April 9 (SeeNews) - The top three business environment obstacles identified by firms in Montenegro were competitors’ practices in the informal sector, access to finance and electricity issues, the European Bank for Reconstruction and Development (EBRD) said on Thursday.
Large firms found issues with customs and trade regulations and workforce skills the most problematic, the EBRD said in a summary of the fifth EBRD and World Bank Business Environment and Enterprise Performance Survey (BEEPS) from across the transition region.
For companies operating in the manufacturing sector, electricity issues were more binding constraint than access to finance. In the previous issue of the report access to finance was replaced by tax administration as one of the main business environment obstacles.
The share of Montenegrin firms that said they had to compete with competitors' practices in the informal sector nearly doubled to 52.4% from 27.3% reported in the previous survey. This may include practices by registered firms, such as paying part of the wages informally and not declaring them to the authorities, contributing to informal employment and affecting the tax revenue of the state, the EBRD noted.
Montenegrin firms relied much less on internal funds and retained earnings to finance working capital and fixed assets purchases than their counterparts in Southeast Europe (SEE).
Instead, more than a quarter of working capital and 14% of fixed assets purchases were financed by purchases on credit from suppliers and advances from customers. Some 4.9% of the firms relied on non-bank financial institutions - microfinance or credit companies - to finance their fixed assets, more than twice the SEE average of 1.8%. Over half of surveyed firms had a loan, although the median collateral required increased to 240% of loan value, compared with 100% in the previous issue of the survey.
Large firms had relatively good access to finance compared with SMEs: out of more than 90% of them that needed a loan, only 1.4% were credit-constrained, compared with 57.7% of credit-constrained SMEs out of the 57% that needed a loan. The situation was worse for young firms with out of 56.6% that needed a loan while 96.9% being discouraged from applying for one.
Electricity issues remained among the top obstacles for firms in Montenegro. While the wait for an electrical connection did not change significantly and was below the SEE average, there was a sharp increase in the percentage of firms reporting that an informal payment was expected or requested to obtain it - to 19.3% from 2.7% reported in the previous survey.
In addition, electricity supply became less reliable, with the percentage of firms experiencing power outages rising to 74.9% from 55.3% reported in the previous BEEPS survey. It is almost 20 percentage points above the SEE average, although power outages occurred less frequently overall and resulted in lower losses than earlier.
The survey fieldwork period was November 2012 – October 2013. For the purposes of the poll, SEE comprises Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Kosovo, Montenegro, Romania and Serbia.