With the support of the European Commission 1 Competitiveness of the SME’s in Albania A review of the business conditions with a focus on financing conditions With the support of the European Commission

2 Growth of the micro enterprises and SME As the end of 2003, micro and SME’s registered and operating in the Albanian economy are about 35,694 firms, which make up to 99% of total firms operating during this year. In particular, micro enterprises dominate with 91% of total firms operating in the country. Micro and SME’s have provided employment for 56% of total employment, 65% of total turnover of the economy and 45% of total investment generated by private non agriculture sector.

With the support of the European Commission 3 Sectoral distribution of micro and SME’s

With the support of the European Commission 4 Structure of enterprises by regions Average Lowland and costal area Central Albania Highlands and mountainous areas Capital (Tirana)

With the support of the European Commission 5 Structure and performance of firms

With the support of the European Commission 6 A strong spirit of entrepreneurship has taken root across the region

With the support of the European Commission 7 Competitiveness of the region economies

With the support of the European Commission 8 Technology index

With the support of the European Commission 9 Public institutions index

With the support of the European Commission 10 Macroeconomic environment index

With the support of the European Commission 11 Growth and business competitiveness rankings

With the support of the European Commission 12 Second generation reforms of transition

With the support of the European Commission 13 The most problematic factors of doing business in Albania

With the support of the European Commission 14 Barriers to investment in SEE

With the support of the European Commission 15 Financing SME’s

With the support of the European Commission 16 Financial depth

With the support of the European Commission 17 Financial intermediation

With the support of the European Commission 18 Banking and economic development To what extent economic growth is related to bank lending and banking reform? Is there any crowding out of private investment due to high gov’t deficits?

With the support of the European Commission 19 How is the private sector credit related with growth (35 observations: 1995:Q1-2003:Q3) VariableCoefficientStd. Errort-StatisticProb. C LOG(GDP(-1)) LOG(CGD) LOG(DP) AR(1) MA(1) R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic)0

With the support of the European Commission 20 Statistical significance of the regression

With the support of the European Commission 21 Findings: Despite low levels of private credits, there is a positive relationship between output growth and expansion of bank lending; No significant relationship with the government deficit; inconsistent with the crowding out argument. The investment opportunities and enterprise reforms seems to drive the credit performance;

With the support of the European Commission 22 The road ahead: Tackle the informal sector; Enhance access to finance; Work with business on investment climate measures; Enhance trade and cross border cooperation