5.2 DEVELOPMENT OF THE <strong>SME</strong> SECTOR IN ARMENIA 225.2.1. <strong>SME</strong> Sector <strong>Development</strong>Recognizing <strong>the</strong> need for <strong>the</strong> pursuit <strong>of</strong> <strong>the</strong> social-economic, well-being, given <strong>the</strong>significant role <strong>and</strong> strategic meaning <strong>of</strong> small <strong>and</strong> medium entrepreneurship (<strong>SME</strong>) in <strong>the</strong>economic development, enhancement <strong>of</strong> employment <strong>and</strong> living st<strong>and</strong>ards, formation <strong>of</strong> <strong>the</strong>middle class as well as in ensuring social <strong>and</strong> political stability in <strong>the</strong> country, <strong>the</strong> Government<strong>of</strong> <strong>the</strong> Republic <strong>of</strong> Armenia has declared this sector as one <strong>of</strong> priorities in economicdevelopment thus acting towards creation <strong>of</strong> sound support system for this sector.Although <strong>the</strong> <strong>SME</strong> state policy-making in Armenia has a short history, indeed it ischaracterized with specific developments, having significant influence on almost all elements <strong>of</strong><strong>the</strong> country’s economic structure. Due to <strong>the</strong> Government activities undertaken towardsdevelopment <strong>of</strong> this sector, particularly during <strong>the</strong> recent 5-6 years number <strong>of</strong> positive changeshas taken place. Implementation <strong>of</strong> reforms targeted at <strong>the</strong> formation <strong>of</strong> <strong>SME</strong> development <strong>and</strong>support system gave an opportunity to introduce key principles <strong>and</strong> mechanisms into nationaleconomy, necessary for consistent implementation <strong>of</strong> <strong>the</strong> state policy.Since 2000 <strong>the</strong> legal environment for <strong>SME</strong>s has been created. The legislative basis for<strong>SME</strong> development state policy is <strong>the</strong> “Concept for <strong>SME</strong> <strong>Development</strong> Policy <strong>and</strong> Strategy inArmenia” adopted by <strong>the</strong> Government in 2000, which has stipulated economic, social <strong>and</strong>political objectives <strong>of</strong> <strong>SME</strong> development policy in <strong>the</strong> country <strong>and</strong> <strong>the</strong> main directions for <strong>the</strong>irrealization.The adoption <strong>of</strong> this document served as a precondition for drafting <strong>the</strong> Law <strong>of</strong> <strong>the</strong>Republic <strong>of</strong> Armenia on “State Support <strong>of</strong> Small <strong>and</strong> Medium <strong>Entrepreneurship</strong>”, which wasadopted by <strong>the</strong> National Assembly <strong>of</strong> Armenia in December 2000. The adoption <strong>of</strong> <strong>the</strong> Lawsolved two major problems. It defined, that commercial companies <strong>and</strong> sole proprietorsemploying appropriate average number <strong>of</strong> employees as shown in Table 17. are classified as<strong>SME</strong>s.Table 17.The criteria for <strong>SME</strong> definition in Armenia 23Classification<strong>SME</strong>sSectorMicro(number <strong>of</strong>employees)Small(number <strong>of</strong>employees)Medium(number <strong>of</strong>employees)Industry <strong>and</strong> o<strong>the</strong>r sector <strong>of</strong>5 50 100productionConstruction <strong>and</strong> power engineering 5 25 50Science <strong>and</strong> education 5 25 50Transport, trade <strong>and</strong> services 5 15 30The above-mentioned Law determines <strong>the</strong> main directions <strong>and</strong> mechanism for <strong>SME</strong> statesupport.as follows:22 Prepared by Anna PETROSYAN, PhD <strong>of</strong> Economics, Chief Specialist, Department for <strong>SME</strong> <strong>Development</strong>,Ministry <strong>of</strong> Trade <strong>and</strong> Economic <strong>Development</strong> <strong>of</strong> <strong>the</strong> Republic <strong>of</strong> Armenia23 Law <strong>of</strong> <strong>the</strong> Republic <strong>of</strong> Armenia on “<strong>SME</strong> State Support” Article 2: <strong>SME</strong>s. The concern <strong>of</strong> companies to <strong>SME</strong>srunning <strong>the</strong>ir activity simultaneously in different sectors is determined by criteria <strong>of</strong> prevailing sector <strong>of</strong> activity.Organizations engaged in crediting, insurance <strong>and</strong> investment activities, lombards, security market pr<strong>of</strong>essional actors,casinos, <strong>and</strong> organizations involved in gambling business, as well as subsidiary <strong>and</strong> dependant units are not consideredas <strong>SME</strong>s.86
- Formation <strong>of</strong> favorable legal environment;- Financial <strong>and</strong> investment support <strong>and</strong> provision <strong>of</strong> loan guarantees;- Assistance for creation <strong>and</strong> development <strong>of</strong> support infrastructures;- Business information <strong>and</strong> consultancy support;- Promotion <strong>of</strong> foreign economic activities;- Support for application <strong>of</strong> innovations <strong>and</strong> modern technologies;- Performance <strong>of</strong> favorable tax policy;- Vocational education <strong>and</strong> training;- Creation <strong>of</strong> simplified systems for statistic reports <strong>and</strong> accountancy;- Support for procedure for performance <strong>of</strong> state purchasing.Besides, since 2000 o<strong>the</strong>r laws, governmental decrees <strong>and</strong> o<strong>the</strong>r legal acts have beenadopted in concern to entrepreneurship <strong>and</strong> <strong>SME</strong>s, particularly: <strong>the</strong> Laws on “Simplified Tax”,“Protection <strong>of</strong> Internal Market”, “State Registration <strong>of</strong> Legal Entities”, “Sole Proprietorship”,“Licensing”, “Protection <strong>of</strong> Economic Competition”, “Limited Liability Companies”, “Joint StockCompanies”, “Trade <strong>and</strong> Services”, as well as some o<strong>the</strong>r strategic documents “RegionalEconomic <strong>Development</strong> Strategy <strong>of</strong> Armenia”, “Concept for H<strong>and</strong>icraft <strong>Development</strong> <strong>of</strong>Armenia”, “Food Security Policy <strong>of</strong> Armenia”, “Poverty Alleviation Strategic Program <strong>of</strong>Armenia” etc.According to <strong>the</strong> Law on <strong>SME</strong> State Support” since 2001, <strong>the</strong> Government <strong>of</strong> <strong>the</strong>Republic <strong>of</strong> Armenia has elaborated <strong>SME</strong> state support annual programs, <strong>the</strong> main purpose <strong>of</strong>those is to continuously affect <strong>the</strong> enhancement <strong>of</strong> <strong>SME</strong> role in <strong>the</strong> social-economic <strong>and</strong>regional developments <strong>of</strong> <strong>the</strong> country. The funding for <strong>the</strong> programs is made from <strong>the</strong> statebudget outlined with a separate item line. Besides, international/foreign organizations eachyear provide financing to enlargement <strong>of</strong> <strong>the</strong> scope for implementation <strong>of</strong> <strong>SME</strong> state supportannual programs.Taking into account <strong>the</strong> content <strong>and</strong> implementation policy <strong>of</strong> <strong>the</strong> programs one can findan obvious progress in support volume <strong>and</strong> directions for various years’ programs, as well asselection <strong>of</strong> more targeted tools for <strong>the</strong>ir implementation.The <strong>SME</strong> state support annual programs contain a number <strong>of</strong> measures towardsfinancial (provision <strong>of</strong> loan guarantees to <strong>SME</strong>s, financial support to start-ups) <strong>and</strong> technical(information, counseling, training support, assistance for application <strong>of</strong> ISO 9000 quality controlst<strong>and</strong>ards, innovations into <strong>SME</strong>s, assistance to Start-ups, assistance to promote good/servicesinto markets etc) support. In <strong>the</strong> scope <strong>of</strong> <strong>the</strong>se programs <strong>the</strong> preference is given to support <strong>of</strong><strong>SME</strong>s engaged in production, applying innovations <strong>and</strong> high technologies <strong>and</strong> having exportpotential as well as preference is given to development <strong>of</strong> entrepreneurial initiatives <strong>of</strong> start-upbusinesses, women, unemployed, disabled persons <strong>and</strong> refugees.It is worth to mention, that since 2004 <strong>the</strong> essential part for implementation <strong>of</strong> <strong>the</strong>program has been directed to support <strong>of</strong> operating <strong>and</strong> start-up <strong>SME</strong>s outside Yerevan City: in<strong>the</strong> regions (marzes) <strong>of</strong> <strong>the</strong> Republic <strong>of</strong> Armenia, mostly in distant <strong>and</strong> border-closesettlements.One <strong>of</strong> <strong>the</strong> essential achievements is <strong>the</strong> formation <strong>of</strong> <strong>the</strong> key structure responsible forimplementation <strong>of</strong> <strong>SME</strong> state support annual programs in Armenia, <strong>the</strong> Fund “Small <strong>and</strong>Medium <strong>Entrepreneurship</strong> <strong>Development</strong> National Center <strong>of</strong> Armenia” (<strong>SME</strong> DNC <strong>of</strong> Armenia) 24 .24 <strong>SME</strong> DNC <strong>of</strong> Armenia was established under <strong>the</strong> Government Decree (Decree N 282 19.03.2002) within <strong>the</strong>framework <strong>of</strong> <strong>SME</strong> State Support Program for 2002, as a program measure.87
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1. SME DECLARATION AND WORKING GROU
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While comparing the BSEC and EU doc
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cooperation with the United Nations
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GENERAL ASSESSMENT OF THE BSEC WG O
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“Armenia's new law introduces a n
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(iii)Share of the labor force of SM
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The following data represents some
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RankDocuments for export(number)Tra
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• Industrial zones/Business incub
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3.1.4. FINANCING SMEsProf. Dr. Sela
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• the loan is secured with movabl
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3.1.4.3. Mutual and loan guarantee
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introduction of e-signatures, only
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The Code of Conduct for Civil Serva
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Trading Across Borders Enforcing Co
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as with all non-governmental organi
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7. SUGGESTIONS FOR THE SME DEVELOPM
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Annex 1.MAP OF THE BLACK SEA COUNTR
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17-18 June 2005 1 st Moscow Interna
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ARMENIASTRENGTHS• Application of
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BULGARIASTRENGHT• Flexibility and
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GREECESTRENGHT• They have a vital
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ROMANIASTRENGHTWEAKNESS• Stabilis
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REPUBLIC OF SERBIASTRENGHT• Longe
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UKRAINESTRENGTHS• Well educated l
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In compliance with the Resolution m
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1. Please provide definition of SME
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7. Did you establish a dedicated bo
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11. Do you have any suggestions for