Progress in the Implementation of the European Charter for Small Enterprises in the Western Balkans-2009 SME Policy-Key Findings

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Key Findings and Conclusions Overview of the European Charter for Small Enterprises process in the Western Balkans This report presents an assessment of the quality and the level of implementation of small and medium-sized enterprise (SME) policy in the Western Balkans, comparing results with a previous assessment conducted in 2006 and published in 2007. The report covers Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo under UNSC
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  14 Overview of the European Charter forSmall Enterprises process in the WesternBalkans Thisreportpresentsanassessmentofthequalityandthe level of implementation of small and medium-sizedenterprise(SME)policyintheWesternBalkans,comparingresults with a previous assessment conducted in 2006and published in 2007.The report coversAlbania,Bosniaand Herzegovina, Croatia, the former Yugoslav Republicof Macedonia, Montenegro, Serbia and Kosovo underUNSCR 1244/99.TheassessmentframeworkisbasedontheEuropeanCharterforSmallEnterprises(theCharter),asetofpolicyguidelines endorsed by the European Union MemberStatesandakeycomponentoftheEuropeanUnionLisbonAgenda.TheWestern Balkans governments adopted theCharter in 2003 and in 2006 launched a three-yearassessmentprocessfortheWesternBalkanregion,whichwas completed at the end of 2008.In June 2008 the European Commission adopted theSmallBusinessAct,anewframeworkpolicydocumentforSMEpolicyincludingpolicyguidelinesaswellastargetedactionstosupportSMEs.Thedocumentwasendorsedbythe European Council in December 2008. The WesternBalkans countries and Kosovo under UNSCR 1244/99 areexpectedtomovetowardsimplementationofthepoliciesidentified in the Small Business Act.This report assesses the implementation of theEuropean Charter for Small Enterprises in the WesternBalkans and has been jointly elaborated by the EuropeanCommission(EC),theEuropeanTrainingFoundation(ETF),the European Bank for Reconstruction and Development(EBRD) and the Organisation for Economic Co-operationand Development (OECD). It is based on data andinformation collected over a six-month process, with acut-off date of 15 November 2008. As in the case of the2007report,thereportpresentsasynthesisoftwoparallelassessment processes: a self-evaluation conducted bythe Western Balkan governments and co-ordinated bythe national Charter co-ordinators; and an independentevaluation conducted by the four partner organisations,with inputs from the private sector and other SMEstakeholders.The report covers the ten policy dimensionsincluded in the Charter.It applies a methodology knownas the SME Policy Index, which makes it possible toquantify and compare qualitative policy features. Eachdimension has been broken down into a set of sub-dimensions and into a number of analytical policyindicators. Each indicator is based on a five-step policydevelopment path ranging from a level 1 (lack of policyinitiative) to a level 5 (implementation close to the goodpractices from the EU Member States collected in theCharter and in the OECD SME Bologna Process).The setof analytical indicators used in the 2009 report is notsignificantlydifferentfromthesetusedinthe2007report,with the only exception of the sub-dimension on taxpolicy,securingagoodlevelofcomparabilitybetweenthetwo assessments.The report is organised in three parts. Part I coversareviewofprogressbypolicydimension.PartII,elaboratedby Professor Stephen Roper from Warwick BusinessSchool, University of Warwick (UK), focuses on policiessupportinghigh-growthSMEs.Theintentionistoprovidea comprehensive review of good practices, introducecountry assessment methods through two case studies(the formerYugoslav Republic of Macedonia and Serbia)andopenadebateonwhatislikelytobeakeycomponentoftheSMEagendaforthenextfewyears.PartIIIincludesstock taking and progress reviews for each of the sevenWestern Balkan economies. Key findings on progress in policyelaboration and implementation at thelevel of the Western Balkan region Thekeyfindingofthe2009reportisthatoverthelasttwo years there has been good progress in elaboratingand implementing policies supporting small enterprisesall across the Western Balkans and there is clearconvergencetowardstheadoptionofthepolicyguidelinesset in the Charter. However, progress has been unevenacross the ten dimensions and the seven economiescovered by the report.In particular,theWestern Balkan governments havemade generally good progress in the policy areas thatdirectly affect the operational environment for small Key Findings and Conclusions  15 enterprises.Forinstance,thecompanyregistrationprocesshas significantly improved in terms of time, costs andsteps required across theWestern Balkans,with the onlyexception of Bosnia and Herzegovina. A wide range of regulatory reform programmes have been launched andarecurrentlyimplementedinmostoftheWesternBalkaneconomies. The credit environment and the range of financial products available to SMEs have also improved.On the other hand, most of the Western BalkangovernmentsareatarelativelyearlystageinintroducingtargetedpoliciesforrelevanttypesofSMEs,suchasstart-ups, export-oriented and high-growth companies. Forinstance, few governments have introduced measurestargeting start-ups (positive examples are Croatia andSerbia), targeting innovative enterprises, or supportingtechnological or non-technological innovation.Even in the cases where policies have beenformulatedandspecificmeasureshavebeenintroduced,asinthecasesofCroatia,SerbiaandtoalesserextenttheformerYugoslav Republic of Macedonia andAlbania,theamount ofavailableresourcesisstillafraction ofwhat isavailableforinstanceinthenewEUMemberStates.Mostoftheprogrammeslaunchedintheareasoftechnologicalexportpromotionorcompetitivenesseitherdonotreachthe critical level to have a positive impact on companybehaviour,orarestructuredinawaythatfailstogeneratepositive synergies with other measures.The contribution of human capital to enterpriseperformance remains a particular constraint to theeconomiesoftheregion.Moreeffortisrequiredtoensurethateducationandtrainingisstrategicallyknittedintothewider competitiveness drive within each country.Enterprises, in partnership with the public sector, willneed to assume more responsibility in defining trainingrequirementsandensuringthatthesearesystematicallyarticulated to the training market. Further, betterrecognition of EU recommendations for promotion of entrepreneurship at all levels of education is required,withparticularemphasisonentrepreneurshippromotionin early education.The Charter assessment cycle completed over thelast two years (2007-2009) offers a good picture of thechallenges faced by policy makers in engineering andsteering reforms in the SME policy area. It also points tosome of the key elements that are underpinning policyreform. The 2009 report shows that a two-year policyhorizoncanbesufficientforelaboratingandimplementingpolicyreforms with clearly defined objectives that can bemonitored.These reforms should have relatively limitedstate-budget implications and involve few institutionalandlegislativechanges.Implementationcanbedelegatedto executive agencies and approaches can be modelledon existing good practices.However, reforms take place only if governmentprovides strong political backing, secures the consensusofthestakeholders,ensuresgoodplanningandeffectivelymanages external technical assistance.Good examples in the region are the successfulrestructuring of the company registration process inAlbania, which has introduced a state-of-the-artregistration system in less than two years, and thelaunchingoftheone-stop system in theformerYugoslavRepublic of Macedonia.A negative example for the samearea is the stalling of company registration reform inBosniaandHerzegovina,underconsiderationsince2003.Othermorecomplexreformsthatcallforinstitutionbuilding, extensive inter-ministerial co-ordination andlegislativechanges(andhavewiderbudgetimplications),suchasthoserelatedtohumancapitaldevelopmentandregulatory reform, require longer elaboration andimplementation time, hence a five-year horizon is morecommon. Policy development moves along the pathdefinedintheassessmentframework,startingoftenwithpilotprojectsasafirstresponsetoperceivedpolicyneeds,beforemovingtotheelaborationofapolicystrategy.Thentherearechangesintheinstitutionalandlegalframework,the establishment of new policy institutions and finally,the beginning of the implementation phase.A tool such as the SME Policy Index assistsgovernments in identifying key policy priorities andbuilding consensus around policy reform. Progress at country level The 2007 report divided the Western Balkaneconomies according to the level reached in terms of policy performance.A first group, made up of Albania, Bosnia andHerzegovina, and Kosovo under UNSCR 1244/99, wascharacterised by a level of performance across the tendimensionsaroundlevel2,denotinganinstitutionalandlegal framework underpinning SME policy still largelyreliant on ad hoc intervention and pilot projects, and inneed of further concretisation.  16 A second group, made up of the former YugoslavRepublicofMacedonia,MontenegroandSerbia,describedcountries that had largely completed the legislative andinstitutional framework supporting SME policy and had just entered into the phase of policy implementation.Their performance level was between level 2 and level 3in most dimensions. Finally, Croatia was highlighted asthe most advanced country in terms of SME policy.The2009reportconfirmsCroatiaastheregion’smostadvancedcountryintermsofSMEpolicyelaborationandimplementation in the Western Balkans. In each policy,excluding the human capital dimensions and tax policy,Croatia has recorded a performance well above level 3.Three policy dimensions (Getting more out of the SingleMarket, Successful e-business models and top-classbusiness support,and Improving online access) indicatethatasoundpolicyframeworkisinplaceandthecountryis moving ahead particularly well with policyimplementation. Looking at the analytical indicators,policyimprovementsseemwidespread,butincremental.No major policy initiatives have been launched over thelast two years, as the country has been focusing on theimplementationofexistingpoliciesandonthecompletionof the EU accession process.The 2009 report shows that there have beensignificant changes in the dynamic and the compositionof the second group. There have been significant policydevelopments in Serbia across a wide range of dimensions. The country has moved rapidly from thephase of policy elaboration and definition of strategyobjectives to policy implementation in areas such assupport to innovative companies, start-ups, provision of businessservicesandinformationdisseminationthroughonlineservices.Ithassignificantlyimproveditsrecordonpublic-private policy dialogue. In addition, Serbia hasimproved its performance, in an incremental way, in anumber of areas where it already had a positiveimplementation record, as in company registration andexport promotion.Therehavebeenlimitedimprovementsintheoverallperformance of the former Yugoslav Republic of Macedonia and Montenegro: few policy initiatives havebeen launched over the last two years. Both countrieshave made significant progress on two dimensionsrelating to human capital development and, to a lesserextent, on the provisions of business support services.However, they are relatively weak in the key areas of supporting SME competitiveness and technologicalcapacity, as well as in the export promotion area.Albania’spolicyperformanceoverthelasttwoyearshasbeenremarkableandhasallowedthecountrytojointhe second group. Albania’s record of policyimplementation has improved in all ten dimensions; inparticular, in all the policy areas linked to the generaloperational environment (such as company registration,regulatory reform, access to finance and exportpromotion). The weak points in Albania’s performanceremain human capital development and technologicalcapacity of SMEs.The2009reportshowsthattherearetwoeconomiesin the region that, for a variety of reasons, are still in aphase of completing the basic institutional, legal andregulatoryrequirementsunderpinningSMEpolicy:Kosovounder UNSCR 1244/99, and Bosnia and Herzegovina.However,whiletheformerhasshownsignificantprogressover the last two years, SME policy implementation inBosnia and Herzegovina has largely stagnated. InsideBosnia and Herzegovina, there have been differences inperformance across the two entities (the Federation of Bosnia and Herzegovina, and the Republika Srpska) andthe District of Brcko. Progress has been more marked inthe Republika Srpska, which is engaged in acomprehensiveregulatoryreformandhasanactivepolicytowards the small enterprise sector conducted throughthe entity SME Development Agency, and in the Districtof Brcko.In Kosovo under UNSCR 1244/99, there has beenprogressontheinstitutionalfront,withtheestablishmentof an SME Development Agency, the assignment of theexport promotion task to the Investment PromotionAgency,andtheimprovementofthelegalandregulatoryframework related to access to finance.The provision of servicestoSMEsisstillperformedmostlythroughdonor-funded projects, as the newly established SME SupportAgency is still building capacity and developing its owntools. Kosovo under UNSCR 1244/99 has additionallydeveloped a good lifelong entrepreneurial learningstrategy with a range of institutional partners havingsigned up to its implementation.In Bosnia and Herzegovina there is still room forprogress in the SME policy area at state level. Policyelaboration and implementation is highly decentralised,withthetwoentitiesandthedistrictofBrckohavingdirectresponsibility for most of the ten policy dimensionscoveredbytheCharter.Inaddition,thetencantonsintheFederationofBosniaandHerzegovinahavelegislativeandregulatorypowersinSMEpolicyareas,whilethefivelocaldevelopmentagenciesplayastrongerroleinSMEsupport.  Table 1 Key SME policy reform initiatives launched in the Western Balkans since the 2007SME Policy Index Report  ALB Over the last two years,Albania has radically reformed the company registration process, with the financial and technical support of the US-sponsored Millennium Challenge Corporation, and co-ordinated by the Ministry of Energy, Economy and Trade. The reform is remarkable forits scope, its speedy implementation and the quality of the results.The starting point of the reform process was the passing in May 2007 ofthe Law on National Registration Centre (NRC) that transferred competence over company registration from theTirana court to a new dedicatedpublic agency.In the year after the establishment of the NRC,there has been a significant surge of new company registrations,surpassing thethresholdof15000newapplications.Thecentreisalsoupdatingtherecordsofexistingcompanies,includingthoserecordsinthenewelectronicregister. It is processing the large backlog of company record modifications accumulated under the previous system. BIH The definition of collateral is encouragingly flexible in Bosnia and Herzegovina and micro-loans can be extended in the absence of collateral.USAIDsponsoredaprojecttosetuparegistryformovableassets,whichbecameoperationalthreeyearsago,onastate-widebasisandregulatedby a state-level law. In this registry anyone who is in Bosnia and Herzegovina can enter information about pledged movable assets.A creditregistry exists and is well functioning, although individuals’ access to their own credit data is not guaranteed by law. HRV Croatia has been the firstWestern Balkan country to rigorously tackle competitiveness issues amongst SMEs.BICRO,the Business InnovationCentre of Croatia, plays a central role in supporting innovative SMEs: it runs a number of programmes, ranging from R&D support to equityfinancing.The Koncro programme strengthens the technical and managerial skills of innovative SMEs, through the co-funding of consultancyservices.Meanwhile,the institutionalsupport for promotingentrepreneurshipkey competence by the NationalCurriculum Councilandeducationauthorities provides an important basis for mainstreaming entrepreneurship promotion in formal education. Finally, the Croat-led project toestablishaSouthEastEuropeanCentreforEntrepreneurialLearningdemonstratesgoodinitiativeandfurthercommitmenttoregionalco-operation. XK  Kosovo under UNSCR 1244/99 has established the SME Support Agency, which is the responsible institution for the elaboration of SME policyand its implementation.The agency’s responsibilities include:ãDeveloping a policy framework supportive for SMEsãInitiating legislation concerning SMEs and giving recommendations on pieces of legislation that influence the business environmentãProposing and compiling plans for better co-ordination and co-operation between the existing domestic and foreign organisationsworking for the development of SMEsãImplementing programmes related to the creation and development of SMEs.In 2008 the agency had 12 employees and a budget to allocate to different projects of approximately EUR 2.3 million. Although the agencydoes not include in this budget the donor’s support, this is rather significant for Kosovo under UNSCR 1244/99. Meanwhile, a good lifelongentrepreneurial learning strategy provides a solid basis for the range of partners to move forward with lifelong entrepreneurial learningdevelopments. This will require a more concerted commitment by the parties to enable further outcomes from the partnership arrangementalready in place. MK  Since the entry into force of the Law on One Stop-Shop System in 2006 and the maintenance of the trade register and the register of otherlegal entities, the former Yugoslav Republic of Macedonia has further improved the efficiency of its company registration system and reducedcompany registration fees.The Central Registry is currently able to process a company registration application in less than one day,down fromfive days in 2006 for a fee of approximately EUR 57. As typical of a one-stop shop system, the Central Registry issues the unique companyregistration number and obtains, on behalf of the new company the tax registration number, normally in a matter of a few hours. In order tofurther reduce start-up costs the former Yugoslav Republic of Macedonia has recently waived the minimum capital requirement for limitedliability companies. MNE Montenegrohasmadeparticularstridestodevelopentrepreneurshipeducationwithanintensivepilotingexercisewithinonemunicipality(Berane)inthecountry’sleast developednorthernregion.Thestrategicpilotingeffort followsthe elaborationof a lifelongentrepreneuriallearningstrategyandactionplanwhichcapturesthekeylinesoftheCharter’sindicatorsforentrepreneurshipeducationandtraining.Thechallengefortheeducationand training authorities in co-operation with the world of enterprise is to move forward with the strategy and actions foreseen and to build onthe policy learning and momentum developed through the ‘Berane process’. SRB The Serbian government has made significant progress in taking action to promote competitiveness and support the technological capacityof SMEs.In January 2008 the government formally established the National Competitiveness Council.Its membership includes all key economicministries,the Central Bank,the main private-sector associations,leading academics and business leaders.Its mandate is to conduct analysison competitiveness issues, elaborate policy proposals, monitor policy development and foster programme co-operation it is expected tobecome a key policy forum. 17
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