Small and medium sized enterprises (SMEs) are the backbone of the Maltese economy. They constitute the overwhelming majority of businesses (99%) and account for two-thirds of the total employment. 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 the European level. They are crucial in fostering the entrepreneurship, competition and innovation that leads to sustainable growth and development thus achieving the aims of the Europe 2020 Strategy for a smart, sustainable, and inclusive economy in the next decade.

In 2008 the European Commission adopted a Communication on a Small Business Act (SBA) for Europe aimed at promoting entrepreneurship and tackling the obstacles that hamper SMEs’ potential for growth and job creation. Fully endorsed by the European Council in December 2008, the SBA for Europe reflects the Commission’s political will to recognise the central role of SMEs in the EU’s economy and for the first time puts into place a comprehensive SME policy framework for the EU and its member states. The main focus of the SBA was, and remains, structured around three areas: Ensuring access to finance, taking full advantage of the Single Market and smart regulation.

Since the adoption of the Small Business Act the world has seen a global economic and financial crisis, which made it increasingly difficult for SMEs to obtain financing and access markets. SMEs have suffered a double shock: A drastic drop in demand for goods and services and a tightening in credit terms, which have severely affected their cash flow. It is important to stress that SMEs are generally more vulnerable in times of crisis for it is difficult for them to downsize as they are already small, they are less diversified in their economic activities and depend heavily on credit, yet they have fewer financing options.

Besides the problems faced by all SMEs, SMEs in Malta face another obstacle, that of being located on a peripheral and insular country. In its position paper on the SBA, the Malta Chamber of Commerce, Enterprise and Industry, emphasises the importance of implementing the actions related to the SBA on a local level, using a process designed in coherence to the nature of SMEs. In particular, the implementation must cater for their lack of financial and human resources, limited timeframes and highly-competitive dynamics of the market which steer restructuring at firm-level.

Recently, the European Commission adopted a Communication on the review of the SBA for Europe. This Communication presents an overview of the progress made in the first two years of the SBA. The Commission notes that despite the adoption, at the EU level, of most legislative initiatives foreseen by the SBA, a review of their implementation at the national level revealed that more must be done to help SMEs thrive.

The Communication also sets out new actions to meet the new challenges in the wake of the crisis aimed at improving the business environment for SMEs. These include a further easing of administrative procedures by cutting red tape; improving access to finance by streamlining procedures and expanding loan guarantee schemes; helping small businesses reach overseas markets; harmonising corporation tax; and promoting entrepreneurship and job creation.

The review of the SBA calls for a strong political commitment at the highest level to achieve a true breakthrough. Active support by, and the full cooperation of all member states, European institutions and stakeholders is imperative. In the review, the Commission affirmed its determination to continue to give priority to SMEs in its proposals and programmes, taking into account their specific characteristics. It then went on to urge the European Parliament and the Council to keep SMEs high on their political agenda and to ensure full support for the implementation of the SBA. Last, but not least, it urged members states to cooperate by ensuring a full and timely implementation of the actions listed in the SBA at the national level.

Francine Caruana is an Executive – EU Policy & Legislation, Meusac