Azerbaijan Moving Toward Social Entrepreneurship

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BY KELLY CHAIB DE MARES

AZERI OBSERVER STAFF WRITER

People worldwide are more aware of the products and services they are consuming, turning down any production with an ecological risk or the disadvantaged groups’ abuse, and demanding socially responsible approaches from businesses. Additionally, governmental and non-governmental organizations face many challenges that threaten sustainable social development. As a result, the new trend of developing business to achieve social and environmental welfare lead to the emergence of a new sector, the social economy.

The social economy sector encompasses many innovating entrepreneurs to create social enterprises as a business model that promotes inclusion and cooperation values while maintaining ecological balance. The social entrepreneurship mindset becomes more necessary when the COVID-19 outbreak demonstrated people’s interconnectivity and the need for ventures to decrease the gap between those who have access to social services and those who do not.

The United Kingdom and the European Union have developed this terminology as social entrepreneurship, when an environmental or social mission is embedded in the company’s main objective. And defining social enterprises, when the business has a lack of profit motivation since revenues are reinvested back into the cause, measuring the success by the impact made. In this sense, just a marketing good deed or singular company policy does not constitute social entrepreneurship. For example, an exclusively ethical Fair-trade company, is already purposely run to reduce its negative impact on people and the environment.

Azerbaijan has not fallen behind in this movement. According to the Country Report on “Social Economy in Eastern Neighborhood and in the Western Balkans” launched in January 2018, for AETS Consortium and the European Union, more than a few dozen social entrepreneurship initiatives are actively working in Baku with a slightly lesser percentage in the regions. Nevertheless, the sector mostly consists of micro and small enterprises that employ less than 25 people, with an annual income below 200,000 manats (EUR 100,000), actively working in health, social care, education, tourism, and youth.

Two main reasons have boosted the social sector in Azerbaijan. First, the need for economic diversification, which became evident in 2015. The effects of the global financial crisis, the fall of oil prices, and the two devaluations of the national currency, provoked economic reforms to reduce the country’s dependence on oil and gas, decrease the unemployment rate, and increase the population’s welfare. The second reason was the legislative restriction during 2014-2017, which required registration before the Ministry of Justice of any foreign grant, demanding civil society and the non-governmental organizations to look for self-sustainability.

The development of a legal framework for social enterprises in Azerbaijan, is in the early development stage. In 2018, the new Law on Employment introduced a social enterprise definition as “a specialized legal entity established to ensure employment of persons who have a particular need in social protection and have difficulty getting jobs.” An original concept that is not in line with EU regulation – as Mahammad Guluzade, Director of MG Consulting advised – while Europe focuses on the lack of dividends payment, Baku is concentrating on the employees’ condition.

Subsequently, the Cabinet of Ministers approved the ‘Standards for social enterprises and workplaces above quota.’ According to the Standards, at least 80% of social enterprises’ employees shall comprise those who need social protection and have difficulties finding jobs. Those shall be referred by State Employment Agency and DOST centers and include: disabled, youths under 20, single parents who take care of under-aged children, parents with multiple children, parents with a child under 18 with disabilities, people who have less than two years to pension age, people released from prisons, and people with disabilities.

Still, the country has inspirational social entrepreneurship and currently operates under several legal forms. Following lawyer, Guluzade’s, explanation, these formal structures can be Non-Governmental Organizations; Cooperatives; Family farm associations; Individual entrepreneurs; Companies, even Public legal entities.

Governmental entities boosting social entrepreneurship

The Azerbaijan government has several entities boosting the social economy, such as the Council on State Support to NGOs under the Auspices of the President, the Youth Foundation under the President, and the National Fund for Entrepreneurship Support. But the public legal entity that can consider itself a social investor is ABAD (Simplified Support to Family Businesses).

President Ilham Aliyev attends opening of ABAD Food Hall in Agjabadi on June 4, 2020.

ABAD implements technical, legal, and financial assistance to family business projects, engaged in arts and agriculture, mainly with an intrinsic Azerbaijani culture. The program manages certification of products; along with a producer family’s brand name, and a particular label is also placed on every product that attests to its production under ABAD’s control.

ABAD has solved the problem of accessing the market for its beneficiaries. They run several ethno-boutiques that operate in different corners of the country. These shops generate certain income from the sale of the goods produced by its craftsman and farmers, but reinvest most of it into further start-ups.

A Self-sustainable NGO

According to the Country Report on Social Economy, “so far the main drivers of social entrepreneurship in the country were the NGOs.” The transition towards a market economy involving the closure of many state-owned enterprises and the humanitarian emergency, following the conflict with Armenia, resulted in a decline in the government’s services. In the nineties, with direction and support from donor organizations, around 4000 Non-Governmental Organizations were created in response to these challenges.

NGOs have been encouraged to develop economic activities, as international donors are gradually withdrawing their support due to legislative restrictions introduced in recent years. Currently, there are a few hundred organizations specialized in the provision of social and health services to vulnerable groups; an estimated 10% has established social enterprises to reduce their dependency on foreign funding and strengthen their financial sustainability.

After having invested 18 years of training people and lobbying the government to provide services to children with disabilities, the funding of the NGO United Aid for Azerbaijan (UAFA) was withdrawn due to the access restrictions to grants in the Azerbaijani law. Its founder, Gwen Burchell, decided that UAFA could no longer be a grant funded organization, because it would be unsustainable. Therefore, since 2016, Gwen has been developing several strategies to generate income, partnerships with the government, and social enterprise investments.

The first initiative is Enjoy Chocolates, GMO-free handmade chocolates with Azerbaijani flavors. So far, the chocolates are selling online or can be found in exclusive stores, but Ms. Burchell has a project of opening a coffee shop, where she will sell her goods, as well as the production from other social enterprises like Buta Art and Sweets.

The second one is the foundation course, “Childhood Health, Education and Social Development,” running in partnership with Georgetown University in Washington. The University oversees the curriculum’s content, ensures it meets international standards, and provides the certificates; on the other hand, a group of foreign and local specialists in Azerbaijan develop the theoretical training and practical mentoring. UAFA is planning to shift the course to Baku State University.

The third is the inclusive preschool program, empowering women to run inclusive playgroups as a small enterprise. UAFA charges a fee to provide training in different topics, such as preschool skills, children with disabilities and business issues. They also provide a permanent mentoring scheme to help them keep running.

A further NGO is Birgə və Sağlam – the English translation, Together & Healthy – which provides social services to children with autism and their families. This Organization runs Kashalata, a cafe-workshop where teenagers and young people with autism take vocational classes. The cafe-workshop was launched on January 25, 2017, by the parents of a 16-year-old boy with autism, called Hamza.

It is a training facility, open to the public, with a client base of 10 autistic people, who learn daily life skills – making tea, coffee, making snacks such as waffles and toast, washing dishes, cleaning, and welcoming and serving guests.

Many celebrities, politicians, officials, and company representatives have visited the cafe to grab a coffee and show their support. Kashalata was the word that Hamza as a child, used to express his desire for food, combining the words “spoon” and “salad” in the Azerbaijani language.

Young individuals, the drivers of social enterprises

Individual entrepreneurship is yet another popular format for business start-ups. An inspiring young entrepreneur is Sara Rajabli, a Sumgaitian 23-year-old woman, founder of Buta Art and Sweets. The company is an online platform that sells traditional handmade desserts made by women with special needs. After her one-semester exchange program in Germany, Sara realized she wanted to make a difference, and thus acquired the encouragement and motivation to work on her dream. After performing solid market research, she decided to produce challenging to make, but tasty to eat, Azerbaijani sweets by female members of the Disabled Women Organization of Azerbaijan.

In 2017, with just €85 and the support of two logistical team members’, two women with disabilities started cooking sweets in their homes, upon demand. Nowadays, Buta Art and Sweets operates with 25 women cooks and seven logistical staff. Before the pandemic, the platform was accepting regular orders to supply events from more than 20 corporate partners, including the US Embassy, Agency for food security, and governmental entities such as Youth Foundation, the Ministry of Economy, and the Small and Medium Business Development Agency.

With 290,000 women with disabilities in Azerbaijan, counting a 95% unemployment rate, Ms. Rajabli is determined to do her bit to change the harmful cultural patterns in a society that used to hide people with special needs, due to the belief that children with disabilities were a punishment for the parents. Moreover, Sara desires to help this population suffering a double discrimination, together with the gender gap.

Her initiative has received national and international recognition and Ms. Rajabli has been invited to share her success story around the world. She was the first winner of the social entrepreneurship award in Azerbaijan, by the Ministry of Economy in the conference “Government is The Best Partner of Entrepreneur,” and also received the “Presidential Award” for social activities by the President of Azerbaijan, Ilham Aliyev.

Sara’s business model empowers women as freelance entrepreneurs, “we hire them on a service contract basis so that they can acquire orders from different companies”. Buta’s staff, support their women with their logistical needs in order to develop their brands, and train them with cooking workshops, food and safety courses, mentoring meetings, and soft skills classes like communication with clients and teamwork.

One of Sara’s main obstacles was the Azerbaijani stereotype that people with disabilities are not capable to produce high-quality products. Apart from the permanent training to the cooks, Buta Art and Sweets cooperate with the Azerbaijan Tourism and Management University to overcome this stigma. The latter provide informal volunteer students to check the appropriate standards are being fulfilled.

Buta Art and Sweets have a well-established 5-year program, including opening physical shops, exporting products, and opening the brand in Samakhi, Qabala and Sheki, with their own traditional sweets. But Sara is a resilient entrepreneur; her post-pandemic goals include marketing individual customers, launching a new menu with vegan options, as well as develop Buta’s website.

Another successful, independent social entrepreneur and artist, Murad Mammadov, is the founder of Hands Art.  It is a collective online shop where disabled artists can sell their handicrafts, visual art, and tools. The platform has been such an international success, that many of his products are exported. Mr. Mammadov is also the author of the book, ‘Map to Success’, which motivates people with disabilities to demonstrate their potential.

Business incubators supporting social entrepreneurship

There are more than ten business incubators operated by state bodies, private companies, and educational institutions in Azerbaijan. Although many of them are commercially oriented, and do not necessarily have social impact as part of their agenda, they do support the establishment of social enterprises.

Sil. VCa Social Innovation Lab, provides technological, industrial, and business mentoring; also giving local entrepreneurs access to global opportunities, and offers seed funding for early-stage start-ups in cleantech, space, food-tech, and agri-tech creative industries. Sil. VC aims to build the first unicorn start-up born out of Azerbaijan, by lifting 50 tech start-ups, annually by 2025.

In the past few years, co-founder Mahmud Aliyev, has seen an increase in start-ups acting on environmental problems. He remarks that in 2017 at the Global Entrepreneurship Summit in India, Ivanka Trump recognized the 15-year old Azerbaijani girl, Reyhan Camalova, who created a device that produces electricity from falling rain. That is the reason why Sil. VC has a specific focus on the cleantech area, supporting entrepreneurs and young scientists with great potential to contribute to climate change solutions.

Sil. VC is the contra-part in Azerbaijan of ClimateLaunchpad, the world’s largest green business ideas competition. Mr. Aliyev considers this program, an excellent opportunity for entrepreneurs whose initiatives are in the clean/green tech industry, to build partnerships and showcase their products internationally.

Support for sustainability

When running a business that changes people’s lives by making a difference, the story sells itself. So, having a social mission has the advantages of easy advertising, attention from social investors, and clients with serving motivation. However, it is not easy to operate a successful social enterprise.

ABAD’s shop in Fairmont Baku hotel

Developing social entrepreneurship is no easy feat, as the enterprise must compete with both charities and purely commercial businesses for financial support, market share, and attention. It involves many of the same steps as running a typical business, such as researching the market, testing the idea, establishing a strong brand, monitoring cash-flow, managing staff, all the while trying to hit a social target.

Stakeholders agree on the main challenge facing social entrepreneurship: sustainability. Either, due to an absence of sufficient business and marketing skills, or the lack of monitoring and evaluation to ensure their beneficiaries’ trust, or a flaw in the sponsors’ criteria, many social initiatives in Azerbaijan do not last long. Currently, these companies will also have to overcome the COVID-19 outbreak and the revival of the hostilities with Armenia.

Added to these difficulties, the fact that in Azerbaijan, social entrepreneurship is not included as a separate group in the law, State programs or national action plans ban social enterprises from a differential tax policy with rate exemptions, and the access to local or international grants and resources. It is hopeful that the situation improves with the President’s Decree of October 2016, on the application of the Single Window principle in the registration of grants, the ‘Standards for social enterprises and workplaces above quota,’ and the Law on Employment.

Nowadays, there are opportunities in Azerbaijan for the development of social entrepreneurship, due to the business environment improvement with the ever-increasing government attention to the non-oil sector; as well as the public policy which is socially oriented to address the needs of vulnerable groups, such as people with disabilities, women, migrants, unemployed, internally displaced persons, and refugees. However, difficulties will persist as long as a social enterprise is an underdeveloped standalone concept.