TIRANA, June 29- The World Bank made a study on small and medium enterprises (SME) which comprise 99 percent of all operating businesses in Albania, contribute to 81 percent of employment and 67 percent of circulation. The WB’s findings were that SMEs had a primitive management, high informality, financial shallowness, lack of technology, and they operate in the absence of orientation using intuition. The financial statements are often done by persons who are not sufficiently qualified.
SMEs are generally considered to have weak accounting records, which negatively impact on the quality of their financial reports. In addition, data integrity is often compromised by the excessive use of Excel programs, which is easily manipulated or other outdated programs with cheap licences but costly maintenance. Most businesses do not identify the risks that might arise and therefore do not try to manage them. The key risk for SMEs is that they do not manage debt repayments, generally in periods of decline. Other important risks may include the exchange rate and risks associated with family influence that drives them. Generally professional advice on financial management is costly and businesses avoid them.
The owners admit to weak qualitative performance from the accountants, a good fraction of whom don’t justify their diplomas and are unprepared. But SMEs generally demand only financial management services to meet legal requirements, such as preparing annual financial statements and tax communication, and auditing when required. Usually, they tend to retrieve these services at the lowest cost, thus either the owner or a family member keeps the company’s financial records, and then hire a cheap accountant for the final financial sheets. Negative opinions regarding accountants lower the incentive to require these services.
Economists and accountants said in interviews that they have limited opportunities for vocational training to provide valuable advice to SMEs beyond traditional services, although Albania has many professional organizations associated with accounting compared to the size of its economy. Generally, those professionals holding the financial statements of SMEs lack the ability to help solve problems affecting business activity. But even in cases these professionals can provide such services, the owners tend not to seek their advice.
SMEs play an important role in terms of employment, sales and added value. According to Albanian Institute of Statistics (INSTAT) data, 41.4 percent of them were in the trade sector and 20.8 percent in the services one. But although the number of registered SMEs has increased over the years, the sector continues to be 50 percent in informality, the WB study estimates. The informal sector represents a significant part of the economy in Albania. Informality continues to be a challenge for the tax administration. Informal businesses generally have lower productivity than formal ones. The Bank estimates that the implementation of the monitoring rules to job informality remains weak.
According to the Business Environment and Enterprise Performance Survey (BEEPS), competitors in the informal sector were the second biggest problem for Albanian firms. More than 40 percent of surveyed firms reported that they were competing with businesses in the informal sector. This competition is highest among SMEs, with 41 percent reporting to compete against unregistered businesses, compared to 27.8 percent in large companies.
Banks also stated that SMEs’ financial management practices in Albania are weak and require improvements. They said there is a lack of cooperation between owners and accountants to get a more realistic picture, but there are also lack of professional skills accountants, too. This sector also suffers from poor management of human resources and money. Owners use short-term financing for long-term investments, often due to the restrictions imposed by banks, which strains their liquidity. The financial statements, according to banks, show weaknesses in unhedged debt to third parties, underreporting of sales and employee salaries. Owners do not make long-term plans and have no projections over the next three to five years. SMEs also lack transparency in sharing financial information with banks and other institutions.
