Researcher: Well-being of SMEs key for Nordic Baltic competitiveness

Small and medium-sized enterprises (SMEs) are the backbone of the economy of the Nordic Baltic region. SMEs are also the first to suffer in times of financial crises, says researcher Lisbet Horslund, who conducted a study for NIB on the SME sector and its access to financing in the Bank’s member countries.

In absolute numbers, almost all enterprises in NIB’s member countries are small or medium-sized. They employ two thirds of the total number of employees and contribute a similar share of the added value produced in the regional economies (see tables in the image gallery above the text).

“SMEs make up a remarkably weighty pool of light-weight actors with very little or no leverage when it comes to financing,” says Lisbet Horslund.

“While focusing on the well-being of the banking sector and large corporations, we may easily overlook the ‘little guys’, the SMEs, who were actually profoundly hit by the recent financial crisis.”

Restricted access to finance has been identified as one key area among policy makers in the Nordic and Baltic countries, where the governments employ special agencies covering broad arrays of needs and sectors—most often innovation or research.

In Denmark, the Danish Growth Fund and the Export Credit Fund are the main suppliers of financing schemes for SMEs. They provide so-called get-started loans, subordinated loans and equity capital. Estonia’s state-run fund KredEx offers loans, credit insurance and guarantees.

In Finland, policy initiatives regarding access to finance for SMEs has mainly been through the state-owned financing company and export credit agency Finnvera. Iceland has launched an agreement named Beina Brautin to expedite the processing of debt issues for SMEs.

In Latvia, in the past three years, the state-owned Hipoteku Banka has been transformed from a land and mortgage bank into a development bank that continues to be the main provider of SME financing schemes. The Lithuanian state investment agency Invega and the Norwegian Innovation Norway support the SMEs in their countries by providing small loans and guarantees.

The Swedish government targets the country’s SMEs through the state-owned self-financed agency Almi Företagspartner that offers project and innovation loans and export financing, often in cooperation with local banks.

Sweden has also been the only country showing a positive trend in the volume of investments in SMEs in recent years. The other Nordic countries have had rather stable development, while the Baltic countries seem to be challenged with a slightly negative trend.

The SME portfolios in the banking sectors of the Nordic and Baltic countries are estimated in the range of EUR 102-164 billion.

“It may seem very large, but, unfortunately, it is not enough and the demand for SME long-term financing, particularly as a result of the crisis, is increasing,” says Ms Horslund.

“Having said that, I have to emphasise that NIB’s member countries have developed a very good understanding and appreciation of the SMEs’ role as drivers for competitiveness.”

The sector of smaller businesses also shows amazing adaptability to the changing economic climate and even toxic conditions. Although the crisis has most definitely hit the SMEs, making them stretch to survive, it hasn’t created a massive closure of small and medium-sized businesses. In the Nordic and Baltic countries, the total number of SMEs has even increased slightly between 2005 and 2012.

“SMEs enhance entrepreneurship, competition and innovation and they are of great importance for productivity and economic growth in their home countries. Removing obstacles that impede the growth of the SME sector needs to become a priority in their economic policies,” concludes Ms Horslund.