Small and medium-sized businesses in Uzbekistan: stimulation of their foreign economic activity

The study of overseas experience shows that the availability of an effective system and mechanisms of stimulating the foreign economic activity carried out by small and medium-sized businesses is a sine qua non for augmenting the latter’s role in the expansion of a nation’s foreign economic relations.

In developed and developing countries alike, measures designed to encourage small and medium-sized businesses to transact foreign economic operations are implemented via a variety of assistance institutes. Their main function is the provision of a whole spectrum of services to entrepreneurs. A list of such services encompasses information, educational and consulting services, as well as judicial and insurance services. They also render assistance in searching foreign partners, promoting their exports through exhibitions and fairs, advertising the output of enterprises etc. Thanks to the efficient institutional support, small and medium-sized businesses in the US, Japan, the EU member states, the Republic of Korea, China and other countries take active part in foreign economic activity.

Additionally, foreign experience is testimony to the fact that different forms of associations created by entrepreneurs prove a highly efficacious instrument of promoting their export-oriented produce.

One of such forms is an exports consortium, which represents a voluntary association of companies set up for the purpose of promoting their goods and services in the international marketplace and lending a helping hand in their exports activity through the combination of efforts.

In particular, Italy’s experience demonstrates that small and medium-sized enterprises may considerably increase their export potential and reduce the risks and expenses associated with the penetration into foreign markets by pooling their knowledge, financial resources and contacts within the framework of an export consortium. At the same time, the state support plays an important role. It may take multiple forms, from initiating the organization of consortia to funding their activity through the allotment of credits on favourable terms to granting tax holidays and other subsidies.

Uzbekistan works out and takes diverse steps in an effort to improve the business environment in the country for the further development of small business and private entrepreneurship. These include a reduction of the number of administrative barriers that domestic entrepreneurs have to overcome on their way to foreign economic activity, improvement of a legal protection system, limitation of the state’s interference in entrepreneurial activity, introduction of tax cuts, simplification of taxation, granting of various privileges and preferences, provision of wider access to financial and material resources and other measures.

As the President Islam Karimov of the Republic of Uzbekistan accentuates: “Today, small business and private entrepreneurship are becoming not only the main link that ensures the population’s employment and the source of their stable income, but also the essential factor of economic steadiness, the guarantor and support of social and political stability, and the active driving force behind the nation’s advancement along the path of progress”. 

After the cardinal transformation of the Uzbek economy, the formation of the class of real proprietors together with the development of small business and private entrepreneurship as an integral element of the market-oriented economy has become one of the priority economic tasks.

In connection with this, the indigenous economists have directed their attention to studying the peculiarities of performance and development of small business as well as to determining the role played by a given sector in the national economy.

The role played by small business is determined by its capacity to quickly adapt to the constantly changing market environment, to produce a considerable portion of GDP, to ensure employment, to raise the population’s standard of living and to guarantee the social stability. In many countries throughout the globe, small businesses actively participate in foreign economic activity. When studying this line of their activity, it is important to identify the factors that facilitate the export activity of small enterprises and entrepreneurs, in a move to elaborate a set of practical measures to encourage the development of this sector.

It is also essential to observe that the efficiency of export activity carried out by small businesses largely depends on how correctly their strategy of penetrating the foreign markets has been worked out, in accordance with the characteristic features of a firm, product and a sector as a whole. The process of internationalization may be performed in various forms, such as a step-by-step internationalization, creation of joint ventures, amalgamation of enterprises in alliances, concerted transaction of foreign economic operations etc.

One of the pivotal elements of stimulation of small business’ foreign economic activity is an effective legal framework, whose major objective is the creation of general economic, legal and organizational conditions needed for the formation of an auspicious entrepreneurial climate.

The normative-legal documents regulating the foreign economic activity performed by entrepreneurs in Uzbekistan envisage the granting of lavish economic incentives to small businesses and entrepreneurial establishments, which are involved in foreign economic and investment activities.  These incentives include: the calculation of exports customs duties for all categories of goods (works, services) and the requirement to license the exportation of goods (works, services), with the exception of specific ones; the imposition of the zero-rate value-added excise tax on goods (works, services) sold for foreign currency, including their deliveries to the CIS member states; the exemption from excise tax on export deliveries, with the exception of several product groups, whose list is determined by the Cabinet of Ministers of the Republic of Uzbekistan; the reduction of income (profit) and property tax rates – for enterprises-exporters, depending on a proportion of exports in the total sales volume; the exemption from the obligatory sale to the budget of export receipts; the exemption from the payment of customs duties on imported technological equipment etc.

The main direction in which to further develop small business and private entrepreneurship in the Republic should be an increase in both the volumes and the level of efficiency of exports activity in the small-business sector. The most promising fields for the development of the latter’s export potential are as follows: the production of foodstuffs using the deep processing of fruit and vegetables; manufacturing of machinery and equipment; production of textile and building materials; and provision of construction, tourist and transport services.

The system of foreign economic-activity stimulation in the small-business sector in Uzbekistan is perfected in the following main directions: liberalization of the national foreign economic policy; intensification of institutional reforms and improvement of Uzbekistan’s macroeconomic policy. In particular, it is expedient to liberalize the country’s foreign economic policy by bringing its foreign trade regime into line with WTO requirements. Such an approach will be conducive to the expansion of the scope of potentialities in trade and the sales market alike; a more efficient exploitation of advantages available in economy of scale; an increase in the inflow of foreign investments; the strengthening of competition and a rise in the competitiveness level of small businesses and entrepreneurs.

Improving the macroeconomic policy is designed to address the following tasks: to make the system of taxation and customs administration much more efficient; to maintain a low inflation level; to ensure a stable exchange rate; to liberalize the banking sector; to encourage investment processes in Uzbekistan, and to perfect the industrial policy.

On 15th May 2015, the Presidential Decree, “On measures to ensure the reliable protection of private property, small business and entrepreneurship, and to eliminate obstacles on the way of their accelerated development” has been passed in order to back small business and entrepreneurship in the Republic.

Small businesses and entrepreneurs are in a position to perform foreign economic activity and take part in globalization processes just from the date of their establishment. Their potential to transact international operations and the effectiveness of this line of activity depend on the presence of many internal factors, such as the peculiar features of firms themselves, and the external factors, which characterize, among other things, the efficiency with which the foreign economic activity stimulation system is used.

Small business in Uzbekistan is a very promising sector for the development of foreign economic activity. Opening up and mobilizing its enormous potentialities requires the creation of auspicious conditions that boost the sector’s productive investment in the development of business and organization of high-tech production facilities intended to produce diversified competitive goods, which, in turn, presupposes the reformation of different industries.

(Source: «Business partner.uz» newspaper)

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