Power businesses form a balance in the economy

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Power and strength of the countries mostly depend on the development of their small and medium business environment. The growth of small and medium-sized businesses is the guarantee of state’s financial stability. The biggest role of small and medium-sized business in the economy is the protection of competition. It is possible to strengthen the competitive environment in the country by developing this sector. Another important contribution to this sector of the economy is the creation of new jobs. They can produce more production and product diversity with less investment. Also, it is possible to create job opportunities with fewer investment costs. They can adapt to the changes and variations in demand more easily. This sector is also one of the main anti-crisis methods of the states. Because the bankruptcy of the large enterprises during the crisis deepens the crisis in the country’s economy. However, such risks are even lower in the SME. Most of these businesses form a balance in the economy of the country.But still, in Azerbaijan development of this area is quite slow. Country citizens are faced many different problems when they want to form a business. While the share of SME in developed countries is higher than 50 percent of GDP, in Azerbaijan it is relatively low. This issue has a lot of reasons but the main one is related that   Azerbaijan is an oil country. Therefore, the share of oil in GDP is quite high. Given the fact that more large oil companies operate in the oil sector, the share of large-scale enterprises in GDP is higher.  On August 27, 2002, “Azerbaijan Republic National Fund for Entrepreneurship Support” was approved and it has developed great opportunities for SMEs. The main objective of this is providing financial support to business activity of population. But current situation government’s support is not enough for the development of the small and medium-sized entrepreneurs. They lack financial support when they create and renew their own business, although, The National Fund for Entrepreneurship Support (NFES) was set up to develop small and medium-sized businesses. Most of the commercial banks are not interested in granting loans to entrepreneurs. This is due to the fact that a number of business loans are large and they are transferred to the long-term. This is even more risky for banks than consumer loans. The percentage of the business loans issued by the banks is also quite high. That is why entrepreneurship subjects suffer from lack of funds and cannot establish a business. Owners, who receive cash, have a higher interest rate and are reluctant to repay the loan. The lender receives high-interest rate loan from the moment it receives a loan. These are the absurd condition for normal business and in particular for new businesses. Newly emerging companies who have used these loans are condemned to failure. For solving this problem, the financial opportunities of entrepreneurs should be expanded. In other words, entrepreneurs working in this sector should have access to financial resources not only from the state but also from private institutions. In Europe, even in neighboring Russia and Turkey, there are Business Angels, Investment funds and “Venture” funds which are alternative to business people. Also, entrepreneurs should be able to benefit from preferential loans at the expense of commercial banks.  Banks that support SMEs should be encouraged by the government. That is,  certain discounts can be made to banks that give more money to the real sector. In addition, Public credit guarantee schemes are a common form of government intervention to in credit markets to improve access to finance for SMEs. A CGS provides third-party credit risk mitigation to lenders by absorbing a portion of losses on the loans made to SMEs in case of default, in return for a fee. More than half of the countries in the world have a CGS for SMEs and this number is growing. When dealing with major problems in entrepreneurial activity, their relationships with the state are weak, as well as weak relations with each other, the lack of good knowledge of production trends, market relations, ie systematic non-implementation of issues such as production, service delivery, factors can be noted.Other problems for SME is lack of information about the market. Understanding your industry is the key to staying strong and competitive. Entrepreneurs have to know about the latest regulatory, some statistics and business news to ensure that it is profitable or not. For preventing this problem, there must be some agencies and online resources which they can give entrepreneurs advice. As one of the ways to solve the problem, it is possible to leverage knowledge and experience in any sector and stimulate development through the use of Business Incubators. Also, the government should require knowledge about their business field from entrepreneurs and it should be mandatory. If this happens, default of the small business would decrease. On the other hand, it was possible to explore the current situation and to address the issue by examining the world experience. For example, in the UK there are UKTI international trade advisers services which help the exporters in many ways. In order to find more sources of investment in the development of SME, the government should in line with international standards to attract foreign financial institutions. Because of the weak relationships with foreign partners also create serious problems in the development of small and medium enterprises. For this reason, we must take some actions. For example, if some investor wants to invest, he should go through a lot of processes and it takes a lot of time and cost. But in Singapore, it takes 5 minutes and cost $100. That’s what we need to make the process easy. We need to create an excitement in opportunities that are available and then make it inexpensive to invest. As well as government tax system also affects the investor’s decision. Tax exemptions must apply in our country. In world practice, newly established businesses and startups are exempt from taxation for up to 2 years. Free trade zone also can stimulate the SMEs in Azerbaijan. Because Azerbaijan locates between the two continents – Europe and Asia. If we take Dubai as an example we can see that it becomes an increasingly great place to invest in the small and medium enterprise. Generally, recent years innovation entrepreneurship, especially in this sector, has become the important area for sustainable development. Because it increases efficiency and growth in many businesses. But in our country, more attention is given to agriculture, tourism and communication technologies. It would be good to use Venture capital in the development of innovative entrepreneurship. Venture capital is the investment of funds intended to finance new and small companies and startups. In our country, there are some institutions which give Venture capital but they are not enough.One of the main problems in an area of legislation in Azerbaijan is not the lack of legal normative act, but the inefficient functioning of existing laws. In order to address these problems, economic and legal reforms should be deepened in the country, efficiency and transparency of government agencies’ activity and coordination should be strengthened. In addition, the efforts to ensure the rule of law should be enhanced and efforts to form an independent judiciary should be intensified. We must adopt “Competition Code” for the development of free entrepreneurship. That is, effective measures should be taken to eliminate the prejudices against free entrepreneurship, strengthen anti-monopoly, fight against corruption, reduce the tax burden, mitigate the terms of loans for entrepreneurs, and ensure the fairness of interest rate. In conclusion, as we see from all examples without government intervention Small medium entrepreneurs can’t grow and develop effectively in conditions of our country. By eliminating problems, the government creates healthy competition in this area.

Categories: Entrepreneurship


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