RECENT utterances from Brussels, that growth prospects for SMEs are improving — with 2013 likely to have marked “a turning point” — may prove not to be the glib, overly-optimistic rhetoric we have come to expect.
In a progress report on the Small Business Act since its inception five years ago, the Commission last month noted the “remarkable resilience of SMEs” (which lost over 600,000 jobs across Europe in 2012 alone and saw their combined contribution to eurozone GDP decline by 1.3%) during the eurozone crisis, saying they proved “significantly more resilient than large enterprises” during the first three years of the crisis; albeit ultimately finding it more difficult to recover when they did hit hard ground.
It added that this year should mark a turning point for EU-wide SMEs, with total employment in the sector expected to rise by 0.3% and an increasing number of member states seeing their small business communities return to expansion.
“Our initiatives to help SMEs make it through difficult times have paid off. After five years of sluggish development I am glad to see that SMEs are about to grow again. They are also starting to recruit more staff. Moreover, our indicators make it clear, that SMEs can grow further in 2014. SMEs are the lifeblood of our economy as they are now dragging us out of the most severe crisis of EU economy in the past 50 years,” Antonio Tajani — the European Commission’s vice- president for industry and entrepreneurship said.
Here, while the domestic lobbyists’ wish- lists of improvements have become more mantra-like over the past couple of years; it seems the outlook for Irish SMEs is gradually improving too.
A recent survey of its members by the Small Firms Association, showed that eight out of 10 respondents expect to invest more over the coming 12 months at some level — be it via people, marketing, plant facilities or machinery. Sentiment seems to be changing for the better.
“We’re back in that head-space,” according to Avine McNally, the SFA’s acting director.
“The top three concerns tend to be regulatory burden, access to finance and the challenges of internationalisation. That trend tends to be replicated across all member states, albeit at differing levels,” she said.
Lobbyists were quick to praise Finance Minister Michael Noonan on the measures he introduced in Budget 2014; Chambers Ireland calling it “one of the most positive for business in recent years and Isme giving it a “cautious” welcome.
Capital Gains Tax relief for certain entrepreneurs, the removal of restrictions on the Employment Investment and Incentive Scheme, the maintaining of the 9% Vat rate for the hospitality and tourism sectors, and the home renovation tax incentive scheme were things introduced by the minister that had been lobbied for by the leading representative bodies.
The SFA also noted the positives of the widening of the scope of case applications to the Credit Review Office and the pending legislation allowing for SMEs in trouble to apply for examinership more cheaply via the Circuit Court, rather than the High Court, as very positive moves which will have a big effect on small business.
But concerns remain.
“Procurement is a key issue for 2014 — as the Government’s words are not being felt on the ground, from what we hear — along with consumer and company confidence, no further increased taxes and more cost containment measures,” according to Chambers Ireland deputy CEO, Seán Murphy.
“Irish SMEs are no way unique in worrying about credit availability across the EU, but many others haven’t had to deal with the same level of collapse in demand as Ireland has.”
Earlier this month, an Isme survey showed that small business satisfaction — across a myriad of themes from Government performance and cost of doing business to banking and credit availability — showed a slight improvement.
However, the lobby group also recently noted that 50% of its members are still being refused credit from the banks. The issue of credit availability is likely to remain key for the foreseeable future. It should be aided by the strengthened powers of the CRO and the pending new Ireland Strategic Investment Fund, but the true picture could remain blurred.
The recent Government-backed lending survey, conducted by research firm Red C, showed that improved trading conditions have led to a two-year low in bank finance demand from SMEs; even though the fall in the need for working capital finance still hasn’t given way to firms looking for credit to help them expand.
However, while according to the CRO the pillar banks have achieved their SME loan approval targets for this year, only 34% of the amount sanctioned has really qualified as new lending.
According to Isme chief, Mark Fielding, while Ireland’s banking system is “not fit for purpose”, its restoration is critical, but can’t be done at the expense of the SME sector.
He said Budget 2014 is a step in the right direction, but noted that the creation of a business environment in which SMEs can continue to grow and prosper “must be a continuous theme”.