Government measures to further stimulation of small entrepreneurship

THE MINISTRY OF EDUCATION AND SCIENCE

OF THE REPUBLIC OF KAZAKHSTAN

 

KAZAKH-BRITISH TECHNICAL UNIVERSITY

 

KBTU SFE

 

   Admitted to the defense

 

Dean of the Finance and Economics Faculty

d.e.s, Professor   _____________   Abdrakhmanov B.K.

                                                                                                                                                                                            

 

 

 

 

 

RESEARCH PAPER

“The main directions of development small entrepreneurship in Kazakhstan ”

of 5B050600 «Management » specialty

 

 

 

 

 

 

 

Done by:                                                                                  Olzhas E. Baigozhin

 

Supervisor:

Phd in Economics

Master of Business Administration                                           Professor Ken Charman

                                              

 

Chairman Economics and Management Department                         Leila N. Salykova

 

 

 

 

 

 

 

 

 

Almaty, 2013

 

CONTENT

 

INTRODUCTION…………………………………………………………………….

 

CHAPTER 1. THEORETICALLY ASPECTS OF SMALL BUSINESS IN KAZAKHSTAN……………………………………………………………………..

 

1.1 Essence and classification of entrepreneurship in Kazakhstan…………………

1.2 The role and importance of small entrepreneurship in the economic development of society……………………………………………………………………………….

1.3 Stages of formation of small entrepreneurship in Kazakhstan………………….

 

CHAPTER 2. ANALYSIS OF SMALL BUSINESS DEVLOPMENT IN KAZAKHSTAN………………………………………………………………………

 

2.1 Analysis of the current state of small entrepreneurship in Kazakhstan……………

2.2 Government support of small entrepreneurship in Kazakhstan………………..

2.3 Problems in development of small business……………………………………..

 

CHAPETR 3. THE MAIN PROBLEMS IN DEVELOPMENT OF SMALL BUSINESS IN KAZAKHSTAN AND THE WAYS OF ITS SOLUTION……......

 

3.1 The ways of resolving problem in development of small entrepreneurship in Kazakhstan….. …………………………………………………………………………

3.2 Government measures to further stimulation of small entrepreneurship………......

 

CONCLUSION…………………………………………………………………….....

 

THE LIST OF REFERENCES……………………………………………………….

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

Small enterprise (SE) is the basis of a stable civil society, the well-being of the people depends on SE development.

In most countries, the growth of SE goes a long way to the development of the economy and increase its efficiency. Small-scale enterprises are the base of the economy, in the long term - this is the most stable part of it, only with the development of the SE is possible to build a stable functioning market economy.

SE - mobile and productive sector of the economy. It really creates a significant share of GDP and it employs most of the workforce. This is important not only for industrialized countries, but also for countries with economies in transition. SE provides significant tax revenues to the budget of the country and has a significant social function by supporting economic activity of the majority of the population. 

Therefore, the most majority of developed countries fully encourages the activities of small-scale enterprises. In the global economy operates a huge number of small firms, companies and enterprises.

A number of challenges such as: instability and incompleteness of the legal framework for small business, hard tax pressure, funding problems related to the lack of start-up and working capital, all these challenges do not allow SE to realize their full potential.

In this regard the need for in-depth theoretical study of SE's development in Kazakhstan is very important. The relevance of this study is also stipulated by the fact that SE is the driving force of the market formation and development. Small-scale enterprises significantly and without substantial capital investments expand the production of consumer goods and services, assist to align life conditions of the population, involve in the production labor, material and financial resources, accelerate de-monopolization of the production, promote competition development, are the basis for mass owners strata formation as the basis of middle class of society, and are the source of tangible budget receipts and sustainable economic growth.  

Due to the huge role of the SE in the economic development of the country, it is necessary to pay attention on its government support. World experience shows that if the state wants to develop dynamically and steadily, it’s social and economic programs must include measures to stimulate SE. Today in the developed countries 40% to 90% of the gross domestic product (GDP) volume is accounted for the share of SE. It indicates that the governments of these countries give priority to support this sector. However the share of SE in the economy of the Republic of Kazakhstan is very different from the global criteria.     

Support of SE - a support of market, competitive economy as a whole.  The SE sector is the instrument of control unemployment, which is being an important social and economic problem in the world economy. Employment problems and possibility of their decisions, including by SE development, are very actual, because in the market economy the problem of employment is very sharp.

During speech at ceremony in honor of the 17th anniversary of the proclamation of independence of the Republic of Kazakhstan N.A. Nazarbayev, President of the Republic, said: "We shall increase the share of SE in the economy, bringing it to the level of moderately developed European countries. And then it will be easier to resist to the next crisis cycles. Every citizen of Kazakhstan should have opportunities to learn new business, open a new business or expand their sphere of activity. " 

The strategy of industrial and innovation development 2010-2014 considers state policy for small and medium business support and development and constructs a new ideology of state and business development where the main goal is to increase the competitiveness of the country. [1]

The objective of research paper is to analyze the current state of SE in the Republic of Kazakhstan, to identify main SE problems and provide its solutions.

To achieve this objective it is necessary to solve the following tasks:

1) reveal the essence, significance and stages of development of small business in the Republic of Kazakhstan;

2) to analyze the current state and development of SE in the Republic of Kazakhstan;

3) identify the main problems of SE and the ways of its solutions;

4) identify measures of government stimulation for development of SE in the Republic of Kazakhstan.

The subject of the research is the process of the formation and operation of small business in Kazakhstan, the problems and development prospects of small business.

Object of study - the small business sector of the economy of Kazakhstan.

The methodological and theoretical basis of the thesis was constituted by scientific works of the Kazakhstan and foreign scientists in the field of the economic theory, taxes and the taxation, macroeconomic, microeconomics, finance and the credit, state regulation, economic statistics.

Information base of the thesis was a system of legal acts of the Republic of Kazakhstan legislation on entrepreneurship, on state regulation of small and medium businesses, the data of Statistics Agency of the Republic of Kazakhstan, the Government reports on the current condition of business, and also  government programs of  support entrepreneurship. The information base for tables, charts, and graphs presented in the text of the diploma work, are the statistics of the Ministry of Finance of the Republic of Kazakhstan, the Republic of Kazakhstan Agency for Statistics, National Bank of Kazakhstan.

This paper consists of the introduction, three chapters, the conclusion and the list of references.

 

 

 

 

 

 

 

 

 

CHAPTER 1. THEORETICAL ASPECT OF SMALL BUSINESS IN THE REPUBLIC OF KAZAKHSTAN

 

1.1 Essence and classification of entrepreneurship in Kazakhstan

First of all we would like to answer the following questions: what is business and who is a businessman?

Referring to the history we can conclude that the theory of business developed in several directions. Table 1 given below demonstrates these representatives and theories of these directions.

 

Table 1

Business theory directions

 

№	Author	Interpretation
1	R. Cantillon  - English economist of the late 17 - early  18 centuries.	Enterprise – is an economic activity in which commodity supply and demand are brought into balance in conditions of a constant risk. He connected entrepreneurship with risk. In his opinion the entrepreneur is a person with insight and ability to take risk and to realize it in order to generate additional income. He can be engaged in activity in any moment of reproduction: production, exchange and consumption. Contillon believed that the source of wealth is land and labor which determine the actual value of economic benefits. [2]
2	J.B. Say (1767-1832) – French economist	He formulated the definition of entrepreneurship in his book  "A treatise on political economy" (1803) as a combination of three classic production factors – land, capital and labor. The main thesis is the recognition of an active role of entrepreneurs in product development. According to Say entrepreneurs’ income is remuneration for his work, his ability to organize production, production distribution, and his ability to provide “the spirit of the order”. Entrepreneur – is a person who at his own expense and risk and for his own benefit produces any product. [3]
3	J. Schumpeter (1883 —1950) — Austrian and American economist	J. Schumpeter considered that the entrepreneur is the primary productive force of economic development. The economic system self-develops when new combinations of reproduction factors are continuously reproduced in it. New combinations are in: production of an unknown by consumer goods, new reproduction methods implementation, new markets or new market segments development, new sources of raw materials, new work management methods implementation and etc. He claimed that enterprise – is first of all the innovative activity as a result of which new products are developed. Economic subjects who actively carry out these combinations in the reproduction process J. Schumpeter defined as an entrepreneur. [4]
Note – made by the author on the basis of  internet resources

 

So, these are the main directions of development of the theory of enterprise. And how does the enterprise characterize at the present moment?

For example, in the “Entrepreneur Encyclopedic Dictionary” the “enterprise” is defined as “initiative independent citizens’ activity aimed at making a profit or personal income, carried out on his behalf, under his property responsibility or on behalf of and under the legal responsibility of the legal entity”. [5]

Also the definition of entrepreneurship is reflected in art. 10 of the Civil Code of the Republic of Kazakhstan according to which the enterprise is an initiative activity of citizens and legal entities, irrespective of the form of ownership, aimed at generating net income by addressing the demand for goods (works, services), based on a private property (private enterprise) or on the right of economic management of the government enterprise. [6]

The Law of RK “On Private Enterprise” #124-III dated 31.01.2006 states that the enterprise – is an initiative activity of private enterprises aimed at generating income, based on the property of private entrepreneurs themselves  and carried out on behalf of private entrepreneurs at their risk and under their financial responsibility. [7]

Therefore, it can be concluded that now there are many definitions of enterprises. They are united by one general statute that enterprise is the activity aimed at profit or personal income generating. Nevertheless, it is not the only purpose of enterprise. Another additional purpose is the public benefit. Because enterprise is impossible without society therefore it can't be directed at the environment in which it operates. Conversely, it has socially useful nature, comprehensively strengthening and enriching society through wellbeing of its individual members. First, this purpose (public benefit) is to address the needs of society in the required goods and services. Second, business solves the problems of employment of the population, thereby reducing unemployment. It is also possible to mention the taxes, payment of which is always useful for the society. [8] 

That is why more appropriate, in my opinion, will be the following definition. Enterprise – is initiative and independent activity for production of goods and performance of services, aimed at profit or personal income generating, carried out under the property responsibility of the entrepreneur and based on a combination of personal economic benefit to the common good.

The most important features of the business are:

1) autonomy and independence of the entrepreneur.

He can be engaged in any activity and he can independently form his own production program. Autonomy in the organization of production is supplemented with commercial freedom. The enterprise defines the ways and methods of the products realization, selects contractors, sets the prices, etc. Of course, there are no producers in the economy of absolute freedom. The businessman has full autonomy, it means that there is no instance under him forcing him what to do, how to do and how much. But he isn't free from the market, from its rigid requirements.

2) personal economic interest in the outcome and personal liability to other entities of market relations.

Self-interest is a leading factor of business.  It is expressed in aspiration to get the maximum profit. The personal responsibility is assigned to the businessman for breach of treaty, credit, payment and tax obligations, for sale of goods, the use of which may cause harm to human health, and other regulations required by the legislation. Besides, the businessman is obliged to take care of rational use of his land and other natural resources, not to pollute the environment, not to violate production safety rules, to comply with sanitary standards and requirements for the protection of his employees’ health, etc.

3) innovation (creative process).

Innovation and creative process are stimulated by the competition. The one who provides high quality and constantly updates products, improves equipment and technology can keep his position in the civilized market. [9]

4) economic risk.

Risk is one of the key, the most important element of the enterprise. Enterprise is always connected with risk. Economic risk is the way of management in unforeseen conditions or circumstances. It is connected with each stage, element, part of economic activity, beginning from the development of the production conditions (purchase of raw materials, equipment, labor recruitment) and finishing with the production of goods and services and their realization. The entrepreneur should be very well oriented in the environment, know the prices, monitor new developments, analyze supply and demand in different markets, prevent production failures and so on. Non-compliance with these and many other rules may result in unjustified damage.

Types of entrepreneurship.

The main types of entrepreneurship in the Republic of Kazakhstan are private and government entrepreneurship. The Civil Code of the RK makes a distinction between private and government entrepreneurship depending on the form of ownership – private entrepreneurship is based on private property, and the government – on the right of economic management of the government entrepreneurship [10].

 

 

 

 

 

 

 

 

 

 

 

 

Government entrepreneurship is the activity of government enterprises on commercial or noncommercial bases on the production of goods and services required for the national economy development. [11]

Private entrepreneurship is an initiative activity of the private entrepreneurship's subjects, aimed at income generating, based on their own (private entrepreneurship's subjects) property and carried out on behalf of private entrepreneurship's subjects, at their risk and under their property responsibility.

The subjects of private entrepreneurship include individuals and private legal entities who are engaged in commercial activity. [12]

The main difference of government entrepreneurship from private entrepreneurship is not to obtain the income, but is to address social and economic challenges. Government entrepreneurship provides support of such sectors of economy that are vital for reproduction. The main sector is economic infrastructure (energy, transport, communication). [13] Thus, private entrepreneurs are guided by the needs of the market and government - by the country’s interest when choosing areas of their activity.

There are the following types of entrepreneurship, depending on the content and direction of business activity, on the capital and concrete results, and the linkage of business activity with the main stages of the reproduction process: industrial, commercial, financial, mediatory, and insurance.

Entrepreneurship is called industrial if the entrepreneur directly, using as factors tools and subjects of labor, produces products, goods, services, works, information, cultural values for the subsequent realization (sale) to consumers, buyers, trade organizations.

In commercial entrepreneurship (CE), the entrepreneur acts as a merchant, trader, by selling finished goods, acquired by him from others, to consumer, buyer. In this entrepreneurship the profit is generated by the sale of goods at the price exceeding the price of purchase.

Financial entrepreneurship (FE) is a special form of commercial entrepreneurship in which currency values, national currency (tg) and securities (stocks, bonds, etc.), sold by the entrepreneur to the purchaser or provided him for a loan serves as the subject of purchase and sale.

Mediation is a entrepreneurship where the entrepreneur himself doesn't make and doesn't sell goods, and acts as a mediator, a link in the process of a commodity exchange, in commodity-money transactions. Mediator is a person (person or entity), representing the interests of the producer or the consumer (and often operating on their behalf). The wholesale supplying and marketing organizations, brokers, dealers, distributors, exchanges markets, to some extent commercial banks and other credit organizations act as intermediary enterprise organizations in the market.

Insurance entrepreneurship (IE) is that the entrepreneur in compliance with the legislation and the contract guarantees to the insurant compensation for damage as a result of unforeseen disaster, loss of property, values, health, life and other types of losses for a determined payment at insurance contract signing. Insurance is that the entrepreneur receives an insurance premium, paying insurance only under certain circumstances. As the probability of emergence of such circumstances is insignificant, the remaining part of contributions forms the enterprise income. [14]

It would be logical to consider such type of business as a private enterprise. The Law of the Republic of Kazakhstan "On Private Entrepreneurship" No. 124-III dated January 31, 2006 divides the subjects of private entrepreneurship into three big groups:

1. Subjects of small entrepreneurship - individual entrepreneurs and legal entities with the number of workers no more than 50 persons and average annual asset value (entrepreneur’s or legal entity’s property, reflected in the balance) for the year not over 60.000 of minimum calculation index that in 2013 is 102 780 000 tg. (* to calculate the maximum value of the assets is very easy - it is necessary to multiply 60 000 by the monthly calculation index established by the Law on republican budget for each year, so, in 2013 it is 1 713 tenge. Monthly calculation index (MCI) — is a measure used in Kazakhstan for calculation of retirement benefits, allowances and other social benefits, and also for penalties [15], calculation of taxes and other payments. It is established annually by the Law "On Republican Budget");