SME Policy Index: Eastern Partner Countries 2012

SME Policy Index: Eastern Partner Countries 2012

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12 Oct 2012
9789264178847 (PDF) ;9789264178830(print)

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This ssessment of SME policy frameworks in eastern partnership countries helps support SME policy development in the eastern partnership countries through identification of strong and weak points in SME policy elaboration and implementation.
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  • Foreword

    Small and medium-sized enterprises (SME) are an important driver for job creation and economic growth. However, the global crisis has hit SMEs hard, restricting bank lending, eroding consumer demand, foreign direct investment, remittances and international capital inflows. To support SME development and stimulate growth, Eastern Partner governments from Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine are undergoing extensive reforms to enhance productivity, human capital and company level performance.

  • List of abbreviations
  • Executive summary

    The six Eastern Partner (EaP) countries (Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova and Ukraine) have emerged as an important economic region, strategically located between the East and West and in proximity to markets in the EU, the Middle East and Central Asia. With a combined total population of 75.5 million people, a highly educated workforce and vast land and energy resources, the region’s average GDP growth reached 5.3% in 2010.

  • Key findings of the Small Business Act assessment

    The following section provides an overview of key findings of the Small Business Act (SBA) assessment across twelve policy dimensions, based on ten SBA principles, at the regional and the country level. A detailed analysis and cross-country comparison by sub-dimension is presented in of this report. Country profiles are provided in .

  • Scores and methodology

    The following table displays the Small Business Act (SBA) scores in the Eastern Partner (EaP) countries based on the SBA assessment. The cut-off date for the assessment process was 31 March 2012. The assessment framework is derived from the ten principles of the Small Business Act and further broken down into 12 policy dimensions, 20 sub-dimensions and 92 indicators. Each indicator is structured around five levels of policy reform, with 1 being the weakest and 5 being the strongest. For further details please see the methodology (next section).

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  • Expand / Collapse Hide / Show all Abstracts Overview of Eastern Partner countries and the SBA assessment process

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    • Economic overview and the role of small and medium-sized enterprises in the Eastern Partner countries

      The Eastern Partner (EaP) countries are heterogeneous in their size, population, resource endowment and their stage of economic and institutional development. This diverse group was strongly affected by the 2008-09 crisis in several ways: through external demand (particularly in the EU and the Russian Federation), terms of trade adjustment (Belarus and Ukraine) and the decline of remittances and FDI (Armenia, Georgia and the Republic of Moldova). After a period of growth until the end of 2011, the pace of recovery from the effects of the crisis has slowed in response to the deteriorating external environment and, in several countries, unfavourable domestic factors. The region’s vulnerabilities remain significant due to its reliance on external demand to support growth, terms of trade pressures and the volatility of remittances.

    • Approach and overview of the Small Business Act assessment process

      The SME Policy Index measures progress in the implementation of SME policy reforms based on the principles of the EU Small Business Act (SBA). It aims to support SME policy development in the six Eastern Partner (EaP) countries and give guidance for policy reform. The SBA assessment process was introduced to EaP countries in May 2010 as a tool to support governments in developing a comprehensive policy framework conducive to SME growth. The assessment builds on the experience of the Western Balkans and the Euro-Med region in which similar policy assessments have successfully been carried out.

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    • Entrepreneurial learning and women's entrepreneurship (Dimension 1)

      Promoting entrepreneurship across all levels of the learning system is an important driver for the economy and a critical building block for a more flexible workforce. Nevertheless, partnership building is required to ensure coherence in the sequence of entrepreneurship promotion across the learning system. Entrepreneurship as a key competence also requires particular attention in terms of curriculum and teacher training. The lifelong entrepreneurial learning agenda is relatively new and the identification and exchange of good practice should be encouraged. This will require more developed networks involving education and training providers both within the national education system and among those providing more general services. A support system for good-practice sharing in all countries is recommended. The assessment also focused on women’s entrepreneurship where policy support is evolving. More developed advocacy networks will be important to ensure that women’s entrepreneurship is factored into the competitiveness drive in each country.

    • Bankruptcy and second chance for SMEs (Dimension 2)

      Efficient bankruptcy procedures are an important condition for facilitating exit and re-entry of businesses into the market. Dimension 2 of the Small Business Act addresses the need to implement well-structured bankruptcy laws and to simplify bankruptcy procedures. Moreover, it encourages governments in identifying the right approach to supporting market re-entry of honest entrepreneurs who have previously failed in their business activity.The first part of this chapter assesses the efficiency of bankruptcy procedures in the Eastern Partner (EaP) countries based on the existing legal framework and performance indicators, such as the time required for completion of bankruptcy proceedings, the costs incurred and the rate (in %) claimants can recover from an insolvent firm. The second part focuses on the public policy approach to facilitate re-start by promoting a positive attitude, determining favourable discharge procedures, supporting debt settlement and avoiding discriminatory measures in access to support schemes or public procurement tenders.

    • Regulatory framework for SME policy making (Dimension 3)

      The think small first principle of the Small Business Act requires full consideration of SMEs at an early stage of policy development. The capacity to create and implement effective public policy is determined by the structure of the process and its ability to promote timely and appropriate regulation. A policy and institutional framework to tackle SME needs is an important first step to creating a favourable business environment for SMEs. This chapter focuses on the institutional framework for SME policy making and provides an overview of the institutional framework set in place in the Eastern Partner (EaP) countries. It describes three aspects of the SME policy process: the institutional framework, legislative simplification and regulatory impact analysis (RIA) and public-private consultations.

    • Operational Environment for SMEs (Dimension 4)

      Dimension 4 of the Small Business Act (SBA) assesses the extent to which public administrations have developed instruments to simplify regulations and reduce costs and procedures for SMEs. It has two sub-dimensions: the company registration process, and interaction with online government services (e-government).In recent years, Eastern Partner (EaP) countries have made significant progress in reforming the operational environment for SMEs. In particular, reforms to the company registration process have led to the removal of overly burdensome regulations, saving time and reducing costs for SMEs and entrepreneurs. In some cases, countries have redesigned the registration process by overhauling inefficient institutions and bringing administrative procedures in line with world standards. The introduction of e-government services in the EaP region has also led to a reduced administrative burden and greater accessibility to public services for SMEs. Countries are developing a range of e-government services, from electronic signatures to increasing connectivity between public administration databases.

    • Support services for SMEs and start-ups and public procurement (Dimensions 5a and 5b)

      SMEs face many barriers that prevent their start-up or growth and hamper their potential. They have less access to markets and procurement because of a lack of information on existing opportunities or discouraging, complicated procedures. This chapter analyses the limited access of SMEs to markets and procurement and the role of government in identifying these market failures and applying policy tools to address them. It is divided into two policy dimensions: Business services and public procurement. The first policy dimension gives an overview of the public policy tools to address information gaps, financial support for start-ups and the limited availability of business services for small firms. The second focuses on giving SMEs an equal chance to participate in public procurement by publishing procurement, opening bidding to foreign companies and introducing E-procurement.

    • Access to finance for SMEs (Dimension 6)

      Access to finance is one of the main challenges faced by enterprises of the EaP region. According to BEEPS 2009, it is perceived as either the first or the second most important obstacle to doing business. Bank lending, the main source of external funding for SMEs, has been significantly affected by the recent country-specific and international crises. Other external sources of finance such as leasing have yet to be developed.This chapter focuses on government policies and instruments to facilitate development of and access to external sources of finance by SMEs, according to the Small Business Act for Europe. Dimension 6 contains two main sub-dimensions: sources of external finance for SMEs and the legal and regulatory framework that supports their development. Policies to support general financial literacy, which affects both the demand for credit by SMEs and the supply of finance by financial institutions, is considered in the third sub-dimension.

    • Standards and technical regulations (Dimension 7)

      Dimension 7 of the SBA assesses the level of progress of Eastern Partner (EaP) countries in eliminating technical trade barriers for industrial and agricultural products. Such barriers can cause severe distortions by preventing market access, protecting domestic producers and discriminating between domestic and foreign producers. Some EaP countries have tariff-free market access to the Single Market through the special incentive arrangement for sustainable development and good governance (GSP+). Today, technical trade barriers still represent one of the most significant obstacles to the liberalisation of trade between the EU and the EaP countries.Ukraine and Belarus are addressing technical trade barriers for industrial products. The EU completed negotiations on a Deep and Comprehensive Free Trade Agreement between the EU and Ukraine in 2011, implying considerable approximation of legislation in this area. All the EaP countries (except Azerbaijan) have made considerable progress in aligning their sanitary and phytosanitary legislation with the EU framework.

    • Enterprise skills and innovation (Dimensions 8a and 8b)

      Policy makers recognise the importance of innovation and entrepreneurship in today’s knowledge-driven economy, and the need to encourage SMEs to engage in innovative activities. The Eastern Partner (EaP) countries need active government support for small business training programmes and entrepreneurial learning, innovation and technology absorption to develop new sources of economic growth.Principle 8 of the Small Business Act (SBA) provides a framework to analyse and evaluate policies to develop entrepreneurial human capital and support innovation in SMEs. It has two main dimensions: Enterprise skills, and Innovation. The systematic promotion and investment in enterprise training and support through structured policy partnerships and evidence-based policy approaches can anticipate human capital supply needs for the SME sector. The innovation dimension focuses on creating a favourable environment for innovation and technology transfer through institutional co-operation, a strategic approach, establishment of innovation and technology centres and development of technical and financial support schemes for innovative SMEs.

    • SMEs in a green economy (Dimension 9)

      Principle 9 of the Small Business Act assesses the approaches of governments to fostering green growth and strengthening the absorptive capacities of SMEs. It assesses current strategies for greening concepts, the availability of expertise on environmental issues to SMEs, the use of environmental management system (EMS) and standards, and governments’ efforts to promote EMS. SMEs will be able to benefit from green growth opportunities if they adjust their business models accordingly. Governments can support SMEs to change their practices and adapt to the challenges by greening their current strategies in the field of SMEs, industry and innovation and by promoting a policy framework for eco-efficient business and products as well as supporting eco-innovation.

    • Internationalisation of SMEs (Dimension 10)

      Enterprises are under increasing pressure from globalisation and the constraints of domestic markets, and the internationalisation of their activities is crucial so as to benefit from the growth of markets. Internationalisation can bring many advantages to SMEs, such as increased productivity by being exposed to competition outside the country, better management practices and a larger market for their goods, as well as creating a wider business network. SMEs can also grow and achieve economies of scale which cannot be reached when operating in the domestic market alone. Nevertheless, only a small percentage of SMEs are involved in exporting activities relative to their share in local and regional economies. To help SMEs tap into external markets, governments should provide support to encourage them to export. This chapter focuses on government activities in promoting exports by SMEs.

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    • SBA country profile: Armenia

      Since 2000, the Armenian government has pursued a pro-active approach to supporting SME growth. Key developments were the establishment of an SME policy implementation agency, creation of an SME Support Council and, currently, work on a new SME strategy. Armenia has achieved the highest scores in the areas of operational environment as a result of recent and extensive deregulation initiatives. The SME Development National Center Fund (SME DNC Fund), an efficient and geographically far-reaching SME agency, offers effective SME support tools such as business services and training and information centres, particularly for start-ups. Armenia further supports SMEs in building its export and innovation capabilities. Despite these improvements and the government’s declaration that SME development is a strategic priority, the sector still needs a strong and viable development strategy and effective policy implementation mechanisms. According to the SBA assessment, key areas which should be given priority are SME financing, innovation and export promotion.

    • SBA country profile: Azerbaijan

      In recent years, Azerbaijan has made significant progress in acknowledging the key role of small business in the diversification of its economy, and in setting up an institutional and legislative framework to address the issues of entrepreneurship. The Small Business Act (SBA) assessment identified the improvement of the regulatory environment as one of its main achievements. There has also been progress in simplification of regulation by reducing the number of days, procedures and costs required to start a business, as well as the introduction of online registration for both individual entrepreneurs and legal entities. Nonetheless, much remains to be done in strengthening horizontal intra-governmental co-ordination mechanisms and creating more opportunities for the small business sector to be involved in the policy-making process through public-private dialogue and its better representation within associations and other advocacy groups.

    • SBA country profile: Belarus

      Belarus has recently taken a more pro-active approach to supporting private entrepreneurship by promoting its small and medium-sized businesses (SMEs). The value of private sector participation in the economy is increasingly acknowledged by the government and steps are being taken to develop a comprehensive SME support policy. SME growth could be fostered through further liberalisation of economic activities which is only progressing at a slow pace.Creating supportive policies for SMEs will only yield tangible results if progress in privatisation leads to the opening up of new business opportunities for private entrepreneurs in Belarus. Alternatively, privatisation is more likely to succeed in creating a vibrant SME sector if an enabling policy framework is in place that allows entrepreneurship to thrive.

    • SBA country profile: Georgia

      Within its economic policy reform agenda, Georgia has improved the business environment for SMEs by simplifying administrative regulation, reducing the tax burden and fighting corruption. Liberalising conditions for doing business in Georgia include simplifying regulatory practice and facilitating free trade and privatisation campaigns. The National Anti-Corruption Strategy has been an important instrument to support businesses by introducing simple rules and overcoming administrative hurdles. The SBA assessment shows high scores for responsive administration and access to finance dimensions.The country would benefit from a more targeted approach with a stronger focus on development of enterprise skills, innovation policy and SME support services. Currently, SMEs do not play an important role on the economic policy agenda, given their small production value and turnover, but a more pro-active approach in areas of know-how accumulation, capital investments and absorption capacities for technologies would help tap their potential. Ideally, this approach should be linked to regional development objectives and sector priorities.

    • SBA country profile: The Republic of Moldova

      A first round of evaluation of the SME policy based on the Small Business Act (SBA), conducted in 2010, showed a relatively developed institutional framework with important initiatives taken to simplify its legislative and administrative procedures. The current assessment shows some improvement in almost all indicators on registration procedures and e-government. The regulatory framework has been further simplified with the second stage of regulatory reform yet to be completed. A third stage, tackling permitted documents, started in 2011. While reforms are ongoing, addressing the needs of businesses already operating remains an important issue. Public-private dialogue rarely involves representatives from the SME community, and could strengthen their formal influence on the decision-making process. There is limited support for the provision and improvement of the quality of business services, and access to finance for SMEs remains a crucial issue.

    • SBA country profile: Ukraine

      Ukraine’s commitments to SME development show some progress in deregulation and simplification of administrative procedures, but there is still room for improvement. The overall business environment continues to deteriorate and there is no coherent approach to SME policy making, no efficient strategy, policy tools or resources. Directives remain on paper and without implementation. Lifelong entrepreneurial learning will require greater engagement of all stakeholders working in partnership, particularly to address entrepreneurship as a key competence at all levels of education. Improved intelligence on enterprise skills will be critical to policy making and allocation of resources for training. Women’s entrepreneurship requires better policy, follow-up actions and more advocacy. Important initiatives taken in innovation policy, access to finance and SME support tools have seldom been enforced. The institutional framework for SME policy making needs strengthening and support with public-private dialogue and monitoring tools as well as provision of business services and export promotion.

    • Small Business Act assessment framework
    • Declaration on fostering SMEs, entrepreneurship and competitiveness in Eastern Europe and the South Caucasus (17 June 2011)

      At the Second Ministerial Roundtable of the OECD Eastern Europe and South Caucasus Initiative, held in Prague, the Czech Republic, on 17 June 2011, government delegates in the Roundtable adopted The Declaration on Fostering SMEs, Entrepreneurship and Competitiveness in Eastern Europe and the South Caucasus (covering the Eastern Partnership countries) (Annex).

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