Small businesses are considered to be the backbone of European economies. They are a major driver for economic growth, innovation, regional development and job creation. Out of 20 million enterprises active within the European Union in 2005, 99.8 per cent were classified as small and medium-sized enterprises; nine-tenths were microenterprises, with a workforce of fewer than 10.
A recent report ordered by the Commission found that by reducing unnecessary red tape, the EU would boost its GDP by up to 1.4 per cent- Aaron Farrugia
The local economy reflects the European trend: microenterprises account for 39,000 employees and are active in all sectors, including sole traders and cooperatives. While some microenterprises offer traditional services or crafts, many are fast growing high-tech companies.
Despite international recognition, microbusinesses still face major challenges, stemming from key macro and micro determinants which are interrelated. A case in point is their access to EU funds.
Although there is common consensus on the benefits they may yield from such funds, there are mixed feelings on accessibility and awareness.
Notwithstanding the European Commission’s work to provide financial instruments for microbusinesses, funding is still perceived as inaccessible or administratively complex.
There are also challenges that the Commission has not addressed with member states, giving different interpretation to state aid regulation as well as other matters such as VAT.
Despite being the main source of private sector jobs, microenterprises struggle to scale up the business or make necessary capital expenditure investments to maintain their competitive position as they have little or no access to finance. Eurostat statistics show that five of 10 businesses do not survive the first five years.
Microbusinesses are perceived as high risk due to their volatile nature and structure. Difficulty in accessing finance often puts them at a disadvantage, constraining their options for the implementation of restructuring, which is essential to face up to external competition.
Difficulty in accessing finance also effects EU funds since most schemes contain an element of co-financing, which tends to be relatively hefty for micro-firms. Over the past years, access to finance has improved thanks to initiatives like JEREMIE, but that is not enough to sustain and ensure the constant growth to a key contributor of Malta’s economy.
A recent report ordered by the Commission found that by reducing unnecessary red tape, the EU would boost its GDP by up to 1.4 per cent.
According to the 2009 edition of the World Economic Forum’s Executive Opinion Survey on Global Competitiveness, inefficient government bureaucracy is regarded to be the most problematic factor for conducting business in Malta. Delay in the issuance of permits, delay in issuance of subsidies and grants and funds, lengthy time frames for feedback from government departments, and a complex process for Visa permits for third country nationals are just a few problems cited by microenterprises hindering growth and competitiveness.
The Small Business Act which aims to put the Think Small First principle at the heart of policies in Brussels and across Europe is indeed a breath of fresh air for microenterprises. Its key role to cut red tape, simplify rules, and improve access to finance is a positive step – but a first step.
Such initiatives need to be put into practice better at both local and European level and must be further supported by means of initiatives and legislation specifically addressing the needs of microenterprises rather than placing this segment under the SME umbrella.
The business environment microenterprises operate in, with the political and economic developments constantly unfolding on both sides of the Mediterranean, constitute an uphill struggle to local microenterprises. Interestingly though, according to the Commission report on EU SMEs in 2012, Malta’s micro industry seems to be weathering the storm well. This is surely as a result of the commitment and dedication of small business owners.
This should instigate authorities at EU and local level to ensure a better environment for microbusinesses to develop, both on the local and international markets.
This can only be done by means of concrete initiatives that facilitate access to finance, access to governmental institutions, access to funding as well as access to the international markets for micro enterprises.
Aaron Farrugia is a member of the Labour Party’s national executive committee.
• Lino Spiteri is not writing this week.