Analysis of external factors affecting the development of SMEs in Kosovo

Small and medium enterprises are becoming increasingly important for the creation and development of a modern, dynamic and knowledge-based economy. This is because of their capacity to promote entrepreneurship and entrepreneurial skills, and because of their ability to be flexible and adapt quickly to a changing market, and to generate new jobs. SME sector is the backbone of the economy in countries with higher income, while it is less developed in the countries with the low incomes. Organization for Economic Cooperation and Development (OECD) reports that more than 95% of enterprises in the OECD area are SMEs. These enterprises employ about 60% of private sector workers, make a major contribution in the field of innovation and support regional development and social cohesion. Also, SMEs in most low income countries give significant contribution to GDP growth and the creation of new jobs. In Kosovo SMEs represent more than 99% of the total number of enterprises and their share in GDP amounts to more than 50% (CBK, 2011). For this reason, the identification of external factors affecting the development of SMEs in Kosovo is very important, in order to take all the necessary steps to reduce or remove barriers and create new opportunities for these enterprises. This research focuses primarily on the impact of external factors, with special emphasis on access to finance for Small and Medium Enterprises (SMEs) in Kosovo. External factors such as access to finance, competition, corruption, and government policies have very important impact in the development of SMEs in Kosovo. Facilitating access to finance is essential to set up a favorable environment to develop SMEs. However, in general, SMEs in developing countries face numerous barriers to funding, although this problem is not unknown even in developed countries. Barriers that face SMEs usually relate to high administrative costs, high collateral requirements and the lack of willingness of banks to lend to SMEs. Raising the level of awareness of their role and availability of access to finance for SMEs can improve economic conditions in developing countries by promoting innovation, growth of GDP and reduce unemployment.