TURIN ROUND TABLE ON THE IMPACT OF THE GLOBAL CRISIS ON SME AND

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TURIN ROUND TABLE ON THE IMPACT OF THE GLOBAL CRISIS ON SME AND Powered By Docstoc
					APEC Symposium on SME Strategies to Manage the impact of the Global
                       Financial Crisis
                     Chinese Taipei – June 8-9, 2009




SME FINANCING AT TIMES OF ECONOMIC
            RECESSION

                    Salvatore Zecchini

                Institute for Industrial Promotion - Rome
                                    and
 Chairman of the OECD WPSMEE Informal Steering Group on SME and
                       Entrepreneurship Financing

                                                                1
2
• SMEs, especially innovatives ones, are hit
  harder by the current global financial crisis
  than other firms.

• More vulnerable, because they involve
  higher risk and weaker financial structures.

• Still they deserve special attention,
  because they are essential for long-term
  economic growth.

                                                  3
Focus of this presentation:

-   Role of SMEs in economic growth
-   Scale of the financial problem of SMEs
-   Main stumbling blocks
-   Solutions adopted in OECD countries and
    suggestions




                                              4
Source, OECD-Eurostat Entrepreneurship Indicators Program, “Measuring Entrepreneurship: a digest of indicators”, 2008   5
Source, OECD-Eurostat Entrepreneurship Indicators Program, “Measuring Entrepreneurship: a digest of indicators”, 2008   6
Source, OECD-Eurostat Entrepreneurship Indicators Program, “Measuring Entrepreneurship: a digest of indicators”, 2008
                                                                                                                        7
Source, OECD-Eurostat Entrepreneurship Indicators Program, “Measuring Entrepreneurship: a digest of indicators”, 2008   8
          Number of enterprises by size, EU-27, 2002-2007




Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009




                                                                                                                         9
Value added and employment in the non-financial business economy in old (EU15) and new (EU-12)
                                             Member States by size-class, 2007




Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009




                                                                                                                         10
  Propensity to invest of SMEs by size class, EU-27, 2007




Source: First Section of the Annual Report on EU Small and Medium-sized Entreprises, EIM, Zoetermeer, January 12, 2009




                                                                                                                         11
Sources of financing difficulties:

- Cash-flow problem and profit squeeze

- Credit rationing

- Reduction in fundraising for equity capital,
  seed capital , VC investment, private
  equity

                                             12
SMEs are currently caught in a bind:

On the one side, falling sales and slump in
 new orders;

On the other side, liquidity shortage, higher
 payment delays, tighter bank credit, drying
 up of equity capital sources.

                                              13
Leverage of the Italian manufacturing enterprises
                                                Innovation intensity by enterprise
          year            Total
                                         low        low-middle high-middle                 high
          1983            55,9           52,1           56,3          59,1                 53,0
          1984            57,2           54,5           58,3          60,0                 52,4
          1985            55,4           55,1           54,8          58,3                 50,0
          1986            53,0           52,5           52,8          55,7                 47,0
          1987            52,1           52,9           53,3          53,0                 45,3
          1988            53,1           53,4           54,3          54,8                 45,1
          1989            53,8           55,0           54,7          55,4                 45,0
          1990            54,5           56,2           54,9          55,4                 47,9
          1991            53,1           54,0           52,8          56,3                 45,5
          1992            56,7           56,5           57,7          60,2                 47,1
          1993            57,5           55,9           63,1          59,4                 48,5
          1994            55,4           56,1           62,2          53,3                 47,4
          1995            55,1           56,7           61,1          53,3                 45,8
          1996            54,1           55,6           57,8          51,7                 49,3
          1997            53,7           56,3           52,4          52,3                 52,7
          1998            54,2           57,6           53,6          51,7                 52,1
          1999            53,2           56,5           52,2          51,8                 49,6
          2000            51,1           54,2           51,3          49,6                 45,7
          2001            52,3           54,8           51,9          52,1                 47,4
          2002            51,8           54,7           52,4          49,2                 49,1
          2003            51,0           54,0           50,8          48,4                 49,3
          2004            49,4           54,2           48,6          46,2                 45,9
          2005            47,6           51,4           47,4          45,0                 43,7
          2006            48,1           51,6           49,5          44,7                 43,2
    Source: “Rapporto sulle tendenze nel sistema produttivo italiano”, Bank of Italy, November 2008   14
Short term debt on total financial debt in the Italian enterprises
                                                  Enterprise size by employers
            year            Total
                                          < 250       251 - 500    501 - 1000  > 1000
            1983             42,2          65,5         56,8          61,7      28,2
            1984             47,5          66,3         63,5          59,5      34,5
            1985             47,7          67,0         62,7          62,9      31,9
            1986             48,6          66,5         63,3          61,2      32,3
            1987             49,1          67,2         62,2          62,2      32,0
            1988             52,3          68,7         64,1          61,6      34,9
            1989             54,5          69,6         66,9          62,0      37,1
            1990             55,9          70,5         66,8          66,6      36,7
            1991             50,7          68,7         66,7          63,7      30,7
            1992             52,0          68,8         66,8          64,3      33,0
            1993             58,5          71,6         67,4          67,7      44,0
            1994             56,2          72,0         64,1          65,9      38,0
            1995             56,6          73,1         59,7          66,2      39,3
            1996             63,8          70,7         56,6          55,1      60,7
            1997             66,6          69,5         65,7          65,7      64,3
            1998             65,0          69,7         64,3          60,0      60,4
            1999             64,1          66,6         63,0          63,4      61,2
            2000             66,3          67,8         65,2          62,9      65,3
            2001             64,9          67,5         65,5          63,1      62,0
            2002             65,3          68,1         66,5          65,5      61,8
            2003             61,9          67,1         62,2          59,3      57,2
            2004             55,1          62,7         63,6          55,5      46,2
            2005             54,0          60,9         60,1          54,9      46,5
            2006             56,8          67,2         56,9          52,4      48,2

    Source: “Rapporto sulle tendenze nel sistema produttivo italiano”, Bank of Italy, November 2008   15
          Overview of Financial Markets


FTSE 350 stock mkt index   FTSE Small Cap Index   Hang Seng stock mkt index




                                                                              16
Source: Bloomberg   17
                      The BALTIC INDEX




Source: Bloomberg Finance L.P. 2009      18
                            Banks with tighter lending conditions




                                                                                 19
Source: EcoWin, in “Denmark National Bank”, Monetary Review, 4th Quarter 2008.
                       Demand for credit in the US




Source: Federal Reserve, Senior Loan Officer Opinion Survey on Bank Lending Practices, released February 2, 2009




                                                                                                                   20
• In view of declining sales expectations and
  uncertainties on the duration of recession, it is
  not surprising that SMEs curtailed their bank
  credit demand in most countries.

• But there is ample evidence that small
  businesses in all countries are finding it harder
  to borrow from banks. The tightening of bank
  loan conditions can be seen through several
  indicators, such as rising spreads, widening
  gaps between requested funds and granted
  amounts, higher collateral or guarantee
  requirements, longer delays in loan processing
  and higher lending fees.
                                                      21
Experienced or expected impacts of the crisis on SME and entrepreneurship financing
                                                         Impacts on SMEs (Cf. Table 1)                                     SME demand for bank credit
                                                                                                                                 (Cf. Annex 2)
                                             Demand             Working capital                  Exits                     Total      Short-   Long-
                                                                 & Payment                 (Insolvencies and                           term     term
                                                                   delays                    bankruptcies)
             OECD members
                Australia                 Inconclusive                     +
                 Austria                                                                             =
                Belgium                         ---                      ++                          =                        -                                -
                Canada                          --                       +                           -                        +
             Czech Republic                                                                          =
               Denmark                                                                              ++
                Finland                          --                      ++                         +
                 France                                                  +                           +                       ---
               Germany                           -                                                  =                         -                              --
                 Greece                         ---                        +                         =
                Hungary                                                                             +                          -              +               -
                 Ireland                                                                           +++
                   Italy                         -                       +                          ++                         -               =               -
                  Japan                          -                       +
                  Korea                          -                       +                                                                     +               -
                Mexico                           -                       +
              Netherlands                        -                       +                            --
              New Zealand                       ---                      ++                                                                                   --
                  Spain                                                                            +++
              Switzerland                                                                           =
                    UK                           --                        +                        +                       --                +             ---
                  USA                            --                                                                         ---                +            ---
                    EC                                                                                                      --                --            ---
              Non OECD
                members
                  Chile                           -
                Estonia                                                                                =
                Romania
                 Russia
                Slovenia                                                                               =
                Thailand
                                                                                                                                                                                       22
  Source: Country Reponses to the 14 January OECD WPSMEE Questionnaire on the Impact of the Global Crisis on SMEs and Entrepreneurship Financing and Credit reform Economic 2008/09.
In such an unfavourable lending
environment, SMEs have to tap alternative
funding sources,
such as self-financing, new equity,
factoring, private equity, and venture
capital.




                                        23
                     Global venture capital investment 2000-2008 in USD


             8.000.000,00


             7.000.000,00


             6.000.000,00


             5.000.000,00
  Mio. US$




             4.000.000,00


             3.000.000,00


             2.000.000,00


             1.000.000,00


                      0,00
                             2000   2001   2002   2003   2004   2005   2006   2007   2008


Source: VentureXpert, 2009                                                              24
• Common concern of Governments at this
  juncture is to soften the recession impact
  on SMEs




                                               25
                                                    Policy responses
                                                                                            B. Enhancing SME access                            D.
                                       A. Measures supporting sales, cash flows and
                                                                                             to liquidity, especially to                 Strengthen-
                                                working capital (Annex 5)                                                       C.
                                                                                              bank lending (Annex 6)                      ing capital
                                                                                                                           Strengthen-
                                    Alleviating                                                                                            base and
                                                                                 Easing     Creation and                     ing pro-
                                     working       Reducing                                                                                 private
                                                                                procure-    extension of    Mediation      investment
                                      capital     and easing      Export                                                                 equity and
                                                                                  ment         loan &         and           measures
                                    shortage in       tax       facilitation
                                                                                payment                                                     venture
                                                                                             guarantee      monitoring      (Annex 6)
                                        the        payments                    procedures                                                    capital
                                                                                              schemes
                                     economy                                                                                               (Annex 7)
OECD
          Australia                                                                                                                       
           Austria                                                                                                                       
          Belgium                                                                                           Mediator
          Canada                                                                             
       Czech Republic                                                                                                       
          Denmark                                                                                                                        
           Finland                                                                                                                         
           France                                                                                         Mediator        
          Germany                                                                                                           
           Greece                                                                               
          Hungary                                                                                                                         
             Italy                                                                                       Monitoring       
           Japan                                                                                                             
           Korea                                                                                
        Luxembourg                                                                             
           Mexico                                                                                                                        
        Netherlands                                                                         
        New Zealand                                                             
            Spain                                                                                                           
         Switzerland                                                                                                         
              UK                                                                                                                          
            USA                                                                                             Monitoring       
              EC                                                                                                             
Non-OECD
            Brazil                                                                            
             Chile                                                                                                                       
           Estonia                                                                              
           Romania                                                                              
            Russia                                                                              
           Slovenia                                                                                                                       
           Thailand                                                                             
International Financial Institutions
            EIB/EIF                                                                                                                              26
 Source: OECD WPSMEE Questionnaire on the Impact of the Global Crisis on SMEs and Entrepreneurship Financing and publicly available information.
 In the financing domain, the various
 measures can be grouped into three
 categories:

• working capital support;
• easier access to bank lending;
• help to maintain SMEs investment levels.


                                             27
           Conclusions and Additional steps to be
                     considered
To promote the availability and diffusion of timely
information (more information on bank lending to small firms
and medium-sized ones; to establish a “SME Financing
Scoreboard ”)

Improve cash flow (accelerated depreciation, tax
incentives, factoring, public procurement with attention to
SMEs, support to R&D and innovative products)

Facilitate Access to credit (boost to credit guarantee
programs, risk sharing with private lenders, credit mediators,
and lending monitors)

                                                              28
• To foster investment (by enhancing venture capital
  supply, improving vc exit mkts, increasing public
  equity funds)
• To promote business services and SME
  engagement in the design of relevant policies




                                                       29
Above all measures, there is a need to
provide strong macroeconomic support
         to demand expansion




                                     30

				
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