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Establishment of entrepreneurship and business security in the Republic of Kazakhstan

This article describes the stages of entrepreneurship development in the Republic of Kazakhstan, also the business security issues and the analysis of the evolution of the legal framework of entrepreneurial activity  are considered. The laws adopted since the independence, strategic plans, and the state programs of business and security support are presented in this article.During the years of Kazakhstan's independence more than a dozen laws were adopted, in order to maintain and ensure safe business operations. Currently, legislation on business activity is a vast array of regulatory legal acts in various industrial branches, which are organized into a single database in the form of the Civil Code and the Business Code of the Republic of Kazakhstan. In recent years, in order to improve the competitiven c v ess of domestic enterprises and ensuring its security programs such as: Nation Plan «100 concrete steps», «NurlyZhol» for 2015-2019, «BRM-2020» were developed. These programs are aimed at the preservation of existing and creation of new businesses, as well as providing them with non-financial support for the information and analytical support, the development of entrepreneurial capacity, introduction of innovative technologies, increasing the productivity of enterprises.The dynamics of the number of registered small and medium-sized businesses is analyzed. Several destabilizing factors constraining the growth of medium and large businesses is are presented.Growth in the number of registered enterprises confirms the effectiveness of the reforms in the country. But this trend is only characteristic of subjects of small farms, which is not true for the medium and large business. Various types of destabilizing factors prevent the growth of the last ones, these factors reduce the functioning of the security and restraining further growth, such as logistics, lack of funding, administrative barriers and the mentality of the business environment in the region. A number of destabilizing factors constraining the growth of medium and large businesses are identified. These factors require more attention and support from the state; favorable conditions for the safe operation and further development of business in Kazakhstan should be created. 

There is no doubt that an essential condition for the establishment and development of business is ensuring its safety. Considering the formation of entrepreneurship as an institution of modern society and its development under conditions of risk, imagine the whole evolution of the formation of the Republic of Kazakhstan law on entrepreneurial activity.

The beginnings of business got its start with the Soviet period in the 80-ies of XX century. When the so-called «perestroika» has led to occurrence of the cooperative movement and the activation of business. The laws of the USSR «On the self-employment» from 19 November, 1986 and «On Cooperation in the USSR» dated by May 26, 1988 determined the legal basis of the individual activities of citizens and legal persons and legalized the right to employment, aimed at generating personal income activities. While this activity was not called business, it was first legalized [1, 2].

In the early 90-ies the process of disintegration of the USSR and the formation of new sovereign states has started, which were also characterized with the rapid development of economic activity. On December 11, 1990 the Law of the Kazakh SSR «On freedom of economic activity and the development of entrepreneurship in the Kazakh Soviet Socialist Republic» was adopted, which was proclaimed the principle of freedom of entrepreneurial activity [3]. Legislative acts such as the law on the circulation of assets and stock exchange, laws on economic partnerships and joint-stock companies, the tax system in the Republic of Kazakhstan, and others [4-6] have been adopted.Implementation of the State program of support and development of entrepreneurship in the Republic of Kazakhstan in the period between 1992–1994 provides the measures for improving the financial system and the business crediting [7].

Particular influence on the process of entrepreneurship was associated with a law on the protection and support of private entrepreneurship, which defined the basic forms and methods of protection of pri-   vate enterprise and its support, secured the  refusal  policy  of  direct  state  intervention  in  private  business and the protection of  trade  secrets  [8].  State  authorities  have  increased  attention  to  the  problems of institutional reforms aimed at ensuring the safe operation and accelerating the development of all forms of business. There have been some positive developments in some field such as economic, financial and information support of entrepreneurship.

Thus, this period represents the initial phase of development of market relations in the Republic of Kazakhstan and the creation of an entirely new system of Kazakhstan business.

In 1993, programs of urgent anti-crisis measures and enhancing of social and economic reforms were adopted [9]. The main achievements associated with their implementation are listed further: the preservation of a stable socio-political situation in the country, the introduction of the national currency tenge, filling the consumer market, the entry of Kazakhstan into the world community, joining the international financial institutions. In the domestic market at that time there was a significant drop in the production of goods and services. GDP in 1995 reduced by 39.6 % compared to 1990, real wages decreased by 69.9 %, pensions reduced by 77.3 %, investment in construction decreased by 64.1 %.

At that time, the main focus of economic reforms was to ensure macroeconomic stability, including a restrictive monetary policy, the completion of the liberalization of prices and foreign trade, improving the legal framework, the financial system, social services and the manufacturing sector. Consequently, entrepreneurial activity has remained on the sidelines, without the state support and developed in a very chaotic and unsecure way.

In 1995, in connection with the signing the agreement on creation of the Customs Union (first contract), which was later transformed into the Eurasian Economic Community, the new laws have been adopted: on the bankruptcy, on the National Bank, taxes and obligatory payments [10-12]. All this has laid a legal foundation for the enhancing the economic reforms in the field of entrepreneurship.

The next step in the development of business was the introduction of two laws on state support of small business and of individual enterprise [13, 14].

The crisis of the late 90s showed that the development of private enterprise needs transparent and clear rules of play. The economic crisis of 1998 led to the bankruptcy of most of the large companies. They have lost their positions in the market of goods and services, and the majority of medium and small enterprises in general have ceased to exist. Therefore, in order to ensure the implementation of state policy in the field of protection and business development, and effective use of entrepreneurial initiatives in the executive branch agency on support of small business was created.

The Agency has developed the State program of development and support of small business in the Republic of Kazakhstan for 1999-2000. This program was aimed at strengthening the role of non-governmental organizations in matters of support and protection of small business, the development of the manufacturing sector, a gradual shift from state regulation of certain aspects of self-regulation through industry and crossindustry associations, to create a system of partnership called «state business associations» [15].

Since 1999, Kazakhstan business started to build its capacity. According to the Statistics Committee of the Republic of Kazakhstan, at the end of 1999, the total number of registered business entities in the country has reached 107,134. The number of people employed in the sphere of business was 340.7 thousand people. The peak of development of small and medium-sized enterprises (SMEs) was at the end of 90-ies.

At the same time there was an issue how to determine which entity can be attributed to small businesses, and other ones to the subjects of medium-sized or large businesses. Approaches have been changed several times: the quantitative criterion and scope of ongoing activities stood out as decisive criteria, and the quantitative criterion and the total value of assets for the year. For example, originally it was decided that an enterprise is considered as small business if it is industry and construction employing up to 200 people, science and scientific services employing up to 100 people, in other branches of industrial sphere — up to 50 people, in the fields of non-productive sphere — 25 persons, retail trade — up to 15 people. Subsequently, it was decided that a small business entity is an individual without a legal entity and legal persons engaged in entrepreneurial activities with an average annual number of employees not more than 50 people and a total value of assets for the year is not more than 60 MCI [16].

The law on state support of direct investments had a positive impact on the entrepreneurial attitude,this law determined maingoals such as [17]:

  • introduction of new technologies, advanced technology and know-how;
  • filling of the domestic market with high quality goods and services;
  • state support and stimulation of domestic producers;
  • the development of export-oriented and import-substituting industries;
  • creation of new workplaces;
  • improvement of the 

In accordance with this act significant preferences and privileges in carrying out investment in priority sectors of the economy were provided (including investment tax preferences, exemption from custom charges, provision of in-kind grants).

The priority sectors of the economy have been recognized:

  • production infrastructure;
  • manufacturing industry;
  • facilities of the city of Akmola (Astana);
  • housing, social facilities and tourism;

Also, to some extent the public procurement law stimulated entrepreneurial activity involving small businesses; as a measure of support for small businesses in government procurement this law consolidated reserve requirements up to 10 % of the total volume of public procurement of certain goods and services for the procurement of the small business subjects [18].

The last decade has clearly demonstrated the existence of two fundamentally different business models and their role in the economic development of the country. Model first, until recently, the main, formed and developed artificially in the privatization period, when there was a lot of companies with dispersed capital structure. This is the way of the oligarchs and major city-forming plants. At the same time, another model started to establish, which was not related to the privatization of business and began with cooperatives developing naturally. The real economic recovery of Kazakhstan is associated with this model.

The reasons that motivated people to engage in business allow to highlight at least three waves in the birth of a new class. The first consists of entrepreneurs, who formerly had a peripheral position in the society by one of the signs ethnic, age, and social. The need for self-assertion was quite strong motive activity among big business, their share is 48 %, while small and medium have 16 %. The second wave consisted of those for whom self-realization motive was stronger than economic efficiency. First of all, they include former employees of business, Party and Komsomol organizations. Using ready-made system resources and communication, they founded joint ventures, commercial banks, stock exchanges. The sample of small and medium-sized business representatives of the second wave were 44 % of entrepreneurs. The third type is «mass entrepreneur» and was about 40 % of small business. This tendency, «the sooner the individual starts   a business, the more likely it enters into the category of big business», in our opinion, takes place only in the conditions of emergence of business, so in today's society is still possible to observe its presence [19].

The turning point in the development of private enterprise in Kazakhstan is considered to be the middle of «zero» years. The state began to listen to the business by developing and adopting measures for creating more favorable conditions for SMEs. In place of the many acts regulating entrepreneurial attitude, legislative actwas adoptedestablishing the general principles of the private enterprise in the Republic of Kazakhstan, it also codified regulatory standards, and combined them in a single legislative act [20].

This law divided the subjects of small, medium and large businesses, as well as defined the basic legal, economic and social conditions and guarantees ensuring freedom of private enterprise. The effectiveness of reforms in the country can be seenfrom the official statistics (Table, Figure).

T a b l e

Number of registered legal entities of Kazakhstan 

 

Year

 

Total

Small

Medium

Large

Units

Percent

Units

Percent

Units

Percent

1

2

3

4

5

6

7

8

1999

120862

107111

88,6

11275

9,32

2476

2,04

2000

138530

125547

90,6

10857

7,83

2126

1,53

2001

156404

143430

91,7

10904

6,97

2070

1,32

2002

173684

161026

92,7

10635

6,12

2023

1,16

2003

190042

177331

93,3

10699

5,62

2012

1,06

2004

208396

195696

93,9

10675

5,12

2025

0,97

2005

226908

213311

94,0

11543

5,08

2054

0,90

2006

247930

233666

94,2

12110

4,88

2154

0,86

2007

268564

253689

94,4

12595

4,68

2280

0,85

 

1

2

3

4

5

6

7

8

2008

283744

268580

94,6

12792

4,50

2372

0,83

2009

298028

282503

94,7

13153

4,41

2372

0,79

2010

287068

271160

94,4

13479

4,69

2429

0,84

2011

301372

284888

94,5

14134

4,69

2350

0,78

2012

317926

301305

94,7

14289

4,49

2332

0,73

2013

338981

322121

95,0

14427

4,25

2433

0,71

2014

353833

336422

95,1

14936

4,22

2475

0,69

2015

360287

351229

97,4

6572

1,82

2486

0,69

2016

383850

374912

97,6

6502

1,69

2436

0,63

Note. Compiled by the author according to the Committee of statistics of Ministry of national economy of the Republic of Kazakhstan: http://stat.gov.kz. 

Figure. Dynamics of the number of registered legal entities in Kazakhstan from 1999 to 2016 (Source: Committee of statistics of Ministry of national economy of the Republic of Kazakhstan: http://stat.gov.kz.) 

Analysis of the dynamics of the registered legal entities for the period under review shows a positive growth trend. So in 2016 the number of enterprises reached 383,850, which is 23,563 more companies than  in the previous year and 262,988 more than in 1999, where the main share is occupied by small businesses, their number in 2016 has reached 97.7 % (374 912). In general, over the last 20 years there was a three times growth of small businesses, mainly due to individual entrepreneurship. Official statistics indicate the effectiveness of the country’s reform supporting small and medium enterprises, in particular, the maximum simplification of the procedures for registration of business, the introduction of a special tax regime, etc. In 2015, a dramatic increase in the number of small businesses and reduce in the number of medium-sized businesses to some extent is due to the introduction of new criteria and the transition of medium businesses to small entities.

In Kazakhstan medium-sized enterprises specialized mainly in sectors with low added value. Kazakhstani entrepreneurs tend to implement private entrepreneurial activity in trade and agriculture (in the aggregate more than 30 % of all SMEs). In addition, there is an imbalance in regional distribution of growth points of SMEs.

It is obvious that the medium business should position themselves as regional. The regional market is the border or limit of its safe operation and internal capabilities. Emerging threats are connected with the fact that the medium business is experiencing resource constraints on the national consumer market. This  market is associated with other money, other distribution system, including regional offices, other advertising budget and other planning principles, the organization of control systems for communicating decisions to the executive. Even if medium-sized businesses have the money for the development on the national market, it is not enough; it is also required to have specific skills, technology, and management.

Infiltration in the Kazakh economic area of foreign companies brings new conditions of competition. Moreover, it is not only price competition, which is can be dealt by domestic business structures due to their efficiency, but also it is associated with the innovations, which will not be competed due to following reasons.

The first major factor that reduces the level of security is logistics. It is different, expensive and heavy in the companies on the national schemes and relationships.

The second factor is the lack of funding. The national market is the zone of interests of large business structures, which allows operating of domestic or attracted resources, which are quite greater than those that available to the average business in the local markets. Unlike large corporations, the last one is not able to mobilize investment, it is not enough money for the innovation, after all, it is experiencing staff shortages. All this, of course, affect the development and security of medium-sized businesses, shifting it to the level of the threshold values.

The role played by administrative resources is the barrier. The level of contacts needed to ensure the security of economic activities within the city and the region are clear for any entrepreneur. He knows how to set these contacts and relationships, also he knows about the budgets amounts in the formal and informal structures. Another thing is the national market, which can be approached. Security concerns of mediumsized businesses appear with the creation of new industries, it never affected by the presence or absence of legal and administrative support.

Finally, an important limiting factor is the culture and regional mentality. The regional centers of entrepreneurs go on the same machine, wear similar clothes, they have similar interests in the field of leisure and the same rest places. When the scope of their economic activities goes beyond their region, the communication with the partners becomes strained.

All factors listed above make the regional market an independent unit and within this unit the mediumsized business can safely perform and it efficiently implements own growth strategy. Usually it is simple extention of geography of activity or an increase in the share of the local market by introducing new product lines to the existing market. There is a vertical diversification as well, when wholesale business structure refers to the retail or even to the non-core activities.

Meanwhile, national companies and regional competitors emerge on the consumer market of the regions. Medium business pressed from all sides have to take a defensive position, which to some extent reduces the security of its economic activity. However, on the regional market it is able to successfully withstand the pressure of national companies by better understanding of the situation, people's thinking and their own resources allow it to efficiently grow within the regional market.

In order to improve the competitiveness of Kazakhstan’s economy and ensure its security, on behalf of the Head of State «100 concrete steps» nation plan was developed. This plan provides the implementation of systematic measures to ensure the qualitative growth of SME, including the introduction of «national champions” practices (step № 62), development of two innovational clusters (step №63), and strengthening of the institution of business ombudsman (step № 54) [21].

The state program of infrastructure development «NurlyZhol» on 2015–2019 years opened new opportunities for entrepreneurs. As part of the «NurlyZhol» 100 billion tenge from the RK National Fund was allocated for the development of business in the manufacturing sector [22].

In order to implement the Republic of Kazakhstan President's Address to the Nation «New Decade New Economic Growth New Opportunities for Kazakhstan» and the Strategic Plan of Development of Kazakhstan until 2020, «BRM-2020» unified program of support and development of business was developed. This program is a logical continuation of the implementation of «road maps» of 2009 and 2010, and in this case the emphasis shifts to the post-crisis development, the preservation of existing and creation of new permanent jobs [23]. Single program provides for the implementation of existing financial support instruments (subsidizing interest rates on loans to commercial banks, guaranteeing the loans, the issuance of government grants, summing up the missing infrastructure, the introduction of new financial support instruments, micro crediting of entrepreneurs, partial guarantee loans to microfinance institutions), as well as providing nonfinancial support for the information and analytical support, the development of entrepreneurial capacity, introduction of innovative technologies, increasing the productivity of enterprises.

The new reality opens up new opportunities for entrepreneurs in Kazakhstan. Ongoing structural reforms today are aimed at achieving improvement. According to long-term development strategy of Kazakhstan until 2050, the head of state delivered a clear objective to increase the SME contribution to GDP to 50% [24]. This, in turn, requires an integrated and holistic approach to the sustainable development of SMEs. In this connection it is a relevant and timely task to develop a unified concept of qualitative growth of small and medium-sized businesses. The process of development of entrepreneurship should be considered as a single space, covering all key aspects of support and acceleration of a competitive SME sector.

Currently, legislation on entrepreneurship represents a vast array of normative legal acts in various industrial branches. That is why it is relevant to systematize all regulations in a single database, to create a unified conceptual and methodological framework with clear, not conflicting laws, which would regulate business activities and business relationships.

In order to realize this goal, the Civil Code of the Republic of Kazakhstan came into force  in 2016 . This is the main legislative act to date, which governs market relations, and special legislation on entrepreneurship. This situation contributes to the uniform application of legal norms, governing the entrepreneurial relations, and demonstrates the unity of private law

In 2016 the entrepreneurial Code which determines the legal, economic and social conditions and guaranteesproviding freedom of enterprise in the Republic of Kazakhstan came into force. It regulates the public relations arising with interaction of subjects of an entrepreneurship and the state, including state regulation and support of an entrepreneurship [26].

State policy in the Republic of Kazakhstan in relation to a private entrepreneurship is aimed at forming of middle class by development of the small entrepreneurship, which is oriented to creation of new high technology productions with the greatest value added.

Currently, the state realizes that there is a situation where the average business should use its flexibility, mobility, market objectives to accelerate the search of their place in the innovation economy. In order to create favorable conditions for the implementation of the business environment the Government developed and implemented scheme of «feedback» initiatives with entrepreneurs through the creation of the Commissions on affairs of business in local authorities, which includes the functions of:

  • Study of the problems that hinder the development of small and medium-sized businesses;
  • Development of proposals and recommendations for local and regional bodies of executive

Of great importance is also the formation of the business identity on the basis of the principles of social responsibility and business ethics. Only in this case, entrepreneurs can grow into an independent and socially active group with specific common interests that could become a pillar of the state and a full member of the civil society. 

 

References

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  21. Zakon Respubliki Kazakhstan ot 31 ianvaria 2006 h. «O chastnom predprinimatelstve» [Law of the Republic of Kazakhstan dated January     31,     2006     «On     private     entrepreneurship»].     zakon.kz     Retrieved     from http://online.zakon.kz/Document/?doc_id=30044096 [in Russian].
  22. Prohramma Prezidenta Respubliki Kazakhstan ot 20 maia 2015 h. Plan natsii «100 konkretnykh shahov» [President of the Republic of Kazakhstan program on May 20, 2015 «Nation Plan» 100 concrete steps»]. zan.kz Retrieved from http://adilet.zan.kz/rus/docs/K1500000100 [in Russian].
  23. Ukaz Prezidenta Respubliki Kazakhstan ot 6 aprelia 2015 h. Hosudarstvennaia prohramma infrastrukturnoho razvitiia «Nurly zhol» na 2015–2019 h. [The Republic of Kazakhstan President's Decree of April 6, 2015. «The state program of infrastructure development» Nurly Zhol «for 2015-2019»]. zan.kz Retrieved from http://adilet.zan.kz/rus/docs/U1500001030 [in Russian].
  24. Postanovlenie Pravitelstva Respubliki Kazakhstan ot 31 marta 2015 h. Ob utverzhdenii Edinoi prohrammy podderzhki i razvitiia biznesa «Dorozhnaia karta biznesa 2020» [Resolution of the Government of the Republic of Kazakhstan dated March 31,«On approval of common programs of business support and development of the» Business Road Map 2020]. adilet.zan.kz Retrieved from http://adilet.zan.kz/rus/docs/P1500000599 [in Russian].
  25. Poslanie Prezidenta Respubliki Kazakhstan – Lidera Natsii N.A.Nazarbaeva Narodu Kazakhstana «Stratehiia «Kazakhstan2050»: Novyi politicheskii kurs sostoiavshehosia hosudarstva» [Message from the President of the Republic of Kazakhstan – Leader of the Nation N.A. Nazarbaev to the people of Kazakhstan «Strategy» Kazakhstan-2050 «: new political course of established state»]. Astana. (2012, 14 December). zan.kz Retrieved from http://adilet.zan.kz/rus/docs/K1200002050 [in Russian].
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  27. Kodeks Respubliki Kazakhstan ot 29 oktiabria 2015 h. «Predprinimatelskii kodeks Respubliki Kazakhstan» [Code of the Republic of Kazakhstan dated October 29, 2015 «Entrepreneurial Code of the Republic of Kazakhstan]. zan.kz Retrieved from http://adilet.zan.kz/rus/docs/K1500000375 [in Russian].

Разделы знаний

International relations

International relations

Law

Philology

Philology is the study of language in oral and written historical sources; it is the intersection between textual criticism, literary criticism, history, and linguistics.[

Technical science

Technical science