Government measures to further stimulation of small entrepreneurship

THE MINISTRY OF EDUCATION AND SCIENCE

OF THE REPUBLIC OF KAZAKHSTAN

 

KAZAKH-BRITISH TECHNICAL UNIVERSITY

 

KBTU SFE

 

   Admitted to the defense

 

Dean of the Finance and Economics Faculty

d.e.s, Professor   _____________   Abdrakhmanov B.K.

                                                                                                                                                                                            

 

 

 

 

 

RESEARCH PAPER

“The main directions of development small entrepreneurship in Kazakhstan ”

of 5B050600 «Management » specialty

 

 

 

 

 

 

 

Done by:                                                                                  Olzhas E. Baigozhin

 

Supervisor:

Phd in Economics

Master of Business Administration                                           Professor Ken Charman

                                              

 

Chairman Economics and Management Department                         Leila N. Salykova

 

 

 

 

 

 

 

 

 

Almaty, 2013

 

CONTENT

 

INTRODUCTION…………………………………………………………………….

 

CHAPTER 1. THEORETICALLY ASPECTS OF SMALL BUSINESS IN KAZAKHSTAN……………………………………………………………………..

 

1.1 Essence and classification of entrepreneurship in Kazakhstan…………………

1.2 The role and importance of small entrepreneurship in the economic development of society……………………………………………………………………………….

1.3 Stages of formation of small entrepreneurship in Kazakhstan………………….

 

CHAPTER 2. ANALYSIS OF SMALL BUSINESS DEVLOPMENT IN KAZAKHSTAN………………………………………………………………………

 

2.1 Analysis of the current state of small entrepreneurship in Kazakhstan……………

2.2 Government support of small entrepreneurship in Kazakhstan………………..

2.3 Problems in development of small business……………………………………..

 

CHAPETR 3. THE MAIN PROBLEMS IN DEVELOPMENT OF SMALL BUSINESS IN KAZAKHSTAN AND THE WAYS OF ITS SOLUTION……......

 

3.1 The ways of resolving problem in development of small entrepreneurship in Kazakhstan….. …………………………………………………………………………

3.2 Government measures to further stimulation of small entrepreneurship………......

 

CONCLUSION…………………………………………………………………….....

 

THE LIST OF REFERENCES……………………………………………………….

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

Small enterprise (SE) is the basis of a stable civil society, the well-being of the people depends on SE development.

In most countries, the growth of SE goes a long way to the development of the economy and increase its efficiency. Small-scale enterprises are the base of the economy, in the long term - this is the most stable part of it, only with the development of the SE is possible to build a stable functioning market economy.

SE - mobile and productive sector of the economy. It really creates a significant share of GDP and it employs most of the workforce. This is important not only for industrialized countries, but also for countries with economies in transition. SE provides significant tax revenues to the budget of the country and has a significant social function by supporting economic activity of the majority of the population. 

Therefore, the most majority of developed countries fully encourages the activities of small-scale enterprises. In the global economy operates a huge number of small firms, companies and enterprises.

A number of challenges such as: instability and incompleteness of the legal framework for small business, hard tax pressure, funding problems related to the lack of start-up and working capital, all these challenges do not allow SE to realize their full potential.

In this regard the need for in-depth theoretical study of SE's development in Kazakhstan is very important. The relevance of this study is also stipulated by the fact that SE is the driving force of the market formation and development. Small-scale enterprises significantly and without substantial capital investments expand the production of consumer goods and services, assist to align life conditions of the population, involve in the production labor, material and financial resources, accelerate de-monopolization of the production, promote competition development, are the basis for mass owners strata formation as the basis of middle class of society, and are the source of tangible budget receipts and sustainable economic growth.  

Due to the huge role of the SE in the economic development of the country, it is necessary to pay attention on its government support. World experience shows that if the state wants to develop dynamically and steadily, it’s social and economic programs must include measures to stimulate SE. Today in the developed countries 40% to 90% of the gross domestic product (GDP) volume is accounted for the share of SE. It indicates that the governments of these countries give priority to support this sector. However the share of SE in the economy of the Republic of Kazakhstan is very different from the global criteria.     

Support of SE - a support of market, competitive economy as a whole.  The SE sector is the instrument of control unemployment, which is being an important social and economic problem in the world economy. Employment problems and possibility of their decisions, including by SE development, are very actual, because in the market economy the problem of employment is very sharp.

During speech at ceremony in honor of the 17th anniversary of the proclamation of independence of the Republic of Kazakhstan N.A. Nazarbayev, President of the Republic, said: "We shall increase the share of SE in the economy, bringing it to the level of moderately developed European countries. And then it will be easier to resist to the next crisis cycles. Every citizen of Kazakhstan should have opportunities to learn new business, open a new business or expand their sphere of activity. " 

The strategy of industrial and innovation development 2010-2014 considers state policy for small and medium business support and development and constructs a new ideology of state and business development where the main goal is to increase the competitiveness of the country. [1]

The objective of research paper is to analyze the current state of SE in the Republic of Kazakhstan, to identify main SE problems and provide its solutions.

To achieve this objective it is necessary to solve the following tasks:

1) reveal the essence, significance and stages of development of small business in the Republic of Kazakhstan;

2) to analyze the current state and development of SE in the Republic of Kazakhstan;

3) identify the main problems of SE and the ways of its solutions;

4) identify measures of government stimulation for development of SE in the Republic of Kazakhstan.

The subject of the research is the process of the formation and operation of small business in Kazakhstan, the problems and development prospects of small business.

Object of study - the small business sector of the economy of Kazakhstan.

The methodological and theoretical basis of the thesis was constituted by scientific works of the Kazakhstan and foreign scientists in the field of the economic theory, taxes and the taxation, macroeconomic, microeconomics, finance and the credit, state regulation, economic statistics.

Information base of the thesis was a system of legal acts of the Republic of Kazakhstan legislation on entrepreneurship, on state regulation of small and medium businesses, the data of Statistics Agency of the Republic of Kazakhstan, the Government reports on the current condition of business, and also  government programs of  support entrepreneurship. The information base for tables, charts, and graphs presented in the text of the diploma work, are the statistics of the Ministry of Finance of the Republic of Kazakhstan, the Republic of Kazakhstan Agency for Statistics, National Bank of Kazakhstan.

This paper consists of the introduction, three chapters, the conclusion and the list of references.

 

 

 

 

 

 

 

 

 

CHAPTER 1. THEORETICAL ASPECT OF SMALL BUSINESS IN THE REPUBLIC OF KAZAKHSTAN

 

1.1 Essence and classification of entrepreneurship in Kazakhstan

First of all we would like to answer the following questions: what is business and who is a businessman?

Referring to the history we can conclude that the theory of business developed in several directions. Table 1 given below demonstrates these representatives and theories of these directions.

 

Table 1

Business theory directions

 

№	Author	Interpretation
1	R. Cantillon  - English economist of the late 17 - early  18 centuries.	Enterprise – is an economic activity in which commodity supply and demand are brought into balance in conditions of a constant risk. He connected entrepreneurship with risk. In his opinion the entrepreneur is a person with insight and ability to take risk and to realize it in order to generate additional income. He can be engaged in activity in any moment of reproduction: production, exchange and consumption. Contillon believed that the source of wealth is land and labor which determine the actual value of economic benefits. [2]
2	J.B. Say (1767-1832) – French economist	He formulated the definition of entrepreneurship in his book  "A treatise on political economy" (1803) as a combination of three classic production factors – land, capital and labor. The main thesis is the recognition of an active role of entrepreneurs in product development. According to Say entrepreneurs’ income is remuneration for his work, his ability to organize production, production distribution, and his ability to provide “the spirit of the order”. Entrepreneur – is a person who at his own expense and risk and for his own benefit produces any product. [3]
3	J. Schumpeter (1883 —1950) — Austrian and American economist	J. Schumpeter considered that the entrepreneur is the primary productive force of economic development. The economic system self-develops when new combinations of reproduction factors are continuously reproduced in it. New combinations are in: production of an unknown by consumer goods, new reproduction methods implementation, new markets or new market segments development, new sources of raw materials, new work management methods implementation and etc. He claimed that enterprise – is first of all the innovative activity as a result of which new products are developed. Economic subjects who actively carry out these combinations in the reproduction process J. Schumpeter defined as an entrepreneur. [4]
Note – made by the author on the basis of  internet resources

 

So, these are the main directions of development of the theory of enterprise. And how does the enterprise characterize at the present moment?

For example, in the “Entrepreneur Encyclopedic Dictionary” the “enterprise” is defined as “initiative independent citizens’ activity aimed at making a profit or personal income, carried out on his behalf, under his property responsibility or on behalf of and under the legal responsibility of the legal entity”. [5]

Also the definition of entrepreneurship is reflected in art. 10 of the Civil Code of the Republic of Kazakhstan according to which the enterprise is an initiative activity of citizens and legal entities, irrespective of the form of ownership, aimed at generating net income by addressing the demand for goods (works, services), based on a private property (private enterprise) or on the right of economic management of the government enterprise. [6]

The Law of RK “On Private Enterprise” #124-III dated 31.01.2006 states that the enterprise – is an initiative activity of private enterprises aimed at generating income, based on the property of private entrepreneurs themselves  and carried out on behalf of private entrepreneurs at their risk and under their financial responsibility. [7]

Therefore, it can be concluded that now there are many definitions of enterprises. They are united by one general statute that enterprise is the activity aimed at profit or personal income generating. Nevertheless, it is not the only purpose of enterprise. Another additional purpose is the public benefit. Because enterprise is impossible without society therefore it can't be directed at the environment in which it operates. Conversely, it has socially useful nature, comprehensively strengthening and enriching society through wellbeing of its individual members. First, this purpose (public benefit) is to address the needs of society in the required goods and services. Second, business solves the problems of employment of the population, thereby reducing unemployment. It is also possible to mention the taxes, payment of which is always useful for the society. [8] 

That is why more appropriate, in my opinion, will be the following definition. Enterprise – is initiative and independent activity for production of goods and performance of services, aimed at profit or personal income generating, carried out under the property responsibility of the entrepreneur and based on a combination of personal economic benefit to the common good.

The most important features of the business are:

1) autonomy and independence of the entrepreneur.

He can be engaged in any activity and he can independently form his own production program. Autonomy in the organization of production is supplemented with commercial freedom. The enterprise defines the ways and methods of the products realization, selects contractors, sets the prices, etc. Of course, there are no producers in the economy of absolute freedom. The businessman has full autonomy, it means that there is no instance under him forcing him what to do, how to do and how much. But he isn't free from the market, from its rigid requirements.

2) personal economic interest in the outcome and personal liability to other entities of market relations.

Self-interest is a leading factor of business.  It is expressed in aspiration to get the maximum profit. The personal responsibility is assigned to the businessman for breach of treaty, credit, payment and tax obligations, for sale of goods, the use of which may cause harm to human health, and other regulations required by the legislation. Besides, the businessman is obliged to take care of rational use of his land and other natural resources, not to pollute the environment, not to violate production safety rules, to comply with sanitary standards and requirements for the protection of his employees’ health, etc.

3) innovation (creative process).

Innovation and creative process are stimulated by the competition. The one who provides high quality and constantly updates products, improves equipment and technology can keep his position in the civilized market. [9]

4) economic risk.

Risk is one of the key, the most important element of the enterprise. Enterprise is always connected with risk. Economic risk is the way of management in unforeseen conditions or circumstances. It is connected with each stage, element, part of economic activity, beginning from the development of the production conditions (purchase of raw materials, equipment, labor recruitment) and finishing with the production of goods and services and their realization. The entrepreneur should be very well oriented in the environment, know the prices, monitor new developments, analyze supply and demand in different markets, prevent production failures and so on. Non-compliance with these and many other rules may result in unjustified damage.

Types of entrepreneurship.

The main types of entrepreneurship in the Republic of Kazakhstan are private and government entrepreneurship. The Civil Code of the RK makes a distinction between private and government entrepreneurship depending on the form of ownership – private entrepreneurship is based on private property, and the government – on the right of economic management of the government entrepreneurship [10].

 

 

 

 

 

 

 

 

 

 

 

 

Government entrepreneurship is the activity of government enterprises on commercial or noncommercial bases on the production of goods and services required for the national economy development. [11]

Private entrepreneurship is an initiative activity of the private entrepreneurship's subjects, aimed at income generating, based on their own (private entrepreneurship's subjects) property and carried out on behalf of private entrepreneurship's subjects, at their risk and under their property responsibility.

The subjects of private entrepreneurship include individuals and private legal entities who are engaged in commercial activity. [12]

The main difference of government entrepreneurship from private entrepreneurship is not to obtain the income, but is to address social and economic challenges. Government entrepreneurship provides support of such sectors of economy that are vital for reproduction. The main sector is economic infrastructure (energy, transport, communication). [13] Thus, private entrepreneurs are guided by the needs of the market and government - by the country’s interest when choosing areas of their activity.

There are the following types of entrepreneurship, depending on the content and direction of business activity, on the capital and concrete results, and the linkage of business activity with the main stages of the reproduction process: industrial, commercial, financial, mediatory, and insurance.

Entrepreneurship is called industrial if the entrepreneur directly, using as factors tools and subjects of labor, produces products, goods, services, works, information, cultural values for the subsequent realization (sale) to consumers, buyers, trade organizations.

In commercial entrepreneurship (CE), the entrepreneur acts as a merchant, trader, by selling finished goods, acquired by him from others, to consumer, buyer. In this entrepreneurship the profit is generated by the sale of goods at the price exceeding the price of purchase.

Financial entrepreneurship (FE) is a special form of commercial entrepreneurship in which currency values, national currency (tg) and securities (stocks, bonds, etc.), sold by the entrepreneur to the purchaser or provided him for a loan serves as the subject of purchase and sale.

Mediation is a entrepreneurship where the entrepreneur himself doesn't make and doesn't sell goods, and acts as a mediator, a link in the process of a commodity exchange, in commodity-money transactions. Mediator is a person (person or entity), representing the interests of the producer or the consumer (and often operating on their behalf). The wholesale supplying and marketing organizations, brokers, dealers, distributors, exchanges markets, to some extent commercial banks and other credit organizations act as intermediary enterprise organizations in the market.

Insurance entrepreneurship (IE) is that the entrepreneur in compliance with the legislation and the contract guarantees to the insurant compensation for damage as a result of unforeseen disaster, loss of property, values, health, life and other types of losses for a determined payment at insurance contract signing. Insurance is that the entrepreneur receives an insurance premium, paying insurance only under certain circumstances. As the probability of emergence of such circumstances is insignificant, the remaining part of contributions forms the enterprise income. [14]

It would be logical to consider such type of business as a private enterprise. The Law of the Republic of Kazakhstan "On Private Entrepreneurship" No. 124-III dated January 31, 2006 divides the subjects of private entrepreneurship into three big groups:

1. Subjects of small entrepreneurship - individual entrepreneurs and legal entities with the number of workers no more than 50 persons and average annual asset value (entrepreneur’s or legal entity’s property, reflected in the balance) for the year not over 60.000 of minimum calculation index that in 2013 is 102 780 000 tg. (* to calculate the maximum value of the assets is very easy - it is necessary to multiply 60 000 by the monthly calculation index established by the Law on republican budget for each year, so, in 2013 it is 1 713 tenge. Monthly calculation index (MCI) — is a measure used in Kazakhstan for calculation of retirement benefits, allowances and other social benefits, and also for penalties [15], calculation of taxes and other payments. It is established annually by the Law "On Republican Budget");

2. Subjects of medium entrepreneurship – individual entrepreneurs without legal entity with an average annual number of employees over 50 persons and legal entities engaged in private entrepreneurship, with an average annual number of workers over 50, but not more than 250 persons or average annual asset value per year not exceed 556 725 000 tg (325000 x MCI established by the “Law on Republican Budget” for the fiscal year).

3. Subjects of large entrepreneurship –legal entities engaged in private entrepreneurship, with an average annual number of workers more than 250 persons or total asset value for the year more than 556 725 000 tenge (more than 325.000 x MCI established by the “Law on Republican Budget” for the fiscal year). [16]

Organizational and legal forms of entrepreneurship in Kazakhstan.

To the future entrepreneurs before establishing the business, it is necessary to decide how they will conduct it. A lot of things will depend on what form of business they will choose. What issues they need to solve?

They are:

• features of registration and business;

•  accounting statements;

• amount of financial risks

• taxes

• profit

• legal liability, etc.

Many entrepreneurs began their business with such form as individual enterprise (IE), and further with development, established companies, such as limited liability partnership (LLP).

Various forms of entrepreneurship in the Republic of Kazakhstan.

In the Republic of Kazakhstan there are two major forms of entrepreneurship: individual enterprise (IE) and legal entity (LE).

 

 

 

 

 

 

IE is an initiative activity of individuals aimed at income generating, based on the property of citizens themselves and carried out on behalf of citizens for their risk and under their liability (property). [17]

IE is carried out without LE formation by one citizen (private entrepreneurship) or a group of citizens (joint entrepreneurship). There are three main types of joint entrepreneurship:

 

Table 2

Three main types of joint entrepreneurship

Spousal entrepreneurship	Family entrepreneurship	Particular partnership
is carried out on the basis of  joint property of the spouses (matrimonial assets).	is carried out on the basis of  joint property of peasant farm or joint property on privatized housing (the property of the farm belongs to his members on the right of joint ownership if the contract between them provides otherwise).	is carried out on the basis of common ownership (under the contract of ordinary partnership the parties undertake to act jointly to generate revenue or to achieve a goal not contrary to law)
Note – made by the author on the basis of internet site - http://www.damu.kz

Peasant farm (PF) is one of the IE types. It is family and labor association of persons where the entrepreneurship is inextricably associated with the use of agricultural lands for agricultural production, and with the processing and sale of these products.

Legal relationship connected with peasant farms is regulated by the Law of the RK “On peasant farm” # 214-1 dated March 31, 1998 and other regulations. Members of PF are spouses, children, adopted children, parents and other close relatives who are conduct a common household together. PF has the following forms:

- family entrepreneurship;

- private entrepreneurship;

- particular partnership based on common share ownership under the contract on joint activity.

PF is established on a voluntary basis and is considered to be established from the moment of state registration of the right of land use. Land parcel is granted to citizens of the Republic of Kazakhstan on the right of private ownership or on the right of temporary paid land use for up to 49 years to maintain PF, and to maintain distant-pasture cattle tending (seasonal pastures) on the right of temporary gratuitous land use. Granting the right of private ownership on agricultural land parcel for PF is based on payments. Citizens who will conduct their business personally, citizens with special agricultural knowledge and skills, with practical experience in agriculture and who is living in this area, city, aul (village) have a preferential right to obtain land parcel for peasant (farm) business. [18]

Individual entrepreneurship and peasant farm belongs to small entrepreneurship.

Legal entity is the organization with the right of property, economic management or operating management of separate property and addresses with this property to its obligations, may acquire and carry out on its own behalf property and personal non-property rights and obligations, be sue or to be sued in the court. Legal entity has to have independent balance or estimate. Commercial legal entity is the organization pursuing commercialization as a main goal of its activity.

The following types of legal entities are:

- General partnership (GP);

- Limited partnership;

- Limited liability partnership (LLP);

- Partnership with additional liability (PAL);

- Joint-stock company (JSC);

- Production cooperative (PC).

Partnership is recognized general when its members at insufficiency of property of GP are jointly and severally liable for its obligations with all their property. A citizen can be a member of only one unlimited partnership.

Partnership is recognized limited that includes as members with full responsibility (called general partners), and members with limited liability (limited partner). Liability of partners is limited to the amount of contribution, and they don't take part in partnership business activity. It means that in this case the participation of at least two individuals is necessary. One (general partner) controls the company and assumes all risks connected with business activity of the company, and meets for the company debts with all his personal property. While the second (limited partner) only invests in authorized capital, he risks only his contribution to the authorized capital, but almost does not participate in company management. It can be compared with the bank depositor.

LLP is the partnership established by one or more persons. Authorized capital of LLP is divided into shares of certain amount according to the constitutive documents. Participants of LLP are not liable for its obligations and bear risk of losses associated with the activity, within the value of their contributions. Participants of the LLP are its founders, as well as those who have the right to share in the property of the partnership after its establishment.

PAL is the partnership where its members are responsible for its obligations by their contributions to the authorized capital, and at insufficiency of all these contributions by their own property in the amount as a multiple of their own contributions. Regulations on the LLP are applied to the PAL. 

JSC is the legal entity issuing stocks to raise funds to perform its activity. Shareholders of the company are not liable for its obligations and bear risk of losses associated with the activity of the company in the value of their stocks, except for the cases provided by the legislation.

PC is a voluntary association of citizens on the basis of membership for a joint business activity based on their personal labor participation and property contributions (shares) of its members. [20]

Small entrepreneurship in Kazakhstan.

  Small entrepreneurship in the Republic of Kazakhstan is understood as such type of activity in all sectors of the economy that is carried out by individuals registered as entrepreneurs, and enterprises of any organizational and legal form determined by sustainable qualitative and quantitative indicators (legal entities).

As it was mentioned above, subjects of small entrepreneurship are individual entrepreneurs and legal entities with the number of workers no more than 50 persons and average annual asset value (entrepreneur’s or legal entity’s property, reflected in the balance) for the year not over 60.000 of MCI that in 2013 is 102 780 000 tg.

Individuals without formation of legal entity and legal entities cannot be recognized as subjects of small entrepreneurship, if their business activity is engaged in:

- activity related to drug, psychotropic substances and precursors trafficking;   

- production and (or) wholesale distribution of excisable products;

- activity related to the grain storage at grain-points;

- lottery;

- activity in the sphere of gambling and show business;

- activity related to the oil, petroleum products, gas, electric and thermal energy production, refining and realization (sale);

- activity related to the circulation of radioactive materials;

- banking (or certain types of bank operations) and insurance (except insurance agent);

- auditing;

- professional activity in the securities market;

- activity of credit bureaus;

- security activity. [21]

All small enterprises quickly respond to external conditions and alter the final product, following the demand, mastering new products. Economic risk tolerance of small business and their ability to respond to the perspective areas of scientific and te chnical progress provide them a wide field for innovative activity where their achievements can be especially significant. World experience shows that small business makes innovations per one employee in two times more than larger ones. These facts do not only put them in the rank of a special type of business, but also require an appropriate support for their activity from the society. [22]

Today many people understand that exactly the entrepreneurship is the major driving force for production development, and, therefore, society as a whole. Foreign countries are prospering thanks to entrepreneurs, and entrepreneurs - thanks to their countries and national support. Thus, small business development is a matter of national importance, and is complex and comprehensive, concerning all citizens of the republic.

 

1.2 The role and importance of small business in the economic development of society

In the majority of the countries of the world growth of small entrepreneurship is of great importance for development of all economy and increase of its efficiency. Small-scale enterprises are a base of economy, in the long term is its steadiest part, only with development of small business probably creation of steadily functioning market economy. [23]

There is an opinion that in the conditions of the market probably only large entrepreneurship, small is impractical. The history showed that actually small business successfully competes with large business as it more flexible, more mobile, and steadier in the conditions of crisis and is capable to develop constantly. Foreign experience of the countries with the developed market economy testifies that entrepreneurship carries out the major functions in national economy. The Japanese economy after World War II was quickly restored thanks to small and medium-sized enterprises, and there was "a Japanese economic miracle". In the seventies last century even such formula – "Small perfectly was well-known! “According to the Program of development of the United Nations, in world economy the number of small-scale enterprises exceeds 95% from total of all enterprises. Over 60% fall to their share busy, and their share in gross domestic product reaches 50%. These are the average world indicators. And in Japan, for example, the share of small and medium sized business makes 99, 6% from total number of the companies, 55% of gross domestic product and 80% of number occupied in the industry. In the USA - more than 50% of gross domestic product, more than a half of innovations, more than 2/3 national labors are involved in small entrepreneurship. [24] Today in Kazakhstan every fifth of the able-bodied active population is occupied in small and medium business. From them nearly a half – individual entrepreneurs. And from all registered enterprises and entrepreneurs more than 90% are the shares of sector of small and medium business. In this regard it goes practically on an equal basis with the average world indicators. At the same time, if to compare a share of small and medium business in gross domestic product, in Kazakhstan are about 20%. And, for example, in Great Britain – 52%, Italy – 55%, Germany – 57%. [25]

Value of small entrepreneurship for development in the republic of effective market economy is defined by its role as structure-forming factor which provides:

- completeness of employment of the population;

- development of the competitive environment;

- market saturation by goods and services and revival of national crafts;

- strengthening of economic base of local authorities;

- development of villages, small and average cities.

Small entrepreneurship is a mobile and productive sector of economy. It really creates a considerable share of gross domestic product and in it the most part of able-bodied population works. It is important not only for industrially developed states, but also for the countries with an economy in transition, as Kazakhstan.

Entrepreneurship, quickly reacting to market condition change, gives to economy necessary flexibility. The small companies are capable to react quickly to change of a consumer demand and at the expense of it to provide necessary balance in the consumer market. Business makes an essential contribution to formation of the competitive environment that for our highly monopolized economy has paramount value.

Entrepreneurship is characterized by the presence of the innovation moment - whether it is producing a new product, change of activity of an enterprise or flotation a new enterprise. The new system of production management, quality management, the introduction of new methods of production or new technologies - is also the innovative aspects.

Development of business bears in itself a set of important advantages:

- increase in number of owners, so, formation of middle class — the main guarantor of political stability in democratic society;

- growth of a share of economically active population that increases the income of citizens and smoothes disproportions in welfare of various social groups;

- selection of the most vigorous, capable identity for which small business becomes primary school of self-realization;

- creation of new workplaces with rather low capital expenditure, especially in a services sector;

- employment of the workers released in a public sector, and also representatives of socially vulnerable groups of the population (refugees from "hot spots", disabled people, youth, women);

- training at the expense of use of workers with limited formal education who gain the qualification on a work place;

- development and deployment of technological, technical and organizational innovations (seeking to survive in competitive fight, small firms are more often inclined to take the risk and carry out new projects);

- indirect stimulation of production efficiency of the large companies by development of the new markets which solid firms consider insufficiently capacious (from a subsoil of small business quite often grow not only the large companies, but also the most modern knowledge-intensive branches and productions);

- liquidation of monopoly of producers, creation of the competitive environment;

- mobilization of material, financial and natural resources which differently would remain unclaimed, and also more their effective use (for example, small business will mobilize small savings of the citizens, not inclined to resort to services of a banking system, but ready to invest money in own enterprise; thus owners seek to save and start up the capital in a turn even if their income is insignificant);

- decrease in a capital-labor ratio and capital intensity when releasing more labor-consuming production, fast payback of investments (for example, in the USA at the companies with number of the occupied less than 100 people of sale is dollar assets more, than at the large companies, not only in such branches as service, financial insurance, wholesale trade, but also on transport, and also in manufacturing industry);

- interrelation improvement between various sectors of economy. [26]

All these and other economic and social functions of small entrepreneurship put its development in the category of the major state tasks, do it integral frequent reforming of economy of Kazakhstan.

Practice shows that the technical progress, the fullest satisfaction of a consumer demand in many respects is defined today by overall performance of the small enterprises. High rates of introduction of innovations, mobility of technological changes, introduction of inventions, rapid growth of a services sector and employment, the intense price and not price competition conducting, on the one hand, to reduction of prices, and with another to that the consumer receives production and quality services, opportunity for the state to receive large sums in the form of tax revenues – all this and makes a contribution of small-scale enterprises to national economy.

In the report Chairman of the board of JSC “Fund of Development of Small Entrepreneurship” Amrin G. K. noted that the role of small entrepreneurship in national economy of Kazakhstan traditionally is defined by three main functions.

1. The institutional effect is estimated through a share of small business in managing subjects and here it reaches a record share – more than 92,4%. That is efforts of the government on creation of preferential modes of the taxation and the simplified registration in Kazakhstan reached the results. And the highest rates the number of individual entrepreneurs that is bright result of effectiveness of special tax modes for small business grows.

2. Traditionally small business makes a big contribution in population employment (social effect).

3. Economic effect is estimated through a contribution of volumes of made production to country gross domestic product. Volumes of made production small business increase every year, but growth rates of all economy are much higher therefore the contribution of MT to gross domestic product of the country decreases and now on a loss of 15,7%. In the developed countries this indicator reaches 50%. [27]

In the conclusion it would be desirable to note that this sector of economy creates the necessary atmosphere of the competition, provides necessary mobility in the conditions of the market, is capable to react quickly to any changes of market conditions, to fill forming niches in the consumer sphere, creates additional workplaces, and welcome the most important, he creates that Wednesday and spirit of business without which the market economy is impossible. Importance of small enterprises is also that conducting fierce competitive fight for a survival, they are compelled to develop and adapt constantly for the current conditions of the market, after all to exist it is necessary to receive means of livelihood, so to be better than others that the profit got of.

Thus, it is difficult to overestimate the importance of development of small entrepreneurship for national economy as a whole where it is capable radically and without essential capital investments to expand production of many consumer goods and services (first of all — for the poorest layers making the majority of the population) with use of local sources of raw materials, to solve an employment problem, to accelerate scientific and technical progress and to make positive alternative to criminal business.

 

CHAPTER 2. ANALYSIS OF SMALL BUSINESS DEVLOPMENT IN KAZAKHSTAN

 

2.1 Stages of formation of small entrepreneurship in Kazakhstan

 

Formation of small entrepreneurship (SE) in Kazakhstan started right after Kazakhstan gained independence – at the period of severe commodity shortage, hyperinflation, and decline in the living standards of population. At that time there was no legislative framework for the development of business section. It was a really rough time. And worst of all, in the pubic spirit entrepreneurs were regarded mostly negatively as black marketers, exploiters, and plunderers of public property.

In order to understand more clearly current situation regarding SE development in Kazakhstan one should take into consideration some historical events. For this purpose, SE development was divided into 5 stages. Each of these has its own distinguishing characteristics.

First stage – as it was mentioned above, price liberalization (1991-1992). At that difficult and critical situation, under the conditions of crisis taking place in Kazakhstan in the beginning of 1990s, when huge enterprises stopped and thousands of people lost their jobs, the only possible decision for the government was price liberalization. Price liberalization means transition from the prices set by government (state pricing) to the system of free market prices (market pricing). [28] First subjects of market economy – small enterprises – appeared in the period of liberalization. At that time the first regulatory document was adopted and formulated which laid a foundation to the SE development in Republic of Kazakhstan; dated July 4, 1992 – Law of the Republic of Kazakhstan “On the protection and support of private entrepreneurship”. This law defined main forms and methods of small business protection and support. It strengthened the politics of refusal from immediate inference from the government into private business activity, full freedom of private entrepreneurs, and protection of commercial secrets. According to this law, state support is implemented through establishing preferential taxation, allowance of credit on favorable terms, creating attractive terms in foreign economic activity, state communication, financing events on small business development from the supporting fund. At that time in Kazakhstan there were created and operated 34, 5 thousands of subjects of small business. There were employed 6,0% from the total number of all employed people in the country, the ratio of products, work and services made by them was 7, 0% of the country’s GDP. Right in the end of 1992 there was the first Forum of entrepreneurs of Kazakhstan with the participation of the President of Kazakhstan and the government. At that Forum there was defined for the first time in the history of CIS the program of development of enterprising in Kazakhstan – State program for development and support of enterprising for 1992-1994. One can definitely say exactly at that time enterprising sector took its important place in the life of society. [29]