Strategies of the Development of Entrepreneurship and SME

electronic company register, is needed. Progress is still too dependent on donor support,raising questions about the medium-term sustainability of a number of programs. Once theseissues are addressed, Albania has the potential to move quickly to the next stage of policydevelopment, where the focus will be on implementation more than elaboration.The legal and operational credit environment needs to be further developed.Taxation and financial matters represent the lifeblood of SMEs, especially in the earlystages of their operations. Progress in these two sub-dimensions has greatly improved. Theassessment of taxation focuses on total tax payable and on tax administration. Substantialprogress has been made in reducing the tax burden on all classes of enterprises, and this hasbenefited SMEs. In particular, there is room for improvement in tax administration, especiallythe reduction of compliance costs for small enterprises. The tax system continues to be inimicalto stimulating start-ups and growth of small enterprises. It is generally perceived as beingunfriendly vis-•-vis small enterprises (too many taxes, pre-payments, unclear rules), andappears to be designed and administered with large enterprises in mind, rather than SMEs.There has been some progress on establishing a dialogue with the business community inrelation to changes in taxes, rates and other regulations, particularly during the preparation ofthe 2005 budget measures. However, the government should undertake a wider and moresystematic consultation process, engaging more directly the small business sector, (even if thesector it is fragmented in several trade and industry associations) on issues such as taxadministration reform and the fight against the informal economy. Finally, procedures such ascentrally predetermined tax revenue collection targets, non-payment of legitimate VAT refundsand direct access to firms’ bank accounts fuel resentment and flight by small business into theinformal economy.The Ministry of Economy’s Business Promotion Department and the SME Agency willnevertheless need to work on raising entrepreneurs’ awareness of their activities, and toensure that SMEs obtain information and are capable of contributing to the policy makingprocess. Over the next year the SME Agency needs to complete this phase and move to theimplementation of specific SME support programs, focusing in particular on the less developedregions, as indicated in the SME strategy. In parallel, the Government should review andupdate the current SME strategy, adjusting priorities and targets in line with demand andavailable resources.It will take a few more years for effective representation of SME interests to reach EUstandards. More remains to be done in areas where the Government could act decisively, e.g.the reform of Chambers of Commerce and the establishment of real consultative channels. TheGovernment should ensure that SMEs have specific forums where their interests arerepresented, with real mandates to influence policymaking. The capacities of Chambers ofCommerce and business associations should improve over time.SMEs technological capacity, essential for competitiveness and innovation, is slowlybeing strengthened. Areas such as dissemination of new technology, creation of links betweenSMEs and research centers to foster co-operation, establishment of research and technologycenters, and initiatives to encourage the formation of clusters in key economic sectors are stillin the early stages. It is encouraging for foreign investors that Albania has introducedappropriate legislation to protect intellectual property rights.Like technological capacity, e-business solutions can further improve the efficiency andcompetitiveness of SMEs. They provide more effective approaches to purchasing and sales,facilitating access to European markets. Donor funding has been important for the developmentof support facilities and services and provision of information services. However, there is astrong need for greater clarity, for quality standards in regard to service provision, and forbetter coordination of business support strategies .While basic legislation is in place on the27