Following a global drop in commodity prices, Azerbaijan underwent a sharp recession in 2015-16. As part of its response to the downturn, the government launched an ambitious plan to implement reforms in 12 strategic sectors, including the SME sector, with the objective of diversifying the economy and improving the business environment. Under the umbrella of the “Strategic Roadmap for the Production of Consumer Goods at the Level of Small and Medium Entrepreneurship”, the main guiding document for SME development, the government launched a number of programmes and initiatives – from setting up a dedicated SME development agency and a credit guarantee fund, to measures supporting entrepreneurial learning and women’s entrepreneurship. Since the previous assessment in 2016, significant progress has also been made in improving the operational environment for SMEs and in expanding the provision of export support and promotion services.

A new definition of SMEs was introduced in December 2018 with the objective of eliminating differences in the methodologies applied by the State Statistical Committee and the Ministry of Taxes. The new definition distinguishes between micro, small, medium and large enterprises, and is partially aligned with the EU definition, synchronising the criteria related to the number of employees.

The economic potential of SMEs in Azerbaijan remains largely untapped. SMEs generated 13.4%of value added and 42.9% of total employment in 2018, compared to 60% of value added and 60-70% of employment in OECD countries. Regarding the non-oil economy of Azerbaijan, SMEs generated 23.5% of value added and 45% of employment.

Most Azerbaijani SMEs are concentrated in relatively low value added activities, such as trade and repair of vehicles, transport and storage, and accommodation and food service activities.

Since the 2016 SBA assessment, Azerbaijan has made major progress in putting in place the main building blocks of a proactive SME policy and in mobilising the necessary human and financial resources to support it. Such major improvements are reflected in a substantial increase of the score for this dimension (+ 1.06 points).

A comprehensive Strategic Road Map for the Production of Consumer Goods at the Level of SMEs (the “SME Roadmap”) addresses five strategic targets for SME development: 1) improving the business environment and regulatory framework for SMEs, 2) ensuring access to finance for SMEs, 3) increasing internationalisation of SMEs, 4) increasing SME skills, and 5) promoting SME innovation. The SME Roadmap includes a set of time-bound (2020) quantitative targets for the SME sector, such as a higher share of SME contribution to GDP (15%), employment (20%) and non-oil exports (10%), complemented by key performance indicators. The document comes close to being a medium-term SME strategy and is an essential component of the country’s economic diversification strategy.

The establishment of a dedicated Small and Medium-Sized Business Development Agency (SMBDA) in 2017 represents a major milestone in shaping the SME support infrastructure. The Agency has a mandate to provide its services along five strategic directions: 1) promoting entrepreneurship, 2) protecting entrepreneurs, 3) facilitating SME financing, 4) providing training and consultancy services and 5) serving as a one-stop shop. Currently in an early operational phase, the agency is expected to have a staff of 240 and to operate through its headquarters in Baku and a network of regional offices called, respectively, SME House in the capital and SME Friends in the regions. However, it is now important to make sure that the newly established agency has appropriate resources to fulfil its mission. Additionally, a demand-driven, collaborative approach to designing support programmes should be adopted to ensure a better fit between public action and SME needs. Finally, the agency could consider leveraging the private sector for the delivery of support programmes which could boost the efficiency of the SME support ecosystem.

Source: https://www.oecd-ilibrary.org/sites/42efd1f2-en/index.html?itemId=/content/component/42efd1f2-en