde1d46fe3b1c905f924de47fe6f1.pdf 60
Figure 30. Comparison of Real and Desired Use of Loas, %, multiple choice. 60 54 51 Using Would like to use 50 43 41 41 39 37 38 39 40 40 37 36 31 33 34 29 27 2829 30 27 28 26 24 24 26 20 21 19 20 18 11 10 17 23 27 32 0 Personal funds are most often used in West Kazakhtan (88%), Zhambyl (62%) and South Kazakhstan (60%) regions, which indirectly serves as an assessment of access to loans. Personal funds are mostly used in Almaty region, Almaty and Astana cities. Bank loans are mostly used in Atyrau, Pavlodar, and East Kazakhstan regions (43-39%), to a lesser extent in South Kazakhstan and Karagandy regions. Such financing resources as factoring, bank overdraft, corporate bonds are of low use or not used at all. 61
Table 21. Funding sources by regions, %, multiple selection. Bank loans for business development Trade loan Consumer loan Mortgage Microlending Share interest Business support fund loans State program subsidies Loan guarantee Enterprise funds Equipment leasing Donor grants Factoring Bank overdraft Corporate bonds Undistributed enterprise profit Personal funds RelКtives Кnd friends funds None Astana city 31 3 2 5 2 30 2 2 7 48 5 16 Almaty city 27 8 7 4 1 1 3 5 1 39 1 1 8 50 9 15 Akmola 33 3 7 9 7 4 1 1 19 1 3 52 13 1 Aktobe 24 11 8 29 16 11 16 8 11 53 24 Almaty 20 8 2 4 2 2 4 2 44 3 1 13 51 13 4 Atyrau 43 13 6 10 3 4 6 20 3 1 29 9 9 East Kazakhstan 37 6 19 5 13 10 6 3 23 10 2 18 40 15 2 Zhambyl 28 4 2 2 2 2 22 2 2 2 6 62 30 West Kazakhstan 24 2 2 2 2 2 88 47 Karagandy 19 2 7 1 21 28 2 22 Kostanai 27 2 6 29 4 49 18 4 Kyzylorda 21 5 11 4 9 14 4 5 4 28 7 5 5 2 23 56 35 11 Mangystau 28 2 9 2 2 4 39 15 26 Pavlodar 41 2 12 5 32 5 2 5 32 5 5 North Kazakhstan 26 2 14 2 4 40 4 2 16 54 11 2 South Kazakhstan 17 8 8 6 2 1 6 34 3 2 60 22 Microlending is more common for Aktobe and East Kazakhstan regions, as well as trade loans, the latter is common for North Kazakhstan, Pavlodar and Kyzylorda regions. Equipment leasing is in East Kazakhstan and Kyzylorda regions. We are pleased to note that state program subsidies are evenly distributed in all regions. Table data by sectors shows that they are related to the agricultural producers. Loan guarantees were reported by 16 entrepreneurs from Atyrau (6) and Kyzylorda (4) regions, Astana (2), Almaty region (2), the city of Almaty (1) and Akmola (1) region. 62
Table 22. Funding sources by sectors, %, multiple selection. Bank loans for business development Trade loan Consumer loan Mortgage Microlending Share in capital Business support fund loans State program subsidies Loan guarantee Enterprise funds Equipment leasing Foreign donor grants Factoring Bank overdraft Corporate bonds Enterprise profit Personal funds Relatives and friends funds None Other N Electric and water supply and etc. 1 2 3 1 5 Trade 88 20 28 14 16 5 2 2 2 73 1 1 17 204 68 22 2 349 Services (accommodation, food, travelling) 20 3 4 2 2 2 1 1 12 5 36 13 3 62 Financial activity, real estate 3 2 1 2 1 7 1 1 2 8 2 20 Social services (health care, education, science) 5 3 4 1 1 1 2 13 1 1 1 21 10 3 40 Consumer products 16 4 10 2 6 2 3 2 4 11 1 2 3 26 11 6 54 Production of various materials 26 6 1 1 1 5 2 22 4 1 1 6 16 3 7 1 61 Manufacture and repair of 6 2 1 1 3 1 9 3 3 4 4 1 1 18 equipment Mining 1 1 2 Construction 30 3 5 7 1 10 2 36 10 1 2 1 10 36 14 7 3 95 Transportation and warehousing, 7 1 3 1 3 1 8 2 1 2 19 7 1 34 repair of vehicle Information and communications 3 1 5 1 1 1 2 11 1 2 1 20 Other services 37 8 5 6 7 5 2 2 42 3 2 1 13 86 27 14 1 162 Processing industry 7 1 1 1 2 1 1 9 1 2 7 2 1 20 Food, beverages and tobacco 21 5 5 2 3 1 2 4 1 22 5 1 7 22 4 5 59 production Agriculture, forestry and fishery 36 9 7 4 14 34 4 10 49 18 6 111 63
Analyzing by sectors shows that active business loan debtors are the producers of food and beverages, various materials, services and trade. Leasing is mainly used by construction companies, food products and agricultural producers. Microlending is mainly related to trade and consumer products. State program subsidies are common for agricultural producers. Factoring is familiar to the manufacturers of equipment, constructors, but only by 2 representatives. The share in capital scheme is used by the constructors. Summary: Shortage in finances The shortage in financial support, calculated as the difference between the percentages of those who are willing to use it and those who actually do use it, is higher for the following instruments: subsidies under a state program 16.6%; credits from the special business-support funds 12.5%; loan guarantees 5.4%; bank loans for business development 5.3%; leasing 4.6%; micro crediting 4.3%; trade credits 1.6%; and factoring 1.4%. The leasing needs of small business, sole proprietors, and farmers are not fully met (i.e. the proportion of those who wкnt to leкse is much higher thкn those who do leкse). FКrmers Кnd SPs needs in loкns Кre much more desperкte than those of small and medium enterprises. Therefore, approaches to crediting and leasing should be revised to provide better financial access for farms and sole proprietors. It is suggested to include sole proprietors in the monitoring of the SME s needs in bank lending conducted by the National Bank, in order to be able to improve the accessibility of credit for them. By region, the best loan situation is observed in Pavlodar for both small businesses and SPs. The worst loan situation for SPs is in Atyrau and East Kazakhstan, the city of Almaty, and West Kazakhstan; for small businesses, in North Kazakhstan, the Aktobe and Kostanai regions, and also in the city of Almaty. Loan borrowers are producers of food and beverages, various materials, and services and trade. Leasing is mainly used by construction companies, and food and agricultural producers. Micro crediting is mainly related to trade. Bank services: assessment and needs Entrepreneurs were asked to name banks they use. Most popular banks are Halyk, Kazkom, Kaspi, CenterCredit, Alliance and BTA making up more than 60%. Damu Fund holds 7%. Although Damu Fund does not provide money directly to the entrepreneurs, it was mentioned by 7% of entrepreneurs. 64
Figure 31. Shares of bank clients and financial organizations among entrepreneurs, % Tsesnabank 4% Temirbank 4% Other 7% Halyk bank 13% Eurasian bank 5% Other 5% Kazcommertsbank 11% Damu Fund 7% Kaspi bank 11% ATF 7% BTA 8% Alliance Bank 8% Bank Centercredit 10% However, preferences differ by the size of the business. Bank CenterCredit, ATF, Damu Fund and Eurasian bank are mainly focused on medium sized business, Halyk Bank on small enterprises, SPs and farms, as well as BTA. Farms often receive fair assistance from KazAgroFinance. Banks provide assistance in urban and rural areas evenly, although due to historical availability of Halyk Bank, the village has less choice and variety of banks and is likely to be forced to use this bank (in rural areas 24% in urban 18%), and Bank CenterCredit is mainly focused on the urban sector (urban 15%, rural 2%). It is encouraging that KazAgroFinance (10%) and Damu Fund (13%) are active in rural areas. 65
Table 23. Use of banks and financial organizations services by size of business, number of respondents. Medium businesses Small businesses SPs Farms Average Halyk Bank 15 20 20 19 19 Kazcommertsbank 14 20 13 14 16 Kaspi bank 11 10 22 19 15 Bank CenterCredit 16 17 11 5 13 Alliance bank 11 15 9 12 12 ATF Bank 15 10 8 12 11 BTA 7 13 10 12 11 Damu Fund 14 7 10 7 10 Tsesna Bank 9 3 7 9 6 Eurasian Bank 11 7 4 2 6 TemirBank 7 5 4 7 5 Sberbank 6 1 1 2 2 KazAgroFinance 2 1 16 2 Nurbank 3 2 1 2 KMG 2 1 3 2 2 Metrocom Bank 1 1 1 1 Homebank 1 1 1 Astana Finance 4 1 1 1 VTB 1 2 1 Alfa Bank 1 0 Other 10 5 7 9 7 Most accessible banks are Kaspi Bank and Temir Bank with 4.2 points, followed by Alliance (4.1), Halyk Bank, Kazcom and Nurbank 4.0, Tsesna Bank and BTA 3.9 each. VTB, KMG, Alfa Bank, Astana Finance, Kazagrofinance, Netrocom Bank, Homebank, Zhylstroisberbank, Agrocredit Corporation, and Kassa Nova Bank are excluded due to small sampling. Table 24. Assessment of availability and service quality of popular banks Accessibility Score Service quality Score Kaspi Bank 4.2 Sberbank 4.3 Temir Bank 4.2 Bank CenterCredit 4.2 Alliance Bank 4.1 Kazkommertsbank 4.2 Halyk Bank 4.0 Temir Bank 4.2 Kazkommertsbank 4.0 Nurbank 4.2 Nurbank 4.0 Eurasian Bank 4.1 Tsesna Bank 3.9 BTA 4.1 BTA 3.9 Halyk Bank 4.0 Bank CenterCredit 3.7 ATF Bank 4.0 ATF Bank 3.6 Kaspi Bank 4.0 Sberbank 3.5 Alliance Bank 3.6 Eurasian Bank 3.4 Tsesna Bank 2.9 Service quality is most highly valued in Sberank (4.3), CenterCredit, Kazcom, Temirbank, and Nurbank (at 4.2), Eurasian Bank and BTA (4.1), Halyk, ATF and Kaspi (4 points). 66
Administrative barriers, conditions and rates are the main difficulties in obtaining loans and often force entrepreneurs to abandon them. The most common rejection reason is high interest rates (56.4%), followed by the fear of entrepreneurs to become dependent on bank (26%), a long and complex procedure of application being submitted and considered (18%), reduced value of the collateral through the related appraisers (9.1%). Complaints about the lack of useful connections, acquaintances (6.5%), corruption (5.9%), and raiding (1.2%) raise alarm bells. Entrepreneurs want to be free from banks to take decisions, to use their property and facilities, to use money immediately without any conditions, while having loans put them into the necessity to ask and wait for approval from their bank for any decision. That is why the second largest (26.5%) reкson not to tкke the loкn is the risk of fкlling in ЛКnk s dependence. Figure 32. Difficulties and reasons for loan rejection, N=1849, % Too high rкte (ЛКnk s %) 56.4% Risk of fкlling in ЛКnks dependence 26.5% Long and complicated approval procedure No collateral Other Affiliated evaluators understate the collateral value Low business profit No initial installment No relations in banks Corruption, demand for kickback Banks do not accept SP income for evaluation Credits are available at place of registration No or bad credit history Risk of business capture by banks Because of religion 18.0% 13.0% 10.3% 9.1% 8.5% 6.5% 6.5% 5.9% 5.8% 4.2% 3.7% 1.2% 1.1% Barriers that can be removed only by banks are highlighted in red in the Figure (high interest rates, complex procedures, corruption). Some ЛКnks consider sole proprietors income Кs verв risky and irregular, even if it is high, which is why their income is not taken into account when ЛКnks Кssess SP s solvencв. These rules are to be revised to increase the loan accessibility for SPs. Bank branches are not authorized to make decisions on granting loans, so the procedure is delayed. Procedural problems are particularly acute in rural areas and small towns, but the problem remains in regional centers as well, since the major banks are headquartered in Almaty city. 67
The problem of high interest rates and lack of collateral results in the need to subsidize interest rates and loan guarantees (18.4%). Anti-crisis programs are also in short, such as anti-crisis microcrediting and short-term loans (15%), anti-crisis payment prolongation (10%), loan refinancing (9%), funding of women small businesses (14%). Table 25. Difficulties or reasons for loan rejection Medium enterprises, N=179 Small enterprises, N=376 SPs, N=400 Farms, N=91 Too high bank interst rates 54.2 53.2 58.0 67.0 Risk of falling in bank's dependence 26.3 28.2 27.3 16.5 Long and complicated approval procedure 24.6 19.4 12.3 24.2 Banks understate the value of collateral through their affiliated evaluators 18.4 9.0 4.5 11.0 No collateral 9.5 12.0 14.0 19.8 No relations in banks 10.1 5.3 5.3 9.9 Corruption, demand of kickoffs 6.7 6.4 4.8 7.7 Credits are not available at the place of activities, only at the place of registration 1.7 1.9 4.8 16.5 No initial installment 3.9 4.8 8.8 8.8 Low business profit 7.3 5.3 12.5 6.6 Bank's rules do not allow to take into account the individual entrepreneur income 0.6 3.7 10.0 6.6 No or bad credit history 3.9 2.1 5.3 3.3 Risk of business capture by banks 2.2 1.6 0.3 2.2 Because of religion 2.2 0.8 0.8 1.1 The high interest rate is reported by all businesses (54-58%), but the highest proportion is for farms (67%). Medium businesses and farms are complaining for the long and complicated approval procedure (24%), as well as underestimation of value of collateral (11-18%). Each fifth farmer reported lack of collateral, each sixth that credits are not available at the place of activities, only at the place of registration. On the question what financial services you lack the main answer was interest rate subsidies and loan guarantees (18.4%). Business people are deficient in anti-crisis fianancial support, such as anti-crisis microcrediting and short-term credit lines (15%). 14% of respondents marked financing of women small business as a missing services. Quite a number of people (11.5%) are talking about the need for funding innovations and new technologies, as well as exporter support programs (9.3%) and energy saving (2.9%). 68
Figure 33.What financial services are missing, N=1376 Interest rate subsidies Loan guarantees 18.4% 18.4% Anti-crisis microcrediting Credit lines for short-term (up to 6 months) needs Other Financing of the women small business 15.4% 15.2% 14.6% 14.3% Financing of the innovations and new technologies Anti-crisis prolongation of payout period Programs for exporters Refinancing of credits 11.5% 10.3% 9.3% 9.2% Financing of the projects on energy saving Factoring of the small business in supply chain for large enterprises Factoring (short term crediting of suppliers) 1.6% 2.9% 2.5% By the type of business, tnterest rate subsidies are the highest deficite services for medium, small businesses and farms (over 20%), while loan guarantees are higher for SPs and farms (over 20%). Medium business lack programs on financing of innovations and new technologies (16%) and refinancing of credits (15.5%). Sole proprietors are distinguished by lack of anti-crisis microcrediting, loan guarantees and financing of women businesses (each by 21%). Table 26. What financial services you lack as an entrepreneur Medium enterprises, N=181 Small enterprises, N=348 SPs, Farms, N=360 N=93 Interest rates subsidies 21.5 20.1 11.9 25.8 Loan guarantees 14.9 16.1 20.6 20.4 Credit lines for a short-term (up to 6 months) needs (wage, emergency, seasonal works, equipment) 15.5 13.5 14.4 20.4 Anti-crisis microcrediting 11.6 10.0 21.4 14.0 Programs for exporters 13.3 6.0 5.3 26.9 Financing of the innovations and new technologies 16.0 11.8 8.1 11.8 Financing of the women small business 5.0 13.8 21.4 3.2 Anti-crisis prolongation of payout period 11.0 10.6 8.9 10.8 Refinancing of credits 15.5 7.2 9.2 2.2 Financing of the project on energy saving 3.9 4.0 1.1 3.2 Factoring of the small business in supply chain for large enterprises (crediting of the SMEs with safeguarding contracts from large enterprise) 3.9 2.6 1.4 3.2 Factoring (short-term crediting of suppliers) 3.3 0.9 1.7 0.0 Farmers mostly lack exporter programs (27%), interest rate subsidies (26%) and short-term credit lines (20%). 69
Damu Fund financial services Damu Fund with present name and structure was founded 5 years ago in 2007; however, it has been acting as Business Development Fund since 1997. Interesting thing is that out of 1,211 respondents, 41.5% said that they have not ever heard about financial programs of Damu Fund. Table 27. Awareness about Damu Fund. % N Did not hear about Damu Fund programs 41.5% 502 Heard and participated 8.9% 108 Heard, but did not participate 49.6% 601 Total 100% 1211 8.9% of respondents heard and participated in the program, 49.6% heard, but did not participate. It is reasonable that respondents are more often informed about conditional lending. Figure 34. Awareness and participation in Damu programs, N=241, % Heard and took part Heard Conditional crediting of SMEs via the banks Microcrediting of women Conditional crediting of SMEs via micro-crediting Interest rate subsidies Leasing for SMEs via second tier banks Loan guarantees Damu Regions prioritized projects Damu Ondiris for processing SME industries Financing of SMEs in small towns Regional financing of SMEs Conditional crediting of SMEs in Zhanaozen Direct financing of damaged enterprises in Zhanaozen Other 6.8 28.1 13.5 27.1 25.7 24.0 4.1 22.9 8.1 20.8 5.4 18.8 1.4 15.6 1.4 11.5 2.7 8.3 0.0 5.2 0.0 4.2 8.1 1.0 47.3 62.5 70
Table 28. Satisfaction with Damu services. % n DissКtisfied with DКmu services 19% 24 SКtisfied with DКmu services 81% 102 TotКl 100% 126 Unfortunately, only one hundred and twenty-six respondents answered the question about the satisfaction with Damu services positively: 81% satisfied and 19% dissatisfied. Due to small number of respondents it is impossible to review the statistics across the regions. Summary: accessibility of banks The most common administrative barrier is high interest rates (56.4%), followed by entrepreneurs feкr of Лecoming dependent on the bank (26%), and the long and complicated application and approval procedure (18%). The problems of high interest rates and lack of collateral result in the need to subsidize interest rates and loan guarantees (18.4%). Anti-crisis programs are also in short supply, such as anti-crisis micro crediting and short-term loans (15%), anti-crisis payment prolongation (10%), loan refinancing (9%), and the funding of female small businesses (14%). The need for funding innovations and new technologies was expressed by 11.5% of respondents, as well as the need for exporter support programs (9.3%) and energy saving (2.9%). Some entrepreneurs complained about the underestimated value of collateral by related appraisers (9.1%), the lack of useful connections in banks (6.5%), corruption (5.9%), and raiding (1.2%). Awareness about Damu Fund is measured at 58.5% out of 1,211 respondents: 41.5% said that they have never heard about the financial programs of Damu Fund, 8.9% have heard and participated in the program, and 49.6% have heard but did not participate. Reasonably, respondents are more often informed about conditional lending. Out of 126 respondents who answered the question on satisfaction, 81% were satisfied and 19% dissatisfied. During focus group discussions, the most popular financial institutions were mapped in regard to convenience, the availability of information, interest rates, and quality of services. Damu Fund has the best scores (8 and 8) for reasonable interest rates and quality of services. 71
Perception of financial institutions Content analysis of descriptions for financial institutions used by entrepreneurs showed their differences. The mкin positive chкrкcteristics were КttriЛuted to DКmu Fund: reкl КssistКnt, working for Лusiness people, trкining, leкsing, finкncing Кnd other. However, there were some uncomplimentкrв points: ЛureКucrКcв, non-stклle office, low КccessiЛilitв, severitв, emptв rhetoric. BКnk CenterCredit Кnd BTA got positive responses: progressiveness, reliклilitв, КccessiЛilitв (BКnkCenterCredit), Лig, fкvorite, solid, keeping time limits, (BTA), Лut Кlso mкnв negкtive opinions. Temir Bank, Nurbank, ATF bank, Kazkommerts got less positive and more negative responses. Table 29. Perception of financial institutions by entrepreneurs Positive Negative Accessible People Family Reliable Travel, sea, car, advertising Caspi Bank No perspective Sticky like a limpet Annoying, hanger-on, sening endless smses. Obtrusive to lend money to the solvent clients Dishonest, alluring proposals for lending High interest rate Named after Panikovsky (literature personage): swindle, cheat, greedy) Greedy: does not pay proper salaries Illusion BTA Big block Old Financing SME sector Abliazov (the former owner of the bank) Favorite I would not recommend this bank. They are not Evokes sympathy beneficial for small business. This bank is for rich. Solid Working conditions are hard there Hard, but keep the deadlines for Requirements are high, low accessible lending procedures. If promises to do Queues, everything in a week, then does it. Bad services, no trust to them Mortgages for housing and business Ruthlessly takes out last home used for mortgage collaterals if credits are not paid back Aliance Bank Works honestly. I love them. Very kind, generous. Long-term business, successful, accessible credits, money, well-known Consumer credits for home appliances Second rate It is possible to take money and not to pay back High interest rates Ruthlessly takes out last home used for mortgage collaterals if credits are not paid back Trust for pensioners Peoples, pensions State, reliable, gift giving For pensioners, civil servants Reliability, trust IPO Halyk Bank State within the state Long queues Alien Old No money Old technology, low computer transactions, everything is on paper, paper bureaucracy 72
Expensive services Hopeless bank Confused bank Kazcom stable Strange reliable Bank of philistine with a loud name self-confident Non-perspective Do not go there Merchant Too high interest rate Strict bank, crude bank Not for small business Expensive, non-reliable Centercredit active one specialist says one, other says another thing for SMEs rate is more or less mobility operative, progressive bank of workaholics presents many services for SMEs very polite with the clients reliability, accessibility fame convenience traditions warranty reliability money business Average bank much money, reliable accessible Try to work with people Connected to bread Capital Flour, land, rural development Agroproducts, Tsesna Astana Iron, impenetrable, reliable Credit, money, business ATF Bank ambitious sometimes appear, then again disappear always at the risk of bankruptcy not perspective comes in and goes away strict cruel people don t like them closeness, inaccessibility. Eurasian Bank Tsesna Bank inaccessible hкve heкrd КЛout it, Лut don t know where it is. unstable bank for rich people liars. They say about availability of credits for all, but in fact it is not so. Temir Bank Not stable at the bottom or at the top not decent racketeering, extortion 73
static nostalgia open hands reliable perspective old bank good bank, have worked with them. accessible development, success Kazakhstan Trust, stable Appliances, have heard finance group capital reliability young. Starting to work active Convenient work schedule. I went there about 7 p.m. and they were working yet, though other banks are closed after 6 pm. grain, flour leasing, agricultural equipment land, rent credits, privileges. not noble unbusinesslike hard rate (interest) is very high People don t like TemirЛКnk. There work temirs (iron men). I'm tired of working with them. May be my case is an extraordinary one. They constantly ask to update certificates. Six months have passed, tired of messing with this. They do not say specifically what they need. Today came to put an end. Sberbank of Russia according to work stupid (incoherent) interest is high begin to conquer market actively Russia goes on to Kazakhstan Soviet Union, MMM inaccessibility. NurBank Old bank, but without money, poor bank No perspective Fully fiction, depend on oil Corruption Have heard that cashier was beaten and something criminal took place there Bank of Nureke President s ЛКnk Metrokom Bank VTB High rates Constantly no money Do not trust Not stable Terrible bank It is the richest bank. They have millions. I ask for a loan of 100 thousand dollars. They say that they could give me 1 million. And they were not joking. It was really so. Don t know Russian bank High bank rate/interest unreliability Russia, unknown, no information, inaccessibility Kazagrofinance fкllow field Corruption instability JSC, that have profit from state money Self-employed 74
Agro-credit corporation State support Self-employed organization Leasing, farm, agricultural equipment, Far from people money, cattle, meat, grain, agronomist. ambitious lack of integrity someone was jailed. Fund of financial support of agriculture Corn Mystery Field The sign of radiation Agriculture development in general one can work with them, but they do not Benefits want to give a small amount of money. They are Farming only given large loans, small business afraid of Harvest receiving 10 mln.tenge new agricultural equipment In recent years, the last few years - they stopped national, state giving money. I've worked with them six months development. ago. Damu Head office instable office/organisation Thanks, that at least someone start to cheat pay attention to the rural areas, villages empty rhetoric: there is a flame but no heat get support. bureaucracy Educate free of charge not available, severe, majestic organization, in The most real, give orientation which entrance for unauthorized person is limited. charitable open, transparent: give us own plans, suggest to choose one business. Present their own projects Work for business Financing, refinancing, subsidizes Have trainings, leasing. н. Cheered up, without their help we would have closed. Support, information, training, credits, business plans, money, rise in business. Development Bank of Kazakhstan Prosperous future, peace and funding PвrКmid Kazakhstan, stability, reliability and Shady development. Mafia Something aggressive Masonic lodge Never heard I suppose that it is the Bank that should develop Kazakhstan, but I heard about it at first time. We really do have such? It is interesting whom they develop? Food Contract Corporation Agriculture monopoly Collective farm land of nod fed with bread prosperity food, flour, grain, bread, agricultural nothing comes to mind equipment, money, production, business. 75
Comparative characteristics of financial institutions Focus groups participants estimated financial institutions by a 10-point scale according to the characteristics that they consider the most important while rendering services and consequently forming image of financial institute. Convenience in service rendering/availability of information The difference in perception as of availability of information, and so of convenience in service rendering in Caspi Bank and Tsesna Bank is very striking with respect to all the others - a very high score for Caspi Bank (9;9), a very low ratings for Tsesna Bank (4;3). Damu Fund has middling ratings both for the convenience in service rendering (7) and for the availability of information (6). Note that namely according to the criteria - availability of information - the Fund conceded to all estimated banks, and is one of the three banks at the bottom, being ahead of only Tsesna Bank and Sberbank of Russia. Figure 35. Comparative characteristics of financial institutes according to the criteria: convenience in service rendering/availability of information 10 Information availability 9 8 7 6 5 6;9 9;9 5;8 6;8 5;7 6;7 7;6 5;5 4 3 4;3 2 1 1 2 3 4 5 6 7 8 9 10 Convenience in service rendering Halyk Bank, Centercredit, Kazkom and Home credit though having not high rates for the services rendering convenience (6), provide information to the customers at good enough level according to focus group discussion pкrticipкnts opinion. Home credit Bank has the highest score (9) among these banks. 76
The following banks Alliance Bank, BTA Bank, Sberbank of Russia have received comparatively low scores for service rendering convenience, 5 out of 10. But in terms of information availability the first two banks have relatively high scores. To summкriгe, let s hкve К look Кt the stкtements of focus-groups participкnts: Caspi bank and Home Credit have dynamic growth, the right marketing strategy and they are client-oriented ; Sberbank of Russia being a short time in Kazakhstan market, lack of information Кnd trust ; Alliance Bank - frequent changes in tariffs, many unnecessary innovations in terms of required documents ; Damu Fund not enough information, necessity to fill in many forms when you participate in their programs. Interest rate/quality of rendered service According to the criteria of interest rate/service quality focus group discussion participants considered Damu Fund as a financial institution with the most reasonable interest rates and good quality service. The Fund with 8 points for each criterion takes a leading position. Sberbank of Russia (3,3) has a very negative perception. KКгkomertsЛКnk hкs quite К positive imкge Лв the quкlitв of service (7 points) Кnd interest rates (6 points). Figure 36. Comparative characteristics of financial institutes according to the criteria: Interest rate/service quality 10 9 service quality 8 7 6 4;8 8;8 5;6 6;7 5 4 3 4;5 5,5 4;4 5;4 3;3 5;3 2 1 1 2 3 4 5 6 7 8 9 10 Interest rate 77
Alliance Bank, Tsesna bank, Center Credit bank and Home Credit bank focus group discussion participants- entrepreneurs associated with the banks with the average level of interest rates, but closer to high (5 points). In terms of service quality, these banks lined up one after another with Home Credit at the top (6 points), the rest step down with 1 point less and Alliance Bank with 3 points at the last stage. Bad image from the side of the interest rate have BTA Bank, Halyk Bank, Caspi Bank (by 4 scores). But in this group of banks Caspi Bank stands out of all with 8 points for service quality, that puts it on the same level with Fund Damu on this criterion. Statements of focus group discussion participants: Sberbank of Russia render services very slow, cases of incorrect payments, high interest rates; Kazkombank reliability and loyalty to the clients; Fund Damu operator of state programs, low interest rates because of state support. Model of ideal financial institution (IFI) During the focus group discussions entrepreneurs created a model of the ideal financial institution that meets the needs of the business. According to the opinion of entrepreneurs IFI should obtain following characteristics: Openness, transparency Efficiency (quickness) Competency Professionalism Accessibility (availability) Incorruptibility, honesty, anti-corruption It must provide financing, consulting and training services; have professionals in staff with high quality service, and to provide other additional services. All requirements for IFI and for the quality of services are prescribed in the figure below. 78
Figure 37. Model of the ideal finance institution (IFI) Openness, transparency, availability Efficiency, competency, professionalism Incorruptibility, probity, anti-corruption Funding Transparent competent assessment of the potential entrepreneur Minimum of documents Making easy getting a credit Long-term loans Minimal collateral Low interest rate Credit holidays Support business by grant Leasing Ideal Financial Institutio n Consulting /training Consulting consultation by qualified specialists Legal protection to customers Help in business start-up Call-center Support with advertising Training conducting Help in business planning HR data base for SME Partners data base both for Kazakhstan and abroad Service and staff Additional services Flexible work schedule of specialists Quickness, prompt service Politeness Professionalism, competency Willingness to help Provision of retail spaces, warehouses Provision of production spaces and equipment 79
Summary: Indicators for monitoring financial services Predominant use of personal money and financial instruments intended for individuals indicates low access to loans for small and individual entrepreneurs. Although the survey did not ask in what proportion each business uses personal or bank money, it is shown above that especially for small businesses these figures are comparable. According to our previous findings on bank lending 19 the average bank loan size in 2011 was 15,000 USD. This survey showed that 50% of entrepreneurs have got annual turnover below 50 thousand USD. In order to monitor improvements one can suggest both direct statistical indicators - a share of businesses that utilize one or the other type of financial tool, and indices that calculate a share of businesses that use personal finances to a share of businesses that received loans. It is necessary, however, to take into consideration a share of businesses that need loans out of total number of businesses, in our case it is only 32.3%, a good indication of credit need, which is often overestimated or underestimated. Another good indicator is the ratio of businesses that use loans to businesses that need them, this research this index is 0.85 (number of businesses needing loans - 32.3%, number of businesses that received loans 27.5%), i.e. 85% of businesses that need loans are satisfied. This index, however, varies depending on type of business: credit need satisfaction index (SI) among sole proprietors SI SP = 0.59, farms SI Farms = 0.71, small businesses SI SB = 0.96, medium business SI MB = 1.11, i.e. number of businesses that need loans is less than number of businesses that received loans (saturation). This index allows to even the difference in share ratios, and compare credit need satisfaction. The National Bank collects that information monthly 20, the only suggestion is to include in their sample some sole proprietors. Indicators that are used by the National Bank (share of businesses intending to get loans, for instance), do not allow to assess credit need satisfaction level. Besides, these indices do not differentiate businesses by type of business. It is also suggested to assess total credit need in absolute figures (billion tenge) to estimate the market need. Another alternative may be to calculate the difference between businesses that received loans and businesses that reported the need for loans, which in this chapter is used to assess lending satisfaction in the regions. This difference, measured in percents, could be disaggregated by regions to see which regions have better conditions for businesses. In our case indicator varies from minus 30 (Atyrau region) to plus 30 (Pavlodar region) for sole proprietors, and from minus 27 (North Kazakhstan) to plus 21 (East Kazakhstan) for small businesses. Bank accessibility and service quality index based on 5-point scale evaluation allows to rank banks and publish these dкte for ЛКnks clients. Another wкв to monitor these is to meкsure administrative barriers as a share of businesses indicating one or the other barrier, which not only allows to have a measuring tool but also rank certain banks. The most frequently mentioned barrier currently is high interest rates 56.4%. 19 Accessibility of bank lending services. Sange Research Center, 2012, 64 pages. 20 (http://www.nationalbank.kz/?docid=883) 80
A similar indicator the share of entrepreneurs indicating lack of certain type of services. This could be a good reference to broaden the spectrum of financial services. As this research showed, businesses are equally interested in subsidising interest rates and guaranteed crediting/loans (18% each). It is necessary to use awareness about financial institutions and their programs as an indicator and aim at increasing awareness, in particular, about the Damu fund programs, by at least 60%. It is also necessary to measure a share of businesses satisfied with financial assistance provision procedures, which, however, should not be measured by financial organizations themselves but by independent researchers. Satisfaction level with financial services of the Damu fund is 81%. Besides financial institutions, at the end of the business period may want to assess how their loan or other financial assistance has affected businesses, i.e. profit, sales, increase in assets, profitability, turnover, as well as indicators of quality and quantity of workforce, use of technology and so on. These indicators should be aggregated by type of business medium business, small business, SPs and farms. 81
Needs in Nonfinancial services To the question WhКt difficulties вou experience when receive informкtionкl, consulting or trкining services, 30% of respondents stated that they do not need such services. The reasons are not clear, but the response can be interpreted as they do not have any difficulties in getting informational, consulting or training services. Figure 38. Difficulties in receiving nonfinancial services, % I do not need such services Services do not meet my needs No information about such services Services are not provided in my settlement Nobody provides this service No information about suppliers of such services Too expensive Low organizational quality of services Transport and accommodation is expensive Information is not practical Low quality of specialists providing services The language is difficult Information provided is out of date Other 10.2% 9.3% 8.8% 8.6% 7.7% 4.6% 3.3% 2.6% 1.9% 1.3% 1.2% 1.0% 9.6% 29.9% Dissatisfaction of entrepreneurs is concluded in the inconsistencв of services Кnd entrepreneurs needs (10.2%), the absence of information on such services (9.3%), the service absence in definite settlement (8.8%) or the absence of service itself (8.6%). In the table below needs are marked with checkmarks and satisfied informational needs are circled. For example, though training, for instance, were held by new technologies, the need relates to obtaining of information and consultancy on technologies. Concurrence of needs and supply in the market of these services is observed in participation in tenders consultancy and training are necessary, they are held, the same is related to tax, accounting services and financial reporting. The need for knowledge and skill in state programs, seminars and prohibitions is completely dissatisfied. 82
Table 30. Need for nonfinancial service maintenance Information Consultations Trainings New technologies Promotion, advertisement Seminars, exhibitions State program support Market survey Assistance in capital provision Tax, accounting, financial reporting Customs procedures, tariffs Participation in tenders Labor legislation Management, business planning Information services suppliers Figure 39. Information providers for entrepreneurs, N=1543, % Tax Dept/ Committee Akimat Advertising companies Damu Fund (branch office) Other Business Associations Accountants/ auditors SME development Committee Research institutions, centers Consulting companies Employment centers Legal consulting companies Customs Committee Banks and financial institutions Damu Fund (head office) Chamber of Commerce Call-center of Damu Donors projects 1.4 2.5 9.6 8.9 8.6 8.3 7.2 6.2 5.5 5.3 15.1 14.7 13.7 11.8 17.7 23.7 26.3 27.3 83
Surveys repeatedly show that the information, presented in the suitable and accessible form with minimum time loss is the most important aspect for the entrepreneur. Consultations and training are also requested, but less due to heavy time losses. Consulting services providers Consultations require the use of an individual approach and situational analysis. The complexity of fiscal legislation and, probably, ambiguous definitions generate demand for consulting by revenue services, accountants and auditors. Tax departments provide with free consultations on various issues, therefore, they dominate among other service providers (25.8%), 16.5% of responders receive private consultations. The follows akimats (18.9%) and business associations (16.5%). 13.6% of entrepreneurs use legal consulting. The consulting mechanism is used less in chambers of commerce and industry, customs services and banks. Figure 40. Consulting services providers, N=1260, % Tax Dept/ Committee Akimat Accountants/ auditors Business Associations Advertising companies Legal consulting companies Damu Fund (branch office) Other Consulting companies SME development Committee Employment centers Damu Fund (head office) Research institutions, centers Banks and other fin. institutions Customs Committee Chamber of Commerce Call-center of Damu Donors projects 0.4 1.9 9.7 8.5 8.5 7.7 7.2 6.9 6.3 5.8 5.4 16.5 16.5 15.1 13.6 13.1 18.9 25.8 84
Training providers Figure 41. Training providers, N=885, % Damu Fund (branch office) Tax Dept/ Committee Business Associations Consulting companies Other Advertising companies SME development Committee Akimat Damu Fund (head office) Research institutions, centers Accountants/ auditors Legal consulting companies Chamber of Commerce Banks and other fin.institutions Employment centers Customs Committee Call-center of Damu Donors projects 1.1 7.7 6.2 4.9 4.9 3.8 3.4 16.2 15.6 14.7 13.9 12.6 12.6 12.6 11.5 10.5 9.6 27.1 Damu Fund branches were first by frequency of training mentioning 27.1%, the follows revenue services (16.2%) and business associations (15.6%). Consulting companies (14.7%), business development committees and akimats 12.6% also have sufficiently large shares. There are differences in training needs between men and women. Table 31. Entrepreneurs needs for training subjects by gender, % male female mean Management (growth and development) 16.5 24.9 20.7 New technologies, innovations 20.3 16.9 18.6 Business planning 15.8 20.4 18.1 Promotion and advertising 16.5 19.6 18.1 Market survey/marketing 16.3 16.0 16.2 State program support 12.7 14.4 13.6 Tax regimes for SME 9.6 16.3 13.0 Accounting procedures, methodology 13.4 11.6 12.5 Assistance in capital provision 12.2 12.7 12.5 Seminars, prohibitions and business fairs 10.8 13.3 12.1 Financial reporting 10.8 12.7 11.8 Changes in legislation for SME 8.6 13.3 11.0 Attendance in contents, tenders 9.6 11.0 10.3 Women entrepreneurs needs in trкining Кre more distinct thкn men s, women Кre involved almost in all spheres, except for new technologies and innovations and accounting procedures, in which men are more interested than women. 85
Only 25% of entrepreneurs participated in training this year. Training topics are presented in descending order. Gender differences are also strongly marked under the higher involvement of women. Table 32. Training topics by gender Male Female Average Business planning 12.0 18.5 15.3 Management 10.8 19.2 15.0 Accounting procedures 15.2 13.0 14.1 Market survey/marketing 8.9 10.3 9.6 Seminars, prohibitions and fairs 5.7 11.0 8.4 Financial reporting 7.6 8.2 7.9 State program support 6.3 9.6 8.0 Tax regimes for SME 8.2 6.8 7.5 Human resources management 8.2 6.8 7.5 New technologies, innovations 8.9 3.4 6.2 Table 33. Main reasons when choosing a provider Information Consultations Trainings The onlв provider The onlв provider known known to me to me Closelв locкted PersonКl contкct Experienced Good reputкtion Competent Competent PersuКsive Кdvertisement Experienced The onlв service provider Experienced The onlв service provider SКtisfied with previous services Provider is mв КcquКintКnce SКtisfied with previous services PersonКl contкct PersonКl contкct Low price Corresponds with the needs Corresponds with the needs The choice of the provider depends on the service form. In order to obtain information or consultations it is important to have information on the service provider in available and popular sources (announcements, ads, Internet, directories, etc) and in the form, which would point at competent and skilled professionals. The image should be confirmed be excellent services to make entrepreneur to refer to him again. Low price is not the key requirement, it at the 7 th place by information and lower by other aspects. The main reason in the choice of provider is his close location in order to exclude time, transport and accommodation losses. In addition not all entrepreneurs may leave the business for a long time. OrgКniгКtion s good reputкtion Кnd persuкsive Кdvertising, work experience Кnd personкl contact are also of high importance. 86
Summary: non-financial services needs The survey assessed the need for non-financial services (information, consulting or training). 17% respondents complain that there is no information about such services or suppliers, 10.2% say that the services do not meet the need, and 8.8% say that such services are not provided in their settlements. Only 4.6% report that such services are too expensive, and 2.6% say that transportation of accommodation is expensive. Surveys repeatedly show that information presented in a suitable and accessible form, with minimum time lost, is the most important aspect for the entrepreneur. Consultations and training are also requested, but less so, due to their heavy time-loss. Unmet needs for information services are in new technologies, state support programs, conducting of seminars, customs procedures and tariffs, labor legislation, and management and business planning. Unmet consultation needs are in new technologies and state program support. Unmet training needs are in promotion and advertising, conducting of seminars and exhibitions, and state support programs. Tax services are the leaders among information services providers for entrepreneurs (27.3%). These services distribute information for entrepreneurs via the internet, through the tкxpквers virtual office, on the website www.salyk.kz, by booklets, and by telephone. In addition, the special consulting post of moderator has been created. Following tax services are akimats [the seat of local government in a town or city] (26.3%), Damu Fund (17.7%), and business associations (14.7%). Banks and other financial organizations are deemed as information services providers for only 6.2% of entrepreneurs. 87
Damu nonfinancial programs The profile of Damu non-financial services clients In order to assess the Damu Fund non-financial programs, entrepreneurs who had used Fund services previously were surveyed; they were asked to assess the work of www.damu.kz website, call-centers and Business Road Map 2020 tools such as Service Support, Business Advisor and Business Links. Total of 401 program participants from 16 regions were surveyed. The survey was conducted among business owners (76%), their deputies and other management personnel (24%). Table 34. Number of surveyed participants of Damu Fund nonfinancial programs Damu Fund programs Regions Business Advisor Service Support Business Links Top managers training Damu Komek Total Astana city 11 4 14 10 0 33 Almaty city 8 7 6 5 0 26 Akmola 2 8 7 7 1 25 Aktobe 8 13 3 0 0 24 Almaty 6 7 6 6 0 25 Atyrau 6 9 6 4 0 25 East 2 10 6 9 0 22 Kazakhstan Zhambyl 6 7 6 6 0 25 West 3 2 8 13 0 25 Kazakhstan Karagandy 9 4 8 4 0 25 Kostanai 7 6 6 6 0 25 yzylorda 16 4 5 1 0 25 Mangystau 3 5 9 4 0 21 Pavlodar 6 7 6 6 0 25 North 6 7 6 6 0 25 Kazakhstan South 6 7 6 6 0 25 Kazakhstan Kazakhstan 103 106 107 93 1 401 Majority of surveyed non-financial program participants operate in wholesale and retail (18.3%) services (13.1%), agriculture, forestry and fishing industry (11.3%), which are the leading business areas in Kazakhstan. Enterprises operating in food production (5.9%), textile and garment manufacture (5.7%) and construction (5.2%) have small shares among respondents. SME production activity in Kazakhstan is underdeveloped and it would be useful to attract more enterprises to participate in Damu Fund programs. Shares of other business areas in sampling are insignificant. 88
Table 35. Damu Fund nonfinancial programs participants activity areas, % of respondents, N-401 SME activity % Wholesale and retail 18.3 Other services 13.1 Agriculture, forestry and fishing industry 11.3 Food, beverage and tobacco production 5.9 Textile and garment manufacture 5.7 Construction 5.2 Healthcare and social services 4.9 Transportation, warehousing and transport repair 4.6 Information and communications 3.4 Furniture 3.4 Education 2.8 Construction materials production 2.8 Professional, scientific and technical activity 2.6 Art, entertainment, leisure and tourism 2.6 Accommodation and food services 2.1 Machine industry and electric appliances and computers 1.5 Paper-making and publishing 1.3 Metal goods production, except for machine industry 1.3 Machines and equipment installation and repair 1.3 Real estate activities 1.0 Pharmaceutics 1.0 Water supply; sewerage system, waste collection and distribution control 0.8 Administrative and auxiliary services 0.8 Power, gas, steam supply and air conditioning 0.5 Processing industry 0.5 Chemical industry 0.5 Rubber and plastic goods production 0.5 Mining and working of quarries 0.3 Financial and insurance activity 0.3 Leather and related products manufacture 0.3 Wooden, cork, rattan items production, except of furniture 0.3 Metallurgy 0.3 There are two groups of main Fund service users: sole proprietors (43%) and limited liability partnerships (LLP) (49%). Shares of other types of entrepreneurs (cooperatives -1%, joint ventures -1%, agricultural enterprises - 2%) are small, but the share of farms is comparatively high (5%). Figure 42. Types of entrepreneurs who are Damu Fund programs participants, N=401 Cooperatives, 1% Joint ventures, 1% Agro-enterprise, 2% Farms, 5% SPs, 43% LLPs, 49% 89
Gender-wise women dominate among Damu Fund programs participants (53% vs. 47%), while according to SME research results the share of men among entrepreneurs is higher (54% vs. 46%). Perhaps, women are more interested in training and obtaining new information. Age-wise participants are mostly represented in two age groups: 30-39 years old (32%) and 40-49 years old (26%). Younger and older entrepreneurs have equal shares (20 % and 22%). Figure 43. Age groups of entrepreneurs who are Damu Fund programs participants, N=401 20% 22% 26% 32% 50 years old and over 40-49 years old 30-39 years old 20-29 years old 0 5 10 15 20 25 30 35 Damu Fund website and call center According to the survey results, less than half of non-financial program participants use www.damu.kz website (43%); other participants are informed about the website, but have never used it and are not able to assess its work (42%). It should be noted that 15% of respondents have heard nothing about www.damu.kz website. It illustrates the fact that even participation in Damu Fund programs does not provide complete information about Fund resources. Figure 44. Have you ever used Damu Fund website?, %, N=378 15% 43% not informed informed, but have not use 42% have used 90
LLP representatives (51.1%) and various cooperatives, institutions, joint ventures and others are the active website users (50%). Agricultural enterprises (32%) and farms (12%) are less informed about the website. Figure 45. Entrepreneurs awareness about Damu Fund website across enterprises, % of respondents Have you ever used Damu Fund website? LLP (N=1478) 12.4 36.5 51.1 SP (N=146) 17.1 45.9 37 Cooperatives, joint ventures, institutions and etc (N=16) 6.3 43.8 50 Agricultural enterprises and farms (N=25) 32 56 12 not informed informed, but have not used have used In regional cross, website users are mostly located in Almaty city (85%), Karagandy region (78%), Astana city (69%) and West Kazakhstan region (55%). It is necessary to inform the participants in Almaty Region (71%), South Kazakhstan Region (32%), Mangystau Region (19%) and Kostanai Region (17%), where the share of uninformed participants is substantially high. Table 36. Entrepreneurs awareness about Damu Fund website www.damu.kz, N=378 Have you ever used Damu Fund website? Regions Not Informed, but informed have not used Have used 1 Astana city 13 19 69 2 Almaty city 4 12 85 3 Akmola 8 68 24 4 Aktobe 17 38 46 5 Almaty 71 29 6 Atyrau 12 44 44 7 East Kazakhstan 10 48 43 8 Zhambyl 8 56 36 9 West Kazakhstan 14 32 55 10 Karagandy 22 78 11 Kostanai 17 33 50 12 Kyzylorda 4 48 48 13 Mangystau 19 62 19 14 Pavlodar 4 56 40 15 North Kazakhstan 8 52 40 16 South Kazakhstan 32 52 16 Kazakhstan 15 42 43 Respondents more familiar with the resource work were able to provide a more detailed assessment. According to obtained data, the majority of respondents were fairly satisfied with all assessment parameters. The majority of respondents is satisfied with font size, convenience (90%), language choice (88%), simplicity and clarity of presentation (84%), information integrity (83%) and etc. The share of unsatisfied respondents is relatively high with respect to 91
three aspects: availability of feedback (6%), up-to-date information (6%) and availability of online forum (7%). Figure 46. Satisfaction with the quality of certain aspects of www.damu.kz website, % of respondents, N=171 Feedback 72 6 22 Up-to-date Information 74 6 20 Availability of online forum 75 7 19 Ease of navigation 75 3 21 Information utility 79 4 17 Information integrity 83 4 13 Simplicity and clarity of presentation 84 5 11 Language choice (Kaz-Rus) 88 2 10 Font size, convenience 90 2 8 Satisfied Incompletely satisfied Dissatisfied There are interactive services at the Damu site since January 2012, while from June 2012 the feedback system has been installed; all this should substantially increase the level of satisfaction with feedback. The data analysis across regions is complicated because of the small number of respondents who have assessed the website content. Nevertheless, this data allows us to determine main tendencies and needs in each region. If we outline the share of respondents unsatisfied by certain aspects of the website across regions, we can see that with the smallest share of respondents unsatisfied with the availability of feedback is in Akmola region (44%), information integrity in Aktobe region (45%), up-to-date information (44%), availability of feedback (33%) and online forum (33%) in East Kazakhstan region, ease of navigation (33%) and availability of feedback (27%) in Kyzylorda region. The situкtion with the Fund customers КwКreness КЛout cкll centers is much Лetter. 74% of respondents stated that they have used call center services and the share of satisfied respondents is 70%. Probably, the main reason for that is that, for some respondents, telephone communication is a more available and familiar resource than an Internet page. The share of respondents not quite satisfied (18%) or completely dissatisfied with call center services (12%) should be taken into account in order to improve the quality of work. Despite the fact that the share of such respondents is small, this data indicates that there are weaknesses in the call center operations. 92
Table 37. Satisfaction with certain aspects of website by regions, % of respondents, N=378 Information utility Up-to-date information Information integrity Ease of navigation Simplicity and clarity of presentation Language choice (Kaz- Rus) Font size, convenience Availability of feedback Availability of online forum 1 Astana city 74 68 95 86 90 90 95 80 79 2 Almaty city 91 76 73 64 82 91 91 83 87 3 Akmola 67 75 88 38 75 78 89 44-4 Aktobe 55 55 45 55 55 55 55 55 55 5 Almaty - - - - - - - - - 6 Atyrau 85 92 92 92 100 100 100 85 100 7 East Kazakhstan 78 44 78 67 89 89 100 33 33 8 Zhambyl 88 100 100 86 100 100 100 83 100 9 West Kazakhstan 77 77 75 77 79 85 85 75 83 10 Karagandy 57 57 71 71 57 83 86 67 75 11 Kostanai 100 100 100 100 100 100 100 92 91 12 Kyzylorda 69 43 58 33 62 64 55 27 45 13 Mangystau 100 100 100 100 100 75 100 100 100 14 Pavlodar 100 100 100 100 100 100 100 100 100 North Kazakhstan 70 70 90 90 90 100 100 80 100 South Kazakhstan 75 75 100 100 100 100 100 67 67 Figure 47.Use of call centers as a source of information and satisfaction with its operation, % of respondents Have you ever used Damu Fund callcenter services?, N=397 74 26 Are you satisfied with call center services?, N=114 Dissatisfied, 12% Not quite satisfied, 18% Yes No Satisfied, 70% By regions the share of respondents who have used call centers services differs. The smallest share of respondents is observed in Astana city (9%), East Kazakhstan region (5%), Almaty region (12%) and South Kazakhstan region (12%). More active respondents are in Almaty city (62%) and Akmola region (68%) where the majority has the experience in contacting call centers. 93
Table 38. Share of call center users across regions, % of respondents, N=397 Have you ever used Damu Fund callcenter services? No Yes 1 Astana city 91 9 2 Almaty city 38 62 3 Akmola 32 68 4 Aktobe 79 21 5 Almaty 88 12 6 Atyrau 84 16 7 East Kazakhstan 95 5 8 Zhambyl 70 30 9 West Kazakhstan 70 30 10 Karagandy 80 20 11 Kostanai 68 32 12 Kyzylorda 72 28 13 Mangystau 76 24 14 Pavlodar 76 24 15 North Kazakhstan 80 20 16 South Kazakhstan 88 12 Kazakhstan 74 26 LLPs (27.7%) and sole proprietors (27.7%) are among the most active users of call center services. The share of agricultural enterprises and farms (8%) is the smallest among call center service users. Apparently, there is a need to work with this category of clients whose need in informational support is not less than that of other entrepreneurs. Figure 48. Call centers users across various enterprises, % of respondents Have you ever used Damu Fund call center services? LLP (N=191) 72.3 27.7 SP (N=152) 73 27 No Cooperative, joint venture, institutions, and etc. (N=16) 81.3 18.8 Yes Agricultural enterprises and farms (N=25) 92 8 Satisfaction with call center services varies across regions as well. All respondents are satisfied in Astana city (100%), East Kazakhstan (100%), Kostanai (100%), Pavlodar (100%) and North Kazakhstan (100%) regions, but it should be noted that the share of respondents in these regions who have contacted call centers is small and does not enable us to make clear conclusions. The share of respondents dissatisfied with call center services is large in other regions: Aktobe (20%), West Kazakhstan (30%), Kyzylorda (27%), Mangystau (40%) and South Kazakhstan (25%) regions. There are fewer unsatisfied respondents in Akmola (6%) and Zhambyl (13%) regions. 94
Table 39. Satisfaction with call center services across regions, % of respondents, N=114 Are you generally satisfied with the call center services? Not quite Dissatisfied satisfied Yes 1 Astana city 100 2 Almaty city 13 88 3 Akmola 6 22 72 4 Aktobe 20 80 5 Almaty 33 67 6 Atyrau 50 50 7 East Kazakhstan 100 8 Zhambyl 13 13 75 9 West Kazakhstan 30 20 50 10 Karagandy 40 60 11 Kostanai 100 12 Kyzylorda 27 40 33 13 Mangystau 40 20 40 14 Pavlodar 100 15 North Kazakhstan 100 16 South Kazakhstan 25 75 Kazakhstan 12 18 70 Assessment of certain aspects of call center operations shows that most respondents that have used these services are generally satisfied. Most positive respondents noted operator politeness (88%). Positive responses on other aspects (waiting for response, received information, expert s competence, redial time, and operator s and expert s willingness to help) have common range: 73% - 77%. The share of dissatisfied entrepreneurs can be more informative for service quality improvement, and in this regard special attention should be paid to the following items: waiting for response, received information, expert s competence, that were negatively assessed by a considerable share of the respondents (20%, 16%, and 18% accordingly). Figure 49. Satisfaction with certain aspects of call center services, % of respondents, N=114 Waiting for a response when call is transferred to an expert 73 20 7 Completeness and relevantness of received information 74 16 11 Expert's competence 76 18 6 Redial time, waiting for a response 76 14 10 Operator's and expert's willingness to help 77 15 8 Operator's politeness 88 8 4 0 20 40 60 80 100 Satisfied Not quite satisfied Dissatisfied 95
Across regions, more than half of respondents were satisfied with all aspects of call center operations, except for certain regions. The share of respondents satisfied with redial time and waiting for a response in Akmola is lower than in other regions (39% and 33%). Share of respondents satisfied with experts competence is relatively low in Kyzylorda region (43%). The best situation is in East Kazakhstan, Zhambyl, Kostanai, Pavlodar, North Kazakhstan and South Kazakhstan regions, where all respondents are satisfied with most aspects (100%). Table 40. Satisfaction with the quality of certain aspects of call center services in regions, % of respondents N=114 Redial time, waiting for a response Completeness and relevance of received information Operator s politeness Waiting for a response when transferring the call to an expert OperКtor s Кnd expert s willingness to help 1 Astana city 67 67 67 50 50 67 2 Almaty city 87 81 88 75 81 75 3 Akmola 39 56 88 33 72 72 4 Aktobe 80 80 80 80 80 80 5 Almaty 67 67 67 67 67 67 6 Atyrau 75 75 100 100 75 75 7 East Kazakhstan 100 100 100 100 100 100 8 Zhambyl 100 86 100 100 100 88 9 West Kazakhstan 56 56 67 50 50 60 10 Karagandy 100 80 100 75 60 80 11 Kostanai 100 100 100 100 100 100 12 Kyzylorda 67 67 71 71 50 43 13 Mangystau 80 60 80 60 60 40 14 Pavlodar 83 83 100 100 100 100 15 North Kazakhstan 100 80 100 100 100 100 16 South Kazakhstan 100 67 100 100 100 100 Expert s competence Business Roadmap 2020 Instruments Fourth direction of the Business Roadmap Program is concentrated on 1. Outsourcing of Accompanying services for small business (accounting, legal advice, marketing, etc.); 2. Training of top-managers of small and medium sized businesses; 3. Establishing business links in other countries to modernize and expand production; 4. Qualificaiton improvement on the highly demanded specialties Services offered under the Accompanying Service Support program were assessed on 5 point scale for several aspects: Relevance to business needs; Quality of provided services; Utility, practicality (to use for better productivity). 96
All parameters for all the services offered to entrepreneurs under the Accompanying Service Support were assessed and the results in general demonstrated that these services are assessed pretty well. Such areas of Service Support as marketing services (market analysis, business plan development, pricing policy) got relatively high scores for quality (4.5 points) and utility (4.4 points), management system, certification for quality (4.4 points), government procurement services for utility (4.4 points). Customs procedures got relatively low score for utility parameter (3.8 points). Table 41. Assessment of Service Support (average score on 5 score scale) Areas Relevance to business Quality Utility N (number of respondents ) 1 Accounts, tax, and statistical reporting 4.2 4.2 4.1 97 2 Customs procedures 4.1 4 3.8 38 3 Management systems, certification 4.3 4.4 4.3 61 4 Legal services 4.2 4.3 4.2 79 5 Marketing (market analysis, business 4.3 4.5 4.4 90 plan, pricing policy, and etc.) 6 IT maintenance services 4.3 4.2 4.3 60 7 Public purchasing services 4.3 4.3 4.4 50 The research also assessed how support provided under the Service Support affected existing businesses. The assessment was conducted by the following attributes: Impact on certain areas; Change in profit; Change in tax payments; Job creation. Based on the share of those who mentioned a positive impact, the support mostly affected specific areas. This is particularly applicable to IT maintenance services (90%), legal (89%) and marketing services (87%), accounting, tax, and statistical reporting (86%). The lowest impact was on job creation which has the lowest number of positive mentions in all areas. Government procurement services and customs procedures has the lowest positive effect on all aspects of enterprises. Table 42. Assessment of the impact of certain areas of Accompanying Service Support on existing business, % of respondents that have mentioned positive impact Areas 1 Accounting, tax and statistical reporting Operation of Change in Change in tax Job N certain areas profit payments creation 86 69 63 36 102 2 Customs procedures and tariffs 58 50 38 27 40 3 Management systems, certification 83 63 34 39 66 4 Legal services 89 68 48 45 81 5 Marketing (market analysis, business 87 77 48 48 92 plan, pricing policy) 6 IT maintenance services 90 63 46 42 62 7 Public purchasing services 75 72 53 47 48 97
Business Advisor program services have also been assessed on a 5 score scale for conformity to requirements, quality of training and course organization. Three program areas have been assessed: 1. Express course for beginning entrepreneurs, 2. Express course for current entrepreneurs, 3. Manuals and handouts on doing business. Average scores for the program are higher than that of Service Support and all parameters got high scores. Quality of training and course organization have been highly assessed and the average for all three areas was 4.6 points. Table 43. Assessment of Business Advisor program services (average score on a 5 score scale) Areas Relevance to business Quality of training Course organization N (number of respondents) 1 Express course for beginning 4.4 4.6 4.6 90 entrepreneurs 2 Express course for current 4.5 4.6 4.6 70 entrepreneurs 3 Manuals and handouts on doing business 4.4 4.6 4.6 100 The above-mentioned areas differ by their level of positive impact on business. Express course for current entrepreneurs is the most effective based on this indicator; 91% of respondents assessed its positive effect. The positive effects of Express course for beginning entrepreneurs (86%) and manuals (80%) are mention to a lesser extent. But generally, most entrepreneurs highlighted the positive effect each of these areas has on the business, which demonstrates the effectiveness of Business Advisor program in general. Figure 50. Assessment of impact of Business Advisor program, % of respondents that have mentioned the positive impact on business (across regions) 91 86 80 Express course for beginning entrepreneurs Express course for current entrepreneurs Manuals and handouts on doing business 98
Table 44. Assessment of Business Advisor program, absolute figures by regions and %. Express-course for beginners Express-course for acting entrepreneurs Small business guides, textbooks, handouts Mean of three services Satisfied Total Satisfied Total Satisfied Total Satisfied, % Astana city 6 8 2 2 4 5 80.0 Almaty city 11 13 6 7 10 11 87.1 Akmola 0 1 2 3 0 1 40.0 Aktobe 5 8 6 8 5 8 66.7 Almaty 4 4 2 2 0 0 100.0 Atyrau 3 3 1 1 3 5 77.8 East Kaz 0 0 4 4 3 3 100.0 Zhambyl 8 8 4 4 6 7 94.7 West Kaz 1 1 6 6 3 3 100.0 Karagandy 4 5 7 7 5 5 94.1 Kostanai 6 6 0 0 5 6 91.7 Kyzylorda 14 14 11 11 17 17 100.0 Mangistau 6 7 7 7 7 8 90.9 Pavlodar 4 4 1 2 4 5 81.8 North Kaz 2 4 2 2 2 6 50.0 South Kaz 2 2 3 4 3 6 66.7 Total 76 88 64 70 77 96 85.4 Since the sample for this program was limited, the table presents absolute figures, not percentage. There were no respondents in one of three services in East Kazakhstan and Kostanai regions. The higher satisfaction (or lower criticism) is registered in Kyzylorda, Almaty, West Kazakhstan and Zhambyl regions (94-100%). The lower number of satisfied is found in Akmola, Aktobe, North Kazakhstan and South Kazakhstan (40-67%), however, it should be stressed that broken sample does not provide statistically reliable comparisons. Assessment of impact of Business Advisor program content on the existing business was conducted on impact on certain areas, change in profit, change in tax payments, and job creation. According to the respondents opinions, informкtion received under the progrкm mostlв hкd К positive impact on these aspects. The exception is Franchising section; its positive impact on these aspects is mentioned less frequently. Operation of certain areas is notably affected by such program sections as Introduction to Entrepreneurial Psychology (82%), Business Planning, (80%) and Finances for Entrepreneurs (76%). Most entrepreneurs also mention a positive effect on change in profit, especially in Finances for Entrepreneurs (70%) and Marketing in entrepreneurship (67%) sections. Change in tax payments is effected less but half of respondents mentioned it in some items: Finances for Entrepreneurs (60%), Marketing in Entrepreneurship (53%), Market Capacity Analysis (52%), and etc. The effect on job creation is noted by less than half of entrepreneurs, except for the Human Resources Management section the positive effect of which was noted by 51%. 99
Table 45. Assessment of impact of Business Advisor program, % of respondents that have mentioned a positive impact on business Areas Jobs Impact on the operation of certain areas Change in profit Change in tax payments 82 62 52 42 1 Introduction to entrepreneurial psychology 2 Legal aspects of entrepreneurship 75 56 51 41 3 Business planning 80 64 52 35 4 Marketing in entrepreneurship 74 67 53 36 5 Human resources management 72 64 50 51 6 Finances for entrepreneurs 76 70 60 46 7 Market capacity analysis 69 64 52 40 8 Risks 66 55 41 31 9 Information and communications 69 61 49 44 technologies for business 10 Franchising 30 14 15 10 Under the Business Links program Training and Methodical Support, and Internship Abroad areas have been assessed on a 5 score scale by the following attributes: Relevance to business; TrКiner s/pкrtner s quality; Course organization. The obtained data shows that entrepreneurs that obtained services in Training and Methodical Support give the program performance a higher score than those in Internship Abroad - trainer quality (4.6), course organization (4.6), conformity to requirements (4.4); participants in Internship Abroad section give higher scores to course organization (4.4) and conformity to requirements (4.2) Кnd less to trкiner s/pкrtner s quкlitв (4.1). Table 46. Assessment of Business Links program, average score on 5 point scale Areas Relevance to business Trainer s/partner s quality Course organization N (number of res-s) Training and Methodological Support 4.4 4.6 4.6 118 Internship Abroad 4.2 4.1 4.4 17 The impact of Business Links program on business was assessed as follows: impact on business in general, on the operation of certain areas, on change in profits, tax payments and jobs creation. When sepкrкting the entrepreneurs who noted the positive progrкm impкct Кs stкted КЛove, it s clear that most respondents gave positive assessment for Training and Methodical Support in business in general (81%), operations in certain areas (77%). Positive impact was also detected by some entrepreneurs among other attributes: on change in profit (58%), on jobs creation (49%) and less often on changes in tax payments (45%). The positive impact of Internships Abroad by all the selected attributes is mentioned by less than half of respondents, more respondents noted the impact on business in general (47%), change in 100
profit (44%), operations in certain areas (42%). The positive impact on jobs creation (34%), changes in tax payments (29%) is mentioned less often. Table 47. Assessment of impact of Business Links program, % of respondents who have mentioned a positive impact on business Training and Methodological Support Impact on business in general On the operation of certain areas On change in protit On change in tax payments On jobs creation 81 77 58 45 49 Internships Abroad 47 42 44 29 34 The quality of admissions to the Business Links program was assessed by the following attributes: DКmu Fund emploвees competencв; Admissions transparency; Impartiality; Validity and understandability of admissions criteria. Fund employees s competency (4.6) gained the highest score, admissions transparency (4.4) and impartiality (4.4) got equal scores, and validity and understandability of admissions criteria (4.3) got lower scores. Figure 51. Assessment of the quality of admissions to Business Links program, average score on 5 point scale, N=126 4.6 4.4 4.4 4.3 Damu Fund employees' competency Admissions transparency Impartiality Validity and understandability of admissions criteria Entrepreneurs that received Business Links services participate more often for technologies transfer and equipment acquisition (85%), mutual supply of goods, works and services (73%), joint ventures (69%) and cooperation agreements with foreign partners (68%). International and foreign organization grants (56%) and franchise (55%) are less frequently mentioned as the reason for participation. The following indicators have been used to assess how successful were entrepreneurs in achieving the specified goals: achieved; a goal is in process, good prospects; moving hardly; not achieved. 101
Table 48. Success in achieving the goals under Business Links program, %, N=126 Goals for participation in Business Links program % 1 Technologies transfer and equipment acquisition 85 2 Mutual supply of goods, works and services 73 3 Joint venture 69 4 Cooperation agreements with foreign partners 68 5 International and foreign organization grants 56 6 Franchising 55 According to the data obtained,, less than half of respondents achieved these goals. Entrepreneurs aiming at technology transfer and acquisition of equipment (27%), mutual supply of goods, works and services (22%) and cooperation agreements with foreign partners (18%) were relatively successful in achieving their goals. Entrepreneurs focused on mutual supply of goods (45%), and technology transfer (33%), franchise (35%), joint venture, and (30%) cooperation agreements (26%) are in process and have good prospects. One of the hardest goals to achieve is International and foreign organization grants and establishment of joint venture, thus, most entrepreneurs did not succeed (66% and 57%) Table 49. Success in achieving the Business Links program goals, %, N=126 In process, Not achieved Moving hardly Goal good prospects Achieved Technology transfer and acquisition of equipment 34 6 33 27 Mutual supply of goods, works and services 25 8 45 22 Franchise 49 13 35 4 International and foreign organization grants 66 11 20 4 Establishment of joint ventures 57 12 30 1 Cooperation agreements with foreign partners 37 19 26 18 Thus, the survey of Damu Fund nonfinancial programs participants showed that, in general, the services were assessed positively by entrepreneurs, but certain aspects of rendered services should be improved and need a more detailed approach. Service receivers seek information from call centers rather than on www.damu.kz website. There are some participants who are not aware that there is a program website; Majority of website and call center users are satisfied with the quality of rendered services, but there are certain aspects in their work (feedback, updated information and an online forum on the website, waiting for a response, experts competence, completeness and relevance of information received from call centers) that do not always satisfy customers. Participants of Customer Support, Business Advisor, and Business Links programs were satisfied with the rendered services and rate them high based on selected attributes. 102
In order to further improve services under these programs, a special attention should be paid to certain aspects that the clients are less satisfied with. In Customer Support program, such areas as customs procedures and services related to governmental procurements should be considered in order to increase their practical effectiveness and positive impact on the enterprise. In Business Advisor program, improvement of training materials on doing business and handouts should be considered. Express course for beginning entrepreneurs is less effective compared to the Express Course for current entrepreneurs, thus, requiring appropriate adjustments. Franchise program area has the least impact on business, thus requiring a more detailed analysis of its content and conformity with current needs of entrepreneurs. In Business Communication program, Training and Methodical Support area seems to be more efficient and showing more substantial impact on business compared to Internship Abroad. Such aspects as Trainer s/partner s quality and conformity to the needs of service users should be improved. Summary: Indicators for monitoring the effectiveness of Damu programs Based on the results of this research we can draw on the following indicators to further monitor the effectiveness of Damu Fund non-financial programs: share of entrepreneurs aware of such Damu Fund services as call center and website and share of those who received these services; share of entrepreneurs satisfied or dissatisfied with the quality of information received, technicкl level, experts competence or other КttriЛutes ; share of entrepreneurs who mentioned a positive impact of services received on such business aspects as: business in general, operation of certain areas, change in profits and tax payments, and jobs creation; share of entrepreneurs who succeeded in business (improved their productivity/increase profit) as result of the participation in Fund programs; share of medium and small businesses, sole proprietors, agricultural enterprises and farms that received services under the Fund Programs; share of entrepreneurs among the Damu Fund participants operating in the production sector. Recommendations for Damu from entreprenurs 1 To mкke К seкrch for Лusiness pкrtners, suppliers Кnd mкrkets eкsier, it s necessкrв to creкte an integrated business directory/ database - Business partner - which lists all businesses involved in production, supply of raw material, equipment and other. The business directory/database is an interactive, regularly updated list of businesses that is categorized by business activity. It is desirable for this directory/database to include not only information on local businesses but also businesses from neighboring countries and beyond. 2 It has been brought to attention that business owners require information on priority areas in production development/expansion. Consequently, Damu is advised to build an interactive online service - Business diversification - that lists priority production areas by category - 103
high priority, average priority, low priority - with profitability and demand index that is based on market analysis. It is necessary to make this information updated and accessible. 3 It is important to offer flexible business credit practices based on priority, difficulty and recoupment period of business. For instance, high priority and technically demanding production projects that require considerable investments, highly qualified workforce, innovative technology, scientific research, may be credited with low interest rate with credit and tax deductions. 4 Recruitment process is an important problem. The following actions could be considered: a) database creation - Human department - that contains information on available jobs, and specialists. b) Specialists for competitive business program Extended small business programs based on market demands New technology training (with certificate) Internships abroad Inviting specialists from abroad 5 Create business education programs for youth - Damu Jastar. 6 Avoid formal approach to education, revise content of educational programs in the fourth field - Business Links, use a more focused approach based on type of business adapted to regional and national conditions. 7 Consider a yearlong distance learning/education instead of short-term training with regard to the fourth direction of the Business road map 2020. Each small group of students is given an instructor, who provides online consultations and information during the year. After a course is finished, they pass exams, and the most successful students continue their education abroad. Mandatory condition: open selection process, online exams. 8 Reimbursement program - provide assistance in resolving infrastructure issues: energy supply, rental of premises, warehouses and equipment. The fund should consider programs that address infrastructure issues business start-ups face by subsidizing share of their expanses. 9 Chains of suppliers program - to enhance local business potential, the fund should encourage the formation of chains of suppliers from local producers. Use group crediting of businesses belonging to one chain in order to strengthen and expand it. 10 Organization of Successful business project of the year contest may be an option. The goal is to choose the most interesting and new active innovative projects in all fields: services, production and other. The winners are awarded with grants, low interest credits and other assistance. 11 To support women s Лusiness, it is possiлle to open consulting departments for women in regional centers for business development that provide consultations on starting a business, provide business plan assistance and support on the first stages of business development, allow for sharing experience and success stories. 12 Document preparation procedures for the Regional Coordination Council (RCC) should be simplified, a more efficient application processing should be used. 13 Introduce a strict selection process for RCC members, demand higher level of competence, especially from representatives of government bodies. 14 Introduce stricter competency requirements for Damu representatives. 15 Increase quality standards of goods/services: 104
a) Organize free training for small business managers on certification together with chamber of commerce and industry. b) EncourКge mкnкgers to Лe certified ( high КspirКtions / desire to grow ) 16 Broaden a network of information channels, rural businesses experience problems with information access. 17 Start electronic information mailing, sms notifications with news from the Damu fund. 18 Allow free advertising in assigned places, or free commercials on TV. 19 Create new business crediting programs through second-tier banks. 20 Develop new financial products factoring. 21 Start practicing short-term crediting in a form of overdraft. 22 Consider crediting practices used in Islamic banks. 23 Support agricultural business through both increasing subsidies - in some countries the amount of state financial investments in agriculture exceeds the market value of its production by half and even two times, and following the example of green basket - financial measures not related to direct financing of businesses: allocation of funds to agricultural infrastructure development, agricultural research, veterinary assistance, environmental programs, improvement of soil fertility and other. These measures, according to agricultural economists, are as much effective as direct subsidies, in a long-term. Based on research conducted in the US, an impressive 50% economic growth of the US agriculture within last ten years is attributed to state financing of agricultural research. It is possible to consider implementing legislative policies aimed at creating import barriers, to be specific: increasing duties against imported agricultural produce, for instance, duties (sum of custom and retail duties) against imported meat produced in Finland and some plants in Japan reaches a few hundred percent; non-custom barriers - a stricter phytosanitary control. 24 There is a need to expand Made-in-Kazakhstan Content program, encourage businesses that use locally produced goods and services; motivate government bodies to procure goods and services from local producers. 25 It is necessary to strengthen and develop small Business Links through stock exchange and trade fairs. 26 Possibly develop business development programs with a narrow focus based on specifics of each region, paying greater attention to production cycle development, with complete processing cycle. 105
Chapter 4. Exports and imports by the SME sector in Kazakhtan During 9 months of 2012 Kazakhstan (all kinds of businesses) has exported goods for 69.5 bln.usd, while imported half of that volume only 32.1 bln.usd. 74% of export is raw materials, 21% - intermediate produce, and only 4% is consumer goods and 1%f the production means. The import has the following composition: 41% is intermediate goods, 25% is production means, 24% - consumer goods and 10% is raw materials. Figure 52. Structure of foreign trade of Kazakhstan for 9 months of 2012, % 70000 60000 Intermediate goods, 21.3% Intermediate goods Consumer goods 50000 Consumer goods, 4% Production means, 1% Production means Raw materials 40000 30000 20000 10000 0 Raw materials, 73.7% Export, mln.$ Intermediate goods, 41.3% Consumer goods, 23.8% Production means, 25% Raw materials, 9,9% Import, mln.$ http://www.kaznexinvest.kz/napr/analytics/export/trade/analyz_9mesyac_2012.pdf By commodity group the breakdown for export-import is as follows. Table 50. Export and import structure of the Republic of Kazakhstan by basic commodity groups January-October 2012 based on the data provided by RK Statistics Agency Group of commodities Export % Group of commoditoes Import % Mineral products, including: 76.1 Machinery and transportation means, 39.6 equipment, including: Fuel and power products 71 Metals and metal items 13.2 Metals and metal items 12.9 Chemicals and related items 13.1 Plastics 3.7 Animal and plant products, finished food 3.5 Mineral products 12.5 products Other goods 2.1 Fuel and power products 10.7 Machines, equipment, transport, tools and 1.4 Animal and plant products, finished 9.3 machinery food products Wood, wood products and paper products 0.1 Wood, wood products and paper 3.5 products Textiles and textile products 0.1 Other goods 3.5 Shoes, headwear and haberdashery 0.1 Textiles and textile products 2.5 Rawstock, fur and fur items 0 Construction materials 1.6 Construction materials 0 Shoes, headwear and haberdashery 0.8 Chemical and similar products Rawstock, fur and fur items 0.2 Total 100 Total 100 106
Source: http://www.stat.kz/digital/vnesh_torg/pages/default.aspx Unfortunately, there is no data on export and import by size of business in statistics.such data can be derived from the survey. Export and import ratio by SME sector The survey findings showed that only 5.1% of entrerprises export their commodities (to Russia, Kyrgyzstan, Uzbekistan, Tajikistan, Belarus, Latvia, Turkey, etc.), while 31.6% import commodities from abroad (Russia, Ukraine, Belarus, Kyrgyzstan, Turkey, Germany, UAE, etc.). 49% of enterprises purchase raw materials, components and other consumable materials within their regions, 19.3% of enterprises do it in the territory of Kazakhstan. The abovementioned data demonstrates that the share of imported goods is substantially higher than the share of export, which indicates that Kazakhstani SMEs depend on foreign market rather than actively capturing these markets. Figure 53. Import and export of goods, % of respondents 5.1% 31.6% 19.9% 19.3% 75.0% 49.1% Import, N=1935 export, N=1659 Within the region Other regions of Kazakhstan Other countries Level of activity in foreign markets depends on the enterprise size. The data shows that export and import activities are more specific to medium sized business, which has relatively high turnover. 43.4% of medium businesses purchase raw materials, components and other materials abroad. Other enterprises import raw materials and supplies less: small business 33.3%, sole proprietors 26.5% and farms 14.4%, and mostly the region they are located in appear is the place of purchase. All types of enterprises sell their goods and services mostly in local markets. Regions are the main place of business for sole proprietors (91.4%); medium business enterprises operating in other regions (34.2%) and exporting (11.2%) depend less on local markets. 107
It should be noted that the share of export enterprises among farms is higher than among medium business enterprises and SPs (5.1% vs. 4.4% and 1.7%). It should be deemed as an indirect indicator of export potential of farms. Table 51. Place of purchase and sales of goods and services across various enterprises, % of enterprises Medium business Small business SPs Farms Purchase raw materials and supplies: (N=1131) Within their own region 36.8 45.7 55 71.9 Purchase from other regions of 19.8 21 18.4 13.7 Kazakhstan Import 43.4 33.3 26.5 14.4 Sell goods and services: (N=1152) Within their own region 54.6 73.7 91.4 72 Supply to other regions of Kazakhstan 34.2 21.8 7.0 22.9 Export 11.2 4.4 1.7 5.1 Export and Import Structure By analyzing the export structure we can define 5 groups of goods that are most often indicated by entrepreneurs: Agricultural products (4.9%); Food (4.8%); Equipment and components (2.2%); Transporting and warehousing services (1.8%); Consumer goods (1.2%). The share of other goods and its contribution to the export structure is small. When comparing the research results with the data provided by RK Statistics Agency it shall be noted that according to the research data exporting SMEs belong to the groups of enterprises with the smallest share in the RK export structure: animal and plant products, finished food products (3.5%), machines, equipment, transport (1.4%) and other goods (2.1%). It shows that SME make unsubstantial contribution to export activity. Table 52. Shares of export and import of goods in SME activity, %. Export (N=1659) % Import (N=1935) % Farm products 4.9 Consumer goods 30.1 Food products and etc 4.8 Construction material 21.0 Construction materials 3.0 Equipment and components 20.7 Equipment and components 2.2 Transport and storage 7.9 Transport and storage 1.8 Clothes, etc 7.8 Consumer goods 1.2 Food products and etc 7.1 Social services 0.8 Farm products 6.3 Clothes and etc 0.7 Natural raw material 5.2 Oil products 0.7 IT services 5.1 Rest, entertainment and accommodation 0.6 Chemical products 4.6 Natural raw material 0.6 Furniture 4.5 108
Export (N=1659) % Import (N=1935) % Metal products 0.6 Stationary and consumable materials 4.2 Other goods 0.6 Metal products 3.6 Plastic and glass items 0.5 Other goods 3.4 Household appliances and etc 0.4 Drugs and etc. 3.0 Construction, designing and repair 0.3 Plastic and glass items 2.8 Furniture 0.3 Oil products 2.5 Other services 0.2 Household appliances and etc. 2.0 Chemical products 0.1 Other services 1.0 Communications 0.8 Rest, entertainment and accommodation 0.6 Social services 0.4 Construction, designing and repair 0.1 Goods and services imported by SME have wide range and sufficient share in the import structure. There are 8 groups of goods, which import share exceeds internal purchases, they are: Consumer goods (30.1%), Construction materials (21%), Equipment and components (20.7%), Transporting and warehousing services( 7.9%), Clothes (7.8%), IT services (5.1%), Chemical products (4.6%), Medicaments (3%). As was said before, relatively active exporting activity is specific to medium business enterprises. The export structure analysis has not revealed any significant differences between goods purchased by various enterprises. Medium business enterprises abroad mostly sell the following goods and services: Food products (18.2%), Construction materials (15.5%), Agricultural products (12.5%), Social services (11.1%). Small business enterprises sell mainly: Consumer goods (18.8%). Social services (17.9%), Food products (9.1%), Sole proprietors mostly sell the following: consumer goods (30.7%), food products (18.5%), social services (11.3%). Farms in accordance with their business mostly export agricultural products (96.4%). Thus, all enterprises with the exception of farms have similar marketable goods profile (food products, consumer goods, social services, etc) and differ by the export product volume. 109
Table 53. Goods and services exported by various enterprises, % of enterprises. Goods and services Medium business Small business SP Farm Chemical products 2.7 1.8 0.2 - Consumer goods 10.9 18.8 30.7 1,8 Household appliances and etc. 1.7 2.4 1.4 - Food products and etc. 18.2 9.1 18.5 1,8 Construction materials 15.5 7.9 4.7 - Rest, entertainment and accommodation 1.0 1.8 2.0 - IT services 1.0 3.3 3.4 - Natural raw material 2.4 1.5 0.9 - Drugs and etc 1.7 2.9 0.7 - Metal products 5.7 4.4 1.1 - Beauty shops - 0.7 3.6 - Equipment and components 7.4 11 4.7 - Oil products 0.3 1.5 0.5 - Agricultural products 12.5 5.3 7.2 96.4 Social services 11.1 17.9 11.3 - Transporting services and warehousing 5.1 4 5.2 - Garment manufactures 0.3 0.4 1.8 - Accommodation and food services 0.7 3.3 1.4 - Communications 1.7 2 0.9 - SME activities in Russian markets Due to areal proximity and new opportunities under the Customs Union, Russia is considered as the most perspective market for Kazakhstani SME. However, the research results show that these advantages of Russian market have not been fully used. Studвing the entrepreneurs Кctivitв reveкled thкt 12% of respondents procure in RussiК, which is considerably lower compared to the share of enterprises that make purchases in other countries(20.6%). There is no significant difference between enterprises selling their goods in other countries (2.7%) and Russia (2.5%). The provided data shows that Russian market has no anticipated advantages for Kazakhstani SME or it takes more time for entrepreneur to capture these markets. Figure 54. Import and export of SME goods and services to Russia, % of enterprises Other countries; 20.6% Russia; 12% Other countries; 2.7% Russia; 2.5% Import (N=1883) Export (N=1620) 110
Nevertheless, based on the research results we can specify Russian regions that are considered as the main consumers of Kazakhstani SME products. According to the data obtained these regions are Omsk (36%), reference share of which considerably exceeds other cross-border regions, Altai Region (23%), Chelyabinsk Region (21%), Astrakhan Region (20%) and Orenburg Region (18%). Figure 55. Russian regions, where Kazakhstani SME sell their products, %, N=204 Omsk Altai Chelyabinsk Astrakhan Orenburg Novosibirsk Kurgan Tyumen Saratov Volgograd Other 2.9 9.3 6.9 6.4 6.4 12 23 21 20 18 36 When analyzing the structure of products sold by Kazakhstani SME in cross-border regions we can specify regional differentiation by goods: In Omsk: chemical products (45.5%), construction materials (48%), oil products (37.5%) transportation services (44.4%). In Altai region: metal products (100%), food products (41.7%), clothes (30%), IT services (25%). In Chelyabinsk: medicaments (50%), equipment (32.8%). In Astrakhan: raw material (44.4%), IT services (25%), social services (21.4%). In Orenburg: furniture (41.7%), IT service (25%), 0 10 20 30 40 111
oil products (25%), other goods (27.3%). Table 54. Goods and services sold by SMEs in Russian regions, % of enterprises, N=204 Goods and services (the number of enterprises) Astrakhan Volgograd Saratov Chemical products (N=11) 18.2 18.2 9.1 45.5 9.1 Consumer goods (N=50) 14.0 6.0 18.0 4.0 12.0 28.0 16.0 2.0 Household appliances and etc (N=28) 14.3 10.7 10.7 3.6 10.7 10.7 14.3 10.7 14.3 Food products and etc (N=48) 4.2 2.1 10.4 4.2 6.3 6.3 25.0 41.7 Construction materials (N=50) 8.0 14.0 4.0 2.0 20.0 48.0 4.0 Rest, entertainment and 15.4 23.1 15.4 23.1 23.1 accommodation (N=13) IT services (N=4) 25.0 25.0 25.0 25.0 Clothes and etc. (N=90) 8.9 4.4 16.7 11.1 5.6 3.3 17.8 30.0 2.2 Natural raw material (N=18) 44.4 11.1 16.7 11.1 16.7 Drugs and etc (N=2) 50.0 50.0 Metal products (N=1) 100 Equipment and components (N=61) 6.6 8.2 16.4 29.5 8.2 3.3 6.6 9.8 3.3 8.2 Oil products (N=8) 25.0 25.0 37.5 12.5 Agricultural products (N=115) 13.9 5.2 9.6 10.4 8.7 4.3 10.4 24.3 8.7 4.3 Social services (N=28) 21,4 14.3 14.3 14.3 3.6 10.7 14.3 7.1 Transportation services and 11.1 11.1 11.1 11.1 11.1 44.4 warehousing (N=9) Accommodation and food services 100 (N=4) Construction, designing and repair 33.3 26.7 40.0 (N=15) Educational services (N=1) 100 Other services (N=19) 21.1 21.1 21.1 21.1 5.3 5.3 5.3 Stationary and consumable materials 22.2 22.2 55.6 (N=9) Other goods (N=11) 18.2 9.1 27.3 18.2 18.2 9.1 Orenburg Furniture (N=12) 33.3 25.0 41.7 Despite severe competition with local enterprises Kazakhstani entrepreneurs succeed in sales of a wide range of goods and services in Russian markets. But the sales volume is too small to state about firm position of SME in foreign markets. Appendix 3 presents information on the demand on Russian frontiers regions. Chelyabinsk Kurgan Tyumen Novosibirsk Omsk Altai Other Import substitution potential in SME activity The official statistics on import commodity groups is given in the Appendix 4. As it was noted the import volume exceeds the export volume, and along with raw materials supplies and components, food products are also imported to the country. It shows that domestic market needs for these goods are satisfied for the account of foreign suppliers. Demand for goods may encourage not only import of products, but also the development of local producers as well. 112
Studying the needs of regions enables us to specify the goods and services groups, which, by respondents opinion, Кre weкklв sкtisfied Кnd hкve good sкles potentiкl. According to the survey findings there are 6 main groups of goods and services: Consumer goods (27.9%); Agricultural products (14.8%); Food products (12.6%); Social services (10.8%); Equipment and components (10.3%); Construction materials (10.3%). That is, despite the fact that the share of the said goods in import products is large enough, demand in local markets is still high and not satisfied sufficiently. It serves as a good platform for the development of domestic production. Figure 56. Goods and services, the demand for which is not met in Kazakhstan, % of responders, N=775 Consumer goods Agricultural products Clothes and etc. Food products and etc. Social services Production materials and components Construction materials Transportation services and warehousing Other services Educational services Household appliances and etc. Metal products Furniture Other goods Construction, designing, repair Stationary, consumabe materials Real property activities Natural raw material Chemical products Oil products Beauty shops Plastic and glass items Drugs and etc. IT services Garment manufacture Rest, entertainment and accommodation Communications 3.3 3.3 3.3 3 2.5 2.5 2.3 2 1.8 1.8 1.8 1.5 1.5 1.3 1.3 1.3 1 1 0.3 5 10.8 10.3 10.3 12.8 12.6 15.1 14.8 0 2 4 6 8 10 12 14 16 Assessment of demand for specified goods and services groups showed that some items are more relevant than others. Such could be goods and services with the demand satisfaction less than 50% according to respondents and mostly these are stationary and consumables (75%), chemical products (66.7%), petrochemicals (66.7%), educational services (66.7%), social and consumer services (64.5%), clothes, and etc (63.1%), food (62.3%), and etc. These data indicate that not only the foreign markets, but also domestic markets are not developed enough by entrepreneurs, and based on this data we can outline main production sectors that can be develop by SME. 113
Table 55. Assessment of commodity demand by SMEs, % of respondents, N=775 Goods and Services (number of respondents) Less than 50% Demand is met for 50% and more Stationary and consumables, N=12 75.0 25.0 Chemical products, N=7 66.7 33.3 Leisure and entertainment, N=3 66.7 33.3 Petrochemicals, N=6 66.7 33.3 Educational services, N=24 66.7 33.3 Social and consumer services, N=62 64.5 35.5 Clothes and etc., N=84 63.1 36.9 Food etc., N=77 62.3 37.7 Other services, N=13 61.5 38.5 Drugs and etc, N=5 60.0 40.0 Agricultural products, N=96 59.4 40.6 Furniture and furnishing, N=11 54.5 45.5 Total, N=776 52.4 47.6 Construction materials, N=60 50.0 50.0 Raw materials, N=6 50.0 50.0 Consumer goods, N=127 47.2 52.8 Equipment and components, N=52 44.2 55.8 Transportation services and warehousing, N=29 34.5 65.5 IT Services, N=3 33.3 66.7 Metal products, N=16 31.3 68.8 Construction, design and repair, N=11 27.3 72.7 Household appliances and etc., N=36 25.0 75.0 Real estate operations, N=10 20.0 80.0 Plastic and glass products, N=5 20.0 80.0 Beauty salons, N=6 0 100.0 Garment manufacture, N=4 0 100.0 The research showed that entrepreneurs are highly interested in manufacturing and given favourable conditions and external support they can set up their own production thus reducing import ratio. The most common products that could be potentially produced by SME enterprises are equipment and components (18.4%), and consumer goods (15.6%). According to local entrepreneurs, when there are certain conditions Kazakhstani enterprises can produce goods groups in sufficient amounts to completely supply domestic markets. This can be supplemented by agricultural products (10.7%), clothes (9.1%), construction materials (8.4%) specified by respondents. Food (6.8%), furniture, furnishing (5%), plastic and glass products (4.1%), stationary (3.7%), chemical products (3%), and etc. were also mentioned. That is the range to be produced by local entrepreneurs is large and includes not only the usual agricultural primary products but goods requiring high-tech and advanced equipment. 114
Figure 57. Potential goods for Import Substitution, % Equipment and components Consumer goods Agricultural products Clothes and etc. Construction materials Food products and etc Furniture Plastic and glass items Stationary and consumable materials Chemical products Garment manufacture Drugs and etc Metal products Communications IT services Oil products Natural raw material Household appliances and etc Rest, entertainment and accommodation Other goods Social services Other services Accommodation and food services 5 4.1 3.7 3 2.6 2.3 1.8 1.7 1.4 1.2 1.2 1 0.9 0.8 0.3 0.1 0.1 6.8 9.1 8.4 10.7 15.6 18.4 In order to realize this potential SMEs need support; most frequently mentioned ones are technology (21.4%) and staff training (14.9%). Only after these items financial support is mentioned: increased access to lending (10%) and reduced taxes (9%). Other conditions such as enhancing quality control (7.6%) and reducing licensing procedures (7.5%), improved transportation infrastructure (7,1%), and etc. are rarely noted. Thus technology and human resources are the key that can affect the SME activity. Small and medium sized enterprises, sole proprietors, and farms specify technology and human resources as the most necessary conditions for import substitution. Generally, there were no marked differences Лetween certкin enterprises responses for this question. Medium sized businesses and farms (42.1%) mentioned reducing licensing procedures (34.6%) among the first five items. Enhancing quality control is one of the five conditions among small businesses (25.1%) and sole proprietors (32.5%). Farms note improving transportation infrastructure (39.5%) and availability of land and facilities more often than other enterprises. 115
Figure 58. Conditions Required for Import Substitution, %, N=1923 25 21.4 20 14.9 15 10 9 10 7.6 7.5 7.1 6.9 5.4 5.1 5 2.8 0 Thus, a common approach can be used for various enterprises to substitute import and focus efforts on implementation of high technology and qualified staff training that in turn will boost the development of SME manufacturing. The next stage is to meet objectives related to the specific needs of various enterprises. Table 56. Necessary Conditions for Import Substitution for various Enterprises, % of respondents. Medium Business Farms 1. Technologies acquired -75% 1. Technologies acquired 60.5% 2. Staff trained 59.6% 2. Staff trained -55.3% 3. Increased access to lending -38.5% 3. Increased access to lending -50% 4. Reduced licensing and permits 34.6% 4. Reduced taxes 42.1% 5. Reduced taxes -31.7% 5. Reduced licensing and permits -42.1% 6. Enhanced quality control 27.9% 6. Improved transportation infrastructure 39.5% 7. Improved transportation infrastructure -25% 7. Availability of land and facilities 34.2% 8. Availability of land and facilities-19.2% 8. Reduced inspections 26.3% 9. Reduced inspections -14.4% 9. Enhanced quality control 23.7% 10. Credit vacations -12.5% 10. Credit vacations - 21.1% 11. Utility benefits 10.6% 11. Utility benefits 15.8% SPs Small Business 1. Technologies acquired 85.6% 1. Technologies acquired -78.5% 2. Staff trained -52.1% 2. Staff trained -56.4% 3. Reduced taxes 38.1% 3. Increased access to lending -33.3% 4. Increased access to lending 37.1% 4. Reduced taxes -27.7% 5. Enhancement of quality control 32.5% 5. Quality control straightened 25.1% 6. Availability of land and facilities 31.4% 6. Reduced licensing and permits 24.1% 7. Utility benefits 27.3% 7. Improved transportation infrastructure 23.6% 8. Improved transportation infrastructure -26.3% 8. Availability of land and facilities 21.5% 9. Reduced licensing and permits 25.8% 9. Utility benefits -18.5% 10. Reduced inspections 24.2% 10. Reduced inspections -14.9% 11. Credit vacations -10,8% 11. Credit vacations -7.2% 116
Analysis of conditions required for certain goods production and import substitution showed that most of the specified goods groups require technologies implementation, especially for chemical products (33%), consumer products (21%), construction materials (22%), clothes (21%), drugs (36%), and etc. with the greater choice of this condition than other goods. Staff training is also often selected as the necessary condition for food (16%), metal products (19%), and petrochemicals (21%). Reduced taxes can positively affect development of accommodation and food services (50%), leisure services, entertainment (18%) and IT services (18%). Reduced licensing and certification can be important for leisure, entertainment (18%) and social and consumer services (100%). Improving transportation infrastructure for household appliances (18%), leisure and entertainment (18%). Availability of land and facilities is often specified only for the agricultural products (19%), utility benefits for accommodation and food services (50%). Table 57. Necessary Conditions for Import Substitution of Certain Goods Group, % of respondents. Increased access to lending Technologies acquired Staff trained Reduced taxes Enhanced quality control Improved transportation infrastructure Reduced licensing and permits Reduced inspections Availability of land and facilities Chemical products 4 33 20 9 8 5 9 3 6 Consumer Goods 9 21 14 8 8 7 8 7 5 7 2 Household appliances and etc. 8 17 15 4 19 18 10 3 6 Food and etc. 9 11 16 6 5 7 4 13 4 5 10 Construction materials 8 22 17 10 10 8 6 5 8 5 0 Leisure and entertainment 3 3 18 6 18 18 15 6 15 IT services 16 16 16 18 2 14 2 10 2 Clothes and etc. 10 21 12 13 6 4 5 3 11 11 3 Natural raw material 3 18 9 12 9 6 9 9 12 9 Drugs and etc. 3 36 11 8 15 2 8 2 5 2 Metal products 13 19 19 16 6 3 3 6 13 3 Manufacturing equipment and 10 22 15 11 7 4 10 4 7 5 3 components Petrochemicals 3 21 21 3 3 18 9 6 3 Agricultural products 14 10 8 6 6 12 9 6 19 7 4 Social and consumer services 100 Garment manufacture 14 21 8 18 1 1 13 3 14 6 Accommodation and food 50 50 services Communications 17 27 21 10 2 10 6 6 Other services 20 20 20 20 20 Plastic and glass products 15 28 25 6 3 5 3 3 3 6 2 Stationary and consumables 10 27 15 10 4 7 8 3 6 6 3 Other goods 24 24 13 13 13 11 2 Furniture and furnishing 14 23 14 10 10 7 7 4 7 3 0 Utility benefits Credit vacations 117
The list of goods and services obtained during the survey of entrepreneurs that can be produced by local enterprises based on the current production infrastructure enables us to define the production potential of surveyed regions. Agricultural products remain as traditional goods that can be offered in the first place by Kazakhstani producers to both domestic and foreign markets; all regions (25.5%) mention that there is a potential for production of agricultural goods. Herewith, as it was stated above, demand for agricultural products has not been fully met yet. Equipment and components production, the next mentioned item (23.3%), is considerably less developed but the high demand probably leads to fact that regions have the sufficient potential to set their own production. The same is applicable for other goods frequently mentioned by respondents: clothes (18.9%), consumer goods (15.6%), construction materials (14.5%), and etc. Demand for these goods and production infrastructure in regions makes it quite possible that import ratio of such groups can be reduced by local production when there are favourable conditions. Figure 59. Goods and Services that can be produced by regions based on the current infrastructure, % of respondents, N=550 Agricultural products Equipment and components Clothes and etc. Consumer goods Construction materials Food and etc. Plastic and glass products Chemical products Furniture and furnishing Stationary and consumables Social and consumer services Metal products Drugs and etc. IT services Household appliances and etc. Garment manufacture Educational services Communications Petrochemicals Leisure, entertainment and accommodation Other goods Construction, design and repair Natural raw material Other services Beauty saloons Real property business Accommodation and food services Transportation services and warehousing 5.6 4.9 3.6 3.5 3.1 2.7 2.2 2.2 2.2 1.8 1.6 1.6 1.6 1.5 1.3 1.3 1.3 1.1 0.5 0.4 0.2 0.2 9.3 15.6 14.5 18.9 25.5 23.3 From the in-depth interview with a business association representative: Kazakhstan could export food products. According to a Chinese company estimates Kazakhstan could provide complete food set to 1bln people. I think that southern regions, namely Kyzylorda, South Kazakhstan and Zhambyl regions, have a potential to provide vegetables to 500 mln people. We could start exporting in industrial sector if there were plants. The lead plant equipment, cardanjoint, automatic press were sold or stolen. But nobody incurred liability for this. 118
Data analysis across regions enabled us to list goods and services mostly favored by respondents in every region (see table). Based on this data, we can divide regions into groups by the most preferable goods and services: Agricultural products: Akmola (35.1%), Almaty (34.2%), East Kazakhstan (33.3%), Kostanai (26.5%), Kyzylorda (26.5%), Mangystau (36.8%), Pavlodar (20%), North Kazakhstan (37.5%) and South Kazakhstan (23.4%); Production equipment components: East Kazakhstan (21.4%), Zhambyl (25%), Karagandy (35.7%), Kostanai (51.9%) and South Kazakhstan (37.7%); Clothes and etc. is mostly noted in Astana City (23.8%), Aktobe (26.3%), and Kostanai (50%) as the good to be produced based on the current infrastructure; Consumer goods are mostly favored in Astana City (23.8%), Almaty City (21.2%), Almaty (21.1%), Atyrau (23.9%) and South Kazakhstan (23.4%); Construction materials are noted more than other goods in Almaty City (18.2%), Zhambyl (21.4%), North Kazakhstan (25%) and South Kazakhstan (27.3%). Table 58. Goods and Services that can be Produced by Regions based on the Current Production Infrastructure, % of respondents, N=550 Astana City Almaty City Akmola Aktobe 1. Clothes and etc.- 23,8% 2. CONSUMER GOODS- 23,8% 3. Agr. Prod. - 14,3% 4. Equipment, utilities - 11,9% 5. Food and etc. - 9,5% 1. Agr. Prod. -34,2% 2. CONSUMER GOODS- 21,1% 3. Equipment, utilities- 15,8% 4. Chemical products - 13,2% 5. Clothes and etc.-10,5% 1. CONSUMER GOODS- 21,2% 2. Construction materials- 18,2% 3. Clothes and etc., equipment, utilities-15,2% 4. Food and etc., 5. IT services, 6. Agric.products, 7. Social and consumer services-9,1% 1. Agr. Prod -35,1% 2. Equipment, utilities, Food and etc., construction materials- 16,2% 3. Clothes and etc., CONSUMER GOODS- 10,8% 4. Furniture, furnishing- 8,1% 5. Chemicals -5,4% 1. Clothes and etc.-26,3% 2. Construction materials, equipment, utilities, Agr. Prod -15,8% 3. Chemical products, clothing manufacture, Plastic, glass products- 10,5% 4. CONSUMER GOODS- 5,3% Almaty Atyrau East Kazakhstan Zhambyl 1. Agr. Prod.-47,8% 1. Agr. Prod -33,3% 2. CONSUMER GOODS- 2. Equipment, utilities- 23,9% 21,4% 3. Food and etc.-19,6% 3. Food and etc., Clothes 4. Equipment, utilities, and etc.-16,7% Social-consumer services- 4. Consumer goods-11,9% 13% 5. Construction materials- 5. Clothes and etc.-10,9% 9,5% 1. Equipment, utilities-25% 2. Construction materials- 21,4% 3. Agr. Prod -17,9% 4. Stationary, consumables, Chemicals, services, consumer goods, Socialconsumer services-10,7% West Kazakhstan Karagandy Kostanai Kyzylorda 1. IT services -75% 2. Plastic, glass products- 25% Consumer goods, construction materials, equipment, utilities, Clothes and etc, Furniture, furnishing- 37,5% 1. Equipment, utilities-35,7% 2. Agr. Prod.-19% 3. Clothes and etc.-16,7% 4. Construction materials- 11,9% 5. Consumer goods-9,5% 1. Equipment, utilities-51,9% 2. Clothes and etc.-50% 3. Agr. Prod -21,2% 4. Consumer goods, Plastic, glass products-11,5% 5. Construction materials, Chemical products -9,6% 1. Clothes and etc.-38,2% 2. Agr. Prod -26,5% 3. Plastic, glass products- 23,5% 4. Construction materials- 20,6% 5. Petrochemicals-14,7% Mangystau Pavlodar North Kazakhstan South Kazakhstan 1. Agr. Prod -36,8% 2. Furniture, Clothes and etc.,consumer goods,food and etc.-15,8% 3. Construction materials- 10,5% 4. IT services, household appliances, leisure and etc., Social-consumer services-5,3% 1. Agr. Prod -20% 2. Equipment, utilities-16% 3. Educational services-, Plastic, glass products, construction materials-12% 4. Hardware, Clothes and etc.-8% 1. Agr. Prod -37,5% 2. Construction materials- 25% 3. Other services, equipment, utilities, Clothes and etc., construction, designing, maintenance-12,5% 1. Equipment, utilities- 37,7% 2. Construction materials- 27,3% 3. Consumer goods, Agr. Prod -23,4% 4. Food and etc.-15,6% 119
There is a review of three regions: Aktobe, Mangistau and South Kazakhstan to see the detailed peculiarities of economies which depend on geographical position (Appendix 5). From the in-depth interview with an entrepreneur from Almaty: For example, we develop vegetable greenhouses network. Russians purchase a lot of our vegetables directly from fields. We can export meat; our region is more agricultural, and we can also export grain abroad. We raise poultry exporting to Kyrgyzstan. Currently we export poultry, meat products to Kyrgyzstan, started to export canned vegetables, Ili district develops canned production. Soy processing is also developing; possibly there can be export soon. There was one plant in Tekeli, I don t know its capacity. Tekeli will be developed by the Monocities program. There should be great development. We just open plants but when they will work to capacity our business will have new development prospects. Entrepreneurs will improve; they will purchase new technologies and train staff. Despite the current demand and existing infrastructure production sector has been developing slowly in regions making no considerable contribution to goods and services structure sold by SME. The survey of entrepreneurs showed that the key barriers to production of the abovementioned goods is lack of technology (20.3%), noncompetitive price, related to high production costs (13.8%), lack of qualified staff (13.8%), and underdevelopment of infrastructure (9.9%). There are other reasons preventing the establishment of SME production sectors but they are noted less and are less relevant: low quality of products (7.7%), high rates on loans (7%), lack of raw materials (6.8%), and etc. Thus, high technologies and qualified staff is also important for enhancing the SME potential. Figure 60. Barriers for Goods Production, % of respondents, N=615 Lack of Technologies 20.3 Noncompetitive price Lack of qualified staff 13.8 13.8 Underdevelopment of infrastructure 9.9 Low quality 7.7 High rates on loans Lack of raw materials Expensive transportation 5.5 7 6.8 Lack of manpower Lack of pldege for loans Lack of information about foreign market demand Lack of domestic demand 3.5 3.2 2.6 2.5 From the in-depth interview with a business association representative: Currently, there is no area that is able to displace imported products. Any special clothing, even the usual ones, is imported from China or Uzbekistan (even caretakers special clothing). The color of law enforcement bodies uniforms is different since they are imported from various countries. 120
Shymkent has 3-4 textile factories, but there is no support, they have no opportunity to displace imported products. High income tax and expensive utilities gives no way for business development. All money should be put in the business development during the first years. The abovementioned barriers (lack of technologies and qualified staff, and noncompetitive price) are common for all regions but of different intensity depending on how frequently they were mentioned. Lack of technologies is the most subtle in regions mostly noting it: North Kazakhstan (38.1%), Almaty (29.1%), Aktobe (29.3%), Akmola (27.1%), West Kazakhstan (26.7%), and Karagandy (26.4%). Noncompetitive price is the key production development barrier in Almaty City (14%), Akmola (19.6%), East Kazakhstan (20.6%), Kyzylorda (17.3%) and Pavlodar (26.5%). Lack of qualified staff is a serious problem in Atyrau (17%) and Zhambyl (14,9%) regions. It should be noted that there are other problems in some regions. For example, expensive transportation is often mentioned in Almaty City (14%), low quality in Mangystau (13.6%), high rates on loans in Atyrau (15.6%). Table 59. Barriers to Goods Production in Regions, % of respondents, N=615 Expensive transportation Lack of domestic demand Lack of information about foreign market demand Noncompetitive price Low quality Lack of technologies Lack of manpower Lack of qualified staff Underdevelopment of infrastructure Astana City 5,2 7,0 2,6 7,8 5,2 22,6 7,8 14,8 5,2 2,6 6,1 6,1 Almaty City 14,0 2,8 0,9 14,0 10,3 12,1 6,5 9,3 7,5 3,7 6,5 1,9 Akmola 4,7 0,9 19,6 5,6 27,1 0,9 8,4 15,0 1,9 1,9 13,1 Aktobe 9,8 2,4 9,8 9,8 7,3 29,3 4,9 9,8 9,8 2,4 2,4 Almaty 3,8 5,1 2,5 15,2 7,6 29,1 1,3 11,4 3,8 3,8 6,3 6,3 Atyrau 5,2 3,0 8,9 3,0 14,1 0,7 17,0 11,9 5,9 15,6 12,6 East Kazakhstan 5,8 1,3 2,6 20,6 5,2 19,4 1,9 11,6 8,4 3,2 11,6 5,2 Zhambyl 2,1 3,5 14,2 4,3 14,9 14,9 8,5 9,2 12,8 12,8 West Kazakhstan 3,3 10,0 3,3 26,7 6,7 20,0 6,7 16,7 6,7 Karagandy 1,1 1,1 9,9 4,4 26,4 1,1 11,0 8,8 8,8 9,9 9,9 Kostanai 4,2 3,6 2,4 14,4 10,2 22,8 7,2 15,6 9,0 3,6 6,6 Kyzylorda 12,0 4,0 6,0 17,3 4,0 14,7 3,3 8,7 10,0 4,0 6,7 7,3 Mangystau 8,0 11,4 2,3 10,2 13,6 15,9 8,0 10,2 6,8 1,1 8,0 Pavlodar 2,0 26,5 6,1 10,2 18,4 16,3 8,2 2,0 North Kazakhstan 14,3 9,5 9,5 9,5 38,1 14,3 South Kazakhstan 2,9 1,3 1,3 11,7 13,6 22,7 3,9 19,4 14,6 1,3 3,9 2,9 Entrepreneurs define soft lending (42.3%) and tax remissions (37.4%) as the most preferable support for successful production of goods and promotion in terms of financial support. Entrepreneurs are primarily interested in new technologies training (29%) and new technologies information (26%) in terms of technologies being the key in many items. Good roads (35.8%) and production facilities (25%) are very important for production of goods and promotion in terms of infrastructure. Lack of pledge for loans High rates on loans Lack of raw materials 121
Table 60. Necessary Support for Successful Production and Promotion of Goods, % of respondents, N=1164 Finance Soft lending-42.3% Tax remissions-37.4% Loans -23.2% Equipment leasing -12.1% Factoring-2.3% Technologies New technologies training-29% New technologies information-26% High technologies and equipment application advice- 22.3% Technologies transfer-14.2% License-5.9% Dealer programs-5.6% Franchise-3.6% Infrastructure Good roads-35.8% Production facility-25% Warehouses, storages, cool stores-22.9% Engineering and communications infrastructure-13.3% Access to electricity -13.7% Access to water -13.7% Land -12.4% Equipment repair depot-7.5% Need in support varies depending on the enterprise and it should be noted that farms mostly note soft lending (63.6%), loans (27.3%), equipment leasing (29.3%) as the financial support based on comparative data analysis. But tax remissions are more preferred by medium enterprises (43.5%) that most often select technological support noting the need in information (34%), training (40.2%) and transfer (24.4%) of new technologies. Small businesses have the same interest in high technologies and equipment application advice (26.2%) as the medium ones. The importance of infrastructure for medium businesses and farms can be inferred from the fact that they mostly note good roads (45% and 46.5% accordingly). Medium businesses mostly note the need in repair depots (12.4%), production facilities (26.3%), and engineering and communications infrastructure (18.7%). Farms often note warehouses, storages, cool stores (46.5), land lots (20.2%), and access to water (28.3), and small business production facilities (26.2%). Sole proprietors mostly note access to electricity (17%); apparently, it is related to the fact that their trade and services activity is responsive to this support. Favors for a certain kinds of support show the specificitв of enterprise s activity. Medium sized businesses are more active in production and have intensive nature making new technologies and infrastructural support more relevant for them. The aspiration of small enterprises to strengthen production potential is manifested in new technologies application. Activities of farms are closely related to production and storage of agricultural products making availability of infrastructure (land lots, warehouses, water, and etc.) important. At the same time, 122
financial support is also important for them since financial organizations are not interested in lending to this sector. From the in-depth interview with a business association representative: Many entrepreneurs have just no money left for new technologies. For example, sewing shop with 3 machines should buy equipment to increase production for money rest from the income tax payment. It would be better to pay income tax from the remaining sum after business investing as the banks do. They pay taxes not from the revenue but from the remaining sum. There is a problem with water. In rural areas, water is not available everywhere and entrepreneurs (mostly farms and greenhouses) drill wells and incur costs to provide full activity. There is a problem with roads and transportation. There are no central highways. Currently, they are working on roads problem. However, roads, water and power do not affect the business that much. SMB do not need huge water and power capacities; particularly when there are few production and processing SMBs. Developed infrastructure is required for large production enterprises. Table 61. Necessary Support for Successful Production and Promotion of Products by Enterprise Types, % of respondents, N=1164 Medium Small SPs Farms Businesses Businesses Finances Loans 23,4 22,8 22,5 27,3 Soft lending 46,9 33,4 43,6 63,6 Tax remissions 43,5 36,5 35,7 35,4 Equipment leasing 22,5 8,7 6,6 29,3 Factoring 4,3 1,2 2,5 2,0 Technologies Information about new techologies 34,0 26,4 21,4 28,3 New techologies training 40,2 31,5 23,6 19,2 High technologies and equipment application 26,3 26,2 19,1 12,1 advice Transfer of technologies 24,4 14,2 9,5 13,1 Franchise 2,9 5,0 3,4 License 7,7 5,8 5,7 4,0 Dealer programs 4,3 7,9 4,5 3,0 Infrastructure Good roads 45,0 35,8 29,1 46,5 Equipment repair depot 12,4 8,4 4,8 5,1 Production facilities 26,3 26,2 24,8 18,2 Warehouses, storages, cool stores 20,6 20,4 20,9 46,5 Land lots 12,4 12,5 10,5 20,2 Engineering and communications infrastructure 18,7 13,7 10,2 14,1 Access to electricity 14,4 9,9 17,0 13,1 Access to water 11,5 11,1 14,1 28,3 123
Summary: SME sector reflects import oriented economy The majority of enterprises sell their products and services in one or several Kazakhstani regions; typically, these are their own or neighboring regions. Only 7% of enterprises carry out their activities all over the country; Foreign markets remain underdeveloped by Kazakhstani enterprises; just 4% of respondents operate in other countries, while export is not prevalent and the share of exported goods is only 32% of the output; Entrepreneurs activity highly depends on foreign markets since a large part of raw materials and components is imported resulting in that the share of imported products far exceeds the share of exported one (31.6% vs 5.1%); Enterprises from Kostanai and North Kazakhstan regions, and Astana and Almaty cities are more active in foreign markets while enterprises from other regions are limited to the neighboring regions. Export and import transactions are more specific for medium businesses; more than one tenth of medium enterprises (11.2%) have the opportunity to sell goods and services to foreign markets. Various enterprises have different export volumes, but medium business, small business and sole proprietors exported goods profile is the same, generally these are food products, consumer goods, social andconsumer services, and etc. Exceptions are farms that export agricultural products. Imported goods and services have a wider range and larger shares (consumer goods, construction materials, equipment and components, transportation services, clothes, IT services, chemical products and drugs); SMBs mкke considerклle contriлution to KКгКkhstКn s import structure Лв purchasing abroad. Current goods and services sales to Russian regions are insufficient to say that SMEs have successfully entered Russian market, which in turn has no considerable advantages for Kazakh enterprises; There are a number of goods that are relevant for local markets and their demand is satisfied mostly by import (stationary and consumables, chemical products, petrochemicals, clothes, food, and etc.). Local entrepreneurs are interested in producing these products and might set their own production given favourable conditions and external support, thus reducing import share. The range of goods that are local entrepreneurs able to produce is sufficiently wide and includes not only usual agraricultural primary products but goods requiring high-tech and modern equipment (equipment and components, consumer goods, agricultural products, clothes, construction materials, and etc.). New techologies training and information about new techologies are also relevant for entrepreneurs along with financial support in the form of soft lending, tax remissions, 124
infrastructure improvement such as good roads and production facilities for successful production and promotion of products. The main barriers to the development of SMB production sector are lack of technologies, noncompetitive price related to high production costs, lack of qualified staff, and underdevelopment of infrastructure. Thus, the efforts should be focused on high technologies and qualified staff training in terms of SMB support, this is of the same importance for small and medium sized business, sole proprietors, and farms. Indicators for SME Monitoring in brief Analysis of SME in Kazakhstan can be carried out using the following indicators developed based on data from RK Statistics Agency and other authorities gathering information on SME activity: Share of SME enterprises in production, trade and services; Share of small and medium sized enterprises, sole proprietors, and farms in production; Share of SME enterprises exporting their products abroad or to Customs Union countries; Share of small and medium sized enterprises, sole proprietors, and farms exporting their products abroad or to Customs Union countries; Share of exported products in the total output of SME enterprises; Share of SME enterprises that have implemented high technologies to produce goods within the specific time (quarter, half year, year); Share of businesswomen owning small and medium sized businesses. 125
Appendix 1. Methodology Research Methodology Small and medium enterprise research comprised of the following components: Desk review. Studying secondary sources on needs and specific features of SME development in different regions of Kazakhstan; Surveying 1217 SME representatives; Surveying 401 entrepreneurs receiving non-financial services from Damu Fund; 36 semi-structured in-depth interviews with the heads of Damu Fund regional branches, SME representatives, heads of regional business associations; 6 focus group discussions with SME representatives in 6 regions of Kazakhstan. Research Tools The research had a comprehensive nature with quantitative and qualitative methods applied. Relevant tools were developed for that purpose and were approved by ADB consultants and Damu Fund representatives: 1. Questionnaire for assessment of regional needs in SME development; 2. Questionnaire for Damu Fund service beneficiaries; 3. Focus group discussion scenarios; 4. Semi-structured in-depth interview guidance. Field Survey Surveying of entrepreneurs was conducted in 16 regions of Kazakhstan: regional centers, small towns and villages. Respondents were selected step-by-step using business directories, where every fifth SME enterprise was selected. The polling was conducted by trained interviewers supervised by local project coordinators. Surveying of Damu Fund service beneficiaries was conducted among participants of nonfinancial programs provided by the the program administrators. Focus group discussions were organized in Aktau, Semey, Uralsk, Karagandy, Shymkent and Pavlodar cities: entrepreneurs with successful business stories: startusp, turn-around businesses, exporters and etc. (Pavlodar and Karagandy); entrepreneurs with unsuccessful business stories: lack of demand, export difficulties (Aktau and Uralsk); with businesswomen (Shymkent and Semey). In-depth interviews were organized in 16 regions with the following respondents: Heads of Damu Fund regional branches (Almaty, Astana and 14 regional centers); Heads of business associations (Karagandy, Taldykorgan and Shymkent); Businesswomen (Karagandy, Semey and Taldykorgan); Heads of export enterprises (Almaty, Atyrau, Pavlodar, Petropavlovsk and Uralsk). 126
Sampling Research sampling was representative allowing for 95% accuracy of results with the sampling error less than 2.5%. Quotas were determined based on place of business (regional center, town, village) and company size (medium business, small business, sole proprietor, farm). Table 62. Sampling of entrepreneurs across regions by types of settlement, entrepreneurship and gender. Types of Settlement: Types of Entrepreneurships: Gender No. Region Regional Center Urban Rural Medium Business Small Business SP Farm Male Female Total 1 Almaty City 76 0 0 19 28 26 3 47 29 76 2 Astana City 70 0 0 11 24 30 5 31 39 70 3 Akmola 43 27 12 11 25 37 9 46 36 82 4 Aktobe 51 0 7 9 30 14 5 30 28 58 5 Almaty 75 44 21 26 50 47 17 65 74 140 6 Atyrau 51 9 10 18 19 26 7 26 41 70 7 East Kazakhstan 43 22 11 11 24 38 3 29 45 76 8 Zhambyl 56 2 0 13 21 20 4 45 13 58 9 West Kazakhstan 51 5 4 2 25 29 4 30 30 60 10 Karagandy 71 19 9 11 42 37 9 48 50 99 11 Kostanai 42 12 6 12 21 21 6 36 24 60 12 Kyzylorda 67 1 5 12 23 32 6 45 28 73 13 Mangystau 41 13 0 12 23 19 0 31 23 54 14 Pavlodar 42 12 6 14 21 19 6 37 23 60 15 North Kazakhstan 42 12 6 12 22 20 6 35 24 60 16 South Kazakhstan 87 2 32 25 39 43 14 72 49 121 Kazakhstan 908 180 129 218 437 458 104 653 556 1217 Sampling of Damu Fund program participants included entrepreneurs who participated in four non-financial programs: Business Advisor, Customer Support, Business Links, and Top Managers Training. In each of 16 regions average of 25 non-financial program participants were interviewed. The final sampling by region and program is provided in the table below. 127
Table 63. Sampling of Damu Fund non-financial program participants in each region. Damu Program Participation Business Customer Business Advisor Support Links Top Managers Training 1 Astana City 11 4 14 10 33 2 Almaty City 8 7 6 5 26 3 Akmola 2 8 7 7 25 4 Aktobe 8 13 3 0 24 5 Almaty 6 7 5 6 25 6 Atyrau 6 9 6 4 25 7 East Kazakhstan 2 10 6 9 22 8 Zhambyl 6 7 6 6 25 9 West Kazakhstan 3 2 8 13 25 10 Karagandy 9 4 8 4 25 11 Kostanai 7 6 6 6 25 12 Kyzylorda 14 3 5 1 25 13 Mangystau 3 5 9 4 21 14 Pavlodar 6 7 6 6 25 15 North Kazakhstan 6 7 6 6 25 16 South Kazakhstan 6 7 6 6 25 Kazakhstan 103 106 107 93 401 Processing of Results Total Respondents Research results were processed by using statistical data processing software SPSS119. Two electronic databases were created: 1. Entrepreneurs database. 2. Damu program participants database 128
Appendix 2. Regional preferences of information channels Table 1. TV channels and programs used by entrepreneurs in the regions to obtain information, the number of responses. Astana Almaty city Akmola Aktobe Khabar, 3 Khabar,9 Kazakhstan, 8 Kazakhstan,1 Russia tv1 31 channel, 3 Khabar, 9 Aktobe tv, 3 RBK, 1 Evrasia, 2 Arna, 10 Kogam tv, 1 All local channels, 1 Evrasia, 2 Rika, 5 KTK, 8 All local channels, 1 Otau tv,2 NTV, 1 KTK, 7 Russia tv,1 Fashion tv, 1 Kurs, 1 Russia tv1 NTK, 1 RBK, 2 OTRK, 1 Euronews, 2 Astana,2 Culture, 1 Russia tv,1 Telecafe,1 Almaty Atyrau East Kazakhstan Zhambyl Kazakhstan, 8 Kazakhstan, 12 TDK (Ladies TV Club) 31 channel, 1 42, 1 Khabar, 21 El arna, 1 RBK, 1 El arna, 1 31 channel, 4 Russia tv1 Business blocknot, 1 Astana, 1 Arna, 1 RBK, 1 Ren tv, 1 Zhetysu tv, 27 Muz tv, 1 Akparat, 1,1 Evrasia, 7 Russian channels, 1 Fashion tv, 1, 1 All local channels, 1 Discovery, 1 7 channel, 1 Kazakhstan, 2 KTK, 18 Scientific, 2 STP, 2 NTV, 2 Tan, 1 All local channels, 3 Evrasia, 2 TV 3, 2 El arna, 3 El arna, 4 All local channels, 2 KTK, 4 Arai,2 KTK, 5 Kazakhstan, 4 Taraz, 4 Astana,2 Khabar, 7 Khabar, 4 7 channel, 4 Ren tv,1 KTK, 4 Russia tv4 STV,2 TVK 6, 9 Khabar, 6 Rakhat,1 Evrasia, 8 NTV, 2 RBK, 1 West Kazakhstan Karagandy Kostanai Kyzylorda TDK (Ladies TV Club) 42, 5 channel, 2 Kostanai, 2 All local channels, 1 23 Kazakhstan, 15 El arna, 2 Otau tv, 1 Astana, 1 Khabar, 2 Kazakhstan, 7 Russia tv1 Khabar, 2 Khabar, 9 RBK, 1 KTK, 2 NTK, 2 Oblast tv, 2 NTV, 3 Kazakhstan, 5 Kazakhstan, 4 Kogam tv, 8 Khabar, 5 Alau tv, 8 Mangystau Pavlodar North Kazakhstan South Kazakhstan Kazakhstan, 1 Kazakhstan, 1 Kazakhstan, 2 Kazakhstan, 13 Khabar, 1 Zhetysu tv, 24 Zhetysu tv, 4 All local channels, 22 KTK, 1 TDK (Ladies TV Club) Telecafe, 3 Kogam tv, 11 42, 6 Zhetysu tv, 3 Evrasia, 4 TVK 6, 10 Otyrar, 1 RBK, 5 Russia tv, 19 NTK, 3 TVK 6, 1 ATV, 2 RBK, 2 Telecafe, 2 Oblast tv, 2 Scientific programs, 1 Usadba, 1 Interior design, 1 129
Table 2. Print media, used by entrepreneurs to obtain information in regions, number of responses. Astana Almaty city Akmola Aktobe Egemendy Kazakhstan, 1 Business kurier, 1 Vesti, 1 Sreda, 2 Burda, 1 Business pressa, 1 GBO, 1 Iz ruk v ruki, 3 Business i vlast, 1 DОlovaвa гстгn, 1 Iz ruk v ruki, 1 Glamur, 1 NGT, 1 Egemendy Kazakhstan, 1 Pharmatseya, 1 Kazakhstanskaya Pravda, 1 Marketing tovarov i uslug,1 Fashion magazines, 1 Photo magazines, 1 Ulan, 1 Buffet, 1 Akmolinskie vesti, 1 Photoworld, 1 Gid, 1 Iz ruk v ruki, 2 Info tses, 1 Kazakhstanskaya Pravda, 2 Dolores, 1 Karavan, 3 Stroitel, 1 Za rulem, 1 Fashion (Moda), 1 Bulleten buhgaltera, bukhuchet, 2 Arka zhary, 2 Lovi moment, 2 Novaya, 2 Stepnoi mayak, 2 Burda, 2 Risk business, 3 Krysha, 3 Almaty Atyrau East Kazakhstan Zhambyl Shjem sami,1 Aktoin,1 Business, 1 Business kurier, 1 Vechernyi Almaty, 1 Kazakh zerno, 1 VОstТ, 1 Yuzhnyi region, 1 Egemendy Kazakhstan, Super stil, 1 GBO, 3 Business i vlast, 1 1 NG, 1 Ak maiy,1 All local newspaper, 1 Region, 1 Kostanai agro, 1 Business life, 1 Kazakhstanskaya Pravda, 1 Argumenty i facty, 1 Lovi moment,1 Dolores,1 Karavan, 1 Novoe pokolenie, 1 Nurly, 1 Tamozhennoe delo, 1 Lyubimyi gorod,1 Egemendy Kazakhstan, 2 Burda,1 Spets technika, 1 Remark, 1 Moi gorod,1 Zaman zharshysy, 1 Obrazovanije, 1 Didar, 1 Region yug, 2 Koksy, 1 Sveinaya promyshlennost, 1 Nashe delo, 1 Taraz, 2 Alatay, 1 Polygraphiya freeflight, 1 Vokrug sveta, 1 Vremya, 4 Kolesa, 1 Hairs,1 Rudnyi Altai,4 Magnolia, 5 Stroitel, 2 Special educating literature, Advertisements, 2 Karavan,11 1 Agro i sector, 1 Teaching methodology,1 Books, 2 Kazakhstanskaya Pravda,15 Kazakhstanskyi vestnik, Zakon, 1 Arna,4 1 Pricheski, 1 Tsvetovodstvo,1 Spectr, 4 Finasny, 1 Krysha, 2 Zhetysu,2 Bulleten buhgaltera, 130
bukhuchet, 2 Academia stilya,2 Kommuna, 2 Vremya, 2 Kazakhstan magazine, 2 Pharmatseya, 2 Special newspaper on building material,2 Taldykorganskaya Atyrau, 4 гстгn,3 Vechernii Taldykorgan, Akzhaik,6 20 Catalogues (different), 3 Seven, 5 Bulleten buhgaltera, bukhuchet, 6 Tekeliiskiy rabotnik, 9 Ogni Alatau, 9 West Kazakhstan Karagandy Kostanai Kyzylorda Avtomir,1 Egemendy Kazakhstan,1 Bulleten buhgaltera, Akmeshit akshamy,1 bukhuchet,1 Oral oniri,3 Shugyla,1 Karavan,1 Syr boiy,1 Luybimyi gorod, 23 Shet shugylasy, 2 К, 1 Kazakhstanskaya Pravda,1 Informbirzha, 44 Ortalyk Kazakhstan, 3 NG, 1 NGT, 1 Iz ruk v ruki, 6 Kostanaiskie novosti, 1 KV, 1 Kurs, 1 Business i vlast, Lada, 1 Sezon, 1 RK nalogi, 1 Argumenty i facty, 1 ARS Commerts", 1 Fashion magazines, 1 Nogtevoi service, 1 Tupperware,1 Mary Kay, 1 Forbes, 1 Style, 1 Burda, 2 Khoroshee delo, 2 Catalogues, 2 Kazakhstanskaya Pravda, 4 Kyzylorda times, 5 Kurier, 8 Comu chto, 10 Mangystau Pavlodar North Kazakhstan South Kazakhstan Burda, 1 Atyrau, 1 Bulleten buhgaltera, 1 Kazakhstanskaya pravda, 1 Nogtevoi service 1 GBO, 1 Kazakh zerno, 1 Panorama Shymkenta, 1 Hair, 1 Luybimyi gorod, 1 Panorama nedeli, 1 Fashion magazines, 1 IREN, 1 Super stil, 1 Nedelya SKE, 1 Jrdabasy otary, 2 Tumba, 2 Nedelya SKE, 1 Severnyi Kazakhstan,3 Rabat, 2 Nasha gazeta, 3 Yurist, 1 Inform vest,4 Shara bara, 2 Zakon, 1 Yuzhyi Kazakhstan, 2 Stomatologiya, 1 Burda, 2 Norma, 2 Egemendy Kazakhstan,, 3 Zvezda Priirtyshiya, 3 Aigak, 3 Pavlodarskaya nedelya, 3 Ontustik Kazakhstan, 4 Yuridicheskaya gazeta, 4 Bulleten buhgaltera, bukhuchet, 6 GBO, 7 Kazakhstanskaya Pravda, 7 131
Table 3. Internet-sources used by entrepreneurs in regions to obtain business information, number of responses. Astana Almaty city Akmola Aktobe cloxon.ru,1 accounting sites, 1 foto.ru, 1 mail.ru, 2 Sites of different organizations, 1 tender.kz.1 slando.kz,1 zakon.kz, 2 business inform, 1 uchet.kz, 1 searching sites, 1 nur.kz, 1 Investitsyi, 1 Predprinimatel, 1 how to earn money, 1 Russian sites, 1 Russian goods (russkie KMG, 1 tovary), 1 searching sites, 1 keden.kz, 1 twitter.com, 1 Balance, 1 linkedin.com, 1 facebook.com, 1 egov.kz, 2 flight.kz, 1 goszakupki.kz, 2 twitter.com, 1 Searching sites,3 Skype, 1 Yandex, 5 egov.kz, 2 Google, 10 slando.kz, 2 Yandex, 2 zakon.kz, 3 Searching sites, 3 nur.kz, 4 Google, 8 mail.ru, 11 Almaty Atyrau East Kazakhstan Zhambyl goszakupki.kz, 1 densaulik.kz, 1 slando.kz, 1 bagish.kz, 1 10 kz, 1 pizzot-d, 1 salyk.kz, 1 salyk.kz, 1 damu.kz, 1 accounting sites, 1 Stroymart, 1 zakon.kz, 1 kerama maratsi, 1 Sites of different organizations, 1 damu.kz, 1 Zapchasti, 1 Kurs, 1 vse dlya shvei, 1 Tupperware, 1 monitor.net, 1 Forums, 1 zakon.kz, 1 Telemasterskaya, 1 Russian sites, 1 ziryon.kz, 1 Google, 3 salyk.kz, 3 Moscow sites, 1 Kolesa, 1 zakon.kz, 3 TPP, 1 light industry (legkaya promushlennost), 1 nur.kz, 4 sites for hairmakers, 1 news, 1 paints and varnishes, 1 Agriculture in RK and Russia, 1 Searching sites, 6 sites of producers and sales, 1 rbk.ru, 1 Google, 11 naseks.kz, 1, 1 mail.ru, 11 STV, 1 mobile.de, 1 productive, 1 Odnoklassniki.ru, 1 abiznes.kz, 1 Google, 2 all Internet sites, 2 mail.ru, 2 Atameken, 2 uk.kz, 2 facebook.com, 2 West Kazakhstan Karagandy Kostanai Kyzylorda elektronics.ru, 1 salyk.kz, 1 Google, 1 Google, 1 sites for cargo, 1 damu.kz, 1 goszakupki.kz, 1 mary kay, 1 Yandex, 1 all Internet sites, 1 salyk.kz, 1 132
enbek.kz, 1 Yandex, 1 Tupperware, 1 goszakupki.kz, 2 Design sites, 1 avon.kz, 1 EGZ, 3 Mekhanika, 1 Odnoklassniki.ru, 1 mir tesen.ru, 1 egov.kz/state sites, 2 Competitors sites, 1 Sites on construction, 2 enbek.kz, 1 salyk.kz, 5 damu.kz, 2 zakon.kz, 5 more about massage, 2 Searching sites, 5 mail.ru, 6 Mangystau Pavlodar North Kazakhstan South Kazakhstan ОРov.kг/, 1 goszakupki.kz, 1 graidorg.ru, 1 angelina.ru,, 1 ebay 1 mail.ru, 1 accounting sites, 1 agropolimer.kz, 1 ermitge.spb.ru, 1 Searching sites, 1 zakon.kz, 1 densaulik.kz, 1 bagish.kz,1 eais.rk, 1 Searching sites 1 hololfoods.com, 1 Lifeisphoto,1 ebay, 2 kazavto.kz, 1 mz.gov.kz, 1 Wikipedia, 1 zakon.kz, 2 predprinimatel, 1 unibet.com, 1 business inform, 1 torty.ru, 2 ural.keramika, 1 vkusnye recepty, 1 Dolores, 1 Odnoklassniki.ru, 2 rambler, 1 Kolesa, 1 TPP, 1 Krysha, 3 kerama maratsi, 1 mebel, 1 nik foto.ru, 1 Forums, 3 damu.kz, 2 TPP, 1 facebook.com, 1 Google, 4 Sites on agriculture, 2 prigotovlenie bluyd, 1 twitter.com, 1 Yandex, 4 goszakupki.kz, 5 akimat, 1 juvelir.com, 1 mamba.kz, 1 mail.ru, 2 newwoman.ru, 1 Odnoklassniki.ru, 2 bwin.com, 1 vkontakte.ru, 2 slando.kz, 2 salyk.kz, 2 fashion.com, 2 fashion.ru, 3 egov.kz/state sites, 4 vkontakte.ru, 4 Google, 6 mail.ru, 6 133
Appendix 3. Demand of Russia frontiers regions Kazakhstan border with 12 constituent entities of the Russian Federation: the Astrakhan Region (border section length 518 km), the Volgograd Region (240 km), the Saratov Region (552 km), the Orenburg Region (1880 km), the Chelyabinsk Region (869 km), the Kurgan Region (574 km), the Tyumen Region (168 km), the Omsk Region (1020 km), the Novosibirsk Region (317 km), the Altai Territory (844 km), the Republic of Altai (517 km). 26 million persons live in Kazakhstan bordering constituent entities of the Russian Federation. In turn, 7 regions of RoK border the Russian territory. Upon coming into force of the Customs Code of the Customs Union between Russia, Kazakhstan and Belarus, there were created conditions for further activation of foreign trade links between RF and RoK. In this connection, the huge potential of border cooperation, especially in the field of border trade, may be realized. Table 4. State of border trade between the Russian regions and Kazakhstan Russian regions Main cities Population (thousand persons) specify year of 2012 Astrakhan Volgograd Astrakhan, Akhtubinsk, Zhamensk, Kharabali Kamyzyak 2 Volgograd, Volzhski, Kamyshin, Mikhailovka, Uryupinsk 2 Regional import (million USD) 2010 Regional export (million USD) 2010 RoK import share % RoK export share % 1014.9 2 310.3 1 380.8 1 There are data on RoK share in total regional turnover: 14.4% 3 (2010) 2594.8 2 954.1 1 2565.2 1 2.06% 4 2010 2.18% 4 2010 Samara Saratov Orenburg Chelyabinsk Kurgan Samara, Tolyatti, Syzran, Novokuibyshevsk Chapayevsk Saratov, Engels, Balakovo, Balashov, Volsk 2 Orenburg, Orsk, Novotroitsk, Buzuluk, Buguruslan 2 Chelyabinsk, Magnitogorsk, Zlatoust, Miass, Kopeisk 2 Kurgan, Shadrinsk, Shumikha, 3214 2 1630.8 1 7934.4 1 NA NA 2508.8 2 621.5 1 1821.3 1 NA NA 2023.6 2 1114.6 1 2990.4 1 17.5% 5 2010 50% 5 2010 3480.1 2 2908 1 5138.1 1 There are data on RoK share in total regional turnover: 23% 6 (2009 ) 896.3 2 173.3 1. 221.1 1 There are data on RoK share in total regional turnover: 43% 7 (2007 ) 134
Russian regions Main cities Population (thousand persons) specify year of 2012 Kurtamysh, Dalmatovo 2 Regional import (million USD) 2010 Regional export (million USD) 2010 RoK import share % RoK export share % Tyumen Tyumen, Tobolsk, Ishim, Yalutorovsk, 3459.4 2 2156.8 1 45267.4 1 0.8% 8 2010 1.1% 8 2010 Zavodoukovsk 2 Omsk Omsk, Tara, Isilkul, Kalachinsk, Tavricheskoye 2 1974.8 2 424.3 1 6912 1 37.3% 9 2010 2.1% 9 2010 Novosibirsk Novosibirsk, 2686.8 2 2071.1 1 1680.9 1 NA NA Berdsk, Iskitim, Kuibyshev Barabinsk 2 The Altai Territory Barnaul, Biysk, Rubtsovsk, 2407.2 2 427.1 1 514.8 1 There are data on RoK share in total regional turnover: 31.4% 10 (2010 ) Novoaltaysk, Zarinsk 2 The Republic of Gorno-Altaisk, 208.4 2 30 1 44.3 1 NA NA Altai Mayma, Kosh-Agach, Turochak, Onguday 2 1 Regions of Russia. Socio-economic indicators, 2011 : http://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/publishing/catalog/statisticcollections/doc_113862350 6156 2 Wikipedia 3 http://bujet.ru/region/info/124531.php 4 The Volgograd Region in figures. The official edition. Territorial body of the Federal State Statistics Service of the Volgograd Region of RF. 2012. 5 Portal of the Orenburg Regional administration: http://www.orenburggov.ru/magnoliapublic/regportal/info/foreigncomm/borders.html 6 http://pravmin74.ru/sites/default/files/n/page/47/upload/prognos-2012-20141.pdf 7 http://www.euroruss-business.com/de/russiaann/kurganskaya-oblast/vneshneekonomicheskie-svyazi.html 8 Statistical yearbook (1999-2011). Statistics digest. Territorial body of the Federal State Statistics Service of the Tyumen Region of RF. 2012 9 5 Portal of the Omsk Regional administration. http://mec.omskportal.ru/ru/regionalpublicauthorities/executivelist/mec/international/nations/kazakhstan.html 10 Official site of the Altai Territory: http://www.altairegion22.ru/territory/foreign_ec/kaz.php The Astrakhan Region It borders with the West-Kazakhstan and the Atyrau region of Kazakhstan. There is an extensive network of highways and river routes in the region, sea ports (Astrakhan, Olya) are in operation, there is also the railway transport. Opening of a new highway bridge cross the Kigach border river on Astrakhan-Atyrau highway facilitated increase in turnover and transport cargo traffic in this direction. An issue of Atyrau-Astrakhan highway repair on Kazakhstan section of the ТntОrnatТonal transport МorrТНor Е-40is still topical. 135
Fields of cooperation between the Astrakhan Region and Kazakhstan are construction, shipbuildings provision of services. The important aspect of the regional cooperation in the basin of the Caspian Sea is participation of the Russian and the Kazakh companies in development of its hydrocarbon resources. Over 100 Astrakhan enterprises- participants of foreign economic activity conduct trading with the Kazakhstan partners 1. Over 50 sole proprietors of the Atyrau region are regular customers of the Astrakhan wholesalecommodity market of Andromeda CJSC (Russia). They purchase food products 2-3 times a week. Moreover, Kazakhstan entrepreneurs purchase and then export to RoK the household chemistry, household supplies, paintwork materials, toiletries. In June 2010 the branch of Astrakhan trading house was opened in Atyrau, they sell products of Astrakhan manufacturers: sausage products and gourmet foods, macaroni products, canned vegetables, stock fish. Import of these food products may be substituted. In institutions of the Astrakhan Region staff training on request of Kazakhstan companies is being conducted, and currently over one and half thousand citizens of Kazakhstan study there. Furthermore, citizens of the Republic of Kazakhstan actively take the opportunity of medical examination in health and diagnostic centers within the Astrakhan Region. The Volgograd Region It borders with the West Kazakhstan region of Kazakhstan. The Volgograd Region possesses favorable geographic location, being the main gates in the south of Russia with access to Iran, Iraq through the Caucasus and to India through the Republic of Kazakhstan. Lower reaches of the Volga and the Don rivers linked by the Volga-Don Ship Canal, create good conditions for transportation of various goods throughout the region from seaports of the European countries to navigation areas of Africa, Middle East 2. Dominant export items in trading of the Volgograd Region with the Republic of Kazakhstan are raw materials, metal goods, petroleum and petroleum products, chemical products, construction materials, food products, equipment. Traditionally exported goods from RoK are cotton fiber, scrap metals, chemical compounds. In accordance with the Agreement between the Governments of Russia and Kazakhstan, water from Pallasovskaya (the Volgograd Region) irrigation-feeder canal is supplied to Zhanybekskaya irrigation-feeder canal (Kazakhstan). The Samara Region It borders with the West Kazakhstan region of Kazakhstan. The Samara Region is one of the largest transportation nodes in Russia. Over 50% of goods imported to the West-Kazakhstan region from the Russian Federation pass through the highways in the Samara Region. The Samara Region exports to Kazakhstan petroleum and petroleum products, light vehicles, industrial machinery and mechanical devices, alcoholic beverages and soft drinks, plastics and plastic products, electrical machinery and equipment. Kazakhstan exports copper, copper goods, 1 Official portal of the Ministry of Economic Development of the Astrakhan Region http://minec.astrobl.ru/article/article/view/1116 2 Web sites: ru.wikipedia.org/wiki/volgograd_; 136
ferrous metals, inorganic and organic chemicals, plastics and plastic products. The West- Kazakhstan region supplies gas condensate to the refineries of Samara. The Samara Region and Kazakhstan actively cooperate in many fields, in particular, agriculture and industry. Products of Kazakhstan agri-industrial sector come to the Samara market, and Samara enterprises, their turn, actively cooperate with their Kazakh partners in the field of engineering manufacture, electrical energy industry, they develop the market of cars manufactured Kazakhstan,,, by AutoVAZ OJSC. 5 Russian-Kazakhstan Joint Ventures are operating within the region. The Saratov Region It borders with the West Kazakhstan region of Kazakhstan. Two crossing points over the state border of the Russian Federation are located in the territory of the Saratov Region. Since 2010 the investment project for construction of trade, exhibition, transport and logistics center OгТnkТ on tсо borноr oп tсо Saratov Region and the West Kazakhstan region is under realization. Railroad occupies the leading position in the transport network of the Saratov region. There is an extensive network of highways (13,741 km). It is also planned to construct sections of the regional highways with organization of crossing points Alexandrov Gai Kaztalalovka (Kazakhstan), with length 15 km and Maly Uzen - Talovka (Kazakhstan) with total length of 23 km in the Pitersky district. These highways will provide accesses to the centres with population size over 100 persons, and communication with near-border settlements of Kazakhstan. Annuallв tсо RОpublТМ oп KaгakСstan anн AНmТnТstratТon oп SaratovmОlТovoНkСoг МonМluНО the contract for water supply to the West-Kazakhstan region of the Republic of Kazakhstan. It is supplied through the Bolshoy and the Maly Uzen rivers rising from the territory of the Saratov Region and falling into the Kamysh-Samarskiye lakes of the Republic of Kazakhstan. Structure of export to Kazakhstan consists of products of machine-building, defence, tobacco, furniture, construction, glass and chemical industry. Enterprises of the Saratov Region supply to Kazakhstan glass plate, portland cement, dimming heat-resisting glass (Saratov Glass Institute OJSC; Saratovstroysteklo OJSC, Saratovinteriersteklo CJSC), ceramic bricks, mineral fertilizers (Balakovskiye Mineral Fertilizers OJSC), furniture and accessories (furniture plants «Mariya, SСatura, EmПa, FurnТturО FaМtorв No.2 CJSC, EnРОlskaвa FurnТturО FaМtory CJSC), fabricated rubber products, chemical fiber and yarn, metal structures, household chemistry and cleaning agents, refrigerators and freezers, wallpaper (Saratovskiye Oboi OJSC), etc. Competitive food products supplied to Kazakhstan are vegetable oils, alcoholic beverages, meat, flour. Main exporters are: Engelsky Trubny Zavod CJSC; Balakovorezinotechnika OJSC; Contact NPP OJSC; Electroistochnik OJSC; Saratovsky Polygraphcombinat OJSC; Electrodetal CEMZ OJSC; Sarenergomash OJSC; Gazapparat OJSC; Saratovsky Zavod Rezervuarnykh 137
Metallokonstruktsy AP CJSC; Neftemash OJSC - SAPKON; Plant of Independent Power Sources OJSC; Tantal OJSC. Tantal OJSC and Saratovsky Zavod Rezervuarnykh Metallokonstruktsy AP CJSC import products from the Republic of Kazakhstan. The Orenburg Region It borders with the West Kazakhstan, Aktobe and Kostanai regions of Kazakhstan. The Orenburg Region possesses extensive transport system which includes enterprises of railway, road, air and pipeline transport. Transit freight and passenger traffic passes in the НТrОМtТon CОntОr CОntral AsТa anн WОst East. The Orenburg Region is one of the largest partners of Kazakhstan in overall trade and economic cooperation of RF and RoK. At the end of 2010, its share is over 10.0% foreign trade volume between Russia and Kazakhstan. Share of Kazakhstan in foreign trade turnover of the region is about 30% 3. 85 enterprises with participation of Kazakhstan capital are registered in the Orenburg Region. Large joint investment projects are implemented with the Republic of Kazakhstan. One of the important trends for development of cooperation between the Orenburg Region and Kazakhstan is joint realization of agricultural projects. Orenburg-Ivolga OOO was established in the territory of the region, which is a part of Kazakhstan agri-industrial holding Ivolga Holding LLP. Main area of company activity is corn growing. Currently, Orenburg-Ivolga farms 370 thousand hectares of arable land, that is 4.7% of all agricultural land in the Orenburg Region. The Orenburg Region cooperates with the Republic of Kazakhstan in the space sphere as well. TСО ТntОrnatТonal spaмо proрrammо DnОpr Тs suммоssпullв rоalтгон Тn tсо tоrrтtorв oп tсо rортon, which coordinator is Cosmotras International Space Company. The Orenburg Region delivers to the Republic of Kazakhstan petroleum products, liquified gas, mineral fertilizers, ferrous and non-ferrous metals and metal handicrafts, electric motors, agricultural engineering, machines, equipment, construction materials, foodstuffs, consumer goods, fertilizers, asbestos 4. From the Republic of Kazakhstan, the region receives fuel and energy industry products, raw materials and semi-products for support of production technological processes, ferrous metals and handicrafts, chrome iron ore, ferrous-based alloys, cement stock, quartzite, inorganic chemical products, engineering products, food products. In educational institutions of the Orenburg Region, 1,299 citizens of Kazakhstan are learning. 605 of them in Institutions of Higher Education, 290 - in academy and specialised secondary educational establishment, and 334 are learning in general educational institutions. 3 Regions of Russia. Socio-economic indicators. 2011:32 Statistics digest /Rosstat., 2011 990 4 Portal of Administration of the Orenburg Region http://www.orenburg-gov.ru 138
The Chelyabinsk Region It borders with the Kostanai region of Kazakhstan. Federal roadways and the South-Ural railway, which is the line of the main Trans-Siberian railway pass through the region. The region possesses the richest touristic resources. Basis of the Chelyabinsk Region export to the Republic of Kazakhstan are ferrous metal industry products, food products, engineering products, inorganic chemical products, lighting fittings. Exporting enterprises: MMK OJSC (carbon steel products); CHMK OJSC (carbon steel bars); Satkinsky Ironworks CJSC (ferromanganese); Magnesite Group OOO (periclase powder); South- Ural Valve and Isolator Plant OJSC (line iron cast hardware, suspended glass insulators); Ashinsky Metallurgic Plant OJSC (hot-rolled plate); CHEMK OJSC (ferrosilicium); Ural Automobile Factory OJSC (truck spares); CHTPZ OJSC (steel seamless pipes); YUTEK (spare parts for tractors and autograders, food products); CHTZ URALTRACK (agricultural equipment and spare parts). Main import items of the Chelyabinsk Region from the Republic of Kazakhstan non-ferrous metal products, mineral products, concentrates, food products. Importing enterprises: MMK OJSC (iron-ore pellets, concentrates); Kyshtymsky Copper-Electrolytic Plant (raw crude copper); CHEMK OJSC (manganese concentrate); Branch of OGK-2 Troitskaya GRES OJSC (pit coal); Karabashmed CJSC (copper concentrate); CHMK OJSC (iron-manganese concentrate); CHTSZ OJSC (zinc concentrate); Makfa OJSC (durum wheat); Oxide Chelyabinsk Chemical Plant OOO (zinc metal); Satkinsky Ironworks CJSC (manganese ore). The Kurgan Region It borders with the Kostanai and the North- Kazakhstan regions of Kazakhstan. Electrified Trans- Siberian Railway Main Line passes through the region, as well as main oil and gas pipelines, highways which total length is 12,485 kilometers. In 2010 the Kurgan Region exported to the Republic of Kazakhstan machineries, equipment and vehicles, food products and raw materials for their production, metal and handicrafts, wood and woodworks, chemical industry products. Machinery and equipment, food products raw materials for their production, mineral commodities are imported from the Republic of Kazakhstan. The biggest importers from Kazakhstan are: Trans-Terminal, Kurgan Generation Company OJSC, Steel Industrial Company CJSC 5. In 2010 Kurgan agricultural holding concluded 5 contracts with farm enterprises of Kazakhstan and delivered to them cereal and leguminous crop seeds for sowing. To AgroSoyuzKazakhstan Association they delivered seed grains (pea and wheat) for state testing in climatic conditions of 5 Official web-site of Administration of the Kurgan Region http://www.kurganobl.ru/ 139
the North-Kazakhstan and Kostanai regions. Experts of Kurgansemena CJSC continuously hold consultations with experts of the Republic of Kazakhstan concerning seed breeding and agrotechnologies for growing of varieties. The Tyumen Region It borders with the North- Kazakhstan region of Kazakhstan. Trans-Siberian Railway Main Line and federal highway pass through the region providing transit from Moscow to Vladivostok without entry to territories of adjoining states. Customs post and the single automobile crossing poтnt KaгanskoвО loмatон on tсо СТРСаaв IsСТm Kazanskoye border of Kazakhstan (2 km from the state border) are operated in the Region. The Republic of Kazakhstan is among the main foreign trade partners of the Tyumen Region. The structure of export of goods to Kazakhstan there is a prevalence of lead accumulators, animal products, instrumentation and measuring devices, vessels and boats, industrial equipment, PVC profiles, glued wood, converted timber, particleboards. Also export of the following goods to Kazakhstan is significant: ferrous metal items, furniture, pharmaceutical products, crude oil, petroleum products, fancy baked goods, organic chemical compounds. The following occupies the dominant position in the structure of import from Kazakhstan: vegetable produce, fruits, lead (refined), separate types of engineering products manufactured within the existing production cooperation between Kazakhstan and Tyumen enterprises (cranes, valves, flaps, connection shafts, bearings, transmission gears, other similar products). In the agricultural sphere, there is an active sharing of experience with agricultural methods of grain growing using on intensive technology. For urban redevelopment and greening in the Republic of Kazakhstan, permanent grass seeds selected in the Agricultural Research Institute of Northern Transurals (Russia) are delivered. The Omsk Region It borders with the North- Kazakhstan and Pavlodar regions of Kazakhstan. The most important transport corridor of the region is the Main Trans-Siberian Railway, which links to the Middle- Siberian railway. The following highways pass throughout the Omsk Region: 51 (a section of the European route of Е30 and the Asian route of А6), 38 (a section of the European route of А 60), 402. The Republic of Kazakhstan leads among the main trade partners of the Omsk Region. Turnover of commodities between the Omsk Region and Kazakhstan is in keep surplus within the long period of time. Kazakhstan BIOHIM company in cooperation with the Russian group of companies Titan performed in the North-Kazakhstan (Kazakhstan) construction and commissioning of crop highlevel processing plant for generation of high-octane gasoline additives. Add-on products included protein-rich additives for food industry and compound animal feedstuff. Since 2010 the 140
Russian group of companies Titan has been performing construction of the biocluster in the Omsk region considering experience of Kazakhstan 6. The basis of export from the Omsk Region to Kazakhstan is formed by chemical complex products; equipment, mechanical devices, electrical machinery and their parts; food products, vehicles. The Omsk Region possesses good potential for development of food products export. Production of the most important types of food products in the region exceeds consumption that creates required prerequisites. Coal reserves 35% in the structure of import from Kazakhstan to the Omsk Region. Equipment, agricultural raw materials, mechanical devices and their parts, food products are also imported to the region. The Novosibirsk Region It borders with Pavlodar region of Kazakhstan. Federal crossing points continuously operate on the border of two states: manysided automobilо Pavlovka, manвsтнон raтlаaв Karasuk, aтr TolmaМСОvo. MorОovОr, tсоrо аоrо НОtОrmТnОН 6 poтnts oп МrossТnР oп tсо StatО BorНОr 7. Cross-border cooperation of the Novosibirsk Region with the Republic of Kazakhstan is built on the basis of the Intergovernmental Agreements and the Cross-border cooperation conception of the Russian Federation. 38 Russian-Kazakh joint ventures are currently registered in the Novosibirsk Region 8. Enterprises in the Novosibirsk Region annually deliver to Kazakhstan electrical machinery and equioment, inorganic chemical products, wood, tin metal, pharmaceutical products, graphitized electrodes, optical instruments and devices. The most close connections are formed with Pavlodar region. The Pavlodar enterprises actively cooperate with: Sibelectrotherm OJSC, Iskra FSUE, Novosibirsk Electrode Plant OJSC, Kuzmin Novosibirsk Metallurgic Plant OJSC. Production plants of the East-Kazakhstan region are potential consumers of wide range of products manufactured by the Novosibirsk enterprises. Kazakhstan mainly delivers fruits and vegetables, chemical products for needs of Novosibirsk Chemical Concentrate Plant OJSC. Kazakhstan enterprises like Ulba Metallurgical Plant JSC, Kazzinc JSC, Ust-Kamenogorsk Titano-Magnesium Factory JSC are the high volume exporters of their products both for enterprises of the Novosibirsk Region and the Russian Federation as a whole. The Novosibirsk Region is one of the largest scientific centers of the Russian Federation. Education complex of the Region includes over 45 Institutions of Higher Education, 62 intermediate vocational educational institutions, Novosibirsk campus, Koltsovo Science 6 Portal of foreign economic relations of the Ministry of Economic Development of the Russian Federation http://www.ved.gov.ru/exportcountries/ 7 http://ru.wikipedia.org 8 Portal of foreign economic relations of the Ministry of Economic Development of the Russian Federation http://www.ved.gov.ru/exportcountries/ 141
Town, Siberian department of the Russian Academy of Agricultural Sciences 9. Over 1.6 thousand students from Kazakhstan are learning currently in the academic institutions of the region. The Altai Territory It borders with Pavlodar and the East-Kazakhstan regions of Kazakhstan. The Altai Territory has the extensive road system. Federal highways connecting transport infrastructure with the Republic of Kazakhstan pass throughout the region: А349 (Barnaul Rubtsovsk state border with Kazakhstan), 371 (Aleisk Rodino Kulunda state border with Kazakhstan). The most heavy-traffic line of the territory is Novosibirsk Barnaul Semipalatinsk. It lets passing heavy transit traffic from the areas of the Western and the Eastern Siberia to Kazakhstan and Central Asia. The flow of stone coal from Kuzbass passes to Lokot station (Russia), where it is divided to Semipalatinsk and Ust-Kamenogorsk directions over Kazakhstan. The flow of timber cargo from the Eastern Siberia is directed via Barnaul, Semipalatinsk to Central Asia. A part of coal and timber flows arriving from the east to Altayskaya is divided between the South and he Middle-Siberian main railways. Main export items from the Altay territory to Kazakhstan include charred coal and coal char of stone coal (Altay Charred Coal OJSC), railway cars, wood and woodwork, boiler equipment and its parts, rubber tyres, bags and flaps (Altay Tyre Factory), ferrous metal items, food products hard and melted cheese, instant skimmed milk powder, full cream milk powder, spreds, rennet cheese (Slavgorodsky Dairy Plant), pharmaceuticals and vitamins (Altayvitamins CJSC and Evalar CJSC). As well, 50 % of total volume of exported from the territory engineering products refers to the Republic of Kazakhstan. Enterprises of the construction sector of the Altay territory located in the frontier zone deliver construction products (crushed stone, gravel, lime, walling materials, brick) to the Republic of Kazakhstan. Kazakhstan imports to the Altai Territory fruits, vegetables and root crop, rice, barley, fish, flatrolled products, stone coal, condensates, paper and cardboard packages. About 40% of food products imported to the Altai Territory are imported from Kazakhstan. The Republic of Altai It borders with the East-Kazakhstan region of Kazakhstan. Due to its geographical and landscape peculiarities, road and air (only domestic flights) transportation are the most developed in the Republic of Altai. Over 90 per cents of all transportation are carried by road. The basis of the road network is formed by the federal roads connecting the Novosibirsk Region, the Altai Territory, The Republic of Altai with Mongolia and China. Main foreign trade partners of the region are: Korea 45.1%, Hong-Kong 23.8% and Mongolia 24.7 %. Pharmaceutical products (unossified antlers of marals) were supplied to Korea and Hong-Kong 10. 9 Web-site of Administration of the Novosibirsk Region http://www.nso.ru 142
Kazakhstan is one of three main foreign economic partners for the Republic of Altai (after China and Mongolia). Cross-border trade of the Republic of Altai with Kazakhstan does not develop dynamically enough, despite its huge potential. It is planned now to conclude an Agreement on Cross-border Trade and Economic, Scientific and Technological, and Cultural Cooperation between the Government of the Republic of Altai of the Russian Federation and the Akimat of the East-Kazakhstan region of the Republic of Kazakhstan. This measure will allow expending opportunities for cross-border trade as well. Conclusion The Republic of Kazakhstan and the Russian Federation dynamically develop their cross-border relations. Forums for Interregional Cooperation (e.g. IX Forum for Interregional Cooperation was conducted on 18-19 September, 2012, in Pavlodar, Kazakhstan) are conducted on a regular basis. It was aimed to development of the partnership in the field of innovations, industrial cooperation and gave a new impetus to trade and economic relations. The Subcommittee for Interregional and Cross-border Cooperation of the Intergovernmental Committee for Cooperation between Russia and Kazakhstan works, on its sessions problems arising during cross-frontier operations are considered and solved. Nevertheless, the most important issue of the cross-border cooperation is further formation of its legal basis. For this ОnН, Тt sооms to bо Тmportant to aнopt Тn RussТa oп tсо FОНОral Laа On Cross-border CoopОratТon anн tсо sтmтlar act in Kazakhstan. Kazakhstan regions adjoining to the Russian regions may significantly activate their business relations, making use of benefits of the Customs Union and the Single Economic Space. Kazakhstan occupies the leading position in the foreign trade of at least 5 border areas of Russia Chelyabinsk, Kurgan, Omsk, Orenburg, the Altay Territory. High performance of bilateral trade of Kazakhstan with the Astrakhan Region, considering economic opportunities of its adjoining Atyrau region of RoK. The substantial potential for interregional potential of two states in Novosibirsk, Saratov, Samara Regions and the Republic of Altai. This is especially concerns the Republic of Altai, considering the fact that current statistical indicators show weak cross-border relations of Kazakhstan with the Republic of Altai. The major part of the cross-border trade falls on fuel and power mineral resources, metals. The greatest proportion in export from the Republic of Kazakhstan to the Russian Federation belongs to metallic ores (30.9% of total export volume from the Republic of to the Russian Federation), mineral fuel (26.9%), ferrous metals and items (12%). Kazakhstan generally imports from Russia mineral fuel (26.9% of total goods import volume), machinery and equipment (15%), ferrous metals and items (12.3%). Negative balance of mutual trade between the Republic of Kazakhstan and the Russian Federation in 2011 was 7.9 billion USD 11. Nevertheless, there is the high potential for development of trade and economic relations between border areas of Russia and Kazakhstan in the following fields: consumer goods, 10 Russian Information Agency Siberia http://ria-sibir.ru/viewnews/47918.html 11 Investment: Facts and Comments. Investment Department of TPP of Russia. Edition No. 21, August 2012. www.tpprf.ru/common/upload/invest/ifk_21.doc 143
communication and innovative technologies, creation and use of the transport infrastructure, services. High cooperation demand may be observed in the fields of education (higher vocational education), health care, culture and sports. Establishing of Kazakhstan-Russian joint ventures is the most effective instrument of international regional cooperation currently available. Considering growing number of joint ventures operating in border areas, we may suppose further increase in this type of cooperation. Kazakhstan imporst from adjoining regions of the Russian Federation the wide range of goods: 1) natural raw material, petroleum and petroleum products, liquified gas, charred coal and coal char of stone coal, mineral fertilizers, ferrous metal products, non-ferrous metals (tin metal in particular), wood, 2) ferrous and non-ferrous metal objects, construction materials and structures, woodwork, converted timber, particleboards, PVC profiles, glued wood, asbestos, plastic products, engineering and shipbuilding products (in particular, vessels and boats), industrial equipment and mechanical devices, machines, railway cars, boiler equipment and its parts, rubber tyres, electrical machinery and electric motors, vehicles, lead accumulators, instrumentation and measuring devices, graphitized electrodes, optical instruments and devices, lighting fittings, 3) food products and raw materials for their manufacture, alcoholic beverages and soft drinks, fancy baked goods, hard and melted cheese, tobacco products, dairy products 4) separate types of chemical products, inorganic chemical products, organic chemical compounds, plastics, glass products, 5) agricultural commodities, animal products 6) consumer goods, light vehicles, furniture, pharmaceutical products and other drugs, 7) gas processing services. At the same time, it is difficult to give an unbiased appraisal of this import substitution opportunities due to lack of clear picture (segmented information) on manufacturability of border areas of Kazakhstan, the regional authorities have to work out this issue. Moreover, due to absence of required statistics, there are difficulties with detection of types of goods with backlog of demand in the markets of the border areas. Actually, production of all food goods (expect for fish), agricultural commodities, animal products, mineral fertilizers, cleaning agents imported from adjoining areas is quite possible in Kazakhstan, that will ensure import substitution in these groups of goods. Small and medium business potential in the cross-border cooperation is insufficiently used, especially in the sphere of cross-border services. It is expedient to support small and mediumsized business entities in the following issues: - products (services) promotion () to the international level and search for partners; - lowering of costs for passage of licensing procedures; - support of their exhibition and trade fair activities; - provision of availability of credit resources under export contracts; - creation of favorable investment climate in order to increase number of small and mediumsized business entities manufacturing export goods (works, services). 144
Appendix 4. Commodity groups of import from Customs Union and demand of Russia transfrontier regions Activization of external commercial relations between Kazakhstan and Russia, stimulation of interregional cooperation occur with the development of the Customs Union. Kazakhstan (the Atyrau, West Kazakhstan, Aktobe, Kostanai, North Kazakhstan, Pavlodar, East Kazakhstan Provinces) has borders with 12 regions of Russia: the Astrakhan, Volgograd, Saratov, Samara, Orenburg, Chelyabinsk, Kurgan, Tyumen, Novosibirsk, Omsk Regions, the Altai Territory and the Republic of Altai. In 2011 imports to Kazakhstan from Russia amounted to 15.3 billion U.S. dollars (which is 25 times larger than the volume of imports from Belarus) and export is a half of import amounted to 7.4 billion U.S. dollars (which is 70 times smaller than the export to Belarus). A quarter of imports to Kazakhstan from Russia is accounted for the crude oil and gas condensate (2.5 billion USD) and petroleum products (1.2 billion U.S. dollars). In general, the import volumes for certain categories are the following (million U.S. dollars): Mineral 5115.8 Food products 1751.9 Metals and products from them 1671.9 Transport vehicles 1330.3 Plant and equipment 962.1 Tools, installations 897.3 Polymers and plastic materials 854.8 Wood, paper 735.6 Electrical equipment, communication 598.8 Stone, glass 449.7 Cosmetics 276.6 Furniture 242.0 Optics, measuring instruments 193.2 Chemicals, explosive agents, photographic tape 153.7 Fertilizers 145.4 Pharmaceutical products 125.6 Clothes, footwear 97.0 Textiles 87.1 Leather 9.5 Two-fold excess of import volume over export suggests that the goods of domestic producer are not competitive and cannot satisfy the demand in the domestic market, even for minerals and petroleum products. Also it applies to other areas related to agriculture, consumption of population as well as industrial products including equipment. If the mineral commodities which constitute 33% of imports are excluded, the Figure of imports from Russia and Belarus will be as follows: 145
Figure 1. Structure of imports to Kazakhstan from Russia and Belarus in 2011 excluding mineral substances. Optics, measuring instruments 2% Furniture 2% Cosmetics 3% Chemicals, explosive agents, photographic tape1% Fertilizers 1% Clothes, footwear 1% Textiles 1% Pharm.products 1% Leather 0% Stone, glass 4% Electrical equipment, communication 6% Wood, paper 7% Polymers and plastic materials 8% Tools, installations 8% Plant and equipment 9% Food products 17% Metals and products from them 16% Transport vehicles 13% The detailed information on imports in U.S. dollars by 2011 from the reports of the Customs Union Commission 12 on the commodity composition of mutual trade of Member States of the Customs Union is given below. The range of codes of the Foreign Economic Activity Commodity Nomenclature of the Customs Union in separate category is specified within brackets. 12 http://www.tsouz.ru/db/stat/pages/internal_stat.aspx 146
Food products (0101-2501) The most large-scale import, measured in hundreds and tens of millions of U.S. dollars, is observed in approximately 40 product categories with a total share in the import of about 1.73 billion U.S. dollars from 1.75 billion of all food products. These are such products as chocolate and cocoa-products 130.5 million, milk and cream concentrated and dried 114.9 million, bread and flour confectionery goods 109.7 million, other food products 101.3 million, sugar 97.5 million, sunflower oil 87.2 million, tobacco products - 87.1 million, sausages 71.5 million, beer 64.8 million, sauces and condiments 52 million, sugar confectionery 45.8 million, yoghurt, kefir 44.4 million, macaroni products 44.4 million, margarine 41.7 million, cheese and curd 39.8 million, meat and by-products of barn-door fowl 38.2 million, water (lemonades) 33.6 million, distilled spirits 30.9 million, prepared and preserved fish 28.9 million, preserved vegetables, fruits and nuts 27.7 million, products for animal feed 24.8 million, tobacco and manufactured tobacco substitutes 24 million, preserved without vinegar 22.6 million, butter 21.3 million, ice cream 20.7 million, malt 19.6 million, coffee and tea extracts 19.1 million, juices 18.9 million, tea 18.8 million, shell eggs 18.6 million, milk and cream not concentrated 16.7 million, jams, jelly, marmalades, sauce 16.1 million, meat conserves 16.1 million, frozen fish 13.3 million, rice 10.2 million, processed cereal grains 10.1 million, soups and broths 10.1 million. The second echelon with the import volume in the limit of 10 million are the following products: prepared food products obtained by the swelling and roasting of food grains 8.7 million, raw tobacco 7.5 million, vegetables, fruits and nuts preserved with vinegar 6.4 million, barley 5.9 million, grits and small grains 5.8 million, frozen beef 5.7 million, animal and vegetable oil and butter 5.2 million, dried, salted smoked fish 4.6 million, mineral water 3.8 million, alive barn-door fowl 3.7 million, yeasts and yeast-powder 3.7 million, sunflower seeds 3.6 million, alive cattle 2.5 million, juices and extracts 2.5 million, other sugar (lactose, fructose, glucose) 2.4 million, salt 2 million, fresh and cooled beef 1.7 million, seeds for sowing 1.7 million, starch 1.3 million. In fact, all food products, except, perhaps, the fish, it is possible to produce in Kazakhstan. The main problem is the noncompetitiveness of prices in comparison with the production in Russia, where, on the one hand, the economies of scale, availability of transport and storage infrastructure are used and on the other hand - lower administrative barriers, including banking. It is likely that the reduction of tax and bank rates along with the more advanced marketing and sales strategy can provide the basis for import substitution of all commodity groups including the processing of coffee, tea and spices. Million U.S. dollars Chocolate and other prepared food products containing the cocoa 130.5 Milk and cream concentrated and dried 114.9 Bread and flour confectionery goods 109.7 Other food products 101.3 Sugar 97.5 Sunflower oil 87.3 Tobacco products 87.1 Sausages and similar products of meat 71.5 Beer 64.8 147
Products for preparation of sauces, prepared sauces and combined spices 52.0 Sugar confectionery (including white chocolate) 45.8 Macaroni products 44.4 Buttermilk, yoghurt, kefir 44.4 Margarine 41.7 Cheese and curd 39.8 Meat and by-products of barn-door fowl 38.2 Water including mineral and aerated, with sugar 33.6 Distilled spirits 30.9 Prepared or preserved fish, roe 28.9 Fruits, nuts, prepared or preserved in another way 27.7 Products for animal feed 24.8 Tobacco and manufactured tobacco substitutes, tobacco extracts and 24.0 essences Other vegetables prepared or preserved without vinegar, unfrozen 22.6 Butter 21.3 Ice cream 20.7 Malt 19.6 Extracts, essences, concentrates of coffee, tea, mate, coffee substitutes 19.1 Fruit and vegetable juices 18.9 Tea 18.8 Shell eggs 18.6 Milk and cream not concentrated 16.7 Malt extract, prepared food products from flour, grits, starch 16.6 Jams, jelly, marmalades, fruit and nut puree with sugar 16.1 Prepared or preserved meat products 16.1 Frozen fish 13.3 Rice 10.2 Processed cereal grains 10.1 Prepared soups and broths, homogenized products 10.1 Bananas 10.1 Prepared food products obtained by the swelling and roasting of food grain 8.7 Raw tobacco 7.5 Vegetables, fruits and nuts preserved with vinegar 6.4 Palm oil 6.1 Barley 5.9 Grits and small grains 5.8 Frozen beef 5.7 Edible animal and vegetable oil and butter 5.2 dried, salted smoked fish, processed in another way 4.6 Cacao beans 4.0 Wheat 3.8 Mineral water 3.8 Alive barn-door fowl 3.7 Yeasts and prepared yeast-powders 3.7 Sunflower seeds 3.6 Citrus fruits 2.8 Wheat flour or mixed wheat flour 2.8 Juices and extracts vegetable 2.5 Other types of sugar including the chemically clean lactose, maltose, 2.5 glucose and fructose Alive cattle 2.5 148
Salt 2.0 Other fresh fruits 2.0 Prepared or preserved crustaceans, shellfishes 1.9 Dried bean vegetables 1.8 Fresh and cooled beef 1.7 Frozen vegetables 1.7 Seeds for sowing 1.7 Crustaceans 1.4 Starch 1.3 Buckwheat, millet and other small grains 1.3 Shellfishes 1.2 Dried, crushed or cracked pepper 1.2 Preserved vegetables for short-term storage 1.0 Coffee 1.0 Fresh apples, pears and apple-quinces 1.0 Mineral and organic substances (2503-2934) Crude oil and gas condensate 2 502 million and petroleum products 1 230 million U.S. dollars, coke and coal char 221.9 million, oil coke and oil bitumen 131.3 million, ores and concentrates of precious metals 125.5 million, lead ores and concentrates 118 million, cement 77.2 million, natural and liquetied gases 67.4 million, compounds with other nitrogen-containing groups 60.7 million, sulphates, alum, peroxysulfates 56 million, bitumen mixture on the natural resins 33.7 million, compounds with amine-containing group 30.7 million, black coal 29.2 million, sulphuric acid 23.2 million, inorganic acids and other oxygen-containing compounds of nonmetals 22 million, sodium and kalium peroxides and hydroxides 21.9 million, acyclic alcohols 18.3 million, ores and concentrates of rare metals 10.4 million. Less than 10 million: hydrochloric acid 8.5 million, chlorides, bromides, iodides 7.8 million, organosulfur compounds 7.3 million, pebble, gravel, crushed stone 3.8 million, oxides and magnesium carbonate 4.9 million, zinc ores and concentrates 4.3 million =, silicates 3.7 million, natural sands 3.3 million, acyclic, monocarboxylic saturated acids 3 million, other clay 2.8 million, ammonia 2.5 million, nitric acid 2.3 million, gypsum, anhydrite, plasters 2.3 million, peat 2.1 million, amino compounds with oxigen-containing group 1.9 million, phosphor salts 1.9 million, fluor, chloride, bromine, iodine 1.8 million, hydrogen, inert gases 1.7 million, lime flux, limestone 1.7 million, lime carbonate 1.6 million, hypoclorides 1.7 million, heterocyclic compounds containing the nitrogen 1.5 million, iron hydroxides and oxides 1.5 million, carbon 1.4 million, hydrazine, cyclic hydrocarbons 1.3 million, ammonium hydroxides, salts 1.1 million, hydroxylamine 1.1 million, It is necessary to support the small-scale raw materials industry and chemical industry for the import substitution of most mineral and organic substances, considering that Kazakhstan has almost all kinds of these compounds. Pharmaceutics (2935-3006) Medicines prepackaged for the retail sale 96.8 million, vaccines, serums 17.8 million, medicinal cotton, cheesecloth, bandages 8.8 million, other pharmaceutical products 1.8 million. 149
The market of pharmaceutical products exceeds 120 million U.S. dollars, that hides a large potential for import substitution, at least on the vaccines and serums, medicinal cotton and bandages as well as more complex medicines. Here, attention should be paid to transfer of technologies. Fertilizers and paints (3101-3215) Paints and varnishes based on synthetic polymers in non-aqueous media 56.9 million, nitrogenous fertilizers 40.4 million, caulking compound, spackling paste 15 million, potassium fertilizers 5 million, synthetical organic coloring agents 4.5 million, other paints and varnishes 4.7 million, mixed mineral fertilizers 3.4 million, painter's paints of all types 3.6 million, pigments in non-aqueous media, stamping foil 1.7 million, other coloring agents 1.3 million. Almost all types of products in this category Kazakhstan exports to the countries of the Customs Union that means an availability of necessary conditions for their production. That is why, it is necessary to expand and distribute the experience because the raw material exists. Cosmetics and hygiene (3301-3599) Surface active agents, washing and cleaning agents 111.2 million, beauty products for skin care, color cosmetics 41.7 million, soap 34.5 million, hair care product 31.1 million, teeth and oral cavity hygiene preparations 13 million, shaving preparations, deodorants, compositions for bath 11.7 million, perfumes and toilet waters 5.2 million, mixtures of aroma compounds 4.3 million, lubricating materials 3.8 million, shoe polish, cleansers, polishes 3.8 million, dextrins, modified starches, glues based on them 1.9 million, modeling pastes, products for dentistry 1.8 million, ferments 1.2 million U.S. dollars. Import of cosmetics and cleaning agents reaches up to 3% (!), that is, of course, quite sad. The available productions of cosmetics and cleaning agents were unable to compete, though, in case of creation the necessary conditions the import substitution at a level of 30% of the current import volume is possible for almost all products. Chemicals, explosive agents, photomaterials (3501-3823) Antifreeze compositions and de-icing fluids 32.5 million, insecticides, herbicides 24.6 million, antidetonants, antioxidants, inhibitors, densifiers 16.7 million, diagnostic reagents 16.1 million, explosive agents,except gunpowder, 13.7 million, glue and bonding agents 8.4 million, blasting and detonating fuses, blasters, electric detonators 7.9 million, compound organic solvents and vehicles 7.5 million, matches 7.6 million, fireworks, signal flares, pyrotechnic products 4.8 million, brake fluids 2.6 million, lye 2.5 million, initiators, catalysts and promoters of chemical reactions 2.2 million, activated carbon 2.2 million, cinefilm 2 million, fire cements 1.8 million. The creation of manufacture on these categories of goods in the volume of 10-20% is possible in the presence of state support and guaranteed sales. Polymers, plastic materials (3824-4017) 150
Tires 249 million, ethylene polymers 102.3 million, plastic containers 91.1 million, pipes, tubes, hoses 49.2 million, simple polyacetals and polyether, epoxide resins 41.8 million, monofilament of more than 1 mm, rods, sticks and plastic profiles 31.8 million, plates, constructional elements made of plastics 30 million, unsupported, nonlamellated, unreinforced, poreless sheets, plastic film 27.9, million, other plates, sheets, plastic film 27.3 million, plastic products 25.2 million, ware, household items made of plastic 19.6 million, conveyor belts, transmission belts of vulcanized rubber 17.9 million, pipes, tubes, hoses of vulcanized rubber 15.2 million, vulcanizing goods 12 million, synthetic gum 7.9 million, plastic sanitary wares 4.4 million, rubber bags 4.1 million, plates, sheets, strips, rods of vulcanized rubber 3.8 million, clothes and accessories of rubber 2.4 million, hygienic or pharmaceutical products of rubber 1.2 million. The raw material exists, it is necessary to create a production. The import substitution is possible, at least for items such as containers, plastic bags, tubes and hoses. The main requirement is the quality standards. Leather (4101-4399) Carpetbags, suitcases, cases, briefcases, boxes, ladies handbags 5.1 million, cattle leather additionally prepared after tanning 2.8 million. Despite the fact that Kazakhstan has the raw materials, the competitive advantage in the form of design weakness and product promotion is absent among the local producers. It is not recommended for the import substitution. Wood, paper (4401-4999) Flake boards 105.8 million, sawn timber 83.4 million, building millworks 70 million, uncoated paper, paperboard for graphical purposes 62.5 million, paper, paperboard, cotton wool of cellulose fibers 43 million, other uncoated paper, paperboard 34 million, containers of paper and paperboard 24.3 million, newspapers, magazines 17.4 million, printed books and booklets 16.3 million, office supplies of paper and paperboard 10.1 million, labels and stickers of paper, paperboard 7.7 million, paper, paperboard and other products from them 4.4 million, coated paper and paperboard 2.6 million, picture books, children's books for drawing 1.3 million, vegetable parchment, calking paper, glassine paper 1.3 million. Lack of raw materials makes it impossible to import substitution of these goods. Wool, silk, cotton (5001-5911) Cotton wool 11 million, linoleum 9.8 million, bonded fabrics 6.1 million, tufted carpets and floor coverings 4.4 million, industrial textile 4.3 million, twines, cordages, ropes and cables 4 million, felt 2.3 million, synthetic fabric with the addition of other fibers 2.3 million, bonded fabrics 2.3 million, pile fabrics and of chenille 1.3 million, textile hoses 1.1 million. The import substitution is possible in the volume of 20% of current imports. Clothes, footwear, fabric (6001-6799) Footwear with uppers of real leather 22.6 million, textile men's wear 9.5 million, other finished knitted and textile products 4.2 million, legwear garment 3.8 million, sweaters, 151
pullovers 3.7 million, textile ladies' outerwear 3.6 million, bags and packing bags of textile materials 3.5 million, footwear with uppers of textile materials 3.5 million, textile men's outerwear 3.4 million, corselet 3 million, bedclothes, diaper clothes, kitchen linen 2.9 million, sleeveless sports shirts, textile ladies' wear 2.8 million, knitted jersey 2.3 million, textile sweatsuits 1.7 million, textile gloves, gantlets 1.7 million, other headgears 1.1 million. Taking into account a lot of pressure from the Chinese and Kyrgyz producers differed by low labor costs, the import substitution is not recommended on these product groups, the more especially as they are less than 1% of total imports. Stone, glass, ceramics (6801-7199) Glass containers 108.6 million, glazed ceramic tiles 54.1 million, polished glass 40.1 million, fireproof ceramic materials 35.3 million, fiberglass 34.1 million, slag wool 30.8 million, soft roofing materials 29 million, product of asbestos-cement 19 million, sanitary ware of ceramics 15 million, unglazed ceramic tiles 10.5 million, ё, whetstone, grinding wheels 9.7 million, glass dinner and kitchen ware 8.2 million, dinner and kitchen ware of porcelain 6.2 million, asbestos fiber 5.2 million, building bricks, flooring blocks and similar articles of ceramics 4.8 million, other articles of porcelain and ceramics 3.4 million, processed mica and products from it 3.2 million, safety glass -3.1 million, other refractory ceramic 2.9 million, processed monumental stone and products from it 2.3 million, other products of stone or mineral substances - 1.9 million, laboratory glassware 1.7 million, friction materials and products from them 1.6 million, abrasive powder on fabric, paper, cardboard and other basis 1.3 million, other ceramic bricks, conventional bricks, ceramic tiles 1 million. The import substitution is possible at the level of 30% due to the expansion of production, especially with moderate employment and development of technology. Metals and products from them (7201-8199) Million U.S. dollars Other hot-rolled rods of alloy-free steel 213.6 Angles, shaped and special profiles of alloy-free steel 196.4 Other welded or riveted from ferrous materials pipes, tubes and profiles 132.1 Weldless pipes, tubes and profiles from ferrous materials 124.2 Hot-rolled flat section of alloy-free steel 105.2 Other rods of alloy steel 103.4 Welded or riveted pipes and tubes with diameter of more than 406,4 mm 76.0 from ferrous materials Steel constructions from ferrous materials 62.1 Rails 59.4 Other products from ferrous materials 51.9 Wire of alloy-free steel 45.9 Flat section of alloy steel with width of 600 mm or more 45.3 Hot-rolled rods in coils of alloy-free steel 41.1 Plated flat section of alloy-free steel 29.0 Pipe fittings from ferrous materials 28.3 Ferrous-based alloys 28.0 Stranded wire from ferrous materials, not electrically insulated 20.5 Screws, bolts, nuts, clinches from ferrous materials 16.8 152
Flat section of corrosion-resisting steel with width of 600 mm or more 16.2 Non-electric household appliances for cooking 14.1 Refined copper and copper alloys 13.3 Aluminium rods and profiles 13.2 Household articles and their parts of aluminum 12.8 Aluminium containers with capacity of no more than 300 l 12.3 Radiators, air heaters from ferrous materials and their parts 12.3 Nails, tacks, staples from ferrous materials 12.2 Table, kitchen products for household use from ferrous materials 11.1 Semi-finished product of alloy-free steel 10.5 Other cast products from ferrous materials 10.2 Aluminium steel constructions 9.4 Aluminum wire 8.1 Other products of aluminium 7.4 Sanitary wares from ferrous materials 6.6 Containers from ferrous materials with capacity of no more than 300 l 6.1 Container for compressed or liquetied gas from ferrous materials 5.9 Wire cloth, grill, netting and fencing from ferrous materials 5.4 Springs, bow springs and sheets for them from ferrous materials 5.3 Copper pipes and tubes 5.2 Aluminium powders and flakes 5.0 Chains and their parts from ferrous materials 4.9 Copper waste and scrap 4.8 Aluminum plates, sheets and strip, 4.1 Flat section of alloy-free steel width less than 600 mm, non-plated 3.9 Aluminium waste and scrap 3.8 Cast iron 3.6 Containers from ferrous materials with capacity of more than 300 l 3.6 Unwrought tin 3.5 Hot-rolled rods of alloy steel, in coils 3.5 Other rods, angles, profiles of corrosion-resisting steel 3.2 Magnesium and product from it 3.1 Copper plates, sheets and strips 2.9 Flat section of alloy-free steel with width less than 600 mm, plated 2.8 Unwrought aluminium 2.8 Aluminium foil 2.7 Tongued-and-grooved constructions, angles, welded shaped and special 2.7 profiles Copper rods and profiles 2.7 Flat section of alloy-free steel cold-rolled 2.6 Flat section of alloy steel, width less than 600 mm 2.3 Other rods of alloy-free steel 2.2 Alloy steel in ingots 2.1 Ferrous materials waste and scrap 1.9 Pipes, tubes and profiles of iron castings 1.9 Unwrought zinc 1.8 Wires of alloy steel 1.4 Other products of cooper 1.4 Copper wire 1.3 Stranded wires, braided ropes made of aluminum, not electrically insulated 1.3 Tantalum and product from it 1.2 Wire fence from ferrous materials 1.1 153
Nickel plates, sheets, strip and foil 1.1 It is necessary to create the special program of production stimulation from available raw materials which are mainly sold in China. The import substitution may be based on the guaranteed orders from large companies. Tools, installations, devices (8201-8424) Million U.S. dollars Air and vacuum pumps, compressors and ventilators 173.5 Refrigerators, deep freezes and refrigerating equipment 123.4 Fluid pumps 101.0 Steam boilers or other vapor generating 82.2 Auxiliary equipment for use with boilers 65.1 Centrifuges, equipment and devices for filtering of liquid or gases 50.2 Steam turbines 42.5 Material thermoprocess equipment 35.7 Parts to internal-combustion engines 34.1 Interchangeable operating tools for handhold power tools 23.0 Turbojet and turboprop engines, other gas turbines 17.8 Metal products, used for soldering 15.4 Central-heating boilers 14.7 Reciprocating internal combustion engines 12.8 Mechanical devices for dispersing or spraying of liquids or powders 11.1 Closing and packing accessories of basic metals 10.3 Other engines and engine installations 9.2 Other hand tools 8.9 Fittings, mounting of basic metals used for furniture, doors 7.2 Padlock groups and mortise locks, damper valves, frames, keys 6.1 Weighing equipment 5.5 Dish washing machines, equipment for filling and plugging of containers, 5.4 packing of goods Spark-ignited engines 5.0 Air-handling installations 3.8 Hearth and industrial furnaces 3.8 Hand tools used in agricultural industry, gardening or forestry 3.8 Hand wrenches, interchangeable heads for wrenches 3.7 Furnace burners 3.4 Plates, sticks, tips of cermets 3.0 Flexible pipes of basic metals 2.1 Razor and razor blade 1.8 Set of tools designed for retail sale 1.6 Files, broach files, rasp files, pliers and similar hand tools 1.5 Gas generators or steam generators with cleaning units 1.5 Knifes and cutting ends for machines or mechanical power devices 1.4 Mechanical hand tools for food preparation 1.0 Extremely promising market, it takes up to 8% of imports. At first, the replacing is possible on fittings, hand tools, wrenches, later - on pumps, boilers, centrifuges. 154
Equipment, machinery, mechanisms (8425-8516) Million of U.S. dollars Electric motors and generators 117.9 Pipe fitting 86.4 Electric transformers 71.0 Vehicles and machinery for harvesting and threshing of the agricultural crops 64.3 Transfer mechanisms for machines, equipment and transport vehicles 55.5 Equipment for sorting and crushing of soil 53.7 Road and construction engineering 44.0 Electrical equipment for ignition and start of the internal combustion engines 42.1 Parts to machines and devices 40.1 Machines and devices for lifting, handling, loading or unloading 38.2 Household and other electrical heaters, electric hot plates 32.0 Washing machines 28.5 Computing machines for automatic data processing 23.1 Electric accumulators 20.7 Machines and mechanical devices of special-purpose 17.7 Bearings 15.5 Electric generating plants 15.3 Agricultural machineries for soil preparation and management 15.2 Vehicles and machinery for soil works 14.2 Part to electric motors and plants 11.8 Converters, casting ladles and machines used in metallurgy industry 11.2 Elevators, capstane engines, jacks 10.2 Shipboard-type derrick-cranes, hoisting cranes 7.9 Industrial electrical furnaces and boxes 7.9 Hand pneumatic, hydraulic tools or tools with built-in motor 7.8 Household electromechanic machines 7.0 Machines and devices for all types of soldering 7.0 Equipment for processing of rubber or plastics 6.8 Equipment for flour-milling industry, processing of cereal crops or bean 6.6 cultures Equipment for production of other food products and beverages 6.3 Calculation machines and pocket machines for record 6.0 Printing equipment 5.8 Equipment for processing of metals by the bulk forming 5.6 Metal-cutting equipment 4.8 Gaskets and similar joints of metal sheet 4.6 Lathe tools 4.2 Other office equipment 4.1 Rough grinding machines, cutter grinder, honing devices 3.7 Other equipment for agricultural industry, gardening, forestry 3.4 Electric-lighting and alarm equipment 3.0 Equipment and devices for soldering or welding 2.8 Automatic loaders 2.5 Parts and accessories for machine tools 2.4 Flasks, trays and molds for metal foundry 2.0 Machinery parts, not containing electrical components 2.0 Electromagnets 2.0 Laser, ultrasonic electron-beam devices 1.9 Surface-planing machines, broaching machines, gear-cutting machines 1.9 Parts and accessories of machines for the information processing 1.8 155
Devices for processing of wood, cork, plastic or similar materials 1.6 Portable electrical torches 1.2 Milk processing equipment 1.1 Vacuum cleaners 1.1 Electrical equipment, communication (8517-8599) Million U.S. dollars Televisors, monitors and projection apparatus 167.0 Insulated wires, cables 138.9 Data carriers 53.6 Consoles, panels, desks for electrical equipment 47.8 Equipment for current electricity management on the electric tension of 31.4 no more than 1000 V Communication equipment and parts to it 21.6 Equipment for current electricity management on the electric tension of 21.4 more than 1000 V Carbon electrodes 20.3 Electrical devices for security assurance and traffic control 18.3 Sound or visual alarm electrical equipment 17.8 Electrical and gas-discharge filament lamps 12.5 Eectric insulators 11.2 Parts of equipment for the current electricity management 7.9 Electrical machines and special-purpose equipment 7.6 Transmitting equipment for radio broadcasting or television 4.4 Parts for receiving and transmitting equipment 2.6 Radar and radio-navigational equipment 2.5 Electronic integrated circuits 2.2 Insulating fittings for electrical machines and equipment 1.7 Video recording equipment 1.4 Diodes, transistors and similar semiconductor devices 1.3 Electrical resistors 1.1 Microphones, loud-speakers 1.0 Receiving equipment for radio broadcasting 1.0 Transport vehicles (8601-8999) Million U.S. dollars Freight, railway or tram wagons 474.0 Auto trucks 171.4 Motorcars 142.0 Parts of railway vehicles 103.6 Parts and accessories for cars and tractors 100.1 Special purpose vehicles 78.9 Tractors and tractive units 70.4 Vehicles designed to transport 10 or more people 45.2 Trailers and semi-trailers 31.8 Track and signal equipment 31.8 Cruise ships, excursion vessels, ferries and other facilities for passengers 20.0 transportation Transport vehicle used for repair, technical maintenance of railway tracks 18.2 or street railways 156
Other railway locomotives 8.5 Water-borne vehicles of special-purpose 7.4 Tugs and pusher craft 6.5 arboн 3.7 Other floating structure 3.2 Non-self-propelled railway or tram wagons 2.4 Bicycles 2.0 Shipping container 2.0 Other ships including warships and rescue ships 1.1 Yachts and other water-borne vehicles for rest or sport 1.1 Self-propelled vehicles of industrial purpose 1.0 Electrical railway locomotives 1.0 Optics, measuring instruments (9001-9199) Million U.S. dollars Instruments and equipment for measuring and control of liquids and gases 26.9 Instruments and devices used in medicine 24.0 Counters of supply or production of gas, liquid and electric energy 21.1 Monitoring or measuring instruments, profile projectors 18.7 Orthopedic appliances for the treatment of fractures, artificial limbs 17.4 Geodetic or topographic instruments and equipment 14.9 Instruments and equipment for physical or chemical analysis 12.9 Instruments and equipment for automatic control and management 12.8 Equipment for measuring or checking the electrical quantities and radiation 11.8 X-ray equipment 5.6 Areometers, thermometers, pyrometers, barometer 4.3 Machines and equipment for testing the mechanical properties of materials 2.7 Devices for mechanotherapy and other breathing therapeutic equipment 2.6 Tools for drawing, marking-out or mathematical calculating 2.4 Wrist watches, pocket watches with the case of precious metal 2.1 Other breathing equipment and gas masks 1.7 Instruments, apparatus and models designed for demonstrational purposes 1.6 Navigation devices and instruments 1.3 Photocameras and devices for them 1.3 Glasses 1.2 Counters, taximeters, millimeters, and tachometers 1.0 Furniture, equipment (9201-9799) Million U.S. dollars Other furniture and its parts 126.7 Furniture for sitting and its parts 34.6 Lighting equipment 23.8 Toy and puzzles 13.9 Assembled building structures 11.1 Mattress, bedding and similar products 10.9 Articles and equipment for sports 7.1 Goods for entertainment, table or indoor games 3.5 Brooms, brushes, paint-brushes 2.5 Medical furniture and its parts 2.0 Products for holidays, carnivals and tricks demonstration 1.0 157
Appendix 5. Review of Aktobe, Mangistau and South Kazakhstan regions Business development and its territorial organization are defined by factors such as economic and geographical location and climatic features of a region, mineral and raw material base, availability of infrastructure for doing business, social and demographic characteristics of population and presence of labor resources, purchasing power of population, marketing area and its accessibility. Small and medium business in its activities is aimed chiefly at the service of large business companies or population needs. Therefore, it depends heavily on external factors of the business environment. LОt s МonsТНОr tсо ОntrОprОnОursСТp НОvОlopmОnt pомulтarтtтоs Тn KaгakСstan bв tсо ОбamplО oп three regions - Aktobe, Mangystau and South Kazakhstan that differ from each other strongly enough. Aktobe region is an industrial region with the developed processing and extractive industries and has many little towns with town-forming production enterprises within its territory; in addition to that, the region is affected greatly by its bordering with Russia. Mangystau region is a western region of Kazakhstan whose economy is connected with oil production. The region has very severe climatic conditions and poorly developed transport communication (transport infrastructure) with other regions of Kazakhstan that determines its isolation from them. South Kazakhstan region has an agricultural and industrial orientation, is differed by dense population and excess of labor resources. The region is affected by its bordering with Uzbekistan, historically developed relations with Central Asia states and ethnic composition of the region population. Aktobe region Aktobe region 13 is situated in the north-western part of Kazakhstan and borders with Uzbekistan in the south, and Orenburg region of Russia in the north. As of January 1, 2012: Territory 300.6 thous. km 2 Population 678.6 thous. persons Population density 2.3 persons/km 2 Region economy orientation industrial and service business (trade). Map source - http://www.kz.all.biz/regions/ 13 Data from the official Web site of the Chamber of Commerce and Industry of Aktobe region http://www.akbtpp.kz/aktyubinskaya-region 158
Geographical location, natural and climatic conditions and specialization of the region The geographical location of the region as being bordering with Russia promotes to the development of trade. The border trade with Russian companies is developed rapidly in the field of foodstuffs, clothes, consumer goods. Small business of Aktobe region is involved in this sphere: so, as of November 1, 2012, about 44% of Sole proprietors in the region (16786 business units 14 ) worked in the field of trade and covered 43% of the retail turnover in the region 15. Among small business enterprises, the most companies (over 36%) are also engaged in the sphere of trade. The natural and climatic conditions of the region and availability of water resources allow using about 7855.6 ha (26% of the territory 16 ) in its northern part as agricultural lands and for growing of agricultural crops. There are forest steppe and steppe areas in the north of the region, and underpopulated and unpopulated areas of semi-deserts and deserts in the south. The presence of agricultural lands, good climatic conditions and availability of irrigation water in the region make agriculture the commercially viable business. About 14% of all Sole proprietors in the region (5333 individual business units) and 4144 farms worked intensively in the agriculture, forestry and fishery 17. As for the agriculture, the region is specialized in growing of cereal crops, vegetables, production of meat, sausage goods, vegetable oil, milk and dairy products (for example, Kok Onis LLP, As An company, Kazfruit). Local authorities of Aktobe region intend in future to involve the small and medium business more intensively in the production of foodstuffs and light industry 18. Mineral and raw material base and availability of infrastructure determine the industrial specialization of the region. There are large deposits of gold, oil, gas, coal, chromite ore (1 st place in the CIS), phosphoric ore, aluminum and nickel ore; bauxites, potassium salts, rare metals of titanium, zirconium in the region. Huge reserves of building materials (marble, gabbro, kaolin, chalk, gypsum, asbestos, cement raw materials) in the region create favorable conditions for the development of the construction business and production of construction materials. The region is one of 5 oil-producing regions of Kazakhstan: in 2011, 8.52 million tons of crude oil and 4 011.5 million cubic meters of natural gas were produced here. Large oil companies such as Lukoil Overseas, Kazakhoil-Aktobe, CNPC-AKTOBEMUNAIGAS (with China National Petroleum Corporation (CNPC) acting as an investor) operate in the region. Industrial processing productions situated mainly in small towns remained in Aktobe region since the Soviet Union times. The most of these productions were upgraded, and currently Aktobe region is one of the large industrial regions where there are ore mining and smelting, 14 Current data on registered individual enterprises as of 01.11.2012 by types of activities and regions of the Republic of Kazakhstan. Statistical Agency of the Republic of Kazakhstan. Electronic access mode: http://www.stat.kz/digital/mal_pred/pages/default.aspx 15 Calculations based on data of the Statistical Agency of the Republic of Kazakhstan: in 2011, 105266 million Tenge of 244058 million Tenge of the retail turnover fell to the share of individual entrepreneurs, including markets. Statistical Book. Regions of Kazakhstan in 2007-2011. 16 Environmental protection and sustainable development of Kazakhstan in 2007-2011. Statistical Book. Statistical Agency of the Republic of Kazakhstan. 17 Small and medium business in Kazakhstan in 2007-2011. Statistical Book. Statistical Agency of the Republic of Kazakhstan. 18 Information from the official Web site of the Chamber of Commerce and Industry of Aktyubinsk region. Access mode: http://www.akbtpp.kz/aktyubinskaya-region 159
chemical industries, instrument-making industry, building industry, special machinery production. Over 598 enterprises are engaged in the industrial production. The local authorities support large companies such as construction enterprises, processors of food industry (Aktobe Center of Grain Production LLP, Bolat LTD LLP), livestock breeding complex (Ak-tep LLP), mining companies (Akpan LLP) through the implementation of the Accelerated Industrial and Innovative Development Program. In this connection, small and medium enterprises are developed intensively in the region. They are involved in the servicing of these large industrial companies and obtain orders from them. Among small enterprises of the region, 22% work in the construction field, 7.2% - in the industry, 6.8% - in the scientific and technical activities, 5.5% render transportation services. Transport infrastructure for business development Aktobe region was always considered to be a transit region: main connecting transportation routes passed through it both from Russia and between western, southern and eastern regions of Kazakhstan. The development of the road network infrastructure determines the accessibility of sales areas for entrepreneurs. The dense network of motor roads in Aktobe region as of the beginning of 2012 was, according to the official data, 17.8 km per 1000 sq. km of the territory 19 (throughout Kazakhstan 31.6 km per 1000 sq. km), and has been changed insignificantly for recent 5 years (17.2 km in 2007). The length of hard-surface motor roads has increased by 113 km only (from 5978 km in 2007 to 6091 km in 2011). It is evidence of the underdevelopment of transport infrastructure and results in high transportation expenses for entrepreneurs of the region. In fact, the review of the small and medium business has shown that overhead expenses among all production and sales expenses of goods, works and services were up to 52.3% of the production cost in 2011 20. However, the building of the Western Europe - Western China road will be completed in the nearest future. This implies the intensive development of the transport system and the increase in transit cargo flow through the region. It will probably provide an impetus for the development of small business along the whole route: transport cafes, catering establishments, stores, motels. Population and territorial business organization Aktobe region ranks second in the country by its area. However, the population density in the region is low enough, i.e. 2.3 persons/km 2 (6.1 pers./km 2 throughout the republic). The population is distributed unevenly due to climatic conditions and concentrated in the northern part, while the south of the region is practically unpopulated (area of deserts and semideserts). The low population density makes the internal sales market of goods and services unattractive for the local manufacturers. Furthermore, the migration outflow of the population has been observed in recent years. So, in 2011, the balance of interregional migration was 2944 people, and the migration outflow as a whole was 3170 people. The availability of high-technology industrial productions in Aktobe region determines special qualifying skills and abilities of the labor class in the region. Their professions are in demand in thriving productions of neighbouring regions Mangystau and Atyrau regions. Some people go 19 Regions of Kazakhstan in 2011. Statistical Book. Statistical Agency of the Republic of Kazakhstan. 20 Data of the Statistical Agency of the Republic of Kazakhstan. 160
to the neighbouring oil-producing regions for earnings, as the average wages in Aktobe region is almost twice less (79 878 Tenge in 2011) than for example in Mangystau region (151 041 Tenge) and Atyrau region (165 975 Tenge). The high population concentration is observed in towns: there are 61.7% of the urban population and 38.3% of the rural one living in the region. Given the small number of towns in the region 8 towns only, the population concentration in urban settlements may be considered as a favorable factor for the development of small business in the towns. That is why, about 62% of small and medium enterprises of the region operate in Aktobe city (20.2 thous. units as of November 1, 2012). Among 12 other districts of the region, the small business is concentrated mainly in Mugalzharsky (2.1 thous. units, or 6.4% of business units), Shalkarsky (1.6 thous. units, or 4.9%) and Alginsky districts (1.4 thous. units, or 4.3%) 21. Entrepreneurial inclinations of the population and development of small and medium enterprises in Aktobe region The conventional fields of activities of the small and medium enterprises in the region are trade, agriculture and production of foodstuffs, as well as rendering of various services, transport and construction aimed at the servicing of large business oil and industrial companies. These fields are closely connected with that the region borders with Russia, as well as the economy of the region is specialized in oil production and processing industry. According to the business register, 53 586 business units of small and medium enterprises were registered in Aktobe region in 2011, among them only 36052 units are operating (or 67% that is higher than the average value throughout the country). However, in 2011, the small and medium enterprises gave employment for 106 thous. persons, or 26% of the employed population of the region. Table 5. Key performance indicators of the small and medium business entities in Aktobe region in 2011 including Indicators Total Medium Small Sole business business proprietors Farms Number of entities registered, units 53 586 690 8 370 40 240 4 286 Number of operating entities, units 36 052 482 3 541 27 885 4 144 Number of the employed, persons 105 961 36 485 23 271 35 931 10 274 Number of the employed per one enterprise* 2.9 75.7 6.6 1.3 2.5 Output of products, million Tenge 354 802 232 882 59 857 34 908 27 156 Output of products per 1 enterprise, million tons 9.84 483.16 16.90 1.25 6.55 Output of products per capita*, Tenge 453763 297837 76552 44645 34730 21 Aktyubinsk Region Administration of Entrepreneurship and Industry. Certificate of the development of small and medium entrepreneurship in Aktyubinsk region for 10 months of 2012. Access mode: http://kasipkerlik.aktobe.gov.kz/ru/node/3834 161
Source: Small and medium entrepreneurship in Kazakhstan for 2011. Statistical Book. SARK. http://www.stat.kz/ *Calculations according to the data of the SARK The most preferable form of business organization for the population is the Sole proprietorship. Its share is 77% in the structure of the small and medium enterprises in the region business, while the share of farms is 11.5%, small business legal entities 9.8%, and medium business legal entities only 1.3%. The main employment in the region is insured by both medium business enterprises and Sole proprietorship. However, the principal output of products falls on the medium business enterprises: on average 76 employed and 483.2 million Tenge per one medium business enterprise. Figure 2. Structure of small and medium enterprises according to key indicators of their development in Aktobe region, % Output of products N= 354802 million Tenge 65.6 16.9 9.8 7.7 Number of the employed, N=105961 pers. 34.4 22.0 33.9 9.7 Number of operating businesses, N=36052 units 1.3 9.8 77.3 11.5 0% 20% 40% 60% 80% 100% Medium business Small business Individual entrepreneurs Farms One of the indicators of the entrepreneurship development is a number of small and medium businesses per 1000 residents of the region. The region takes the 10 th place by this indicator among regions of Kazakhstan - 46 business units of small and medium enterprises per 1000 people of the population (as compared to the average value of 51 business units throughout Kazakhstan). Figure 3. Number of operating entities of small and medium enterprises per 1000 people of the population for 2009-2011 (inclination to entrepreneurship) In recent three years, the number of Aktobe region 50 46.1 SMBE operating business units of the small and 38.7 39.4 medium enterprises per 1000 people of 40 35.7 the population in Aktobe region has 31.8 31 IE increased, first of all, due to the growth 30 22.7 21.2 in the number of Sole proprietors. It 20 means the growth of the entrepreneurial Farms activity of the small business among the 10 4 5.1 4.5 5.3 5.1 5.3 population that has recovered after the financial crisis of 2009. 0 2007 2008 2009 2010 2011 Total It sсoulн bо notон tсat sтnмо 2010, tсо unтquо AraТ soмтal partnоrsстp proрram ТnТtТatОН bв Lukoil Overseas and aimed at the support of small business in rural settlements is implemented 162
in Mugaldzhar district 22. The program suggests the issue of non-refundable grants in the amount of over 800 thousand Tenge (about USD6000) per an application. The program has shown positive results and, as a consequence, the amount of financing and territorial coverage for 2010-2012 was extended. As a rоsult oп tсо AraТ ProРram ТmplОmОntatТon, sоатnр аorksсops, bakоrтоs, СaТrНrОssОr s, Мar sоrvтмо statтons, МattlО Пarms anн mтnт-poultry houses, shoe-repair stores, as well as computer, leisure and sports centers that are in demand in villages, were set up in rural districts of Aktobe region. Productions not conventional for the region such as production of louvers, plastic and slag block items, veterinary clinic, massage room, English study centers, children's playgrounds and puppet theatre were opened in remote auls. The special feature of the rural business consists in that a new line of business should be opened every time: the business lines should not be repeated as it is financially unprofitable in villages. It explains the diversity of new businesses created under the Program. The peculiarities of the small and medium entrepreneurship development in Aktobe region consist in that the economic and geographical and climatic characteristics of the region provide ample opportunities for the development of small business in the field of trade, rendering of services, transportation services, agriculture and food industry. The most attractive form of business for the population is Sole proprietorship. Mangystau region Region economy orientation oil production. Mangystau region 23 is situated in the south-western part of Kazakhstan, and borders with Russia, Azerbaijan, Iran, and Turkmenistan over the sea. The region is bounded by the Caspian Sea on the west. As of January 1, 2012: Territory 165.6 thous. km 2 Population 545.72 thous. persons Population density 3.3 persons/km 2 Geographical location, natural and climatic conditions and specialization of the region The territory of the region takes 165.6 thous. sq. km, and is bounded by the Caspian Sea on the west. About 51.8% of the territory (8570.80 ha) is referred to agricultural lands. Despite vast 22 Since 2011, the program has covered Baiganinsky and Temirsky districts. Kazakhstanskaya Pravda dated 30.11.2011. Access mode: http://www.kazpravda.kz/c/1322598994 and Kazinform Agency dated 26.04.2012. Access mode: http://inform.kz/rus/article/2459248 23 Official site of Mangistau Region Akimat - http://www.mangystau.kz/data.php?n_id=15&l=ru 163
areas of free territories, climatic conditions of Mangystau region are extremely severe for living and doing agricultural business. The most part of the territory is occupied with deserts, covered saline soils and sands with sparse shrub vegetation. The region has great problems concerning the provision with fresh water: there are no fresh water sources, except for several ancient wells; there is no permanent river network; precipitations fall rarely, and water in few lakes is saline. Severe climatic conditions and water shortage in the region hinder the development of agriculture and make the agricultural business with conventional organization methods marginally profitable. Crop growing is not developed here. The primary industry of the agriculture in Mangystau is cattle breeding in desert range lands: camel and sheep husbandry, breeding of horses and, to a lesser degree, cows. The production and processing of livestock products is a conventional type of activities for the native population of the region. However, the profitability of breeding of small cattle (sheep, goats) and poultry in the region is very low as compared with other cattle breeding industries. This sphere has decreased over recent 5 years. The reasons for that are the lack of forage, its expensiveness, and poverty of pastures. The gross volume of agricultural products is the lowest among 14 regions of Kazakhstan. Currently, up to 90% of food commodities are imported to Mangystau region either from neighboring regions or from abroad. However, there are cases of organization of small agricultural businesses based on innovations. For example, the first greenhouse complex was commissioned in Zhanaozen town under the single-industry development program of the Agriculture Support Fund. Scientists tried to prove that it was possible to grow vegetables even in Mangystau. The drop irrigation is used to save water. The project appeared to be very successful and would be extended up to 20 similar greenhouse complexes in the nearest future. One more peculiarity of the region is the presence of sea. Historically, fishery and fish breeding were developed here intensively. Natives fished since the pre-soviet times: the fishery was their major source of earnings and food. During the Soviet era, fishing collective farms and about 6 fish processing plants were set up based on Bautino village, including floating fish factories as well 24. However, starting from the 1970s the industry has suffered a setback. Currently, generally small fishing cooperatives and fishing crews operate in this field. They obtain catch quotas during two seasons in spring and autumn. They sell products to pick-up stations (7 stations) equipped with refrigerating plants, as well as to specialized stores (9) and trade markets (19). Due to problems existing in this business field, the industry volumes are small and are only about 2% of the republican volume. One of the current problems of the industry is the reduction of fish stock and wide-spread poaching. The problem may be solved by the innovative approach to the business organization. For example, under the Accelerated Industrial and Innovative Development Program, KazAgroFinance JSC has decided to finance the sturgeon farm project expected to be commenced at the end of 2012. About 40 working places will be created after the farm commissioning. There is the Special Economic Area in the region, i.e. Aktau Sea Port, that has operated since 2003 and situated in the industrial area of the town, near the sea port of Aktau. This 24 Formation of fishing industry of Mangyshlak. Gold Reserves of Mangistau: cultural heritage. Access mode: http://aulie.kz/cultural-heritage/507-stanovlenie-rybnoj-promyshlennosti-mangyshlaka.html 164
predetermines the development of sea transportations and closer relations with other countries Azerbaijan and Russia. Business operating within the territory of the Special Economic Area has preferences, including both tax benefits and investment incentives. The specific nature of the region is its raw-material orientation. The development of Mangystau economy is based on the oil and gas sector which is over 90% of the total volume of industrial products manufactured in the region and about 13% of the industrial production share in the country: in 2011, 18.5 million tons of crude oil, 2.1 billion cubic meters of natural gas were produced, and 4.3 billion kwh of electric power were generated. In addition to oil, the region subsurface is rich with reserves of phosphorite, coal, manganese, various salts, shell stone. All other economy sectors of the region and small and medium business servicing it are in direct relationship to the development state of the oil and mining sectors. The oil-producing industry development in the region contributed to that of the small and medium business. Even though there is a low population density of 3.3 persons/km 2, 52.2 units of small and medium enterprises fall on 1000 people here that is comparable with the most densely populated region of Kazakhstan, i.e. South Kazakhstan region. Enterprises of the small and medium business in the region are concentrated around large oil-producing industrial companies of Mangystau region. Key enterprises in the oil and gas industry are Mangystaumunaigas JSC, Ozenmanigas Production Branch, Karazhanbasmunai JSC. The small and medium business expresses a great desire to become suppliers for oil companies as it provides the guaranteed order, steady financing and sales of products. But, according to local entrepreneurs, large oil companies prefer to deal with foreign suppliers, but not with Kazakhstan enterprises. The processing industry of Mangystau region is represented by textile and sewing industries, production of rubber and plastic items, machine-building industry, chemical industry, manufacture of other non-metallic mineral commodities and other industries. However, generally large industrial enterprises operate in these fields: Pre-Caspian Machine-Building Complex LLP, KaskorMashzavod LLP, ANEK LLP, Caspian Steel LLP, Sat Operating LLP, KazAzot LLP, Zhamal-ai JSC, Zhanarys LLP, etc., as these business areas require large investments. Transport infrastructure for business development Development of the transport infrastructure in the region may have a favorable impact on the business development in rural districts of the region because it makes sales markets accessible. Qualitative motor roads contribute to the reduction of entrepreneurs ovоrсоaн ОбpОnsОs Пor tсотr goods transportation. The problem of Mangystau region is its detachment and isolation from other regions of Kazakhstan. The reason for that is the lack of the transport infrastructure required to connect the region with neighboring regions: there are no direct railways and motor roads, affordable air transport. This increases expenses for transportation of people and goods, as well as severely restricts trade and entrepreneurial relations with other regions of Kazakhstan. So, the region residents prefer to have a rest (support business, in other words) in southern regions of Russia, Ukraine, Azerbaijan than in the regions of their country. Despite large-scale state programs for the development of rural areas and infrastructure projects, the density of hard-surface motor roads in Mangystau region has not changed (13.8 km per 1000 165
km 2 of the territory at the beginning of 2012 as compared to 13.3 km early in 2008). In comparison with the average value for Kazakhstan (31.6 km), the density of motor roads here is the lowest. On the one side, it is connected with the underpopulation of the region and the small number of settlements. However, the existing infrastructure can hardly meet the demands of the business grown rapidly and comply with requirements of the industrial production development. Most probably, it means the problems concerning the provision of the population and business with required infrastructure of roads and transport routes. There are two main ports in Mangystau region - Aktau (it is used for the export transhipment of cargoes) and Bautino (base for support of marine petroleum operations). Aktau port constitutes a part of three international transportation corridors: TRACECA, North-South, INOGATE. Due to marine transport communications (for example, Aktau-Baku railway ferry complex) established with neighboring states, export and import of goods increase rapidly, as well as flows of migrant workers from adjacent countries grow. The latter has a favorable impact on the business development on the one side, and may contribute to some social strain due to competition for working places, on the other side. Population and territorial business organization The region is still underpopulated due to severe natural and climatic conditions. There is the smallest number of settlements in Mangystau region among other regions of Kazakhstan: 62, including only 3 towns. As of January 1, 2012, the population is almost evenly divided in urban and rural (52:48). However, it is climatic conditions and location of urban settlements that determine the territorial business distribution. Among all the districts, Aktau town is the most business active, where 77% of all small and medium enterprises of the region operate. Tupkaragansky and Karakiyansky districts are relatively business inactive as compared to other ones (the share of registered small and medium business in these districts varies within 2%). The average population density throughout the region is 3.3 persons per 1 sq. km of the territory; and it has increased slightly for recent 5 years (2.2 persons/km 2 in 2006) due to migration flows. This is one of three regions of Kazakhstan that has the positive balance of migration (Astana and Almaty cities), including interregional migration. The high inflow of the population from other regions has been observed for recent years. People arrive for earnings together with their families as the wages in this region is somewhat higher than in other ones. 166
Figure 4. Migration increments in 2007-2011 South Kazakhstan oblast Mangistau oblast -9,859-6,972-9,843-8,885-2,913 8,354 9,027 9,071 7,832 7,510 2011 2010 2009 2008 2007 Aktyubinsk oblast -3,704-3,170-1,218 459 2,701-15000 -10000-5000 0 5000 10000 15000 Source: Data of the SARK. Regions of Kazakhstan in 2011. Statistical Book. The development of oil companies and high wages in this sector attract migrant workers not only from other regions of Kazakhstan but also from Turkmenistan, Uzbekistan, Azerbaijan, and China. Given the mentality of natives, the large flow of foreign migrant workers into the region creates preconditions for social strain and extreme competition for working places. Entrepreneurial inclinations and development of small and medium enterprises in Mangystau The mentality of the region natives determines the entrepreneurial inclinations of the population. Traditionally, the population of the region was engaged in fishery and breeding of camels, sheep, cattle. Currently, these fields of economy are reduced due to different reasons, and this has a negative impact on the local population. The loss of traditional industries results in unemployment and poverty for the native population. The small and medium business in Mangystau takes 95.4% of all enterprises. According to the business register data, 43084 units of small and medium enterprises, including 27 923 units of operating ones (or 64.8%, i.e. it equals to the average country level), were registered in Mangystau region in 2011. The small and medium enterprises in the region give employment for 77.2 thous. persons, or 33.9% of the employed population (according to the data of 2011). The principal share of employment is insured by the medium business enterprises, where, on average, about 92 persons are employed per 1 enterprise. Table 6. Key performance indicators of the small and medium business entities in Mangystau region in 2011 Total including Medium business Small business Sole proprietors Farms Number of entities registered, units 43 084 474 7 394 34 011 1 205 Number of operating entities, units 27 923 330 3 014 23 634 945 Number of the employed, 77 181 30 419 19 239 26 138 1 385 167
persons Number of the employed per one enterprise* Annual output of products, million Tenge Output of products per 1 340 992 92,2 6,4 1,1 1,5 243 819 64 311 31 036 1 827 12.21 738.85 21.34 1.31 1.93 enterprise, million tons Annual output of products per capita*, Tenge 637428 455779 120219 58017 3415 Source: Small and medium entrepreneurship in Kazakhstan for 2011. Statistical Book. SARK. http://www.stat.kz/ *Calculations according to the data of the SARK In 2011, the maximum of registered entities falls to the share of Sole proprietors, i.e. 84.6%. This form of organization provides work for one third of the population employed in the small and medium business. The share of legal entities of the small and medium entrepreneurship is 12%, and farms 3.4%. Only 0.6% of all the employed in the region, or 1.8% of all the employed in the small and medium business, work for the farms. This is connected with the region specialization and severe climatic conditions for the agriculture development. Figure 5. Structure of small and medium enterprises according to key indicators of their development in Mangystau region, % Output of products N=340992 million Tenge 71.5 18.9 9.1 0.5 Number of the employed N=77181 persons 39.4 24.9 33.9 1.8 Number of operating businesses N=279231.2 10.8 84.6 3.4 0% 20% 40% 60% 80% 100% Medium business Small business2 Individual entrepreneurs Farms As for the entrepreneurship development level, i.e. 52.3 operating businesses per 1000 residents, Mangystau takes the 8 th place among the regions, immediately following the most densely populated South Kazakhstan region. It means the high business activity among the population. Figure 6. Number of operating entities of small and medium enterprises per 1000 people of the population in 2009-2011 The drastic reduction in the number of Mangistau regon 70 SMEs business units of small and medium 59.8 enterprises per 1000 people of the 60 55 52.3 population in 2009 can be seen in Figure 3 50 that is connected with the financial crisis. 41.9 44.2 SPs 37 For 2010-2011, this indicator increases 40 33.1 mainly due to the growth in the number of 30 26.3 Sole proprietors, while the indicator of 20 10 0 9 7.6 6.3 1.7 1.2 1.8 2007 2008 2009 2010 2011 Farms Total 168
legal entities of the small and medium business decreases. LТkО Тn AktobО rортon, AraТ soмтal partnоrsстp proрram (ТnТtТatОН bв LukoТl OvОrsОas) has been implemented in Mangystau region since 2007. It suggests the issue of grants of up to USD6000 to set up own small business and is meant for the rural population in districts of Mangystau region. Thanks to the program, over 500 individual businesses and small enterprises have been established in the two regions during its implementation 25. One of the traditional branches of the small and medium business is travel industry. However, the touristic cluster and recreation area of sanatorium and resort treatment is absolutely undeveloped currently in Mangystau region. As local authorities expect, the creation of the touristic cluster on the Caspian Sea and tсо Kendirli rоsort гonо nоar Aktau town will give an additional impetus for the small and medium business. The servicing business in Mangystau faces no competition in practice. Underdevelopment of the servicing business and lack of competition result in the low service level even in customeroriented spheres such as hotel industry, catering business, retail trade. Peculiarities of the development of small and medium enterprises in Mangystau are strong orientation on the oil sector and large industrial enterprises of the region. The small business of the region is extremely vulnerable and dependent on the development of the oil sector and oilproducing companies in the region. The other peculiarity of the region is very poor development of the agriculture and related food industry, accommodation and food services, i.e. the most traditional small businesses in other conditions. It results in the extremely small number of farms and low output of products per capita. Decline and contraction of products outputs are observed in the branches of economy traditional for the local population (fish breeding, cattle breeding and processing of its products). South Kazakhstan region South Kazakhstan region 26 is situated in the southern part of the republic and borders with Uzbekistan. As of January 1, 2012: Territory 117.3 thous. km 2 Population 2621.5 thous. persons 25 LUKOIL Overseas press conference. Aktobe city, April 26, 2012. Source: KAZINFORM. Electronic access mode: http://inform.kz/rus/article/2459248 26 South Kazakhstan region official Web site of the South Kazakhstan region Akimat: http://ru.ontustik.gov.kz/gw/soc_razvitie 169
Population density 22.3 persons/km 2 Region economy orientation agricultural and industrial. Geographical location and specialization of the region The geographical and territorial location of South Kazakhstan region predetermines its transit status as it connects other regions of Kazakhstan with the Central Asia and Near East countries. Natural and climatic conditions are favorable for the agriculture development. The climate of the region is characterized by mild winters and long hot summers. The region possesses rich water resources as it is situated within the basin of the Syrdarya and Shu Rivers. Though only 35% of the region territories are lands of agricultural designation, the soil fertility, mild climate and rich water resources provide a high profitability of the agricultural business in the south-east of the region. The most territory of the region is occupied by vast pastures and fertile lands suitable for growing of vegetables and fruits, while the center and south of the region are appropriate for cotton cultivation (Maktaralsky, Shardarinsky districts). There are deserts and reed swamps with unpopulated territories only in the north and west of South Kazakhstan region. The region is specialized in the growing and processing of agricultural products: vegetable oil, grain, potatoes, vegetables, various fruits, grapes, melons and gourds, as well as foodstuffs and goods after processing of agricultural products: rawstock, meat, milk, eggs, macaroni, tobacco products, non-alcoholic beverages (mineral water). South Kazakhstan region is a large cotton manufacturer and supplier. Rice was grown earlier in Shardarinsky district of South Kazakhstan region, but due to the water shortage, difficulties related with its supply, worn-out state of the irrigation system, the cost value of the rice grown was high and non-competitive as compared with that for rice from neighboring Kyzylorda region. Currently, rice is not grown in the region in large scales. The food and processing industry of the region is represented mainly by large business. So, large companies such as Turan LLP (sugar production), Shymkentmai JSC, Kainarmai LLP, Arai LLP, Bakdaulet LLP (vegetable oil), Rauan LLP (non-alcoholic beverages and milk cocktails) operate in the food industry of South Kazakhstan region. Enterprises of the light textile and sewing industry produce hosiery and garments (Shymkent-Kashemir LLP production of slip covers made of sheep wool, camel hair and feathers). Business is developed in these spheres due to the availability of sufficiently cheap raw materials in the region. These branches may be attractive for the small and medium businesses. Small and medium enterprises may supply raw materials and render various services to these large companies. Currently, about 1.2% of the small and medium business enterprises of the region operate in this field. The region has not only agricultural but also industrial orientation of the economy. It is rich with mineral and raw material resources: there are deposits of polymetallic and iron ore, brown coal. There are also deposits of limestone, quartz sand, refractory, ceramic and aqua-gel clays, and 170
mineral paints to produce different construction materials. Currently, considerable reserves of phosphorites and uranium are discovered. Furthermore, building materials, cement, concrete, lead, excavators, power transformers are produced in the region. There is one of three oil-refining enterprises of Kazakhstan located and operating in South Kazakhstan region Shymkentnefteorgsynthesis JSC (ShNOS). It manufactures refined products. One of the perspective and priority branches of economy of South Kazakhstan region is travel industry. There is the unique complex of monuments of history, archeology, architecture, urban planning and public art within the territory of the region. The region possesses natural resources that may be used for treatment and rest, i.e. mineral water. These features may promote the development of small and medium business in the area of tourism and recreation. Transport infrastructure for business development There are two-way railroads with the total length of 444.6 km, as well as general use motor roads of 7.3 thous. km, including hard-surface ones of 1.3 thous. km, in the region. The density of motor roads in the region is the highest in the country 55.5 km per 1000 sq. km of the territory. This gives evidence of the motor connection among settlements in the region. But the more important issue is the quality of the motor roads and their suitability for the use by entrepreneurs. According to the interview results, over 60% of the small and medium business representatives call good roads among the principal needs (what kind of assistance is required by them) to conduct business at the present time. It bears evidence of that the current condition of the transport infrastructure is not satisfactory for the region entrepreneurs and the local authorities should pay special attention to this issue. Population and territorial business organization The region area is 117.3 thous. km 2, or 4.3% of the area of Kazakhstan. The region is one of the most densely populated territories: about 2.62 million people live here, i.e. the highest population density of 22.3 persons/km 2 (19 pers./km 2 in 2006). A great number of settlements (887) are situated in the center, south and east of South Kazakhstan region. The rural population prevails in South Kazakhstan region (61%), while the urban one is 39%. However, the high migration outflow to other regions is observed in South Kazakhstan region, mainly from rural areas. There is excess working population and low wages in the region and that contributes to the labor migration of the population. The interregional migration balance was -15 945 persons for 2011, and the total migration outflow was -9859 persons. Entrepreneurial inclinations of the population and development of small and medium enterprises in South Kazakhstan region Traditional business areas for the local population are agriculture and processing of foodstuffs, cotton growing, and trade. 171
Historically, residents of southern regions possess special entrepreneurial skills in the field of trade and growing of fruits/vegetables. It is promoted by that many Uzbeks live in the region: their share in the ethnic composition of the region population was 16% at the beginning of 2012 that was the highest among all regions of Kazakhstan. The Uzbeks were differed by their tending to trade and farming agriculture from ancient times. And currently, it is expressed in the intensive development of trade business. Therefore, the unregistered small business such as market trade by ration cards is more developed in the region than in other regions. Another inclination and skill of the local population is growing of fruits/vegetables based on irrigated cropping. 43% of Sole proprietors and 22.6% of small and medium business enterprises operate in the area of agriculture (according to the data for 2011). During depth interviewing, experts noted that national traditions and mentality of the population contributed to the development of the public catering area. The local population often conducts family events, traditional national holidays and rites in cafes, restaurants, ceremonial halls. These services are in great demand and promote the development of small and medium enterprises. According to the business register, 234914 small and medium enterprises, including 135793 units of operating ones (or 57.8% that is lower than the average value for the country), were registered in South Kazakhstan region in 2011. The small and medium enterprises give employment for 26% of the total number of the employed in the region. Table 7. Key performance indicators of the small and medium business entities in South Kazakhstan region in 2011 Total Medium business Small business including Sole proprietors Farms Number of entities registered, units 234 914 1 428 18 900 138 352 76 234 Number of operating entities, units 135 793 531 5 232 63 076 66 954 Number of the employed, persons 295 842 46 274 42 766 66 362 140 440 Number of the employed per one enterprise* 87.15 8.17 1.05 2.10 Output of products, million Tenge 437 905 218 582 102 298 35 794 81 230 Output of products per 1 enterprise, million tons 3.22 411.64 19.55 0.57 1.21 Output of products per capita*, Tenge 168775 84244 39427 13795 31307 Source: Small and medium entrepreneurship in Kazakhstan for 2011. Statistical Book. SARK. http://www.stat.kz/ *Calculations according to the data of the SARK The number of farms in the region is the greatest in the country. Almost a half of the registered small and medium enterprises falls to the share of farms (49.3%) where 140 thous. persons are employed. The higher number of farms is located in three main districts of South Kazakhstan region: Maktaralsky (29% of farms are situated here), Saryagashsky (15%), and Sairamsky districts (10%). These districts are the most favorable for the agriculture due to good natural and climatic conditions, availability of fresh water and dense population. 172
Many residents have sufficiently large land plots where they grow cotton, vegetables and fruits. According to the interview, principal problems for the farms are limited lands for cattle grazing, small number of vegetable stores and unavailability of their services, poor development of food and processing industry, low prices offered by distributors when purмсasтnр ПarmОrs СarvОsts, underdevelopment of road infrastructure. The structure of small and medium enterprises includes 46.5% of Sole proprietors, and 4.2% of legal entities of the small and medium entrepreneurship. Medium enterprises provide up to 50% of the products output among other small and medium enterprises. The main areas of activities for Sole proprietors are agriculture (43%), trade (29% of Sole proprietors), transport and storing (6.5% of Sole proprietors). The peculiarity of the small and medium business development in South Kazakhstan region is its traditional tendency to agriculture, production of foodstuffs, trade, rendering of transportation services. The business development in the area of trade and transportation services is closely connected with the bordering status of the region with the Central Asian republics. While the intensive development in the field of agriculture is determined by suitable natural and climatic conditions and historically formed traditions of the local population in farming agriculture, cotton growing, vegetable growing. Figure 7. Structure of small and medium enterprises according to key indicators of their development in South Kazakhstan region (in %) В N=437905.. 49.9 23.4 8.2 18.5 Number of the employed N= 295842 persons 15.6 14.5 22.4 47.5 Number of operating 3.9 businesses N=135793 0.4 46.5 Source: Data of the SARK. Statistical Book. Small and medium entrepreneurship in Kazakhstan for 2011. The entrepreneurship development indicator in South Kazakhstan region is 52 business units per 1000 people of the population and is one of the highest indices of business activity among regions of Kazakhstan. The region takes the 6 th place according to this indicator. Figure 8. Number of operating entities of small and medium enterprises per 1000 people of the population in 2009-2011 South Kazakhstan oblast 60 SMBE This indicator is high enough due to the 52.3 45.6 47.4 49.4 presence of a great number of farms in the 50 44.8 region, i.e. 26 business units per 1000 IE 40 people of the population. There are less 25.8 Sole proprietors in South Kazakhstan 30 20 10 0 49.3 0% 20% 40% 60% 80% 100% Medium business Small business Individual entrepreneurs Farms 24.7 24.4 23.3 19.2 1.5 1.9 2.2 24.3 2007 2008 2009 2010 2011 Farms Total 173
region (24 business units per 1000 people of the population) as compared to other regions. Source: Data of the SARK. Statistical Book. Small and medium entrepreneurship in Kazakhstan for 2011, 2010, 2009. The business activity of the population in the region has not changed significantly for recent 5 years. According to the statistical data, the recovery of the business activity after the financial crisis of 2009 is traced that is expressed in the slight stagnation of the business activity in 2010. Among the three regions concerned, in Mangystau, small and medium enterprises cover 34% of all the employed in the region business. This indicator is higher than in Aktobe and South Kazakhstan regions (26% each). Dynamics of the small and medium business development in all three regions Aktobe, Mangystau and South Kazakhstan, according to the business activity level, confirms that the small business in Mangystau region is most active on the one side, and the most vulnerable on the other side. The business in this region depends completely on the oil industry development, and any changes in it will have an immediate impact on the small and medium enterprises. So, in 2009, the number of operating small and medium enterprises in the region was reduced mainly due to Sole proprietors. Many Sole proprietors suspended or ceased their business activities during that period and that appeared to be a response to the oil price downturn in 2009. After the situation improved in 2010, they were opened again and continued their activities. Figure 9. Number of operating entities of small and medium enterprises per 1000 people for 2005-2011 60.0 40.0 20.0 0.0 59.8 55.0 44.4 46.2 48.0 45.6 47.4 38.7 34.6 38.7 39.4 22.7 49.4 44.8 42.8 33.4 30.1 31.3 52.3 52.2 46.1 Aktyubinsk oblast Mangistau oblast South Kazakhstan 2005 2006 2007 2008 2009 2010 2011 Table 8. Structure of operating small and medium enterprises according to types of economic activities as of 01.11.2012, in % Small and medium business enterprises Sole proprietors Areas Aktobe Mangystau South Aktobe Mangystau South region region Kazakhstan region region Kazakhstan N= 4023 N= 3344 N= 5763 N=38399 N=33697 N=153248 Agriculture, fishery 5.2 1.3 22.6 13.9 4.5 43.0 Industry 7.2 9.1 10.3 1.54 2.11 1.44 Construction 22.2 29.9 16.2 0.8 2.5 0.5 Trade 36.5 28.9 24.7 43.7 36.9 28.7 174
Transport/warehouses 5.5 6.5 3.2 9.2 16.7 6.5 Hotels, public catering 1.6 1.6 0.9 2.2 2.6 2.4 Information and 1 1.4 communication 2.0 0.4 0.9 0.4 Financial and insurance 0 1 activity 0.5 0.03 0.15 0.02 Real estate operations 4.5 5.3 4.0 4.5 8.5 1.7 Scientific and technical 6.8 6.9 activity 6.2 1.8 2.7 1.5 Administrative and ancillary servicing 5.1 5.1 activity 3.9 3.3 7.4 0.4 Education 1.7 1.2 2.4 0.1 0.4 0.1 Health care and social 1 0.5 services 1.9 0.3 0.6 0.3 Art, entertainment, 0.3 0.5 recreation 0.5 0.3 0.7 0.3 Other services 1.3 1 0.7 17.9 13.2 12.7 Sources: Activities of small enterprises in Aktobe region, 2012 Activities of small enterprises in Mangystau region, 2012 Small and medium entrepreneurship in South Kazakhstan region, 2012 Statistical Books The business structure differs substantially in the three regions and is connected with the region specialization depending on the natural and climatic conditions, geographical location, mineral and raw materials base. As the analysis has shown, the population density of the region plays a role only in the formation of domestic demand of the population. Historically formed and traditional industries (sectors of the population employment) are still playing a key role in the formation of the small and medium entrepreneurship structure. According to the results of interview of entrepreneurs, the most upbeat small business is in Aktobe region, where 66% of entrepreneurs hope that their turnover will increase and no one stated that its turnover may decrease. Entrepreneurs of Mangystau region are more conservative in estimates and the majority of them (46%) believe that their turnover remains at the same level. Figure 10. Estimate of business perspectives by entrepreneurs, share of entrepreneurs, % You suppose that your turnover in 2012 will: South Kazakhstan 43.8 34.7 12.4 9.1 Increase, Mangistau oblast Aktyubinsk oblast 36.5 66.0 46.2 11.5 28.3 5.8 5.7 Remain at the same level Decrease Cannot say 0% 20% 40% 60% 80% 100% 175
Estimate your business perspectives for next 3 years South Kazakhstan Mangistau oblast 25.8 37.0 39.2 24.1 14.8 30.0 24.1 3.3 I am going to extend production capacities and sales I will encrease turnover using the same capacities I do not expect any changes Aktyubinsk oblast 64.9 15.8 10.5 8.8 I will reduce a part of business or turnover 0% 20% 40% 60% 80% 100% Source: Survey findings of small and medium business entrepreneurs Cannot say During interviewing, entrepreneurs in all three regions noted that they could manufacture foodstuffs (even in Mangystau where there are severe climatic conditions), clothes, consumer goods and construction materials. These are the most attractive areas of activities for the small business in the regions concerned. However, the business development in these areas is hindered due to four most common reasons: lack of technologies, expensive transportation of goods due to the infrastructure underdevelopment in the region absence of qualified personnel low quality of produce Table 9. What hindrances currently prevent the small and medium business from manufacturing of goods in high demand in the districts bordering with Kazakhstan (share of entrepreneurs, %); only 4 common reasons are stated for each region. Aktobe region Mangystau region South Kazakhstan region lack of technologies 29% lack of technologies 16.0% lack of technologies 23% expensive transportation 10% low quality 13.6% absence of qualified personnel 19.4% infrastructure underdevelopment 10% absence of domestic demand 11.4% infrastructure underdevelopment 14.6% absence of qualified personnel 10% absence of qualified personnel 10% low quality 13.6% Data analysis based on three regions of Kazakhstan shows that such factors as geographical location of the region, density and resettlement of population, historically occurred traditional types of business and occupation of population and entrepreneurial inclinations play a vital role for small and medium businesses. 176
So, small enterprises of industrialized Aktobe region, which has wide connections with the neighboring cities of Russia, focus mainly on the service sector, i.e. on trade. In Mangystau region, which is tied to the oil industry, SMEs are concentrated around the major mining companies and more dependent on them. Traditional types of employment in this region are fishing and farming, but it becomes less attractive for small enterprises due to various reasons. In South Kazakhstan region, which has agricultural orientation and differs by being densely populated, agricultural oriented small businesses, i.e. farms are widespread. The geographical location of the region (Aktobe oblast, South Kazakhstan oblast) as bordering, specifically contributes to the development of trade. Cross-border trade of small businesses is developing rapidly in the sphere of foodstuffs, clothing and consumer goods. The most attractive form of small business for the population is sole proprietor. But this form of business is the most vulnerable to economic crises. 177
Appendix 6. Terms of Reference for SME Survey in Kazakhstan A. BACKGROUND Under the USD 500 million Multi-tranche Financing Facility (MFF) for the Small and Medium Enterprise Investment Program (SMEIP), the Asian Development Bank (ADB) is providing long term, fixed rate local currency liquidity to the DAMU Entrepreneurship Fund in Kazakhstan, which is disbursed through participating financing institutions. This funding is used to address the financing constraints faced by small and medium enterprises (SMEs). ADB Тs also provтнтnр aнvтsorв tомсnтмal assтstanмо to strоnрtсоn DAMU s efficiency and effectiveness in assisting SMEs. As part of this support, a nation-wide survey to understand constraints for SME growth, market conditions in regions of Kazakhstan stimulating entrepreneurs to be business active, levels of meeting domestic and export demand of production, also pоrпormanмо oп DAMU s sоrvтмоs, as spомтптон bв tсо МurrОnt ToRs, Сas bооn planned. DAMU closely monitors the implementation of its financial support and capacity building programs for SMEs. There is a need to assess the efficiency of these programs through conducting a survey of targeted beneficiaries of these programs -. entrepreneurs including those not receiving the state support. The survey will help to identify the implementation problems and develop recommenнatтons to ТmprovО ОППТМТОnМв anн НОlТvОrв oп DAMU s proрrams. B. OBJECTIVES The overall objective of the survey is to (i) (ii) assess the profile of the SME population study the market demand and import structure of the bordering regions of Russia with Kazakhstan and develop recommendations to increase export capacity of Kazakhstan to those regions of Russia. (iii) assess the finance and non-financial services provided by DAMU and other service providers. The survey will specifically: (i) describe the SME sector (size, sectors and subsectors, location, age of businesses, export potential). A description of the characteristics of women SMEs 27 should be included. (ii) Study entrepreneurship development of three regions of Kazakhstan, namely Mangystau, South Kazakhstan and Aktobe regions, including economic-geographical features, population density, business habitudes, regional specializations, etc. 27 Women entrepreneurship is defined as (i) 51% or more of the enterprise being owned by women, and (ii) the enterprise is managed by women. 178
(iii)identify the main types of goods, including agricultural products, demand for which is hardly met in the domestic market, as well as assess the volume of potential demand in per cents of the total market size. (iv) Identify the main types of imported goods, including agricultural ones, and assess which of them can be substituted by locally produced goods, (v) Identify the types of goods, including agricultural products, with unmet demand in the bordering regions of Russia and Kazakhstan and assess the potential demand size. (vi) Identify for each region the types of goods (including agricultural) feasible for production in terms of available infrastructure and resources to satisfy the domestic demand. (vii) identify existing supply of financial and non-financial services provided by various service providers to support SME sector. (viii) assess the frequency and satisfaction with these services, possible barriers to access and quality of used services. Identify reasons for success or failure of services provided. (ix) identify gaps in the provision of services as compared to SME needs (tabulated by sector, size, gender and location), and (x) Assess the effectiveness of the non-financial services for SMEs (by sector, size, location) with analysis on the new business creation, tax payments, job creations: - EППОМtТvОnОss oп tсо ПortС НТrОМtТon StrОnРtСОnТnР oп tсо busтnоss potоntтal oп tсо Business Road Map 2020 Program. - Effectiveness of the non-financial instruments of Damu Fund (Centers for support of entrepreneurs, Call-centers, etc.) (xi) Assess the effectiveness of: - subsidy programs under Business Road Map 2020 (interest rates subsidy and loan guarantees) - other crediting (financial) institutions in terms of their activities in each region of Kazakhstan, rural and urban areas. (xii) recommend a catalogue of services and entrepreneurship support mechanisms to be provided by DAMU, which could include improvements to existing products and potential new products. (xiii) Identify the most popular communication channels (sources of information) used by target audiences in regions; small and medium entrepreneurs and their associations, including: - Preferable channels of communications (mass media, experts, peer contacts, gossips, announcements in service centers (banks, public service centers, post offices, etc.) - Identify the most preferable mass media amongst TV and radio channels, print, internet, social network media, etc. The research company is to formulate the research program to concretize these objectives and suggest the system of monitoring indicators. The program is to include justification of problems, description of the structures of questionnaire, guides for focus group discussions and depth interviews. C. CONCEPTUAL FRAMEWORK The survey will identify SME constraints, define SME needs and both access to and use of DAMU sоrvтмоs, атtс a partтмular ОmpСasТs on DAMU s busтnоss НОvОlopmОnt sоrvтмоs. AММОss refers to the availability of supply of services while use is the actual consumption of these services. Hence the survey will reveal SMEs that have access and use DAMU services, SMEs that do not want to use DAMU services (voluntarily excluded) and SMEs that have no access 179
and thus do not use the DAMU services (involuntarily excluded). The survey will also disclose how the services offered by DAMU match the demand (needs), how they are perceived by SMEs and their impact. This will be contrasted with the product offer and coverage of other service providers. The survey will assess regions from the point of view of import substitution and export development, will identify and recommend new financial and non-financial instruments of support to stimulate SME development. The survey will identify perspective sectors of production for each region of Kazakhstan for which it is necessary and possible to develop SME sector to meet domestic demand taking into account mineral and raw material sources and infrastructure. D. SCOPE OF WORK The scope of the services to be provided by the survey firm will include two (2) phases: PHASE 1: Research Process up to the Delivery of a clean weighted Dataset 1. Drawing up the Sample Frame and Sample Selection 1.1. Target Group TСО unтt oп rоsponsо Тs tсо opоratтonal (or aмtтvо ) SME, rоprоsоntон bв ОТtСОr tсо owner or the manager, aged 18 and older, Damu s proрrams partтмтpants, anн SMEs tсat Нo not rомотvо statо support. The category of SMEs will include small enterprises (individual entrepreneurs 28 and legal entities) as well as medium-sized enterprises (individual entrepreneurs and legal entities) as defined by the amended Law on Entrepreneurship No. 124 as of 31 st January 2006 (Art. 6 and 7) 29. Moreover the survey firm will conduct depth interviews with representatives of local executive bodies and representatives of associations. 1.2. Geographical Coverage The survey will cover the territory of Kazakhstan aimed at achieving representative results at the following reporting levels: (i) national, (ii) oblast and special municipalities Astana and Almaty (iii) economic sector, and (iv) urban rural. 1.3. Sample Size 28 Individual entrepreneurship may include one physical person or a group of physical persons (entrepreneurship of spouses, family entrepreneurship or simple partnership) as defined by the amended Law on Entrepreneurship No. 124 as of 31 st January 2006. 29 As amended by Law No. 188 of 17 th July 2009 and Law No. 297-IV of 30 th June 2010. 180
According to the preliminary data of Statistical Agency, as for 1.01.2012 the number of active SMEs was 739 812 30. When determining the sample size, the survey firm shall use a confidence level of 95% with a sampling error of below 2.5% (indicatively a sample of at least 1,600 active SMEs). 1.4 Sample Selection A random SME-based sampling approach shall be used in order to identify survey respondents using a combination of stratified and multi-level sampling. Initially, the sample has to be stratified by the 14 oblasts and the two special municipalities Astana and Almaty proportional to the size of the active SME population. The first stage of the multi-level sampling is the selection of enumeration areas (EAs) which are the primary sampling units (PSUs). They are to be selected from each district using the proportional to size (PPS) approach. If necessary, the sample for the smallest EA needs to be boosted to ensure that the sample is representative. The survey firm will provide details on how the sample frame is selected and its composition. 2. Research tools The firm will use both quantitative and qualitative tools. 3. Developing and piloting the Survey Instrument The firm will use a written questionnaire and qualitative instruments as discussions of focus groups and structured discussions with SMEs. A draft questionnaire will be provided for guidance. It will be administered through face-to-face interviews with business owners and/or business managers. The survey firm will discuss the draft questionnaire with DAMU and the ADB SME BusТnОss Support SpОМТalТst bопorо Тt Тs ПТnalТsОН. ADB s SME BusТnОss Support Specialist will approve the final version. The English questionnaire will be translated into Kazakh and Russian depending on the needs in each oblast. A pilot survey at the end of the enumerator training (see below no. 4) will be conducted to test the translated version of the questionnaire and the ability of the enumerators to conduct the fieldwork. To assess supply of services, besides the use of secondary sources, the firm can opt for separate questionnaires to be used with financial institutions, local executive bodies and business development services providers, or qualitative tools, such as focus groups discussions and one on one structured discussions with service providers. 4. Selecting, Training, Fielding and Supervising the Enumerators The survey firm will recruit an adequate number of experienced and competent enumerators to ensure that the fieldwork is completed within the period outlined under E. Timeline. The survey company will produce enumerator training materials and field manuals and conduct interviewer training to ensure competent and uniform administration of the survey questionnaire. 5. Data Collection After the training and final selection of the enumerators, the survey firm will be responsible for administering the questionnaire to relevant personnel of the SMEs. Interview dates as well as 30 http://www.stat.kz/digital/mal_pred/pages/default.aspx 181
transport facilities for the enumerators will be arranged by the survey firm. The survey firm will handle any problems encountered during the fieldwork. 6. Quality Control of Data collected The survey firm will implement necessary quality control measures to ensure the validity and accuracy of the data collected by (i) having adequate supervision teams and processes in place and by (ii) ensuring that adequate back-check procedures as well as questionnaire checking processes are available. TСО TA ProjОМt CoorНТnator anн ADB s SME BusТnОss Support SpОМТalТst атll МoorНТnatО атtс the survey firm on a regular basis to monitor the progress of the enumeration and completion of the survey. To ensure quality control, a random selection of firms may be contacted by ADB to confirm that the enumerators did conduct the interview and a small number of answers may be validated. The survey firm will send weekly reports of the number of SMEs contacted and the number of nоаlв МomplОtОН quоstтonnaтrоs to tсо TA ProjОМt CoorНТnator anн ADB s SME BusТnОss Support Specialist. More detailed information should be made available to ADB upon request. 7. Quality Control of Data Entry The firm will capture the survey data and produce a clean dataset. Quality control measures like data checking procedures and data validation programmes should be in place. A final clean dataset in SPSS will be produced for the purpose of data weighting (to adjust for the variable probabilities of sampling and non-response) as well as analysis. 8. Reporting The survey firm will produce a technical survey report addressing the sampling approach, the listing and screening process, the fieldwork and quality control process as well as the data capture and cleaning processes. 9. Qualitative tools The survey firm will triangulate the information collected through desk research and the questionnaire using qualitative methods (focus groups, individual interviews and use of other secondary sources). The proposal will include the planning of qualitative research to be used, research topics to be addressed and criteria for selection of respondents. PHASE 2: Analysis and Report Writing Data will be analysed according to the analysis plan. The information collected through the different methods will be presented ensuring that there is a descriptive presentation and analytical interpretation, leading to findings and recommendations. The survey company will present preliminary findings before writing a comprehensive report on the survey findings. The report should be provided in English and Russian in soft and hard copies. The survey firm will present the findings in a stakeholders workshop. 182
E. TIMELINE The survey company will provide a detailed timeline for executing the survey activities within the guidelines provided below Activity Delivery Date Preliminary findings 14 September 2012 Final Report 30 October 2012 Presentation of findings in workshop tbd F. TECHNICAL AND FINANCIAL PROPOSAL Survey firms should submit technical and financial proposals that address the scope of work outlined above within the suggested timeframe. The proposal shall contain: (i) Methodology to be used (ii) Sampling framework to be used (iii) Detailed information to be collected at enterprise, financial sector and business development provider level (including research tools to be used) (iv) Timeline of the different stages of implementation. (v) Detailed cost estimates G. BUDGET The financial proposal shall be made in United States Dollars (USD). It should provide a detailed costing for the scope of work and deliverables described above. Costs should be broken down into professional fees and out of pocket expenses. H. REQUIRED SKILLS AND QUALIFICATIONS Proposals must provide evidence of the technical capacity of the firm to undertake this exercise. This includes capacity to deliver the results in the timeframe provided, as well as experience in conducting similar surveys (including national coverage, and experience with the financial sector, business development services sector and SME sector). It is important that the firm has fielded quantitative surveys and not simply gathered subjective responses. The application must identify the core management and technical team, their technical expertise in each phase as well as overall project management. The firm must provide a full-time team leader responsible for data collection and analysis. Core team member CVs must be included as well as НОsМrТbТnР anв ПurtСОr rоsourмоs tсat maв bо rоquтrон. TСО ПТrm s МlТОnt portпolтo anн past experience must be incorporated. I. SELECTION CRITERIA Contract selection criteria and award will be made on the basis of the following scoring mechanisms for each phase: Technical proposal evaluation criteria Weighting 1 Technical soundness of the proposal and general approach 40% 2 Competence and previous experience of the firm 25% 3 Competence, expertise and experience of key individuals 25% 4 Capacity to deliver; local capacity 10% Maximum score 1000 183
Financial proposals will only be assessed if a firm scores 750 out of a possible 1000 points for the technical proposal. The overall score will be obtained by weighting and adding the technical (80%) and financial (20%) scores. J. SUBMISSIONS Survey firms should provide hard copies or electronic versions of all documentation. Proposals should make reference to ADB TA-7634 (KAZ) SME Survey. The proposals must be submitted no later than 15.00 (local time) on 16 th April 2012 and be addressed to: Mrs. Aliya Mukhamedyarova Kazakhstan Resident Mission Asian Development Bank "Arai" building, the 2nd floor Kazybek Bi Street, 20 A, Almaty Tel +7 (727) 320 19 01 / 02 / 03 (ext. 532) Fax +7 (727) 320 19 11 Electronic submissions should be sent to: amukhamedyarova@adb.org fteves@adb.org K. QUERIES Any queries relating to the preparation of the proposal should be referred to Mrs. Aliya Mukhamedyarova (see contact details above and email: amukhamedyarova@adb.org). L. CONFIDENTIALITY The selected firm will be required to sign a confidentiality agreement stating that no data will be shared with any third party, no identifying information will be released, no information will be used for other projects and no information will be sold or otherwise released. The selected firm shall duly inform the interviewed SMEs that the responses provided will be kept strictly confidential, analysis will be done only in the aggregate and the information is being used only for research purpose. 184