SMEs and access to Finance in Western Balkans

Small and medium size enterprises play a crucial role in private sector development, busting innovations and accelerating the economic growth in developed and developing countries. SMEs in developing countries are particularly valuable since they develop new sectors and revitalize the stagnant ones, such as services, trade, and manufacturing. New businesses’ efficiency is comparatively higher than the big companies’ efficiency and therefore, they contribute more for employment rate` growth and market competition. At the beginning, SMEs faced with lack of sources for financing their growth. Since they do not have any financial history, conventional paths such as bank loans and issuance of securities are not available opportunities. Thus, the alternative financial sources such as venture capital and private equity should fulfill this gap. The Western Balkan and Central Eastern European (CEE) countries are still in a transitional stage. During this transitional period they have made substantial improvements in corporate governance, enterprise restructuring, and financial sector operations. This region attracts the international private equity investments, although not all of them are equally attractive. Currently, there is a major shift of focus from “traditional” VC and PE countries towards emerging regions. Emerging countries attract investors by exceptional growth opportunities that require substantial funding. This shift is also supported by the aftermath of the financial crisis that strongly affected the established VC and PE markets. It is sometimes argued that exceptional growth in emerging markets fuels future VC and PE activity, and that the whole business model needs to be redesigned. With relatively low labour costs and easy access to European markets, the region has attracted significant direct investment in recent years. Most of this investment has come from Europe, with the euro area accounting for about 70% of the total stock of inward direct investment in the region. Italy is a major investor within the region, especially in Albania where it accounts for 80% of the total (consistent with the strong trade links between the two countries) but also in Montenegro. Greece also has significant investments in Albania, Macedonia, and Serbia. As in other emerging European economies, direct investment in the region generally peaked a year or two prior to the Lehman crisis and then fell sharply. Inward investment flows have begun to recover but remain below their pre-crisis peak levels. In the region the focus should be put as well on boosting ideas, creating entrepreneurial behavior, improve transparency and make quality projects. Educational institutions must revise their academic programs and concentrate more on providing entrepreneurial education. Also, the government should stimulate academic and corporate R&D because the innovations are a major driving force for economic growth. Companies’ should improve employee’s knowledge and skills through continuous training and seminars. Only high trained and educated employees can increase companies’ productivity and profitability. Improved skills and knowledge will generate new ideas and projects, which will also attract the venture capital investments. Finally, promotion of VC industry is needed in order to enlighten the institutional investors and companies on alternative investment opportunities, and on alternative sources of finance. For more info refer to the NEXT COUNTRY OUTLOOK – 1/22/2014 By Anita Tregner-Mlinaric, META Group Small and medium size enterprises play a crucial role in private sector development, busting innovations and accelerating the economic growth in developed and developing countries. SMEs in developing countries are particularly valuable since they develop new sectors and revitalize the stagnant ones, such as services, trade, and manufacturing. New businesses’ efficiency is comparatively higher than the big companies’ efficiency and therefore, they contribute more for employment rate` growth and market competition. At the beginning, SMEs faced with lack of sources for financing their growth. Since they do not have any financial history, conventional paths such as bank loans and issuance of securities are not available opportunities. Thus, the alternative financial sources such as venture capital and private equity should fulfill this gap. The Western Balkan and Central Eastern European (CEE) countries are still in a transitional stage. During this transitional period they have made substantial improvements in corporate governance, enterprise restructuring, and financial sector operations. This region attracts the international private equity investments, although not all of them are equally attractive. Currently, there is a major shift of focus from “traditional” VC and PE countries towards emerging regions. Emerging countries attract investors by exceptional growth opportunities that require substantial funding. This shift is also supported by the aftermath of the financial crisis that strongly affected the established VC and PE markets. It is sometimes argued that exceptional growth in emerging markets fuels future VC and PE activity, and that the whole business model needs to be redesigned. With relatively low labour costs and easy access to European markets, the region has attracted significant direct investment in recent years. Most of this investment has come from Europe, with the euro area accounting for about 70% of the total stock of inward direct investment in the region. Italy is a major investor within the region, especially in Albania where it accounts for 80% of the total (consistent with the strong trade links between the two countries) but also in Montenegro. Greece also has significant investments in Albania, Macedonia, and Serbia. As in other emerging European economies, direct investment in the region generally peaked a year or two prior to the Lehman crisis and then fell sharply. Inward investment flows have begun to recover but remain below their pre-crisis peak levels. In the region the focus should be put as well on boosting ideas, creating entrepreneurial behavior, improve transparency and make quality projects. Educational institutions must revise their academic programs and concentrate more on providing entrepreneurial education. Also, the government should stimulate academic and corporate R&D because the innovations are a major driving force for economic growth. Companies’ should improve employee’s knowledge and skills through continuous training and seminars. Only high trained and educated employees can increase companies’ productivity and profitability. Improved skills and knowledge will generate new ideas and projects, which will also attract the venture capital investments. Finally, promotion of VC industry is needed in order to enlighten the institutional investors and companies on alternative investment opportunities, and on alternative sources of finance. For more info refer to the NEXT COUNTRY OUTLOOK – 1/22/2014 By Anita Tregner-Mlinaric, META Group

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Andrea Di Anselmo

Andrea Di Anselmo has more than 25 years experience in innovation support and company creation gained participating to international assignments and influencing strategic addresses as member of the BoD of intermediary organizations, research institutes, Business Angels Networks and SMEs. He is the Vice President of Meta Group, an international company active in the field of entrepreneurship and knowledge valorization. He is in the Board of Directors of ZMV, the management company operating the Ingenium seed funds in Italy, Slovenia and Poland. He is the President of INSME, the International Association of SMEs. He is one of the CEI-AMI list experts for Smart Specialisation.

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