Effective entrepreneurship a foundation for efficient economy: implementing best international practices in Kazakhstan

The Republic of Kazakhstan has been working a lot recently on the way to raise public awareness regarding the importance of Small and medium enterprises (hereinafter SMEs) and to develop policies and projects for supporting of the development of the SMEs. Today our country is going to take big step to focus on the future perspectives. In this context; this is a very important topic, as the SMEs play an important and significant role in the economic, social and political life in many countries.

Through friendly diplomatic relationships with economically developed countries, Kazakhstan managed to set up experience sharing bridge. Many neighboring countries gladly offer assistance to our young state and they are ready to share their profound experience in the field of SMEs and entrepreneurship. One of such great examples is cooperating with Turkey. In the economy of Turkey where the SMEs account for more than 99% of the enterprises, SMEs contribute approximately 80% to employment, more than 50% to added value, 40% to total investments and 60% to exports. SMEs form the backbone of economic and social order with these characteristics of theirs. This situation also marks a globally emerging trend. In this context, it has become an obligation to create various policies and mechanisms to support and encourage SMEs in parallel to the process of globalization.

Turkish Organization KOSGEB for Small & Medium Enterprises Development (hereinafter KOSGEB) attaches great importance to their SMEs, the drivers of development and growth with their vital functions they perform in economic and social terms and it implements support programs to enhance their competitive power in the global competition environment.

In Kazakhstan “Damu” Entrepreneurship Development Fund (hereinafter "Damu") was established in the year 1997National Institute of Development, the exclusive function of which is the implementation of government programs to support SMEs in the Republic of Kazakhstan. For implementation of public policy support and development, as well as an enabling environment for business development in the country, in 2011 under the Ministry of Economic Development and Trade of the Republic of Kazakhstan (hereinafter the Ministry of Economic Development of the RK), an entrepreneurship Committee was created.

In order to promote quality development of the SME sector in Kazakhstan, "Damu" Fund is always in search of new business support programs that meet the rapidly changing national and global business environment.

The support policies that we have developed for SMEs are underpinned by enhancing the competitiveness of SMEs, developing their R&D and Innovation capacities, improving their possibilities for establishing cooperation, engaging in new entrepreneurship activities and accessing financing.

As of second half of the 20th century, it was understood that the key to success for enterprises is to be competitive and continuously enhance competitiveness.

The concept of competitiveness was initially conceived as enhancing efficiency and being more productive, however, it evolved in time with the addition of the dimensions of innovation, fast and flexible production at lower costs. Within the framework of continuously changing environmental conditions and customer requirements, proactive enterprises and managements have come to the forefront and achieved success. Today, the starting point of competition amongst enterprises is the capacity to launch new and innovative products at the desired time, the desired quality, desired amount and affordable price.

Among KOSGEB support and services is enabling the enterprises to raise their international market shares, assuring and fostering cooperation. In this context, the Turkish government supports enterprises in their activities geared towards establishing connections with enterprises located in other countries, promoting their own services and products, receiving consultancy services for cooperating with foreign enterprises and assuring the continuity of their collaborative activities.

Depending on this, it is important to mention the Enterprise Europe Network that is an effective tool the process of internationalization of SMEs.

The Enterprise Europe Network is a network that provides connection among relevant organizations from member and candidate member countries of the European Union, offers the SMEs cooperation and internationalization services, innovation, technology and information transfer services among enterprises and fosters the participation of SMEs in the Community Framework Program for Research and Development. There are 7 members of the Enterprise Europe Network, which offers services by means of nearly 600 centers in 47 countries.

The Enterprise Europe Network enables the development of relations between the SMEs located in Turkey and the SMEs located abroad; within the last 2 years, 130 cooperation agreements have been signed by more than 100 SMEs.

Through establishing further cooperation with other economically developed countries the Republic of Kazakhstan will receive positive feedback from the ‘‘Business-toBusiness” dialogues among SMEs.

In order to protect local SMEs from the negative effects of the global financial crisis that started to become influential throughout the world as of 2008 and to minimize its impacts, Kazakhstan created financial support models and put them into implementation; thus our government played an active role in improving the loan guarantee system further to render it simple and accessible. This practice was effectively implemented in many other countries that had set an excellent example for our country.

Thus, the government of the Republic of Kazakhstan provided contribution to assuring minimal impact of the crisis environment incurred on the SMEs, which constitute a great advantage for countries that are in the phase of emerging out of crises due to their more flexi-

ble structure as compared to large enterprises. For instance, in Turkey KOSGEB supports not only the SMEs, but also the entrepreneurs, whom we regard as one of their priority topics, within the Entrepreneurship Support Program. Their objectives with this program are to support and disseminate entrepreneurship, which is the essential factor in solving the economic development and employment problems, establishing successful and sustainable enterprises, disseminating the culture of entrepreneurship, fostering entrepreneurship with the establishment of Business Development Centers, enhancing employment and supporting entrepreneurship based on local dynamics.

By means of the Entrepreneurship Support Program which Turkish government puts into implementation, it was possible to enable their entrepreneurs to receive training prior to embarking on business life and to enable them to assess their business ideas in scientific terms.

The instruments of support to entrepreneurs, coordinated by the Directorate of Entrepreneurship are categorized as follows:

  1. Entrepreneurship start-up training
  2. Business incubators
  3. Start-up capital
  4. Business plan awards

KOSGEB has been implementing entrepreneurship-training programs since the year 2000 all over the country appearing as an important factor in the non-formal entrepreneurship education sector. This 12-year experience enabled KOSGEB to be recognized as a pioneering agency in the field of entrepreneurship development and it facilitated KOSGEB to oversee the state of non-formal entrepreneurial learning in the country. KOSGEB was then able to observe through surveys and other tools. In the Republic of Kazakhstan DAMU has already been recognized as a leading agency in terms of its responsiveness to entrepreneurial problems and questions in a relatively short time.

The effectiveness of “Damu” Fund was evident when, in the period from 2007 to 2009 in order to diminish the effects of the global economic crisis, government programs implemented by the Fund, were aimed at reducing the deficit of SME lending. It should be noted that the amount of state financial assistance to the SME sector in Kazakhstan have been unprecedented, and the effectiveness and efficiency of support measures were much higher than in neighboring countries.

The Foundation has an extensive network of regional branches, which are actively involved in the implementation of projects for the strengthening entrepreneurial capacity. In 2011 the government of the Republic of Kazakhstan launched a program "Strengthening the capacity of the business" within the framework of the "Business Road Map-2020" National Project.

Talking of the international economic experience that was taken into consideration by the government of Kazakhstan when launching development programs for enterprises was assessing how KOSGEB in Turkey came up with a new model to involve local organizations as partners in training program activities and, in this way, to increase the number of training programs. Within the new model, KOSGEB established a standard for training and a standard for trainers. Local partners (ISKUR-the Employment Agency of Turkey, municipalities, chambers, NGOs, universities etc.) can implement training according to these standards after obtaining prior approval from KOSGEB who examines the application to see whether the content of the proposed training program and qualifications of the trainers are consistent with the related standards of KOSGEB. When it is “KOSGEB approved” training, the graduates become eligible for the start-up capital support of KOSGEB.

It is evident that the new model made it possible for a large number of partners to mobilize their resources towards this aim while it is still possible for KOSGEB for implementing programs by itself whereby respective agencies (KOSGEB or the local partner) cover the costs related with training. This partnership approach has yielded the following results:

  • Firstly, the number of participants has increased to 60,000 in the year 2011 which is a very ambitious figure when compared to 7,000 participants in the year 2001 (between 2000 2010).
  • Secondly, underserved segments (the unemployed, women etc.) have gained better access to training.
  • Thirdly, extension of the program to even the smallest cities has created awareness about entrepreneurship among their populations.
  • Fourthly, private and NGO funds have been catalyzed towards a common aim and a public-private synergy has been created.
  • Finally, university programs have been designed to cover all the departments including business and non-business departments.

Expected future results are as follows:

  • Firstly, majority (even all) universities will include entrepreneurship training in their curricula after gaining experience with KOSGEB programs. This means that more high growth oriented companies will have been set up in the future.
  • Secondly, new markets for entrepreneurship training services will be created.

The participants who have attended at least 80% of training and who set up their own businesses become eligible to apply for the start-up capital support of KOSGEB.

The second step of entrepreneurial support is developing business incubators. KOSGEB has also undertaken a leading role in promoting the concept of business incubators and facilitating their development in Turkey in an attempt to encourage entrepreneurship and job creation. For this purpose, a model has been developed to provide funds during the establishment and development phases of the incubators which are set up as local initiatives and operated as companies on a non-profit basis. Currently, 16 incubators have generated approximately 2500 jobs with a job creation cost of less than 4000 USD. KOSGEB has established some good practice standards and benchmarks for operating the incubators and it evaluates the incubators against these criteria. Those incubators that pass these criteria are allowed to use KOSGEB Logo that entitles the tenant companies to the start-up capital support of KOSGEB.

The third entrepreneurship support mentioned was start-up capital.

This support is composed of following items:

  1. Start-up grant (maximum 17.000 USD);
  2. Start-up loan with no interest (maximum 45.000 USD).

The following entrepreneurs are eligible to apply for this support within the first two years after establishing their businesses:

  • First of all, these can be graduates of training programs implemented by KOSGEB.
  • Secondly; graduates of training programs arranged by the local partners.
  • Thirdly, incubator tenant companies. Support ratios are between 60% and 80% depending on the geographical location of the business and whether the beneficiary is from a special target group, such as women or disabled, or not.

The last kind of the entrepreneurship support is Business Plan Award implementation.

Universities that have entrepreneurship courses placed in their curricula can apply for the annual award program. For each university, the prizes are 8.500, 6.000 and 2.500 USD for the first, second and third winners. The winners are eligible for these prizes only if they set up their businesses within 24 months of announcement of the winners. The number of people who received training during these trainings that we carried out throughout our country is 70.000.

The entrepreneurship activity in Turkey, which was 6% in 2006 doubled in 2011 according to the 2011 Global Entrepreneurship Report, which is one of the indicators of the results of the work that we carried out.

The positive effect of international business cooperation of Kazakhstan with Turkey and other economically developed countries can be evident in the successful implementation of the best international practices. For instance, state support for small and medium enterprises in Kazakhstan can be evident through the following steps taken by the government:

  • Support of start-up projects,
  • Offering service support to existing businesses,
  • Training top managers of small and medium enterprises
  • Implementation of "Business Connections" project.

In support of the new entrepreneurs “Damu” Fund came up with organizing a twoday training course "Business Advisor" on learning the foundations of entrepreneurship.

Support is provided to those who express an entrepreneurial initiative and to existing entrepreneurs in all regions of the country.

The component "Providing specialized services" was assigned to the local governor’s offices of the region. Under this component, small business enterprises are provided with services on preparation of financial, statistical and tax reports.

Training entrepreneurs is being accomplished through "SME top management development program" was assigned to the "Nazarbayev University" JSC. The program provided training for senior and middle managers of small and medium businesses. Over the years 2011-12, "Nazarbayev University" JSC in cooperation with Duke University (USA) organized training courses on business planning and management for more than 400 senior and middle managers.

The "Business Connections" project is implemented in two phases, together with foreign partners. At the first stage the business training on the topics of marketing, management and improving decision making skills for local entrepreneurs take place in Kazakhstan. Upon the completion of business training project, the participants refine their own business plans, in accordance with the advice received, and subsequently can participate in the competition in the second stage of the project, which provides with a specialized business training abroad, including for business networking with foreign partners.

Starting from the year 2010, the project has been implemented in cooperation with Germany (GIZ), and in 2012, with the United States (USAID). The total number of participants in the first phase of the project in 2011 was 501 people.

Since declaring its independence, the Republic of Kazakhstan has set the goal of creation of a favorable business climate within the country. The government has been working systematically to reform the licensing system, improving compliance and enforcement of state agencies and improve the position of Kazakhstan in the World Bank’s «Doing Business» rating.

“Damu” Fund has set an excellent example of a specialized state agency that supports SMEs within the Republic of Kazakhstan that is operating with the aim of offering complex support to local entrepreneurs and the connecting link between the state and business that has been successfully implementing the best international practices on the way of its own improvement.

 

RESOURCES
  1. “Governmental Program on Accelerated Industrial-innovative development of the Republic of Kazakhstan for the years 20102014” from May 15, 2009.
  2. The Report of the Government of the Republic of Kazakhstan on the results of social and economic development of the country over the years 2010-2012.
  3. The Message of the President of the Republic of Kazakhstan "Social and economic modernization the main vector of development of Kazakhstan" from 27.01.2012
  4. www.damu.kz
  5. www.aef.kz
Year: 2012
City: Oskemen
Category: Economy