SME POLICY INDEX: WESTERN BALKANS AND TURKEY KEY FINDINGS AND CONCLUSIONS

1. SME POLICY INDEX: WESTERN BALKANS AND TURKEYKEY FINDINGS AND CONCLUSIONS Mr. Antonio Fanelli Deputy Head: Private Sector Development

2. AGENDA • INTRODUCTION 2. SME POLICY INDEX: WESTERN BALKANS AND TURKEY 2012 3. SME POLICY PERFORMANCE AGAINST SBA POLICY DIMENSIONS 4. COUNTRY PERFORMANCE

3. The Western Balkan economies have converged on EU SME practices and standards since the 2009 assessment • These areas include: the institutional SME policy framework, regulatory reform and administrative simplification, company registration, entrepreneurial learning, the business start-up process, and the legal and regulatory framework for access to finance. • Marked progress was seen in skills development and export promotion. On average, however, provision of SME support services has deteriorated slightly. The pace of convergence has slowed down and progress has been uneven across the region. Moderate progress was recorded in several areas. • The effect of the crisis has been to shift government attention from structural reform to short-term support measures.

4. Progress has been uneven across the region Leading the way Progress made Lagging behind Croatia, Serbia and Turkey Albania, FYR Macedonia and Montenegro Bosnia and Herzegovina and Kosovo* • Croatia- Highest level of policy convergence. • Serbia- Effective restructuring of SME policy. • Turkey- Sound SME policy, still need to improve general business climate. • Good horizontal policies in place. • Targeted support measures for SMEs are still in their infancy. • BiH - No coherent policy framework between the state level and the entities . • Kosovo – Institutional capacity still under development, high dependence on donor assistance.

5. The way forward Leading the way Progress made Lagging behind Croatia, Serbia and Turkey Albania, FYR Macedonia and Montenegro Bosnia and Herzegovina and Kosovo* • Improve monitoring and impact evaluation capacity. • Continue to work on institutional building and implementation capacity. • Develop joint actions with private sector organizations. • Clarify SME policy strategic directions. (BiH) • Focus on programmes maximizing business conditions for all enterprises (Kos)

6. Dimension 1Entrepreneurial learning and women’s entrepreneurship KEY FINDINGS • All the economies have made good progress building strategies for entrepreneurial learning but need to continue their efforts to build partnerships for lifelong learning. • The vocational education sector is the most advanced at promoting entrepreneurship but all economies need to focus on entrepreneurship as a key competence at all levels of the education system. • Non-formal entrepreneurial learning continues to be rich and varied but there is little sharing of good practice across the educational system as a whole. • Most economies treat women’s entrepreneurship as an equity or poverty-reduction issue, rather than an economic policy to improve competitiveness.

7. Dimension 1Entrepreneurial learning and women’s entrepreneurship THE WAY FORWARD • Governments should build on the regional expert co-operation model supported by the South East European Centre for Entrepreneurial Learning (SEECEL) and extend it to the upper secondary level • The higher education community needs to pay more attention to entrepreneurial learning across all faculties, not just business schools, and seek systematic links with businesses. • All of the economies need to improve support for women’s entrepreneurship to ensure women can contribute to the wider economy, providing dedicated programmes of support, training and access to finance, supported by stronger advocacy groups connected into EU-wide women’s network.

8. Dimension 1Entrepreneurial learning and women’s entrepreneurship COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

9. Dimension 2Bankruptcy and second chance KEY FINDINGS • All of the economies have bankruptcy laws and in Croatia, Montenegro, Serbia and Turkey they are in line with international standards. Legislation is at an early stage of implementation in Albania and Kosovo. • The time to clear bankruptcy, the cost incurred and the recovery rate vary significantly across the region with Albania, Montenegro and the Former Yugoslav Republic of Macedonia performing above the average in all measures. • No government is conducting a campaign to promote the principle of giving entrepreneurs a second chance and some economies withhold loans, support and access to public procurement from entrepreneurs who underwent non-fraudulent bankruptcy until they have cleared their debts.

10. Dimension 2Bankruptcy and second chance THE WAY FORWARD • Croatia, Serbia and Turkey need to further streamline and improve their bankruptcy procedures. Having effective and efficient procedures in place would make lenders less reluctant to extend loans as they would have legal recourse in the event of borrowers not repaying the loan. • All governments should launch specific information campaigns to promote the second chance principle. • Automatic deregistration from the insolvency register after debt clearance would be very useful.

11. Dimension 2Bankruptcy and second chance COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

12. Dimension 3Regulatory framework for SME policy making KEY FINDINGS Region achieved highest score in Dimension 3 • A solid institutional, regulatory and consultative framework in most economies meant that the region achieved the highest scores for this dimension overall. Bosnia and Herzegovina and Kosovo still lag significantly behind although Kosovo has made some improvements since the 2009 assessment. • Some economies have undertaken significant measures to simplify and eliminate legislation, most notably Serbia with its comprehensive review of existing legislation, although Croatia terminated its regulatory reform programme early. • Regulatory impact analysis (RIA) is in place or is planned in the six leading economies. No economy has a full SME test although some are piloting this approach. • Most economies offer the private sector opportunities to comment on draft laws and regulation although in Albania and Croatia there is little evidence that the comments have any tangible effect.

13. Dimension 3Regulatory framework for SME policy making THE WAY FORWARD • The governments of Bosnia and Herzegovina and Kosovo need to make further efforts to close the gap – in all areas for Bosnia and Herzegovina and particularly in legislative reform and RIA for Kosovo. • The other six economies should place more emphasis on monitoring the implementation of their programmes and their impact on the SME sector. • Involve SMEs from an early stage in the policy-making process. Consultations should be systematic to ensure that the voice of the business community is reflected in the government programmes.

14. Dimension 3Regulatory framework for SME policy making COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

15. Dimension 4Operational environment for SMEs KEY FINDINGS • All of the pre-accession economies with the exception of Bosnia and Herzegovina have established efficient company registration processes – and even one-stop shops (OSSs) and online company registration in some cases. • Most economies have a single company identification number or plan to introduce one. However, the business start-up process remains quite cumbersome and costly once all of the costs are taken into account. • Most of the economies are planning or implementing e-government services although the range available is still quite limited and all except Bosnia and Herzegovina and Kosovo have the framework for e-signatures either in place or in the pipeline.

16. Dimension 4Operational environment for SMEs THE WAY FORWARD • Reduce the full cost and time associated with starting up a business, not simply registering it, through further establishment of OSSs and greater reduction of compliance requirements. • Expand the function of one-stop shops in countries were the registration process has already been transformed. Ultimately OSSs should become agencies that provide a wide range of services to the entire business community. • Expand the range of e-services available, following Croatia’s lead in establishing a dedicated e-government agency.

17. Dimension 4Operational environment for SMEs COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

18. Dimension 5aSupport services for SMEs and start-ups KEY FINDINGS THE WAY FORWARD • Although basic business support services are available across the region, only Croatia, Montenegro, Serbia and Turkey have integrated them into national strategies complete with measurable targets. • The range and quality of support services available to SMEs have improved only marginally since 2009. • There are few web portals specifically dedicated to SMEs. • Support for start-ups includes business incubators, and voucherson favourable terms but in most economies such schemes are too small-scale to make an impact. • Adopt more strategic approaches to the development of business support services, ensuring that services are developed in a co-ordinated way and integrated with SME strategies. • Public service providers should broaden their range of services, but should also enhance the business environment for private providers.

19. Dimension 5aSupport services for SMEs and start-ups Note: The red line indicates the regional average for this policy dimension

20. Dimension 5bPublic procurement KEY FINDINGS THE WAY FORWARD • Pass laws to combat late payment, which is a prerequisite for accession to the EU. • Ensure that the qualification levels and financial requirements for public procurement don’t discriminate against SMEs. • Devote more resources to implementing a more comprehensive e-procurement framework. • All of the economies have made major efforts to improve the public procurement framework. • All economies have legislation allowing foreign companies to compete for public tenders on an equal footing with domestic ones. • The region is making a visible effort to provide e-procurement solutions particularly in the Former Yugoslav Republic of Macedonia and Albania where tenders can be handled entirely electronically.

21. Dimension 5bPublic procurement Note: The red line indicates the regional average for this policy dimension

22. Dimension 6Access to finance for SMEs KEY FINDINGS • The 2009 financial crisis has made it more difficult to access external finance, even in Turkey which has continued to grow buoyantly but seen a slowdown in lending growth and capital outflow. • After banking, microfinance and leasing are the most developed sources of finance across the region; alternative financial instruments remain limited in scope (eg. venture capital and private equity). Public support for SMEs and start-ups is limited and has decreased in some economies. • The legal and regulatory environment has generally improved, particularly in the area of land registry and movable asset registration systems. Banks remain risk-averse and collateral requirements high. • Credit information systems have also improved, but strengthening and enforcing creditors’ rights remains a challenge in Albania, Bosnia and Herzegovina, Croatia and Kosovo. • Financial literacy levels are relatively low and programmes to increase them are only recently begun.

23. Dimension 6Access to finance for SMEs THE WAY FORWARD • Reduce the listing requirements for SMEs on exchanges in order to facilitate access to capital and help to enhance corporate standards despite small markets and few institutional investors that characterise the region. • Improve access to finance for SMEs through programmes of targeted and non-distortionary public financial support, administered through the private sector. • Further enforce creditors’ rights while in conjunction assess and improve levels of financial literacy.

24. Dimension 6Access to finance for SMEs COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

25. Dimension 7Standards and technical regulations KEY FINDINGS • Croatia and Turkey top performers as to be expected with Croatia’s accession negotiations and Turkey’s customs union. • The legislation and infrastructure for technical regulations is being put in place for all economies although it is still in draft in Montenegro. • Most economies have adopted some or all EU standards and aligned their sanitary and phytosanitary standards. • Most economies are working towards putting effective accreditation, conformity assessment, metrology and market surveillance infrastructure into place and upgrading their institutes in accordance with EU requirements. • Some efforts have been made to establish an export promotion network, providing up-to-date information about EU and Member States requirements.

26. Dimension 7Standards and technical regulations THE WAY FORWARD • All governments, apart from Croatia and Turkey, need to continue to align with the EU, while all economies need to make further efforts to upgrade their quality infrastructure and align it with the legislative framework of the EU. • Albania, Kosovo and Montenegro should improve their provision of administrative and regulatory information to the business community, and especially to SMEs.

27. Dimension 7Standards and technical regulations COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

28. Dimension 8aEnterprise skills KEY FINDINGS THE WAY FORWARD • All the economies have well-developed training provider networks for both management and trade skills and quality assurance systems in place but need to pay more attention to the knowledge and skills required by those sectors trading with the EU. • Most economies provide some dedicated support for training for businesses with growth potential. • Most economies lack comprehensive statistics on skills and training needs within SMEs although efforts are being made to gather information by chambers of commerce and regional development agencies. • Governments should gather systematic data on enterprise skills and skills gaps and weaknesses. • Establish sector skills councils or reinforce the existing councils, particularly for those sectors trading with the EU. • Share good practice and co-operate amongst countries in areas of common interest such as the agri-food sector.

29. Dimension 8aEnterprise skills COUNTRY SCORES-2012

30. Dimension 8bInnovation KEY FINDINGS THE WAY FORWARD • Innovation policy is at an early stage of development and in most economies limited to small-scale ad hoc initiatives with low budgets and no overarching innovation strategy. • There are a few programmes to support SME innovation, such as technology centres and linking enterprises with researchers, but information about services is limited except in Croatia and Turkey. Around half the economies provide some financial support for innovation. • Croatia, FYR Macedonia and Serbia have done most to enforce intellectual property rights (IPR) and align their legislative framework with the EU. • Create a strategic policy document for innovation to underpin all the other services, for those economies which lack one. • Enhance the monitoring and evaluation of public programmes, in the more advanced economies,to ensure that their policy tools are effectively addressing market failures without introducing market distortions. • Further adopt measures to enhance IPR protection.

31. Dimension 8bInnovation COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

32. Dimension 9SMEs in a green economy KEY FINDINGS • Except for Turkey, current enterprise and SME policy documents make little mention of eco-efficiency and eco-innovation and have no environment-related measures targeting SMEs, suggesting that environmental protection and SME development are considered to be separate policy areas. • In all economies, SMEs show little awareness of how they could improve their environmental performance through environmental management systems (EMSs) and standards; the availability of environmental information varies across the region. • Most governments provide no specific support for environmental certification for businesses although some companies have gained ISO 14001 certification.

33. Dimension 9SMEs in a green economy THE WAY FORWARD • Strengthen policy framework, recognising green growth and innovation as enterprise and SME policy priorities, associating them with clear measures and targets. • Provide access to environmental information relevant to SMEs, including information on legislation, environmental management tools and green funding opportunities. • Support the implementation of effective EMSs, first making information about them more available, then considering financial support for companies wishing to acquire environmental certification.

34. Dimension 9SMEs in a green economy COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

35. Dimension 10Internationalisation of SMEs KEY FINDINGS • In general, all of the economies have an export promotion policy in place but the level of implementation and budget allocation vary. • Croatia, the Former Yugoslav Republic of Macedonia, Serbia and Turkey have the most complex programmes, offering a wide range of services and export promotion activities. • Albania and Montenegro have integrated export promotion programmes but they are more limited and in Montenegro, financial support for them has declined. • Bosnia and Herzegovina and Kosovo have only a limited export base and their export promotion initiatives are conducted on an ad hoc basis.

36. Dimension 10Internationalisation of SMEs THE WAY FORWARD • Ensure that export promotion programmes offer a variety of services to SMEs and are adequately funded. • Ensure that export promotion agencies assist SMEs in accessing foreign markets by enhancing their access to trade finance and export insurance and helping them become creditworthy. Other measures could include providing international market information, helping them find international R&D partners, and supporting the implementation of international quality standards. • Better co-ordinate export promotion activities to avoid overlaps and regularly monitor and evaluate their effectiveness.

37. Dimension 10Internationalisation of SMEs COUNTRY SCORES-2012 Note: The red line indicates the regional average for this policy dimension

38. Country profiles

39. Albania

40. Bosnia and Herzegovina

41. Croatia

42. Kosovo*

43. FYR Macedonia

44. Montenegro

45. Serbia

46. Turkey