KSBD Final Report 10-13-2010.pdf

KAZAKHSTAN SMALL

BUSINESS DEVELOPMENT PROJECT

FINAL REPORT

OCTOBER 2006 – SEPTEMBER 2010

October 2010

This report was produced for review by the United Agency for International Development.

It was prepared by the USAID KSBD Project implemented by The Pragma Corporation.

KAZAKHSTAN SMALL BUSINESS DEVELOPMENT PROJECT

CONTRACT NUMBER: 115-C-00-06-00014

COTR/USAID/CAR: Svetlana Golovatskaya

PROJECT MANAGER: Mohammad Fatoorechie

CHIEF OF PARTY: Gregory Hemphill

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

OVERVIEW OF RESULTS

STUDY TOURS

HIGHLIGHTS OF THE KSBD PROJECT BY IMPLEMENTATION YEAR

1.0. INTRODUCTION

2.0. YEAR 1 IMPLEMENTATION: OCTOBER 2006 – SEPTEMBER 2007

KAZAKHSTAN SME NEEDS ASSESSMENT

GLOBAL ENTREPRENEURSHIP MONITORING

SME DEVELOPMENT BEST PRACTICES SECURED THROUGH KSBD STUDY TOURS:

ACCESS TO CREDIT ASSESSMENT

SME CONSULTANT CERTIFICATION PROGRAM

3.0. YEAR 2 IMPLEMENTATION: OCTOBER 2007 – SEPTEMBER 2008

SME DEVELOPMENT BEST PRACTICES. A

KSBD PROGRAM TO INCREASE THE CAPACITY OF BUSINESS SERVICE PROVIDERS. THE PROGRAM TO

BUSINESS ESSENTIALS TRAINING COURSE

4.0. YEAR 3 IMPLEMENTATION: OCTOBER 2008 – SEPTEMBER 2009

KSBD GOK SUPPORT

STUDY TOURS

SME POLICY HANDBOOK

BUILDING THE CAPACITY OF BUSINESS SERVICE PROVIDERS

START YOUR BUSINESS TRAINING COURSE

KNOW ABOUT BUSINESS TRAINING COURSE (KAB)

5.0. YEAR 4 IMPLEMENTATION: OCTOBER 2009 – SEPTEMBER 2010

NATIONWIDE NETWORK OF BUSINESS SERVICE PROVIDERS

ENTERPRISE DEVELOPMENT CENTER CONCEPT

ANNUAL ENTREPRENEURSHIP REPORT

6.0. KSBD PERFORMANCE MONITORING PLAN

ORGANIZATIONS ASSISTED THROUGH KSBD BSP PROGRAM

TOTAL TRAINING PARTICIPATIONS AND PARTICIPANTS

BUSINESS SERVICE PROVIDER PARTNER BREAKDOWN

BSP TOT BUSINESS AND CONSULTANT TRAINING AND ATTESTATION PROGRAM

RETAIL TRAINING TO SME CLIENTS AND PARTICIPANTS BY BSP PARTNERS

PUBLIC-PRIVATE PARTNERSHIP / SPONSOR PROGRAM

7.0. KNOW ABOUT BUSINESS PROGRAM WITH BAKER HUGHES AND CHEVRON

8.0. MEDIA COVERAGE OF KSBD ACTIVITIES

9.0. SUSTAINABILITY OF KSBD ACTIVITIES

LIST OF TABLES AND FIGURES

Table 1. Number of Organizations Assisted through KSBD BSP Program Figure 1. Number of SMEs Assisted vs. Yearly Targets Table 2. Number of Training Participations and Participants, Disaggregated by Year and Gender Figure 2. Number of Participations vs. Individual Participants, by Year Table 3. Breakdown of BSP Partners by Year and Indicator Figure 3. Total Number of BSP Partners by Year Table 4. Number of TOTs for Business Service Providers Table 5. TOT Sessions by Oblast and Type of Training Table 6. KSBD Full Attestations of Individual Consultants and Trainers Table 7. Retail Training Provided by BSP Partners, by Year and Indicator Figure 4. Total Retail Courses vs. KSBD Co-finance Courses Table 8. Total Sponsor PPPs by Status Table 9. Summary of Key KAB Program Outputs against Original Targets Table 10. Summary of Key KAB Program Outputs to Kazakhstan Total Table 11. Types of Mass Media Coverage by Year

ATTACHMENTS

Attachment 1. List of KSBD Business Service Providers Attachment 2. List of Know About Business Trainers Certified by KSBD Attachment 3. Business Essentials Training Module Description; Consulting Essentials Training Module Description; Start Your Business Training Module Description

USAID/GOK KSBD Project, implemented by The Pragma Corporation – Final Report- October 2006-September 2010

ABBREVIATIONS LIST

AMFOK Association of Microfinance Organizations of Kazakhstan BSP Business Service Provider CMC Certified Management Consultant DCA USAID Development Credit Agency EBRD/BAS European Bank for Reconstruction & Development / Business Advisory

Services EDC Enterprise Development Center EDD Entrepreneurship Development Department under the MEDT EDF/DAMU Entrepreneurship Development Foundation DAMU (formerly SMEF) GOK Government of Kazakhstan GDA Global Development Alliance GEM Global Entrepreneurship Monitoring ILO International Labor Organization ICMCI International Council of Management Consultant Institutes KAB Know About Business KACMC Kazakhstan Association of Certified Management Consultants KSBD Kazakhstan Small Business Development M&E Monitoring and Evaluation MEBP Ministry of Economy and Budget Planning of the Republic of Kazakhstan MES Ministry of Education and Science MFI Micro-finance Institution MIT Ministry of Industry and Trade MOC / MOU Memorandum of Cooperation / Memorandum of Understanding OECD Organisation for European Economic Co-operation PEL Private Entrepreneurship Law PPP Public-Private Partnership Pragma The Pragma Corporation RFP Request for Proposals SBA US Small Business Administration SCR Social Corporate Responsibility SME Small and Medium Size Enterprise SMEF Small & Medium Enterprise Foundation (now EDF/DAMU) STTA Short-term Technical Advisor TOF Training-of-Facilitators (KAB Teachers) TOT Training-of-Trainers USAID United States Agency for International Development WEF World Economic Forum

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 1

Executive Summary

In October 2006, The Pragma Corporation began the implementation of a four-year project co-financed by the United States Agency for International Development (USAID) and Government of Kazakhstan (GOK) entitled the Kazakhstan Small Business Development (KSBD) Project.

The objective of the project was to improve the effectiveness of GOK’s small business support programs and develop a national network of small business service providers to improve the knowledge and skills of small business managers and entrepreneurs on a sustainable basis.

Overview of Results As a result of the KSBD program, best practices in SME development learned from Eastern Europe, the United Kingdom, and the US have been integrated into the work of various GOK working groups, as well as government strategies and initiatives. For example, through information obtained during a KSBD-sponsored study tour, the GOK took steps to outsource its SME and microlending program through commercial banks and private microfinance organizations. Two study tours to the US Small Business Administration resulted in the Enterprise Development Fund (EDF)/DAMU finalizing its regional Enterprise Development Center (EDC) Concept for the country, refocusing it into outsourcing business services to the private sector. EDF/DAMU launched its first regional EDC in Pavlodar on September 16, 2010, outsourcing SME consulting, training and research services to the Pavlodar State University (named after S. Toraigyrov). This is the first in a planned national network of centers that EDF/DAMU has committed to establish; five additional EDCs are scheduled to start operations at the end of 2010. As a result of a KSBD survey and recommendations, EDF/DAMU organized and launched the “Business Advisor” national SME training and education campaign, which reached all 209 remote districts, all 14 regions, as well as Almaty and Astana. Since the end 2007, EDF/DAMU has issued SME loan guarantees to second-tier banks through its SME Loan Guarantee Program (part of its SME support mandate).

Another significant outcome of the KSBD program was the issuance of the first National Report on the State of Small and Medium Entrepreneurship in Kazakhstan and its Regions, which resulted from the joint efforts of EDF/DAMU and the KSBD Project. The report contains SME statistics, a thorough analysis of SME needs and issues, SME macroeconomic indices, a comparative analysis of the region, and best SME development practices, and serves as a comprehensive tool for SME strategies and policies development.

Over the course of the project, KSBD raised over $500,000 in cash and in-kind contributions through PPPs. For example, KSBD implemented a program to provide entrepreneurship education to students in vocational education based on grants USAID received from Baker Hughes and Chevron, two American companies active in the oil & gas sector in Kazakhstan.

The program has been institutionalized through the national vocational schools curriculum and an estimated 112,000 students are now expected to be taught the entrepreneurship program each year.

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 2

Study Tours A number of study tours were designed and implemented to further the goals of the project, as follows:

January 2007 – Global Entrepreneurship Monitoring (GEM) London Training provided the Kazakhstan GEM Team with survey methodology and toolkit

May 2007 – 10th MFC (Microfinance Centre) Conference of Microfinance Institutions in Bulgaria, attended by the Ministry of Industry and Trade and Prime Minister’s Chancellery as part of the Kazakhstan delegation

June 2007 – A study tour on SME policy, development, and support experience in Poland for representatives of the Ministry of Industry and Trade (MIT), business associations, EDF/Damu, and Forum of Entrepreneurs

September 2007 – ICMCI (the International Council of Management Consulting Institutes) 11th World Congress for Management Consultants in Ireland, attended by the President of the Kazakhstan Association of Management Consultants

November 2007 – Government Outsourcing of Services for SMEs in Bulgaria, attended by representatives from MIT, the Kazyna Fund, the Ministry of Economy and Budget Planning, business associations, and EDF/DAMU

January 2008 – GEM Annual Coordination Meeting in the US, attended by the Kazakhstan GEM Team

May 2008 – Hungary’s Credit Cooperatives and Opportunities to Improve Legal Framework of Kazakhstan, attended by Kazakhstan parliament deputies and representatives from EDF/DAMU, the Fund for Financial Support of Agriculture, the Association of Microfinance Organizations of Kazakhstan, MIT, and the Education Academy

July 2008 – US Small Business Administration (SBA) study tour to US for representatives from EDF/DAMU, Ministry of Industry and Trade, and Prime Minister’s Office

January 2009 – US SBA Small Business Development Centers Network Operations in the US, attended by EDF/DAMU regional branch office directors and the Strategic Analysis Center under the President’s Administration and MIT

May 2009 – 12th MFC Conference of Microfinance Institutions in Serbia, attended by representatives from the MIT and the Fund for Financial Support of Agriculture, as part of the Kazakhstan delegation.

Highlights of the KSBD Project by Implementation Year Year 1: October 2006 – September 2007. KSBD undertook the Kazakhstan SME Needs Assessment and the selection of KSBD business service providers and subcontractors. A national procurement competition helped identify local business service providers and included an in-depth analysis of SME development in every region of Kazakhstan, including the demand for and supply of existing training and consulting services. In January 2007, KSBD was able to have Kazakhstan included in the international Global Entrepreneurship Monitoring (GEM) study for the first time. The GEM survey found that social attitudes towards entrepreneurship were positive, but that the average education of entrepreneurs in Kazakhstan was lower than that of the general population, suggesting that a disproportionate share of entrepreneurs may choose to go into business out of necessity rather than personal preference. At the very least, this finding indicated the need to provide entrepreneurs with more access to information and

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 3 knowledge regarding business management. Also during its first year, KSBD completed the second year of a Global Development Alliance between ExxonMobil/USAID and KSBD, which began under the previous USAID Enterprise Development Project, implemented by Pragma.

During the two-year GDA, 2,265 participants in the Astana area, of which 80.8% were women, received business training. Also, KSBD local consultants provided consulting assistance to 68 SMEs; as a result, these SMEs had an average annualized sales increase of about 70%, and average annualized productivity increases of nearly 110%. Finally, during Year 1, KSBD designed and initiated a number of international study tours (see above) that were carried out over the course of the project and greatly helped increase GOK awareness of international best practices and models for developing the SME sector.

Year 2 Highlights: October 2007 – September 2008. An assessment undertaken during December 2006 and January 2007 indicated that EDF/DAMU, a state-owned corporation created to provide access to credit and other programs for SMEs through a national network of branches, would benefit from KSBD assistance both with internal organizational capacity building (including DAMU’s regional outlets) and the development of designs for national SME education and training programs. During this same general time frame, a senior team from the People’s Group Ltd., a US-based consulting company and a subcontractor to Pragma, performed an Access to Credit Assessment that led to a number of KSBD recommendations for technical assistance. In Year 2 of the project, KSBD provided EDF/DAMU with technical assistance in the areas of loan guarantees and support of its access to credit programs for SMEs.

This resulted in the Fund’s decision to work through commercial banks instead of engaging in the distortive practice of directed lending (which tends to drive out private sources of finance).

As a result, the EDF/DAMU received an additional $100 million from the GOK for its lending program and, at the end of 2007, EDF/DAMU launched its SME Loan Guarantee Program.

KSBD also assisted the Fund in designing its plan to develop Enterprise Development Centers (EDCs) to provide additional assistance to SMEs based on outsourcing many services through commercial business service providers. During Year 2, KSBD increased its network of BSPs from 4 to 53 and worked to develop public-private partnerships (PPPs) with foreign and domestic companies, national and local government agencies, and associations to increase investment and sponsorship of KSBD training and consulting activities.

Year 3 Highlights: October 2008 – September 2009. KSBD support to the GOK in Year 3 focused on sustaining the achievements of the Entrepreneurship Development Department (EDD) of the MIT and on promoting the enhanced capacity of EDF/DAMU. The KSBD Senior Government Advisor provided technical assistance in drafting, submitting, and presenting amendments to the Private Entrepreneurship Law to Parliament, including: the adoption of improved SME legal definitions and categories in compliance with the Organisation for European Economic Cooperation; determining the rights and duties of government SME bodies, particularly in coordination of SME policies; management and reporting on impacts; creation of a comprehensive annual report on SME development in the country; and liberalizing procedures involving businesses in SME policymaking. KSBD co-financed two US study tours for EDF/DAMU management and regional managers to review programs and the institutional framework of the US SBA and sponsored a short-term technical consultant to develop a loan guarantee program based on the SBA model. KSBD also provided technical assistance to EDF/DAMU to get the Financial Supervision Agency to approve an additional loan guarantee program with USAID’s Development Credit Agency (DCA). The DCA program has been

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 4 included in the EDF/DAMU Development Strategy until 2013 and will be launched after approval by the Financial Supervision Agency. The KSBD Senior Government Advisor collaborated with an EDF/DAMU Senior Expert to develop a comprehensive electronic handbook on SME policies, including international best practices and lessons learned titled Politics and Small Business: How it is Done in Kazakhstan and Other Countries. This handbook, which can be downloaded from the EDF/DAMU website (http://www.damu.kz) and the KSBD website (www.ksbd.kz), provides an analysis of Kazakhstan’s SME sector during 2008 and 2009. Also during Year 3, KSBD provided assistance to 1,108 SMEs; assisted 107 BSP partners operating in all oblasts, Astana, and Almaty; and trained 4,442 participants. Support to KSBD programs was provided by 16 local governments, and major companies, such as Toyota and Procter & Gamble agreed to attach their brand to KSBD Business Essentials courses in their areas of specialization. In April 2009, KSBD initiated a program with grant funding from two American companies active in the oil and gas sector, Chevron and Baker Hughes, to support a course in entrepreneurship in vocational schools across the country. This course, titled Know About Business (KAB) was developed by the International Labor Organization (ILO) to increase understanding of entrepreneurship and improve employment opportunities for youth throughout the world. By the end of the third project year (after about six months), KSBD had achieved the following milestones: 186 new teachers were certified in KAB; over 35,700 additional students in over 140 vocational institutions had taken KAB that academic year; 10 new teachers were certified to train teachers in KAB.

Year 4 Highlights: October 2009 – September 2010. Having established a nation-wide network of Business Service Providers capable of providing SME training, KSBD focused in Year 4 year on assisting BSPs to complement that training by providing consulting assistance based on training and SME management tools, particularly to targeted groups of enterprises. KSBD also strengthened its BSP network performance evaluation by adding quantitative key monitoring ratios collected from the recipient SMEs, thus measuring the business effects of the SME trainings provided. Under the Baker Hughes/Chevron grant, KSBD completed its program to train teachers in all 14 oblasts and Almaty and Astana to provide the ILO’s KAB course in entrepreneurship for vocational institutions. A total of 642 vocational school teachers were certified by the ILO across Kazakhstan; these teachers will provide an estimated 114,000 students in 517 vocational institutions with KAB. KSBD support for the GOK focused on sustaining the achievements of the EDD under the MIT and on promoting the enhanced capacity of EDF/DAMU to deliver a set of nationwide programs, services, and products to support SMEs. KSBD long-term Senior Government Advisor provided EDD with the Policy Framework and Evaluation of Kazakhstan SME Support. KSBD contributed to the EDF/DAMU Development Concept and development of an annual entrepreneurship report. These joint efforts resulted in the first National SME Report being published by EDF/DAMU in March 2010.

The report contains SME statistics, a thorough analysis of SME needs and issues, SME macroeconomic indices, a comparative analysis of regions, and best SME development practices, and serves as a comprehensive tool for SME strategy and policy development.

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 5

1.0. Introduction

Throughout the world, small and medium sized enterprises (SMEs) are a major factor in economic growth and key to employment generation. The development of the SME business sector (defined in Kazakhstan as businesses with less than 250 employees) is a key element in the transition to a competitive, market economy. In October 2006, The Pragma Corporation (Pragma) began the implementation of a four-year project co-financed by the United States Agency for International Development (USAID) and Government of Kazakhstan (GOK) entitled the Kazakhstan Small Business Development (KSBD) Project.

The World Economic Forum’s (WEF) Global Competitiveness Index indicates that the level of business skills and knowledge is very low in Kazakhstan relative to the other 125 countries in the survey. This creates a serious and growing constraint to the development of both international and domestic competitiveness in Kazakhstan’s transitional market economy.

Businesses increasingly run up against shortages of adequately skilled and knowledgeable market participants, particularly in the crucial SME sector.

The objective of the KSBD project was to improve the effectiveness of GOK’s small business support programs and develop a national network of small business service providers to improve the knowledge and skills of small business managers and entrepreneurs on a sustainable basis. This report documents the activities and accomplishments of the KSBD project over its four-year life. Sections 2 through 5 summarize the activities and accomplishments of Years 1 through 4 of the project, respectively. Section 6 details overall project performance based on the KSBD Performance Monitoring Plan. The “Know About Business” program supported by Baker Hughes and Chevron is documented in Section 7, KSBD media coverage is summarized in Section 8, and Section 9 presents information about the organizations charged with the responsibility for sustaining KSBD business training modules and programs beyond the life of the project.

2.0. Year 1 Implementation: October 2006 – September 2007

The major activities and accomplishments of KSBD’s first year of implementation are highlighted below.

Kazakhstan SME Needs Assessment. In January 2007, KSBD issued a Request for Proposals (RFP) from Kazakhstan SME business service providers (BSPs) – including business associations, non-government organizations, training and consulting companies, microfinance institutions, and educational institutions. The RFP aimed to identify KSBD long-term partner organizations to support SME development in the field. The SME needs assessment was embedded into the RFP, and through the procurement KSBD received applications containing thorough descriptions and analysis of the SME market of the respective regions. This helped project staff design the KSBD implementation strategy for each region, and identify BSP champions, GOK decision-makers, and SME needs based on the priorities and peculiarities of various regions. A total of 92 proposals were received and evaluated by the Review Committee, which included representatives from the Kazakhstan Ministry of Industry and Trade (MIT), the Small and Medium Entrepreneurship Development Foundation (SMEF, now known as EDF/DAMU), USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 6

KSBD, and Counterpart International (a subcontractor to Pragma). The proposals were ranked based on their compliance with the terms of the solicitation. The first implementation phase focused on piloting BSP capacity building through a set of training of trainers (TOT) courses and consulting assistance. With this in mind, KSBD selected four BSPs in different regions of Kazakhstan: the Association of Entrepreneurs in the Karagandinskaya region, the business incubator “Sodbi” in the South Kazakhstan region, the Small Business Development Center in the Aktubinskaya region, and the Association of Microfinance Organizations of Kazakhstan (AMFOK) in Astana. Three of the selected BSPs proved to be successful and co-delivered the first KSBD TOT programs in their respective regions, which resulted in over 60 SME trainers being trained and certified.

Global Entrepreneurship Monitoring. The Global Entrepreneurship Monitoring (GEM) Project (www.gemconsortium.org) is one of the largest and most preeminent surveys of entrepreneurial activity in the world. A private-sector global initiative founded by the London School of Economics and Babson College in Massachusetts, GEM focuses on three main objectives:

1. Measuring differences in the level of entrepreneurial activity between countries.

2. Uncovering factors determining the levels of entrepreneurial activity.

3. Identifying policies that may enhance the level of entrepreneurial activity.

KSBD technical assistance enabled Kazakhstan to include its data and findings in the 2007 GEM report, which compared Kazakhstan’s entrepreneurship data to roughly 50 other countries, including the US, the United Kingdom, China, Canada, Japan, Ireland, Finland, Norway, Poland, Croatia, etc. – in other words, a number of countries considered among the top 50 competitive economies. KSBD sponsored two international study tours to train the Kazakhstan GEM Team in the methodology and to attend the annual GEM coordination meeting. The first, a trip to the GEM London center to provide the Kazakhstan GEM team with survey methodology and toolkit, took place in Year 1 (January 2007). The GEM report was completed by the Innovative Eurasia University of Pavlodar, and a household survey was undertaken by Brif Marketing Research Group; both of these organizations are Kazakh institutions that were competitively selected to do the work. The GEM survey was accomplished in two stages through a National Expert Survey and an Adult Population Survey. This work took the KSBD Project and its local GEM partners into all oblasts of the country and provided the results described below.

The National Expert Survey and ranking of factors affecting entrepreneurship activity showed that, according to Kazakhstan’s established social and cultural norms, entrepreneurship is a respectable occupation; proper attention is paid to the issues of developing entrepreneurial initiative; there is no difficulty in obtaining access to industrial infrastructure (transport, communication, etc.) and there are efficient programs that support small businesses. However, the survey also revealed that challenges to entrepreneurial activities remain, including a lack of access to capital, inadequate business skills and knowledge of Kazakhstan SMEs, and substandard enforcement of existing legislation. These areas were deemed priorities for refocusing further SME support strategies and policies.

The Adult Population Survey provided a breakdown of entrepreneurship in Kazakhstan into early-stage entrepreneurs, established businesses, innovative entrepreneurs, and high-

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 7 expectation entrepreneurs; this breakdown was then compared to Kazakhstan’s economic development. A portrait of the Kazakhstan entrepreneur was given in terms of the existing business environment, and policy recommendations were made by the Kazakhstan GEM Team, including the design of policy programs to target high-growth and high-expectation entrepreneurship. The survey illustrated that, on average, entrepreneurs in Kazakhstan have less education than the general population. This could indicate that many individuals become entrepreneurs out of necessity rather than by choice and could prevent entrepreneurship from becoming a driving force in the national economy for innovative, diversified, and competitive firms. It also implies that entrepreneurs should be provided with greater access to the knowledge and skills needed to manage their enterprises.

SME Development Best Practices Secured through KSBD Study Tours: KSBD organized and led two study tours – one to Bulgaria (May 29 – June 3, 2007) and the other to Poland (June 24 – July 4, 2007) – to enable public and private sector leaders to learn about support mechanisms for SMEs based on best international practices in other countries. The study tour to Bulgaria involved 12 representatives from the MIT, Ministry of Economy and Budget Planning (MEBP), EDF/DAMU, business associations, and SME consulting companies who paid to attend as well as two government leaders sponsored by KSBD, for a total of 14 participants. The Poland study tour was attended by 8 Kazakh representatives, including high-ranking officials from the Prime Minister’s Chancellery, the Chairman of EDF/DAMU, and the MIT.

During the Bulgarian study tour, MIT officials attended a microfinance conference at which Kazakhstan formally requested to host the World Microfinance Conference in 2009. As a result of this study tour, EDF/DAMU revised its credit program to work through commercial banks instead of direct lending. This new, more efficient approach garnered EDF/DAMU an additional $100 million for its lending program. In addition, the study tours led to actions and follow-up steps in areas such as outsourcing SME development to the private sector, launching an annual debate on SME activities and policies, and developing organizational sustainability.

Institutional Capacity Building. KSBD completed assessments of SME needs as well as an assessment of EDF/DAMU (formerly the SMEF). Both assessments indicated that KSBD should partner with and provide support, training, and capacity development to EDF/DAMU. A short-term technical advisor (STTA) spent a month interviewing management and key personnel of EDF/DAMU, reviewing its organizational structure, internal procedures, and financial statements. After analyzing DAMU’s five-year development plan, the consultant identified risks for distorting the credit market and creating false economies. KSBD provided support to EDF/DAMU through study tours and consulting assignments; beginning in Year 1, EDF/DAMU key personnel participated in five study tours. The first, in June 2007, focused on learning about SME development policies in Poland. Best practices learned resulted in the new EDF/DAMU Enterprise Development Center (EDC) concept that came into fruition in September 2010; this concept is based on outsourcing SME consulting, training and research services to private sector business service providers. In Year 1, EDF/DAMU was reorganized to provide the core institutional structure for SME support in the country and requested USAID support for developing an SME and Entrepreneurship Policy for Kazakhstan. KSBD GOK advisors provided EDF/DAMU with an ongoing review, contributed to strategies and policies (SME Strategy, EDC Concept, DAMU Development Strategy), and provided advice on best practices.

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 8

Access to Credit Assessment. From November 2006 through January 2007, a senior team from the People’s Group Ltd., a US-based consulting company and subcontractor to Pragma under KSBD, performed an Access to Credit Assessment. This assessment included surveying Kazakhstan’s commercial banks, the First Credit Bureau, an association of financial institutions, leasing firms, investment funds, the Kazakhstan Financial Supervision Agency, industry associations, and international development institutions. The team’s findings were as follows:

Second tier commercial banks have not yet developed an effective and prudent banking strategy for providing products and services to the growing SME sector.

Existing commercial bank financing of SMEs is limited to large SMEs located in large urban areas and their neighboring environs.

Banks understand their weaknesses in financing SMEs, and some want to build stronger SME loan portfolios.

There is a shortage of resources and personnel for training borrowers.

First Credit Bureau intends to extend its products in areas that will be useful for SMEs.

SMEF (now EDF/DAMU) should reorganize to focus on lending to micro-finance institutions (MFIs) and should provide guarantees to encourage banks lending to new markets.

On the basis of these findings, KSBD issued the following recommendations:

Provide technical assistance to SMEs and commercial banks to accelerate the development of the model approach for prudent SME lending in Kazakhstan.

Develop a comprehensive SME marketing campaign centered on the KSBD SME workshops.

Provide technical assistance to First Credit Bureau to enable it to consider a full array of business and credit service products that will enhance a business’s ability to provide goods and services to the buying public.

Assist First Credit Bureau, the Financial Institutions Association, and other financing industry trade associations to further develop a self-sustaining loan officer training program.

Assist SMEF (now EDF/DAMU) to develop a strategic plan and procedures as well as required technical assistance to implement their new mandate to lend to MFIs and provide guarantees to expand bank lending to SMEs.

As a result of this survey and recommendations, EDF/DAMU organized and launched the national “Business Advisor” SME training and education campaign in Year 2, which reached all 209 remote districts, 14 regions, and Almaty and Astana. A professional market survey by the BISAM research agency identified feedback, SME needs, and issues of beneficiaries.

SME Consultant Certification Program. During Year 1, KSBD designed and began implementing a certification program for SME consultants in four locations (Karaganda, Shymkent, Aktobe, and Astana). This program is based on models from the UK and Japan and is linked to the international Certified Management Consultant (CMC) designation under the International Council of Management Consultant Institutes (ICMCI).

The Kazakhstan Association of Certified Management Consultants (KACMC) was established before KSBD started, and KSBD began working to help KACMC expand its activities and membership to the regions. The founder of the Association, Mr. Mukhtar Mussabetov, is the

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 9 only CMC in the region, and has his own consulting firm. However, he had established KACMC for consultants for large-scale extractive industry enterprises rather than for SME consultants.

Since KSBD interests and funding requirements did not match those of KACMC, there was not much common ground for collaboration. KSBD did subsidize several study tour trips for Mr.

Mussabetov and arranged meetings for him with KSBD BSP network in the regions to introduce KACMC and its goals and objectives—as well as the need for the CMC program; however, the high membership fees and complicated certification requirements of this organization did not attract the regional BSPs to the association. KSBD sponsored Mr. Mussabetov and a KSBD Business Advisor from Kazakhstan to attend the biennial ICMCI Congress in Dublin to meet with other consulting associations, particularly those from Eastern Europe and the former Soviet Union, and to discuss implementation of the CMC program. This trip resulted in KACMC receiving provisional ICMCI (International Council of Management Consulting Institutes, UK) membership in December 2007, the first step toward full ICMCI membership.

KSBD assisted KACMC with developing a Strategic Action Plan for full membership. ICMCI full membership requires pre-assessment, a comprehensive audit, and the development of the codes and procedures, and ultimately, KACMC was unable to find an investor o help fund these items.

On a more successful note, KSBD initiated and developed a 24-hour training course called Consulting Essentials, based on the British model of a 3-tier certification for management consultants. Consulting Essentials, which covers material found in the first stage of this certification program, was adapted to the local market by the Almaty private consulting company Business Consulting & Training, with support from KSBD local and foreign experts.

The Consulting Essentials training modules include the definition and role of management consultancy; the consulting services market, consulting skills, and knowledge requirements; the consultancy cycle; client relations; communication in consultancy; effective project management, delivery, and monitoring; and structured knowledge and research and analysis tools. The product is useful not only for practicing consultants, but also for governmental officials and banking industry specialists who deal with SME consultants. Evaluations by 112 participants indicate that middle and top-level consulting firm managers who passed the course greatly appreciated the applicability of the course in their everyday work. Trainees were informed about requirements for the international SME consultant certification program, and were encouraged to obtain it on an individual basis through the ICMCI.

ExxonMobil GDA Training Program. In June 2007, the Global Development Alliance (GDA) between ExxonMobil/USAID and KSBD ended as scheduled. During the two years of the GDA, 2,265 participants in the Astana area received business training, of which 81% were women. Consulting assistance from KSBD local consultants was provided to 68 SMEs who reported that their financial data indicated an average annualized sales increase of 70%, and an average annualized productivity increase of 110% as a result of the program. ExxonMobil approved two grant requests, submitted by local training providers with KSBD assistance, to continue the training program based on the Business Essentials courses developed by KSBD.

This demonstrates how two local training providers were able to leverage KSBD assistance to develop into self-sufficient, sustainable organizations.

USAID/GOK KSBD Project, implemented by Pragma - Final Report- October 2006-September 2010 10

3.0. Year 2 Implementation: October 2007 – September 2008

Year 2 activities built on the successes of Year 1, focusing on SME best practices, increasing the capacity of BSPs, and the Business Essentials training course.

SME Development Best Practices. A number of international study tours were designed and implemented by KSBD for GOK officials and private sector players during the course of the KSBD program. Through these study tours, SME development best practices learned from Eastern Europe, the UK, and the US were integrated into the work of various GOK working groups and government strategic documents and initiatives.

In November 2007, a tour to Bulgaria allowed GOK and non-governmental representatives to study outsourcing, entrepreneurship education, and credit risk management and economic analysis. As a result of what was learned during the study tour, EDF/DAMU decided to purchase risk management software and analytical tools worth close to $100,000 on the market in Kazakhstan. In addition, EDF/DAMU was provided with additional reasons to outsource SME credit lines to independent credit institutions.

Best practices in micro-lending were learned through a study tour to Hungary in June 2008. As a result, the GOK’s Microfinance Working Group requested KSBD assistance in drafting a savings cooperative bill concept.

A study tour to the US SBA in July 2008 was funded in part (50%) by EDF/DAMU. Prior to the trip, EDF/DAMU worked with KSBD on designing a plan to develop EDCs to provide additional assistance to SMEs through services outsourced through commercial BSPs. This plan was further refined as a result of the knowledge gained during the study tour. EDF/DAMU’s State holding company, Samryk-Kazyna, approved the EDC concept. The SBA donated to EDF/DAMU background materials and sample contracts with commercial banks worth $80,000 if procured from Kazakhstan market of legal services. On the basis of the July 2008 trip, DAMU decided to finance a follow-up visit to the US SBA and the EDC concept was approved and refocused to outsourcing SME consulting, training, and research services to the private sector.

KSBD designed and organized the SBA follow-up trip for January 2009. This trip was designed for EDF/DAMU Regional Branch Office Directors to learn about best practices from the SBA Small Business Development Centers Network.

KSBD Program to Increase the Capacity of Business Service Providers. The program to provide training and consulting services continued to expand in Year 2, increasing the KSBD network of BSPs from 4 to 53 in 12 of the 14 oblasts and the two city administrative units of Kazakhstan (Astana and Almaty). As mentioned earlier, KSBD released an RFP in January 2007 and selected the first four BSPs (Karaganda Association of Entrepreneurs, Business Incubator Sodbi in the South Kazakhstan, SME Development Center in Aktobe, and AMFOK in Astana). In Year 1, KSBD paid 100% of the costs of the first four TOTs and generated a pool of 60 trainers. During Year 2, the next stage of disseminating knowledge among SMEs of the respective regions was co-funded by KSBD and the BSPs; the courses were delivered to SMEs on commercial basis. KSBD developed training modules and trained the trainers; each training module has a specific toolkit with electronic models for basic financial statements analysis, strategic action plans, and marketing plan templates.

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KSBD also worked to develop public-private partnerships (PPPs) with foreign and domestic companies, national and local government agencies, and associations to leverage more resources for KSBD training and consulting activities. As a result of these efforts, KSBD raised almost $520,000 in cash and in-kind contributions, broken down as follows:

$320,840 from ExxonMobil (two grantees in Astana: Turan-Profi and SME Federation) $80,000 from the European Bank for Reconstruction and Development (EBRD) (cost coverage for implementing Core Consultancy Skills training) $12,380 BSP contribution to TOTs $26,905 BSP contribution to retail trainings $27,878 in GOK (seven organizations) contributions to establish and operate seven EDCs in Shymkent $8,050 from the SME Department to cover all costs for the Institute of Professional

Accountants to conduct five retail trainings in the Karaganda region $40,000 from the Alim Holding Group to establish a new training/consulting center in

Uralsk using KSBD products $1,900 from the West Kazakhstan SME Department to provide premises for TOT in Uralsk

The BSP capacity building program began the development of the Business Essentials short SME training modules and the delivery of the associated series of TOT sessions in every oblast of Kazakhstan.

Business Essentials Training Course. KSBD consultants developed a 128-hour Business Essentials course to assist SME managers and SME-oriented consultants. The courses were based primarily on the trainings developed under the earlier USAID SME Development and Enterprise Development projects, which provided direct consulting services and training to SMEs for more than six years throughout Kazakhstan and other Central Asia Republics. The Business Essentials course covers the basic operational areas of SMEs through guided learning in six main SME business disciplines:

Strategic and Business Planning, 24 hours Finances for Non-Financiers, 24 hours Marketing & Sales, 24 hours Quality Management Basics, 24 hours Human Resource Management, 16 hours Tax & Law, 16 hours.

KSBD reviewed and revised these modules to include as many practical concepts and tools as possible for trainees. Each module includes SME tools developed under the USAID Enterprise Development Project (EDP) and tested on over 1,600 SMEs in Central Asia. The SME Toolkit includes, for example, a Strategic Action Plan template, Key Monitoring Ratios, and a Marketing Workbook for assessment and planning. The Business Essentials course can be delivered in three languages: Russian, Kazakh, and English.

All KSBD training products have two levels of certification, an attendance/participation certificate and a competency certificate. The latter, issued by KSBD only, has a unique number and is kept in a database of certified trainers. Each module includes an attestation (testing) component that tests the participant’s mastery of the key competencies targeted by the course.

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Successful completion of the attestation component of each course demonstrates the targeted competencies have been mastered and 100% participation is mandatory for this type of certificate.

The quality of the Business Essentials course was tracked by KSBD specialists through a monitoring and evaluation (M&E) set of measures that included random checking of the attestation documents; field visits; calls to participants; interviews with trainers; and mandatory collection of feedback forms and their processing and storage in the database. In addition, the Business Essentials courses were regularly updated based on feedback from trainers and participants and, particularly in the case of the Tax & Law module, based on legislative changes and the development of SME consulting services in Kazakhstan. Initial feedback obtained by KSBD through calls, visits, and interviews was related to improving the content of the training modules, and has been incorporated into the new version of Business Essentials. Feedback helped KSBD rank the business trainers and select the most competent trainers for further TOT programs in the remaining regions of the country. Many practical case studies and exercises were received through M&E activities. Another purpose of M&E activities was to ensure that BSPs actually delivered the training sessions as claimed, especially in remote rural settlements, and that donor money was being spent for the expected product.

According to beneficiaries, the SME Toolkit proved to be very helpful. Many training programs are considered by participants to be too theoretical and academic, without enough practical aids. The SME Toolkit is a set of simple Excel-based templates that can be used by someone without an in-depth educational background to interpret and understand key financial statements; track cash flow; compile a basic marketing, strategic, or business plan; or outline and analyze business processes. The feedback from participants about the Toolkit was extremely positive.

4.0. Year 3 Implementation: October 2008 – September 2009

The third year of KSBD (October 2008 – September 2009) was affected by the global economic crisis. As the crisis gained momentum, Kazakhstan was obliged to implement a sudden 30% devaluation of its currency. The financial sector suffered severe liquidity problems, largely because of its reliance on overseas funding for lending, and two banks were nationalized. In addition, the economy and government finances were rocked by the precipitous decline in the price of oil, Kazakhstan’s principal export and source of taxes. Foreign companies, particularly those in the oil and gas sector, were forced to undertake extensive layoffs and other cost-cutting measures, including cutting back or delaying vendor development and social programs.

The effects of the crisis on KSBD included the postponement of the financing of government programs to assist SMEs because government attention was diverted to developing emergency measures to deal with the crisis, such as stimulus financing in the construction and real estate sectors. There were also delays in corporate sponsor programs to support SME development;

severe constraints on access to credit for SMEs that were only partially offset by EDF/DAMU’s enhanced loan program; and a generally reduced effective demand for SME services, particularly in the regions. Even as the financial downturn was reducing the affordability and availability of SME support programs, it was making the need for such support more urgent and acute.

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KSBD GOK support focused on sustaining the achievements of the Entrepreneurship Development Department (EDD) – originally under the MIT, but now under the Ministry of Economy and Budget Planning (MEBP) – and promoting the enhanced capacity of EDF/DAMU.

Cooperation was improved as a result of a change in leadership at EDD; the new, highly progressive and enthusiastic director was interested in getting as much assistance from KSBD as possible. The KSBD Senior Government Advisor provided technical assistance to EDD in drafting, submitting, and presenting amendments to the Private Entrepreneurship Law (PEL) to Parliament regarding adopting improved SME definitions in compliance with the OECD;

determining rights and duties of government SME bodies; creation of a comprehensive annual report on SME development in the country; and liberalizing the procedures involving businesses in SME policymaking.

KSBD also provided technical assistance to EDF/DAMU in implementing an additional $1 billion SME loan program through commercial banks. This program has played an important role in the economic crisis as credit for SMEs became scarce.

Study Tours. In May 2009, KSBD provided financial support for GOK officials to attend the micro-finance conference in Belgrade, Serbia. The primary purpose of the trip was to negotiate the organization of the 2010 International Microfinance Conference in Astana, Kazakhstan. In January 2009, KSBD also co-financed a second US study tour for EDF/DAMU management and regional managers to review the programs and institutional framework of the US SBA. As a result of the US study tours, EDF/DAMU revised its concept on entrepreneurship development centers to focus on using a public private partnership approach; matching public and private funding and initiatives; and cooperating with private sector on competitive basis. DAMU’s management also decided to revise the structure and the content of its website on the basis of the SBA model (www.fund-damu.kz). Also due to the SBA study tour, EDD requested and received KSBD training for its staff in the SBA’s Office of Advocacy regulatory impact analysis.

Regulatory impact analysis is part of Kazakhstan’s national legislation, and the Ministry of Justice had been assigned the lead role. However, no progress had been made in this area because of a lack of understanding and proper enforcement. EDD Director, Mr. Akberdin, was trying to change this and, after his trip to the US, initiated this work within the MIT.

STTA to EDF/DAMU Loan Guarantee Program. At EDF/DAMU’s request, a KSBD STTA developed a loan guarantee program based on the SBA model.