Small Business Act - whispering its faults

In this era of acute globalization and ardent competition, one needs to provide with SME's better assistance to seize opportunities and cultivate the necessary changes to boost innovation.

PKF Malta is planning to take an active part in SME week, which will be held next October under the auspices of the minister Chris Cardona. Our motto of the participation is to help in regenerating entrepreneurship. This event shall take place almost three years since the promulgation of the Small Business Act previously led by the parliamentary secretary Azzopardi in July 2011 with the famous motto 'Think Small First".

It is a pity when considering the fact that the ‘think small first’ concept has never quite taken off in Malta. It begs the question- what are the chances of success now, three years later, when one is still hearing pleas from politicians about the relevance of helping small businesses?

Some say this is a cultural revolution and therefore difficult to achieve, so just be contrite and take a long breath, since SMEs in Malta have long been seen as the Cinderella of the business community.

Unfortunately, much too often SME‘s are deemed to be a necessary evil and given second preference for government tenders as such opportunities are usually the domain of mega businesses (government agencies prefer the status quo when issuing tenders even though the EU encourages them to be more kind to start-ups and give a second chance to relatively untested SME's bidders).

It goes without saying that this obviously discourages the small business sector in its quest to become more entrepreneurial. It is evident that growth in traditional areas of micro-enterprises is slowing down at disturbing rate. Could the reason for this be that too little (and too late, sometimes) is done by the administration to help reinvent the sector?

It is not a moment too soon that Malta Enterprise has introduced the Go Global scheme to help a number of applicants try the difficult path to produce for export or in certain cases to diversify into new export markets.

The idea is great and a number of experts were selected following a call for applications to help mentor potential exporters to carry out an analytical assessment of their business model and produce a plan and effective strategy to export. The scheme is intended for small and medium caps and pays experts for 15 hours of their work to help applicants unravel the mystery of how to successfully find international buyers for any domestic production diverted to export.

It is definitely an ambitious, albeit somewhat underfunded scheme where Malta Enterprise is placing less than half a million euro to cover the cost of diagnostic plans, training of applicants and follow through the actual exports created over a two-year period. Quoting the Malta Enterprise announcement, it continues to say that applicants can qualify if they are involved in any industrial sector and whose share of revenue from export activities is less than 20%, employing not more than 250 persons.

Go Global seeks to assist enterprises taking their first steps towards internationalisation, ideally active in such sectors as manufacturing, food & beverages, industrial services, ICT and software, Research & Development, life sciences, engineering and other value-adding activities of an industrial nature.

Enterprises involved in retail activities can qualify only in case of franchising projects and those involved in financial services are not eligible. The training is spread over three sessions and is subsidized. Applicants will be charged a nominal fee of €200 per participant and €150 per additional participant for a Master class aimed at decision makers within enterprise. It is never too late for such an initiative to take place.

Malta Enterprise is a specialized government agency having its own experts on payroll able to support enterprises in their early stages of internationalisation. It is well equipped to help them build internal capacity in terms of quality certification or improvement in manufacturing or other processes.

It is a pity that a parsimonious approach is taken of such an important task to boost exports, which this year reported an annual drop of € 710 million. In fact only co-financing of 50% of the expenses capped at €10,000 is on offer - contrast this with the allocation €100m for the Piano Valletta City gate embellishment.

In this era of acute globalization and ardent competition, one needs to provide with SME's better assistance to seize opportunities and cultivate the necessary changes to boost innovation. One hopes that on the third anniversary since the inception of the SBA a transformational role of entrepreneurship will be given more weight and more initiatives will be made available to help new business ventures emerge.

From an individual’s point of view, the rate of successful start-ups is not very encouraging. The failure could mainly be blamed on endless bureaucracy. Publicly sponsored ‘venture funds’ have often been promised in the past and should they ever come into effect, they would be ideal to foster opportunities in this business sector, especially in such difficult financial times when banks are turning risk averse.

Read any EU study on the problems of SME's and the top priority is always to help them get better access to banking finance. We know how in Malta the ratio of bank lending is shrinking and the amounts in the Jeremie scheme offered by a local bank and subsidized by the EU funds is simply too little.

Ongoing efforts to assist SMEs such as on-the-job training, funding schemes and the broadening of international markets by Malta enterprise are all encouraging however not enough. More attention has to be given to educating the future entrepreneur, focusing on the culture changes required to improve this transformation process.

All this is easier said than done, while acknowledging the rich legacy bequeathed by the ex-minister Jason Azzopardi. The SBA came with the challenging task of persuading the Cabinet to spare more resources on implementing the legislation. On paper, SBA proposed that businesses will be given the opportunity to communicate their views and discuss their needs with Government through the Enterprise Consultative Council which will also be directly involved in the consultation process of the application of the SME test.

This test will ensure that suitable measures are taken to mitigate any identified negative impacts, especially on smaller businesses. A College of Regulators had to be established to vigorously streamline any overlapping of laws and regulations that accumulated over the years and to thoroughly vet any remaining laws for any possible adverse impacts. The College will be able to do so through joint meetings with the Enterprise Consultative Council.

All this begs the question - where are the reports of meetings (if any) held in the past three years by the College? Three years ago, it was promised that a transition period between the publication and actual implementation of the SBA legislation be set and backed by concurrent explanations in layman terms of the provisions of the law and ‘Guidelines’ be made available to explain what is required to ensure compliance.

Online centralisation of this business information will enable the Malta Enterprise to provide businesses with a reliable and complete source of information through the much-famed Business First portal. The Act also encourages a wider use of codes of ethics in SMEs to improve supplier-client relations and foster a culture of quality service that should assist local businesses in defending their market in this era of relentless competitiveness.

This whole exercise was expected to focus on keeping the smaller businesses at the forefront of policy making. With hindsight, perhaps more could have been achieved and now, under the recent unitive of GoGlobal, we must be more vigilant to make the most of our entrepreneurial potential while not forgetting, amongst other things, one limiting factor - that is the low participation of female workers which is way behind EU averages (at 47% of the working cohort).

It is statistically proven that in other countries females are predominant in start-ups. In Malta, female participation is slowly increasing and this can be a boon for both business start-ups and self-employment. It is a paradox how the number of graduates coming out of MCAST and University are equally divided among men and women. The SBA could, if properly implemented, be the perfect solution to alter this pattern in female employment.

The SBA could play an important role in the formation of a strategy to revitalise the Maltese export and domestic economy. Malta Enterprise faces a big challenge; that of instilling a culture of entrepreneurship within the younger generation and to offer a sound structure to help potential entrepreneurs realise their business ideas.

As European countries such as Italy, Portugal and Spain struggle with job losses and public debt, the opportunities for us to help create new jobs by nurturing SME's in their quest to emerge from slippery slopes of their nursery and coach them towards the arduous task of exporting can be the achieved once the noble aims of SBA are put into action. When fully revitalized SBA can lead to innovation and generate new sustainable employment.

To sum up, the participation in the SME week by PKF Malta in October is aimed at discussing several topics associated with entrepreneurship taking into account the jagged journey of implementing the Small Business Act. Interested participants can call Kinga Warda on 27484375 or email [email protected].