1 1 study of small & medium enterprises in azerbaijan ifc azerbaijan bee project baku, 25 june...

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STUDY OF SMALL & MEDIUM

ENTERPRISES IN AZERBAIJANIFC AZERBAIJAN BEE Project

Baku, 25 June 2009

www.ifc.org/azbee

22

Azerbaijan was ranked Top Reformer in 2009 ‘Doing Business’

Ease of…DB 2009

rankDB 2008

rankChange in

rank

Doing Business 33 97 +64

Starting a Business 13 66 +53

Dealing with Construction Permits 155 160 +5

Employing Workers 15 67 +52

Registering Property 9 63 +54

Getting Credit 12 25 +13

Protecting Investors 18 110 +92

Paying Taxes 102 143 +41

Trading Across Borders 174 176 +2

Enforcing Contracts 26 27 +1

Closing a Business 81 78 -3

ECONOMY DB 2009 rank

… …

… …

Latvia 29

Israel 30

France 31

South Africa 32

Azerbaijan 33St. Lucia 34

Puerto rico 35

Slovakia 36

… …

… …

33

Report covers a wide range of topics

Registration Permits Licensing Inspections Taxation Access to Finance Import/Export

Analysis of the existing legislation

Study of implementation of the legal norms and procedures

Study of enterpreneurs’ opinions

Comparison to the international legal norms and experience

Detection of the current flaws in the law and legal norms Detection of problems caused by subjective reasons and

by inappropriate execution of the laws Study of the problems caused by the legal illiteracy and

passive attitude of entrepreneurs

Legal recommendations aimed at the current weaknesses in the laws and legal norms

Institutional recommendations aimed at the proper implementation of the laws.

Practical technical recommendations aimed at the proper and problem-free implementation of the administrative procedures

TOPIC

SU

BJE

CT

PROBLEM

RE

CO

MM

EN

DA

TIO

N

REPORT

44

Sample of 1800 representatives of all business sectors and areas

63%10%

7%

5%

2%2%

1%1%

9%

Retail and wholesale trade

Transport and storage

Agriculture

Hotels and restaurants

Real estate, renting and businessactivitiesRepair of motor vehicles, household andpersonal goodsConstruction

Other manufacturing

Other services

8 social and economic regions and BakuMain sectors of economy Existing and new enterprises

Up to one year

From one to three years

Three years and more

13%

44%

43%Region

% of respondents

Baku 40%

Aran 20%

Ganja-Gazakh 12%

Lenkeran 7%

Sheki-Zagatala 6%

Absheron 6%

Quba-Khachmaz 6%

Dagliq Shirvan 2%

Yukhari Garabakh 1%

55

Access to finance – problem faced by more than half of entrepreneurs

Many procedures still too burdensome

Since January 1, 2008, business registration is conducted through a

one-stop-shop

Percentage of respondents who evaluated the procedures as “problematic” and “very problematic”

How challenging were the following procedures? (for those who underwent these procedures)

66

Top five regulatory challenges

Foreigntrade

Foreigntrade

TaxesTaxes InspectionsInspections

PermitsPermits

Business registration


EnterpriseEnterprise

77

Informal arrangements was often a ‘solution’

Had problems

71%

Didn't have problems

29%

Problems during business registration process(those who faced problems)

9%

11%

13%

20%

41%

48%Extensive number ofrequested documents

Extensive number ofprocedures (steps, bodies)

during registration

Lengthy registrationprocess

Low professional level ofstaff of registering

authorities

Imposed requirements arenot clear and transparent

Necessity to use unofficialmeans

Every fourth entrepreneur made unofficial payments to solve problems

Situation prior to introduction of the registration one-stop shop in

2008

88

Business registration then & now

BEFORE

AFTEREntrepreneurs have to:• submit 7 documents • undergo 6 procedures

Overall this takes 8 days to complete.

Entrepreneurs had to: • submit 33 documents • undergo 13 procedures

This took 30-34 days to complete.

To register a business

And the work goes And the work goes on... on...

99

Registration simplification leads to significant savings

26%

Before the new system was implemented, the registration

was a problem for 26% of entrepreneurs

The success of the new system can be

discussed only following research on

the impact of the new system?W

ith the reforms in the registration

system im

plemented, com

plaints

associated with it have decreased

significantly

1010

Institutional recommendations:

Legislative recommendations: • Introduce the ‘silence is consent’ principle in the law

• Simplify the pre-registration process:

• remove the requirement to obtain a confirmation of the legal address

• no notarizations of registration documents

• Simplify the procedure for voluntary liquidation through the one-stop-shop

• Simplify procedures for opening, operating, and closing bank accounts

Registration system recommendaitons

•Introduce electronic registration through a user-friendly online application

•Equally apply to all banks the possibility to open an account online through the registration offices

•Enable online access to information on existing business entities

•Media broadcasts to be aired on any further procedural changes

1111

Foreigntrade

Foreigntrade


PermitsPermits





1212

Obtaining permits still too cumbersome

Had problems

54%

Didn't have problems

46%

Every 3rd entrepreneur made unofficial payments to address the problem

1313

Almost all government agencies issue permits

Approximately 62 agencies, including local executive authorities, issue permits

1414

Technical and practical recommendations:

Legislative recommendations:•Review the list of all permits, their coverage, validity and issuance process

•List all government agencies authorized to issue permits

•Set up clear grounds for introducing new permits through a uniformed procedural act:

1. Protection of public health and safety, and environment protection

2. Ensure appropriate allocation of scarce resources

3. Refrain from excessive requirements

•Introduce the “silence is consent” and “self-certification” principles in the act

•Extend the “one-stop-shop” principle for issuance of certain types of permits

Permits system recommendations

• Increase legal awareness of entrepreneurs by disseminating information on permits

• Clear procedural maps available in permits issuing agencies

• Organize roundtables aimed at increasing dialogue between private and public sector

• Run PR campaign focused on procedural changes

1515

Technical and practical recommendations:

Legislative recommendations:

• Ensure that all licenses are issued for same period as provided for by the Licensing Rules

• Simplify and shorten the internal decision making process for granting of licenses

• Introduce clear criteria for introduction of new licenses

• Level the playfield for all enterprises when entering into licensable activities

Licencing system recommendations

• Increase legal awareness of entrepreneurs by disseminating information on licences

• Clear procedural maps made available in license issuing agencies

• Organize roundtables aimed at increasing dialogue between private and public sector

• Run PR campaign focused on procedural changes

1616

Foreigntrade

Foreigntrade


PermitsPermits





1717

Most entrepreneurs allocate large resources to inspections

Inspections by the sectors of activity

86%

80%

74%

70%

22%

Trade and restaurants

Construction

Manufacturing

Service

Agriculture

Average number of inspections per year

9 inspections

Average expenses per inspection, annually

363 manat

Average for country - 79%

1818

Many inspections not officially registered

Registration of inspections (those who were inspected)

43%

42%

34%

32%

31%

24%

24%

Ministry of Taxes

Ministry of EconomicDevelopment

Ministry of Health

Ministry of Labor andSocial Protection

Ministry of EmergencySituations

Ministry of Transport

Ministry of Industry

All inspecting

agencies must

officially record the

on-site and off-site

inspections carried

out, in their books.

Presidential order #69

07 January, 1999

AVERAGE REGISTRATION – 42%

The information covers state authorities that conduct

inspections in more than 5% of all enterprises.

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• Regulate the objectives and procedures of inspections, and determine the list of state authorities carrying out

inspections

• Develop a risk based inspection (RBI) system

• Introduce sanction mechanism to be launched only by judiciary decision

Inspection system recommendations

• Eliminate identical and duplicating functions of state authorities

• Selecting subject of inspections applying risk management principles

• Ensure the use of checklists for inspection conduct and compliance

• Review inspection penalties and increase accountability of inspectors

• Establish websites, hotlines, etc. of inspection authorities to increase awareness of entreprenuers

2020

Foreigntrade

Foreigntrade


PermitsPermits





2121

Azerbaijan Kazakhstan Difference

VAT, number of payments per year 1-12 1 0-11

Social security payments, number of payments per year

12 1 11

Profit tax, number of payments per year 1 1 0

All taxes, number of payments per year 23 9 14

A comparison in tax compliance requirements

Comparison of some Azerbaijan’s and Kazakhstan’s tax indicators

2222

Taxation system recommendations



• Review the VAT threshold and consolidate further the simplified tax;

• Reduce overall tax burden of standard tax regime

• Eliminate double taxation of corporate earnings

• Reduce the number of VAT and social security reports – introduce unified tax reporting

• Limiting the scope of tax inspections to tax specifics

• Further encourage electronic tax reporting

• Further enhance risk based approach in planning and conducting inspections

• Increase the supervision of tax inspectors and ethics standards

2323

Foreigntrade

Foreigntrade


PermitsPermits





2424

Main problems faced by SMEs in imports

23%

33%

44%

Bureaucracy incustoms authorities

Customs tariffs

Railway servicecontrol (access totrains, delays etc)

Main problems faced by SMEs in exports

20%

21%

33%

Customs tariffs

Customs clearanceprocedures

Bureaucracy incustoms authorities

Half of the entrepreneurs that conduct

imports are dissatisfied with the control

exercised by the railway department.

Administrative barriers and excessive

bureaucracy are main export problems

in foreign trade.

Engagement of SMEs in foreign trade remains very low

2525

Foreign trade system recommendations



• Reduce number of documents required for importing

• Eliminate double certification requirements

• Revise the list of standards of health and safety following good international practices

• Introduce process rather than product certification

• Introduce uniform tariff rates for similar types of goods

• Reduce the number of offices controlling foreign trade

• Encourage establishment of bonded warehouses

• Separate standardization and certification functions

• Increase accountability of customs and railway service officials

• Create internationally required laboratory facilities for certification

2626

IFC’s Azerbaijan Business Enabling Environment Project will be working with

the Azerbaijani Government until 2012 with the budget of US$ 4.7 million.

IFC is prepared to assist the Republic of Azerbaijan in making further progress

in all the aforementioned policy areas, as well as government capacity building

and outreach to the private sector.

IFC’s activities are generously supported by Swiss State Secretariat for

Economic Affairs (SECO) and the British Petroleum (BP) on behalf of its co-

venturers.

Azerbaijan BEE Project basics

2727

THANK YOU FOR YOUR ATTENTION!THANK YOU FOR YOUR ATTENTION!

International Finance CorporationAzerbaijan Business Enabling Environment

Project

www.ifc.org/azbee

1 1 study of small & medium enterprises in azerbaijan ifc azerbaijan bee project baku, 25 june...

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