Social entrepreneurship development in Slovakia: fragile development in the context of the COVID-19 pandemic

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The social economy is one of the sectors of the national economy that is also important from the perspective of regional development. The focus on employment of disadvantaged or vulnerable people, together with social integration, makes them important contributors to overall social cohesion and inclusion. In this respect, they are also key actors in promoting the employment of the most vulnerable groups in society (in line with the 2030 Sustainable Development Goals).

In 2018, Act No. 112/2018 Coll. on Social Economy and Social Enterprises and on Amendments and Supplements to Certain Acts was adopted in Slovakia, which, among other things, regulates the subjects of the social economy, as well as the provision of support in the broader area of the social economy. It also regulates instruments to prevent abuse of public support. A clear set of rules and tools to support social enterprises helps the emergence and development of social enterprises and stimulates social entrepreneurship opportunities.

Continuously since the adoption of the law in question, interest in social entrepreneurship has been growing, as evidenced by the number of registered social enterprises in Slovakia (there are already more than 400 registered entities). Registration allows them to enjoy the full benefits of social entrepreneurship while helping to achieve financial sustainability. Registration also enables public policy making with regard to addressability for the design of support instruments.

For these reasons, the present document gives priority attention to registered social enterprises. Most of them are micro-entrepreneurs. Social enterprises are directly involved in the production and provision of services. In Slovakia, RSEs are mostly represented in business services and industry.

Since the adoption of Act No. 112/2018 Coll. on Social Economy and Social Enterprises, there have been several significant changes. These changes concern not only the legislation as such, but also the development of a supportive environment was recorded, which is crucial for the future development of the whole sector. There has also been a recent dynamic increase in the number of registered social enterprises as well as progress in the social enterprise support ecosystem. Nevertheless, there are still some barriers and needs for social enterprises to operate and sustain successfully in the market.

A positive fact in terms of monitoring the state and development of the social economy
in Slovakia is that public interest in social entrepreneurship is strengthening and gradually transforming into strategic documents, including the Vision and Strategy for the Development of Slovakia until 2030.

In terms of the state and development of social entrepreneurship in Slovakia, regional disparities were also reflected in the representation of RSEs in the regions. By type of registered social enterprises, integrative RSEs predominate, which is related to the primary perception of the intent of social enterprises. But the current legal regulation of the social economy and social enterprises has much greater possibilities and opportunities.

In terms of the stage of development, registered social enterprises are also diverse. According to the data from the Register of Organisations of the Statistical office of the Slovak Republic within the date of establishment of entities (registered), almost 40% of them were established before 2018 (i.e. before the existence of the legal regulation of the social economy and social enterprises). The expansive growth in the number of registered social enterprises occurred as late as in 2020.

The development trend is also influenced by the increased interest of municipalities in social entrepreneurship in the last two years. The increased interest in registering municipal RSEs is partly explained by the evolution of the COVID-19 pandemic and several suspended active labour market policy instruments.

Social enterprises, like other enterprises, face barriers in different areas, which are reinforced by specific areas in the context of social entrepreneurship. This fact follows from the nature of the business as well as from the so-called disadvantaged position on the labour market due to reduced productivity (e.g. in the case of integrative social enterprises).

The impact of the COVID-19 pandemic was also reflected in the economic performance of the SME sector, including social enterprises. On the other hand, it has brought several opportunities for social enterprises, but also challenges for the future. The current period in which the transition is taking place to more sustainable economies creates an opportunity for social business models and social innovation. This means that there is room for them to reach their potential and thus contribute to the Sustainable Development Goals.

Examples of good practice identified in Slovakia and abroad show that entrepreneurship and creating a positive social impact are compatible or inseparably linked. In this respect, they can be inspiring not only for other social enterprises, but also for the creation of further development of a supportive environment.

A number of key factors emerged from the analysis that may be decisive for further development. Roundtables and interviews with social enterprises and experts in the social economy have also highlighted specific assumptions that should lead to a balance between achieving financial sustainability and positive social impact. In a broader sense, among the most fundamental of these are the internal and external factors that influence a sustainable social entrepreneurship model. These include: strong motivation of those interested in setting up RSEs as well as already registered social enterprises to contribute to solving the problem of employment of disadvantaged and vulnerable persons; building mutual trust between the social enterprise and the employee (i.e. disadvantaged or vulnerable person); setting minimum standards in the field of work with disadvantaged and vulnerable persons due to the multiple specificities of employment of the target group; the economic setup of the enterprise; the field of education and a favourable supportive environment (i.e. the external environment).

An essential part of the development of social entrepreneurship is also the existence of support schemes or instruments. In this respect, access to financial and non-financial instruments (favourable external environment) is crucial. Comprehensive legal regulation creates preconditions for further development not only in terms of establishing new social economy entities, but also developing already established social enterprises and the social economy as a whole. In terms of the mapping of changes, it is a positive fact that in application practice, barriers are gradually being removed and opportunities and strengths are being strengthened towards the stabilisation of social enterprises and the development of the social economy as a whole.

The development of social entrepreneurship is also positively influenced by the Regional Social Economy Centres, the umbrella organisations of the social economy sector, as well as the National Entrepreneurship Centres at the level of individual regions.

From the perspective of mapping developments in the field of social entrepreneurship, the ongoing networking of social economy entities is also favourable, which contributes to the mutual cooperation of the associated entities with the same objective (i.e. achieving a measurable positive social impact).

There is potential for social enterprise development in the agricultural sector (including social farms). On the one hand, social entrepreneurship promotes local resources, but it also brings job opportunities and opens up employment opportunities for disadvantaged and vulnerable people. Such an approach has other benefits besides employing disadvantaged and vulnerable people. It allows for the provision (and expansion) of social services in a specific area (e.g. vocational rehabilitation, activation services, etc.). In addition, it also offers training opportunities (e.g. provision of specialist social care, social services and preparation for employment). This model can also have a positive impact on the environment itself, which is another dimension of social entrepreneurship. It can also be beneficial in terms of creating links between multiple actors at local and regional level.

Education and entrepreneurial skills also play an important role in the successful development of social entrepreneurship. There remains a need for more dynamic support in the field of education. Entrepreneurial and management skills are equally important in the pursuit of sustainability between financial stability and achieving a positive social impact. Otherwise, the lack of entrepreneurial skills when entering social entrepreneurship poses a certain risk. Particularly in terms of business plan development and management. It is also proving to be a risky area of marketing. For this reason, access to the so-called soft support in the form of advice, business skills support and mentoring is particularly important for sustainability and further development.

In the short term, the biggest challenge for the representatives of RSEs that participated in the OS is to stabilise in an environment of a persistent pandemic and the resulting degree of uncertainty.

A particularly problematic area that many registered social enterprises see is the conflation of the current concept of social entrepreneurship with the negative experience of the past. There are also negative connotations associated with the term social enterprise. As it emerged from the OS, some RSEs also encounter biases in application practice in terms of product/service quality.

The analysis also highlighted the need for inter-ministerial and inter-sectoral partnerships. Other challenges identified include: greater use of service vouchers; the need for more dynamic support to social enterprises through investment aid and a reduction in the administrative burden associated with it; increased awareness of the current concept of social entrepreneurship, including in society as a whole. 

Other proposals also emerged from the analysis. In the context of skills upgrading, the proposal is to model the Czech Republic (but also other countries) to create space and enable the implementation of internships in social enterprises. And in this way strengthen the competences needed to set up or manage social enterprises.

In the short term, RSE representatives consider the biggest challenge to be stabilisation in an environment of a persistent pandemic and the resulting degree of uncertainty. However, a consensus emerged from the interviews that they are determined to continue their work despite the increased level of uncertainty.