Jim Power.

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Importance of SMEs must be recognised

Over the past couple of weeks I have been participating in a series of seminars for the Irish Small and Medium Enterprise Association (Isme) around the country, writes Jim Power.

I have done this on a regular basis over the years and always find it incredibly enlightening and informative to gain exposure to a segment that accounts for around 54% of total employment in the economy, and 70% of total private sector employment, and which is at the coalface of Irish economic life. This time has been no different.

Most people recognise the rebuilding of the economy over the coming years will have to depend heavily on the Small and Medium Enterprise (SME) sector. This is not to suggest for one moment that the multi-national sector will not have a role to play, in fact the very opposite is the case. The IDA is doing a great job attracting foreign direct investment (FDI) to the country, but it is clear that the FDI environment is becoming more and more competitive, and if the latest corporate tax proposals from Obama were to see the light of day, it would make life considerably more difficult for the IDA. Hence, from an employment perspective, and particularly from a regional economic perspective, more weight is likely to fall on the shoulders of the SME sector.

The SME sector is incredibly diverse. It ranges from single-person operations to operations with up to 500 employees; and from trout farming, to car sales, to engineering, and a lot more besides. Despite the wide diversity in the sector the issues are very similar.

The lack of demand in the economy over the past few years has been the biggest issue. While some recovery in domestic demand is being experienced, those businesses that interface with the consumer find it hard to identify with the relatively upbeat assessment of consumer spending evident in the Central Bank’s latest pronouncements on the economy earlier in the week. It is very clear that once car sales are excluded from consumer spending, the underlying picture is still extremely challenging. Wages have been stagnant at best for some time; the personal tax burden has been increased in dramatic fashion; the price of many items of essential expenditure such as car insurance, education and health insurance have increased sharply in recent years; the labour market is still challenging; and many in the personal sector are more interested in paying debt than spending at the moment. This creates a challenging environment for consumer-facing businesses and the ability to protect or grow margins through price increases, is very limited.

For a sector that is so heavily dependent on banks for finance, the travails of the banking sector in recent years have also created serious problems, and although somewhat better, the situation is still difficult today. Prompt payment is also a big issue and legislation addressing this issue has made no appreciable difference.

Indeed, when one observes a multinational drinks company recently changing its payment terms from 60 to 90 days for suppliers, it just goes to prove small businesses are left with the hind teat and are treated with a certain level of contempt. Indeed, the tax changes in Budget 2015 as they apply to self-employed business owners sends out a strong message about how some policymakers view the sector. I have heard people who should know better argue that business owners could reduce their tax liability through nefarious means. As a self-employed person, I wish somebody would show me how.

The Taoiseach has expressed a desire that Ireland would become the best small country in the world in which to do business. The reality for many small business owners is very far from this truth. Rather than pay lip service to this aspiration, policymakers need to walk the walk.

Given the challenging environment still facing many small businesses, the promise from Brendan Howlin that he wants to sit down with public sector unions to begin the process of reversing the public sector pay cuts; and the suggestion from a trade union leader last weekend that a 5% pay increase will now be sought; is being greeted with incredulity by small business owners who are working all the hours merely to survive.

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