Romania’s small and medium enterprises (SME) led by women have lower labor productivity and growth mainly due to more difficult access to finance, according to the IFC and Garanti Bank “Taking Women Entrepreneurs to the Bank in Romania” report.
Romania’s total enterprises and account for half of the Romanian GDP (as of 2016). While SMEs are Romania’s economic engine, Romania still has the lowest ratio of SME per 1,000 inhabitants in the EU. As such, there is considerable potential for entrepreneurship and the growth of that segment, the report indicates.
At the same time, the majority of small firms, especially those owned and led by women, are marked by low levels of labor productivity and growth.
“Labor productivity, defined as value-added divided by the number of persons employed, is EUR 13,150 on average for SMEs; lower than that of larger firms (EUR 23,207) and lower than the EU average. As per Enterprise Survey 2013, the average annual labor productivity growth of firms in Romania is only 0.4 percent; this is worse for firms led by women,” the report points out.
High-growth enterprises account for only 2.3 percent of all enterprises in Romania (in 2014). Romania ranks second lowest in the EU with regard to share of high-growth firms in the economy, which averages at 9.2 percent across the EU-28.
Moreover, during 2009-2014, five-year survival rate of new SMEs in Romania was between 40 and 60 percent.
The financial crisis of 2008 not only led to a drop in GDP and employment, but the Romanian banking sector was also faced with low liquidity ratios and deteriorating asset quality, with non-performing loan (NPL) levels of 22.2 percent.
The average interest rate for loans up to and including EUR 1 million is the second highest in the EU and, the cost of credit for small businesses was about 17 percent higher than for larger firms. Increasing the capacity of financial institutions was essential to supporting the flow of credit to individuals and SMEs.
Access to finance was cited as the most important concern for 25 percent of SMEs in 2009, according to the Survey on the Access to Finance of Enterprises (SAFE) run by the European Central Bank and European Commission. Since then, it has come down to 9
percent in 2017, marginally higher than the EU average of 7 percent.
While there have been improvements in access to finance, there remains a substantial funding gap of external financing for SMEs in Romania.
Based on European statistics in 2016, Romania is placed in last place of 31 European countries on amounts of angel investments between 2014-2016. According to research conducted by IFC, the SME finance gap in Romania, defined as the difference between current supply and potential demand for SME finance which can be addressed by financial institutions is estimated to be USD 32.7 billion, or 18 percent of GDP.
Of this, women’s SME finance gap is 8 percent, or USD 2.6 billion. Access to finance for SMEs, particularly for those led by women, continues to be important to ensure inclusive growth in Romania, the report says.
Women entrepreneurs are further subject to specific challenges. This is because on average, the Romanian woman entrepreneur is married with children, and as such, is more likely than men to have family-related obligations, according to the report.
These create time and mobility constraints that impact her ability to start and grow her business. Women are also less likely than men to feel that they have the skills, knowledge, and experience to start a business.
According to a study by the Global Entrepreneurship Monitor, among adults aged 18-65 years old in the EU who were asked whether they “have the skills, knowledge, and experience to start a business” over the period 2010-2014, only one third of women indicated that they had sufficient skills, knowledge, and experience to start a business over the 2010-14 period compared to half of men.