The OECD’s “Road Map for SME and Entrepreneurship Policy in Ireland”

Nov 1, 2019

Michaela Reilly, Policy & Research Executive at Chambers Ireland, reviews the OECD’s “Road Map for SME and Entrepreneurship Policy in Ireland” and outlines the steps we should take to build a comprehensive strategy for SMEs

Ireland’s SMEs and entrepreneurs operate in what is broadly regarded by the OECD as a favourable business environment with a solid and comprehensive set of programmes targeted to continuously improve the sector. That does not ignore the fact, however, that greater supports to entrepreneurs and SMEs are required if microbusinesses are to continue grow and succeed at home and abroad. Heather Humphreys TD, in her capacity as Minister for Business, Enterprise and Innovation, invited the OCED to undertake a review of entrepreneurship and SME growth and development in Ireland in 2018. The launch of this 18-month mammoth review (on 31 October 2019) of Ireland’s SME and Entrepreneurship Policy came as a timely reminder that greater State support for SMEs is required if we are to keep pace with foreign-owned counterparts.

The SME sector accounts for 99.7% of active enterprises in Ireland. However, they produce less than 20% of national output. The OECD’s Review found that even fewer – 6.3% of the total – export anything, putting Ireland at the lowest level among all 36 OECD members. By contrast, nearly 37% of Dutch SMEs export, while German and British firms average around 17.5%. The ambitious Road Map for Irish SME and Entrepreneurship Policy addresses the gaps that may be impacting Ireland’s SME and entrepreneurial economic performance. If we are to compete against the top performing countries and position ourselves as a knowledge-economy with a highly skilled workforce, our entrepreneurship and SME strategies and schemes must be developed to their fullest. Chambers Ireland welcomes the OECD’s recommendations and encourages the Government to enact the improvements set out in this Review, and also in our Budget 2020 submission which was published earlier this year, so that we can build a comprehensive strategy for our SMEs and entrepreneurs to develop and prosper in the long-term.

SME and Entrepreneurship Policy Framework

Though the Review commends the Government’s approach of engaging a wide selection of stakeholders when developing policy, this framework would greatly benefit from the addition of a unified strategy document on SME and entrepreneurship policy that refers to all government policy measures in this regard. There is more that can be done to ensure incoming regulations do more to help SMEs rather than hurt their competitiveness.

Chambers Ireland has recommended that the Government put an ‘SME Test’ assessment into practice, as part of the European Commission’s Better Regulation guidelines, which would be an effective way to assess the impact of proposed legislation on micro, small and medium-sized enterprises.

Innovation and R&D

The Review highlights that digital technology adoption by SMEs needs to be boosted. SMEs are inadequately supported in terms of digitalisation opportunities and benefits. In line with the OECD’s proposals, we recommend that the Government introduce additional supports for businesses, including retail, who wish to expand their activities in e-commerce with a view to becoming more engaged in the Digital Single Market and with a view to competing with UK businesses selling online, who may have a competitive edge post-Brexit, due to exchange rate fluctuations.

SME Internationalisation

Ireland’s level of direct SME exports, and the share of SMEs in total domestic value added in exports, are very low by international standards. SMEs that export were found to have strongly focused on the UK market. There is a growing need for SMEs to branch out and reduce their exposure post-Brexit.

In developing the Future Jobs Strategy based on this Review, we call on Government to develop our Budget 2020 proposal of an Action Plan for Trade, where indigenous businesses are supported to reap the benefits of EU Free Trade Agreements. This should also be paired with as  increased investment in the Enterprise Europe Network to improve engagement with the Single Market, as well as increased collaboration with our Chamber network to promote these supports nationwide.

Access to finance for SMEs and Entrepreneurship

The OECD found that interest rates charged to Irish SMEs remain high compared to most other EU member states, and the interest rate spread between SME and large enterprise loans is widening. The OCED calls for a scale up of current SME credit access initiatives to channel substantial external finance to SMEs and start-ups.

In line with this, we have called for the introduction of a short-term tax credit on employer PRSI to enable microbusinesses to grow and increase employee numbers. If applied to businesses with less than 10 employees, the introduction of a 3-year tax credit on employer PRSI for each new hire would support microbusinesses to create jobs and enable them to grow.

SME workforce and managerial skills

Ireland has a highly skilled and educated workforce. Yet SMEs are finding it increasingly difficult to attract and retain key members of staff, which impinges on their competitiveness and growth prospects. Further, we welcome the recommendations on increased training for SMEs to workforce and managerial skills through tax relief for non-domiciled new hires by Irish SMEs as well as new standards in SME management development programmes. As outlined in our Budget 2020 submission, Government should continue to make incremental increases to the entry point to the higher rate of income tax on a multi-annual basis, so that Ireland is in line with comparable countries in the OECD and can maintain our competitiveness when it comes to attracting talent.

What’s Next?

It is our view that this Review helps to build a new trajectory for growing our businesses and taking on future challenges, such as making the transition to the Low Carbon Economy. As part of our Budget 2020 submission this year, we made several recommendations on measures that could improve competitiveness and support the environment SMEs and entrepreneurs operate in. The “Think Small First” principle must be more deeply embedded in Irish policy making. Small businesses face significant barriers to growth due to the costs associated with scaling, whether that is hiring additional staff, finding new markets or investing in their business.

The next steps for the Department of Business, Enterprise and Innovation is to publish its own strategy before the end of this year that meets the targets for all 11 actions set out in the OECD’s Review. While Ireland has reaped the benefits of being an open economy and a prime location for FDI, our indigenous companies have not always enjoyed the same levels of growth as multinationals have in recent years.

The SME and Entrepreneurship Policy in Ireland Review can be downloaded here.

Helpful links

A Road Map for SME and Entrepreneurship Policy in Ireland

Overview of Government Supports for Indigenous Business

Financial Literacy amongst Irish micro, small and medium-sized businesses

Powering the Regions: Enterprise Ireland Regional Plan

European Commission’s Better Regulation Guidelines

 

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