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
Contents
• Introduction
• The state of the field
• The project description
• The feasibility of the project
• The pay-off of the project
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.
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
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.
Table 1
Share of Value Added in SMEs (1989-1998)
70
60
%
50
Czech republic
40
Poland
30
Hungary
20
10
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
0
year
Source: Selowsky, Mitra et al. 2001, World Bank database on SMEs
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
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.
Table 2: Comparisons of SMEs in the Czech Republic and the other
OECD members.
Number of enterprises
Number of employees
Value added
Shares in %
Country
0-99
100499
500+
0-99
100-499
500+
0-99
100499
500+
Belgium
98.9
0.9
0.2
45.4
19.5
35.1
54.4
18.6
27.0
Austria
86.1
12.1
1.8
40.6
36.0
23.4
27.4
36.4
36.2
Czech
republic
98.1
1.5
0.4
28.0
27.8
44.2
20.9
24.3
54.8
EU
98.9
0.9
0.2
53.3
16.2
30.5
50.0
21.4
28.6
Source: OECD, Meeting of the Industry Committee – Scoreboard of Indicators, Paris, February 1998, p.81 and the Czech Ministry of Industry, 2000.
Table 3: GDP, value added and employment in small firms (<50
employees).
Czech republic
60
50
GDP
30
VA by small
enterprises: % of total
VA
20
10
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
1989
%
40
year
Source: World Bank database on SMEs, 1998.
% of the employees in
SMEs
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.
Table 4: Regional differences in GDP, Average Wages, and Employment in the Czech Republic
Indicator
Czech republic
Regions
Rural
Urban
Per capita GDP in 1996 (Euro)
3627
3219
4899
Relative to EU (%)
58.7
52.1
89.3
Relative to the Czech Republic (%)
100.0
88.8
152.2
Average wage in 1996 (Euro)
269
253
312
Relative to the Czech Republic (%)
100.0
94.2
123.2
Unemployment in 1998 (% of labour)
7.5
7.7
6.9
Relative to the Czech Republic (%)
100.0
102.3
89.3
Differences in employment 1989-1996
-226.211
-300.705
+74.499
% of initial situation
-4.3
-6.7
9.8
Change in agricultural employment 1989-1996
-393.397
-373.349
-20.048
% of initial situation
-57.3
-56.5
-76.0
Source: Research Institute of Agricultural Economics, Prague.
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
Table 5: Government funding of the SMEs (firms with 50 employees or less) in the Czech Republic in
2001 (in mln. of CZK)
Region
Praha
Numbers
Funding total
Assurance
Together
69
34,07
10,20
44,28
Střední Čechy
108
116,31
49,67
165,98
Jihozápad
212
149,35
49,22
198,57
Severozápad
108
86,16
38,21
124,37
Severovýchod
254
123,26
80,84
204,09
Jihovýchod
251
131,86
58,31
190,17
Střední Morava
219
187,87
65,97
253,84
Moravskoslezsko
306
244,42
53,22
297,64
1527
1073,31
113,58
1186,89
Together
Source: Ministry of regional development
Table 6: Regional funding of SMEs in the Czech Republic (thousands of CZK)
Region
1998
1999
2000
2001
Severozápad
62 300
65 200
54 800
39 700
Jihozápad
54 800
45 100
51 400
22 500
Severovýchod
61 300
31 500
21 600
65 100
Jihovýchod
84 100
40 500
68 400
19 900
Střední Čechy
42 000
21 300
26 500
38 500
Střední Morava
36 700
66 700
57 100
56 000
Moravskoslezsko
87 200
131 500
102 900
101 700
428 400
401 800
382 700
343 400
Total
Source: Ministry of regional development
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) .
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.
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.
THANK
YOU!