A European Commission report published this week on Ireland’s SME community lauds the country as being one of Europe’s most SME-friendly environments, but warns that more work needs to be done to improve access to finance and shift an over-emphasis on domestic demand.

The EC’s Small Business Act Factsheets are published annually on member states, covering areas such as public procurement, entrepreneurship, second chances for businesses, responsive administration and state aid.

The 2015 assessment of Ireland’s SME friendliness notes that, of the ten principles contained in the EC policy initiative aimed at supporting SMEs, ranging from entrepreneurship to public procurement, Ireland performs above the EU average in six and is top of the class in two – second chances for bankrupt entrepreneurs and internationalisation, i.e. SMEs that export to and import from overseas markets.

SMEs account for 99.7% of all enterprises in Ireland and employ more than 70% of people working in the private sector, according to the report. However, access to finance for this cohort is still deemed to be unsatisfactory by the EC, despite its acknowledgement of government efforts to remedy the situation since 2008.

Think Small

The report recommends that Ireland introduce better legislation for SMEs that promotes a ‘think small first’ approach. “All new proposals for business-related legislation should involve SME stakeholders at the very start of the process, so that the ensuing legislation is right for the majority of businesses,” it reads.

In Association with

Regarding procurement and prompt payment measures, the EC also recommends that Ireland needs more effort in these areas. “Late payments to SMEs, in particular by large private sector companies to their SME suppliers, remain a considerable challenge,” the report points out.

Assessing the need for better access to finance for SMES, the report adds: “Many measures have been implemented in this area and considerable progress has been made.

“The fact that many SMEs are still struggling to access finance through lenders and other providers of capital is an indication of the high demand and the shortfall in supply.

“One important indicator for this is the high cost of interest for small loans which SMEs have to pay. This area has been the focus of more measures than any other in Ireland since 2008, and it continues to be the greatest challenge facing Irish businesses despite recent progress.”

Domestic Dependance

The EC report also notes that Ireland has the highest proportion of SMEs exporting to and importing from overseas markets. However, it suggests that indigenous businesses are overly dependent on domestic demand.

“This makes them especially vulnerable to changes in market demand, a fact that became very evident in the aftermath of the economic crisis.

“Progress has been made in supporting Irish businesses wishing to export or expand internationally, in particular through the enhancement and extension of the Foreign Earnings Deduction until the end of 2017, the integrated export strategy due to be rolled out in 2015 and the provision of advice, business support and mentoring services.

“However, much more is needed to help educate and change the mind-set of many Irish companies so as to encourage them to internationalise their horizons, ambitions and client base.”

Commenting on the EC report findings Minister Ged Nash struck a positive tone, saying that EC assessment proved that the hard work of the government and the SME sector was paying off.

He added: “We are already examining the areas where the Commission have suggested we need to do more work, such as access to finance and prompt payment and procurement.”