SME Policy Assessment in the Ea P Region

SME Policy Assessment in the Ea. P Region Presentation to Civil Society Forum Michaela Hauf, DG ENTR, Unit for International Affairs and Missions for Growth th Brussels, 13 May 2013

The Eastern Partner region is composed of a group of heterogeneous countries The Eastern Partner countries are different in terms of their size, population, resources endowment and their stage of economic and institutional development Example: Economic structure of Ea. P countries Value added of main economic sectors as % of GDP, 2011 Armenia, Georgia, Republic of Moldova are small economies, highly dependent on services, agriculture and remittances Azerbaijan, Belarus, Ukraine are resource-rich economies with significant revenues from export of commodities Sources: World Bank, World Development Indicators OECD Private Sector Development 2

SMEs in the Eastern Partner countries contribute less to employment and GDP compared to the OECD countries on average Contribution of SMEs to employment and GDP, 100% 2010 100% 90% 80% Share in GDP 70% 30% 10% 20% 10% 0% 0% 20% 60% 30% Azerbaijan 0% 65% 40% Belarus Georgia 20% 75% 50% Republic of Moldova 40% 75% 60% Armenia 50% 75% 70% OECD countries Ukraine* 60% Private sector share in GDP, 2010 40% 60% Share in employment 80% 100% Sources: OECD (2012 ), SME Policy Index: Eastern Partner Countries 2012 * Share in turnover is used instead of GDP Armenia Azerbaijan Belarus Georgia Republic of Moldova Ukraine Source: EBRD SMEs today account on average for only about 50% of employment , compared to 60 -70% in OECD economies, and contribute on average just over 30% of value added, in comparison to 55% in OECD economies OECD Private Sector Development 3

SME Policy Index 2012: Eastern Partner Countries Assesses SME policies in each Ea. P country and formulates recommendations Armenia – Azerbaijan – Belarus – Georgia - Republic of Moldova - Ukraine REGIONAL PROJECT 2009 2010 2011 2012 2013 2014 2015 Eastern Partnership Enterprise Policy Performance Assessment – Phase I – 21 months KEY QUESTIONS DELIVERABLES • How to enhance the performance of SMEs in the Eastern Partnership region? ü Development of a comprehensive policy assessment tool to assess SME policy frameworks • How to create an enabling policy environment to support SME growth? ü Recommendations on how to align with the principles of the Small Business Act • Which policy tools have or have not worked to support SMEs? ü Exchange of best practices through regional policy working groups and capacity building seminars OECD Private Sector Development 4

SME Policy Index 2012: Eastern Partner Countries. . . follows the principles of the Small Business Act for Europe SME Policy Index: Eastern Partner Countries 2012 1. Entrepreneurial learning and women’s entrepreneurship Bankruptcy and second chance for SMEs 3. Operational environment for SMEs 5. SME support services and public procurement 6. 1 Sources of external finance for SMEs 6. 2 Legal and regulatory framework Sub-dimensions Regulatory framework for SME policy making 4. Access to finance for SMEs 7. Standards and technical standards 8. Enterprise skills and innovation policy for SMEs 9. SMEs in a green economy Indicators 5. 3 ACAAs 6. 1 Sources of external finance for SMEs 6. 1. 1 Credit guarantee schemes Indicators Level of Reform 1 2 3 4 5 Credit guarantee schemes Indicators 6. Sub-dimensions Access to finance for SMEs Indicators 2. 6 Sub-Dimensions Covering priority dimensions related to the Small Business Act for Europe : Dimensions Public start-up funding Business angels network 10. Internationalisation of SMEs OECD Private Sector Development 5

SME Policy Index 2012: Eastern Partner Countries . . . and is based on a participatory process with all SME stakeholders involved Regional Policy Working Group 9 10 11 2010 12 1 2 3 4 5 6 7 Six national stakeholder meetings Capacity Building Seminar Regional Policy Working Group Policy Seminar 8 9 10 11 12 1 2 3 4 2011 Independent consultant 5 6 7 8 9 10 2012 Ministries Agencies Private sector associations Regional Policy Working Group Policy Seminar Government assessment International organisations assessment Public authorities European Commission ETF EBRD OECD Private Sector Development 6

Key findings of the SME Policy Index 2012 SBA assessment results at regional level 1. Entrepreneurial learning and women's entrepreneurship 10. Internationalisation of SMEs 9. SMEs in a green economy 5 4 3 2 2. Bankruptcy and second chance for SMEs 3. Regulatory framework for SME policy making 1 8 B. Innovation 8 A. Enterprise skills 7. Standards and technical regulations 0 4. Operational environment for SMEs 5 A. Support services for SMEs and start-ups 5 B. Public procurement 6. Access to finance for SMEs Most Ea. P countries have started to implement business climate reforms to create a conducive environment for private sector development; However they still face significant challenges in developing a comprehensive approach towards the SME sector to complement these efforts with more targeted measures. OECD Private Sector Development 7

Key findings of the SME Policy Index Key conclusions Ea. P countries are supporting SMEs and entrepreneurship through business environment reforms; Institutional frameworks for SME policy are developing at different paces in Ea. P countries; More targeted SME policy tools are still needed to further support SME growth across the region; Data on SMEs remains scarce across the Ea. P region. OECD Private Sector Development 8

Ea. P countries are supporting SMEs and entrepreneurship through business environment reforms All Eastern Partner countries: . . . are taking a pro-active approach to streamline the operational environment for business activities (company registration, online government etc. ). . . have undergone reforms in legislative simplification , although some countries are more advanced than others. . have started to improve the legal and regulatory framework to expand the financial sector beyond bank lending, however, with mixed results Example: sub-dimension 4. 1 Company registration • Weighted average score for sub-dimension 4. 1: Company registration 5 Eastern Partner countries have achieved significant progress in 4. 8 the area of company registration, saving time, reducing costs and 4. 6 removing administrative barriers for SMEs. 4. 4 • All Eastern Partner countries have introduced one-stop-shops for company registration. Georgia and Belarus have managed to integrate all registration and notification procedures within onestop-shops, while Georgia has introduced Public Service Halls, integrating one-stop-shops with a range of other government services. 4 4. 23 4. 13 4. 2 3. 89 3. 98 3. 63 3. 74 3. 6 3. 4 Armenia Azerbaijan Belarus Georgia Republic of Ukraine Moldova OECD Private Sector Development 9

Institutional frameworks for SME policy are developing at different paces in Ea. P countries • Armenia, Georgia and the Republic of Moldova have started to develop the institutional framework through on -going public-private consultations and effective policy coordination mechanisms; • Azerbaijan, Belarus and Ukraine have started to provide support measures to the business sector, but often in an ad hoc manner without a long-term plan and with limited co-ordination between the relevant public authorities. 5 4 3. 5 3 2. 5 2 1. 5 1 0. 5 0 Weighted average score for sub-dimension 3. 1: Institutional framework 3. 43 3. 25 2. 61 2. 07 2. 00 Armenia Azerbaijan Belarus Georgia Republic of Moldova Ukraine Example: sub-dimension 3. 1 Institutional framework. . . Armenia and the Republic of Moldova have the building blocks for and SME policy making; . . . Georgia has achieved noticeable results following a horizontal approach to business climate development. . in Azerbaijan a number of implementation agencies exist with a focus on different areas; however co-ordination between these actors could be further improved to ensure a common approach towards SME development; . . . in Belarus SME policy is developed at ministry level, but no implementation agency exists; . . . in Ukraine an agency for SME policy was reestablished in 2012, but its effectiveness will largely depend on mandate and financing. OECD Private Sector Development 10

More targeted SME policy tools are still needed to further support SME growth across the region • Availability of financial and human resources remains a particular constraint to SME performance in all Ea. P countries. • Support services for SMEs and start-ups are available across the Ea. P region as a combination of public and donor-funded programmes • Most Ea. P countries have agencies specialised in export promotion; however policies to support export-oriented SMEs remain weak across the region. • Innovation policies remain inadequate with considerable scope for further development of target policies to encourage SME involvement in the innovation process. Example: dimension 8 b Innovation policy for SMEs • • All Eastern Partner countries have established public research institutions, or initiatives to promote technology transfer Financial and technical support schemes for innovative companies are provided on an ad-hoc basis in the Eastern Partner region, often with support from donors and international organisations. Weighted average score for dimension 8 B: Innovation policy for SMEs 5 4 3. 5 3 2. 5 2 1. 5 1 0. 5 0 2. 83 1. 91 1. 79 2. 13 2. 37 1. 29 Armenia Azerbaijan Belarus Georgia Republic of Ukraine Moldova OECD Private Sector Development 11

Data on SMEs remains scarce across the Ea. P region • Data on the SME sector remains scarce, even in those countries where policy formulation for SME support is already well advanced. • Despite the existence of specialised institutions, data on the SME sector is often incomplete or entirely lacking. Examples: • While countries have made significant progress in data collection, several shortcomings remain: • Weak international comparability • Low accessibility and low level of detail • Limited availability online and lack of regular updates Indicator 3. 2 – Availability of statistical data The official data on SMEs in Ea. P countries is often incomplete or fragmented, and covers only a limited number of sectors. Score for dimension indicator 3. 2: Availability of statistical data 5 4 3. 5 3 2. 5 2 1. 5 1 0. 5 0 4. 5 3 2. 5 2 2 1. 5 Armenia Azerbaijan Belarus Georgia Republic of Ukraine Moldova Indicator 8 a. 4 – Start-ups No Ea. P country has been able to provide sufficient statistical evidence on the ratio of start-ups trained and/or those that received business support services. OECD Private Sector Development 12

Key findings of the SME Policy Index 2012 Guidelines for implementing SME-friendly policies While there is no one-size-fits-all solution for advancing SME policy development, all Eastern Partner countries are invited to take advantage of the following guidelines to structure their own policy reform agenda: Consult more closely with the private sector on policy reform Historically outside of the policy making process, the private sector in Eastern Partner countries – especially SME associations – needs to be further integrated into the policy debate at all stages to increase responsiveness of policies to the fast-moving needs of the marketplace. Buy-in from the business community will also ensure more effective implementation of reforms. Improve co-ordination between government agencies Better co-ordination between different agencies supporting SME development would avoid overlap, ensure better use of resources and increase policy impact. This can be achieved by designing comprehensive SME development strategies with clear and measurable objectives. Develop targeted SME policy tools Develop policy tools to foster SMEs growth, investment, innovation and export capacity in key economic sectors such as agribusiness, information and communications technology, tourism and construction. Such tools are especially critical to improve access to finance, enterprise skills, innovation, business support services and export promotion. Collect better data for better policies Collect more detailed structural statistics to monitor and evaluate public policy tools on a regular basis and assess SME performance both at national and sector level. OECD Private Sector Development 13

Follow-up to SME Policy Assessment • 2 projects based on the SME Policy Assessment to be undertaken by the OECD in cooperation with the European Commission o Assistance to Ea. P countries with regard to the implementation of policy reforms (focus on particular sectors) – to be launched at the end of 2013 o 2 nd Round of SME Policy Assessment with a focus on effective implementation and output (methodology will be revised in line with 'lessons learned') – to be launched early 2014

Institutional Framework and Participation ü Apart from dedicated project meetings, discussions on the implementation of SME policies will take place within the framework of the SME Panel of the Eastern Partnership ü Eastern Partnership countries will be closely involved through their SBA Co-ordinators ü Active participation – also from business representatives – is key to a successful and productive project

For further information please contact: Michaela Hauf Policy Officer Eastern Partnership michaela. hauf@ec. europa. eu