Small and Medium-Sized Business and its Support
Small and medium-sized business is one of the factors of economic growth having a substantial impact on the general development of the national economy, creation of new jobs and social stability. For this reason its development is one of the most important goals in Lithuanian economic policy.
Small and medium-sized enterprises (SME), which employ up to 250 people, create around 58 per cent of the entire national Gross Domestic Product (57.4 per cent in 2000, 59.1 per cent in 2001 and 58.2 per cent in 2002).
The GDP per capita created in the SME increased by nearly 14 per cent from 1999-2002 amounting to 8,437 litas per resident in 2002 (Figure 10). The increase was fuelled by constructive economic policies of the Lithuanian Government, economic growth and the improved management of companies.
Figure 10
GDP Per Capita Created by SME, 1999–2002, litas
Source: Statistikos Tyrimai VŠI
In 2000–2002, the contribution of SME was mostly the input of companies employing up to nine people. The number of these companies decreased (from 45,100 in 2001 to 33,800 in 2002), but they still dominated. The breakdown of Lithuanian companies by number of employees at the end of 2002 is shown in Figure 11 .
Figure 11
Breakdown of Lithuanian Companies by Number of Employees on 31 December 2002 , per cent
Sources: Statistics Lithuania , Statistikos Tyrimai VšI
The number of active SME in the total of active companies in 2000-2002 was stable, totalling around 99.5 per cent of all registered companies. At the end of 2000, there were 54,203 active small and medium-sized companies, 56,214 at the end of 2001, and 55,210 at the end of 2002. Until 2001, the number of liquidations of SME was higher than the number of registrations, but in 2002 the trend changed and the number of registered SME exceeded the number of liquidated SME. Although the number of liquidations dropped in 2002, the number of registered companies also went down (Figure 12). Experts believe that this was the result of amendments to the Law on Income Tax of Individuals offering people the opportunity to engage in individual business without registering a company.
Figure 12
Number of Companies Registered and Removed from the Register in 2001–2002
Sources: Statistics Lithuania , Statistikos Tyrimai VšI
Measures Expected to Improve the Business Environment
In 2003, the focus in the process of encouraging small and medium-sized business fell on developing and boosting financial support to the SMB system, improving the accessibility of services supplied to business, development of the regional network of business information and business incubators, as well as expanding the competence and encouraging the co-operation of businessmen.
Investiciju ir Verslo Garantijos Private Limited Liability Company ( Investments and Business Guarantees – INVEGA) continued its work to improve the terms of supplying financial support to SME. In 2003, the terms for granting loans and compensating company expenses were improved:
• the maximum amount of a guaranteed loan was increased to 1 million litas (previously the maximum guaranteed loan amount was only up to 0.5 million litas);
• having issued a guarantee to a specific share of a loan taken by a SME, i.e. about 80 per cent of the loan amount for microcompanies and 50 per cent of the loan amount to other small business entities, the requirement to have a mortgage to obtain bank credit was dropped for small business entities (previously the losses were divided proportionally between INVEGA and the banks);
• 50 per cent of the interest paid by small and medium-sized business entities was compensated (previously the compensation of interest was linked to the average market interest rate which would be lower than the interest rate on the credits issued to SMB);
• guarantee liability amounts were increased from 20 million to 35 million litas, leading INVEGA to grant more guarantees for loans issued to SMB entities.
In 2003, the need for INVEGA guarantees increased. INVEGA issued 179 guarantees on credits worth nearly 38 million litas (overin 2002, 102 guarantees were issued to cover loans worth 20 million litas). During the year 768,000 litas of interest were paid. Implementation of the projects made possible by businessmen taking credits on INVEGA guarantees in 2003 could lead to the creation of about 700 new jobs.
In 2003, businessmen continued to receive services through the network of business service institutions (business information centres and business incubators). The purpose of the business service institutions network is to encourage entrepreneurship and incorporation of small and medium-sized business entities in providing information, consulting, training and premises and office equipment rental services on easy terms to SMB entities and starting businessmen. In 2003, the network of business service institutions continued to expand. Thirteen business information centres were founded (in Druskininkai, Jonava, Marijampole, Kupiškis, Rokiškis, Pasvalys, Šiauliai, Kelme, Plunge, Mažeikiai, Moletai, Šalcininkai and Biržai). Presently, there are a total of seven active business incubators and thirty-two active business information centres (Figure 13).
Figure 13
Network of Business Service Institutions in 2003
There were 145 companies founded in business incubators in 2003 and during the year the companies created 403 new jobs (315 new jobs were developed in the incubators throughout 2002).
In 2003, business services network institutions responded to over 30,000 enquiries, sponsoring over 400 events for business information dissemination gathering 11,500 participants. There were also 4,800 hours of consulting and 8,600 hours of training. In addition to that, in 2003, business information centres and business incubators started supplying information to businessmen on opportunities to receive support from the EU Structural Funds and in the future are to help in drafting applications for funding from Structural Funds.
To implement the means of SMB development the Lithuanian Development Agency for Small and Medium Sized Enterprises VšI (LSVVPA) informed businessmen about the changes in the business environment, encouraged the co-operation of big and small companies, contributed to the increase in the competence of businessmen and supplied methodological help to the institutions of the business service network. LSVVPA issued the publications Verslo Žinynas ( Business Directory ), Lietuvos Smulkaus ir Vidutinio Verslo Bukle ( State of Lithuanian Small and Medium-Sized Business ) in Lithuanian and English and issued and distributed newsletters. LSVVPA used the means of disseminating electronic business information through its Internet portal, followed up a project encouraging the co-operation of big, small and medium-sized companies, implemented the project Consulting and Training of Companies where subsidised individual consulting and specialised training was offered in Lithuanian counties. During the implementation phase of the project around 3,800 hours of consulting and training were offered, and 1,046 employees of 608 companies took advantage of these. The project encouraged the development of companies participating in the project and boosted employee qualifications. LSVVPA also carried out the supervision of services supplied by business information centres and business incubators and offered methodological guidance.
In addition to these measures, in 2003 the Ministry supported the implementation of different target projects to encourage entrepreneurship: the pilot project Virtual Office (transfer of business into electronic media) was implemented, the competition The Best Small and Medium-Sized Business Representative was staged, etc.
In 2003, EU integration work in the area of small and medium-sized business continued. The report on implementation of the measures of the European Charter for Small Enterprises was drafted. The Ministry's participation in an EU programme for companies that has been running for many years launched the following new projects: Development of E-Commerce of Small and Medium-Sized Companies in Europe, Mini-Companies in Secondary Education Establishments, Obstacles to Company Growth: Hiring the First Employee, Report on the Best Examples of Guarantees and Bilateral Guarantees, Consulting with Interested Parties in Forming Small Business Policies on National/Regional Levels, and Lithuania's third European Information Centre (in Klaipeda). In 2003, dialogue continued with the European Investment Fund (part of the European Investment Bank group) on new measures to expand SMB development opportunities.