SSTA 9496 Kostanay Region SME and Entrepreneurship Development
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Project Number: 51406-001 Technical Assistance Number: 9496 February 2018 Kazakhstan: Promoting Entrepreneurship and SME Development in Kostanay Region This document is being disclosed to the public in accordance with ADB’s Access to Information Policy. This report does not necessarily reflect the views of ADB or the Government concerned, and neither the ADB nor the Government shall be held liable for its contents. i CONTENTS Page A. Introduction ................................................................................................................ 1 1. Background ........................................................................................................ 1 2. Report on development and financing of SMEs in Kostanay region ................... 1 3. Database of SMEs in Kostanay region ............................................................... 2 4. Action plan 2018–2022 for entrepreneurship and SME development in Kostanay region ....................................................................................................................... 7 5. Training and capacity building programs .......................................................... 11 B Context .................................................................................................................... 13 1. Overview of the Regional Economy ............................................................... 13 2. Employment in the region ............................................................................... 17 3. Lending Trends and Constraints to Growth ................................................... 24 4. Spatial development ......................................................................................... 38 5. SME sector ....................................................................................................... 55 6. Business Climate Conditions ............................................................................ 65 C. Available resources and instruments for the Akimat of Kostanay region ................. 79 1. The System of State Planning (SSP) ................................................................ 79 2. Acting State Support programs tailored to SME development in Kostanay region 92 D. Analysis .................................................................................................................... 99 1. SWOT Analysis ................................................................................................ 99 2. Alternative scenarios ...................................................................................... 104 3. Risks for private sector development .............................................................. 108 E. The Roadmap for SME and entrepreneurship development in Kostanay region (Roadmap) ............................................................................................................. 113 Appendix 1 .................................................................................................................. 116 Appendix 2 .................................................................................................................. 120 Appendix 3 .................................................................................................................. 123 Appendix 4 .................................................................................................................. 127 Appendix 5 .................................................................................................................. 142 Appendix 6 .................................................................................................................. 144 Appendix 7 .................................................................................................................. 145 A. Introduction 1. Background 1. In September 2017, the Asian Development Bank (ADB) agreed with the Akimat of Kostanay region to provide support for the development of small and medium enterprises (SMEs) in the region. ADB’s assistance has been provided in four phases, each associated with a key output (Table 1). Table 1: Key Outputs of ADB Technical Assistance Target Actual Completion Completion Date Phase Output Date Report on development and financing of SMEs in 31 December 16 January 2018 1 Kostanay region 2017 30 September 1 version – 2018 30 August 2018 2 version – 10 December 2018 3 version – 2 Database on SMEs in Kostanay region 20 February 2019 4 version – 10 December 2019 5 version – 5 February 2020 Action plan 2018–2022 for entrepreneurship and 31 March 2019 in process 3 SME development in Kostanay region 4 Training and capacity building programs 30 June 2019 6 December 2019 Source: Asian Development Bank. 2. Report on development and financing of SMEs in Kostanay region 2. In October 2017, ADB hired two consultants to work on phase1 of the project: N. Peter Knoll, SME finance specialist and Yerlan Khassenbekov, SME development specialist (collectively, “Consultants’). ADB consultants analyzed open-source data on current economic development, SME development trends, supply and demand of financial resources in the Kostanay region. They visited five districts in the region, conducted meetings with more than 30 SMEs, representatives of major branch offices of STBs, 3 MFIs, local office of EBRD, local universities, state institutions - Damu and ACC, Akimat officials, and other local stakeholders. The analysis and key findings were included in the inception report. 3. The main hypothesis on a problem with access to finance was proved partly true. Though it is not a separate problem but the element in a chain of causes and effect factors. Later this hypothesis was tested through the rest of TA implementation phases. The reasons that constitute problem with «access to finance»: a. many legal entities that are keen to get credit financing cannot satisfy the collateral requirements of second tier banks and MFIs; 2 b. many legal entities do not want to borrow money from the banking sector because interest rates of 16% to 23% (median close to 21%) exceed their rate of return, which averages 15% among all economic sectors. 4. Other identified barriers to SME development include: a. weak transport infrastructure, unevenly distributed in the region; b. small markets due to low concentration of people, business, financial resources; c. low purchasing power among the majority of local residents; d. young people and highly qualified specialists leave Kostanay region; e. low competitiveness of local SMEs; f. few start-up activities in Kostanay region; g. small share of civic-minded people among local residents; h. very low R&D activities among private entities. 3. Database of SMEs in Kostanay region 5. ADB had started the second phase with the focus on creation of a dedicated SME database in April 2018. It was planned that the SME database would serve as a management information tool for the Akimat of Kostanay region in designing, implementing and reviewing the SME and Digital Kazakhstan support policies and programs. 6. Five versions of the database have been formed. The first version was a basic database containing entries for each registered SME in the region. The second version integrated additional data entries and a section on individual entrepreneurs (sole proprietors). The third version updated all datasets both for legal entities and individual entrepreneurs on taxes paid, pension payments, other as of 2018. The fourth version was with the addition of some data on state support, state and subsoil users procurement, other valuable data. The fifth version was about revision of come functional parts of database after the pilot testing had been conducted among Akimat’s associates. 7. By the end of July 2018 the software development for the Unified database on Kostanay region’s SMEs had finished. 8. In September 2018 the first version was presented to the Akimat officials, they showed genuine interest and requested the following additions to the developed SME database. a. integrate all existing and valuable information on Individual entrepreneurs (sole proprietors); b. add information on approved financial support in tenge in the interactive passport of an entity; c. develop the analysis tool on comparison of two separate entities in the interactive passport of an entity; 3 d. develop the analysis tool on comparison of indicative objectives of state development programs to the volumes of actual financial disbursement within each of state development programs in a given year; e. support the Akimat in the first stages of SME database integration into the Akimat’s existing electronic systems 9. Given these requests and understanding the client’s expectations, the team spent two months to develop and integrate new datasets. 10. On 10 of December 2018 the Akimat requested that the SME database become a part of the existing Management Information System (Management panel) and add additional registries, such as that of state financial support programs. 11. Overall, 44 various registries have been combined, cleared and indexed in the SME database so far. Table 2: The list of registries and procedure of updates of data in the SME database Update # Registry/ type of data Procedure period National databases Updated through direct 1 The registry of legal entities Annually uploading The registry of individual Through official Akimat’s 2 Annually entrepreneurs request Business registry by Committee Updated through direct 3 Biannually of statistics of RoK uploading