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Interview with the Chairman of SMBDA Management Board Orkhan Mammadov - "Report" Information Agency 18.11.19
Interview with the Chairman of SMBDA Management Board Orkhan Mammadov - "Report" Information Agency

Mr. Mammadov, Small and Medium Business Development Agency of the Republic of Azerbaijan, has been operating for nearly two years now. We would like you to start our interview with a brief overview of what the Agency has done in the past. What was achieved in the past two years?

Economic reforms under the leadership of the President of Azerbaijan, Ilham Aliyev, have entered a new phase, and the development of small and medium-sized businesses and increasing their role in the economy has been identified as a priority among the main directions of this process. The Small and Medium Business Development Agency of the Republic of Azerbaijan was established by the Decree of the President of the Republic of Azerbaijan dated December 28, 2017, as a continuation of systematic measures to develop entrepreneurship in our country. The Agency commenced its activity in June last year with the approval of its charter and structure. The main goal behind SMBDA is to provide support the development of micro, small, and medium-sized businesses (SMBs) in the country and increase their in the development of the economy. To achieve these goals, the Agency operates across five main areas: contribute to the improvement of the business environment, improve public services to businesses, protect their interests, and enhance access to knowledge, innovation, markets, and finance. SMBDA aims to communicate with entrepreneurs through four types of communication platforms to achieve these goals. These include the "SMB Friend" Network, SMB Development Centers, industrial sector associations, focus groups, SMB cluster companies, SMB Houses operational based on the single space principle, as well as the portal of SMB House within the electronic platform. Some of these mechanisms are already in the service of SMBs. Necessary measures are being implemented to set other support mechanisms, and entrepreneurs will soon be able to benefit from these mechanisms. In short, the SMBDA currently supports SMBs in all areas ranging from establishing micro, small and medium-sized businesses to widening of entrepreneurship activity within the services of Agency and state support mechanisms and therefore serves as a bridge between state agencies and entrepreneurs. The Agency has taken an active part in the legislative process in the SMBs sector over the past, and its numerous proposals were taken into account. By the way, I would like to note that over the past period, many changes have been made to the legislation in the field of SMBs in Azerbaijan, which allowed to define concessions and privileges for entrepreneurs. The Decree of the Cabinet of Ministers dated December 21, 2018, approved the new criteria for the classification of micro, small, medium, and large businesses. The Tax Code introduced several privileges for SMBs, simplified the procedures for connect to public utilities for micro, small, and medium-sized businesses, and enhanced the participation of SMBs in public procurement. In general, the SMBDA has prepared 21 draft documents that promote the activities of SMBs in the country and envisage various government support mechanisms. Over the past period, the Agency has taken appropriate measures in the direction of protecting the interests of entrepreneurs of micro, small, and medium-sized businesses. The SMBDA has provided the necessary support for the implementation of new business projects in Baku and regions of the country. One of the main activities of the SMBDA is to assist small and medium-sized businesses in accessing markets. To this end, the Agency supports SMBs under various government support mechanisms, and one of them is to ensure that entrepreneurs participate in specialized exhibitions at no cost. As part of this support, SMBs are able to offer their products and services to a broader audience, expand their sales opportunities, and build new business relationships. So far, with the support of SMBDA, startups, micro, and small entrepreneurs took part in the exhibitions dedicated to Food Industry, ICT, Gifts & Promotional Products, Education and Career, Construction, Ecology, and "Organic Food Festival 2019" among others. I would like to note that a significant number of micro and small businesses have benefited from this support so far. The evaluation of the results of such exhibitions by the SMBDA indicates that specialized exhibitions are useful and essential for entrepreneurs of micro and small businesses to promote themselves, build new relationships, and expand their sales. Recently, with the organization of the SMBDA and the Trade House of Azerbaijan in Dubai and with the support of the Trade Representation of our country in the United Arab Emirates, the pavilion of Azerbaijan was inagurated at the Global Village International Fair in Dubai. About 200 range of products of 25 Azerbaijani companies, including small and medium-sized businesses is displayed and placed for sale at the fair. Over the past period, SMBDA has implemented several activities and projects to raise the awareness of entrepreneurs. "

“SMB Friend" of the SMBDA operates in many parts of the country. Where you envisage to establish the next "SMB friend"?

- One of the primary and effective support mechanisms of SMBDA is the network of 18 "SMB friends" which is currently operating in 16 cities and regions of the country. In general, being a friend of the entrepreneur is the main goal of the Agency, and "SMB friend" is one of the crucial tools to accomplish this goal. "SMB friends" are also representatives of the Agency on the ground. "SMB friend" is structure on the basis of public-entrepreneurial cooperation platform, and communicates directly with micro, small, and medium-sized businesses in the areas where it operates to support SMBs with identification and implementation of their initiatives and potential opportunities. It also supports SMBs in terms of the protection of entrepreneurs' interests at all stages of the establishment and development of new SMBs. "SMB friends" provide mobile services to businesses, if necessary, and explore their needs through inquiries and other means. Only in 2019, 10 "SMB friends" started to operate in Absheron, Sumgayit, Sheki, Gabala, Fuzuli, Shamakhi, Imishli, Shamkir, Baku's Khazar District and the General Customs Department. The next "SMB friends" are expected to be launched in the Aran and Lankaran economic regions.

Where you receive most of the requests about the establishment of "SMB Friend"? How will this network be expanded in the future?

Several significant projects and activities have been implemented so far under the "SMB Friend" network and this mechanism. I would like to highlight some of those measures to inform the public about the effectiveness of the mechanism. First and foremost, "SMB friends" play an important role in protecting the interests of entrepreneurs in the cities and regions in which they operate, addressing the challenges they face, and examine them on the ground, if necessary. From September 2018, when the first "SMB Friend" came into operation, "SMB friend" received many requests and suggestions from entrepreneurs. These appeals mainly were linked to building a business, expansion of entrepreneurship, coordination with relevant state agencies, protection of SMBs' interests, access to state support mechanisms, financing, awareness, and other issues. All appeals to the "SMB Friend" are reviewed and entrepreneurs provided with necessary support within the scope of the Agency's authority. The cases beyond our mandate are directed to relevant state agencies. Until November 1, 2019, 22.3% of the appeals received through the "SMB Friend" network were related to the provision of legal aid and consulting services, 22% were concerned about access to financial resources, 47% covered the protection of interests, and 8.7% were information related requests. The "SMB Friend" mechanism is instrumental in terms of informing and educating entrepreneurs about legislative changes, existing and new support mechanisms for SMBs, implementing various projects in the regions to support them, and also providing information and consulting services. New business projects were implemented over the past period in several cities and regions based on appeals to "SMB friends". The effectiveness of the "SMB friend" mechanism can be seen in the positive feedbacks from entrepreneurs. These and other "SMB friend" events increase interest in the "SMB friend" and related applications from entrepreneurs in different cities and regions are received to establish "SMB Friend" in these regions. I would like to note that the current "SMB Friend" provides services not only in the district and the city where it operates but also covers the surrounding regions. In general, the "SMB friend" network is expected to cover all major cities and regions of the country.

Entrepreneurs continue to lodge application for internal market research. How is this process structured, and how do businesses benefit from this support?

- The Decree of the President of Azerbaijan dated May 29, 2019, approves the rules of state support to domestic market research to stimulate the competitive production of micro, small, and medium enterprises. In accordance with the rules mentioned above, micro, small, and medium-sized businesses benefit from this support mechanism. Under the new support mechanism, SMBs will be provided with information and financial support to conduct market research in the relevant area at the request of entrepreneurs. By providing state support on market research for micro, small and medium-sized businesses, on the one hand, entrepreneurial costs will be reduced, and on the other hand, through stimulating competitive production, the new products, services, businesses, and facilities will be supported which will increase the private-sector output. The introduction of this support mechanism once again proves that President of Azerbaijan Ilham Aliyev is the major supporter and guarantor of entrepreneurs. SMBDA of the Republic of Azerbaijan conducts state support for micro, small, and medium-sized businesses in domestic market research. In Given the implementation of the relevant Decree of the Head of State, the Agency has set up a working group, prepared a model application form and published it on the official website of the SMBDA - and informed entrepreneurs and other stakeholders about the support mechanism. To this end, an awareness video was made and broadcasted on television and social networks. Based on a number of appeals from entrepreneurs to the SMBDA, necessary activities have been started in accordance with the Law on Public Procurement to involve consulting companies in conducting domestic market research.

How much financial support will entrepreneurs receive for domestic market research?

- Eight percent of the cost of every domestic market research requested by micro-business entity and fifty percent of the cost of the domestic market research based on the application of a small-business entity will be paid by the state. In general, the amount of support for each domestic market study is up to 20,000 manat. Medium-sized businesses can benefit from this support mechanism by participating in trainings and seminars free of charge and receive ongoing information support in certain areas. It is important to briefly describe the process of conducting internal market research. The entrepreneur first either physically or electronically submits a standard application form regarding the area of interest to SMBDA. The application is assessed by the Working Group established by the Agency and If the decision is positive, the local and foreign specialized legal entities and individuals, in accordance with the Law on Public Procurement, will be sourced to conduct a domestic market research. Local and foreign legal entities and individuals are recognized as universities, institutions, specialized research and analysis centers, consulting companies, as well as small and medium-sized businesses. When the internal market research is ready, the Agency evaluates the report and submits it to the entrepreneur. Entrepreneurs may apply individually or in groups to conduct market research. As you are aware, there are business associations in different sectors of the economy in our country. It is also possible to apply on behalf of the association for internal market research. I would like to note that the market research, which will be prepared on the basis of the request of the entrepreneur, will be submitted only to this entrepreneur in particular. In addition, in compliance with the relevant regulations, the Agency, on its initiative, will order consultative companies to conduct domestic market research on priority sectors of the economy, which will be available to all businesses. Such internal market research will be published on the Agency's official website for the use of all entrepreneurs.

What is the role of the Agency in public-private partnerships?

- One of the directions of SMBDA activities is to expand the dialogue between the state and the business community. This is done through close cooperation with the public associations of entrepreneurs, creation, and application of mechanisms that will contribute to the development of public-private dialogue. As part of the public-private dialogue, SMBDA regularly holds sectorial meetings. So far, approximately 40 such meetings have been held in Baku and regions of the country with the participation of entrepreneurs and state agencies operating in relevant areas. Proposals regarding problems and prospects for development in the fields as tourism, livestock, vegetable farming, horticulture, services, sales among others were discussed at the meetings organized through public-entrepreneurial cooperation. The proposals were summarized and submitted to the relevant government agencies.

Another direction is the organization of public-entrepreneurship dialogue over the online platform. Thus, SMBDA, with the participation of relevant state agencies, regularly organizes and holds online awareness-raising activities for micro, small, and medium-sized businesses. So far, eight online awareness sessions have been organized on topics such as taxes, customs, public procurement, food safety, access to financial resources, corporate governance, agriculture, and access to public utilities, which have benefited more than 7,000 entrepreneurs. In many cases, the issues raised on the online platform have been immediately addressed, and requests for the inquiry have been forwarded to relevant agencies. The Agency is interested in ensuring public oversight, informing the business community about the activities of the Agency, and studying public opinion. In this respect, the Public Council of 15 public organizations functions under the SMBDA. Organized by the Public Council, public discussions are often held in a trilateral format with the participation of SMBs operating in different sectors of the economy, relevant state agencies, and civil society institutions. SMBDA conduct surveys among entrepreneurs, the results of which are reported to the relevant authorities, and appropriate measures are taken.

One of the main activities of the Agency for Entrepreneurs is to provide them with training and consulting services.

SMBDA regularly organize training, seminars, and other activities to provide startups, micro, small, and medium-sized businesses with "lifelong learning" opportunities. In total, 16 trainings, 8 online awareness sessions, 6 seminars, 2 roundtables, and other educational activities were held by SMBDA in Baku and the regions of the country from January to October to raise awareness of local and foreign entrepreneurs, improve their knowledge and competences, and improve their professional skills. Business development, corporate governance, public-private partnerships, financial literacy, public procurement, and other topics were covered at these events that benefited over 7,000 SMBs. Such events organized by the Agency allow the entrepreneurs to benefit from theoretical knowledge and practical skills in various companies and farms and hear the success stories shared by business people.

Currently, SMBDA is working to create an online training system that meets modern-day requirements. Awareness activities through this system, which will take place on the online platform, will be instrumental for a more efficient organization of business activities.

What new support mechanisms will be available for SMBs in the near future?

- Small and medium-sized businesses (SMBs Houses) are one of the important mechanisms to support the development of SMBs. At present, necessary measures are taken to establish the first SMB House in Baku. Entrepreneurs in the SMB Houses will be provided with all G2B and B2B services in a single location. Entrepreneurs will be able to access the required services from planning to managing their business. Over 100 G2B services and B2B services from over 30 government agencies will be provided at the SMB House for business processes such as planning, opening, managing, and developing business. The SMB House will offer banking, insurance, logistics, notary, design, information technology, advisory services, and other required services for entrepreneurs.

At the same time, necessary measures are being taken to create an "e-SMB House" portal, which will provide services through a single platform electronically. The e-SMB House portal will provide SMB with non-stop shop support mechanisms via a single electronic platform.

One of the important tasks facing SMBDA is to stimulate the creation and development of clusters of micro, small, and medium-sized businesses. To create SMB clusters, first of all, relevant legislation should be prepared in this area. The first step towards this goal was made in December 2018, when the Tax Code included such concepts as "SMB cluster company" and "SMB cluster participant", and identified several tax incentives for clusters. For example, the SMB cluster company is exempted for seven years from income, land and property taxes, and VAT for the import of machinery, technology and equipment, whereas "SMB cluster company" is exempted from income tax for capital withdrawal after deductible expenses for seven years. As a next step, in May this year, the criteria for the SMB cluster company were approved. Legal entities that meet these criteria will receive "SMB cluster company" certificate and benefit from envisaged tax exemptions. The draft Model Regulations on Clusters of Micro, Small, and Medium-Sized Businesses has been prepared and is presently in the process of approval with relevant agencies. With the approval of the above-mentioned exemplary regulations, the work on drafting legislation related to SMB clusters will be completed. The next step is to provide adequate support for the creation and development of SMB clusters. The Small and Medium-Sized Development Agency has been designated as an authorized body to issue certificates to SMB cluster company and SMB cluster participant.

Support for innovative projects, startups, and SMBs in this area is one of the important areas of SMB activity. The Agency's charter provides for necessary support for startups' registration and patenting of their innovative ideas, expanding access for startups to financial resources, and coordination of startups with higher education and research institutions, industrial and technology parks, technology business incubators to promote innovative entrepreneurship. SMBDA has been designated as a competent authority to issue startup certificates. The Draft of Startup Criteria has already been developed and is currently being under review by the relevant authorities. The criteria set out the requirements for natural and legal entities applying for a startup certificate and their innovative products. The startup certificate will start to be issued as soon as these criteria are approved. Micro or small-scale business entities with "Startup" certificate will be able to benefit from tax exemptions provided by the Tax Code.

At present, relevant measures were taken to establish SMB Development Centers. These centers, as a structural unit of the Agency, aim to educate entrepreneurs through the involvement of experienced and professional experts, assist them with training, consulting, information, and participation in international exchange programs. The Centers will provide networking opportunities with experienced and professional experts to business structures innovations, business initiatives, and those willing to start a new business. The SMB Development Funds, which are part of the Agency's structure, are created to provide financial support to SMBs in our country, attract local and foreign investments in this area, integrate new technologies into the local economy, and stimulate the development of intellectual business. These funds will also act as alternative finance for the benefit of entrepreneurs.

What is the role of small and medium-sized businesses in the country's economy, including GDP and employment?

- The economic stability in every country is linked to the level of development of small and medium-sized businesses. In developed countries, the share of small and medium-sized businesses in GDP is over 50% and in employment is more than 60%. In European Union countries, 99% of enterprises are small and medium companies. In developing countries, medium-sized companies are the main employer. Over the past five years, 85% of new jobs created in Europe have been created by small and medium-sized businesses. As a result of entrepreneurship development in Azerbaijan, steps to improve the business environment, reforms, and government support, the private sector has sufficiently grown, and the share of entrepreneurship in GDP and employment has increased significantly. By 2018, SMBs account for 27% of GDP, 21% of employment, and 36% of non-oil exports. The fact that more than 90% of entrepreneurs across the country are SMBs suggests that they have great potential to increase their share in GDP and exports. The task set by the head of the state for the development of entrepreneurship in the country, especially small and medium-sized businesses, envisage further increase of competitiveness of small and medium-sized businesses for the period after 2025, provision of daily consumer goods mainly through SMBs and growth of the share of SMB in GDP to reach 60%, 70% in employment, and 40% in non-oil exports.

SMBDA also focuses on international relations in the field of small and medium-sized businesses. What are the countries the Agency has been cooperating so far, and what are the next countries you plan to establish contacts with?

- SMBDA partners with several foreign countries to study best practices in small and medium-sized businesses, establish and develop relationships in this area. The Agency has established cooperation with agencies responsible for SMBs development in Turkey, Switzerland, Poland, Russia, Kazakhstan, Saudi Arabia. The experience of SMBs in Korea and Israel was likewise studied. This work is still ongoing. Relations with international financial institutions, as well as foreign investors interested in investing in the Azerbaijani economy and cooperating with local SMBs are expanding.

One of the Agency's important projects to support entrepreneurs and young people is the SMB Volunteer Program. What is the level of interest of young people in the program?

- The Agency is implementing a "SMB Volunteer Program" to increase young people's knowledge and skills, expand their worldview, improve their work habits before starting their professional career, as well as engage young professionals and students in entrepreneurship. At present, 25 young people volunteer at the Agency and SMB Friend network, which operates in 16 cities and regions of the country. Most of them are young people who pursue degree in economics, business, and management at various institutions of higher education. All in all, so far, about 70 young people have been involved in volunteering in the Agency under the SMB Volunteer Program. Young people who have successfully completed their volunteer work at the Agency, gain relevant experience, broaden their career opportunities, and successfully enter the job market. A number of young people who have volunteered for SMBs now work in public and private enterprises. There are young people who have also become employees of SMBDA among them.

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