Small and medium-size companies in Finland, as in every well performing country, are central to the main economy. They are the mainstay of growth and the only sector that actually employs more workers.
While Finnish big companies dominate the national markets, handle the bulk of exports and make strong profits, they actually do little to contribute to economic growth and they employ fewer and fewer people each year!
Certainly nobody can deny that the need for big companies, but does the government really need to send taxpayer’s money to support their activities?
The biggest companies receive huge amounts as public grants and tax relief for innovations, for new investments, as well as benefiting from substantial tax breaks and subsidies for energy costs. Many of the latter companies are in energy intensive areas like forestry and paper, metal manufacturing and transport.
It is striking that a number of these companies that receive public grants are not only highly profitable, but they pay top management salaries and bonuses that are of the same magnitude as these grants!
In a recent press conference the Chief Economist at the Federation of Finnish Enterprises (FFE), Mr. Kuismanen set out the results of the “SME Barometer”. This is an annual review of some 4 600 SME’s organised by the FFE, Finnvera and the Ministry of Economic Affairs.
He highlighted from the report that SMEs are performing reasonably well but that Finland should allocate more resources to concentrate on growth companies within SME sector.
The above graph shows fast growing SME’s in Blue and slower growth SMEs to the right. The proportion of closed SMEs is shown in Greeen.
The SME sector expects that growth will continue but at slower rate at around 1% this year. SMEs are also employing more staff, unlike the big companies that are currently a source of labour for SMEs. This can be seen in the graph below where some 150 000 people have found jobs in the SMEs while larger companies laid off some 3 000 members of staff.
The Chief Economist, Mr. Lindholm, of Finnvera, Mr. Lindholm, the state-owned finance agency for SMEs and export credit agency emphasised that the European Central Bank’s policy of maintaining zero or negative interest rates for the last 6 years has being a failure because it has not resulted in any noticeable increase in borrowing by SME’s.
The cost of money does not drive investments, only demand for goods and services even when interests rates are high, and this can be seen from the report:
However, 70% of SME’s depend on financing from banks and it appears that this is becoming more challenging because of new banking regulations, according to Mr Lindholm. But he continued by saying that regulation is probably going too far because this is limiting availability of bank financing for SMEs. If banks refuse to finance SMEs, then Finnvera will not be able to provide financing for SMEs as a partner to banks.
In addition to the above challenge the costs of financing and the demands for collateral by banks have increased. This is particularly hard for the faster growing SME sectors involved in services, gaming and IT solutions that require working capital for expansion. Finnvera only has limited room for manoeuvre to assist these companies.