The extent to what the financing instruments needed by a selected group of SMEs matches with the financing instruments accessible to this group of SMEs

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Financing instruments needed by, and accessible to, Dutch SMEs in Russia, Ukraine, and Kazakhstan

The extent to what the financing instruments needed by a selected group of SMEs matches with the financing instruments accessible to this group of SMEs

Anne Kloosterboer 1144405

University of Groningen Faculty: Business Administration

Specialization: Financial Value Management

Advisors: Dr. W.W. Westerman (1

^st

RUG)

Mr. Drs. H.A. Ritsema (2

^nd

RUG)

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2.1.2 General characteristics of the three focus countries 22 2.2 The business environments of the three selected countries 23 2.2.1 The financial situation in Russia, Ukraine and Kazakhstan 23 2.2.2 Corruption and crime in Russia, Ukraine and Kazakhstan 24 2.2.3 Judiciary in Russia, Ukraine and Kazakhstan 25 2.2.4 Regulation in Russia, Ukraine and Kazakhstan 25 2.2.5 Taxation in Russia, Ukraine and Kazakhstan 26 2.2.6 Infrastructure in Russia, Ukraine and Kazakhstan 26

2.3 Conclusion 26

3 Financing instruments accessible to SMEs in the three focus countries 28

3.1 Introduction on financing instruments 28

3.2 Debt instruments for SMEs in the three countries: loans 30

3.2.1 Loans in Russia 31

3.2.2 Loans in Ukraine 38

3.2.3 Loans in Kazakhstan 40

3.3 Debt instruments for SMEs in the three countries: leasing 42

3.3.1 Leasing in Russia 42

3.3.2 Leasing in Ukraine 42

3.3.3 Leasing in Kazakhstan 42

3.4 Equity financing instruments for SMEs in the three countries; venture capital 42

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3.4.1 Venture capital in Russia 42

3.4.2 Venture capital in Ukraine 42

3.4.3 Venture capital in Kazakhstan 42

3.5 Hybrid instruments for SMEs in the three countries; subordinated loans 42

3.6 Conclusion 42

4 The characteristics of the selected group of SMEs and their investments 42 4.1 Characteristics influencing financing instruments needed 42 4.2 Introduction on the selected group of SMEs 42

4.3 Analysis of the SMEs’ characteristics 42

4.3.1 History 42

4.3.2 Nature of the firms 42

4.3.3 Juridical structure and ownership 42

4.3.4 Management and organization 42

4.3.5 Objectives and strategies 42

4.3.6 Markets and environment 42

4.3.7 Financials of the firms 42

4.4 Analysis of the investments’ characteristics 42

4.4.1 Type of investments 42

4.4.2 Characteristics of the investments 42

4.5 Conclusion 42

5 Financing instruments needed by and accessible to the selected group of SMEs 42 5.1 Theories on type of financing instruments needed 42

5.1.1 Life cycle theory 42

5.1.2 Pecking order theory 42

5.1.3 Control theories 42

5.1.4 Agency theory 42

5.1.5 The transaction cost theory 42

5.1.6 Comparison between theories 42

5.2 Financing instruments needed by the selected group of SMEs 42 5.2.1 Financing instrument needed based on firm’s and owner/manager

characteristics 42 5.2.2 Financing instruments needed based on investment characteristics 42 5.3 Preliminary analysis of the match between financing instruments accessible

to, and needed by, the selected group of SMEs 42

5.3.1 Financing instruments needed by, and accessible to, the selected group of SMEs in Russia, Ukraine and Kazakhstan 42

5.3.2 Qualifying conditions for accessibility of financing instruments 42 5.3.3 Implications of qualifying conditions of financiers on accessibility

of financing instruments 42

5.4 Conclusion 42

6 Case research and forum discussion 42

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6.3.1 Analysis of the firm’s characteristics 42 6.3.2 Analysis of the investment’s characteristics 42 6.3.3 Financing instruments needed and accessible 42

6.4 Case Company C 42

6.4.1 Analysis of the firm’s characteristics 42 6.4.2 Analysis of the investment’s characteristics 42 6.4.3 Financing instruments needed and accessible 42

6.5 Lessons learned from the cases 42

6.6 Forum discussion 42

6.7 Conclusion 42

7 Conclusions and recommendations 42

7.1 Conclusions 42

7.2 Recommendations 42

7.2.1 Recommendations for the unit FAS 42

7.2.2 Recommendations for scientists 42

7.2.3 Recommendations for other stakeholders 42

Figures and tables:

Figure 1.1 Relations between research questions 12

Figure 1.2 Information strategy with regard to the assessment of financing instruments for SMEs 17 Figure 1.3 Information strategy with regard to the assessment of the selected group of SMEs’ needs

related to financing instruments 18

Figure 1.4 Structure of the research 21

Figure 3.1 Lending environment in Russia 35

Figure 3.2 Buyer’s credit at an investment bank 37

Figure 4.1: Characteristics influencing financing instruments needed 42

Table 4.1 Dutch FDI in Russia, Ukraine and Kazakhstan 42

Figure 4.2: Characteristics of Dutch entrepreneurs going international 42

Table 4.2: Stages of firms in their life cycle 42

Table 5.1 Theories on financing instruments needed summarized 42

Figure 5.1: Conceptual model of financing instruments needed by, and accessible to SMEs;

an integration of theories within figure 4.1 42

Table 5.2. Comparison of theory with selected group of SMEs' financing needs 42 Table 5.3 Financing instruments needed by the selected group of SMEs 42 Table 5.4 A comparison between financing instruments needed and accessible (locally) 42 Figure 5.2: Qualifying conditions of finance providers in Russia, Ukraine and Kazakhstan 42

Table 6.1 Case-firms’ basic characteristics 42

Figure 6.1: Steps taken in search process for funding for investment in real estate of Company A 42

Table 6.2. Comparison between needs for types/source of financing instruments according to theories

and Company A 42

Figure 6.2: Step(s) taken in search process for funding of Company B 42

Table 6.3 Comparison between needs for types/sources of financing instruments according to

theories and Company B 42

Figure 6.3 Steps taken in search process for funding for investment in equipment by director

of Company C 42

Table 6.4 Comparison between needs for types/sources of financing instruments according to theories

and the director of Company C 42

Table 6.5 Outcomes forum discussion 42

Figure 7.1 Adapted conceptual model of financing instruments needed by, and accessible to SMEs 42

Figure 7.2 Interrelated sub-conclusions of the research 42

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The creation of this thesis

Rotterdam, 28

^th

of August Creating a thesis is like cooking without a recipe

Some seven months ago the unit FAS and I raised the idea to create this thesis. However no recipe for the preparation of it had been developed yet. But, with a handful of knowledge in storage and a very well equipped kitchen at my disposal, preconditions were well enough to actually start on creating it. For the development of the recipe, first many cooking books and cooking sites had to be checked on the basic ingredients, to better understand what would be a good mixture to get the right taste of the thesis in the end. Many chef cooks were informed as well, to better understand the ins and outs of cooking a thesis like this one. After the basic recipe had been developed, the cooking could actually start. Very soon it became clear that hardly any premixes were available to use in the recipe, so all premixes had to be prepared as well. Gladly, under the assistance of internal as well as external chef cooks, cooking steps could be set. Of course, during the cooking, chef cooks did not only advise, but also tasted the sub-products. Discussion about flavors and additives followed.

Now, somewhat more than six months later, the final cooking product is there. I would like to especially thank the chef cooks Agnes Janszen, Jacqueline Barendse, Hans Verschoor and Joris Endel, for their supply of additives, as well as for their advise on cooking techniques, ingredients and the adjustment of the taste of sub products. I am very grateful to Wim Westerman, who also advised on the cooking techniques, just as he advised, together with Henk Ritsema, whom I am also thankful to, on the flavoring of this thesis. Special thanks go to Mindel van der Laar and Pieter den Hamer as well, for their provision of ingredients. Also, I would like to thank Arjan Stavast and Ines Rothmann for assisting in the seasoning of this thesis and Nick van der Lijn for the supply of a main additive.

Finally, because this final product wouldn’t have been there, if I wouldn’t have been inspired by my friends and family, I would like to thank them too.

I very much hope you all, as well as many others, will enjoy the final taste of this thesis!

Anne Kloosterboer

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Abbreviations

ADB Asian Development Bank

BSTDB Black Sea Trade and Development Bank

C.i. Confidential information

CEO Chief Executive Officer

CFO Chief Financial Officer

DEG Deustche Investitions- und

Entwicklungsgesellschaft

DNB De Nederlandsche Bank

EBRD European Bank for Reconstruction and

Development

ECA Export Credit insurance Agency

EVD Economische Voorlichtings Dienst

FAS Financial Advisory Services

FDI Foreign Direct Investment

FMO Netherlands Development Finance Company

H.c. Hard currency

IBRD International Bank for Reconstruction and

Development

IFC International Finance Corporation

IFI International Financial Institution

IFOM InvesteringsFaciliteit Opkomende Markten

IPO Initial Public Offering

KfW Kreditanstalt für Wiederaufbau

L.c. Local currency

LIBOR London InterBank Offered Rate

MBI Management Buy-In

MBO Management Buy-Out

N.a. Not applicable

NCH Nederlands Centrum voor Handelsbevordering

NEI Netherlands Economic Institute

PSO Programma Samenwerking Oost-Europa

ROI Return On Investment

RVCA Russian Venture Capital Association

RVF Regional Venture Fund

SEAF Small Enterprise Assistance Funds

SMEs Small and Medium size Enterprises

TA Technical assistance

U.k. Unknown

USAID US Agency for International Development

USD American Dollar

VC Venture Capital

WB World Bank

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Executive Summary

This thesis is the result of a research, which has been carried out for the University of Groningen and the unit Financial Advisory Services (FAS) of the division Macro and Sector Policies of ECORYS- NEI. The research has focused on financing instruments needed by, and accessible to, Dutch Small and Medium size Enterprises (SMEs) in Russia, Ukraine and Kazakhstan, which want to make capital expansion investments in the agro processing sector and the agro-sector related industry and trade (the selected group of SMEs). The purpose of this was to give FAS better insight in the needs of one of its main targets group of clients and of the accessible financing instruments in the three selected countries. Also, the research aimed to expand theoretical knowledge on needs for financing instruments from a SMEs’ perspective, since this subject has hardly been dealt with in theory. To reach these goals, the following primary research question was developed to guide this research:

To what extent do the financing instruments needed by a selected group of SMEs in Russia, Ukraine and Kazakhstan match with the financing instruments accessible to this selected group of SMEs?

The contexts of the three selected countries, where the SMEs are operating in, can be described by the characteristics of the countries’ business environments, of which main characteristics are:

financial situation, corruption, crime, judiciary, regulation, taxation and infrastructure. Taking into account the business environments of Russia, Ukraine and Kazakhstan, the business environments of these three prospective countries are characterized by severe corruption, underdeveloped laws, ineffective and inefficient functioning law enforcement systems, as well as underdeveloped financial systems, which constrain business activities of the firms. Not only the firms are constrained by these business environments, but these business environments also cause limited availability of financing instruments.

When considering the available financing instruments in the three countries, financing instruments were subdivided in the debt-instruments loans and leasing, the equity instrument venture capital and hybrids, because of similarities of their basic characteristics. These four types of instruments have been researched. Taking into account the available loans in the three countries, it can be observed that in all three countries loans are predominantly available for short terms. Long-term loans, generally up to three years, are however scarcely available as well. Long-term loans that are available are created through direct and indirect support of IFIs, donors and governments. However all loans in the three countries can only be obtained under high interest rates as well as severe collateral

requirements. Availability is relatively highest in Russia, than in Kazakhstan and than in Ukraine.

Leasing can rather well be accessed in Russia, to lesser extent in Kazakhstan, and least in Ukraine.

Leases can be obtained for longer terms than loans, but generally at higher costs and only re- deployable assets are fundable. Venture capital is to lesser extent available in Russia than previously, available in Ukraine, but constraint by limited availability of capital and hardly available in

Kazakhstan. Venture capital funds in the three countries focus on rather mature industries, on 3-5

years investments, and on obtaining minority part of the shares. Hybrids are not accessible for SMEs

in the three countries, but as an exception, the subordinated loan facility IFOM, which is solely

available to small and medium size subsidiaries and joint ventures of Dutch SMEs, can be obtained

for long-terms and for generally lower interest rates than local market rates to invest in the three

selected countries.

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(sole) owner and activities in the agro-processing sector and the agro sector related industry and trade, which are carried out in the beginning of the expansion stage of their life cycle.

Already carried out, currently planned, but predominantly potential capital expansion investments in plants, sales/maintenance centres, warehouses, equipment and transportation, are characterized by their investment size of between 50.000 USD and 2,5 million USD for terms of between 3 and 10 years, with high strategic value. Cash inflows of these investments are generally denominated in local currency, similar to business cash flows.

Based on these characteristics and insights from theories on financing instruments needed, the actual types and characteristics of the financing instruments needed can be determined. With regard to theories five main theories have been useful in this respect. The life cycle, the pecking order, the control, the agency cost and the transaction cost theory provide quite similar insight, although determining factors used are different. From these theories it can be learned that firms will prefer to use internal funds to fund investments. If internal funds are insufficient, debt-financing instruments are preferred. If debt-instruments do not correspond with the firms’ requirements, some theories argue, that under certain conditions, equity instruments can be an option, although other theories argue these instruments are no optional way of funding at all. Comparison between statements of theories, and actual behavior of the selected group of SMEs shows they pretty much align, although the reasoning, was other than reflected in theories mainly based on a preference of entrepreneurs towards attracting lowest interest and transaction cost debt-instruments first, when internal funds were insufficient. When interest costs and transaction costs of the accessible financing instruments became unacceptable and therefore no match was found with debt-instruments anymore, the selected group of SMEs was generally willing to attract those semi-equity instruments, which did not imply major loss of control. If those financing instruments could not be found, investments were bounced off or postponed.

Relating this information on financing instruments needed to the firms’, investments’ and owners/managers’ characteristics, shows that the selected group of SMEs needs preferably local currency denominated debt-instruments, which can fund non-re-deployable assets as well as re- deployable assets for the investments’ terms and amounts and at acceptable costs.

Comparing this information with the available financing instruments, it can be concluded that the

selected group of SMEs faces hard gaps (gaps because of unavailability of instruments), which are

locally predominantly related to the funding of real estate and the non-re-deployable equipment,

which are hardly fundable. Re-deployable equipment and transport are to some extent fundable, but

mostly terms are too short, amounts too low and interest and collateral unacceptably high. The in the

Netherlands provided IFOM-facility can match with the financing instruments needed, for those

companies, which can meet the IFOM-criteria. However, only part of the selected group of SMEs can

meet those criteria. Apart from these hard gaps, the selected group of SMEs faces major soft gaps

(gaps because of unawareness of instruments) as well, which are, although these gaps are company

specific, accounting for largest part of the selected group of SMEs, caused by insufficient financial

skills and capacity. This results generally in no match found between financing instruments needed

and accessible.

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1 Introduction

This chapter deals with the background and motives for writing this research, which is written in the framework of an internship. It aims to give a proper understanding of the meaning of the report for both practice and theory. The primary research question and the secondary research questions guiding this report will be introduced and the research methodology will be reflected on. Finally, the structure of the report will be explained.

1.1 Background of the research

The Small and Medium Enterprise (SME) sector can be considered the motor of an economy, among other reasons, because SMEs promote industrial and economic development through the utilization of local resources and provide good opportunities for job creation. Growth of this sector is important for growth of the economy of countries as a whole. In countries in transition growth of the SME sector can accelerate the development of the economy to great extent. Therefore factors constraining the growth of SMEs can be devastating for an economy. One of the main constraining factors in this respect is access to finance for SMEs. This subject will be discussed in this research.

This research will deal with the extent to what financing instruments accessible to SMEs match with the need for financing instruments of SMEs. This topic has been chosen on both motives from the unit Financial Advisory Services (FAS), which is partly owner of this research, as well as on motives derived from literature, which are of interest to the other main owner of this thesis; the University of Groningen. In the following sub-paragraphs attention will be paid to these motives.

1.1.1 FAS related motives for the research

This thesis has been written for the consultancy company ECORYS-NEI. This company focuses on applied economic research and consulting work including technical assistance, transfer of knowledge and training. Areas covered are economic and social policies, transport, logistics, finance and housing.

The direct principal of this research within ECORYS-NEI is the unit FAS, which is part of the division Macro and Sector Policies. FAS is focusing on advising Small and Medium size Enterprises (SMEs) in transition countries on financial issues. Its advice is mainly related to the creation of optimal funding packages for lasting investments of Dutch SMEs in transition countries. The funding packages can be created from different financing instruments such as different type of loans, leasing and venture capital.

In transition countries financial markets are generally underdeveloped, which results in shortage of financing instruments, especially financing instruments for SMEs. To improve this situation International Financial Institutions (IFIs), donors and governmental bodies are focused on the creation and evaluation of financing instruments to stimulate SMEs growth in countries in transition.

FAS is also carrying out researches in this respect.

A main target group of FAS is formed by small and medium size subsidiaries and joint ventures of

Dutch small and medium size companies in transition markets. FAS is serving this target group with

advice on how to create optimal funding packages for their local investments. To optimize the quality

of these financial advises, FAS wants to improve its knowledge on what financing instruments can

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In this research both these aspects will be looked at by zooming in on three transition countries in the New Independent States (NIS), namely Russia, Ukraine and Kazakhstan.

Apart from their status as being in transition, which creates economic opportunities, these three countries are chosen for two main reasons. Firstly, a recent trend in foreign direct investments of Dutch entrepreneurs is the shift to Eurasian countries further away from their home country, because of first mover advantages and good potential of these countries (See for example Country Commercial Guides of Russia, Ukraine and Kazakhstan). Secondly, Dutch entrepreneurs owing subsidiaries and joint ventures are mainly active in the agro-processing sector and agro-processing related industry and trade.

¹

Because these three countries are famous for their soft commodity production, resulting in good potential for local agro-processing companies and local agro-processing related industries, these countries are of extra interest.

²

For these two reasons, these three countries are in the commercial interest of FAS as well.

1.1.2 Theory and literature related motives for the research

The subject “financing SMEs in transition countries” is broadly and deeply discussed in theory.

However, the need for financing instruments from a SMEs perspective is still underexposed, since the majority of the studies looks at this financing topic from an investors point of view (Deng et al., 1991, Shanmugam and Bourke, 1992, Hall and Hofer 1993, Fried and Hisrich, 1994). Most authors conclude lack of access to finance is a major constraint for SMEs’ growth in many transition countries.

³

In their discussion they pay attention to the factors that cause this limited access to finance, and in their final conclusions they mostly come up with the suggestion that more financing instruments should be made accessible to SMEs. But, what financing instruments should be made accessible? In literature one can find discussions about the positive and negative aspects of different financing instruments, but a discussion of different financing instruments related to the need of SMEs in transition countries has hardly been there.

Because SMEs will only use those financing instruments, which they actually need, this topic is important to discuss as well.

Although literature is not dealing with this topic as such, some theories can be used as tools for this research. Later on in the report these theories will be introduced.

1.2 Research questions

1.2.1 Primary research question

Merging the motives for this research derived from theory and the unit FAS, one central question can be subtracted that will guide the topics dealt with in this research. This major research question is:

To what extent do the financing instruments needed by a selected group of SMEs in Russia, Ukraine and Kazakhstan match with the financing instruments accessible to this selected group of SMEs?

By the selected group of SMEs stated in this research question, the main target group of FAS, the small and medium size subsidiaries and joint ventures of Dutch small and medium size companies that are active in the agro-processing sector and agro-sector related industry and trade, are meant.

The research will focus on the capital investments these companies want to make to expand their

1 Confirmed by Annemarie Destree, country specialist on Russia of EVD Netherlands, Arjan Kuipers, commercial liason officer EBRD and Annelies Drost, Manager of Trust Funds from Senter Netherlands

2 Verheul, J. Rabo: Nederlandse bedrijven kiezen strategische markten in Oost-Europa, Doetinchem: Agrarisch Dagblad, part of Reed Business Information, March 24, 2003

3 See for example: Scholtens, B., “Analytical Issues in External Financing Alternatives”, Small Business Finance, 12: 137-148, 1999, Kluwer Academic Publishers, Netherlands, Klapper, L. et. all., Small and Medium size enterprise financing in eastern Europe, policy research working paper 2933, development research group finance, Washington DC: World Bank, December 2002

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business with other means than retained earnings, now or in the near future.

⁴

This group will be called the selected group of SMEs for the remainder of this research.

1.2.2 Secondary research questions

This primary research question can be subdivided into secondary research questions. The secondary research questions discussed in this research are:

1. What does the context for SMEs look like in Russia, Ukraine and Kazakhstan?

The answer on this question will pay attention to the historical background of the countries and their general characteristics to introduce the context of this research. Thereafter the business environments of the countries will be discussed in more detail, to give better understanding of the context in which the selected group of SMEs operate.

2. What are the main types of financing instruments available to SMEs in the three selected countries?

The investigation of the financing instruments will provide an overview and insight in the main type of financing instruments available to SMEs in the three countries. The discussion of the financing instruments will be guided by the business environments of the three countries as discussed in previous research question.

3. What are the characteristics of the selected group of SMEs and their investments?

The answer on this question will provide insight in the characteristics of the selected group of SMEs and their investments. These characteristics influence both financing instruments needed and financing instruments accessible. To protect for discussing irrelevant characteristics, or providing incomplete information, first attention will be paid to the discussion of what characteristics of the firms and their investments influence financing instruments accessible and needed.

4. What types of financing instruments with what sorts of characteristics does the selected group of SMEs need?

The answer on this question will link the characteristics of the selected group of firms and their investments with requirements of these firms towards the types and characteristics of the financing instruments needed. The scarcely available theories on firms’ needs for financing instruments are dealt with to add to the discussion.

5. To what extent are there gaps between the financing instruments needed and the financing instruments accessible to the selected group of SMEs?

This research question will look at gaps between the financing instruments needed and the financing instruments accessible to the selected group of SMEs. Gaps can be divided between soft and hard gaps. By hard gaps the non-existence of financing instruments needed is meant. Soft gaps are the result of a possible information barrier between firms and financiers, which can make firms unaware of the existence of some financing instruments needed. Both types of gaps will be identified. The answer on this question will be based on a confrontation between former research questions and on additional practical research.

1.2.3 Relationship and interdependencies between sub research questions

The above presented sub research questions are related to each other. The first research question

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financial systems, will influence to great extent what financing instruments are available in a country.

Therefore in research question two assumptions can be made about what instruments are likely to be available in one specific country, based on these characteristics. The assumptions can guide the further investigation of the available financing instruments for SMEs in the three countries. Than in research question three the characteristics of the selected group of SMEs and the characteristics of their investments will be assessed. The assessment will be guided by an initial investigation of those characteristics that are considered to influence the financing instruments accessible and needed.

The outcome of research question three will be both input for research question four and five. Based on research question three and additional theory on needs for financing instruments of SMEs conclusions can be withdrawn about what financing instruments are needed by the selected group of SMEs. Also based on research question three it will be possible to shift between the financing instruments locally accessible to SMEs in general and the financing instruments accessible to the selected group of SMEs. This will inform about the financing instruments actually accessible to the selected group of SMEs. Finally, in research question five information of research question three and four are confronted with each other, resulting in conclusions on to what extent there are soft and hard gaps between the need for financing instruments of the selected group of SMEs and the financing instruments that can be accessed by this group. Based on these questions discussed, finally the primary research question can be answered.

Figure 1.1 is a schematically presentation of the interdependencies between the research questions.

Figure 1.1 Relations between research questions

2. What are the main types of financing instruments available to SMEs in the three selected countries?

3.1 What are the (firms’) characteristics of the selected group of SMEs?

4. What types of financing instruments with what sorts of characteristics does the selected group of SMEs need?

3.2

What are the characteristics of the investments of the selected group of SMEs?

5. To what extent are there gaps between the financing instruments needed and the financing

instruments accessible to the selected group of SMEs?

1.What does the context

for SMEs look like in

Russia, Ukraine and

Kazakhstan?

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1.3 Relevance of the research

This thesis aims to not only support the financial advises of the unit FAS, but it also aims to be supplementary to the currently existing theory on financing SMEs, in order to add to the knowledge base of the University of Groningen.

Related to support of the financial advises of FAS aims include:

1. Broaden FAS’ knowledge of the financing instruments accessible to the selected group of SMEs in Russia, Ukraine and Kazakhstan by a description and listing of the main financing instruments that can be accessed;

2. Deepen FAS’ understanding of the selected group of SMEs’ perception on financing instruments needed and accessible;

3. Conclude about to what extent the financing instruments accessible to the selected group of SMEs (main target group of FAS) in Russia, Ukraine and Kazakhstan match with the need for financing instruments of this group for their (potential) capital investments.

These goals should finally add to an increase of business opportunities for FAS.

Related to the enrichment of the knowledge base of the University of Groningen the research aims to provide insight in the perception of SMEs towards the type of financing instruments needed. This can be interpreted, as going a step ahead of concluding that access to finance is constraining growth, because knowledge will be gained on what specific instruments are needed to give SMEs’ growth an impulse. This can add to a better understanding of the match between financing instruments needed by SMEs (from their perspective) and financing instruments accessible to SMEs.

1.4 Research characterization and research methods

This research can be characterized as being both a practical research (De Leeuw:1996) and an explorative research (Baarda en de Goede:1997). It is considered a practical research, because there is a concrete selected customer, which is ECORYS-NEI and more specifically the unit FAS. It is an explorative research, because not much theory has been developed yet with regard to SMEs’ needs for financing instruments.

A methodology that fits both practical and explorative researches is the qualitative research method.

According to Mason (1993) qualitative research can be a good method when there are relatively few theoretical concepts developed on a topic, as is the case in this research. By analyzing the needs for funding of entrepreneurs in the selected countries, an analysis of the vision of those entrepreneurs is needed. The human behavior of entrepreneurs in their daily life choices on funding will be taken into account, which makes qualitative research even more applicable, according to experts.

⁵

Because of the research’s qualitative nature, three types of qualitative research methods have been used to carry out this research. These research methods both supported and were supported by desk- research.

Firstly, to assess the financing instruments available for SMEs on the local markets the evaluation research method was used. According to Van der Zwaan (1990) evaluation research is systematically assessing data in order to be able to conclude about the extent to what certain goals are reached.

Systematically mapping the available financing instruments with their characteristics is part of the

evaluation research method, because based on these mapped financing instruments statements can be

made on the match between the available financing instruments and the needs for financing

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instruments of the selected group of SMEs.

⁶

To be more precise, by systematically checking financial institutions in all three selected countries on their financial products for SMEs, an overview of the available financing instruments for SMEs on the local market was obtained. A combination of this information, and information found by desk-research, formed the input for chapter three.

The second method was case-study research. This type of method is applicable when a present-day phenomenon needs to be analyzed in its current context (Yin:1994). Since information was necessary on what financing instruments the selected group of SMEs needed in practice, this method was very appropriate. Furthermore, because the case studies were held after the information of chapter four and five was obtained from desk-research, the case studies could also be used to test the previous outcomes derived from literature on their validity in practice. Since chapter three was already researched in depth, both by assessment of literature and practical research, this chapter was not tested by case studies anymore. Three cases of companies have been researched for this purpose.

The third method used was the arrangement of a group/forum discussion. Forum discussions are efficient ways to gather knowledge on a subject and are useful to check literature-based information on its validity in practice, just as the case studies. Based on these characteristics, the forum discussion could very well add to the quality of this research. To optimize outcomes of the forum discussion, the forum discussion was held after all other research was carried out. This made checking chapter four, five and six as well as cross checking some of the main conclusions of chapter three possible, which resulted in a more deeply understanding of the problems dealt with in this research.

1.5 Data sources

The data sources available for this research were limited. Therefore a profound information strategy has been used to obtain the appropriate information needed. This information strategy will be shortly discussed here.

With regard to information on financing instruments accessible, written information available was scarce. Often reports from the World Bank (WB) and European Bank of Reconstruction and Development (EBRD) were the only sources available, but sometimes also reports from ECORYS- NEI, other IFIs, donors, governments and independent research institutes could be used. These documents provided mainly general information on the topic. To be able to better understand the functioning of financing instruments in the context of the three countries, internal experts of ECORYS-NEI and the University of Groningen, as well as about 20 external experts were interviewed. This gave a more extensive insight in the subject.

Information on characteristics of financing instruments at individual financial institutions in the three countries was not available at all. Therefore over 40 credit experts of high quality financial institutions have been personally interviewed about the financing instruments accessible to SMEs at their institutions. Questionnaires were used to carry out this research, which are presented in the appendixes VIII, IX, X. The questionnaires were handled telephonically predominantly, often followed by intensive email correspondence.

Related to financing instruments needed by the selected group of SMEs, many different written sources have been combined, mainly previously carried out researches and existing concepts and theories. Additional information was gathered from the three case-firms. The information used in the description of the three cases was based on multiple sources, to guarantee a multi-angle perspective as well as to improve validity of the information. For this last purpose, the interviewees have also rechecked the presented facts in the case studies. The questionnaire used to guide the interviews, is presented in Appendix VII.

Apart from the cases also the forum discussion provided useful insights for the research. Based on pre-distributed propositions, two financial experts and 5 entrepreneurs, who directly worked with the selected group of SMEs or belonged to the selected group of SMEs, discussed about financing

6 This was confirmed by professor van der Zwaan in a face-to face meeting, May 2004

Comment [H1]:

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instruments accessible and needed in Russia. The outline of the forum discussion can be viewed in appendix VI.

Both the case studies and the forum discussion have focused on Russia only for the following reasons:

• Russia is in this report used as the base-case for Ukraine and Kazakhstan with regard to financing instruments. Information derived from the cases and forum discussion on Russia can be used to extract information from for the other two countries;

• Largest part of the selected group of SMEs is active in Russia;

• Focusing case studies and forum discussion on one country only makes results better comparable, which can consequently deepen knowledge of the problems dealt with in this research.

In the following figures 1.2 and 1.3 the information strategy, as has been briefly discussed in this

paragraph, is graphically presented.

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Information Strategy Operational steps Information sources Outcome

Step 2:

Identification of high quality financial institutions with financial products focused on SMEs in the three countries.

-Identification of SME programs of development banks and donors at financial institutions in the three countries;

-Identification of customers’ perception of financial institutions in the three countries;

-Checking rates of identified financial institutions.

List of high quality financial institutions with the SME products loans, leasing and venture capital in the three countries.

-Web-sites of development banks, donors, financial institutions and rating bodies;

-Direct contacts with project managers of the programs;

-In depth research on customer review of financial institutions in the three countries.

- Face-to-face and telephonically interviews with external specialists in the fields.

Step 3:

Assessment of characteristics of the SMEs’ financial products loans, leasing and venture capital at high quality financial institutions.

-Assesment of loan products at identified banks in the three countries;

-Assesment of leasing products at identified leasing companies in the three countries;

-Assesment of venture capital at venture capital mangers of identified venture capital funds in the

-Web-sites of financial institutions - Face-to-face and telephonically interviews with external specialists in the fields.

-Direct contact with large part of identified financial institutions; interviewing around

Outline of characteristics of loans, leasing and venture capital products for SMEs at high quality financial institutions in the three countries.

Step 1:

Identification of what type of financing instruments can be accessed by SMEs on transition markets like Russia, Ukraine and Kazakhstan

-Assessing literature on financing instruments in general;

-Assessing literature on financing instruments and accessibility to SMEs;

-Assessing literature on financing instruments for SMEs in transition countries, predominantly related to Eastern Europe.

-Written documentation on all topics, both from public sources as well as from documentation of ECORYS-NEI -Face-to-face and telephonically interviews with around 20 external specialists in the fields.

Loans, leasing and venture capital are to limited extent accessible to SMEs.

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Information Strategy Operational steps Information sources Outcome

Figure 1.3 Information strategy with regard to the assessment of the selected group of SMEs’ needs related to financing instruments Step 1:

Identification of

characteristics of firms’ and owner/managers and (potential) investments of the selected group of SMEs taking into account both

characteristics influencing financing instruments needed and accessible

-Identifying characteristics of firm’s , manager/owners and investments influencing financing instruments needed and accessible -Assessing information on Dutch FDI of SMEs to the three selected countries

-Assessing information on business activities in the agro-sector and agro-sector related trade and industry

-Assessing information on investments in the agro-sector and agro- sector related trade and industry

-Assessing the current market situations for the selected SMEs in the three selected countries

-Case-studies at three companies of the selected group of SMEs -Forum discussion with entrepreneurs of the selected group of SMEs

-Theory/concepts on characteristics of firms and financing instruments needed

-Company-lists of Dutch embassies in the three countries

-Statistics of DNB -EVD/Senter publications

-Written documentation from public available sources as well as from documentation of Ecorys-NEI and case-companies -Participants of case-studies and forum- discussion

Step 2:

Identification of relationship between the selected firms and the type of financing instruments needed

Outline of characteristics of the selected group of SMEs, inclusive those characteristics which influence financing instruments needed and accessible.

-Assessing theories that clarify about the type of financing instruments need

-Confronting theories and characteristics -Carrying out case studies

-Organization of forum-discussion

-

Written documentation on type of financing instruments needed

-Written documentation from public available sources as well as from documentation of Ecorys-NEI and case-companies -Participants of case-studies and forum- discussion

Description of financing instruments needed by the selected group of SMEs

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1.6 Conditions and scope of the research

Assumptions

The selected group of SMEs needs external finance to fund its investments;

The selected group of SMEs wants to finance its investments predominantly with means from formal financial institutions, rather than from informal sources;

The selected group of SMEs wants to expand its business now or in the near future by making capital investments.

Restrictions

This research will not focus on start-ups, but only on SMEs that are in business for minimally 1 year and that make or want to make investments to expand their business;

In the assessment of the financing instruments micro-finance instruments and instruments specially focused on seed-capital or start-up investments are excluded;

The research will only look at funding from the formal financial sector;

This research will not investigate short-term financing instruments;

The mortgage market is not discussed in this research;

The research will assess locally available financing instruments in particular;

The research will only focus on Dutch SMEs with small or medium size subsidiaries or joint ventures in the agro-processing business and the agro-processing related industry and trade;

⁷

Representative offices of Dutch SMEs in the agro-processing sector and agro-processing related industry and trade are not considered to be part of the group of SMEs, because companies should actively carry out business before they are expected to make expansion investments;

Only those trade-companies with fixed investments in local trade-infrastructure are considered to be part of the selected group of SMEs.

Definitions

Capital investment: investment in a capital asset or a fixed asset. Capital assets are all tangible properties that cannot easily be converted into cash and that are usually held for a long period of time for business purposes. Fixed assets are: long-term tangible assets kept for business purposes, which are not expected to be converted into cash in the current or upcoming fiscal year, such as manufacturing equipment, real estate and furniture;

⁸

SMEs: Small and medium enterprises are defined in many different ways. In this report the definition used by the European Commission will be used, which defines SMEs as: Small size enterprise: 2-49 employees, medium size enterprise: 50-249 employees;

⁹

Agro-processing sector: all firms that carry out activities that deal with processing natural products;

Agro-processing related industry and trade: all firms active in the trade and procession of agricultural machinery and equipment with fixed investments in the host-country;

Transition country: country in the process of a transformation from a command economy, towards a market economy;

¹⁰

High quality financial institutions are:

Institutions with following characteristics;

-Institutions cooperating with development banks and donors, because development banks

and donors check on financial institutions very thoroughly before starting cooperation as well

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as during cooperation, they assist the institutions with high quality advice and support the institutions financially;

-Institutions with good ratings, because for example Moody’s rating gives an indication of the quality of bank’s portfolio;

-Institutions popular with customers, because quality from the perspective of SMEs lies in quality of service as well.

1.7 Structure of the research

In chapter 2.1.2 the research questions guiding this report have been introduced. In carrying out the research different phases can be distinguished.

In the first phase, the inception phase, the context of the research will be explored; getting a sense of the business environment the companies are doing business in. After this inception phase, the analyzing phase will start with analyzing what instruments can be accessed by SMEs. In this phase also the characteristics of the selected group of SMEs with their investments will be analyzed, to give an initial idea about financing instruments for SMEs in the three countries and the nature of the selected group of SMEs.

In the second analyzing phase, the needs for financing instruments of the selected group of SME will be investigated. Based on this information and the information from chapter three and four, pre- analyses can be made on the match between the financing instruments needed by, and accessible to, the selected group of SMEs.

Than in the third analyzing phase the case studies will be carried out together with a forum discussion in order to gain additional information on the match (or mismatch) between the accessible financing instruments and the financing instruments needed by the selected group of SMEs.

Finally, the report will be finished with a concluding phase with conclusions and recommendations on the major research question.

The structure of the research is shown in the following figure 1.4.

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Inception phase Exploring the context

Primary Analyzing phase

Analyzing the research objects

Secondary analyzing phase theoretical analyses and in depth research of main research objects

Tertiary analyzing phase

Case studies

Concluding phase

Figure 1.4 Structure of the research

Research design + research methodology (Ch.1)

The context of Russia, Ukraine and Kazakhstan (Ch.2)

Financing instruments available to SMEs in the

three countries (Ch.3)

Literature on need for financing

instruments (Ch.5.1)

Pre-analysis on match between financing instruments needed by, and accessible to, the selected group of SMEs based on a

comparison between Chapter 3, 4, 5.1 and 5.2 (Ch.5.3)

Need for financing instruments of the

selected group of SMEs (Ch.5.2)

General characteristics of the selected group of

SMEs and their investments (Ch.4)

Field research: cases and forum discussion (Ch.6)

Answering the main research question, conclusions and

recommendations (Ch.7)

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2 The context for SMEs in Russia, Ukraine and Kazakhstan

In this chapter the context for SMEs in the three selected countries will be discussed, in order to clarify about the influencing characteristics of the countries’ environments on the SMEs’ business operations. In the first paragraph of this chapter the three countries will be shortly introduced, where after a discussion of the countries’ business environments will follow in the second paragraph.

2.1 Introduction on the three focus countries

In this paragraph, firstly the historical background of the three countries will be discussed, since the history of these three countries is the basic framework for understanding the characteristics of the countries and their business environments later on. Secondly, the general characteristics of the countries will be dealt with.

2.1.1 Historical background

The three focus countries were all part of the former Soviet Union. In its final decades of its existence, the Soviet Union consisted of 15 Soviet Socialist Republics (SSR). Within their limits of autonomy all of these republics were socialist republics ruled by communist parties.

The Soviet system collapsed very suddenly in the year 1991. This had a diverse effect across the former Soviet Union countries. The SSR’s are all independent countries now, of which Russia is the largest in size. Twelve of the former Soviet Republics (all except the Baltic states) are, only very loosely, organized under the official heading Commonwealth of Independent States.

¹¹

Hence, more often the name the New Independent States (NIS) is used for these countries.

¹²

From the year 1991 on, the central planned economies with communist political systems are transforming into market economies with democratic systems.

The largest part of the NIS is located in Eastern Europe, but also South Western Asia and Central Asia are part of the NIS’ area.

2.1.2 General characteristics of the three focus countries Russia

Russia is a major country of over 17 million square meter inhabiting over 144.5 million people. The main language is Russian. The capital city is Moscow. GDP per capita is approximately 9700 USD and real growth of GDP is around 4,3% per year. Its economy is highly dependant on its main income source oil, but natural gas, metals, timber and soft commodities are also important sources of income.

¹³

Currently president Vladimir Vladimirovich Putin is firmly leading Russia.

Ukraine

Ukraine is a small country compared to Russia. The country has a surface of 603.700 square meters and inhabits approximately 48 million people. The main languages are Ukrainian and Russian. The capital city is Kiev. GDP per capita is estimated to be 4500 USD and the average real growth rate is currently 4.8%. GDP per capita shows the poorness of Ukrainian inhabitants in comparison to Russian inhabitants (and inhabitants of Kazakhstan). Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform has made the Ukrainian economy vulnerable to external shocks. Its economy is large depending income from the agricultural sector.

11 This definition has been derived from wikipedia encyclopedia, which can be found on the web-site address: http”//en.wikipedia.org 12Forster, e.a., The state of microfinance in central and Eastern Europe and the New Independent states, Poland: Microfinance center, april 2003. This source can also be found on the following web-site address: http://www.mfc.org.pl/doc/Publication/Mapping/Summary.pdf 13 Data used from World Fact Book CIA, Russia fact sheet, 2003 Source can be found on following web-site address:

http://www.cia.gov/cia/publications/factbook/geos/rs.html

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Ukraine’s president Leonid Kuchma was quite conservatively leading Ukraine, which is one of the reasons of the slow reform process in Ukraine. But, since last years policies are changing and Ukraine shows it wants to move faster in its transition process.

Kazakhstan

Kazakhstan is a very large country, but with very few inhabitants. The country has a size of 2,71 million square meters with only 16,8 million people living in it. The main languages spoken in the country are Kazakh and Russian. The capital city of Kazakhstan is Astana (since 1998). GDP per capita is 7200USD, with average real growth of GDP of 9.5%.

Kazakhstan possesses major fossil and fuel reserves and has a large agricultural production as well, its dependence on the oil sector is however considered a weakness of the country. President Nursultan Nazarbayev is focusing on diversifying away from over-dependence on the oil sector.

¹⁴

This president is contrary to leaders of surrounding countries firmly leading Kazakhstan in a liberal way.

¹⁵

2.2 The business environments of the three selected countries

According to a major report of the European Bank of Reconstruction and Development (EBRD) and the World Bank (WB) indicators to characterize the business environment for SMEs are the financial situation, corruption, crime, judiciary, regulation, taxation and infrastructure.

¹⁶¹⁷

These indicators form a good and well-tested framework for the assessment of the business environment and therefore each of the indicators will be discussed in a sub-paragraph related to the selected countries. Main figures used in the discussion are derived from this report.

2.2.1 The financial situation in Russia, Ukraine and Kazakhstan

The financial situation of the three countries described from a SMEs’ perspective could at best be described, not by the available, but by the financial products accessible to SMEs on the markets, since this is what matters most for SMEs. Access to finance can be measured by the proportion of new investments paid with retained earnings, because research showed that the less financing instruments are accessible, the more firms have to finance their investments with retained earnings. It was found that lack of access to finance in Eastern Europe was the reason for high rate of investments with retained earnings, rather than it is was a point of not wanting to use extra external finance.

¹⁸

Also prices of financing instruments indicate the extent of accessibility of financing instruments to firms.

In Russia 77% of the new investments of SMEs are financed with retained earnings, which can be considered to be a high percentage.

¹⁹

This is in line with the stage of development of the Russian banking sector, which is defined as quite weak, suffering from: lack of trust, inefficient legal system, low capital base for long-term finance and lack of lending experience.

²⁰

This is confirmed by other sources as well, stating the Russian banking sector as a whole is still considered underdeveloped, because of relatively high inefficiency, no wide range of financing instruments offered and no application of international accounting standards yet.

²¹

With regard to the interest rate of financial

14 Data used from World Fact Book CIA, Kazakhstan fact sheet, 2003 This source can be found on the following web-site address:

http://www.cia.gov/cia/publications/factbook/geos/kz.html

15 Information derived from Mr. H van Buren, journalist of Russia Newsletter NCH, June 2004

16 Fries, S. et. all., The 2002 Business Environment and Enterprise Performance Survey: Results from a survey of 6100 firms, working paper no. 84.,London: EBRD and WB, 2003

17 Since the report of the EBRD and the WB is based on the perception of entrepreneurs some invalidates might have occurred. But the

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products, the transition report of the EBRD estimates an average long-term lending rate of 15.7% per year on rouble denominated loans in 2002.

²²

In comparison to Russia, the proportion of investments financed with retained earnings by SMEs is slightly higher in Ukraine, being on average around 79%. This suggests that access to finance is evenly difficult for SMEs in Ukraine and Russia. Considering the stage of development of the banking sector in Ukraine, this can be confirmed, since the banking sector in Ukraine is underdeveloped as well. With regard to the price of financing instruments, the interest rates on local currency denominated loans is between 15 and 25% on average per year.

²³

Compared to the other two countries, Kazakhstan has a rather strong banking system. Access to finance for SMEs is although not much better, considering the rate of new investments with retained earnings, which is around 74%. The average interest rate on loans is approximately 16-17% per year on hard currency denominated loans.

²⁴

Since data on interest rates was for Russia and Ukraine only available in local currency denomination and for Kazakhstan only in hard currency denomination these interest rates are hard to compare. In chapter three researches on interest rates will be extended to make such a comparison possible.

2.2.2 Corruption and crime in Russia, Ukraine and Kazakhstan

Coming from the former Soviet Union system, where relationships were the most important base for doing business, where bribing and kickbacks were rather common practice and where large streams of money where not reported as taxable income, one can expect corruption to be still there nowadays.

Bribe-tax and kickbacks paid in a country, as reported by a large group of SMEs, are good indicators of the impact of corruption on business activities of SMEs.

²⁵

In Russia on average 64,6% of all the firms are paying bribe-tax. Those firms pay on average 2,4% of their total sales on bribes. 29,8% of the firms is involved in paying kickbacks and pay respectively 6,8% of their total sales on kickbacks.

In Ukraine 52,1% of the firms is into paying bribe-tax, paying on average 4,4% of total sales on bribes. 38,2% of the firms is involved in paying kickbacks, which costs on average 8,4% of total sales. In interviews with experts on doing business in Russia and Ukraine, every time corruption was named as a major issue of the business environment.

²⁶

In Kazakhstan 58,4% of the firms is involved in paying bribes. On average these firms pay around 3,8% of total sales on bribes. 28,4% of the firms is involved in paying kickbacks, paying on average 6,2% of their total sales on these kickbacks.

Relatively to other transition countries, both the percentages of number of firms paying bribes and kickbacks as well as the percentage of total sales paid on bribes and kickbacks are high. This suggests quite high extent of corruption in the three countries.

When the Transparency International Corruption Perception Index 2003 is considered, this index shows a slightly different picture. According to this index, Russia is relatively the least corrupt country with its 86th place on the index. Kazakhstan follows with place number 100 and Ukraine is most corrupt according to this index with a 106th place.

²⁷

However, this listing does not change the statement that all three countries are highly corrupt, since the list only consists of 133 countries ranked in total.

Crime can have major impact on the business activities firms are willing to carry out as well. But, for all three countries applies that crime is not a major issue. All three countries are politically quite stable, although Russia has few unstable parts of the country such as areas in the Caucasus and the

22 Buiter, W. et. all., Transition report 2003, integration and regional cooperation, London: the stationary office publication center, 2003

23 Vorobyov, A., BISNIS representative in Ukraine, How do companies in Eurasia Finance their trade and investment deals, Kiev: U.S. Department of Commerce, 2003

24 Information derived from interview with Oksana Chukreyeva, BISNIS specialist Kazakhstan

25 Bribe-tax is the unofficial payments to public officials, which is associated with administrative corruption. Kickbacks are the amounts paid to receive government contracts.

26 Derived from interviews with Hans Bluemink, director DLV Agro-Consult, April 2004, Annelies Drost, manager Trust-funds (former) Senter, April 2004 and Annemarie Destree, country specialist EVD, March 2004

27This source can be found on the following web-site address: http://www.transparency.org/pressreleases_archive/2003/dnld/cpi2003.pressrelease.en.doc

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fear for attacks is higher after recent incidents.

²⁸

In Ukraine and Kazakhstan no such attacks have happened, although in Kazakhstan some extremist groups have their active networks.

²⁹

2.2.3 Judiciary in Russia, Ukraine and Kazakhstan

The functioning of the judiciary system is not only important for companies, but also of great importance to financial institutions and the financial products they are willing to offer. Both the time it takes to resolve problems using the judicial way and the extent to what enforcement of laws is possible in practice has major impact on both groups.

When the three countries are considered, courts and other arbitrary organs are in general slow in all three countries. The actual functioning of judiciary can be measured by the average time needed to resolve overdue payments. In Russia this takes on average around 39 weeks, which is very high in comparison to other developing countries in Eastern Europe and Central Asia. In Ukraine the average time of resolving an overdue payment problem is even higher, taking 43 weeks. In Kazakhstan resolving overdue payments takes around 36 weeks.

In Russia enforcement of laws is a problem, because the system to claim execution of laws is ineffective.

³⁰

In Ukraine enforcement of laws is a main problem too.

³¹

Investors criticize Ukraine’s legal system for long and difficult procedures, unpredictability, political interference, corruption and inefficiency. Even when they obtain favorable decisions, investors claim they are rarely enforced.

Persons interviewed on doing business in Ukraine confirmed this.

³²

Kazakhstan is still in the process of building the institutional capabilities of its court system.

³³

It is stated that until this process is completed, the performance of courts in the country will be less than optimal. Further problems exist in enforcing judgments. The Ministry of Justice has just started to establish a judicial executors system. Given the lack of development of this system, interference in judicial cases is not well functioning.

2.2.4 Regulation in Russia, Ukraine and Kazakhstan

In the previous paragraph the effectiveness and efficiency of the judiciary has been discussed. To complete this picture of the judiciary, the laws and the extent to what they are ambiguous and complicated will be discussed. This discussion will pay attention to the amount of time senior managers spent on dealing with public officials, which can indicate to what extent the judiciary is a burden for firms.

Russia has a body of conflicting, overlapping and rapidly changing laws, decrees and regulations.

³⁴

However, bodies initiated by president Putin have started on checking consistency of regional laws with national law. This is a process that slowly develops. Managers of firms spend on average about 9% of their time dealing with public officials regarding the application of laws and regulations. In Ukraine time-tax paid is around 11% of managers’ time and in Kazakhstan this is around 9%, similar to Russia. In Ukraine transparency is a major problem and laws are changing fast. In Kazakhstan transparency in the application of laws remains a major problem too and forms an obstacle to expand trade and investment, just as in the other two countries.

28 This statement refers to attacks such as: the attack in the Moscow theatre in October 2002 killing over 130 persons and the attack in the sub-way in Moscow in February 2004 killing over 40 people.

29 CNN publishes travel warnings and Consular Information sheets which can found on the following web-site address: http://travel.state.gov/travel_warnings.html 30

The extent to what the financing instruments needed by a selected group of SMEs matches with the financing instruments accessible to this group of SMEs

Financing instruments needed by, and accessible to, Dutch SMEs in Russia, Ukraine, and Kazakhstan