Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic 2021

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The presented Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2021 presents a comprehensive view of the state and development of the business environment in the SME sector and SME support in the period under review. The purpose of the Report is to highlight developments and the most significant legislative changes adopted and effective in the monitored year that have an impact on small and medium-sized enterprises. At the same time, it seeks to highlight existing barriers together with proposals for measures to improve the business environment for the benefit of SMEs.

The importance of small and medium-sized enterprises in the Slovak economy is described by several indicators. Small and medium-sized enterprises account for 99.9 % of the total number of business entities in the Slovak economy. They account for almost two-thirds of employment in the business economy and contribute more than half of total value added.

The COVID-19 pandemic, which was an unequivocal central factor in the economic environment in 2020, continued to have an impact on economic developments in 2021, albeit to a lesser extent.

According to preliminary data from the Statistical Office of the Slovak Republic, the growth of Slovakia’s gross domestic product (GDP) in 2021 was 3.0 %. In terms of the development of the Slovak economy in individual quarters, the growth of the economy was strongest in the 2nd quarter, when the GDP increased by a tenth, which was the most significant increase since 2007. The robust growth in the second quarter resulted from a favourable base effect, i.e. a lower comparison level from the previous year. In the second half of the year, the Slovak economy managed to significantly moderate its growth rate.

The economic performance growth did not occur only in Slovakia, but was also characteristic of other EU countries. Among the V4 countries, the Hungarian economy was the best performer with growth of 7.1 %. The Polish gross domestic product increased by 5.9 %. The Czech Republic (growth of 3.3 %) and Slovakia (growth of 3.0 %) were well behind Poland. In the European Union as a whole, economic performance increased by more than 5 %, mainly due to the growth of the major EU economies.

In terms of the production side of the gross domestic product development, the economic growth of the Slovak economy was related to an increase in added value by 2.4 %, gross production by 5.7 % and intermediate consumption by 8 %. Net taxes on products increased by 8.5 %. Growth in gross value added was achieved by almost half of the most important sectors, including industry, whose value added increased by more than 8 %.

The coronavirus pandemic has had a negative impact on the Slovak labour market. As a result of forced business retrenchment and a decline in consumer demand, many employers have been put under pressure to cut costs, including through redundancies. This happened despite the planned measures to maintain employment. However, it ought be added that the employment preservation measures taken played an important role in maintaining some employment, or mitigating the impact of the pandemic on the labour market. For the second year in a row, the average number of persons employed in the economy fell. In the past six years (2014 – 2019), employment has grown continuously. Compared to 2020, the average number of employed persons decreased by 0.7 % to 2,355.1 thousand (according to the quarterly business reporting of the SO SR).

In 2021, SMEs accounted for 74.3 % of employment in the business economy. The share of SMEs in total employment in the Slovak economy was 59.0 %. Despite the support measures taken to maintain employment, the average number of persons employed in the category of Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2021 13 small and medium-sized enterprises (including natural persons – entrepreneurs) decreased by 0.8 % year-on-year (down 10.9 thousand persons) to 1,390.0 thousand persons employed. The decline in employment in SMEs took place for the second year in a row. Medium-sized enterprises had the biggest problem retaining their employees, with employment falling by 6.1 % year-on-year. Micro-enterprises recorded a decline in employment of 4.6 %. The average number of employees of NP – entrepreneurs has hardly changed.

In 2021, the value added of SMEs increased in all sectors of the economy due to the moderate recovery in economic activity. The value added of SMEs increased most notably in the trade, other services, transport, information activities and industry sectors. Value added also grew in accommodation and gastronomy, but the 5.7 % growth achieved could not compensate for the 15.4 % decline from 2020.

Other economic indicators for SMEs also showed positive development. The gross production of SMEs increased by more than a tenth. The gross fixed capital formation of SMEs, which reflects the level of investment activity, increased by 7.2 %. An increase of more than a third was recorded in the SME profit¤ generation, which increased after the previous two-year decline. The volume of exports of SMEs also recorded a year-on-year increase, most dynamically by almost a quarter in micro-enterprises. Due to the stronger export growth of small and medium-sized enterprises than large enterprises, the share of SMEs in total exports increased by 0.5 p.p. in 2021 to 29.3 %. In terms of the territorial structure of SMEs, the EU remains the key market. Only 10.9 % of total SME exports went to non-EU countries, highlighting the continuing need for more support for SMEs in this area.

Compared to 2020, there was no longer a reduced interest in starting a new business in 2021. In 2021, the number of established business entities increased again compared to the previous year.

According to the data, the number of established SMEs increased by 11.3 % to 92,538 entities in 2021. The number of dissolved business entities also increased (to 51,724). The mass deletion of companies from the Commercial Register also contributed to the new number of administratively dissolved business entities. A fifth of the total number of terminated companies were corporations – legal entities. There was a net increase in business entities in 2021 (40,814) due to the higher number of established business entities than those dissolved. The increased number of closed business activities in 2021 was also reflected in the results of the insolvency statistics. According to data from the Ministry of Justice of the Slovak Republic, the number of bankruptcies declared in 2021 rose by more than half to 268. The number of authorised restructurings remained almost unchanged year-on-year, reaching 19.

The gender structure of natural persons – entrepreneurs did not change significantly in 2021. In terms of individual legal forms of natural persons – entrepreneurs, the representation of women shows differentiated results. The highest proportion of women is among freelancers (49.8 %). The share of women in the legal form of sole traders is considerably lower (26.3 %). The development of the age structure of natural persons – entrepreneurs in recent years has been characterised by an increase in the representation of entrepreneurs in the younger age categories of less than 30 years old. The increase in the representation of young entrepreneurs has been ongoing since 2014. The representation of elderly entrepreneurs slightly declined in 2021 after a previous increase, reaching 10.4 %. The largest number of natural persons – entrepreneurs is in the age category of 40–49 year olds.

In line with the long-term development tendencies observed in the sectoral structure of SMEs, entities operating in the services sector had the most significant representation in 2021 (47.6 %). The construction sector has shown a slight increase in representation in recent years, Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2021 14 accounting for 18.9 % of all entities within the SME size category in 2021. 16.1% of SMEs were active in trade, 13.4 % in industry and 3.9 % in agriculture.

The volume of exports of SMEs also recorded a year-on-year increase, most dynamically by almost a quarter in micro-enterprises. Due to the stronger export growth of small and medium-sized enterprises than large enterprises, the share of SMEs in total exports increased by 0.5 p.p. in 2021 to 29.3 %. In terms of the territorial structure of SMEs, the EU remains the key market. Only 10.9 % of total SME exports went to non-EU countries.

The business environment in Slovakia is characterised by frequent legislative changes which, among other things, affect the obligations and requirements affecting the SME sector. In 2021, a number of important pieces of legislation were passed (and effective) to respond to address the emergency situation that arose in the Slovak Republic due to the outbreak of the COVID-19 pandemic in the economic, social and economic spheres. The legislation was primarily aimed at reducing and minimising the negative impacts of the ongoing pandemic. Among the most important laws passed in 2021 (in the regular legislative procedure), we can also mention the changes in trading business. The amendment to the Trade Licensing Act brought some significant changes in the trading business. Several laws have been enacted in connection with COVID-19, bringing some changes. Specific measures are listed in the Overview of the most important legislative changes in 2021.

The total amount of support for SMEs in 2021 in the context of the COVID-19 pandemic was many times higher than in the pre-pandemic period. In terms of the structure of the forms of financing of regular support (excluding the so-called COVID support), the direct form of support dominated, accounting for 77.3 % of the total support for SMEs. The indirect form of support amounted to 22.7 % in the case of ordinary support (a slight year-on-year increase in the indirect form of support). The overall real use of ordinary support was lower year-on-year. The main reason for this was that funds earmarked for planned activities in the current year were partly reallocated (and/or also increased) and accumulated in instruments and measures with the intention of mitigating the negative impacts of the COVID-19 pandemic. The most significant share of support for SMEs in terms of individual categories of ordinary support was accounted for by the category of credits or loans (36.4 % of the total support provided to SMEs) and the category of subsidies, NFP, and grants (35.6 %). In the context of the evaluation of the COVID support provided to the SME sector in 2021, it can be stated that financial or direct support prevailed. The most important providers of COVID support included the Ministry of Labour, Social Affairs and Family of the Slovak Republic, the Ministry of Economy of the Slovak Republic and SIH. A more detailed overview of support for SMEs is given in Chapter 3.

In 2021, the Slovak Business Agency (hereinafter referred to as “SBA”) continued to meet its objectives in the area of providing comprehensive assistance targeted at the sector of small and medium-sized enterprises, while continuing to support them through the implementation of a number of national projects, offering a wide portfolio of services for SMEs and those interested in entrepreneurship, whether in Bratislava or in the individual regions of the Slovak Republic. SBA also implements international (pilot) projects for the purpose of opening up the topics of the “Small Business Act”.

SBA actively evaluated materials with an impact on the business environment, provided opinions and comments on proposals for new regulations through the Better Regulation Centre (hereinafter referred to as “BRC”). In the monitoring year, the BRC assessed (in terms of content and process) the realism of the impacts captured in all the Business Impact Analyses produced and provided detailed opinions containing suggestions for better capturing the impacts of the new regulation on the business environment from the perspective of SMEs.

The present Report on the State of Small and Medium-Sized Enterprises in the Slovak Republic in 2020 also contains a complex of proposals and recommendations, primarily for the purpose of supporting the continuous improvement of the business environment in the SME sector in relation to improve their competitiveness and support growth dynamics.

Supporting the creation and growth of businesses, especially small and medium-sized enterprises, is one of the key activities that ultimately improves the performance not only of regions but also of the economy as a whole. In line with the needs of SMEs, it is therefore essential to continue to streamline support for SMEs (at both regional and national level). Entrepreneurship support is an important tool for the development and stabilisation of the business sector and the competitiveness of the country. In order to promote a stable business environment, it is necessary to continue systematic cooperation and a coordinated approach of all involved ministries, as well as to take into account the suggestions and recommendations of individual entities. Mutual and intensive cooperation should be aimed at improving business conditions for SMEs.