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Small businesses burdened by regulation, study reveals

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The Cyprus Chamber of Commerce and Industry (Keve) on Wednesday shared the findings of a recent business study which shed light on the significant bureaucratic hurdles faced by small and medium-sized enterprises (SMEs) in Europe, within the context of the EU financial framework.

The study was conducted by Eurochambers, the European association of Chambers of Commerce, and SMEunited, in collaboration with the European Commission.

This research, the chamber explained, is based on feedback from 2,141 companies across 25 EU member states, and revealed that while the EU financial framework imposed substantial administrative burdens, it failed to offer substantial financial benefits to SMEs.

Over the past two years, nearly 60 per cent of the participating companies have invested in sustainability initiatives.

However, SMEs encounter challenges when seeking access to sustainable financing options.

According to the study, only 35 per cent of these sustainability investments were funded through external sources, a factor insufficient to support the substantial investments required for transformation.

This stands in stark contrast to larger corporations, which easily secure sustainable financing from capital markets.

Commenting on the findings, Vladimír Dlouhý, President of Eurochambers, stated that “the feedback indicates that while SMEs aspire to enhance their sustainability efforts, they face disproportionate challenges”.

“The sustainable financing framework must address this gap between SME incentives and means when it comes to the green transition,” he added.

An underlying issue is the indirect reduction of reporting obligations for larger companies and banks when compared to small and medium-sized enterprises.

Such obligations, primarily designed for larger entities, often burden SME offices, either as bank clients or as suppliers to larger value chains.

Dlouhý explained that “without the infrastructure and capacity to manage these overarching disclosure requirements, SMEs find themselves at a disadvantage.”

This situation, he explained, is exacerbated by the fact that obtaining public subsidies or grants for sustainable projects is a cumbersome process often linked to complex application procedures.

The study underscores the need for a more balanced approach within the EU financial framework to ensure that SMEs can effectively participate in and benefit from sustainability initiatives without being hindered by administrative barriers.

Meanwhile, according to the European Commission’s annual report on European SMEs for the 2022-2023 period, EU small and medium-sized enterprises (SMEs) have endured a precarious economic environment since early 2020, primarily due to the Covid-19 pandemic.

The report explained that despite signs of recovery in 2021 and 2022, SMEs grapple with multiple challenges, including difficulties in hiring, rising inflation, increased energy costs, and the termination of government financial aid.

In addition, the conflict in Ukraine, both directly and indirectly, has further exacerbated their situation, with some countries bearing a higher impact due to their proximity to the conflict zone.

Additionally, SMEs are navigating the transition to a digital and sustainable economy while dealing with inflationary pressures.

The report showed that while initial figures for 2022 showed SMEs’ growth, it was mainly inflated due to rising inflation rates.

When adjusted for inflation, the value added by SMEs actually declined by 2.3 per cent.

Moreover, employment increased but did not fully recover from pandemic-induced losses, leaving SMEs lagging behind their 2019 performance.

Projections for 2023 indicate a challenging landscape, with expected value-added increases mainly being eroded by inflation.

The report also revealed that micro SMEs, meaning businesses with less than 10 employees, outperformed other SME size classes, demonstrating impressive employment growth.

Further highlights included the fact that certain industrial ecosystems experienced real-value-added growth, despite the challenges, while technology-intensive SMEs showed significant increases in value-added, employment, and their overall number.

Finally, the report stressed that a lack of skilled workers remains a prime obstacle for SMEs across the EU.

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