The COVID-19 crisis has given renewed urgency to efforts to support the digitalisation of SMEs. However, many SMEs lag behind larger firms in the digital transition as a result of important barriers with respect to skills, innovation, infrastructure, regulation and finance. The SME digital gap slows productivity growth and increases inequalities among people, firms and places. In this context, the Government of Azerbaijan requested the OECD’s assistance in supporting the design and implementation of strategies and policies to foster the digital transformation of Azerbaijan’s SME sector.
Promoting Enterprise Digitalisation in Azerbaijan
Abstract
Executive Summary
Azerbaijan’s economy was significantly affected by the COVID-19 pandemic. In 2020, Azerbaijan’s gross domestic product (GDP) contracted by 4.3% due to the economic shock of the pandemic and related business closures. The crisis has had a particularly negative impact on small and medium-sized enterprises (SMEs), which remain an untapped source of economic development in Azerbaijan with only 14.9% share of value added and 45% share of employment in 2019. This is a significantly lower contribution compared to OECD and other Eastern Partnership (EaP) countries.
Since 2015, Azerbaijan made significant progress in improving the business environment for SMEs, by reforming the operational and regulatory environment and strengthening the institutional support for SME development through the establishment of the Small and Medium Business Development Agency and the Innovation and Digital Development Agency. However, a significant gap remains with regards to the digital transformation of SMEs. A discernible digital divide still exists within Azerbaijan, with relatively low levels of broadband connectivity and significant regional differences. Moreover, digital skills gap among the population and, in certain areas, the slow pace of regulatory environment reforms prevent more rapid adoption of digital solutions by SMEs and the general population. SMEs in Azerbaijan are also lagging behind regional peers and OECD members in adopting digital solutions and the range of support services offered for SMEs aimed at promoting digitalisation in non-information and communication technolgy (ICT) sectors remains limited.
While several strategic policy documents envisage implementation of policies supporting digitalisation, a national digitalisation strategy has not yet been adopted, which prevents a more comprehensive and co-ordinated approach to SME digitalisation. Digitalisation has the potential to help SMEs tap into new markets, lower operational costs, increase productivity and ultimately boost their profitability and competitiveness. Promoting SME digitalisation calls for measures that will improve policy co-ordination, enable SMEs to access digital infrastructure, improve regulatory environment, boost digital skills and provide SMEs with targeted financial and non-financial programmes boosting adoption of digital solutions.
