Annual Single Market and Competitiveness Report Published

On 29 January, the European Commission published its Annual Single Market and Competitiveness Report (ASMCR) alongside the Single Market and Competitiveness Scoreboard and the report of the Single Market Enforcement Taskforce. Please find below some highlights and SME-relevant key performance indicators from the ASMCR:

SME value added in real terms declined by 1.6% in 2023 and a further decline of 1.0% is estimated for 2024. Compared to large companies, SME productivity has shown a trend in the wrong direction: in 2008, SMEs were about 68% as productive as large enterprises, but in 2024 this figure had fallen to 60%.

SMEs remain the engine of growth and innovation in Europe. Most EU scale-ups with fast growth and high productivity are SMEs. Micro-SMEs with less than 10 employees have created nearly 4 million jobs in the last three years, and in 11 out of 14 industrial ecosystems, job growth in SMEs has outpaced growth in large enterprises in 2023.

Four main challenges are holding SME back: regulatory obstacles or administrative burden, payment delays, access to finance, and skills. 35% of SMEs see complex administrative or legal procedures as a key obstacle to implementing resource-efficiency measures, while access to skills is seen as the most important problem for 29% of SMEs. In addition, the payment situation in Europe keeps worsening: actual payment times in B2B transactions have risen from 52 days in 2022 to 62 days in 2024.

Regulatory burden in the Single Market

41% of companies consider increased regulatory burden to be the main risk factor negatively impacting the EU’s attractiveness as a location for foreign direct investment (FDI). This can partly explain the significant drop in the EU’s share of annual global FDI flows from 36% (2019) to 4% (2023). The regulatory burden is particularly cumbersome for SMEs. 28% of EU SMEs report that more than 10% of their staff are employed to assess and comply with regulatory requirements and standards. For instance, permitting procedures for new or modernised manufacturing facilities, can be time-consuming, costly and entail the interaction with a multitude of public administrations. Further areas repeatedly brought up by companies as particularly burdensome are posting of workers, corporate sustainability reporting and chemicals legislation.

Access to private capital and investment

New bank loans to SMEs have decreased since the COVID-19 pandemic, putting new investments at risk. The bulk of European SMEs who use traditional bank loans to finance investments, counting for 57% of their total finance (data 2023). Other types of finance used are internal funds (15%), trade credit (14%), grants or subsidised bank loan (8%), factoring (5%), equity (1%). SME lending, which spiked following the on-set of the COVID pandemic due to the massive public intervention schemes, is contracting significantly, as the public support is withdrawn. Current levels of new bank finance have fallen below pre-pandemic levels, which can partly also be attributed to the increase in interest rates seen up until 2024.

Skills and education

Over 70% of businesses report that the lack of right skills hampers their investments and nearly four out of five SMEs report difficulties in finding workers with the right skills. 45% of SMEs report that skills shortages hinder their ability to adopt or effectively use digital technologies.

Digitalisation

The digital intensity of SMEs and the adoption of digital technologies by companies is not yet increasing fast enough. In 2023, 57.7% of EU SMEs had at least a basic level of digital intensity, which represents an increase as compared to 2 years ago, albeit not sufficiently rapid to stay on track towards the target of a 90% basic digital intensity by 2030. The share of EU companies with more than ten employees that have adopted key digital technologies has also grown, with 33.2% of companies using data analytics, 38.9% using cloud and 8% having implemented AI in their business, but also these numbers fall short of following the trajectory needed to reach the target of a 75% uptake in 2030.

Research and innovation

Europe’s share of global patent applications declined from 30% to 17% between 2000 and 2021, although remaining stable in absolute terms. EU companies, especially SMEs, underutilise the possibility of formally protecting their IP, such as patents, trademarks, and designs. Only 9% of SMEs own registered IP, compared to more than 55% of large companies.

For questions on this topic, please contact SFA Public Affairs Lead, Jonathan McDade - Tel: 01 605 1688 or Email: jonathan.mcdade@sfa.ie.