This article explores the current situation, challenges, and future prospects for small and medium-sized businesses (SMEs) in the Republic of Abkhazia. It analyzes key strategic documents, official programs, and expert opinions to identify the main ways the government supports SMEs, including financial aid, organizational initiatives, and legislative measures. Special attention is given to new developments such as the introduction of a simplified tax system starting in 2025, the creation of specialized funds and subsidy programs, and increased participation from Russian investors.
The article also highlights the main obstacles facing the sector, such as a lack of startup capital, limited access to loans, shortages of qualified workers, outdated infrastructure, and complex tax procedures. Additionally, it examines promising industries for SMEs like tourism, services, handicrafts, and food production. The conclusion emphasizes the need for comprehensive reforms and improved support mechanisms to foster a sustainable and thriving business environment in Abkhazia.
Keywords: Abkhazia, small business, medium business, entrepreneurship, state support, simplified tax system, investments, infrastructure, personnel, tourism, handicrafts, economic development.
Introduction
Small and medium-sized businesses (SMEs) in the Republic of Abkhazia play a crucial role in building a modern market economy and ensuring the region’s sustainable development. Their importance has grown, especially given the limited presence of large industrial enterprises, the significant reliance on agriculture and tourism, and the need to diversify the country’s economic structure. Historically, entrepreneurial activity in Abkhazia began to take shape in the late Soviet era, when cooperatives and private initiatives led to rapid growth in small and medium businesses. These enterprises created jobs and introduced new technologies. However, the armed conflict, economic blockade in the 1990s, and infrastructure destruction caused a sharp decline in business activity and a reduction in the number of active enterprises. Since the early 2000s, after Russia recognized Abkhazia’s independence and eased some sanctions, a new phase of SME development started. The government began focusing more on creating a favorable business environment by developing targeted support programs, improving legislation, and introducing mechanisms for financial and organizational assistance.
Cooperation with Russia has played a significant role by providing investments, preferential loans, and expert support. In recent years, policy efforts have shifted toward fostering innovative and export-oriented businesses, as well as supporting young entrepreneurs and startups. Despite these positive trends, SMEs still face major challenges such as limited access to financing, shortages of qualified workers, outdated infrastructure, bureaucratic hurdles, and low domestic demand. This study is important because it provides a comprehensive analysis of the current state of SMEs in Abkhazia. It identifies key problems and evaluates prospects for further growth within the context of socio-economic changes and regional economic integration.
«Currently, it is necessary to transform all spheres of public organization, revise the established foundations of the Abkhaz people with the aim of further progressive development» [1, p. 226]
1. Legislative framework and institutional support
In 2024, the government approved a new Small and Medium Entrepreneurship Support Program, which allocates a total of 100 million rubles to finance projects across various sectors. These sectors include handicrafts, manufacturing industries, the food service industry, and tourism. The goal of this program is to provide financial assistance to entrepreneurs and small businesses, helping them expand their operations, improve quality, and create new jobs. By supporting these key areas, the program aims to stimulate economic growth and diversify the local economy.
Starting in 2025, a simplified tax system (STS) will be introduced to replace several existing taxes. This new system is designed to make tax administration easier for entrepreneurs by reducing the number of taxes they need to pay and streamlining the reporting process. The STS aims to lower the tax burden on small businesses, encourage formalization of informal enterprises, and foster a more business-friendly environment.
These measures are part of a broader strategy to create a more supportive environment for SMEs in Abkhazia. By providing targeted financial support and simplifying tax procedures, the government hopes to boost entrepreneurship, attract new investments, and promote sustainable economic development across the region. The combination of these initiatives is expected to make it easier for small and medium-sized enterprises to thrive, innovate, and contribute significantly to the local economy [3]
2. State and external support
The government actively implements a wide-ranging support program for small and medium-sized enterprises (SMEs), aimed at fostering their growth and sustainability. This program includes providing subsidies to help entrepreneurs purchase necessary equipment, compensating various business expenses, and offering organizational and technical assistance to improve operational efficiency. These measures are designed to reduce financial barriers for SMEs, encourage innovation, and promote business development across different sectors.
Russia plays a strategic role as a partner in supporting Abkhazia’s SME sector. In 2025, Russia allocated an additional 100 million rubles through the creation of a dedicated fund specifically aimed at supporting small and medium businesses. This fund provides targeted financial resources to help entrepreneurs expand their operations, invest in new technologies, and improve infrastructure.
Moreover, Russian banks are offering preferential lending programs to SMEs, which means that businesses can access loans at lower interest rates and more favorable terms compared to standard market conditions. This access to affordable financing significantly boosts investment in the sector, enabling entrepreneurs to undertake larger projects, increase production capacity, and create new jobs.
Overall, these combined efforts—government subsidies, strategic funding from Russia, and preferential bank loans—are designed to create a more supportive environment for SMEs in Abkhazia. They aim to stimulate economic activity, foster innovation, attract new investments, and ensure the long-term sustainability of small and medium-sized businesses in the region [7]
3. Structure and dynamics of SME development
Tourism, services, trade, handicrafts, and the food industry continue to be the most appealing sectors for small and medium-sized enterprises (SMEs). The primary sources of funding for these businesses are personal savings and profits, which suggests that access to external investments and bank loans remains limited. Additionally, around 60 % of entrepreneurs consider the overall condition of their businesses to be satisfactory, indicating a cautious but generally positive outlook [4]
4. Main problems and barriers
Key problems of SME development in Abkhazia:
One of the main challenges for entrepreneurs is the shortage of start-up and working capital. Most rely on their personal savings to finance their businesses, as obtaining loans remains difficult and often inaccessible [2]
There is a significant shortage of qualified personnel, particularly among engineering and technical specialists. This problem has been worsened by migration following the war, which has led to a decline in the availability of skilled workers in these fields [4]
The infrastructure is outdated, with frequent power outages and a declining energy system that disrupt business operations and hinder growth [7]
Businesses face challenges due to frequent changes in tax and administrative regulations, a lack of transparency, and issues with ensuring the quality of administrative services. For investors, there are additional risks, including the need to address infrastructure problems on their own and a high level of uncertainty regarding the legal protection of their investments [7]
5. Development prospects
Among the promising areas of SME development:
Starting in 2025, the introduction of a simplified tax system is expected to lower the overall tax burden and make it easier for businesses to operate [8]
Upgrading infrastructure, as well as developing industrial parks and business incubators, are key steps toward supporting business growth and creating a more favorable environment for entrepreneurs [9]
Increasing training and retraining programs, along with establishing a support system for young entrepreneurs, are essential measures to foster skill development and encourage new business initiatives [3]
Enhancing international cooperation, especially with Russia, and working to develop export opportunities are important steps to strengthen the region's economic growth and global integration [5]
Creating new industries like the digital economy, eco-tourism, and agricultural product processing are key areas for future growth and diversification of the economy [8]
Conclusion
In recent years, small and medium-sized businesses in Abkhazia have shown steady growth, thanks to consistent government support, improvements in the legal framework, and active involvement from strategic partners, mainly Russia. The implementation of government programs, the introduction of a simplified tax system, and the establishment of business incubators and entrepreneurship support centers have all helped create favorable conditions for increasing the number of SMEs, boosting their competitiveness, and expanding their activities.
However, to reach a new level of development, more comprehensive reforms are necessary. Key areas for focus include modernizing infrastructure, developing financial support tools, reducing administrative barriers, and establishing an effective system for training and retraining workers. Promoting innovation, expanding export opportunities, and integrating Abkhazian businesses into international markets are also crucial for sustainable growth.
For SMEs to truly thrive, they need not only financial assistance but also institutional support, educational resources, and access to information. Creating a favorable investment climate is equally important. Only through a systematic approach that involves cooperation between the government, businesses, and society can Abkhazia build a modern, competitive economy that is socially oriented—where small and medium-sized enterprises become key drivers of the region’s development.
Referenses:
- Анкваб М. Ф. Содержание и принципы отбора этнопедагогического материала для развития опыта иноязычного общения студентов // научные исследования высшей школы по приоритетным направлениям науки и техники. сборник статей Международной научно-практической конференции. Уфа, 2021. [С. 224–228.]
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