Business activity of enterprises is gradually recovering from the decline in April to a multi-year low. The growth of their profitability is promoted both by the transition to an electronic form of activity, and by stimulating measures of support from the state.
The coronavirus pandemic has worsened not only the health of the population, but also the economy as a whole. The hardest hit were small and medium-sized businesses, some of which have not been able to restore their activities. But, at the same time, there are also those who came out of the state of emergency, while managing to get stronger. What helps a business stay afloat, analysts have analyzed FinReview.info.
In April, the business activity index was 37.2 points, and in October the indicator rose to 48.8 points
The business activity index, which characterizes the state of the economy and prospects for the development of industrial production, construction and services in the country, rose to 48.8 points in October from a multi-year low that was at the beginning of the second quarter of 2020. This was the first drop in the index since April 2017.
The business activity index is prepared by the National Bank of Kazakhstan based on surveys of business representatives from three sectors of the economy: industry, construction and services. The index marker value is 50 points. A value above this level indicates an improvement in the business environment in the country. And if the indicator is lower, the business sector is experiencing negative changes.
The growth of the business activity index is observed for the third month in a row, which means that SMEs are gradually recovering from a sharp decline due to quarantine measures. At the same time, industrial and service sector enterprises showed positive dynamics in October. And in construction, there was a slight decrease of 1.5 points.
Against the background of the resumption of business activity of enterprises, the business climate index is also recovering. After the April dip to -32.5 points, the index began to gradually recover, reaching 0 points at the end of October.
The business climate index is prepared by the National Bank of Kazakhstan based on a survey of entrepreneurs about the current financial situation of their company and how its financial situation may change in the next three months. The average value of the index is 0, and if it is positive, it indicates an improvement in conditions. Conversely, in the case of a negative indicator, entrepreneurs state the deterioration of business.
Businesses ‘ profitability is growing thanks to e-commerce
Concerns about the spread of the coronavirus have prompted people to shop online. As a result, the profitability of enterprises that managed to reorient themselves to the electronic format increased by more than 25% on average.
For example, the number of users in the app Kaspi.kz it grew from 6 million at the beginning of the year to more than 10 million, orders in the online home appliances store “dream” increased 6 times, and sales of entertainment products from the Meloman store.kz increased 3 times, and purchases of the multi-sector market Wildberries.kz increased by 2 times.
Against this background, the growth in e-commerce sales by the end of 2020 is estimated to be about 40%. In other words, online trading can reach 1.4 billion US dollars in monetary terms. For comparison, in 2019, the figure was 1 billion US dollars.
But while the quarantine measures have had a positive impact on e-commerce, the SME sector as a whole, which employs 3.3 million workers or 36% of the economically active population, has remained under attack. The situation is also worsened by the fact that over 60% of the sector’s profit is accounted for by a fifth of existing SMEs. This means that about 80% of subjects remain financially insolvent.
Therefore, in order to keep Kazakhstan’s business afloat, the Government has taken a number of anti-crisis measures.
The SME is weakened, but not broken
Banks have played a key role in saving SMEs this year. First, financial organizations could provide deferrals on existing business loans, and second, they could support organizations with new concessional loans.
For these purposes, the state allocated 800 billion tenge. At the same time, a credit limit of no more than 3 billion tenge is set for one SME borrower, and no more than 50 million tenge for sole proprietors.
This program is implemented by twelve Kazakh banks that have passed an independent asset quality assessment (AQR) of the banking sector. According to the latest data, namely from November 18, 2020, banks accepted 2,311 applications for the amount of 567.4 billion tenge. 1,370 SMEs were granted loans in the amount of 455.3 billion tenge, of which 101.6 billion tenge came from the money received from the repayment of previously issued loans.
In addition, the country implements mechanisms for lending to priority projects – the so-called “Economy of simple things”program. According to its terms, banks lend to projects in the manufacturing sector, the agro-industrial complex and the service sector.
Under the program, the interest rate for borrowers is only 5% – 6%, and credit resources aimed at investment purposes are provided for a period of up to 10 years. In other words, the state’s desire to reduce the economy’s dependence on raw materials after the collapse of oil prices has become particularly relevant.
Investments can also help SMEs improve their financial situation
The quarantine measures in force in the country had a negative impact on about 1 million SMEs. Of course, their financial situation has worsened, and the program of concessional lending launched in the country, in addition to restoring the financial stability of SMEs, leads to an increase in their creditworthiness. As of November 1, the volume of lending to legal entities has increased by 318.9 billion tenge since the beginning of the year, although there has been a tendency to reduce loans over the past three years.
More profitable financial instruments that allow you to increase capital are investments, in particular those that can be attracted through development banks, investment banks, stock exchanges, and venture funds. Such financial institutions invest not only in new projects, but also help existing companies enter the capital markets to attract funds for their development.
For example, the Astana International Financial Centre attracted 2.5 billion US dollars in portfolio investments over two years of operation. Its participants invested 444 million US dollars in Kazakhstan’s projects.
In turn, investments will not only attract money, but also expand the geography of sales of goods and services, as well as improve the company’s business processes.