Government measures to further stimulation of small entrepreneurship

The second stage – tough state monetary and fiscal policy (1993-1995).  As we stated in the beginning of that chapter, there was a great hyperinflation in the early 1990s in Kazakhstan. For example inflation increase in the end of 1992 comparing with December of 1991 was 2900%. It is a very negative signature. A great inflation led, from the one point, to the devaluation of the personal savings, from the other point, to the heavy increase of the interest rates of the bank loans. It was a great stroke. At that stage to reach a macroeconomic stabilization there were pulled down tax concessions stimulating productive activity. And it has negative consequences. The number of people working in production sphere of cooperatives, LLP and small-scale enterprises suddenly shortened. Due to the low availability of credit and shortage of own finance and high inflation there was a runoff of the main subjects of small business from productive activity to trade-intermediary and commercial activity. Explosive development of trade-intermediary small business was a response to those actions from the government. Liberalization of foreign trading in the conditions of former of USSR and lifting of a ban on private trade within a country created favorable conditions for any kind of commercial activities. Quick turnover of small trading capital turned them into capital of average size. Moreover, haggling quickly responded to the fast-growing socioeconomic differentiation of Kazakhstan society.

Tightening of tax pressure led to the situation when to do production activity became profitless and unpromising. Bank and trade-intermediary activity – to that moment appeared to be most profitable unlike dying real business sector of Kazakhstan economics.

In general, this period of time can be characterized as a splendid blossom of a “shuttle” business – quick turnover of investments, slowdown of production activity. At that moment, bank and trade-intermediate activity appeared to be the most profitable to the disadvantage of real economy. In 1995 comparing with 1992, percentage of production of subjects of small business in country’s GDP decreased to one third, from 7,0% to 4,7%, and number of people working in that sector of economics decreased by two times, from 6,0% to 3,0% respectively. [30]

At that period the weakened enterprising could not restrain unemployment increase.

The third stage – it is the boom of privatization (1996-1997). At the end of 1996 and at the beginning of 1997 there was a small macroeconomic stabilization in the country. To strengthen the government support to and boost the development of small entrepreneurship the President of the Republic of Kazakhstan issued a decree establishing “Small Entrepreneurship Development Fund” JSC in March 1997 aimed at stimulating start-up and economic growth of subjects of small business.”. To support small business there was issued the decree of the President dated 6.03.1997 - «On Measures to Strengthen Government Support to and Boost Development of Small Business». In 2007 The Fund's status has changed from “Small Entrepreneurship Development Fund” JSC to “Damu Entrepreneurship Development Fund” JSC. In pursuance of the aforesaid Decree, there were sold 1520 objects and constructions, rent out – 1334 objects to the subjects of small business. By the choice of entrepreneurs, for usage in production targets, transferred in trust 571, at no cost - 204 objects. For redevelopment of flats of the lower floors of residential buildings for shops, cafes, pharmacies and other facilities received 5664 permits. As a result of these measures in the country there were first-class cafes, restaurants, shops and service industries. The number of small businesses in this period (1996-1997 years.) increased 2.4 times, and the proportion of their turnover increased by 1.8 times and amounted to 8.5% of GDP. The number of employees in this sector in 1997 surpassed 1995 of 1.73 times. Small sector of the economy again began to "consume" unemployment. Thus, a small business made a significant contribution to the stabilization of the economy. [31]

The fourth stage - the period of quality development of the republic economy (1998-2005 years), accompanied by the growth of industrial production, gross domestic product, the stable development of the financial and credit areas of the country. The stabilization of the socio-economic situation in the country exert a positive influence on the development of small business. According to the data of  the Agency of Statistics of the Republic of Kazakhstan the number of active artificial persons of small business was 50 612 in 2005 in Kazakhstan. The total number of SE entities (including individual entrepreneurs and farms) was 504,824. The number of people employed in small business  reached 1610.1 people in 2005. The increase in income from the sale of goods and services of SE artificial persons for 2004 to 2003 was 8.7%. Small Business in Kazakhstan was developing rapidly. The number of SE entities has increased over the year for 9.6%  (from August 2004 to August 2005), the number of employed - for 8.5%, the volume of output in nominal terms - for 13.5% (as a whole, real GDP growth for the same period in the last year was 9.7%). [32]

In the capacity of legislative act, which had positive impact on the business relationship, may be called the Law of the Republic of Kazakhstan « On Government support of direct investments» from February 28, 1997, which defined the basic tasks such as: the introduction of new and advanced technologies and know-how; domestic market saturation with high quality goods and services, government support and promotion of domestic producers; the development of export-oriented and import-substituting industries, the creation of new jobs, improving the environment, etc. Also, to some extent stimulated entrepreneurial activities involving small businesses Act "On Public Procurement" from July 16, 1997 № 163 - I, who, as a measure to support small businesses in government procurement secured compulsory reservation of 10% of the total in public procurement of certain goods (works, services) for procurement from small businesses. Mention may be made on the support and development programs of 1999-2000., 2001-2002., 2004-2006., which also had a positive impact on the business relationship. As a consequence of all this, in the country at that time was favorable internal and external conjuncture, the rapid increase of production in many sectors of the economy, the increase of real income of population, etc. Whereas in 1998-1999 the conditions for developing of small businesses were much less favorable.

The fifth stage - the impact of the global crisis on the development of small business and its development to the present day (2007 - 2010).

The global financial crisis (2008 - 2010) has hit the economies of many countries in the world, which certainly had an effect on their further development and strengthening the role of the state in regulating economic and financial processes in each country. First, in 2006 difficulties began with U.S. mortgage. The first signs of the mortgage crisis in the United States were the increased amount of housing loan defaults. It has caused the collapse of America's mortgage sector that induced the global crisis. Consequences of the mortgage crisis in the U.S. had a negative impact on the global financial markets and the economy, including Kazakhstan, as the country is integrated into international markets. Suffered both economy and its individual sectors.

Most strongly felt the impacts on themselves banking and construction sectors. As a consequence, this has affected on the activity of entities of small business in Kazakhstan. Kazakhstan's banking sector the first felt effect of the crisis in August 2007. Restricting borrowing on international capital markets has reduced the ability of banks to refinance foreign loans obtained earlier, and learn new - it has caused capital flight from the banking sector. As a consequence, many companies have started to experience a deficit of credit resources of commercial banks, which had excess liquidity earlier and easily financed even unsecured projects. This, undoubtedly, affected on the turnover of funds and caused a decline in the production and sale of goods and services. In addition there was an increase in prices for goods and raw materials, and the companies, having a deficit in resources, could not provide themselves with these necessary materials. In this regard, there was a reduction of production of goods. Another negative factor, which impacted on small business in the crisis, was growth impairment of population’s incomes, as a result of decrease in demand for the products of entrepreneurs.

It should be paid tribute to the Government of the Republic of Kazakhstan for the rapid response to the consequences of crisis. Through the implementation of anti-crisis measures that were approved in the Plan of joint actions of the Government, the National Bank of Kazakhstan and the Committee for the control and supervision of the financial market and financial organizations of the National Bank of the Republic of Kazakhstan for stabilization the economy and financial system for 2009-2010 (the Plan), succeed to avoid recession Kazakhstan's economy. The plan was implemented by the five main areas: 1) stabilizing the financial sector 2) solving the problems in the property market 3) the development of small and medium sized businesses 4) development of agriculture 5) the implementation of innovation, industrial and infrastructure projects.

In reference to small entrepreneurship, the Government has taken a number of measures to support small business was provided financial support in the form of an interest-free loan of 275 billion tg, was introduced a new Tax Code, which entered into force in 2009, which significantly reduce the interest rate on the main taxes. It includes some innovations, and, in particular, it provides reduced rates on corporate income tax from 30% to 20%, and also it provides elimination the requirements for advance payments for small and medium businesses. Other measures of  the government of Kazakhstan related with reducing the administrative barriers and the creation of the necessary conditions for doing business in the country. So, in 2008, was adopted 13 resolutions of the Government and a number of inter-acts, directed for reducing administrative barriers and improving business - climate. To support business activities of small and medium businesses was granted over 2.5 thousand projects to the sum of 155 billion tg. Thirdly, there were anti-inflationary measures - food protection and measures of export and import regulations. [33]

With all of these timely anti-crisis actions of the government, it is safe to say, that Kazakhstan has bridged over difficulties of the crisis. Favorable conjuncture of the world petroleum markets, which defended the Kazakh economy and limited the impact of the global crisis, also favored to bridge over difficulties. Proceeds from the sale of hydrocarbons, whose exports share rose from 40% to 60%, allowed increase the budget expenditures annually. To "exit" from the crisis, Kazakhstan can burn itself into an asset to solve the external debt of banks (just write off on foreign loans amounted to about $ 13 billion), and generally quite stable financial system, which has been revived thanks to the support of the state. In general, to overcome the effects of the crisis the country has spent about $ 19 billion from the National Fund. [34] As a result, the government has entered into all strategic industries and became a major investor in new projects and the guarantor of stability. During the crisis, Kazakhstan continued to build roads, cities, power plants and major investor was the state. Due to massive budget investments the country has a minimum load of social problems, in contrast to most European countries.

Also, all of these anti-crisis actions of the state favorable affected on small entrepreneurship. Due to financial injections from the government, banks' activities have stabilized. Appeared credit resources, which provide a positive business activities. The number of employed in the SE increased from 1755,300 in 2008 to 1 882.3 in 2010. The number of active entities of small business was 58,480 in 2008, while in 2010 this indicator rose to 66,492. The total number of SE subjects (including individual businesses and farms) slightly decreased from 703,802 in 2008 to 652,886 million in 2010. [35]

In general, it can be said, that Kazakhstan, in particular small entrepreneurship, successfully overcome the crisis.

 

2.2 Analysis of the current state of small entrepreneurship in Kazakhstan

 

Best practice of the developed countries in building competitive and diversified economy shows the fact that small business (further SB) is one of the key elements in that process. Condition and level of the SB development plays an important role in providing a sustainable growth of the country economy allowing solving such problems as unemployment, poverty, undeveloped competition, inefficient use of material and non-material resources, dependence of internal cumulative demand on import, etc. As a result of it, questions of development of SB in the majority of the countries belong to categories of the most important and are considered at the highest state level.

Small business in the Republic of Kazakhstan became the mass and rather dynamic phenomenon. For the last six years the number of active subjects of small business increased more than by 14,5% in comparison with 2007, and for January 1, 2013 reached 755510 units.

What situation is in SE today?

Currently, according to Agency data statistically the share of a contribution of subjects of small business in gross domestic product in 2006 made 17, 5%, by 2010 – 20, 2%, and by 2011 – 17, 5 (this indicator pays off once a year. For 2012 it is expected at the end of 2013).It is a low indicator. It should be noted that by the reason of so low contribution of small business in gross domestic product (17,5%) in comparison with the developed countries (Germany – 57%, Great Britain – 52, the USA – 52, France – 50%), it is caused by that a big share in gross domestic product creates large business (7% of large business create 70% of gross domestic product presented oil and mining and metallurgical sectors). This situation reflects structure of our business, in the most part concentrated in raw branches. Therefore the strategic task is set for the state by 2020 to increase a share of small business in country gross domestic product by 7-10%.

From table 3 it can be concluded that the share of small business of gross domestic product of the country here is trampled down some years on a mark of 20 percent. The president of Kazakhstan Nursultan Nazarbayev in the message to the people "Strategy "Kazakhstan-2050", dated on December 14, 2012, set the purpose: by 2050 to enter into number 30 of the most developed countries of the world.  Thus the share of small business in economy of Kazakhstan has to grow by 2030 twice, and by 2050 this sector of economy has to become, according to Nazarbayev's prevailing the promises.

Table 3

Share of SE in GDP

Indicator	2006	2007	2008	2009	2010	2011	2012
Share of SE in GDP (%)	17,5	20,4	18,6	20,4	20,2	17,5
Note – made by the author on the basis of Statistics Agency

 

Registered and actively operating SE subjects.

According to Agency of Statistics of the Republic of Kazakhstan as of January 1, 2013 the number of the registered subjects of SE, in comparison with the period of 2012, increased by 8,6% and made 1 387218 units, including – 229 865 legal entities of small business (16,6% from total), 968 288 – individual entrepreneurs (69,8%) and 189 065 farms (13,6%).

All registered subjects of SB in Kazakhstan can be divided conditionally on actively operating and, for the different objective or subjective reasons, temporarily staying idle. In view of the fact that under the Tax legislation to close or liquidate the subject of SB it is represented enough problematic, many subjects are compelled to remain registered in the tax register, previously having notified tax authorities on the temporary termination of activity. Owing to all this, we decided not to analyze dynamics of the registered subjects of MT as they don't show us a true picture of a present condition of SB. Another matter – actively operating subjects of SB – those subjects who really conduct business activity. Owing to all this, we decided not to analyze dynamics of the registered subjects of MT as they don't show us a true picture of a present condition of SB. Another matter – actively operating subjects of MT – those subjects who really conduct business activity.

The number of actively operating subjects of SE in the republic for January 1, 2013 made 755510 units, including – 62888 legal entities of small business (8, 3% from total), 527941 individual entrepreneur (69, 9%) and 164681 farms (21, 8%).

The share of active subjects of SE in total of the registered subjects of SE as of January 1, 2013 makes – 54, 5%.

 

Picture 1. The number of actively operating subjects of SE from 2008 to 1 January 2013 (units).

Note – made by the author on the basis of Statistics Agency

 

Till 2008 there was a rapid growth of number of subjects of SB. It was promoted by measures of the state for the maximum simplification of procedure of registration of business activity. For 2005-2008 the number of active subjects of SB grew more than by 38% and exceeded 700000. In 2008 growth had negative dynamics as under the influence of the crisis phenomena activity of businessmen decreased. But as we see from schedule 1, there is a gradual increase in number of subjects of SB from year to year. So for 2010, against the general recovery processes, we see that was succeeded to keep number of active subjects of SB at the same level what it was in 2009. And in 2011 significant increase in growth of number of active subjects of SB by 22% (from 652886 units to 837083 units) is observed.

According to Agency of Statistics of the Republic of Kazakhstan as of January 1, the largest number of actively operating subjects of SE concentrated in South Kazakhstan Province - 108822 (14,4 % from total number of actively operating subjects of SE), in Almaty Province - – 102699 (13,6 %) and in Almaty city– 85785 (11,4%). The smallest number of actively operating subjects of SE concentrated in Kyzylorda Province - – 20604 (2,7%) and North Kazakhstan Province -  22254 (2,9%).

The greatest number of active legal entities of small business operate in Almaty - 13,987 (22.2% of the total number of legal entities of small business) and the South-Kazakhstan Province - 6568 (10.4%). The worst by this indicator is Zhambyl Province- 1508 (2.4%) and West Kazakhstan Province- 1809 (2.9%).

The greatest number of active individual entrepreneurs registered in Almaty - 71,791 (13.6%), Almaty Province - 50,023 (9.5%) and East-Kazakhstan Province - 49 756 (9.4%). The least amount of active individual entrepreneurs registered in Kyzylorda Province- 17,248 (3.3%) and North-Kazakhstan Province - 17 593 (3.3%).

A significant number of active farms registered in South Kazakhstan Province - 54,930 (33.4% of all farms) and Almaty Province - 49 443 (30%). The least amount of active farms observed in Almaty – 5 and in Astana - 7.

There is  increase the number of actively operating subjects of SE

In most regions of the country. Thus, according to provinces their number increased: in Aktobe - by 3.5%, Almaty - by 9.6%, Atyrau - 2.8 West Kazakhstan - 1.3%, Zhambyl, by 1.5%, Karaganda - 0.4%, Kyzylorda - by 3.8%, Mangistau - 2.3%, Pavlodar - by 1.4%, East-Kazakhstan Provinces - 2.2%. In the cities of Astana and Almaty, the increase was 5.7% and 0.7% respectively.  
Decrease the number of actively operating subjects of SE compared to the same period last year in Akmola - by 4.1%, Kostanai - by 2.0%, South Kazakhstan - 2.2%, and North Kazakhstan Provinces - 1.3%. 

 

Picture 2. Increase (decrease) of the main indicators, characterizing the development of SE on 1 september, 2012 to the same period of 2011 in % (by region)

Note – made by the author on the basis of Statistics Agency

 

According to the Statistics Agency, by industry, as of January 1, 2013, the distribution of the share in the total number of subjects actives MP is as follows: the industry accounts - 2.8%, wholesale and retail trade, repair of motor vehicles and motorcycles - 40.9%, construction - 2.5%, agriculture, forestry and fisheries - 21.5%, real estate - 5.7%, and other industry -26.6%.

The number of employed in the SE

The number of actively employed in SE in the republic for January 1, 2013 was 1,852,850 people,, including working people at the enterprises – 666,347 people (40% of the total), individual entrepreneurs - 832,025 people (44.9%) and working at farms - 354 478 (19.1%).

 

Picture 3. The number of employed in the SE from 2008 to 1 January 2013 (thousand people).

Note – made by the author on the basis of Statistics Agency

 

The number of employed in small business increased steadily until 2008, during which there was a slight decline due to the global economic crisis. In 2009, employment growth has resumed. But if you look at the whole picture, it can be concluded that the dynamics of the number of employees over the past seven years has grown considerably. So for example in 2005, the number of active employees in SE was 1610.7, and already on 1 January 2013, the figure was 1852.8, ie an increase of 13%. As we see more of actively employed in SE, are individual entrepreneurs.

The largest number of active employees in SE are in Almaty - 240 797 (13% of total employment in SE), South-Kazakhstan Province - 239 308 (12.9%) and in the Almaty Province - 219 403 (11.8 %) people. The worst of this indicator are Kyzylorda Province - 42 785 and Mangistau Province - 53212 people. 

  Picture by region is as follows: an increase in the number of employed in SMEs noted in Akmola - 1.0%, Aktobe - by 3.5%, Almaty - by 6.1%, Atyrau - 0.9%, West Kazakhstan - 5.7%, Karaganda - by 2.5%, Kostanai - 4.4%, Kyzylorda - by 6.3%, Mangistau - by 5.0%, South Kazakhstan - 0.4%, Pavlodar - by 7.8%, North-Kazakhstan - 4.5%, East-Kazakhstan Provinces - 3.8%. In the cities of Astana and Almaty, the increase was 3.6% and 4.8% respectively.

Decrease the number of employed in SMEs compared to the same period last year, just in Zhambyl Province - by 3.7%, area.

 

Increase (decrease) of the main indicators, characterizing the development of SE (by region).

 

Picture 4. Increase (decrease) of the main indicators, characterizing the development of SE on 1 september, 2012 to the same period of 2011 in % (by region).

Note – made by the author on the basis of Statistics Agency

 

According to the Statistics Agency, by industry, as of January 1, 2013 the distribution of shares in the total number of active employees in SE is as follows: the industry accounts - 6.8%, wholesale and retail trade, repair of motor vehicles and motorcycles -33.5%, construction - 7.4%, agriculture, forestry and fisheries - 21.6%, real estate - 4.8%, and other industry -25.9%.