The economy needs the flexible and active private sector for growing, with new investments made by firms, creating new job vacancies that improving productivity and promoting growth. Entrepreneurial activities are the basics to the dynamics of the private sector as the generation of the new businesses raises the competition and economic growth. This especially relevant to Azerbaijan, where the government faces a challenge creating condition that will contribute growth of nonoil sector.
Azerbaijan overcame the global financial crisis relatively well, with solid increase of income and decrease of poverty. But when it faced the crisis, the situation showed need for diversified economy, marked based policies, and social services. The rapid decline in crude oil prices in 2015, which related to the fundamental and political reasons, caused an economic downturn in many oil exporting countries reliant on their fuel export like Azerbaijan. So, the year 2015 is not fortunate for the economy of the country. The government was forced to abandon the fixed exchange regime.
And national currency lost more than 50% of its value. Furthermore, it declined GDP and GDP per capita significantly. As the country`s economy has grown before economic crisis, mostly the result of the oil industry, the number of small and medium enterprises has also increased. But the growth of the small and medium enterprises didn`t affect highly to the entrepreneurial sector of GDP.
Because the highly growth of oil sector showed off the impact of non-oil sector almost as free-riders in the general economic boom. The main objective of Azerbaijan`s development strategy should be diversifying economy away from oil sector and stabilize and improve the employment and growth. And encouraging high-growth entrepreneurship can help the country to achieve these goals. When I analyzed some researches about SMEs in Azerbaijan, I saw that the entrepreneurial activities are very low in country and that’s why innovative activities among firms are low. Several factors affect the business growth and entrepreneurship like lack of competition among small firms and the lack of industry relevant skills. Then the financial system is not relevant to contribute the business development. Because of high interest rate and risk-averse lending policies, few entrepreneurs receiving funding from the domestic financial system.
Most of them support their businesses with their own resources. The small entrepreneurships can be stipulated in current situation with the hands of government. The government could play an important role in business environment by removing obstacles that against entrepreneurialism, provide company incentives that favor entrepreneurs with good ideas, introduce instruments that enable entrepreneurs to access the capital for startups, ensure flexible labor market policies that enable firms to expand by attracting best skilled talents from the outside of firms and country by designing new financial instrument – policies, laws and system that foster SMEs. And legislation should care the making and management of these instruments to prevent monopolizing or corruption and promote efficiency. When I read some articles and researches, I saw some ways that practiced in different countries and some international laws to enhance the entrepreneurialism which could be applied also in Azerbaijan. In my opinion, followings are the most relevant ways that government can apply: – The government can simplify the expansion of e-services through data sharing between ministries to increase efficiency in issuing permits. And should ensure that the number of analyses firm subjected to and methods applying for the firm for analyses are transparent and available publicly to the others.
– Lack of competition is an issue in Azerbaijan, especially for SMEs. Government ownership of companies is high rather than EU, and those companies have easy access to government financial supports, also those companies face few visits from tax officials. Because of this inequality in the business sector make additional barrier to enter new enterprises. That’s why government should accept new competition code which should fit to international best practices and made by independent organizations, and should establish independent antimonopoly agency to enforce it.
– Almost all new enterprises or startups are funded by their own resources or money from the relatives or friends, because bank borrowing is very expensive. Most of the owners believe the interest rate were very high, and interest rate on credit exceeded the profit rate of the organizations. And another reason is high requirement of collateral for loans. Therefore, there is need for such structure that support new venture. Another way for funding is leasing which is a useful tool for SMEs because it allows to purchase equipment as they use it, with limited collateral.
But main concern of this tool is the banks are reluctant to provide long-term financing. A well-organized security transfers may give confidence to lender and Azerbaijan laws permit to create security interest rate on movable registered properties. But problem in this system is about non-registered properties. That’s why all types of movable properties` security interest should be allowed to register, and electronic registration of collateral for both movable and immovable assets should be created.
– Most of the new innovative organizations have few or no revenue during early stage and they require large investment capital to develop their product. And payment of the loans has high opportunity cost. For this reason, loan is much more appropriate for the organizations which already have powerful revenue stream. So, the role of early stage risk capital is more relevant to startups and SMEs. The government can establish a useful financing program for SMEs with early-stage risk capital.
– Universities and businesses can be linked one another, to be successful. The economy needs both researchers and entrepreneurs. But there is no virtually industry-research collaboration in Azerbaijan, even in big companies R is low. And synergy needs built between industry and research community is priority area which should be identified by government. There are some well-known programs like SPREAD in India, which is early stage development program directed at private enterprises, with an explicit requirement for collaboration with public research institutes.
To respond such kind of challenges, government should introduce policy instrument to foster R and innovation in private sector with direct funding, matching grants, R tax credits etc. So, as I mentioned above government role is very crucial as its intervention to the market has significant impact on the all participants of the market. By its hand, stable and reliable market environment can be established where the entrepreneurs can believe that their investments will not fail because of market failure. Government should decrease the asymmetric information, supervise the management of its policies, help new and existing entrepreneurs in various field etc. In this way, small entrepreneurship can be developed in our country.