SMEs, once the backbone of the economy, face an uncertain future

Greek small and medium-sized enterprises (SMEs) are suffering from a serious lack of competitiveness and will face a tough future, local and foreign surveys confirm. Estimates agree that the SMEs’ contribution to the growth of the Greek economy, although hard to measure, is disproportionately low given their large number and number of staff they employ. According to the annual Hellenic Commerce Report, SMEs are going through a difficult period with their sales remaining stagnant. Nearly half of all SMEs (45.6 percent) said sales remained stable in 2004, 31.9 percent saw a decline and 22.5 percent reported a rise. Similarly, pre-tax profits remained stable for 45.4 percent of companies, but were far lower for 18.4 percent of them. In contrast, large companies expanded their business significantly in 2004. Their turnover rose to 64,932 million euros from 58,486 million euros, an 11 percent annual rise. A study by the Foundation for Economic and Industrial Research (IOBE) found that the greater role that SMEs play in Greece than in similarly sized EU states is documented by their share of total employment; in 2003, it was 86.6 percent, against 83.5 percent in Italy and 69.8 percent in Ireland. Greek SMEs mainly consist of very small enterprises, covering 97.5 percent of all SMEs in the country, with 40 percent of them employing just one person, according to Alpha Bank. The IOBE findings throw doubt on the prospects of local SMEs and their contribution to job creation. The slow technological modernization of production and limited creation of jobs in Greece is the outcome of the structural and institutional weaknesses of the country’s production system. The survey confirmed that the small number of employees at most SMEs, their family management, traditional structure and work-intensive production and specialization of low added-value hamper technological modernization (through near-zero investment in new skills and production), resulting in negative competitiveness and employment records. The structural weaknesses of Greek SMEs are compounded by low records in employment, added value and productivity in the country’s big companies. This leads to a weak production system, lacking in dynamism and growth prospects. IOBE proposed the following measures to support SMEs: directing labor training programs geared toward their peculiarities and requirements; supporting innovation and technological adjustment via programs according to regional and sectoral criteria; the greater development of entrepreneurial spirit, with an aim toward education and professional training; greater use of EU resources by adapting programs and subsidies to the requirements of small and very small enterprises; funding support to SMEs via more flexible financial and tax system and confronting the inherent limitations of SMEs.