Azernews.Az

By Aynur Karimova

Azerbaijan, the largest economy in the South Caucasus, has approved new criteria for determining how businesses are categorized according to the number of employees and annual revenue. These measures are aimed at developing small- and medium-sized businesses in accordance with global standards.

The new criteria, which the Cabinet of Ministers adopted on June 9, changes the ways in which small-, medium- and large-sized businesses are classified. Small-sized businesses, should maintain less than 50 employees with annual revenues of 120,000 manats or less, medium-sized businesses should maintain 50-125 employees with annual revenues of 120,000-1.125 million manats, and large businesses must employ a staff of over 125 persons and receive annual revenues over 1.125 million manats.

SMEs: in Europe, U.S. and in Azerbaijan

According World Bank annual reports, small businesses are a key part of economic activity in most countries throughout the world, regardless their geographical location and level of economic development.

Some 99 percent of all European businesses are SMEs and true back-bone and the primary drivers of growth for the European economy. SMEs provide two out of three private sector jobs and contribute to more than half of the total value-added revenue created by businesses in the EU.

The main factors that determine whether a company is an SME are the number of employees and either annual turnover or balance sheet total.

Companies with less than 50 employees and €10 million in revenue or less are classified as small-sized businesses, while enterprises with less than 250 employees and annual turnover less than or equal to €50 million turnover are medium-sized business units.

In the U.S., SMEs with fewer than 500 employees are the backbone of economy and are considered job creators. They make up 99 percent of all firms, employ over 50 percent of private sector employees, and generate 65 percent of net new private sector jobs.

In Azerbaijan the new edition of the criteria for classifying small businesses was approved by a decision of the Cabinet in December 2009.

The new law stated, “small business units shall have less than 50 employees and annual turnover of 500,000 manats in industry and construction, less than 25 employees and annual turnover of 250,000 manats in agriculture, less than 15 employees and annual turnover of 1 million manats in wholesale trade, and less than 10 employees and annual turnover of 250,000 manats in retail trade, transportation, services and other forms of economic activities.”

Int'l financial institutions promote SMEs in Azerbaijan

SMEs are important engines for economic growth of each country and a key contributor of employment. They play a critical role in achieving sustainable domestic growth.

Given the fact that every 9 out of 10 jobs are created by SMEs worldwide, improving their access to finance means faster growth, enhanced productivity and internationalization – the core pillars of the country’s sustainability agenda.

In this regard, Rolf Behrndt, Manager of the World Bank Group’s Finance and Markets Practice, believes that Azerbaijan’s future growth will largely depend on the increasing role of innovative, skillful and competitive micro, small and medium enterprises.

The WB has presented the Azerbaijani government with a number of recommendations on advancing reforms for developing a modern secured transactions framework and credit reporting system, and for enhancing risk management practices while simplifying and standardizing lending procedures.

The bank experts believe that further growth of the country’s financial sector would require development of innovative banking and non-banking financial products for various clients, particularly for smaller and younger firms, and those located in rural regions.

They recommend that the government's strategy on supporting the SMEs should be developed and access to finance programs should be streamlined to increase outreach, impact and targeting.

The European Bank for Reconstruction and Development has been successfully cooperating with the Azerbaijani government in ensuring the stable development of Azerbaijan's non-oil sector by investing in SMEs.

The bank's syndicated loan facility provides SMEs with access to long-term and low-cost financing. Azerbaijan, the largest recipient of the EBRD funds in the Caucasus, is one of the largest recipients in the CIS and Eastern Europe. Last year, the bank invested 238 million euros in the implementation of 21 projects.

Since the beginning of cooperation in September 1992, the EBRD has already allocated 2.33 billion euros to finance 156 projects in various sectors of the economy in Azerbaijan.

Azerbaijan takes measures

Azerbaijan, with its huge prospects to boost the development of SMEs, has been taking various measures in this regard, and as a result positive trends are being reported in the development of entrepreneurship in the country.

Azerbaijan's strategy of development of the regions is important in ensuring the country's sustainable socio-economic development, macroeconomic stability, and promotion of SMEs.

State support to business activity is the main focus of the State Programs on socio-economic development of regions of Azerbaijan in 2004-2008, 2009-2013 and 2014-2018.

One of the main steps in the promotion of SMEs was the establishment of the National Fund for Entrepreneurship Support in October 1992. This was the first financial institution under the Economy and Industry Ministry engaged in the allocation of loans to small and medium businesses, including soft loans from the state budget.

Preferential loans worth 160.2 million manats were issued to 4,720 entrepreneurs throughout the country since the beginning of the year. Also, the number of non-bank credit organizations increased to 20, with the aim of simplifying small enterprises' access to preferential loans.

Azerbaijan also launched the electronic information portal on permissions in October 2011. This portal allows the entrepreneurs to increase awareness about the list of documents and procedures required for getting permits, and the validity of permissions.

As a result of targeted measures implemented over the past 10 years, over 1.2 million new jobs and 55,600 new enterprises have been established. All of these measures paved the way to the increase of business activity and gave a strong impetus to the development of small businesses in the regions. From January-March 2015, the number of enterprises increased by 1.9 percent and as of April 1, this figure reached 96,398. Some 1,714 new legal entities passed the registration in this period.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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