Annexes to COM(2020)103 - Commission Communication An SME Strategy for a sustainable and digital Europe - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2020)103 - Commission Communication An SME Strategy for a sustainable and digital Europe. |
|---|---|
| document | COM(2020)103  |
| date | March 10, 2020 |
EU Delegations in countries with which the EU concluded an FTA will provide support by addressing queries on practical difficulties of SMEs linked to the implementation of FTAs.
The EU stands firm against unfair trade practices through trade defence instruments (TDIs) when EU companies, including SMEs, are harmed by dumped or subsidised imports. The Commission is increasing its dedicated support to SMEs to facilitate their access to TDI and cooperation with the Commission during investigations 35 .
The newly created function of Chief Trade Enforcement Officer will, amongst others, monitor and improve the compliance with our trade agreements. This will further enhance the work on the elimination of barriers to trade which in particular impact SMEs. Furthermore, the EU will actively engage in a dedicated economic outreach and diplomacy for SMEs to support their access to third country markets. Opportunities for European entrepreneurs will be expanded through the Erasmus for Young Entrepreneurs Global scheme to gain new experiences in third country markets.
KEY ACTIONS
·The EU SME Envoy and the network of national SME Envoys will contribute to the work of the Commission’s Single Market Enforcement Task Force, to be set up as a result of the Enforcement Action Plan, to address among others gold-plating in the transposition process with a view to keep the regulatory burden on SMEs to a minimum.
·The Commission will encourage Member States to implement the Single Digital Gateway in an SME-friendly way. Member States should link their services in a one-stop-shop.
·The EU SME Envoy will filter EU initiatives to signal to the Commission those that merit close attention from an SME perspective and have a specific role in the new Fit for Future Platform.
·The Commission will mobilise Member States behind an EU Start-up Nations Standard to share and adopt best practices to accelerate the growth of high-tech SMEs and start-ups.
·The Commission calls on Member States and their contracting authorities to use the flexibility offered by the EU’s new procurement framework to enhance opportunities for SMEs including through the use of digital tools and platforms to step up cross border procurement. The Commission will issue guidance and support to contracting authorities.
·The Commission will encourage Member States to develop proposals for regulatory sandboxes by launching a pilot.
·The Commission will launch a call for pioneer partnerships among border regions to enhance cooperation in enforcing the single market and removal of administrative barriers.
·The Commission will support the Member States in enforcing the Late Payment Directive by setting up monitoring and better enforcement tools and exploring the feasibility of alternative resolution/mediation mechanisms for SMEs.
·The Commission will facilitate cross-border cooperation with and among SMEs under the European Defence Fund and map strengths in its research and innovation eco-system.
·The Commission will launch a Space Entrepreneurship Initiative ‘CASSINI’.
·The Commission will support Member States in transposing the recently adopted Directive on preventive restructuring frameworks and second chance, by helping them set up early warning mechanisms for companies in financial difficulties to avoid bankruptcy.
·The Commission will explore with Member States possible measures to create a supportive environment for transfer of SMEs.
·The Commission will continue to enhance SMEs access to third country markets including through dedicated SME chapters, use of dialogues to exchange good practices with trade partners and a new information portal. The Commission will facilitate SME access to trade defence instruments.
·EU Delegations will provide support by addressing queries of SMEs linked to the FTAs.
·The Commission will extend the Erasmus for Young Entrepreneurs Global scheme.
4.Improving access to financing
Access to finance is essential for SMEs to finance the investment needs for the transition. However, at all stages of development, small businesses struggle more than large enterprises to get finance. In the case of young entrepreneurs and start-ups, this can be for many reasons: such as not having a proven financial track record, lacking collateral or investors lacking information to assess their credit-risk or value their intangible assets. Improving access to finance requires an approach that combines a conducive regulatory environment, sufficient and aligned EU and national funding as well as access to networks of companies and investors.
SMEs face a major finance gap in Europe of EUR 20-35 billion despite substantial support programmes at EU and national level 36 , and in some Member States, access to finance remains one of the key problems they face 37 . In 2019, 18% of SMEs in the EU did not obtain the full bank loan they had planned for. This puts SMEs at a disadvantage as bank-based finance accounts for roughly 90% of their financing needs. EU banking regulation must provide the foundation for a stable banking system that delivers adequate finance to all businesses. The EU banking package maintained the SME supporting factor and extended it to all loans provided to SMEs. The Commission will ensure that any future financial market legislation takes account of the interests of European SMEs and supports their uninterrupted access to a wide array of financing options.
Diversifying sources of funding and making more SMEs investment ready
Nevertheless, there is a need to diversify sources of finance. Venture capital invested in European companies increased by 13% to EUR 8 billion in 2018 and the share of equity fundraising from outside Europe increased from 7% to 20% in 2018 38 . However, only 10% of businesses in Europe used capital market finance compared to over 25% in the US. European venture capital investments are roughly eight times smaller than in the US and therefore not deep enough to finance the growth of European businesses 39 .
Innovative, fast-growing SMEs and start-ups with important capital needs often move abroad to find risk capital 40 . This is not only a risk for Europe's technological sovereignty, growth and jobs, but it also has a downstream impact on its wider fleet of SMEs.
Furthermore, European investors can be reluctant to invest in start-ups due to challenges in assessing the market potential and/or IP underpinning an SME's new tech service or product. This makes it harder to assess the valuation of the start-up itself. 'Tech due diligence' services can address this and have been successful in other regions, but are not yet readily available in Europe. They ultimately benefit all parties involved: the SME, potential investors and the wider innovation ecosystem. An EU pilot would allow for more precise valuation of high-tech start-ups and later stage tech SMEs on the basis of their technology and IP portfolio 41 .
More private investment needs to be unleashed in Europe. The Commission will deploy new ways of risk-sharing with the private sector, such as the ESCALAR initiative to boost the size of venture capital funds, step up its investment efforts and work towards a revamped Capital Markets Union Action Plan. The Capital Markets Union aims to diversify sources of funding for companies at all stages of their development.
Laying the ground work for an SME IPO Fund
SMEs in Europe find limited possibilities for growth financing, such as listing on capital markets through an Initial Public Offering (IPO). Capital markets are an important source of funding for SMEs growing into mid-caps and ultimately large companies. However, the number of SME IPOs declined sharply in the aftermath of the financial crisis and has not recovered since. In 2019, the value and number of European IPOs continued to fall by 40% and 47%, respectively, relative to 2018 42 . Many institutional investors do not engage sufficiently in SME financing.
To address this, public funding could act as an anchor investment to attract more private investors in high-growth, innovative SMEs at the stage of public listing. An SME IPO Fund would support SMEs through and beyond the listing process. It will build on the analysis of the EU IPO market and testing with investors and stakeholders.
Creating a more conducive and inclusive environment for access to finance
In recent years, there has been a considerable decline in SME investment research. The review of the Markets in Financial Instrument Directive that the Commission will carry out in 2020 will look at how to stimulate research coverage on SMEs.
Fintech innovation based on distributed-ledger technology ("blockchain") can open new pathways for SMEs to directly engage with investors, either via trustworthy intermediaries or decentralised by themselves. It can enable SMEs to issue crypto assets and digital tokens, for instance in the form of bonds. These are attractive for investors because they can be immediately traded. This is a way to offer faster, more efficient and cost-effective financing for SMEs. The Commission will facilitate the use of crypto assets and the uptake of digital tokens by SMEs, investors and intermediaries, in alignment with the EU’s upcoming Digital Finance Strategy.
State aid rules have enabled significant national support for SMEs and risk capital 43 . The Commission is streamlining and reviewing relevant EU state aid rules by the end of 2021 to ensure they are still fit for purpose. In the review the Commission will look to ensure that the rules encourage participation of SMEs in Important Projects of Common European Interest (IPCEI).
In addition, lack of diversity among those receiving investment reduces the talent pool and innovation. Women launched one third of companies in Europe, but their companies are underrepresented when it comes to raising risk capital. In 2019, more than 92% of venture capital raised by European tech companies went to all-male founding teams 44 . InvestEU – EU future investment funding - could help stimulate investment in and with women and provide targeted support to extend the pipeline of investible female-led companies and funds under a gender-smart financing initiative. Furthermore, the number of women-led SMEs benefiting from the fully-fledged EIC will be tripled.
Mobilising EU, national and private financing for SMEs through InvestEU
In 2014-2018, EU financial instruments helped mobilise EUR 100 billion of financing, notably for SMEs, in the form of debt and equity finance. The EU Investment Plan is expected to support over 1 million SMEs. However, there needs to be continued EU and national support to narrow the SME financing gap.
Under the SME window of InvestEU, the Commission will build on the positive experiences with the existing EU SME guarantee schemes 45 . It will create a single integrated guarantee facility targeting SMEs perceived as high risk or having insufficient collateral, including innovative, those from the cultural and creative sectors, the SMEs transitioning from resource and energy intensive models towards more sustainable ones, and those adopting digital business practices. The SME window of InvestEU will support equity financing for SMEs and small midcaps in areas of special EU policy interest such as space and defence, sustainability, digitalisation, innovation, gender-smart financing, deep and green tech. For example, the funding will be pooled from the EU, Member States and the private sector to increase access to equity finance for innovative SMEs and start-ups that develop and adopt green tech solutions. InvestEU will allow financing along all development stages from start-up to scale-up, and IPO. It will help leverage private funding from investors such as business angels, family offices, venture capital funds, pension funds, and insurance companies.
The Commission will work closely with Member States to pool funding and address geographical imbalances in investments and access to finance, in particular through the Digital Innovation and Scaleup initiative 46 . In addition, the Social Investment and Skills window of InvestEU will improve access to microfinance, financing to social enterprises, social and impact investment and skills.
KEY ACTIONS:
·The Commission will support Initial Public Offerings (IPOs) of SMEs with investments channelled through a new private-public fund, to be developed under the InvestEU programme starting 2021 under the Capital Markets Union.
·The Commission will introduce a first-of-a-kind risk/reward mechanism to boost the size of venture capital funds and crowd in private investments for scaling up through the ESCALAR initiative.
·The Commission will launch a gender-smart financing initiative to stimulate funding for women-led companies and funds and to empower female entrepreneurship.
·The Commission will launch a green tech investment initiative to pool funding from the EU, Member States and the private sector to increase access to equity finance for innovative SMEs and start-ups that develop and adopt green tech solutions.
·The Commission will launch a blockchain-based initiative enabling issuance and trading of SME bonds across Europe, using the European Blockchain Services Infrastructure.
·The Commission will co-fund tech due diligence services under an EU pilot project to enable more precise valuations high tech start-ups and prepare their investment readiness.
·The Commission will further simplify the existing state aid rules on combinations of national funds with InvestEU and Horizon funds. This will make it easier for SMEs to benefit from pooled resources to help them with the twin transitions. Furthermore, as part of its ongoing review of state aid rules, the Commission will revise state aid rules for risk finance and the IPCEI communication, to further support SME involvement, ensure crowding-in of private investment while avoiding distortions of the level playing field.
5.Governance: an EU-Member State partnership for delivery
The SME Strategy must be driven by commitment and actions at both EU and Member State level. As many SMEs are deeply rooted in regional and local ecosystems where they provide jobs, training, tax revenues and social welfare, this commitment must extend to regional authorities. The strategy’s implementation will be underpinned by a strong partnership of all actors who share responsibility for delivery - EU, national, regional and local authorities, SMEs and investors. It will involve regular political stocktaking of progress, measurement and monitoring.
The SME Envoys network is an important tool to ensure this EU-Member State partnership. It represents Member States’ national authorities in charge of SME policy, and provides an organic link between these authorities, the local business communities and the EU. With the renewal of its mandate in 2020, the network’s role will be reinforced and its interaction with regional bodies and authorities strengthened.
The Commission will appoint a dedicated high level EU SME Envoy who will drive the work of the network to ensure the implementation of strategy and the application of the Think Small First principle in all EU policies. The EU SME Envoy will also track the implementation in the individual Member States. In order to facilitate the mainstreaming of the SME strategy across all policy areas, the EU SME Envoy will be closely involved in the European Semester process. The EU SME Envoy will raise awareness on SME-related aspects in the Commission‘s Better Regulation agenda in a regular dialogue with the Regulatory Scrutiny Board and also within the Fit for Future platform.
To complement the activities of the (public sector) SME Envoys network, the Commission will also work closely with Strategic Entrepreneurship Ambassadors, a new advisory group of entrepreneurs from across Europe which will play the role of a sounding board.
The new strategy will be subject to a regular review. The Commission will continue to publish annually an enhanced SME Performance Review. This review will also monitor national start-up friendly policies ("Europe Startup Nations" index), the engagement of SMEs in sustainable business practices, as well as the digitalisation of SMEs 47 (DESI index). This review will be presented and discussed at yearly SME Assembly to provide an opportunity for local stakeholders and the wider SME community to get actively involved.
The SME Envoys network and other EU institutions will be involved in the monitoring of the implementation of the strategy, for instance, through the Envoys’ annual report to the Competitiveness Council and a regular dialogue with the European Parliament. To prepare this report, the EU SME Envoy – together with national SME Envoys - will meet SME policymakers and other stakeholders in Member States to also discuss SME-relevant issues identified in the European Semester process. Based on analysis derived from these evaluation mechanisms, the EU SME Envoy will coordinate with the national SME Envoys to develop national implementation plans for this SME strategy in cooperation with local business stakeholders.
The EU SME Definition is a key tool making sure that this strategy targets the right population, i.e. that it delivers support and benefits to the enterprises most in need. The Commission regularly monitors whether it is fit for that purpose. According to a recent public consultation 48 , studies and surveys the definition works well and is easy to use for the overwhelming majority of EU SMEs that are small and autonomous. The Commission will further assess and report on specific issues raised, as regards, for example, complex ownership structures or possible “lock-in effects”.
KEY ACTIONS:
·The Commission will appoint a high level EU SME Envoy.
·The Commission will reinforce the SME Envoys Network to strengthen the link between the EU and national level on SME policy.
·The Commission will launch a group of Strategic Entrepreneurship Ambassadors.
·The EU SME Envoy will raise awareness on SME-related aspects in a regular dialogue with the Regulatory Scrutiny Board.
(1)
The European Regional Development Fund (ERDF) and European Social Fund (ESF) has reached out to over 900.000 and 500.000 SMEs in Europe respectively.
(2)
COM(2020)93 final, 10.03.2020
(3)
COM(2020)94 final, 10.03.2020
(4)
COM(2020)102 final, 10.03.2020
(5)
2017 Eurobarometer on SMEs, resource efficiency and green markets
(6)
COM(2020)21 final, 14.1.2020
(7)
2018 report by Digital Innovation Hubs Working Group https://ec.europa.eu/futurium/en/system/files/ged/dihs_access_to_finance_report_final.pdf
(8)
Startup Europe is an EU initiative to connect local hubs of start-ups across Europe: https://ec.europa.eu/digital-single-market/en/startup-europe
(9)
COM(2020)66 final, 19.02.2020
(10)
EIB Investment report 2018/2019
(11)
SAFE survey 2019
(12)
Gender Equality Strategy 2020 – 2025 COM(2020)152 final, 04.03.2020
(13)
COM(2016)356 final, 02.06.2016
(14)
Annual Report on European SMEs – SMEs growing beyond borders
(15)
EU-28 Small Business Act factsheet
(16)
Ecorys, “Administrative formalities and costs involved in accessing markets cross-border for provisions of accountancy, engineering and architecture services”, 2017
(17)
EU legislation may leave flexibility in the level of harmonisation and/or Member States’ practice (“gold plating”) COM (2020)93 final, 10.03.2020.
(18)
The “Think Small First” principle recalls that SME interests need to be taken into account in policy making, at EU as well as national level.
(19)
Under the “once only” principle, citizens and businesses supply diverse data only once to a public administration.
(20)
The “digital by default” principle seeks to reduce the administrative burden by making digital delivery of services the default choice of public administrations.
(21)
A new high-level group replacing the REFIT Platform to be set up.
(22)
The EU SME Envoy ensures the link between SME policy making at EU level and the national SME envoys/bodies in charge of SME policy and chairs the network of national SME envoys.
(23)
European Commission Study on Tax Compliance Costs for SMEs, 2018
(24)
Mind the Bridge: Tech Scale-up Europe, 2019 Report
(25)
Regulation (EU) 2018/1724 establishes a single digital gateway to provide information, procedures, assistance and problem solving services for users in their own countries and across borders.
(26)
Goods that are not harmonised by EU legislation, such as textile, footwear, childcare articles, jewellery, tableware or furniture
(27)
COM(2020)93 final, 10.03.2020
(28)
COM(2020)98 final, 11.03.2020
(29)
Extrapolation based on Business Dynamics: Start-ups, Business transfer and Bankruptcy, Final report 2011, p. 10, http://ec.europa.eu/DocsRoom/documents/10448/attachments/1/translations
(30)
Directive on cross border conversions, mergers and divisions (EU) 2019/2121 adopted 27 November 2019
(31)
Directive 2019/1023 adopted in June 2019
(32)
2018 EU publication “A comparative analysis of legal measures vs. soft-law instruments for improving payment behaviour”
(33)
2018 EU publication “A comparative analysis of legal measures vs. soft-law instruments for improving payment behaviour”
(34)
The EU SME Centre in Beijing provides a first line of assistance to European SMEs wishing to develop their presence in the Chinese market www.eusmecentre.org.cn
(35)
Regulation (EU) 2018/825 adopted on 30 May 2018
(36)
Debt financing gap per year during 2014-2018; see SWD(2018) 320 final of 7.6.2018
(37)
European Commission and European Central Bank, “Survey on the Access to Finance of Enterprises”, 11.2019
(38)
Invest Europe (2019)20
(39)
Afme Capital Markets Union Performance Indicators Report 2019
(40)
Financing the Deep Tech Revolution (EC-EIB study, 2018)
(41)
Leveraging intelligence from https://www.innoradar.eu
(42)
https://www.pwc.co.uk/audit-assurance/assets/pdf/ipo-watch-q4-2019-annual-review.pdf
(43)
Expenditure for 2018 amounted to EUR 216 million for the objective ‘Risk capital’ and EUR 501 million for the objective ‘SMEs’.
(44)
“2019 State of European Tech report” https://2019.stateofeuropeantech.com/chart/103-1338/
(45)
Available under COSME, Horizon 2020, the Creative Europe programme and EU cohesion policy funds
(46)
https://ec.europa.eu/digital-single-market/en/news/launch-digital-innovation-and-scale-initiative-central-eastern-and-south-eastern-europe
(47)
https://ec.europa.eu/digital-single-market/en/integration-digital-technology
(48)
Open public consultation on the SME Definition: https://ec.europa.eu/info/consultations/public-consultation-review-sme-definition_en