Overview of key findings
This chapter provides an overview of the key findings of the 2019 SBA assessment for each of the 12 policy dimensions. Complete scores for each dimension and sub-dimension can be found in Table 12. Full details of the methodology and the background to this assessment are contained in Annex A.
This 2019 assessment reveals that the economies of the Western Balkans and Turkey (WBT) perform best in the areas of business support services, public procurement, standards and technical regulations, as well as in their institutional and regulatory frameworks for SME policy making.
All the WBT economies have well-developed SME strategies in place and they are implementing these strategies according to implementation plans. They have continued to reduce the administrative burdens on SMEs by streamlining registration processes and extending the scope of digital public services. The WBT economies have also strengthened their legal frameworks for insolvency, and further simplified their public procurement procedures to reduce SMEs’ barriers to participation. During the assessment period (2016-18), support measures for SMEs have also grained traction, and public funds have been earmarked at a growing rate to implement the actions planned under the various SME development strategies. Although very few WBT economies have targeted and regular programmes to support SME awareness of and participation in the development of standards, their quality infrastructure systems are increasingly consistent with the established principles in the European Union (EU) and internationally.
By contrast, there are several policy areas in which the region as a whole still has room for improvement. These include bankruptcy and second chance policies, enterprise skills, innovation policy for SMEs, and SME greening policies.
Bankruptcy procedures could be made more efficient by reducing the time between liquidation and formal debt cancellation to allow failed entrepreneurs to start new businesses quickly. Furthermore, well-designed tax provisions are needed to reduce the disproportionate compliance burden imposed on SMEs by the tax system. This assessment also reveals that systems to understand the demand for and supply of skills need to be strengthened across the region to better identify SMEs’ needs and devise training programmes accordingly. A better understanding of SMEs’ needs would also help in creating a more co-ordinated policy approach to help them further improve their productivity and to scale up. Given the size of the Western Balkan economies, better regional co-operation in providing certain resources – such as innovation and quality infrastructure – would be a cost-efficient way to help them scale up beyond their domestic capacities. In most WBT economies, the implementation of SME greening policies remains limited overall. Initiatives to raise awareness among SMEs of the advantages of greening their activities should be implemented with a view to improving productivity and reducing their environmental impact.
Key findings by dimension
Dimension 1: Entrepreneurial learning and women’s entrepreneurship
Entrepreneurial learning features in national policy across all assessed economies, and ranges from stand-alone strategies to being a component of wider strategic policy instruments. The policy drive in the region is supported by a variety of stakeholder partnership arrangements, working towards co-ordination and co-operation across a range of policies (education, employment, small and medium-sized enterprises, innovation, regional development). However, leadership and commitment, particularly from education authorities, remains weak. Efforts to address entrepreneurship as a key competence in lower secondary and vocational education reflect wider developments within the European Union. However, the higher education community remains on the fringe of wider entrepreneurial learning developments, with little evidence that it is accommodating key competence approaches to entrepreneurship. Options for young people to acquire practical entrepreneurial experience before leaving school are confined to school-based projects; none of the economies have incorporated entrepreneurial experience within the national curriculum.
Women’s entrepreneurship is now on the policy agendas of all the WBT economies, with most progress being made in designing and implementing policies. Partnerships, both formal and informal, between public and private stakeholders to support women’s entrepreneurship are increasingly found across the region. In many cases, support for women’s entrepreneurship programmes comes from the combined actions of more than one government sector. The main challenge is still to ensure the effectiveness and efficiency of collective efforts, which requires increased recognition of the importance of policy evaluation, and co-ordination among the partners responsible for the design and implementation of women’s entrepreneurship policies and programmes.
Dimension 2: Bankruptcy and second chance for SMEs
Mechanisms to prevent bankruptcy are still underdeveloped across the WBT region. The assessed economies lack institutional support and tools to prevent honest entrepreneurs from going bankrupt, such as early warning systems. All WBT economies have functioning insolvency laws that govern formal procedures for financially distressed companies. However, few have succeeded in reducing the time taken to resolve insolvency to below the OECD average, and the recovery rates in the region are still very low. Most of the economies have a formal bankruptcy discharge procedure in their legal framework; however, almost none of the governments have set a legal time limit for entrepreneurs to obtain a discharge. There is a lack of publicly available bankruptcy registers; this prevents enterprises from obtaining detailed information about potential business partners – undermining the transparency and legal certainty of business activities. Second chance policies for failed entrepreneurs are still largely absent in the region, and no public institutions are leading efforts to reduce the cultural stigma attached to business failure. The WBT governments also do not provide dedicated training or information on restarting a business after failure, hampering the economic reintegration of honest bankrupt entrepreneurs. However, none of the economies impose civic consequences on bankrupt business owners.
Dimension 3: Institutional and regulatory framework for SME policy making
All WBT economies have well-developed SME strategies in place and are implementing them according to linked action plans. While most of the economies regularly monitor implementation, no comprehensive evaluation of the effectiveness and cost efficiency of policy measures has been conducted in the region. The WBT economies have also introduced measures to combat the informal economy, but a fully co-ordinated whole-of-government approach is lacking. Efforts to monitor regulatory reform are weak due to the lack of data on the proportion of primary and subordinate legislation that has been reviewed and eliminated. Regulatory impact analysis (RIA) has become a mandatory part of the policy-making system in the whole WBT region, but the RIA process is still unevenly institutionalised and not consistently practised. Despite a formal requirement to conduct public-private consultations (PPCs) prior to all major regulations in most of the region, the quality of the PPC process is uneven and varies across institutions. The majority of government acts in the WBT region are still adopted through an “urgent” procedure that bypasses any consultation. To increase SME participation in PPCs a few WBT governments have established councils and associations for SMEs. Most of the WBT economies have also introduced a single government portal listing all the ongoing PPCs and making publicly available the views of participants in the consultation process. However, there are few control mechanisms or co-ordinating institutions to ensure regular updates and consistent use of the portals.
Dimension 4: Operational environment for SMEs
All WBT governments have established electronic portals allowing businesses to complete various services on line. These services include filing social security returns, pensions services, services related to the cadastre (property titles) and reporting enterprise statistics. Nevertheless, the range of services available on line varies across the economies and not all processes can be completed fully on line. One-stop shops have been established in all seven assessed economies, allowing businesses and administrations to save time and expense during the registration process. The WBT economies have also made a start in improving data exchanges among state institutions. However, their systems only connect a handful of institutions, meaning that various public institutions need to ask enterprises repeatedly for the same information, increasing the administrative burden on SMEs. All WBT economies apply clear procedures when granting licences. Yet most lack a centralised approach, with SMEs having to navigate a fragmented system involving different authorities in order to complete the necessary procedures. All WBT governments have established a threshold below which SMEs are not obliged to register for and remit value-added tax. This has reduced SMEs’ administrative burden and given them a competitive advantage over larger companies.
Dimension 5a: Support services for SMEs
All WBT governments have included specific steps in their relevant SME policy frameworks to boost the provision of business support services (BSSs) by both public institutions and private providers. However, only three of the WBT economies have conducted extensive stakeholder or training needs analyses to adapt their BSS provision to SMEs’ needs. In all the WBT economies SMEs have access to BSSs provided by public institutions, although not all the dedicated public SME institutions across the region directly delivered training or mentoring to SMEs during the assessment period. The provision of BSSs through private sector providers is also supported by all WBT economies. They all offer co-financing mechanisms which are characterised by defined structures and clear eligibility criteria. Although the relevant public institutions in all WBT economies provide information about their co-financing schemes, online databases showcasing private sector consultants are rare in the region. BSS provision is monitored by the SME agency or relevant public institution in all WBT economies, but an in-depth independent evaluation of BSSs has only been conducted in one of the economies. All the assessed economies offer online information about the BSSs available. However, only four of them have established a dedicated portal collating information on all of the BSSs available from all government institutions.
Dimension 5b: Public procurement
All the assessed economies also allow procurement contracts to be divided into smaller lots that are more accessible to SMEs and set maximum time periods for payments in public procurement, and impose penalties for late payments. Public procurement offices in all the WBT economies offer some form of support and most of the economies provide training to businesses in public procurement issues, including to SMEs specifically. All the assessed economies allow or require the use of electronic tools in public procurement. A few WBT economies also collect and analyse information on SME participation in public procurement, as well as information on delayed payments.
All the economies collect information on the share of contracts awarded to foreign businesses. They all also enable economic operators to have complaints reviewed by procurement review bodies that are independent both from procuring entities and economic operators. Most economies regulate minimum time periods for submitting complaints that are in accordance with the relevant EU Remedies Directives – although in a few cases the time periods are shorter than those required by EU law. All WBT economies also regulate the maximum time period in which procurement review bodies should reach decisions on complaints submitted by economic operators – slightly over two weeks in most economies. All the economies charge fees for submitting appeals to review bodies, but at a level that does not hinder economic operators’ access to legal protection.
Dimension 6: Access to finance for SMEs
Legal and regulatory frameworks are in place in all WBT economies that facilitate access to finance for SMEs. The coverage of credit information systems has expanded in most economies, enabling more enterprises to build the credit history they need. Across all the economies, bank lending continues to be the dominant source of finance. As banking systems recover, lending has resumed and in some economies commercial banks are increasingly focusing on SME lending. However, systemic barriers remain in all WBT economies, as loan conditions are typically less favourable for SMEs, reflecting lenders’ perceptions of the risk of default. Public sector interventions are still common, often in the form of subsidised lending, although governments are slowly shifting towards more commercially aligned solutions such as credit guarantees. Non-bank finance instruments have gained momentum as governments increasingly recognise the need to diversify sources of finance. Venture capital is still in its infancy across the Western Balkan region, although some pioneer venture capital fund investments took place in two of the WBT economies during the reporting period. Venture capital is active in Turkey, boosted by strong government support. Both public and private sector efforts to increase financial know-how among businesses and the wider population more generally remain scattered and uncoordinated, and all the WBT economies lack a clear strategic approach to tackling shortcomings in this area.
Dimension 7: Standards and technical regulations
Overall co-ordination of the quality infrastructure and procedures required to facilitate SMEs’ access to the EU Single Market has significantly improved across most WBT economies. However, challenges remain in a few economies, particularly in integrating market surveillance into the co-ordination mechanism for quality infrastructure. Most WBT governments have renewed their strategic documents for adopting quality infrastructure legislation and transposing EU directives. However, monitoring and evaluation is largely ineffective and insufficient in all economies. All WBT governments have taken steps to conclude mutual recognition agreements and participate in international quality infrastructure structures. As a result, their quality infrastructure systems are increasingly consistent with the established principles in the EU and internationally. Maintaining and expanding the current level of accreditation, conformity assessment and metrology services remain challenges. Although some co-operation is taking place regionally, there has been no attempt by WBT governments to collaborate to provide cost-effective quality infrastructure services at a regional level. In addition, national standards bodies in the Western Balkans have not succeeded in increasing their own revenues, and struggle to reduce their dependence on public funding. SMEs’ access to standardisation in the WBT economies remains inadequate, and they are not systematically informed about new standards or involved in their development. Effective programmes are scattered, and very few WBT economies have targeted and regular programmes to support SME awareness of and participation in standard development.
Dimension 8a: Enterprise skills
The WBT economies have made some progress in improving the governance of enterprise skills. Most have taken steps to collect information on skills needs, although institutional capacity needs to be strengthened to co-ordinate data collection and use it to inform SME skills policy and programming. Although the statistical basis for analysing companies’ skills needs has improved over the assessment period, the monitoring results of SME measures and support programmes are not always made available to enable decision makers to identify those which are successful and those which are less relevant. And while most economies recognise the importance of digital skills for SMEs and the link with internationalisation, this recognition has not been systematically translated into providing the conditions or the training required to steer SMEs towards the digital economy. Training provision in the WBT economies is not always tailored to the specific needs of start-ups at different stages of growth. In addition, e-training for SMEs is not widely available across the region; online platforms are needed to provide an overview of the training on offer to SMEs. The assessment finds that the economies have recognised the importance of skills for innovation; they will now need to define an approach to smart specialisation in which the territorial concentration of SME skills, knowledge and competences are transformed into a competitive advantage.
Dimension 8b: Innovation policy for SMEs
The WBT economies have made progress in developing holistic innovation frameworks, and the majority have an innovation strategy in place, or are in the process of renewing one. The horizontal co-ordination of innovation policy has improved across the region, with national councils for innovation established in four economies. However, monitoring and evaluation of policy implementation is largely insufficient. While donor support remains critical, a few governments have allocated significant budgets to sustain this type of policy support in the long term. In addition, most economies have introduced a mix of financial instruments to support firms’ innovation and technology development. However, with the exception of Turkey, none of the assessed economies have capitalised fully on the potential of indirect financial support – such as fiscal measures to encourage investments in research and development – as a cost-effective policy tool. Disbursement rates of funds earmarked for innovation are often low, suggesting there is room to increase SMEs’ awareness to absorb available funds, and to improve the design of financial instruments. Young companies increasingly benefit from a solid infrastructure of incubators that also extends to regions outside the main economic hubs. Several WBT economies have established science and technology parks, technology institutes, and technology transfer offices, but it is too early to evaluate their impact. Government efforts to foster collaboration among industry and academia seem to be hampered by the private sector’s poor perception of public research institutes’ capacity, and the lack of an environment encouraging academic staff to engage in joint activities with the private sector.
Dimension 9: SMEs in a green economy
SME greening measures and policies are now included in overall SME strategies in almost all the WBT economies. Resource efficiency and eco-innovation lie at the forefront of new SME greening measures, which mostly contain clear targets, planned budgets and timeframes. Advice and guidance programmes on SME greening are slowly emerging in the region and greening practices are becoming recognised and awarded. However, the implementation of SME greening policies remains limited overall in the Western Balkans. This is mainly due to the limited budgets allocated for the envisaged greening measures, creating a high dependence on external donor support. The unpredictability of funds results in frequent interruptions and delays in programme implementation, contributing to overall underperformance in realising the measures. Regulatory instruments are almost non-existent in the entire region, except Turkey, but green public procurement is slowly gaining momentum in some WBT economies. Business associations are increasingly involved in developing and implementing SME greening policies and their supporting instruments, for example providing information and guidance to SMEs on adopting environmental practices.
Dimension 10: Internationalisation of SMEs
All the WBT economies have dedicated institutions to carry out export promotion programmes. However, their provision of programmes is hampered to some extent in most economies by resource constraints. Almost all economies have monitoring mechanisms in place for their export promotion programmes and export promotion agencies. The economies have also improved their collection of data by enterprise size, as nearly all of them now regularly collect data recording SME-specific imports and exports. All economies now also address SME integration in global value chains in their relevant strategic documents and all have planned programmes. Nonetheless, the majority of the WBT economies have operational programmes with mobilised budgets. Few WBT economies have conducted independent evaluations of the achievement of targets or the extent to which services are efficient or cost-effective in enhancing SMEs internationalisation. Albania is the only economy to benefit from an independent review of its export promotion activities. Although institutions for promoting e-commerce have been established in most of the WBT economies, only Turkey has implemented a programme during the assessment period to encourage SMEs to take up e-commerce. Only four WBT economies have websites dedicated to informing SMEs about the opportunities and challenges of e-commerce.
2019 SME Policy Index scores for the Western Balkans and Turkey
The Table below presents the 2019 assessment scores by economy for each dimension, sub-dimension and thematic block, as well as the weights used for each element. Scores range between 1 and 5, with a higher score indicating a more advanced level of policy development and implementation. The scores reflect the situation of SME policy in the seven WBT economies and reforms introduced between 2016 and the end of 2018.
For the detailed methodology of the assessment, please see the chapter on the policy framework and assessment process and Annex A.