The digitalisation of SMEs in Portugal: Models for financing digital projects

Summary Report

,

• Publisher: European Investment Bank
• Year: 2019
• eBook ISBN: 9789286143564
• Topic: Business
• Subtopic: Business General
• Index: Business

This study provides an overview of the digitalisation landscape for small and medium enterprises in Portugal, and outlines potential support measures. Such actions aim to maximise access-to-funding for digital projects, enhance awareness and capabilities essential for the integration of digital solutions, and ultimately improve company productivity.

Summary Report

Key Messages

Findings

• Small and medium-sized enterprises play a particularly important role in the non-financial business economy in Portugal – the economy is dominated by SMEs with fewer than 10 employees, largely concentrated in traditional sectors.

• Recent economic growth has helped improve SME activity and investment levels since the financial crisis. Bank lending volumes have recovered in recent years and access to finance for SMEs is improving and converging towards the EU average.

• Productivity remains a challenge for Portuguese companies’ competitiveness, particularly in traditional sectors – and one where digitalisation can have a key impact.

• Overall, digital adoption in Portugal is slightly lower than the EU average as measured by aggregate rankings. This is particularly the case in the traditional sectors where companies’ abilities to develop digital assets tend to be more limited.

• Public support to SMEs encompasses a number of public initiatives and financial instruments at various stages of development and across sectors. This includes financial support (e.g. equity, debt, guarantees across various public agencies), tax incentives and HR qualification programmes.

• Regarding the adoption of digital solutions, a number of knowledge gaps limit the ability of SMEs to integrate such assets. Gaps include:

– Awareness: Owners and managers often do not know how and where to apply digital solutions to business processes/channels;

– Capabilities: Employees need technical know-how to integrate such digital solutions. They also need the skills necessary to approach larger-scale, transformational projects as well as to articulate robust technical implementation roadmaps and/or business plans.

• In terms of funding, there is a well-developed supply of public instruments and mutual guarantee schemes, and the overall small businesses’ access to finance is improving and converging towards the EU average. However, certain issues continue to limit the financing of digitalisation projects, specifically in the case of:

– SMEs that lack sufficient (physical/tangible) collateral, as can be the case for digital projects which may be of a more intangible nature;

– Financing for more advanced, larger-scale, and riskier digital projects, which rely on the effective realisation of forward-looking business assumptions;

– Availability of own funds can also be a constraint for these projects where bank funding is not available.

• In addition, providers of digital solutions are fragmented across digital/start-up SMEs, and competence/R&D centres associated to clusters and larger enterprises. This can be difficult to navigate by traditional SMEs looking for digitalisation.

Recommendations

• Recommendation 1: The utilisation of existing digitalisation financing instruments should be improved

– Initiative 1a: Facilitate SME access to available instruments, e.g. by setting up an online portal, which could consolidate the entire available range of public-backed financial instruments and their appropriateness for a given SME’s digital maturity and project stage, to help companies understand the offer available that best suits their needs;

– Initiative 1b: Ease and simplify applications and align public financing instruments operationally; this may include common eligibility criteria or application processes;

– Initiative 1c: Reduce information asymmetries in financing with a “digital score”, which could signal the digital maturity of SMEs and their intended projects. Such a scoring methodology could be managed by a neutral, objective and reputed party, and could be used by the private sector to improve its risk assessments.

• Recommendation 2: Debt financing for larger, transformative digital projects should be promoted

– Increased debt financing could be achieved with a new instrument to raise guarantee coverage, which would build on existing SPGM (Sistema Português de Garantia Mútua) guarantee schemes to increase risk-sharing between private and public investors and reduce collateral requirements;

– More specifically, debt financing could be promoted through an EU-funded guarantee supporting commercial banks or the State’s FCGM (Fundo de Contragarantia Mútuo, Mutual Counter-Guarantee Fund), to pass on additional coverage benefits to SME loans or enhance overall lending capacity; the upcoming European Investment Fund (EIF) pilot for a new dedicated digitalisation window under Fundo de Contragarantia Mútuo (Mutual Counter-guarantee Fund), COSME (EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises) is one example of such a mechanism.

• Recommendation 3: The role of clusters and digital innovation hubs should be strengthened

– Initiative 3a. Define a clear role for clusters and digital innovation hubs as part of a nation...

Table of contents

• Cover
• Contents
• Title page
• About the EIB
• Summary Report
• Copyright page
• Newsletter page