A Recovery of Small Beginnings: OECD MSME Week
How can governments provide the right business frameworks, incentives and support to stimulate the new firms, while making SMEs more resilient to future challenges? Banner image: Shutterstock/esat sungur
This article is part of a series in which OECD experts and thought leaders — from around the world and all parts of society — address the COVID-19 crisis, discussing and developing solutions now and for the future.
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Countries around the world continue to grapple with the economic and social emergency caused by the pandemic. But looking ahead, this year’s Micro-, Small and Medium-sized Enterprises (MSMEs) Day—on 27 June—provides an opportunity to embrace SMEs and entrepreneurship as the driving force behind our recovery.
While public stimulus packages will help lift economic growth over the next year, we will depend on the private sector—businesses that are viable, growing, innovative and ambitious—to make it sustainable. Most of these businesses will be SMEs: across the OECD, they account for 99% of all businesses and between 50% and 60% of value added, as well as two thirds of all jobs. That is why we must put them at the centre of our plans for economic revival. In short, it must be a recovery of small beginnings.
SMEs and entrepreneurs have faced major challenges throughout the pandemic. They were overrepresented in the most exposed sectors, such as food and accommodation services, and often had to close operations. Those that were able to continue trading suffered significant losses: among SMEs that remained open from May to December 2020, between 55% and 70% saw revenues fall, with two thirds dropping more than 40%.
Government responses were bold and quick, through a mix of wage subsidies, business grants, payment deferrals and loans and guarantees. In most OECD countries, 2020 saw between 20% and 40% of SMEs receive government support in one form or another. This has helped avoid a wave of insolvencies: as a result, firm bankruptcies were actually lower in 2020 and early 2021 than in 2019 in almost all countries for which we have data.
The 2021 edition of our OECD SME and Entrepreneurship Outlook aims to support policy makers in building back better. For a start, this includes the delicate task of phasing out emergency support measures while preventing viable firms holding back on their investment in the recovery because of debt. The scale of that challenge is huge. The Bank of France estimated that SME debt had increased by more than 20% in 2020 to EUR 524 billion. In the United Kingdom, in the year to March 2021 SME debt grew by 26%.
Read the report: "OECD SME and Entrepreneurship Outlook 2021" and find out more about new evidence on the impact of the crisis and policy responses on SMEs and entrepreneurs
Governments then need to find ways of providing the right business frameworks, incentives and support to stimulate the new firms that hold out the prospect of not just recovery, but renewal. Many of these will be led by “second-chance” entrepreneurs—formerly bankrupt entrepreneurs looking to start new ventures—but only if the right measures are in place to allow them to exit and start again. New firms can take innovative approaches to challenges and thrive in the changed circumstances. They can start green, digital and global. Here, there is positive news. While at the outset of the pandemic most OECD countries saw significant falls in business creation, they have already rebounded. In Japan and the United Kingdom for example, overall business creation in 2020 was 15% to 20% higher than in 2019. Only South-European countries (Italy, Portugal and Spain) and Poland recorded an overall reduction in firm creation in 2020 as a whole compared to 2019.
At the same time, the pandemic has highlighted the need to make SMEs more resilient to future challenges. In particular, the crisis exposed those that had yet to convert to the digital business tools and business models that proved essential to operations during periods of social distancing. Adoption of these accelerated rapidly, with 50% of SMEs increasing digital up-take during the pandemic. Through our Digital for SMEs Global Initiative, we have seen many examples of firms that have used these tools to deliver innovative new products and services. Yet, for these firms and many others the transition is not yet complete, and new threats around cybersecurity need to be tackled.
Read the report "One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to "build back better"" and visit the OECD's COVID-19 Hub to browse hundreds of policy responses
The pandemic also exposed businesses dependent on global value chains, which were heavily disrupted and led to global shortages of products and inputs, especially in highly integrated sectors. Small businesses were hit hard by product shortages and price volatility, particularly in Austria, Belgium and Estonia where SMEs play a crucial import/export role accounting for 47% to 75% in international trade value. Over the longer term, it may be difficult for many firms to rebuild connections if former partners have set up substitute alliances and contracts. As a result, many governments are supporting SMEs to find (alternative) markets abroad. For example, Indonesia aims to boost SME exports through virtual business matchmaking events.
Looking ahead, many SMEs have led the way in green technologies—while small firms account for about 8% of all United States patents, they account for 14% of green technology patents. Others have yet to embrace the green transition, held back by a lack of information, incentives, and access to finance. Accelerating these transitions will be key to securing a more resilient and sustainable growth model.
The OECD is supporting countries to tackle these issues and to mark this year’s MSME day, we invite you to join the discussion at a series of virtual events we will host between 28 June and 2 July.
,  OECD SME and Entrepreneurship Outlook 2021, based on the Facebook/ OECD/ World Bank Future of Business Survey.
 OECD SME and Entrepreneurship Outlook 2021, based on OECD Timely Entrepreneurship Indicators.
|Tackling COVID-19||Entrepreneurship||Trade||Green Recovery|
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