Kazakhstan’s small and medium-sized businesses continue to demonstrate positive trends, but analysts from the Freedom Finance Global company note the growing factors hindering development.
In their quarterly research, based on a survey of entrepreneurs, it is mentioned that the Business Sentiment Index (BSI) and Business Activity Index (BAI) remain in the positive zone. Business sentiments are positive.
The Business Sentiment Index, consisting of four main sub-indices («Sales,» «Personnel,» «Credits,» «Investments»), rose from 54.5 points in the third quarter to 57.6 points in the fourth quarter of 2023. The main driver of growth was the «Credits» sub-index, which increased by 15.8 points, while the other three sub-indices showed a slight decrease. Of these, only the «Investments» sub-index stood out, dropping by 2.9 points, while the other two sub-indices decreased by only 0.3-0.4 points.
The last quarter of the year turned out to be better than the third in terms of actual revenue growth. The number of companies showing revenue growth at the end of 2023 noticeably increased, although not all were able to meet their expectations. In terms of industry breakdown, the greatest increase in the share of successful companies is observed in trade and industry. In trade, the proportion of those who managed to increase revenue increased from 20 to 32.5%. In the industry, similar figures increased from 40 to 50%. The service sector also showed good results, where in the fourth quarter, revenue increased for 26.1% of SMEs compared to 17.6% in the third quarter.
Staffing Issue
Small and medium-sized businesses continue to expand and plan further staff increases, in line with expansion plans. The most significant expansion occurred in the largest companies with an annual turnover of more than 1.036 billion tenge. In regional terms, Mangystau region is in the lead, where 57% of SME representatives were able to expand, and in Almaty and Astana, the share of such companies is 31% and 36%, respectively.
On the other hand, in the fourth quarter, the number of companies complaining about a lack of personnel noticeably increased. There is also an increase in other types of business barriers. More SMEs point to economic policies, rental costs, and insufficient demand as the main barriers to doing business.
Trade Dissatisfaction
According to the Business Sentiment Index, industrial enterprises have turned out to be the most positive due to increased income and readiness for expansion. The trade sector performed the worst, where positive trends in revenue growth and obtaining credits barely surpass the negatives. Industries such as manufacturing and construction experience fewer barriers compared to trade and services. However, the breakdown by company size does not show the same level of difference between segments. In a regional context, Aktobe and Mangystau regions stand out positively. SMEs in Astana are also more optimistic than their counterparts in Almaty.
Danial Orazbayev, an analyst at Freedom Finance Global:
«Judging by the components of the Business Sentiment Index, Kazakh businesses continue active expansion and plan to do so in the future. Approximately 30% of business entities plan to expand using borrowed funds. Approval of credit applications has increased, and more companies already have loans, which may indicate optimism in small and medium-sized businesses or improved conditions for obtaining loans. National Bank statistics also confirm this trend. From the beginning of 2023 to December 1, the volume of loans provided to SMEs increased from 5.5 to 6.4 trillion tenge. The growth in the small business segment is particularly noticeable, which increased borrowings from 3.9 to 4.9 trillion tenge over the same period. Overall, the second wave of small and medium-sized business research shows the continuation of positive trends. However, it can be assumed that there is a seasonal effect in the fourth quarter.»
Currency and Taxes
The majority of companies (46%) still do not notice a direct impact of the ruble exchange rate on their business. The share of such companies noticeably decreased in the fourth quarter of 2023. On the other hand, the dollar exchange rate worries SMEs more than the Russian currency. The proportion of companies not considering the dollar exchange rate is much smaller than those not considering the ruble exchange rate. Only 33% were indifferent to changes in the American currency, and 35% noted that fluctuations negatively affect their business. Changes in the Tax Code, specifically the increase in the VAT rate from 12 to 16%, are mainly perceived negatively: 40% gave negative responses compared to 18% positive.
Barriers Are Growing
The Business Barriers Index, compiled based on a survey regarding the main factors limiting production activities, showed an increase, indicating an increase in obstacles and barriers to doing business. This index has a neutral threshold at 100 points, unlike the aforementioned indices. In the fourth quarter, the Business Barriers Index reached 122 points compared to 88 points in the previous quarter.
24% of respondents reported that they do not experience any significant barriers. This is slightly lower than the result of the previous quarter, which was 26%.
Growth can be seen across all popular barriers: «Financial restrictions» (from 18 to 20%), «Rental cost» (from 11 to 20%), «Insufficient demand in the domestic market» (from 13 to 19%), «Uncertainty regarding economic policies affecting your sector» (from 8.9 to 17%), «Lack of personnel» (from 9.5 to 15%).
It is interesting to note that the highest business barriers index is recorded in the trade and services sector: 129 and 124 points respectively, while responses from representatives of the industrial and construction sectors were much closer to the neutral threshold. Although they also note some barriers, their index slightly exceeded the 100-point mark.
Regarding the sizes, the segment with an annual turnover of 106–1035 million tenge faces the greatest barriers. This segment’s individual index reached 143 points: more than 20% of respondents identified four barriers to doing business. The least difficulties are experienced by the largest companies with a turnover above 1.036 billion tenge per year, whose index was below 100 points. Small companies fall in between, averaging just under 120 points.
On a regional level, Pavlodar region faces the most barriers with its own index at 262 points. At least 50% of surveyed business representatives identified three barriers (two related to economic policy and «Insufficient demand»).
A high level of business barriers is also observed in Ulytau and Zhetysu regions, where the index also exceeded 200 points.
Businessmen from the West Kazakhstan region turned out to be the most positive, with their own index at 61 points. 31% note the absence of barriers to doing business, but the same 31% point out a lack of personnel.
In Almaty, the business barriers index is higher than in Astana: 148 points compared to 116. While concerns in Almaty focus more on economic policies, rental costs, and financial restrictions, in Astana, the main worries are insufficient demand and a shortage of labor.