Q: How does EBRD perceive the small businesses sector in Romania in 2016? What are the risks and the challenges? How does EBRD define ‘small businesses’ and how does it support this sector in Romania?
Matteo Patrone: A vibrant small and medium-sized enterprise (SME) sector is a vital ingredient for a healthy market economy. In Romania, as many other countries, SMEs play a key role in GDP growth and creating added value.
Our recent survey conducted with the World Bank found that difficulties in accessing finance are perceived as among the top three obstacles to doing business. In addition, SMEs also face challenges in accessing the knowledge, information and skills to improve their performance, often in business environments in which they are more vulnerable to issues of corruption, bureaucracy and political instability.
At the EBRD, we believe that improving the agility of the SME sector and its ability to respond effectively to new developments can contribute to building long-term resilience into the economy as a whole.
In Romania, the EBRD is committed to stimulating sustainable, commercial lending to SMEs that have lacked access to finance, with a particular focus on regional disparities, rural areas and financial inclusion. More specifically, the Bank is working to re-energise bank lending and non-bank financing. We use various financial instruments: local currency financing, dedicated frameworks and credit lines (including for energy efficiency and agriculture), and other suitable instruments, including possible risk-sharing.
Also, the Bank promotes adoption of good standards of management practices, financial transparency and integrity best practices via its dedicated Advice for Small Businesses programme, all while seeking to enhance productivity, sustainability and energy and resource efficiency.
Q: Compared to the past experiences during the crisis, does the current environment (the low oil price, the talks about the Brexit, the geo-political conflict in Ukraine) add some pressures/ opportunities for the small businesses in Romania?
Matteo Patrone: It is probably too early to assess the full impact of Brexit on real economy in Romania and in Europe in general. If we want to draw a lesson from other recent events, it is one of mixed outcomes. Most of the EBRD’s countries of operations have benefited directly from the decline in oil prices through reduced bills for energy imports and improvements in their terms of trade (that is to say, the average price of their exports in terms of the average price of their imports).
On the other hand, the economic outlook has been negatively affected by the increased geopolitical uncertainty in the region (the conflict in Ukraine escalated repeatedly in the second half of 2014 and 2015; the sanctions imposed on Russia, combined with uncertainty about their possible escalation in the future). The weaker export environment and deteriorating market sentiment that have resulted from these tensions have all but offset the benefits of declining oil prices.
As a result of the financial crisis and difficult environment in the financial sector, financing for SMEs in Romania is limited, particularly in rural areas and outside major cities, and for small agricultural enterprises. Lack of eligible collateral has constrained the flow of credit, particularly to SMEs, of which more than 80% rely on self-financing, through retained earnings or sale of assets and loans from shareholders or capital increases.
As a result, SMEs generate less than 50% of the total value added of the business economy, compared to the EU average of almost 60%. Increasing non-collateralised lending to SMEs thus remains a challenge and, generally, domestic credit to the private sector as a percentage of GDP is relatively low by regional standards.