PUBLIC POLICIES TO SUPPORT ENTREPRENEURSHIP AND SMEs. EMPIRICAL EVIDENCES FROM ROMANIA.

• Author: Anton, Sorin Gabriel

1. Introduction

   Supporting entrepreneurship and SMEs, namely facilitating their access to finance on reasonable terms, is a priority both nationally and at EU level. The government strategies to support SMEs developed in Romania after 1990 gives a great importance to access to finance. Also in the European Union, 'Small Business Act' for Europe accords special attention to facilitate SMEs' access to finance.

   Thorough understanding of the phenomenon of entrepreneurship and their factors (internal and external) determines the starting point in developing public policies to support SMEs. Also, evaluating the results of past government measures represents the condition to enhance future policies.

   In Romania, like in many Central and Eastern European (CEE) countries, the process of deleveraging initiated by subsidiaries of multinational banks, a sharp decline in bank profitability, and an erosion of bank capital affected corporate lending and, to a larger extent, SMEs' financing. Romanian SMEs currently face difficulties in accessing finance due to both demand and supply side constraints. On the supply side, Romanian banks are under pressure mostly due to the high level of non-performing loans (one of the highest in the European Union). On the demand side, (1) the lack of sufficient collateral and track record in the case of start-ups, very young firms, micro and small enterprises and (2) poor business performance and insufficient information for medium-sized firms determine banks to be reluctant to approve new lending. The aim of the paper is to analyze the public policies implemented after the onset of the global financial crisis in order to foster entrepreneurship and to support SMEs from Romania.

   The rest of the paper is organized as follows. In the next section, a review of the existing literature on public policies to support entrepreneurship and SMEs is provided. The third section presents the entrepreneurial environment in Romania during and after the financial crisis. Section four assesses the public policies for supporting entrepreneurship and SMEs in Romania implemented over the period 2008-2013. Concluding remarks follow in the last section.

2. Literature review

   An extensive empirical literature has documented the positive effects of entrepreneurship on job growth, innovation and economic growth. Numerous studies (Vos et al., 2007; Beck, Demirgug-Kunt and Maksimovic, 2008) found that SMEs face higher financial constraints as large firms and the lack of external financing represents a barrier in their survival and development. The global financial crisis which started in 2008 deeply affected the SMEs and exacerbated the financial constraints they faced. Given their important role in the economic recovery from the current economic and financial crisis, many governments initiated (new) programs to foster SME financing, including government subsidized lines of credit, public guarantee funds, (public) venture capital funds, and other public SMEs support schemes.

   Another line of research developed mainly in recent years refers to policy analysis to support entrepreneurial activity. Thus, many authors and international institutions active in analyzing the entrepreneurial phenomenon developed articles dedicated to policies to support entrepreneurs in various countries (OECD, 2009; United Nations Economic Commission for Europe, 2012; OECD/The European Commission, 2013; Wilson and Silva, 2013; Wehinger, 2013).

   OECD is a leader in studying the effects of the financial crisis on SMEs from its member countries. Soon after the onset of financial crisis, OECD (2009) started to study the effects of the global crisis on SMEs' and entrepreneurs' access to finance and also the policy actions implemented by governments in order to tackle these issues. The report found that extension of loans and loan guarantees were the most used policy measures to improve conditions for access to finance by SMEs and entrepreneurs. In 2010, OECD has launched an Assessment of Government Support Measures to Facilitate SME Access to Finance in the Global Crisis (OECD, 2010). Secondly, in order to monitor SME financing trends and needs, it developed a Pilot OECD Scoreboard on SME and Entrepreneurship Financing Data and Policies starting 2012 (OECD, 2012). OECD and the European Commission (2013) study the policy actions for inclusive entrepreneurship in Europe. The paper presents policy practices from EU member states designed for unemployed and excluded communities.

   Wilson and Silva (2013) analyzed policy measures to support seed and early-stage financing for SMEs in 34 OECD countries. Table 1 presents the various financing instruments available in these countries during the financial crisis. The authors found that many OECD countries implemented supply side policy interventions during the financial crisis. Grants, loans and credit guarantees schemes are widely used across OECD economies to ease financial constraints for SMEs. Many OECD countries have also some type of government equity programme in place in the form of direct investment through government funds, fund of funds and public/private co-investment funds. Furthermore, tax incentives (front-end and back-end) and Young Innovative Companies programs have been often used by governments in order to improve the SMEs' access to finance.

   Wehinger (2013) provides an extensive review of policy measures to support SME lending in OECD countries during the financial crisis. He found that policy support played an important role in overcoming many of financial constraints faced by SMEs.

   To the best of our knowledge, this is the first study to assess the public policies aimed to support entrepreneurship and SMEs in Romania. Numerous studies undertaken until now have excluded Romania from the sample, most likely due to the difficult access to information. We use data from the Adult Population Survey and the National Experts Survey of the GEM project. We also employed hand-collected data for public policies in order to assess the effects of public actions to support entrepreneurship.

3. Entrepreneurial profile of Romanian economy over 2007-2013

   Analyzing data from the Global Entrepreneurship Monitor (GEM), we highlight several features of individual perceptions and entrepreneurial activity in Romania in 2007-2013. After the onset of the financial crisis, the percentage of individuals who believe there are opportunities to start a business in the area they live in decreased to the lowest level within the period (14%, in 2009). After that, in the light of improved macroeconomic conditions, the perception of entrepreneurial opportunities started to improve continuously, reaching the highest value in 2012 (37%) (see Table 2).

   In the same time, the percentage of individuals who believe they have the required skills, knowledge and experience to start a new business (so called 'perceived capabilities') remained relatively constant in the first three years, followed by a 10% increase in the second part of the period (2010-2013). It is interesting to note that Romania exhibits higher evaluation of these two perceptions than the EU 28 average (see Table 2).

   The fear of failure rate increased sharply together with the worsening of the financial crisis, and starting with 2010 to meet a reduction under the average EU-28 countries.

   The entrepreneurial intentions reflect the percentage of individuals who expect to start a business within the next three years. The value of this variable decreased in the first three years down to 6.3% in 2009, and then tripled to the level of 27% in 2012. For the last year with available data (2013), Romania exhibits the highest entrepreneurial intention rate (23.7%), well above the EU-28 average (13.5%).

   GEM provides information about the way the society assesses the visibility and attractiveness of entrepreneurship. Table 2 presents the evolution of three variables used in this regard, namely: media attention for entrepreneurship, high status successful entrepreneurship, and entrepreneurship as desirable career choice. Romania exhibits high level on all attitude measures. Entrepreneurship is considered to be a good career choice by 74% of individuals, compared to only 56.9% for EU28 average. Also, in Romania entrepreneurs are afforded high status and receive positive media attention.

   The total early-stage entrepreneurial activity rate (TEA), the most important measure of GEM, reflects the percentage of individuals aged 18-64 in an economy who are a nascent entrepreneur or owner-manager of a new business. It includes individuals who are actively involved in setting up a business they will own or co-own, respectively individuals who are owning and managing 'a running business that has paid salaries, wages, or any other payments to the owners for more than three months, but not more than 42 months' (Global Entrepreneurship Monitor, 2011, p. 1). TEA has increased steadily in Romania from 4% in 2007 to 10.1% in 2013, a value well above the EU28 average (see Table 3).

   GEM measures the motivations to start businesses by two variables: improvement-driven opportunity entrepreneurial activity and necessity-driven entrepreneurial activity. As Table 3 shows, the motivations to start a business in Romania differ from one year to another. The percentage of...