Small and medium-size enterprises (SMEs) are the foundation of the Irish economy, accounting for 99.8% of the 225,989 active enterprises in Ireland in 2017 according to the Central Statistics Office (CSO); these companies also accounted for 68.4% of all those employed in Ireland in the same year.
SMEs have been severely affected by the COVID-19 (coronavirus) pandemic, with fewer SMEs on 71% citing confidence in financial resources to continue operating through the coronavirus pandemic compared with 84.1% of larger companies in the CSO’s Business Impact of COVID-19 Survey (BICS) for between 16 March and 19 April 2020. Over the same period, 35.3% of large companies that replied to the survey stated that half or more of their workforce were working remotely, compared with only 27.7% of SMEs.
Assistance from the Irish government, such as the Temporary Wage Subsidy Scheme and the Employment Wage Subsidy Scheme, has been crucial to many SMEs, with 39.9% making use of the former between 27 July and 23 August 2020. Other government support has also been crucial to SMEs, with a greater proportion of SMEs (48.7%) receiving government than larger companies (33.3%).
Although government schemes are a short-term solution, the performance of SMEs in the long term and rate at which affected sectors recover from the coronavirus pandemic will depend on the successful rollout of vaccinations.
Plagued trading
In March 2020, measures were taken by the Irish government to stop the spread of the coronavirus, such as cancelling Ireland’s Six Nations clash against Italy and calling off St Patrick’s Day celebrations, as well as other restrictive measures and social distancing measures. Ireland entered a full lockdown on 27 March, which included the closure of all non-essential businesses and banned all non-essential journeys.
The national lockdown led 24% of all Irish enterprises to temporarily or permanently cease trading between 16 March and 19 April 2020, according the BICS . However, closure rates varied between sectors, with construction firms, such as those in the Building Construction and Electricians industries, the most heavily affected.
Despite only 20.3% of enterprises in the services sector ceasing trading in the first month of lockdown, this rises to 88.1%, for industries in the Accommodation and Food Services sector, such as the Hotels and Restaurants and Takeaways industries, making this the hardest hit sub-sector.
Wage support
In order to mitigate the closure of non-essential businesses, the Temporary COVID-19 Wage Subsidy scheme was announced on 24 March 2020. This allowed businesses to continue paying employees during the pandemic and was aimed at keeping staff registered with their employers in order to return to work with minimal delay after the pandemic. In order to qualify for the scheme, enterprises must have lost at least 25% of revenue as a result of the coronavirus outbreak.
This was then replaced by the Employment Wage Subsidy Scheme from September 2020, which requires firms to have lost 30% of turnover must be lost as a result of the pandemic to qualify. Under this scheme, firms receive a flat-rate subsidy depending on the number of qualifying employees on payroll. This scheme is set to run until 30 June 2021.
Following the end of support mechanisms, many SMEs within the Other Services Sector may suffer significantly should lockdown measures remain in place, as this sector had the largest uptake of the wage subsidy scheme or Pandemic Unemployment Payment between March and September 2020, at 75.4% according to the CSO.
Hotels and restaurants may also struggle, as they too were significant beneficiaries of payroll support between March and September, with 70.6% and 75.1% of enterprises in these industries respectively receiving support at least once.
Further finance
Schemes based on lending aimed specifically at SMEs have also been offered by the government. For example, the Strategic Banking Corporation of Ireland Working Capital Scheme is aimed at providing eligible SMEs with loans of between €25,000 and €1.5 million with a fixed interest rate of no more than 4% over the term of the loan.
Despite the various schemes offered, only 4% of SMEs reported that access to finance had increased in June, while 6.7% reported a decrease.
This is due to many of the schemes citing various eligibility criterion, and SME owners aiming to avoid debt. Conversely, just 2% of large enterprises stated that access to finance had decreased. This disparity, combined with lower levels of confidence and financial resources indicates SMEs are more likely struggle both during and after the pandemic.
State of play
Although lockdown restrictions were initially relaxed, Ireland moved into level five restrictions in December 2020 following a significant rise in cases over the Christmas period and early January. These restrictions are set to last until at least April 2021. Until then, only essential retail shops are permitted to remain open and all bars, cafes and restaurants are closed except for take-away services.
Upon reopening, enterprises are still expected to face restrictions while operating, such as reduced capacity numbers, cleaning requirements and the use of PPE. Hopefully, with the vaccine rollout well under way, with 226,291 first doses administered as of 22 February 2021, these restrictions will be short-lived.
The road to recovery
Moving forward, the vaccination process is expected to aid the recovery of affected SMEs, with 41% of small businesses stating that the business environment was improving over the winter of 2020, compared with 35% during the summer, according to the Small Business Sentiment Survey published by the Small Firms Association in January 2021.
The Visa Back to Business Study found that most small business owners in Ireland are optimistic about their future, despite the ongoing challenges presented by the coronavirus pandemic.
Nonetheless, 63% reported that their businesses were still recovering from a challenging year, while 37% said the last year had been one of opportunity.
The European Union estimates that the Irish economy will grow at a faster rate of 3.4% in 2021, compared with 3% in 2020 as domestic companies increase productivity levels following the easing of lockdown measures and continued trade with the United Kingdom thanks to the EU-UK free trade agreement. Risks to Ireland’s overall economic outlook are expected to remain linked to changes in the international taxation environment and the activities of multinationals registered in Ireland.
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