Financial and Institutional Barriers to SME Growth in Albania: Results of an Enterprise Survey

Abstract

The early transition period witnessed the rapid growth of Albanian SMEs despite the fact that the country was subjected to several severe shocks, especially those associated with the collapse of the pyramid schemes and the war in Kosovo. The growth of small enterprises in agriculture, trade, services, and construction, with microenterprises constituting the bulk of SMEs, has been the engine of growth and contributed to the long term recovery of Albanian economy. However, the growth of SMEs has been hampered by a variety of barriers erected, directly or indirectly, by the state. Fiscal constraints particularly high rate of taxes and contributions, financial constraints and the institutional environment have been some of the major barriers they have had to surmount. These barriers have encouraged many firms to conduct some or all of their activities in the informal sector of the economy. The survey of fifty SMEs established since 1992 highlights the difficulties faced by these enterprises in the environment of early transition. The econometric evidence confirms the role of financial barriers to SME growth, especially when they are combined with the poor institutional environment. The results show that the government has to embark on SME policies designed to disseminate the information on support programmes widely, and to speed up the reform of the financial system, legal framework and law enforcement.