A small business is not necessarily a good thing
According to a World Bank study of developing countries in Europe and Central Asia (ECA), having too many small businesses is not necessarily a good thing.
The bank’s survey, titled Accelerating Growth through Entrepreneurship, Technology Adoption, and Innovation, identifies Caucasus and Central Asian states as having problematic business environments, in terms of a country’s ability to move upward from middle-income to high-income status.
“Business dynamism has slowed down, and resource reallocation has shown signs of weakness … because of slower progress on structural reforms and a more challenging global environment,” the report states. “If the middle-income countries in the [ECA] region are to achieve high-income status, their economies must become more dynamic.”
The report notes that Caucasus and Central Asian states, which are all in the ECA middle-income category, tend to have lots of businesses per capita, but they “generate fewer jobs than they do in countries elsewhere at the same income level.”
Georgia, for example, has about the same number of businesses per capita as does Finland, but the number of employees at firms in Georgia is about two-thirds as those in Finland. Both Georgia and Kyrgyzstan are cited as countries in the ECA area where “firms produce far fewer jobs per capita than expected.”
“Employment density [for middle-income ECA states] falls below what might be expected for economies with many enterprises,” the report states. “The shortfall stems from insufficient expansion among firms … which prevents them from achieving the scale observed in higher-income countries.”
Medium and large enterprises (classified as those firms with 50-plus employees) are the main drivers of growth, the report states, and more are needed to provide mass employment for growing populations, especially in Central Asia.
Productivity is a major issue for firms in the Caucasus and Central Asia.
The bank report recommends that the comparatively more dynamic economies in the Caucasus and Central Asia – Armenia, Georgia and Kazakhstan – place greater “emphasis on integrating global technology, expertise, and capital … while establishing the basis for promoting innovation by increasing private investments in R&D and more closely connecting public research investments with the needs of private firms.”
