SMEs in Azerbaijan are an important source of employment, but their full potential remains untapped. In 2020, Azerbaijan’s SMEs generated 42% of total employment but contributed to only 17% of value added (24% in the non-oil sector). Their overall contribution to economic development is significantly lower than in OECD countries where SMEs account for about 53% of value added and 65% of employment.
Since 2018, Azerbaijan has made significant efforts to boost SME development through the establishment of its Small and Medium Business Development Agency (SMBDA), a major milestone towards systematically delivering tailored support for SMEs. The agency provides its services in Baku and across the country through 21 SME Development Centres, which offer training and mentoring services for SMEs covering a broad range of topics, including management, marketing and legal issues.
The COVID-19 pandemic has given renewed urgency to strengthen SME support with a particular emphasis on promoting digitalisation. In response to lockdown measures, many SMEs turned for the first time to digital solutions and experienced the benefits digital tools can bring to boost company performance and strengthen productivity growth. On average, 66% of SMEs in Azerbaijan started or increased their online business activity and 37% started or increased remote work.
“SME digitalisation is among the strategic priorities in Azerbaijan. The EU4Business Initiative and the OECD support will help us to navigate the policy reform process and expand the provision of digitalisation support services for SMEs”, says Elmar Isayev, Head of Secretariat of the Small and Medium Business Development Agency of Azerbaijan. Indeed, many initiatives are already underway, such as the programmes focused on informational support for SMEs, provision of training and consultancy services, and financial support through grants and loans with preferential interest rates.
However, limited co-operation among various providers of digitalisation support services and the absence of a comprehensive digitalisation support programme covering various aspects of financial and non-financial support slow down the uptake of digital solutions. A priority will be to complement the existing programmes with efforts to ensure coherence and build an enabling environment for the digital economy. To this end, relevant policy initiatives could include the establishment of a co-ordination body / task force for digitalisation, the reduction of regulatory barriers, and the implementation of programmes to increase financial inclusion, strengthen logistics for e-commerce, and support digital skills development.
To that end, in close co-operation with the Ministry of Economy, SMBDA, the Ministry of Digital Development and Transport and many other stakeholders, the OECD identified a number of policy actions for Azerbaijan covering five broad areas: (i) increasing the digital awareness among entrepreneurs; (ii) better understanding SME digitalisation needs; (iii) reinforcing the provision of financial and non-financial support services; (iv) ensuring high quality of provided services; and (v) creating an eco-system conducive to digitalisation with the support of the private sector.
The full analysis and recommendations are published in the report "Promoting Enterprise Digitalisation in Azerbaijan" (OECD, 2022).