Finnish companies are afraid to invest, a survey says

The sound of drums seems to be calling for small and medium-sized enterprises (SMEs) to a tactical retreat.

According to a barometer commissioned by the Federation of Finnish Enterprises (Finnvera) and the Ministry of Economic Affairs and Employment, a larger proportion of SMEs are currently planning to reduce rather than to increase investments.

More than 6,000 entrepreneurs responded to this barometer, which reflects how pessimism is gaining grounds among business owners, even though expectations regarding the general economic cycle and turnovers are still positive.

Growing uncertainty

"In the current environment of growing uncertainty, many entrepreneurs hesitate with their employment and investment decisions. It is therefore important that the Government makes decisions in its budget session that build confidence in the economy and entrepreneurship, and encourage investment. A situation where a Finnish entrepreneur is afraid to invest, as the barometer suggests, must be taken seriously”, says Katri Kulmuni, Minister of Economic Affairs.

The SMEs that responded to the SME Barometer carry out various reforms involving technology, competence and business activities to drive their success.

“According to the survey, almost 60% have trained their personnel, more than a quarter have introduced new technologies, and a fifth have introduced new business models. This is excellent news,” Kulmuni notes.

Less optimistic than last spring

Of small and medium-sized enterprises, 27% estimated that economic conditions will improve over the next 12 months, while 17% feared that they will deteriorate. Expectations are positive, but less optimistic than they were last spring. Similarly, continued turnover growth is expected, but expectations are more moderate. 

Near-term investment was perceived as the most challenging to estimate. Expectations were clearly negative, and continued to decline. In all sectors except industry, the balance figure for investments was negative. 

“If lack of investment continues, it will represent a risk for growth in the years to come”, warns Mika Kuismanen, Chief Economist at the Federation of Finnish Enterprises.

SMEs create fewer new jobs

The slowdown in economic growth and uncertainty about the future are weakening expectations of personnel growth more strongly than before: expectations regarding personnel growth are weaker than expectations regarding general economic development.

“SMEs still need more employees, but additional incentives are needed to fulfil the employment targets,” Kuismanen says. 

Less growth-seeking companies

The number of companies with strong growth ambitions has remained unchanged for a year and a half, but compared to the situation a few years ago, the number of growth-seeking enterprises has decreased. “The rising number of companies that report they do not seek growth is also alarming,” Kuismanen says.

According to the barometer, the availability and terms of financing have remained reasonable. The number of companies that do not apply for financing even if they need it has continued to decrease.

A positive thing about companies’ intentions to obtain financing is their continued and even somewhat increased interest in external financing.

“Growth-driven companies have the greatest need for financing, and one of their most common obstacles to growth is access to finance. In the autumn, Finnvera introduced a new SME guarantee to the financial markets to alleviate the key bottleneck, for example the shortage of collateral", explains Juuso Heinilä, Executive Vice President at Finnvera.