COMMENT FRANCINE CARUANA

‘Think Small First’ – Checking on progress and looking ahead

SMEs are the backbone of the Maltese economy. They constitute the overwhelming majority of businesses (99.9%) and account for 39,000 employees, slightly more than one third of private sector employment (Small Business Act Fact Sheet 2012). This is to be expected considering the small size of the Maltese economy, which puts an almost natural limit to the emergence of larger businesses.

SMEs are not only important for the local economy but also at EU level. They are crucial in harnessing entrepreneurship, competition and innovation; three essential elements for sustainable growth and development in light of the Europe 2020 Strategy for a smart, sustainable, and inclusive economy for the next decade.

The Small Business Act for Europe, launched by the European Commission in June 2008 and reviewed in 2011 as a response to the new political and economic environment, embodies the EU’s commitment to SMEs. In short, the Small Business Act, which was lately discussed by EU ministers at the Competitiveness Council meeting, espouses 10 SME-friendly principles designed to guide the planning and implementation of policies both at EU and national level. Such principles include in particular the creation of an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded; improving access to finance and public procurement; ensuring that honest entrepreneurs who have faced bankruptcy quickly get a second chance; helping SMEs to benefit more from the opportunities offered by the Single Market for goods, services, labour and capital; promoting the upgrading of skills in SMEs and all forms of innovation and enabling SMEs to turn environmental challenges into opportunities.

At the heart of the plan is the Think Small First principle which places SMEs at the forefront of policy-making and helps ensure that new regulations do not add to the problems faced by businesses, particularly administrative burdens, difficulty to find financing and skilled labour, or to reap the benefits of the Single Market. This implies listening to SMEs before introducing new laws, examining the effects of legislation on small businesses and helping companies in need of support.

But how effective is the Small Business Act? Is it fulfiling its original objectives? Is it making life easier for small firms? These were some of the pertinent issues discussed by EU Internal Market and Industry ministers during the first day meeting of the EU Competitiveness Council held on 26 September. Although much improvement has occurred over the past five years since the creation of the Small Business Act, EU ministers stressed the fact that European SMEs are still facing disproportionally high compliance costs due to various burdensome regulations and administrative procedures. During the debate many delegations mentioned access to finance as one of the most pressing difficulties that SMEs are facing, and the need to explore and use alternative sources to facilitate greater provision of SME financing, such as capital-risk markets and EU funding instruments.

All delegations agreed on the important role played by the Single Market for services in the development of SMEs, but many regretted that the possibilities offered are not yet fully used and called for the elimination of the unnecessary hurdles that are hampering cross-border transactions between member states. This challenge was particularly highlighted in relation to online operations in the context of the development of a Digital Single Market.

A number of measures of paramount importance were outlined in order to take advantage of the digital economy for creating new business models, stimulating start-ups and encouraging innovation. Pushing on with the Digital Agenda would mean rapid progress in certain areas such as ecommerce, e-authentication and e-invoicing initiatives, interoperability, secure electronic payment systems, data protection, intellectual property rights and creation and extension of appropriate infrastructures. Several ministers also asked for a more systematic application of the Think Small First principle. The development of a modern public administration responsive to the needs of small businesses was also considered to be a fundamental way of helping SMEs.

During the discussions, Dr Chris Cardona, Minister for the Economy, Investment and Small Business, reiterated the position of Malta in support of the improvement of the policy environment for SMEs in Europe, in particular those policies which are aimed at consistently driving the innovation agenda forward, boosting transparency, removing (unnecessary) red tape, bolstering the spirit of entrepreneurship and assisting businesses in developing new markets.

The outcome of the debate will provide input for the preparation of the European Council Summit on 24 and 25 October. The items topping the agenda of the Summit will be the digital economy, innovation and services; growth, competitiveness and jobs; as well as the Economic and Monetary Union.