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THE ROLE OF SMEs IN NON-AGRICULTIRAL RURAL SECTOR OF THE CEECs (A CASE OF THE CZECH REPUBLIC)

THE ROLE OF SMEs IN NON-AGRICULTIRAL RURAL SECTOR OF THE CEECs (A CASE OF THE CZECH REPUBLIC) Wadim Strie ł kowski, M.A. June 2003 Charles University, Prague. Contents. Introduction The state of the field The project description The feasibility of the project The pay-off of the project.

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THE ROLE OF SMEs IN NON-AGRICULTIRAL RURAL SECTOR OF THE CEECs (A CASE OF THE CZECH REPUBLIC)

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  1. THE ROLE OF SMEs IN NON-AGRICULTIRAL RURAL SECTOR OF THE CEECs (A CASE OF THE CZECH REPUBLIC) Wadim Striełkowski, M.A. June 2003 Charles University, Prague

  2. Contents • Introduction • The state of the field • The project description • The feasibility of the project • The pay-off of the project

  3. Introduction A recent turn from the stress on the agricultural development to non-farm sector has brought about many important changes in the Central and Eastern European countries. The new horizons opened by the EU soon-to-be accession have even speeded up this process. The non-agricultural sector is crucial in the context of rural development: • absorbs the excess labor from agriculture, • soothes problems caused by urban-rural migration, • contributes to income growth and • promotes a more decent distribution of income.

  4. Introduction: the idea Role of the small-to medium-sized enterprises (SMEs) in supporting non-agricultural rural sector in the CEECs: • can stop the process of alienation among the rural population, • speed up the growth and • solve such acute problems as - rural unemployment, -degradation and - decline

  5. Introduction: the reason In most CEECs a considerable part of population lives in rural areas. With the agriculture’s share of employment decreasing from the 1989 and the agriculture sector failing to provide a decent source of income for its workforce, the non-agricultural rural sector is becoming crucial for improving the security and living standards of individuals and households in rural areas.

  6. Table 1 Source: Selowsky, Mitra et al. 2001, World Bank database on SMEs

  7. The state of the field (1) Before 1989 rural development in CEECs was for the most part associated with agricultural development. Now there is still a tendency - a main focus on the macroeconomic problems and neglecting the increasing income disparity between rural and urban regions. Czech republic: The per capita GDP in rural areas is 58% of that in urban areas, rural wages are much lower. SAPARD program identifies 22 districts in the Czech Republic where the incomes are below 80% of the national average!!! The share of the agricultural workforce in total employment in the Czech economy decreased from 9,8% in 1989 to 4,2% in 1998. The rural unemployment is 12% higher than in urban areas, and employment growth is much slower. All this issued call for the increasing the role and support of the SMEs

  8. The state of the field (2) The importance of SMEs for the Czech economy: it will be interesting to measure the role and the impact of SMEs in this country. The Czech National Development Plan for 2000-2006 has indicated (SROP, p. 17) that SMEs generally: - have no or rather limited access to the governmental support, - lack the means aimed to support the innovations and the innovators in the rural areas. In comparison with the EU the Czech Republic’s distinguishing feature is the incomplete connection between the economic research and the entrepreneurship and the use of obtained results such a research may produce.

  9. Table 2: Comparisons of SMEs in the Czech Republic and the other OECD members. Source: OECD, Meeting of the Industry Committee – Scoreboard of Indicators, Paris, February 1998, p.81 and the Czech Ministry of Industry, 2000.

  10. Table 3: GDP, value added and employment in small firms (<50 employees). Source: World Bank database on SMEs, 1998.

  11. The project description In my thesis I would like to demonstrate the situation of the SMEs in the Czech Republic nowadays, formulate the main problems they face: • low financial density, • lack of information, • distance from the markets, etc. And attempt to measure the impact of the governmental (Region & Rozvoj programs, Czech National development plan for 2000-2006) and EU initiatives (SAPARD, ISPA) on their development and growth.

  12. Table 4: Regional differences in GDP, Average Wages, and Employment in the Czech Republic Source: Research Institute of Agricultural Economics, Prague.

  13. Due to the characteristics of the Czech economy, the most important factors for the establishment and development of SMEs would likely be: • the firm’s location relative to local and regional markets, • the quality of public transportation, • the quality of education and housing

  14. Table 5: Governmentfunding of the SMEs (firms with 50 employees or less) in the Czech Republic in 2001 (in mln. of CZK) Source: Ministry of regional development

  15. Table 6: Regional funding of SMEs in the Czech Republic (thousands of CZK) Source: Ministry of regional development

  16. The instruments: Recent influence of the institutional changes in the Czech SMEs can be portrayed using the time series analysis and surveys. To test the convergence in the increase of SMEs of the Czech Republic and the EU I will use the econometric analysis of the aggregate data. The β-convergence will be used – on the basis of a graph suggested by Baumol (1986) .

  17. The feasibility of the project The main data for the project will be obtained from: • the Ministry of Regional Development: the implementation of the EU accession programs • the Ministry of Regional Development: the data on the implementation on Czech National Development Plan 2000-2006 • the Czech Statistical Office: data on SMEs in rural areas There is also an option to use the data of WIIW which annually publishes the time series for the economies in transition starting from the 1990 (Handbook of Statistics – Country in Transition). To compare the economies in transition with the developed economies data from one single source should be implemented (due to the consistency of standards): International Financial Statistics (IMF), World Development Indicators (World Bank) and OECD Statistical Compendium.

  18. The pay-off of the project There are considerable challenges and opportunities for SMEs in non-agricultural rural sector in the context of transformation and restructuring, as well as the EU accession process. They face the opportunity of potential new markets and the challenges of increased external competition and compliance with EU import grades and standards. I will attempt to portray the impacts of the institutional changes on the SMEs in non-farm rural economy: both the economic transition and the EU accession, list the problems they face and estimate the convergence for the Czech SMEs in rural sector with those of the EU.

  19. THANK YOU!

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