Private Sector Development South Caucasus: EU-Co-financing Program - Support to SME Development in Armenia (SMEDA), 14 November 2016 - 31 January 2017

About the Suport to SME Development in Armenia (SMEDA)

The private sector in Armenia faces challenges such as the lack of cohesion and coordination of different small and medium-sized enterprises (SME) support programmes, inefficient steering mechanisms for the SME development process, a fragmented landscape of stakeholders, and an inefficient public private dialogue as well as an inefficient decision- making process. The donor coordination process in different intervention areas is currently not government-driven.

The involvement of the private sector in SME development strategies is not effective and interests of SMEs are in fact not reflected in decision-making processes. Supporting services are insufficiently available – both in quality and quantity. Underdeveloped capacities within the organised private sector are main obstacles and barriers to the envisaged development.

Innovative ideas are hardly developed and are rarely transferred into business cases. Research and development are limited, in particular in the SME sector with hardly any cooperation of businesses and research entities. The innovative and creative potential of young specialists is not employed.

Access to finance is another major challenge for SMEs. Due to high debts – accrued during the global financial crisis and an associated decline in GDP (estimated 14% in 2009) – many Armenian SMEs have only limited access to further credits and loans. In general, lending policies of most banks and financial institutions do not encourage investments in SMEs.

With this situation for the private sector in Armenia, the EU-co-financed, GIZ-implemented project “Support to SME Development in Armenia” (SMEDA) was initiated in 2016. The project is in line with the EU Single Support Framework 2014-2017 for Armenia. It is furthermore consistent with the strategic framework documents of Armenia (Armenia Development Strategy and SME State Support Strategy) in order to facilitate their implementation.

The objective of the project is to improve the national business and investment climate and support the creation and development of SMEs to enable broad based growth.

The SMEDA-Project is part of the Regional Private Sector Development in South Caucasus Programme, which is operating in the three countries of the South Caucasus, Armenia, Azerbaijan, and Georgia. This umbrella programme faces the challenge of generating broad based inclusive growth to reduce the urban-rural gap and poverty above all in rural regions. In view of the small domestic markets with low purchasing power, the primary aim is to strengthen private sector development.

The PSD SC Programme has a total budget of EUR 29.693 Mio EURO, which is divided as follows:

-PSD SC Programme: EUR 15.76 Mio EURO for four years (2013-2017).

-Project “Economic Integration of Syrian Refugees in Armenia”: EUR 2.5 Mio EURO for two years (2015-2017).

-EU-co-funded Project “DCFTA and SME Development” in Georgia: EUR 5 Mio EURO for four years (2015-2019).

-EU-co-funded Project “Support to SME Development in Armenia”: 6.4 Mio

EURO for four years (2016-2019).

The “Support to SME Development in Armenia” (SMEDA) Project is focusing on the following result areas:

(1)Improved policy making process and coordination of supports to SME development for a conducive business development framework,

(2)Strengthened private sector organisations to implement SME policies,

(3)Improved process of commercialization of ideas linking research institutions and businesses via cooperation networks,

(4)Improved design and management of economic clusters (business incubators, techno parks, and Free Economic Zones),

(5)Diversified access to finance for innovative start-ups and small businesses.

The project is co-funded by the European Union and implemented by the GIZ Programme Private Sector Development South Caucasus (PSD SC) and its country component in Armenia. The PSDSC-Programme is commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ). The SMEDA-Project is designed for four years from 2016 to 2019 with a total budget of EUR 6.400.000.

SMEDA Overall Objective

Create employment opportunities by enhancing private sector development in Armenia.

SMEDA Specific Objective

The specific objective is to improve the national business and investment climate and support the creation and development of SMEs to enable broad based growth.

SMEDA Indicators

1.Increase the proportion of SME within the overall economy: increase the share of SME from 7% to 15% in overall number of micro, small and medium enterprises in Armenia.

2.Increase share of SME in employment from 25% to 30%.

3.Increase share of SME in GDP from 27% to 35%.

4.Increase of added value created by SMEs.

Partner structure: executing agencies and intermediaries

The project is guided in its implementation by a Technical Project Steering Committee (PSC), 

which is co-chaired by representatives of the EU Delegation and the Ministry of Economy (MoE).

Target Group and Implementing Partners

The target group is composed of all relevant stakeholders involved in the development of SMEs in Armenia. This includes the political lead partner, the Ministry of Economy in Armenia, and the Small and Medium Entrepreneurship Development National Centre (SMEDNC), related sector associations, the Armenian Chambers of Commerce and designated SME support organisations.

An important project partner is the Armenian Enterprise Incubator Foundation (EIF), which implements parts of the project activities related to managing and monitoring of funds forstart-ups and small businesses.

Another important target group is females and males, owners and employees of SMEs.

Planned Activities of SMEDA-Project

• Support to policy making by assisting the Armenian government to implement the SME strategy and to introduce a review mechanism for the SME development strategy and its action plans
• Support to policy implementation by strengthening the institutional capacities of the Ministry of Economy and the SMEDNC in terms of coordinating the implementation of the SME strategy and related action plans as well as developing an information portal to support business performance on foreign trade transactions
• Support to Public-Private Dialogue (PPD) by strengthening the capacities of the Ministry of Economy to manage the PPD process as well as to assess and recommend on dispute settlement mechanisms and platforms
• Provide technical assistance to private sector organisations to improve and expand services and to increase their network with European businesses
• Strengthening the capacities of private sector organisations to participate in PPD platforms and to utilize the opportunities of technology transfer as well as to promote entrepreneurial skills, clusters and value chain development
• Support to linking research institutions and the private sector to foster innovation
• Support to state bodies and the private sector to access EU innovation support resources and platforms such as the new EU Framework Programme for Research and Innovation (Horizon 2020)
• Strengthening capacities of the Ministry of Economy to design, implement and promote clusters
• Support to improving cluster management, linking clusters to European networks as well as developing and promoting new areas for business incubation
• Supporting the provision of grants to support technology start-ups and SMEs promoting new services/products
• Support to EIF and SMEDNC to design and implement business acceleration and coaching programmes for entrepreneurs and grant recipients 

Context and current situation in the field of assignment

The newly commissioned SMEDA-Project embraces 5 result areas and a team headed by a team leader and composed of 3 project experts, a communication expert, and a financial and administrative manager.

The government of RA in the Strategy of Export-Led Industrial Policy of Armenia identified 11 sectors that have significant export potential, from which one is Precision Engineering. The sector of precision engineering is defined to include optical, electronic, mechanical and machinery production, characterized by high level of precision and/or knowledge content1. The SMEDA-Project organized a Roundtable Discussion on Precision Engineering on 19th of July. The purpose of the event was to bring companies, service providers, and institutions active in the Precision Engineering sector in Armenia together and to discuss the current situation of cooperation, challenges of communication and commercialization and the possible next steps. Although there are many available capacities (e.g. rich Soviet scientific- technical heritage; underutilized industrial complexes with developed infrastructure (i.e. RAO Mars); technological, standards and cultural commonality and close relations with the former Soviet countries; presence of global technological companies in Armenia, etc.), still there seem to be big challenges/gaps in the field of Precision Engineering:

According to “Precision Engineering” Sector Strategy 2011-2020:

-Minor resource allocation for R&D by local companies;

-Poor marketing and managerial skills of local companies;

-Shortage of graduates with knowledge and practical skills, meeting the requirements of the companies.

According to the results of the Roundtable discussion on PE:

-Lack of modern technologies, laboratories and critical mass of expertise;

-Weak cooperation with science;

-Market actors are not aware of the market trends / opportunities;

-Lack of connection and experience exchange within the Armenian community;

-Difficulties connected with applying to big projects;

-Difficulties with customs clearance.

In order to understand all these challenges in depth, have a broad picture of the sector and find out the potential development directions of the field, the SMEDA-Project will organise a sector study of Precision Engineering sector.