Aziza Shuzheeva, Chairman of the Board of TechnoWomen, talks about why marketplaces are losing their competitiveness and trading in bazaars is still “gray.”
Pavel Tsedilin
– Aziz Timurov’s collage, the e-commerce market, by opening alternative shopping channels, has not only changed consumer behavior over the years, but has also changed itself. What are the results of the development of this promising trade sector and what is the contribution of your NGO to its development?
– To begin with, the non-profit organization TechnoWomen is engaged in the development of e-commerce in the interests of small and microenterprises, artisans, and so-called sellers, because there are traditionally more women in this sector.
Retail trade provides employment for over a million people, and 68% of them are women. We can say that trade is a women’s industry, and its digital transformation opens up great prospects for enterprising ladies, as it allows them to combine family care, motherhood and make good money. To help solve these problems, TechnoWomen is developing an e-commerce competence center, has good relations with Central Asian associations, and trains sellers.
So, let’s take a look at modern e-commerce in Kazakhstan. Today, this sector is at the stage of market saturation with the potential for further growth, but subject to the creation of understandable conditions for the players. The turnover of this sector, according to official statistics and rating consulting agencies, has increased more than sevenfold in recent years – from 327 billion tenge in 2019 to 2 trillion 418 billion tenge in 2023.
At the same time, the total volume of retail trade by 2023 reached almost 20 trillion tenge, including offline trade – 17.5 trillion tenge and online trade – 2.4 trillion tenge. The share of e-commerce increased from 2.9% to 12.1%.
The e-commerce market continues to grow, which is reflected in consumer behavior: in the ways and habits of people when buying goods and services. Internet users get the opportunity to quickly and easily compare prices, as well as save money and time by switching completely to an online shopping channel or combining offline and online channels.
So far, the main consumers of e-commerce are advanced citizens, supporters of innovation, with access to the Internet and certain digital competencies. The growth of online sales creates the appropriate infrastructure, startups appear – online stores, product marketplaces, and funds are ready to invest in them.
We forecast the growth of the total retail trade volume to 126 trillion tenge by 2035, of which over 70 trillion will be accounted for by e-commerce. At the same time, serious problems are visible that are constraining and potentially capable of slowing down the process of digitalization in the trade sector.
It should be understood that if we do not build an e-commerce development system with an emphasis on stimulating domestic small and medium-sized businesses, we may remain just an appendage to the markets of foreign Bigtech platforms. It is already clear how the market is being captured by foreign online platforms.
– We have been talking about digitization of bazaars in our republic for a long time, but even now there are bazaars in no hurry to create online trading platforms and enter the e–commerce sector. Tell me, is this task even feasible in our conditions?
– It’s simple. Bazaars are not going to digitalize, because it is simply not profitable for them. There are more barriers than incentives for them now. And the problems that stand in the way of digitizing such markets are not related to IT and infrastructure, but rather to the lack of clear regulatory practices, complex and time-consuming tax administration, and lack of support mechanisms.
Despite the fact that the Law “On Regulation of Trade Activities” plays a significant role in Kazakhstan, it actually equalizes the concepts of “electronic commerce” and “electronic commerce”, which causes confusion and ambiguous application of legislation. The current regulations do not sufficiently regulate the provisions on the interaction of e–commerce participants (seller – electronic trading platform – logistics center – consumer).
The presence of regulatory inconsistencies creates difficulties in ensuring reliable protection of the rights and interests of e-commerce participants and hinders the involvement of small businesses. The limited development of transport and logistics infrastructure in different regions of Kazakhstan, high transport costs and procedures in practice create difficulties in the delivery, shipment and processing of goods.
The issues of supporting microenterprises in e-commerce are acute. Currently, most needlewomen sell handmade products on Instagram. Many of them sell souvenirs, authentic, of a national nature. However, they are prevented from leaving the “gray zone” and becoming e-commerce participants by complex procedures for obtaining certificates of conformity for the quality of goods, the lack of support programs from large domestic and foreign marketplaces, government support in promoting the “Made in KZ” brand, as well as low digital and legal competencies.
To encourage bazaars towards their digitalization, there are no tax features or benefits for entrepreneurs operating in the field of e-commerce, and there is also a lack of attention paid to the development of support and development programs.
– And while everything is not so smooth with us, foreign marketplaces are intensively filling the domestic market with cheap goods, while not paying taxes. How do Kazakhstani marketplaces feel in such a trading ocean?
– E-commerce and digital transformation are radically changing the rules of the game around the world. According to Statista, the global e-commerce market exceeded $5.7 trillion in 2023, and this figure continues to grow.
Digital platforms enter any country, sometimes without the need to create a physical infrastructure. Klaus Schwab, an expert on the digital economy at the World Economic Forum, notes: “E-commerce is breaking down geographical boundaries and creating conditions for unprecedented global trade.” As a result, companies can sell their products 24/7, gaining access to consumers even in the most remote corners of the world.
Digital transformation is contributing to the emergence of new business models in commerce, such as subscription services, direct-to-consumer (D2C), and hybrid retail (omnichannel). For example, brands can now sell products directly to customers through their own online platforms, bypassing intermediaries. Gartner, the global leader in research, predicts that by 2027, more than 50% of retailers will offer omnichannel solutions combining online and offline sales.
The Kazakhstan market is no exception: over the past few years, large foreign platforms have appeared on it, accounting for about 20% of the turnover. On the one hand, this is good for customers who have the opportunity to receive a more diverse range of goods at lower prices, on the other hand, we see that due to the lack of transparent and clear rules, Kazakhstani companies find themselves in unequal conditions.
– Why should regulation be aimed at “equalizing” conditions for foreign and domestic market participants?
– The economic essence of e-commerce is to significantly reduce transaction costs and the number of intermediaries through the inclusion of entrepreneurs in global supply chains without the need to be in the country of sale of products.
The presence of e-commerce disrupts the functioning of the institution of traditional commerce, because the growth of the former is to the detriment of retail.
Due to the cross-border nature of e-commerce, some countries benefit greatly from its development, while others suffer losses from the concomitant degradation of traditional trade. In order not to be among the last, government intervention is necessary. At the same time, regulation should be aimed at creating the necessary e-commerce infrastructure, as well as stimulating the entrepreneurial activity of domestic enterprises in this area by providing tax incentives and other support measures.
Our non-governmental organization has repeatedly proposed to develop and adopt a special law on the development of e-commerce in Kazakhstan, which could eliminate existing legal conflicts, prescribe clear rules of the game for all participants and, most importantly, create fair and equal conditions for Kazakhstani and foreign platforms.
In this regard, the role of the state is key in terms of building fair “rules of the game.”
– What conditions should be created for the involvement of small and microbusiness in e-commerce and how to stimulate the digitization of bazaars? How to attract investments in this sector?
– To solve this problem, I will propose several important measures that, in my opinion, can give a real boost to the digitization of bazaars and the development of domestic business in e-commerce.
First, we need to introduce special tax and customs regimes for the sector. Convenient modes and clear administration will allow sellers to pay customs duties and VAT not immediately upon importation of goods, but to postpone these payments until the moment of its sale. This will significantly ease the financial burden on businesses, especially small and micro businesses, and enable sellers to work more boldly in the domestic market.
Secondly, it is important to introduce a single aggregate payment to create conditions for the involvement of sellers in e-commerce, and to develop networks of order pick-up points. As a deterrent factor limiting the development of the e-commerce market in Kazakhstan, it should be noted the high tax burden for PVZ. Our pick–up points are mainly represented by micro-entrepreneurs with small turnover – on average about one million tenge per month. These are businesses with very limited financial resources that choose special tax regimes based on a simplified declaration with a rate of three percent.
These business entities also pay taxes and payroll payments. At the same time, they use a minimum wage base (in the amount of one minimum wage) to reduce their respective tax obligations. As a result, the total tax burden on PVZ is about five percent of their turnover.
Despite these measures, pick-up points strive to maintain an acceptable level of profitability and choose to work through international marketplaces such as Wildberries and Ozon. These platforms provide sellers with more favorable conditions, removing marketing risks from them and simplifying taxation and payment processing. As a result, the Kazakh e-commerce market is mainly represented by the PVZ of international companies.
The high tax burden on the points of issue makes it difficult for them to expand massively in the republic. At the same time, PVZS play an important role in ensuring the availability of goods to consumers, but in the current conditions they are clearly insufficient to better meet demand.
To overcome these obstacles, we propose to introduce a single aggregate payment system for PVZ by analogy with the special tax regime introduced on September 1, 2024, applied through a special mobile application. Marketplaces will retain four percent of the PVZ turnover for subsequent payment of taxes and payments directly to the budget, which will simplify the tax reporting process.
The third important measure is the lifting of restrictions on accepting payments by marketplaces.
One of the most serious existing problems in e-commerce is the inability of marketplaces to accept payments from buyers for subsequent transfer to sellers. These structures cannot directly accept such payments, as they are not considered payment organizations.
As a result, marketplaces turn into ordinary bulletin boards, where the seller and the buyer are simply forced to negotiate.
– This problem has been around for a long time, and the need to solve it has been discussed by professional e-commerce participants for several years…
– Obtaining a license from a payment organization by marketplaces would allow them to make payments directly, without intermediaries, ensuring control of all financial transactions within their platform. Such a measure would make it easier to manage cash flows and create conditions for secure transactions, which would ultimately help attract more customers and sellers to the platform. For the successful implementation of any of the proposed solutions, it is necessary to develop a regulatory framework governing the activities of marketplaces in the field of payment transactions.
There is another problem: in Kazakhstan, the commission for bank acquiring is almost 2.5% for e-commerce. This is much higher than on international platforms, where the average rate is only about one percent. The lack of motivation of Kazakhstani banks to reduce bank acquiring rates is understandable, because our STBs also own online platforms and online stores. They are more interested in creating favorable conditions for their own platforms.
The support may also include tax incentives for investments in warehouse real estate and the development of fulfillment warehouses as part of existing support tools for participants in free economic zones, reducing bureaucratic barriers during the construction phase, and providing land for projects with preferential lease terms.
Another important area is the deepening of the integration of Central Asian countries in the development of e–commerce, in the harmonization of legislation and logistics.
It is necessary to take a comprehensive approach to promoting the strategy for the development of e-commerce, because everyone understands that restrictive measures taken against foreign marketplaces alone will not change the situation in the Kazakh e-commerce market for the better.