The middle class is the backbone of society. The larger it is the more important role it plays in ensuring the well-being of the population. In whatever country, a stable and fully confident middle class will guarantee the strength of civil society which, in turn, is centered on small and medium business.
The two notions therefore must be considered in an integrated manner. Small and medium enterprises (SMEs) play a major role in most economies, particularly in developing countries. It is acknowledged that formal SMEs contribute up to 60 per cent of total employment and up to 40 per cent of national income (GDP) in emerging economies. These numbers are substantially higher when informal SMEs are included.
According to World Bank estimates, 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa. In most emerging market countries unlike in the CIS nations, the bulk of formal jobs are generated by SMEs. They also create 4 out of 5 new positions in those economies. However, poor access to finance is a key constraint to SME growth. In the absence of facilitated access to capital, many SMEs languish and stagnate.
Against that background, it should be understood why so much emphasis is currently placed on supporting SMEs (small and medium-sized enterprises) in Kazakhstan.
Kazinform, in a report entitled “It is necessary to use all reserves for SMEs development: Nazarbayev” and published on 17 July 2018, said on the matter the following: “The President of Kazakhstan said that it is necessary to use all reserves for the development of small and medium-sized businesses, Kazinform correspondent reports.
“In recent social initiatives, we have removed income tax at all. We disburse microloans as per the Business Roadmap, provide subsidies. [Therefore], I have to demand productivity from the businesses”, Kazakh President Nursultan Nazarbayev said at a meeting on the socio-economic development of Pavlodar region.
The President underlined that it is necessary to use all reserves for the development of small and medium-sized businesses, and the increase in business activity.
“I have continually helped, put inspections on hold. I have repeatedly said that in the top countries, in Germany for instance, 70 percent of the economy is based on small and medium-sized businesses. (…) Let’s help SMEs develop and grow”, said Nursultan Nazarbayev”.
The share of the small business sector in Kazakhstan’s GDP reaches 26 per cent, rising from the level of 21 per cent in 2010. In the European Union, SMEs generate half of the intra-EUtrade in goods, with a slightly higher share for imports. In OECD, small and medium-sized enterprises account for over 95 per cent of firms and 60-70 per cent of employment and generate a large share of new jobs.
As for us, we get a different story. Total employment in the Kazakh SMEs is 3.1 million, 37 per cent of the total number of the employed population. There are approximately 12 SMEs per 1000 inhabitants in Kazakhstan, which is more or less in conformity with the CIS average and far less than the average for all 28 European Union member states.
The area of services is the dominant sphere of activity for the Kazakh SMEs with a 75 per cent share in the total output of goods and services. That would seem to be quite a substantial achievement.
Yet, it is necessary to take into consideration the fact that low profitability is characteristic of this area of work. Labor productivity in SMEs is around 1.3 times less than that in the national economy on average. As a result, it is often quite challenging to attract investments in SME business activities. Potential investors are understandably reluctant to finance projects of this sector of economy.
Without adequate funding, Kazakhstan’s small and medium-sized enterprises can hardly hope for sustainable success even on the internal market. High risk of insolvency and vulnerability of the sector do not allow for ensuring expanded reproduction.
Yet the Kazakh SMEs are major users of bank loans with a roughly 80 per cent share in the business line portfolios. This can be explained in part by the fact that big businesses are less dependent on bank lending, while resorting to the use of debt and equity instruments.