Access to financing continues to be one of the most important challenges in the creation, survival and development of SMEs, especially the new ones, says the Italian government sponsored report
TIRANA, Nov. 16 – Albanian small and medium-sized enterprises (SMEs) were severely hit by the outbreak of the global crisis in late 2008, suffering decrease in demand, activity limitations, lack of liquidity to higher extent than in other countries. The findings are revealed in a recently published report called “Enhancing SMEs development in Albania: A study on macro-financial soundness indicators” sponsored by the Italian embassy in Tirana as the lead donor for the private sector development in Albania.
Interviews conducted for this study with SME representatives across Albania showed around 38 percent of medium-sized businesses declared a decrease of sales, lack of liquidity and limited financial access.
“Some 34 percent of small enterprises interviewed confirmed a significant decrease of work volume while 45 percent of interviewed firms declare that there is a lack of interest by the government regarding the issues that small businesses face when they are forced to cut positions due to the reduction of closing of the activity,” said the study.
The main obstacles faced by micro and SMEs, that can be resolved with the assistance of EBRD TAM/BAS program, relate to the inefficient leadership and management capabilities, business planning, marketing techniques and lack of international best practices. As it has been mentioned, SMEs have great need for the usage of foreign financing resources for their activities. Collateral is a problem specific to those businesses that have just been founded and do not have a financing and credit history from abroad. The credit guarantee schemes are considered as a mechanism for the reduction for the collateral requirements and in increase of foreign financing availability. “In Albania, there is a lack of credit guarantee funds and the initiative of taking actions in the implementation of such funds would be of great benefit to SME development. This initiative would be accelerated by the cooperation between international donors and the Albanian Government.”
EBRD and the “Albanian-American Enterprise Fund” have planned to provide a fund for SME capital financing, but until now this project has not been yet implemented.
Albania still lacks a structured system in supporting export, integrating activities for promoting export, the financing and the availability of loans targeting the export businesses, says the report.
The Government support has been limited in implementing schemes for cost distribution by supporting the participation of Albanian companies in trade exhibitions and other marketing activities.
The support for SME technology innovations through the development of skills, centers of technology and business incubators is still very limited.
Until the 2008 crisis, Albania applied the option of annual turnover threshold to favor small businesses. Therefore businesses with a turnover up to ALL 8 million paid a turnover tax of 1.5-2.5 percent depending on the turnover volume and were completely excluded from VAT. After 2008, with the beginning of the global crisis effect on the Albanian economy, these favoring measures were removed or limited for small businesses. Therefore, the turnover threshold was reduced from ALL 8 million to ALL 2 million. For businesses with a turnover over ALL 2 million, the profit tax was set at 10 percent and the implementation of VAT at 20 percent, the same as large businesses. Furthermore, for some free professions, the annual turnover threshold was removed and they are obligated to pay profit tax of 10 percent and VAT of 20 percent, same as large businesses regardless of annual turnover. Various analyses by local and foreign institutions show that SMEs access to the lending sector is still limited. Access to financing continues to be one of the most important challenges in the creation, survival and development of SMEs, especially the new ones. The issue has worsened since the financial and economic crisis of small businesses and SMEs which have suffered dual shocks: a significant decrease of demand of services and goods and constriction in loan terms, which have severely affected them.
There are claims that commercial banks have largely increased the loan costs for their customers, which seems like a paradox in a situation where interest rates for deposits are low. The Albanian banking system has traditionally applied interest rates twice as high for loans in Albanian
Lek compared to interests that banks apply to deposits. For loans in US dollars and Euros, this ratio is 2-4 times higher.
Banks have focused their lending activities in the sectors of services, construction and trade, and at a small level in sectors of production which could provide a higher contribution to GDP. Banks seem to be too limited in relation to lending to agricultural and rural activities.
Even though agriculture holds a high unexploited potential and 44 percent of the work force are active in this sector, banks have only allocated 1.2 percent of the lending to this sector
SMEs in Albania include micro enterprises of up to 9 employees and an annual turnover of up to 10 million lek, small enterprises 10 to 49 employees and annual turnover from 10 to 50 million lek, medium-sized enterprises from 50 to 249 workers with annual turnover from 50 million to 250 million lek. In Albania, small and medium enterprises represent 99.6 percent of all registered business entities. In 2008, the SME sector provided 72.9 percent of the GDP and employed 71.4 percent of all active work forces. The SME activities in Albania are focused in the local market and very few work in the export sector.
SMEs in Albania that have established joint ventures with foreign partners is minimal. The distinctive characteristic of SME development in Albania is that services and trades sectors are dominated by micro-enterprises, while industry and construction sectors are dominated by medium enterprises. The SMEs that work in the services and construction sectors provide the primary contribution in GDP. More than half of SMEs operate in the Tirana-Durres corridor.
Other regions with a strong presence of SMEs are the cities of Korca, Fier and Vlora. In the northern part of the country, there is a weak business activity. This has been caused by lack of clear economic development policies and lack of financial access in these areas.
Under the Italian-Albanian SME Development Program, Albanian SMEs have benefitted Eur 25 million in soft loans and Euro 2.5 million under a Guarantee Fund. The program foresees another Eur 1.7 million as a Technical Assistance component. Until now, 48 investment projects for SMEs have been financed by the credit line and around Eur 11.5 million have been disbursed.
The Guarantee Fund has officially been launched April 26th 2011.
A new initiative is being drafted based on the Cooperation Protocol signed in April 2010 by the Albanian and the Italian Government for the period of 2010-2012. The funds to be allocated for the development of the private sector will be 15 million Euros, according to the approved framework of this initiative.
