ORGANIZATION OF THE BLACK SEA ECONOMIC COOPERATION (BSEC) KONRAD ADENAUER STIFTUNG (KAS) WORKSHOP ON SMES IN THE TIME OF GLOBAL CRISES Tirana, 5-7 May 2010 Summary Proceedings 1. The Workshop on SMEs in the Time of Global Crises was held in Tirana, the Republic of Albania, on 5-7 May 2010. It was jointly organized by the Permanent International Secretariat of the Organization of the Black Sea Economic Cooperation (BSEC PERMIS) and the Representation of the Konrad-Adenauer-Stiftung (Foundation) (KAS) for Turkey, in cooperation with the Ministry of Economy, Trade and Energy of the Republic of Albania. 2. Mr. Jan SENKYR, Resident Representative of the Konrad-Adenauer-Stiftung (KAS) for Turkey, opened the Workshop and welcomed the participants of the Workshop on behalf of the KAS. Welcoming statements were delivered by Ambassador Traian CHEBELEU, Deputy Secretary General of BSEC PERMIS ; Dr. Willibold FREHNER, Resident Representative of KAS for Albania; H.E. Mr. Enno BOZDO, Vice Minister of Economy, Trade and Energy of the Republic of Albania; and Mr. Luigi BRUSA, Head of Operations, the Delegation of the European Union. 2.1. Ambassador T. CHEBELEU, in his opening statement, highlighted the topics of the current Workshop, drew attention that the economic potential of SMEs should not be undermined by the crises that they neither created nor contributed to. While the adverse affects caused by the global financial crisis affected businesses of all sizes, the SMEs sector was the most vulnerable to these effects. Access to credits and loans was made more difficult for SMEs. Therefore, it became obvious that one of the first lines of action for the Governments is to secure a simple access of SMEs to financial measures. On the other hand, the crises precipitated the need of SMEs to re-examine and adapt their competitive performance and innovation strategies. Ambassador T. CHEBELEU summarized the most important areas where BSEC is currently focusing for SMEs development: access to high technology, business incubators and technoparks, building linkages with academic, financial and state institutions and raising the quality of their performances by organizing the quality competition for SMEs in the BSEC region.
The text of opening statement of Ambassador CHEBELEU is attached as Annex I. 2.2. Dr. W. FREHNER mentioned that this Workshop is the first event on SMEs held in this country. For Albania and the BSEC region the role of SMEs is very significant in strengthening their economies. 2.3. H.E. Mr. E. BOZDO welcomed the participants of the Workshop on behalf of the Government of Albania and stated his conviction that this Workshop would stimulate the growth of SMEs in Albania. He mentioned that this event coincided with the EU SMEs Week initiative. In 2008, the economic output of Albania was rather high with 8% of GDP growth, and even in 2009 it reached 3,3%. The existing 105,000 SMEs produce 80% of GDP and employ 82% of the labor force. The Government created several measures to ease the impact of the economic crises on SMEs like cost-sharing and crediting schemes, creditguarantee schemes and special guarantee schemes for export promotion. However, the country lack in infrastructural facilities, like business incubation, innovation management and lack of cooperation between SMEs and universities. 2.4. Mr. L. BRUSA highlighted the importance of the EU SMEs Week in accordance with the Small Business Act. The EU provided 2.2 million Euros for improving the Albanian SME policy and providing support to SMEs through ALBINVEST to enter the EU markets. 3. The Workshop was co-chaired by Mr. SENKYR; Ambassador CHEBELEU; and Dr. Antal SZABO, UNECE ret. Regional Adviser on Entrepreneurship and SMEs, Scientific Director of ERENET. 4. The Workshop was attended by the representatives of the following BSEC Member States: Republic of Albania Republic of Armenia Republic of Bulgaria Republic of Moldova Romania Russian Federation Republic of Serbia Republic of Turkey The list of participants is attached as Annex II and the Program of the Workshop is attached as Annex III. 5. On the second day of the Workshop, Mr. SENKYR; Mr. Bashkim SYKJA, Director, Business Development Department, Ministry of Economy, Trade and Energy of the Republic of Albania; Prof.Dr. Hans-Jürgen WEISSBACH, University of Applied Sciences, Department of Economy and Law, Institute for Entrepreneurship, Frankfurt am Main (Germany); Prof. Eric DEJAN, Director, Institute of Economic Sciences of the Republic of Serbia; and Dr. SZABO addressed the Workshop as lead speakers. 2
5.1. Mr. SENKYR emphasized the importance of cooperation between KAS and BSEC and mentioned that this is the 40 th joint meeting aiming at the support of SMEs in the region. The aim of BSEC-KAS collaboration is the strengthening of the political dialogue between the actors and decision makers for SME policies in the different BSEC countries, the exchange of experience and information between the SMEs themselves and the fostering of a better understanding between entrepreneurs and state institutions. Mr. SENKYR also informed the participants on the procedure of running the Workshop. 5.2. Mr. B. SYKJA delivered a presentation on Initiative for Small and Medium-sized Companies to Create a Favorable Economic Environment and to Eliminate the Impact of the Economic Crises. The effect of the crises has been limited in Albania due to low level of integration with the global market. The adverse effect on the crises felt in the trade sector. Among the vulnerable sectors are extracting and manufacturing industries. However, the real GDP growth is still positive (+3%) as compared with decline in all other Western Balkan countries. The Government made significant measures in order to improve the business climate especially in the field of business registration and licensing, removing administrative barriers for doing business, access to finance and E-Government. Due to these measures the ranking of ease of doing business according to the World Bank methodology has been improved. It ranked 82 out of 181 countries in the year 2009, while 86- in the year 2008 and 137-in the year 2007). 5.3. Prof.Dr. H. WEISSBACH made a presentation on Feeling and Opinion of German Entrepreneurs in the Time of Crisis-How can we bring about a turn towards economic growth?. From January to September 2009, the reduction of export was 21.7 %, reduction of orders - about 30 to 40 %. The export-oriented core industries were more hit than the providers of local supply. The unemployment raised by 500,000, while more men than women have been concerned by threat of job losses in big companies. However, in 2009, 848,000 new businesses were founded not by change rather that necessity, while 740,000 businesses were closed. 2.2 million people received short time work paid in consequence of wage guarantee fund. Economic stimulus packaged was introduced for local building trade, handicraft at amount of loans of 15 billio n Euros and additional loan guarantees. Prof.Dr. WEISSBACH stated that the Government provided a strong car scrapping incentives, launched a programme to save banks by public equity and created an equity fund to assist under-capitalized companies. However, SMEs are complaining about unequal treatment of big companies and SMEs for discrepancy between big programme for saving banks and restricted SME stimulus package. 5.4. Prof. E. DEJAN delivered a presentation on Economic Situation in South-Eastern Europe with Focus on the Impact of the Crises on SMEs. He analyzed the effect of global economic crises in Western Balkan region, including 7 countries in South-Eastern Europe (The Republic of Albania, Bosnia and Herzegovina, the Republic of Croatia, the Former Yugoslav Republic of Macedonia, the Republic of Montenegro, the Republic of Serbia and the Republic of Turkey). As benchmark 3 EU countries (Bulgaria, Romania and Slovenia) were used. The global economic crises in Western Balkan effected in: Slowdown in economic growth GDP fall; Fall of Industrial production; Smaller export; 3
Decrease in trade and services; Increase of unemployment; Problems in Public Finances; Problems in Corporate Finances; Limited Financial Sources for SMEs. The puzzling question of the SME slowdown is How to survive? Prof. DEJAN also presented the SME Policy Index Report of the 7 Western Balkan Countries based on the EU Charter for SMEs. 5.5. Dr. A. SZABO presented the result of the research on Reactions and Defeating Mechanisms of Small Firms against the Stress Factors of the Financial and Economic Crises in Selected Countries in CEE. Individual country studies were prepared by the Members of the Entrepreneurship Research and Education Network among the Central- and Eastern- European Universities ERENET. The selected countries are 4 BSEC countries - Bulgaria, Romania, Serbia and Ukraine plus Croatia and Slovakia. The share of the SME sector in GDP varies between 40-70% except of Ukraine where SMEs contribute in a very modest manner to the GDP below 20%. The crises followed with a certain lag as compared to Western economies. However, it resulted in drop of production, devaluation of national currencies, low consumption, and drastic increase of unemployment and low level of credit activities. Multinational companies kept away from national reconciliation actions, while majority of governments tried to safeguard work places. Where national guarantee schemes are available, they help SMEs. Experts evaluations forecast the termination of the crises probably by the end of 2011 only. 6. An exchange of experience concerning the reaction and protection mechanisms of small and medium-sized enterprises against the stress-factors of the international financial and economic crises in the BSEC Member States took place. The representatives of the BSEC Member States made their presentations. Issues addressed included: 1. Present the development of the national economy in the author's country in the last decade. Which are those main developmental tendencies or even deficiencies that characterized the economy?; 2. Discuss the challenges faced by the SME sector during the economic crises; 3. Address the SME financial gap and the role of financial intermediaries vice-versa the commercial banking; 4. Government actions to ease the impact of the crises on SMEs; 5. Institutional actors and their strategies, policies and initiatives; 6. Present good practices where the Governments pawed the way for SME development and growth. Question and answer session was held after presentations and recommendations were made to be included in the Summary Proceedings to be agreed upon at the final session of the Workshop. 4
7. On the third day of the Workshop, presentations were made by Mr. Tefta DEMETI, Chief of SME Unit Business Promotion Department, Ministry of Economy, Trade and Energy of the Republic of Albania on Implementation of the European Charter for Small Enterprises in the Western Balkan Countries and Progress of Albania ; Mr. Qemal BALLIU, Executive Director of the Small Business Foundation of the Republic of Albania on Support and Promotion for Creation and Development of SMEs ; and Dr. Altim MUCA, Director of Marketing Research and Development Department, FondiBESA on Albanian Practice in Microcrediting to Eliminate Poverty and to Avoid Unemployment Decrease due to Economic Crises. 8. Later on, the Participants of the Workshop had the opportunity to visit the Company Everest IE in Tirana. Final Discussions and Conclusions 9. The following points were made in conclusion: 9.1. SMEs and entrepreneurs play a significant role both in transition economies as well as in advanced ones, and they are key generators of income and employment and drivers of growth and innovation. 9.2. Even under normal economic conditions Governments have recognized that for survival and growth, SMEs need special policies and programmes. However, at present time, SMEs have been specially hit hard by economic crises. This led to sharp output decline, devaluation of national currenc ies and extreme increase of unemployment and inflation, as well as decrease in foreign exchange reserves, in capital inflow from abroad. 9.3. It is important to highlight, that SMEs are more vulnerable in time of crises for many reasons including: they are already small, this is why it is difficult for them to downsize; they are less diversified in their economic activities; they have weaker financial background; they have lower or no credit rating; in global supply chains, SMEs are even more vulnerable since large companies abuse of power. 9.4. The crisis demonstrated that the more open is an economy the more depend ent it is on the external effects of the world market. The strong economic ties and financial dependence made many transition economies highly vulnerable to the crises in the U.S.A. and the Western countries. 9.5. The global economic crises are primary the result of the irresponsible profit-oriented banking sector offering uncounted credit even at the dawn of outbreak of the crises. This was strengthened by underdeveloped financial systems, insufficient rescue policies and weak social security net in the transition as well as in the new EU countries. In spite of recapitalization of the banks many of them do not provide credit for SMEs. 5
9.6. In the financial crisis the world economy is still experiencing, the international financial organizations are trying to restore the confidence at the cost of painful restrictive measures. 9.7. The global recession has plunged the BSEC transition economies into social and economies crises, but so far the dynamism of reforms and economic integration did not stop. 9.8. The economic crisis pointed out that the market-driven economic model relying on strong inflow of foreign investment is not a right approach. The right response should include restoring the confidence by strengthening the national resources, particularly when it comes to citizens, consumers and SMEs. 9.9. The financial crisis did not finish yet and a worsening for SMEs is not excluded. For SMEs there are four related factors: lack of demand; increase payment delay on receivables, which results in decrease in liquidity; increase of default, insolvencies and bankruptcies; and lack of financial sources or difficult access to financ ing. 9.10. There is a risk that qualified workforce might migrate as a consequence of the crisis. 9.11. Some countries have recently put in place anti-crisis packages by combining: measures supporting sales, like creating fund for car scrapping incentives; measures to enhance SME s access to finance, mainly to credit through bank recapitalization and expansion of existing loan and credit guarantee schemes; measures aimed at helping SMEs to maintain their investment capabilities. 9.12. Neither EU nor BSEC Member States can address the global economic and financial crises by acting in isolation. Recommendations 10. The following recommendations were made: 10.1. The crises indicated the importance of market-supporting policies and the role of policy-institutions in this regard. The Governments should improve the regulation and strengthen the incentives to safeguard the jobs. 10.2. Governments should play a much more active role in managing the economy, as it is the case in many advanced Western economies. 10.3. One of the first lines of action for Governments should be to ensure a simple and straightforward access to finance by SMEs by providing enough liquidity and simplifying the criteria for their access to financial resources. The BSEC countries Gover nments are urged to review their policy measures in order to make structural improvements and institutional changes in the SMEs financial environment in order to revitalize their growth. 6
10.4. Governments have to implement measures to accelerate the cash flows and to shorten payment delays for public procurements. The European Commission has suggested that public authorities should pay their bills within 30 days. Such measure should be taken by Governments of the BSEC Member States as well. 10.5. The crises highlighted that SMEs should re-examine their activities and adjust their competitive performance and adapt innovation strategies. SMEs should reorient their activities and diversify their business in order to reduce losses, to be able to survive and increase profitability. 10.6. Governments should manage an active policy with multinational companies especially with international supermarkets in order to provide protection for indigenous suppliers and to encourage multinationals to participate in domestic reconciliation action instead of repatriating their profit. 10.7. Specific financial means and procedures are requested for microfinance facilities in order to decrease the unemployment rate and alleviate poverty in the BSEC region. 10.8. Governments and international organizations should develop innovative business models for SMEs to access technology. 10.9. Entrepreneurial education should be fostered at all levels of schools, universities and life-long learning with a view to developing skills and abilities to adapt to the new challenges and requirements. 10.10. The Governments should encourage NGOs to take active initiative to ease the negative impact of the crises on SMEs. 11. The Participants to the Workshop expressed their deep gratitude to the BSEC Organization and to KAS for its support and financial contribution to the Workshop, and to the Ministry of Economy, Trade and Energy of the Republic of Albania for the hospitality extended to them during the meeting in Tirana. 7