Analysis of external factors affecting the development of SMEs in Kosovo

Abstract

Small and medium enterprises are becoming increasingly important for the creation and development of a 
modern, dynamic and knowledge-based economy. This is because of their capacity to promote entrepreneurship 
and entrepreneurial skills, and because of their ability to be flexible and adapt quickly to a changing market, and 
to generate new jobs.    
SME sector is the backbone of the economy in countries with higher income, while it is less developed in the 
countries with the low incomes. Organization for Economic Cooperation and Development (OECD) reports that 
more than 95% of enterprises in the OECD area are SMEs. These enterprises employ about 60% of private 
sector workers, make a major contribution in the field of innovation and support regional development and social 
cohesion. Also, SMEs in most low income countries give significant contribution to GDP growth and the creation 
of new jobs.        
In Kosovo SMEs represent more than 99% of the total number of enterprises and their share in GDP amounts to 
more than 50% (CBK, 2011). For this reason, the identification of external factors affecting the development of 
SMEs in Kosovo is very important, in order to take all the necessary steps to reduce or remove barriers and 
create new opportunities for these enterprises. This research focuses primarily on the impact of external factors, 
with special emphasis on access to finance for Small and Medium Enterprises (SMEs) in Kosovo.  
External factors such as access to finance, competition, corruption, and government policies have very important 
impact in the development of SMEs in Kosovo. Facilitating access to finance is essential to set up a favorable 
environment to develop SMEs. However, in general, SMEs in developing countries face numerous barriers to 
funding, although this problem is not unknown even in developed countries. Barriers that face SMEs usually 
relate to high administrative costs, high collateral requirements and the lack of willingness of banks to lend to 
SMEs. Raising the level of awareness of their role and availability of access to finance for SMEs can improve 
economic conditions in developing countries by promoting innovation, growth of GDP and reduce unemployment.