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Tuesday 16 September 2014

SME sector's contribution to economy one of lowest in Europe

Published 13/05/2014 | 02:30

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The contribution of the SME sector to the overall economy is lower here than almost anywhere else in Europe, but small business still provides most Irish jobs.

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Six years on, Ireland still has fewer small businesses than it did at the start of the global financial meltdown in 2008.

That's according to the first ever Europe-wide study of small and medium enterprises (SMEs), carried out by professional services firm Mazars.

The pace of recovery among Europe's 20 million small businesses has separated into three speeds, it found – and Ireland is firmly in the slowest category.

Germany and Sweden's small business sector are the only ones to have fully recovered from the lasting effects of the global recession, the study comparing SMEs in eight EU states found, and now exceed 2008 levels in terms of volume, employment and value generation.

But Ireland, Spain, Portugal and the UK fall into the "weak" category in terms of small business recovery, with Spain and Ireland the most heavily hit.

A report on the findings left the blame for this firmly at the government's door, citing its failure to support the domestic demand which SMEs so hugely depend on.

Weak

"In some countries such as Ireland, Portugal and Spain, the ability of governments to intervene and allow automatic stabilisers to kick in and preserve domestic demand was significantly curtailed by weak public finances, rising government debt levels resulting from the transfer of excessive private debt levels to government balance sheets and the ensuing austerity measures.

"This resulted in many SMEs entering the crisis and effectively operating through it from a very weak starting point... Over the last number of years SMEs have thus effectively operated in a three-speed Europe, with much stronger environments for German and Swedish SMEs," said the report.

The result is that Ireland's small businesses now contribute relatively little to the domestic economy in comparison to the rest of Europe, the research found, dwarfed by multi-nationals.

In percentage terms, they provided just 50.3pc of gross value – the second lowest of all the countries in the study. In the Netherlands, Spain and Portugal, by comparison, SMEs contributed 60 to 70pc of gross economic value.

Particular weaknesses in terms of cash management were detected among Irish SMEs. Ireland's small businesses are significantly more reliant on bank overdrafts, credit lines or credit card overdrafts than their European counterparts, it found.

Two-thirds used these methods of financing in the last six months, significantly higher than the EU-28 average of 39pc.

The one bright spot when it came to Irish SMEs was job creation. The country came third in terms of employment, responsible for some 69.9pc of Irish jobs.

Irish Independent

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