Technical Assistance Consultant’s Report Project Number: 45230-001 December 2014 Armenia: Women’s Entrepreneurship Support Sector Development Program Prepared by Nora Alanakyan P EM Consult Y erevan, Armenia For SME DNC This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and A DB and the Government cannot be held liable for its contents. Report Assessment of needs for business services among women entrepreneurs of Armenia, 2014 Nora Alanakyan Yerevan, 2014 3 Contents LIST OF TABLES .............................................................................................................................................. 3 LIST OF FIGURES ............................................................................................................................................ 4 Annexes ......................................................................................................................................................... 4 List of Acronyms ............................................................................................................................................ 4 Acknowledgements ....................................................................................................................................... 5 Executive Summary ....................................................................................................................................... 6 1. Introduction ........................................................................................................................................... 11 2. Methodology ......................................................................................................................................... 13 2.1 Target groups, sampling, geographical coverage ............................................................................. 13 2.2 Methodology and instruments used ................................................................................................ 13 3. Survey Implementation ......................................................................................................................... 15 4. Main findings ......................................................................................................................................... 16 4.1 A brief profile of respondent enterprises ......................................................................................... 16 4.2 Main obstacles for doing business ................................................................................................... 18 4.3 Provision of BDS services in the past ................................................................................................ 21 4.4 Most important BDS services ........................................................................................................... 23 4.5 Business dynamics in the past year and prospects for the next 12 months .................................... 29 4.6 Need for financing ............................................................................................................................ 33 4.7 Findings from focus groups .............................................................................................................. 36 5. Conclusions and recommendations ....................................................................................................... 38 Annex 1: Questionnaire for needs assessment survey ............................................................................... 40 Annex 2: Topics for focus group discussions .............................................................................................. 43 LIST OF TABLES Table 1 Definition of MSME .............................................................................................................................. 12 Table 2 Legal status by marzes .......................................................................................................................... 16 Table 3 Enterprises by years in business ........................................................................................................... 17 Table 4 Enterprises by number of employees ................................................................................................... 18 Table 5 Obstacles by years in business .............................................................................................................. 20 Table 6 Main obstacles by business sectors ...................................................................................................... 20 Table 7 Main obstacles by marzes..................................................................................................................... 20 Table 8 Usage of BDS services in the past ......................................................................................................... 21 Table 9 BDS received in the past 3 years ........................................................................................................... 22 Table 10 Comparison of received BDS ............................................................................................................... 22 Table 11 Most Important services, 2013 vs. 2014 ............................................................................................. 24 Table 12 Most important BDS by years in business ........................................................................................... 25 Table 13 Most important BDS by business sector ............................................................................................. 26 Table 14 Accounting services at enterprises ..................................................................................................... 27 Table 15 Accounting services at enterprises by number of employees ............................................................. 27 Table 16 Preferred methods of BDS delivery..................................................................................................... 28 Table 17 Readiness to pay by years in business ................................................................................................ 28 Table 18 Readiness to pay by business sector ................................................................................................... 29 Table 19 Readiness to pay by marzes ................................................................................................................ 29 Table 20 Turnover change in the year, 2013 and 2014 comparison ................................................................... 29 4 Table 21 Forecast of business dynamics for next year ....................................................................................... 31 Table 22 Forecast of dynamics by years in business .......................................................................................... 31 Table 23 Problems with access to financing ...................................................................................................... 33 Table 24 Problems with access to financing, by number of employees ............................................................. 34 Table 25 Problems with access to financing by years in business ...................................................................... 35 Table 26 Preferred interest rate, % ................................................................................................................... 35 LIST OF FIGURES Figure 1 Gender classification of enterprises .................................................................................................... 16 Figure 2 Legal status by marzes ......................................................................................................................... 17 Figure 3 Enterprises by years in business .......................................................................................................... 17 Figure 4 Number of employees, 2014 vs. 2013 .................................................................................................. 18 Figure 5 Main obstacles in 2013 vs. 2014 .......................................................................................................... 19 Figure 6 Comparison of types of received services, 2014 vs. 2014..................................................................... 23 Figure 7 Most important BDS services, 2014 ..................................................................................................... 24 Figure 8 Most important BDS, 2013 vs. 2014..................................................................................................... 25 Figure 9 Readiness to pay for services .............................................................................................................. 28 Figure 10 Turnover dynamics in the past year by sectors .................................................................................. 30 Figure 11 Turnover dynamics in the past by years in business .......................................................................... 30 Figure 12 Forecast of business dynamics for next year ..................................................................................... 31 Figure 13 Forecast of business dynamics by years in business .......................................................................... 32 Figure 14 Forecast of dynamics by business sectors .......................................................................................... 32 Figure 15 Forecast of dynamics by number of employees ................................................................................. 33 Figure 16 Problems with access to financing, 2014 vs. 2013 .............................................................................. 34 Figure 17 Problems with access to financing by years in business ..................................................................... 35 Annexes Annex 1: Questionnaire Annex 2: Topics for focus group discussions List of Acronyms ADB Asian Development Bank AMD Armenian Dram BDS Business development services CEFE Competency-based economy through formation of enterprises CJSC Closed joint-stock company EDMC USAID Enterprise Development and Market Competitiveness Project EEN Enterprise Europe Network GDP Gross Domestic Product IE Individual entrepreneur MSME Micro, small and medium enterprise NGO Non-governmental organization PFI Private finance institution PMU GAF Program Management Unit of German-Armenian Fund SME Small and medium enterprise 5 SME DNC Small and Medium Entrepreneurship Development National Center of Armenia TA Technical Assistance WE Women Enterprise WEE Women Employing Enterprise WME Women Managed Enterprise WOE Women Owned Enterprise Acknowledgements The Consultant would like to thank Ms. Gohar Ghabuzyan, “Women Entrepreneurship Sector Support Development” Program Coordinator and Elen Manukyan, SME DNC’s Training Support Program Coordinator for guidance and support during the research, as well as express the deepest gratitude to SME DNC staff in the marz branches who undertook the hard field work of identifying and surveying women entrepreneurs both in 2013 and 2014. Special thanks should go specifically to Ms. Susanna Khachatryan, SME DNC’s Training Support Program Officer, who provided invaluable support in interacting with the branches, organizing focus groups and coordinating the entire survey process. The work could not be completed without hard work, expertise and dedication of Ms. Lilit Hovhannisyan who performed statistical processing of the collected raw data. 6 Executive Summary This assessment is the second one performed within the framework of the Women Entrepreneurship Sector Support Development Program RRP ARM 45230, funded by Asian Development Bank and implemented by PEM GmbH. The program comprises an integrated approach to enable women entrepreneurs and micro, small and medium-sized enterprises (MSMEs) in Armenia to play a greater part in the economic development. In the framework of the technical assistance component of the program, it is envisaged to conduct annual needs assessment survey of women MSMEs to ensure that provided services are demand-oriented and to develop activities to meet new identified needs. The first survey was conducted in the period of June – August 2013, and the second one followed the same time schedule in 2014. Small and medium size enterprises (SMEs) in Armenia traditionally play an important role in the economic growth, employment generation and poverty reduction. SMEs generate more than 290,000 work places, which is about 25% of the total workforce. Despite the unfavorable economic trends registered in the two years, when GDP growth slowed from 7.2% in 2012 to 3.5% in 2013, SMEs increased their contribution to GDP to 44% vs. 41.7% in 2008. In 2012, the latest available data, functioning SMEs made 98% of all registered legal entities with total number of 73,925. In the absence of the official statistics on women enterprises, some expert estimate (for example, at SME DNC) that women enterprises constitute about 11-12% of the entire number of SME. Women SMEs are particularly active in trade, services, agribusiness (agroprocessing), and to a lesser extent, in manufacturing. As much of the economic activity is concentrated in Yerevan, businesses outside the capital suffer from a limited exposure to markets, new technologies, and business services. Business development services (BDS), namely, services related to entrepreneurship, business training, marketing, technology development and information, are not readily available in the regions and their quality is not always adequate. Thus, the goal of the study was to look at how business development services (BDS) address some of the constraints that women entrepreneurs face. The study focused on major types of the BDS services, such as training, consulting and advice, and information support. The study involved two components: a survey of women enterprises and focus group discussions conducted in 5 marzes. In the absence of a formal definition of women enterprises, the following is used throughout the study: a registered enterprise where majority of owners or the top managers are women, or an enterprise employs more than 50% of women. The survey was conducted in a form of in-person or telephone interviews conducted by SME DNC regional (marz) experts. The survey covered MSMEs from Yerevan and all marzes of Armenia and involved representatives of service, production and trade sectors. Although the trade is not a priority for SME DNC programs, it is women-intensive sector and so could not be neglected. 7 Since no comprehensive statistics for women entrepreneurs in Armenia is available, it was difficult to apply random sampling procedures. Therefore, a combination of stratified and judgmental sampling methods was selected to best fit the survey objectives. The second component of the study involved conducting of focus groups with women entrepreneurs in 5 marzes. The purpose of these discussions was to provide qualitative data and serve as a cross-checking tool to identify gender-specific problems, estimate demand for BDS services and preferred form of delivery of those services. Overall, the survey does not pretend to be 100% statistically accurate in terms of a selection method, accuracy of answers etc. However, supported by the results of focus group meetings, the study findings are expected to adequately reflect the situation. Respondent Profile The overall number of valid respondents reached 738. The surveyed enterprises represent 109 urban and rural communities, with the majority of individual entrepreneurs (68.8%), LLC (29.0%), and other legal form of ownership (0.57%). Majority of the enterprises (64.0%) have operated for more than 3 years. More than 93% are micro enterprises with 1-2 employees, 44 are small, and only 7 out of 743 are medium enterprises. The largest sector is trade (48.6% of valid responses), followed by services (32.7%) and production (18.61%). This distribution reflects the concentration of women enterprises in trade and services with relatively low share in manufacturing and production. Survey Findings The survey, consisting of 23 semi-open questions, assessed the main obstacles for running business, most important BDS services, business dynamics in the past and next 12 months, access to and barriers for financing. Two thirds of the respondents reported high taxes as the main obstacle for their business. The next come the sales problems and cost and quality of the utilities. Compared to 2013, the tax burden slightly lost its importance (decrease in ranking from 66.5% down to 62.6% of all valid responses), and access to finance moved to the fourth place behind the cost and quality of the utilities. Approximately the same situation is observed when analysing obstacles for startups and more matured businesses. For startups, the access to finance is at the third place, outstripping the cost and quality of the utilities. One third of the surveyed businesses used business services in the past 3 years, mostly CEFE trainings for startup entrepreneurs and regular seminars on tax legislation changes regularly arranged by SME DNC. Overall, SME DNC remains the largest provider of business services1, as it was mentioned as a provider in 88.6% of all answers. 1 This statement is based mostly on general observation and experience of the consultant and information about activities of other business service providers operating in the country. However, this data should be taken with precaution, as the survey sample is largely based on the SME DNC databases accompanied with the State Register database. 8 Among the most important BDS services for enterprises accounting, finance and tax advice, marketing services and information support are most frequently mentioned across all groups and sectors. Compared to 2013 data, importance of information support services increased from 16.5% to 29.7%. Regarding the preferred form of delivery of the services, the most valued forms are consulting/advice, training, and information support (45.7%, 44.6%, and 43.0% of all valid responses, respectively). More than 50% of the respondents confirmed their readiness to pay for the services, mostly up to 10,000 AMD annually. Some respondents even mentioned amounts up to 40,000 AMD and more. However, these data should be taken with precaution due to a high number of outlier responses and the fact that many businesses may be reluctant to pay when the service is actually offered. Regarding the business dynamics for the past year, 26.3% out of total 689 respondents reported the growth of their business, 25.1% - reported decrease, and 37.7% said “no changes”. Comparing to the 2013 study, the figures did not change substantially. In 2014 responses, the share of those who reported “don’t know” increased. The trade sector reported more negative dynamics than service and production. When asked to forecast the dynamics for the next 12 months, 21.6% of total 716 respondents expected growth, 15.6% decline and 34.9% expected no changes. Compared to 2013, the number of “optimists” decreased by 7.6%, and so did “pessimists” (from 17.3% to 15.6%). The percentage of those, who answered “don’t know”, increased by 5.5%. Most “optimists” are observed among the “fresh new” businesses, operating less than 1 year. Trade sector is more pessimistic about the future than production and services. Companies, employing more than 5 employees, are more confident about their prospects for the next year. The need for financing remains the most articulated for all businesses, regardless their gender, size and sector. Among the problems with the access to financing, high interest rates are reported by 69.7% of all responses, followed by loan maturity terms and collateral issues. On average, businesses consider 10% annual interest rate as desirable and realistic. Findings from focus groups To supplement the survey results, focus group discussions were held in Ararat, Aragatsotn, Armavir, Lori and Vayots Dzor marzes, the same way as in 2013. This year, marzes, not visited in 2013 were chosen. With few exceptions, hard economic situation, and high level of emigration, resulting in falling number of clients, are the most concerning issues for all sectors and groups of businesses. In this sense, women entrepreneurs face the same kind of problems, as their male colleagues. Among gender-specific issues, societal attitudes and lack of confidence toward women entrepreneurs, especially startups were mentioned. Another gender-specific factor is that men have more opportunities for business and informal 9 networking, which is not the case with women. Women, especially in the regions, even lack venues for networking, and this is the need that may be addressed by SME DNC regional branches. The most important business services expressed by group participants are tax and legal advice, business plan development, marketing services, information support, strategic planning and management. The search for a business partner is also among services with the highest scores. For focus group participants, SME DNC is one of major channels to obtain information on new business services. Among other channels are e-mail, Internet and personal contacts. In the past year, with the increased Internet penetration and introduction of electronic tax filing and reporting, the usage of ICT increased as well. Therefore, suggestions were made to introduce online courses, consultations and seminars. Women entrepreneurs value diverse forms of BDS delivery. While classroom trainings are more appropriate for startups, for more experienced businesses, individual consulting is more preferred. Group discussions are highly valued by all focus group participants, as exchange of ideas and opinions lead to problem solution and stimulate networking. Trainings, seminars and discussions should be gender-inclusive rather than women-specific. Conclusions and Recommendations • Women MSME problems and needs for business services have not changed much since 2013. In fact, it would be not realistic to expect changes in such a short time of only one year. The hard economic situation further limits the development potential. • The obstacles faced by women entrepreneurs, continue to be largely the same as in 2013. The tax burden and cost of finance slightly lost their importance in 2014. The reasons for the latter may lie in the increased number of seed financing offered by SME DNC in the framework of start-up support campaigns, as well as by other factors. High interest rates and affordable loans remain the number one problem in accessing finance for almost all businesses, regardless their business sector, location or size. • Women needs for business services do not differ much from men’s except the need for strengthening their networking opportunities and skills. • MSMEs and especially startup entrepreneurs often do not identify the need of or lack information on available or needed BDS services. Their ability to self-assess the needs much depends of the size of the entity, type of business, and education level. Despite the fact that access to and quality of offered business services were not reported among top priorities for majority of businesses, this component of SME DNC assistance should continue developing. Efforts should be made to increase variety of offered services and methods of delivery to make it attractive for various target groups. • SME DNC continues to remain the largest business service provider equally covering all regions of Armenia. It enjoys visibility and is recognized by all businesses. Its 10 qualified staff, sustained long year operations, accumulated experience and confidence from beneficiaries are all the competitive advantages to utilize and build on. • Accounting, finance and tax advice, as well as marketing services, are listed among the most important BDS services. SME DNC performs a substantial work on providing tax advice and informing businesses about latest changes on tax and other relevant legislation. However, in the recent years, provision of marketing services by SME DNC has been reduced for obvious reasons, related to the lack of funding. Here may be the room for designing a special program for marketing training and consulting. • The search for business partners, networking services and information support were not directly reflected in survey, but during the focus group discussions, importance of these services was articulated in all groups. Few of women enterprises are currently at the stage, where they can benefit from EEN network administered by SME DNC2, but similar instruments implemented within Armenia, may be useful. In this regard, online market place http://www.marketplace.smednc.am/ may be further developed and promoted to strengthen connections between businesses in different regions. Study tours between the regions and exchange of experience also serve to this purpose. • About 50% of the surveyed businesses expressed readiness to pay for business services. Not considering this response 100% reliable, SME DNC as well as other providers anyway may think about charging small fees for example for most demanded services such as taxation seminars. This may come in a form of one-time fee for services or subscription for annual series of seminars. Of course, this recommendation is subject to compliance with SME DNC policies as a state funded organization. • Classroom trainings and seminars are usually conducted during week days; however, as women acknowledged, they would prefer to have it on weekends or beyond working hours. Again, ICT solutions may serve a useful instrument for these purposes. • The increased penetration of Internet, introduction of e-services and electronic tax reporting call for development of new, ICT-based solutions for provision of services. This may be, for instance, in a form of Skype consulting, online seminars, e-bulletins, development of mobile applications, which will improve access to information and training, reduce cost of service provision, save time on physical travelling to SME DNC. • Programs for women should utilize gender inclusive rather than gender specific approach. This will provide opportunity for both women and men to build effective communications and expand networks for women. 2 Most of the women enterprises do not produce sufficient volumes and quality of the products. This was observed in an analysis of SME DNC data on EEN users in Armenia and number of successful deals between European and Armenian companies. This was further proved during the assessment of export opportunities for women enterprises and interviews with the stakeholders. See ADB. 2014. Consultant report. Exploring export promotion programs in Armenia- Where are the women entrepreneurs and businesses?