How to Get SMEs in a Mood of Investment?
Investment intentions are quite varied among SME companies in the CEE region. The willingness to invest was restrained already last year in Hungary, with companies planning 4% less investments in 2012, while a slight increase (+2%) is expected this year in the Czech Republic and Polish companies are planning a whopping 34% more investments than in 2011. This was one of the outcomes of a recently conducted GE Capital survey among European companies that employ between 2–249 people, encompassing also three Central and Eastern European countries (Poland, Czech Republic, Hungary). The survey examined the investment intentions of SMEs in the present challenging environment and what their expectations are regarding their operating environment.
Source: GE Capital „ European SME Capex Barometer” survey, 2012
Both last year and this year, in all three countries, more than half of planned investments are in the replacement or purchase of manufacturing machinery and plant equipment:
Source: GE Capital „ European SME Capex Barometer” survey, 2012
According to the survey, the caution and restraint seen in Hungary stems from the uncertain economic environment (52%), and that is also a significant factor in Czech Republic (40 %) and in Poland (39%). At the same time, certain investments are becoming indispensable: although capacity investments have taken a back seat for now, in many cases the replacement of machinery and production equipment cannot be put off any longer. This is supported by the fact that 30% of Hungarian companies said they had to pass on opportunities last year that would have brought them revenues. Extrapolated to the entire Hungarian SME sector, this meant a total revenue fallout of some €1 billion. In the Czech Republic, this came to €2.7 billion, while it was €2.8 billion in Poland – meaning that on a regional level, surveyed SMEs lost out on a total of €6.5 billion worth of business.
Taking into account this significant amount of missed business opportunities, it is the task of banks as well (in addition to the state) to urge those companies that are otherwise viable and have stable operations – and that can be found even in struggling sectors – to think along a long-term strategy and not miss out on business opportunities due to a lack of funds. Because companies that handle their assets well can gain a competitive edge and will be in a good position to acquire further markets.
The study also made clear that the three countries showed significant differences regarding their outlook for the future. While Hungarians are the most pessimistic (59% had a negative view of the sector’s outlook), Czechs are more upbeat (44% are optimistic, 23% pessimistic), and Polish companies have a resoundingly positive view on the outlook for 2012: 57% are optimistic and only 18% pessimistic.
Source: GE Capital „ European SME Capex Barometer” survey, 2012
Despite the negative outlook, one quarter of Hungarian companies are planning to increase their headcount this year, based on which we can expect a total of around 37,000 new jobs to be created in 2012 (0.37% of the population), while there are 71,000 new jobs in the Czech Republic (0.67% of the population) and 224,000 in Poland (0.59% of the population) under planning.
What next?
The results are a good reflection of the different economic environments seen in these three countries. Poland was less “hit” by the crisis, and internal market movements there also promote investments, so SMEs operating in the country are able to formulate “ambitious” plans. In the Czech Republic, the weight of the manufacturing sector is traditionally high and domestic stress is currently low, so SMEs have some reason to be optimistic, on which they are able to base their investment plans. Meanwhile, in Hungary there is a lot of uncertainty, so it will likely take more time here for investments to pick up. But it can be seen as a positive development that exports to Germany play a large part in the economies of all three countries, and since Germany is weathering the recession well, we can expect more active investment activity among companies exporting to this market.
Still, in its latest World Economic Outlook published in April, the IMF writes that since last September, “the world economy has changed dramatically,” European growth has slowed sharply, and many economies in the CEE region are now in or close to recession. The world economy is seen strengthening only gradually, while downside risks remain large. This trend has a significant effect on the operation of small and medium-sized businesses: until positive changes do not start within the economy, this sector cannot expect its outlook to improve either. In addition, the question of a stable and predictable economic policy is especially important in this region, as this is what businesses make their investment intentions mostly dependent on.
