1. 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. 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.

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

4. With the support of the European Commission 4 Structure of enterprises by regions 2000200120022003 Average Lowland and costal area23.021.023.220.021.8 Central Albania32.029.331.629.630.6 Highlands and mountainous areas6.62.05.82.24.2 Capital (Tirana)38.447.739.448.143.4

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

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

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

8. With the support of the European Commission 8 Technology index

9. With the support of the European Commission 9 Public institutions index

10. With the support of the European Commission 10 Macroeconomic environment index

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

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

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

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

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

16. With the support of the European Commission 16 Financial depth

17. With the support of the European Commission 17 Financial intermediation

18. 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?

19. 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-8.025042.709878-2.96140.0061 LOG(GDP(-1))1.0582840.3341113.167460.0036 LOG(CGD)-0.039340.119318-0.329740.744 LOG(DP)0.6413130.1143445.6086260 AR(1)0.8730370.04660618.732360 MA(1)0.2821680.1822431.5483080.1324 R-squared0.991331 Mean dependent var4.953763 Adjusted R-squared0.989836 S.D. dependent var0.540946 S.E. of regression0.054536 Akaike info criterion-2.82511 Sum squared resid0.086251 Schwarz criterion-2.55848 Log likelihood55.4394 F-statistic663.2391 Durbin-Watson stat1.740991 Prob(F-statistic)0

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

21. 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;

22. 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