doing business in kazakhstan: what can we learn from ...

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AUGUST 2012

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

VOL 4, NO 4

DOING BUSINESS IN KAZAKHSTAN: WHAT CAN WE LEARN FROM MALAYSIAN EXPERIENCE? Yelena V. Smirnova Department of Management Faculty of Economics SuleymanDemirel University Akmaral E. Mustafina Faculty of International Educational Programs TurarRyskulov Kazakh Economic University Maira Z. Aldabekova Faculty of International Educational Programs TurarRyskulov Kazakh Economic University Corresponding author: Yelena V. Smirnova Abstract The purpose of this research is to conduct a comparative study of business regulation environments in Kazakhstan and Malaysia, identify which doing business indicators are ranked higher in Malaysia, and understand how Malaysian best doing business practices, if any, can be applied to Kazakhstan. The study is based on the analysis of the reports on Kazakhstan and Malaysia published by the Doing Business Project (World Bank). The economies were compared on ten indicators which constitute the ease of doing business index. Indicators having lower rank in Kazakhstan as compared to Malaysia were thoroughly studied. The following indicators were found to have lower rank in Kazakhstan: dealing with construction permits, getting electricity, getting credit, and trading across borders. The results suggest that the majority of the procedures are characterized by red tape and bureaucracy; some of the procedures are duplicated what leads to higher costs. Kazakhstan credit system lacks transparency. Limitations of the research are connected with the limitations of the Doing Business methodology. The data is limited in scope and is not representative of the regulation on businesses other than limited liability companies as well as regulation in other parts of the economy. Transactions described may not represent the full set of issues a business encounters. The guidelines on how to reduce time, decrease cost and lower red tape and bureaucracy for doing business in Kazakhstan were provided. The recommendations given may be taken into account by policy makers while revising their policies and designing reforms for the development and promotion of entrepreneurship in the country. The paper represents a practical guide for policy makers and satisfies the claim of the president of the Republic of Kazakhstan to adopt Malaysian best practices. In addition, the paper contributes to the limited scope of literature on SMEs and doing business in Kazakhstan. Key words: Kazakhstan, Business Regulation, Malaysia, small and medium enterprises, entrepreneurship 1.

Introduction

Kazakhstan and Malaysia are located in different geographical regions. According to the regionalization provided by the World Bank (2012b; 2012c), Kazakhstan refers to Eastern Europe and Central Asia while Malaysia pertains to East Asia and Pacific region. As the countries represent different geographical regions, they are normally not compared with each other. However, in spite of this we will look at doing business similarities and differences between the two economies. This intention was induced by a number of addresses of the President of the Republic of Kazakhstan to the nation where Nursultan Nazarbayev referred to economic success of Malaysia and appealed to adopt its practices. The first reference to Malaysia by the President of Kazakhstan was made in 1997 when Strategy „Kazakhstan-2030‟ was developed: “Malaysia, a country similar to ours with respect to the population, ethnic composition and many other parameters, gained a 10-fold rise in living standards of its citizens within less than twenty years…Are there any obstacles which might prevent Kazakhstan availing of fine opportunities from scoring the same success? None whatsoever.” (Nazarbayev, 1997) Today, Malaysia is a priority partner of Kazakhstan in South East Asia. This is evidenced by the recent visit of Nursultan Nazarbayev to Malaysia in April, 2012, where he again emphasized that the economies have much in common (Baigarin, 2012). But how much in common do these countries have in doing business? Country

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AUGUST 2012 VOL 4, NO 4

reports on Doing Business published by the World Bank Group may help to answer this question as they shed light on how easy or difficult it is for a local entrepreneur in a particular economy to open and run a small to medium-size business when complying with relevant regulations. As reported by the World Bank (2012b; 2012c), Malaysia is ranked 18 in doing business whereas Kazakhstan is stands at 47 out of 183 economies. Taking into consideration higher rank of Malaysia, are there any practices Kazakhstan can learn and adopt from this country in order to improve its doing business position? Therefore, the purpose of this paper is to learn which doing business indicators are more favorable in Malaysia as compared to Kazakhstan and to understand what factors or regulations propel these indicators to higher positions in the ranking. Further, recommendations on how best Malaysian practices can be adapted to Kazakhstan will be given. 2. Doing Business in Kazakhstan and Malaysia Kazakhstan is a young country which gained its independence in 1991. Although that was a trigger point for the development of entrepreneurship, Kazakhstan is still heavily dependent on the extraction and sale of natural resources. Malaysia, like Kazakhstan, was a producer of materials but it successfully managed to transform itself into an emerging multi-sector economy through the creation and development of export-oriented small and medium enterprises (Pannell Kerr Forster (hereinafter – PKF) Malaysia, 2011). 2.1 SMEs: Roles and Definitions Small and medium enterprises (SMEs) play a significant role in the economies of both developing and developed nations. Entrepreneurial businesses further the development of a country by creating new jobs, designing novel goods and services, and challenging competition to implement quality management. The contribution of small and medium businesses to gross domestic product (hereinafter – GDP) in high-income countries accounts for more than 50 per cent, in middle-income economies the share of SMEs‘ output in GDP is 40 per cent, and in low-income countries – more than 15 per cent (Ayyagari et al, 2003). According to the latest World Bank (2012a) ranking, Kazakhstan is referred to as an upper middle-income economy with gross national income (hereinafter – GNI) per capita equal to USD 7,440.00. However, the share of small and medium enterprises in GDP of Kazakhstan is 20.2 per cent (Agency of Statistics, 2011) which is close to the level of low-income countries. This indicates that there are some loopholes in the system of entrepreneurship in Kazakhstan. Malaysia also fits into a category of upper middle-income economies with GNI per capita equal to USD 7,900.00 (World Bank, 2012a) but in contrast to Kazakhstan, the share of SMEs in GDP of Malaysia is about 31 per cent (Borneo Post, 2012) which is may be attributed in a greater extent to the new innovation strategy of the country. The difference in contributions of SMEs to GDP of Malaysia and GDP of Kazakhstan may also be ascribed diverse in definitions of small- and medium-scale enterprises. Malaysian SMEs can be grouped into three categories: micro, small, or medium (SME Corporation Malaysia, 2011). These groupings are based on either the number of people employed by an enterprise or annual sales turnover by a business. As seen from Table 1, SMEs in Malaysia are distinguished by the type of activities of a particular business. Thus, small and medium enterprises in primary agriculture and services sector (including Information and Communication Technology) are enterprises with full-time employees not exceeding 50 or with annual sales turnover not exceeding USD 1,565,657. SMEs in the manufacturing (including agro-based industries) and manufacturing related services (MRS) sectors are enterprises with full-time employees not exceeding 150 or with annual sales turnover not exceeding USD 7,827,185. ---------Insert Table 1 here-------In contrast to Malaysia, the definition of SMEs in Kazakhstan does not depend on economic sectors. Instead, SMEs are classified by their size and type of entity (Table 2). Both small and medium enterprises may be created either as physical bodies or legal entities. Physical bodies are restricted only in the number of employees and have no limitations in the value of assets. Small legal entities are enterprises with full-time employees not exceeding 50 and company‘s assets not exceeding 60,000 monthly calculation index (MCI)i. Medium-sized legal entities are those having between 50 and 250 employees and the value of assets not exceeding 325,000 MCI (Law, 2010). ---------Insert Table 2 here-------The majority of SMEs in Malaysia are companies limited by share (PKF, 2011) and one of the most popular legal forms in Kazakhstan is Limited Liability Partnership (LLP) (Teal, 2011) which are equivalent to each other. As the data analyzed by Doing Business Project often focus on a specific business form—generally a limited liability company – it is possible to assume that the above indicated forms of business ownership were taken by the World Bank as the basis for preparing country reports on Doing Business in Malaysia and Kazakhstan.


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2.2 Existing Research on Doing Business Literature review on doing business in Malaysia and Kazakhstan identified the lack of academic studies on this issue in both countries. Malaysian research mostly focuses on the need of internationalization of small and medium enterprises (Julian and Ahmed, 2009; Chelliah et al, 2010a; Chelliah et al, 2010b; Abdullah and Zain, 2011) and specific socio-cultural aspects of SMEs such as age, gender, and ethnicity (Ling et al, 2009; Osman et al, 2011; Salleh and Sidek, 2011) rather than on business regulation environment. But studies on doing business in Kazakhstan are more elaborate. Some of them investigate the development of entrepreneurship in general terms (Dostiyarova, 2011; Teal et al, 2011) while others focus on studying barriers to entrepreneurship (Ahsan and Cheng, 2006; Kantarbayeva, 2007; Toxanova, 2007). One remarkable study by Ahsan and Cheng (2006) identified several problems of doing business in Kazakhstan. The biggest problem is that one has to face too much regulatory government controls while starting an entrepreneurship. The other most important factors that hinder the development of entrepreneurship in Kazakhstan comprise the lack of capital and financial support, high tax and customs duty, excessive entry costs for entrepreneurs, too much government interference in private enterprises and unavailability of suitable technology. Toxanova (2007) claims that administrative and taxation barriers which include ―considerable number of acts, multitude of regulations, and excessive statistical and tax reporting required by the government‖ put the biggest obstacles in entrepreneurs‘ way. Likewise, governmental barriers such as inefficient bureaucracy and red tape were described in the study of Kantarbayeva (2007). It should be noted that the government of Kazakhstan is aware of the above indicated barriers and makes an efforts to eliminate them. The creation of electronic government (e-government) in 2006 and its continuing improvement made it possible to reduce bureaucracy, red tape and corruption in the country. Tax reforms reduced tax rates for SMEs. In addition, one can easily pay taxes or even register a business through the e-government website. Further, the paper attempts to examine business regulation environments in Kazakhstan and Malaysia on the basis of the latest assessment by the World Bank. The questions to be researched are:  What Doing Business indicators in Malaysia are ranked higher than in Kazakhstan? Why are they higher? 

What Kazakhstan can learn from Malaysian success?



Can Malaysian experience be applied to Kazakhstan?

3.

Methodology

This study is based on the analysis of the data published by the Doing Business Project under the aegis of the World Bank Group. The Doing Business Project has been issuing reports on business regulation for a number of countries since 2002. Today, the Project prepares reports on 183 economies. This provides policy makers and entrepreneurs with an opportunity to track changes in business reforms. Based on the Doing Business Project reports for Malaysia and Kazakhstan, the paper analyzes the overall ranking of business environment in both countries and assesses each of the ten indicators used measure the effectiveness of business regulations. Then, the indicators which are far better in Malaysia than in Kazakhstan are thoroughly evaluated to come up with an understanding how and why they are better. The ten indicators included in the Doing Business 2012 reports cover the following areas: 1. Starting a business indicator measures the procedures, time, cost and paid-in minimum capital required to register a small to medium-sized business in a particular economy. 2. Dealing with construction permits records the procedures, time and cost for a business to obtain all the necessary approvals to build a simple commercial warehouse, connect it to basic utilities and register the property. 3. Getting electricity indicator covers all the procedures required for the connection and supply of the electricity for a standardized warehouse. 4. Registering property lists the full sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer‘s name. 5. Getting credit indicator assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions. 6. Protecting investors measures the extent to which shareholders are protected against directors‘ use of corporate assets for personal gain on the basis of three dimensions: transparency of related-party transactions, liability for self-dealing and shareholders‘ ability to sue officers and directors for misconduct. 7. Paying taxes indicator gauges the number of annual payments, time as well as total rate of taxes and mandatory contributions that a medium-sized company must pay in a given year.


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8. Trading across borders covers the time and cost (excluding tariffs) it takes to import and export a standard shipment of goods by ocean transport including the time and cost of inland transport to the largest business city as well as the number of documents required to complete the transaction. 9. Enforcing contracts indicator measures the efficiency of the judicial system by evaluating time, cost and procedural complexity of resolving a commercial lawsuit. 10. Resolving insolvency assesses time, cost and outcome of insolvency proceedings involving domestic entities. The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as cents on the dollar recouped by creditors through reorganization, liquidation or debt enforcement proceedings (World Bank, 2012b,c). The methodology used by Doing Business has some limitations. The most important, in our opinion, are the following: the data collected from the largest business city and may not be representative of other parts of the economy; the data often focus on a limited liability company (or its legal equivalent) and may not be representative of the regulation on other businesses, for example, sole proprietorships; and transactions are described in a standardized case scenario with specific assumptions and may not represent the full set of issues a business encounters (World Bank, 2012d). 4. Analysis As has been mentioned earlier, the Doing Business Project ranks 183 economies on the ease of doing business. In 2012, Kazakhstan and Malaysia were ranked 47 and 18, respectively. The ease of doing business index is composed of rankings on other indicators listed in Table 3. Though the overall ranking of Malaysia is higher, it does not mean that the country is absolutely better in every indicator. As seen from the table below, Malaysia is considerably better than Kazakhstan only in four indicators: dealing with construction permits, getting electricity, getting credit, and trading across borders. ---------Insert Table 3 here-------Dealing with construction permits. Doing Business records the procedures, time and cost for a business to obtain all the necessary approvals to build a simple commercial warehouse. Kazakhstan is ranked 147 out of 183 economies on dealing with construction permits while Malaysia stands at 113. A long list of procedures and extremely high cost of getting construction permits put Kazakhstan to a disadvantage ground (Table 4) relative to Malaysia. Thus, 13 out of 32 procedures are due and payable in Kazakhstan whereas in Malaysia only 3 out of 22 procedures are charged. ---------Insert Table 4 here-------The analysis of the procedures in both countries showed that Kazakhstan has a number of drawbacks in comparison to Malaysia. Firstly, it was noted that there is a duplication of some procedures in Kazakhstan. Thus Sanitary and Epidemiological Authority (SES), local fire department, social protection department, and local architecture and town-planning authority make inspections prior, during and after the construction process. Secondly, the procedure (No.12) of requesting and obtaining Project Clearance from the local architecture and town-planning authorities is quite similar to the procedure (No.13) of requesting and obtaining rendering building and assembly jobs permit from the state architectural supervision authorities. The procedures follow one another and require almost the same set of documents. Thirdly, Construction Technology Supervision Company (Procedure No.20) which is compulsory to be hired by a business owner carries out the technical process of checking the different stages of the building. Local architecture and town-planning authority do similar inspections prior, during and after the construction process. In addition, hiring an independent Construction Technology Supervision Company is very costly and requires a business owner to pay KZT 491,652 (USD 3,293). Finally, upon completion of the construction the company convenes Working Commission (Procedures No.24, 25, 26) and Acceptance Commission (Procedures No.27, 28, 29). Both of them inspect the building and issue an Act of the acceptance. To obtain the Act from the Working Commission the company will have to involve Sanitary and Epidemiological Authority (SES) and Fire Department. Acceptance Commission makes a more broad inspection by involving almost all the authorities that were engaged in preconstruction assessment. Moreover, Acceptance Commission includes Sanitary and Epidemiological Authority (SES) and Fire Department, as well. This is an obvious duplication of the functions of the Working Commission. So, the need in Working Commission can be questioned. Getting Electricity. Kazakhstan and Malaysia are ranked 86 and 59, respectively, on getting electricity. The indicator includes the measures of procedures, time and cost. As seen from Table 5, the number of procedures for getting electricity is the same in both countries and the cost is even higher in Malaysia. The reason why Kazakhstan drops behind Malaysia is the number of days required to obtain a permanent electricity connection. ---------Insert Table 5 here--------


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Although the number of procedures is the same in both countries, getting electricity in Kazakhstan seems to be more bureaucratic than in Malaysia (Table 6). An entrepreneur in Kazakhstan has to deal with electrical contractor, two government departments and the utility (Alatau Zharyk) in order to get electricity connection. In contrast, this process in Malaysia involves only the utility (Tenaga Nasional Berhad) and the electrical contractor. Moreover, Malaysian utility carries out the greatest part of the external connection works while in Kazakhstan the whole connection is made by the electrical contractor. As a result, the process of getting electricity is longer in Kazakhstan due to the prevailing bureaucracy in the system which has to be reduced. ---------Insert Table 6 here-------Getting Credit. Doing Business provides an assessment of credit information sharing and the legal rights of borrowers and lenders with respect to secured transactions. Globally, Malaysia stands at 1 in the ranking of 183 economies on the ease of getting credit while Kazakhstan stands at 78. Getting credit rank is composed of strength of legal rights index, depth of credit information index and public credit registry coverage (Table 7). (1) Strength of legal rights index (0-10 scale) measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders. Kazakhstan scores 4 out of 10 indicating a number of loopholes in the legal system. Collateral law in Kazakhstan requires a specific description of the assets in the security agreement. A security right cannot be extended to future or after-acquired assets and cannot be extended automatically to the products, proceeds, or replacements of the original assets. Bankruptcy law does not protect creditors to a full extent what makes lending less attractive in Kazakhstan. When a business is liquidated or a debtor is outside an insolvency procedure secured creditors are not necessarily paid before tax and employee claims are satisfied. Moreover, the law does not provide secured creditors with grounds for relief from an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure. (2) Depth of credit information index (0-6 scale) estimates rules and practices affecting the coverage, scope and accessibility of credit information through a public credit registry or a private credit bureau. Public credit registry and private credit bureau coverage (percentage of adults) reports the number of individuals and firms listed in public/private credit registry/bureau with current information on repayment history, unpaid debts, or credit outstanding. The problem is that in Kazakhstan no public credit registry operates and existing private credit bureau distributes information only on retailers and utilities but not on financial institutions. ---------Insert Table 7 here-------Trading across borders. Kazakhstan is ranked 176 on trading across borders out of 183 economies. In contrast, Malaysia‘s global ranking in this category is 29. The rank on trading across borders is based on the number of documents, time and cost required to import or export. As seen from Table 8, Kazakhstan is at a disadvantageous position relative to Malaysia in export/import indicators. For example, the number of documents required to export is 9 in Kazakhstan and 6 in Malaysia; and the time to export takes 76 days and 17 days, respectively. The cost to export is 7-fold higher in Kazakhstan than in Malaysia. ---------Insert Table 8 here-------Table 9 shows that all of the export/import procedures in Kazakhstan take much longer time and are more costly in comparison to Malaysia. Thus, the longest and at the same time the most expensive category of procedures in Kazakhstan is inland transportation and handling. In general, the documents required to export and import are similar in Kazakhstan and Malaysia but Kazakhstan has additional list of documents to be collected which include certificate of conformity, railway bill (transport document), inspection report, terminal handling receipts (to export only), technical standard certificate (to import only), and transit document (to import only). ---------Insert Table 9 here-------5. Practical Implications The analysis showed that entrepreneurs in Kazakhstan face greater barriers rather than those in Malaysia. It was found that Kazakhstan has a number of problems with the following Doing Business indicators: dealing with construction permits, getting electricity, getting credit, and trading across borders. To resolve these issues the suggestions described further in the article may be taken into account by policy makers while developing their strategies and making reforms. Dealing with Construction Permits. In order to escape duplication of the procedures and reduce costs it is offered to do the following reforms: 1) Eliminate the procedures No.14,15,16,17,18 and 19 which are carried out during the construction process. It may be enough to make these inspections only prior and after the construction process like


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in Malaysia. The reform will allow escaping duplication of procedures, reducing time by 6 days and decreasing costs by KZT 3000 (USD 20). 2) Implement one stop shot for the procedures No.12 and 13 or eliminate the procedure No.13 at all because obtaining Project Clearance may already imply getting a permit for starting building and assembly jobs. This reform may require the appropriate provisions to the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 232-II, dated July 16, 2001. The adoption of this amendment to the law will help to escape duplication of the procedures and decrease time by 11 days. 3) Abolish the procedure No.20 – hiring Construction Technology Supervision Company – as it duplicates other inspections carried out after the construction process. This will allow entrepreneurs to reduce time by 1 day and costs by KZT 491,652 (USD 3,293). 4) Abolish the inspection by the Working Commission (Procedures No.24, 25, 26) as its functions are duplicated by a broader Acceptance Commission carried out later. This may require the amendment to the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-II, dated July 16, 2001; and the Governmental Decree Confirming the Rules of Obtaining Approval Procedures for Construction of New and Reconstruction of Existing Buildings, Decree No. 1313, dated December 13, 2002. The result will be the reduction of time by 22 days and costs by KZT 28,844 (USD 193). To summarize, the implementation of the described above reforms will reduce time for dealing with construction permits from 260 to 220 days (-40) and decrease the number of the procedures from 32 to 21 (-11). Getting Electricity. The process of getting electricity in Kazakhstan takes quite a long time due to the prevailing bureaucracy in the system which has to be eliminated. For this reason, the following solution is offered: the issuance of technical conditions, project approvals and permits may be carried out by the utility itself like in Malaysia instead of involving two other government departments. This may definitely reduce the number of days required for getting electricity and probably the number of procedures. Getting Credit. Specific description of the collateral is time consuming and increases transaction costs. Allowing a general description of the collateral will make security agreements more flexible and increase access to finance. Therefore, to improve strength of legal rights index it is necessary to adopt a new secured transactions law which would permit to describe collateral in general terms. In addition, security rights should be extended to future or after-acquired assets and to the products, proceeds and replacements of the original assets. Kazakhstan bankruptcy law should also be amended to provide higher protection for creditors. In order to improve the depth of credit information index in Kazakhstan it is offered to adopt a legal framework for the creation of a public credit registry which would facilitate the exchange of credit information among banks and other financial institutions. Trading Across Borders. For Kazakhstan, to become competitive in the world it is necessary to simplify the process of getting import/export permits. This may be done, first of all, through the reduction of costs for inland transportation and handling. In addition, the government should consider the possibility of eliminating the red tape and speeding up the whole process of trading across borders. 6. Conclusion The paper is built on a comparative analysis of the ease of doing business in Kazakhstan and Malaysia. The ease of doing business measures all of the procedures a typical entrepreneur faces beginning with starting a small or medium business to closing it. A thorough analysis of doing business indicators showed that in comparison to Malaysia Kazakhstan has lower rank in dealing with construction permits, getting electricity, getting credit, and trading across borders. This is mostly due to the red tape and bureaucracy which were also mentioned in earlier studies by Ahsan and Cheng (2006), Toxanova (2007), and Kantarbayeva (2007). Malaysia has the highest rank in the world on getting credit indicator. What Kazakhstan lacks is transparency in provision of credit information to individuals and firms. Trading across borders is still characterized by high customs duty (Ahsan and Cheng, 2006) where the greatest share of costs is associated with inland transportation and handling. Learning Malaysian experience helped to understand how its government tries to increase effectiveness and efficiency of business regulation. Some of Malaysian practices can be applied to Kazakhstan. Thus it was offered to abolish several procedures for dealing with construction permits, to assign most of the procedures for getting electricity to the utility company instead of different government departments, to adopt a new secured


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transactions law and amend bankruptcy law to make getting credit process easier, and to simplify the process of getting import/export permits by reducing costs for inland transportation and handling, eliminating the red tape and speeding up the whole process of trading across borders. Implementation of the suggested recommendations will allow policymakers to make entrepreneurship in Kazakhstan more attractive and improve the country‘s ease of doing business ranking by several points. In conclusion, though Kazakhstan has made a great progress in the transformation of a Soviet-command economy into a market-based economy within twenty years of its independence (Teal et al, 2011), we agree with Kaiser and Pulsipher (2006) that the country is still considered as having risky business environment and needs to continue to improve its institutional framework, combat corruption, and entrench the rule of law. Most limitations of the study come from the Doing Business methodology which should be considered while interpreting the data. First, the collected data refer to businesses in the economy‘s largest business city (in this case – Almaty and Kuala Lumpur) and may not be representative of regulation in other parts of the economy. Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size (depends on the indicator) —and may not be representative of the regulation on other businesses, for example, sole proprietorships. Third, the data is limited in scope, i.e. focuses on 11 areas of regulation affecting local businesses; does not measure all aspects of business environment or all areas of regulation. Fourth, transactions described in a standardized case scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fifth, the measures of time involve an element of judgment by the expert respondents. Finally, the methodology assumes that a business has full information on what is required and does not waste time when completing procedures. In practice, completing a procedure may take longer if the business lacks information or is unable to follow up promptly (World Bank, 2012c,d). This paper explores successful business regulation practices in Malaysia and provides a framework for their application to Kazakhstan. Future research may compare and analyze the effectiveness of business regulations in Central Asia or CIS countries. Likewise, future studies may focus on exploring specific doing business indicators in Kazakhstan and developing recommendations for policymakers on how to improve their ranking.


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References Abdullah, H. and S.N. Zain (2011) ―The Internationalization Theory and Malaysian Small Medium Enterprises (SMEs)‖, International Journal of Trade, Economics and Finance, Vol. 2, No. 4, pp. 318-322 Agency of Statistics of the Republic of Kazakhstan (2011) ―Dolia malogo is srednego‖ predprinimatelstva v VVP [The share of SMEs in GDP], available at: http://www.stat.kz/digital/mal_pred/Pages/default.aspx [accessed 21 June 2012] Ahsan, K. and P. Cheng (2006) ―Critical Issues of Starting Entrepreneurship in Kazakhstan‖, The IUP Journal of Entrepreneurship Development, Vol.3, No.2, pp.43-51 Ayyagari, M., Demerguc-Kunt, A. and Th. Beck (2003) ―Small and Medium Enterprises across the Globe: A New Database‖, World Bank Policy Research Working Paper No. 3127, available at: http://ssrn.com/abstract=636547 [accessed 29 June 2012] Baigarin, M. (2012) ―Malaysia yavliaetsa prioritetnym partnerom v Yugo-Vostochnoi Azii dlia Kazakhstana‖ [Malaysia is a Priority Partner of Kazakhstan in South East Asia], Kazinform, 18th April 2012, 12:37, available at: http://www.inform.kz/rus/article/2456712 [accessed 16 June 2012] Borneo Post (2012) ―SAP SME Summit 2012 showcases ICT Solutions for M‘sian SMEs‖, posted on 4 May, 2012, available at: http://www.theborneopost.com/2012/05/04/sap-sme-summit-2012-showcases-ictsolutions-for-msian-smes/ [accessed 21 June 2012] Chelliah, S., Sulaiman, M. and Y.M. Yusoff (2010a) ―Internationalization and Performance: Small and Medium Enterprises (SMEs) in Malaysia‖, International Journal of Business and Management, Vol. 5, No. 6; pp. 27-37 Chelliah, S., Pandian, S., Sulaiman, M. and J. Munusamy (2010b) ―The moderating effect of firm size: Internationalization of small and medium enterprises (SMEs) in the manufacturing sector‖, African Journal of Business Management, Vol. 4(14), pp. 3096-3109 Dostiyarova, A. (2011) ―Dynamics of Entrepreneurship Development in Kazakhstan,‖ Paper presented at the International Council for Small Business (ICSB) World Conference, Stockholm, Sweden; 15-18 June 2011 Julian C.C. and Z.U. Ahmed (2009) ―Doing business in Malaysia‖, Thunderbird International Business Review, Vol. 51, Is. 1, pages 53–69 Kaiser, M. J. and A.G. Pulsipher (2006) ―Business environment still seen as risky in Kazakhstan‖, Oil & Gas Journal, Jul 17, 2006; 104, 27; ABI/INFORM Global, p. 32-38 Kantarbayeva, A. (2007) ―Breaking down Administrative Barriers to Entrepreneurship in Kazakhstan, Center for International Private Enterprise‖, July 18, 2007, available at: http://www.cipe.org/sites/default/files/publication-docs/071807.pdf [accessed 23 June 2012] Law of the Republic of Kazakhstan ‗On Private Entrepreneurship‘ with modifications as of 2 nd April 2010 Ling, Ch.K., Selvadurai, S and B.A. Hamid (2009) ―Malay youth entrepreneurship in Malaysia: An empirical update‖, GEOGRAFIA Online Malaysian Journal of Society and Space, Vol. 5, issue 2, pp. 55 - 67 Nazarbayev, N. (1997) Strategy ‗Kazakhstan-2030‘, available at: http://portal.mfa.kz/portal/page/portal/mfa/en/content/reference/strategy2030 [accessed 16 June 2012] Osman, H., Asrah, R., Rashid, M.A. and A. Rajput (2011) ―Ethnic Entrepreneurship and Interplay of Cultural Factors in Developing Countries: A Compendium of Literature‖, Interdisciplinary Journal of Contemporary Research in Business, Vol. 3, No 3, pp. 472-480 Pannell Kerr Forster Malaysia (2011) Doing Business in Malaysia, Kuala Lumpur, available at: http://www.pkfmalaysia.com/publications/Doing%20business%20in%20Malaysia%202011.pdf [accessed 18 June 2012] Salleh, M.M. and N.Z. Sidek (2011) ―Rural Entrepreneurship: A Challenges and Opportunities of Rural Micro Enterprise (RME) In Malaysia‖, Interdisciplinary Journal of Contemporary Research in Business, Vol. 2, No 11, pp 573-583. SME Corporation Malaysia (2011) ―Defining Small and Medium Enterprises (SMEs)‖, available at: http://www.smeinfo.com.my/index.php/en/sme-definition/sme-definition/defining-sme [accessed 27 June 2012] Teal, E. J., Toxanova A. N. and G. M. Izzo (2011) ―Entrepreneurial development in Kazakhstan: A review and update‖, Journal of International Business and Cultural Studies, Vol. 5, available at: http://www.aabri.com/manuscripts/10743.pdf [accessed 22 June 2012] Toxanova, A. (2007) ―The Country of Kazakhstan Barriers of Entrepreneurship and Support for Entrepreneurship, European Economic Commission‖, Geneva, Switzerland; June 18-19, 2007, available at: http://www.unece.org/fileadmin/DAM/ceci/ppt_presentations/2007/eed/tox_ppre.pdf [accessed 23 June 2012]


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Wojciech, H. (2000) ―SME Development in Countries of Central Asia (Kazakhstan, Kyrgyzstan and Uzbekistan): Constraints, Cultural Aspects and Role of International Assistance‖, UNIDO: Vienna World Bank (2012a) World Bank List of Economies (April 2012) [internet], available at: http://siteresources.worldbank.org/DATASTATISTICS/Resources/CLASS.XLS [accessed 1 June 2012] World Bank (2012b) Doing Business in a More Transparent World. Economy Profile: Kazakhstan, available at: http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/KAZ.pdf [accessed 15 June 2012] World Bank (2012c) Doing Business in a More Transparent World. Economy Profile: Malaysia, available at: http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/MYS.pdf [accessed 15 June 2012] World Bank (2012d) About Doing Business: Measuring for Impact, available at: http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/AnnualReports/English/DB12-Chapters/About-Doing-Business.pdf [accessed 11 July 2012]


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AUGUST 2012


VOL 4, NO 4

TABLES Micro < 5 employees Primary Agriculture

< RM200,000 (≈ US $62,602) < 5 employees

Manufacturing & Manufacturing Related Services

< RM250,000 (≈ US $78,268) < 5 employees < RM200,000 (≈ US $62,602)

Services Sector

Small 5 – 19 employees RM200,000 – RM1mln (≈ US $62,602 – US $313,059) 5 – 50 employees RM250,000 – RM10mln (≈ US $78,268 – US $3,130,216) 5 – 19 employees RM200,000 – RM1mln (≈ US $62,602 – US $313,059)

Medium 20 – 50 employees RM1mln – RM5mln (≈ US $313,059 – US $1,565,657) 51 – 150 employees RM10mln – RM25mln (≈ US $3,130,216 – US $7,827,185) 20 – 50 employees RM1mln – RM5mln (≈ US $313,059 – US $1,565,657)

Source: Adapted from SME Corporation Malaysia (2011) Defining Small and Medium Enterprises (SMEs), available at: http://www.smeinfo.com.my/index.php/en/sme-definition/sme-definition/defining-sme [accessed 27th June 2012] *Currency exchange rate is valid for 27th June 2012 (1 MYR = 0.313013 USD; 1 USD = 3.19476 MYR)

Table 1 – Classification of Small and Medium Enterprises in Malaysia by the Number of Employees and Annual Sales Turnover*

Size of the Business Small (physical body) Small (legal entity) Medium (physical body) Medium (legal entity)

Number of Employees ≤ 50 ≤ 50 > 50 50 – 250

Value of Assets in MCI Not specified ≤ 60,000 Not specified 60,000 – 325,000

Value of Assets in KZ tenge Not specified ≤ 9,708,000 Not specified 9,708,000 – 525,850,000

Value of Assets in US dollars Not specified ≈ ≤ 65,091 Not specified ≈ 65,091 – 3,525,763

Source: Adapted from Law of the Republic of Kazakhstan ‗On Private Entrepreneurship‘ with modifications as of 2 nd April 2010 ** Currency exchange rate is valid for 27th June 2012 (1 KZT = 0.00669792 USD; 1 USD = 149.300 KZT)

Table 2 – Definitions of SMEs in Kazakhstan**

Indicators Ease of Doing Business Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency

MYS 18 50 113 59 59 1 4 41 29 31 47

KZ 47 57 147 86 29 78 10 13 176 27 54

Source: World Bank (2012b) Doing Business in a More Transparent World. Economy Profile: Kazakhstan; World Bank (2012c) Doing Business in a More Transparent World. Economy Profile: Malaysia

Table 3 – Indicators Making Up the Ease of Doing Business Index


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AUGUST 2012


Country / Position Kazakhstan / 147 Malaysia / 113

Procedures (number) 32 22

Time (days) 189 260

VOL 4, NO 4

Cost (% of GNI) 93,2 7,l


Table 4 – Dealing with Construction Permits Ranking of Indicators

Country / Position Kazakhstan / 86 Malaysia / 59

Procedures (number) 6 6

Time (days) 88 51

Cost (% of GNI) 88,4 95,5


Table 5 – Getting Electricity Ranking

Kazakhstan No. Procedures Submit an application to the local Urban Planning and 1 Architecture Department and await technical conditions Await completion of the electrical project design by a 2 private electrical design firm and its approval Obtain an excavation permit at the Directorate of the State 3 Architecture and Construction Control Await completion of the 4 external connection works by an electrical contractor Await and obtain an inspection 5 of the external connection works by Alatau Zharyk Conclude a supply contract and 6 await for the meter to be sealed by Alatau Zharyk

Malaysia Days

No.

Procedures

Days

14

1

Hire certified electrical engineer who provides certificate of compliance of internal wiring

1

26

2

Submit application to Tenaga Nasional Berhad (TNB) via Electrical engineer, and await site visit

14

7

3

Receive site visit from TNB and await estimate

7

27

4

7

5

7

6

Customer receives estimates, makes payment, and TNB conducts external connection Electrical contractor purchases material and conducts external connection works TNB installs meter and turns on electricity

22

7

7


Table 6: Getting Electricity Procedures and Time in Kazakhstan and Malaysia

Indicator Strength of legal rights index (0-10) Depth of credit information index (0-6) Public credit registry coverage (% of adults) Private credit bureau coverage (% of adults)

Kazakhstan 4 5 0.0 37.6

Malaysia 10 6 49.4 83.4


Table 7: Summary of Scoring for Getting Credit Indicators


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AUGUST 2012

INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Indicator Documents to export (number) Time to export (days) Cost to export (US$ per container) Documents to import (number) Time to import (days) Cost to import (US$ per container)

Kazakhstan 9 76 3130 12 62 3290

VOL 4, NO 4

Malaysia 6 17 450 7 14 435


Table 8: Summary of Procedures and Documents for Trading Across Borders in Malaysia and Kazakhstan

Procedures Documents preparation Customs clearance and technical control Ports and terminal handling Inland transportation and handling Total

to export Kazakhstan Malaysia Time Cost Time Cost 21 330 10 95 18 200 1 65 11 26 76

250 2350 3130

3 3 17

120 170 450

to import Kazakhstan Malaysia Time Cost Time Cost 21 310 9 85 14 250 1 65 4 23 62

380 2350 3290

2 2 14

120 165 435


Table 9: Summary of Procedures to Import and to Export in Kazakhstan and Malaysia

Endnotes i Monthly Calculation Index (MCI) is a parameter used to calculate the benefits and other social welfares, as well as to apply penalty sanctions, taxes and other payments in compliance with laws of the Republic of Kazakhstan. MCI in 2012 is equal to KZT 1618 (USD 10.84).


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