Overall, the Italian SME system has held up in the face of the unprecedented economic crisis caused by Covid-19, also thanks to the aid provided by the Government.
The SME 2021 Regional Report by Confindustria and Cerved, published at the end of May, outlines a complicated picture. In the sectors most affected by the pandemic (restaurants, hotels, companies that organise conferences and exhibitions) the number of companies that risk default in the next 12 months is estimated at between 40% and 65%.
The Report, realised in collaboration with Intesa Sanpaolo, analyses the economic-financial performance of the approximately 160 thousand Italian companies that - employing between 10 and 249 employees and with a turnover between 2 and 50 million euros - fall within the European definition of SMEs. With more than 94 thousand companies (54 thousand in the North-West and 40 thousand in the North-East), the North is the area with the highest number of SMEs, which however register a widespread presence throughout the national territory with 33 thousand companies in the Centre and 32 thousand in the South. At an overall level, the added value produced is 230 billion euros: 39% by SMEs based in the Northwest, 28% by companies in the Northeast, 18% by companies in Central Italy and the remaining 15% by those in the South.
The impact of Covid on the demographics and income statements of SMEs
Covid-19 led to an unprecedented crisis for the Italian economy, not only in terms of magnitude, but also because of its particularly asymmetrical nature. The health emergency has, in fact, had highly diversified consequences, particularly affecting the sectors most affected by lockdowns and exposed to containment measures, such as, for example, catering, tourism, hotels, transport, wholesale and non-food retail and the fashion system. While it has affected other sectors less significantly, or even positively stimulated some, such as the pharmaceutical supply chain, online trade and the agri-food industry.
A very substantial number of SMEs (28 thousand, or 17.9%) suffered a drop in revenues of more than 20% in 2020 (17.7% considering the distribution of turnover). A third of the companies analysed (53 thousand) recorded a lower, but still significant (between -10% and -20%) decline in revenues. Approximately 63 thousand SMEs contracted sales at single-digit rates, and only the remaining 14 thousand companies (9.0%) are estimated to have revenues growing or on 2019 levels.
The Centre turns out to be the geographic area with the largest share of companies operating in the sectors most affected by Covid (23.1% in terms of numbers and 24.0% in terms of turnover), followed by the South (18.7% and 19.5%), which, however, also records the highest percentages of companies that are stable or growing (14.8% in terms of turnover) or with a moderate decline (37.6%). In any case, even the North-East and North-West present very high incidences in the sectors affected by the pandemic crisis, with a contraction in sales of less than 20%.
On average, the turnover of SMEs is expected to fall by 10.6% between 2019 and 2020. Due to a production specialization characterized by greater exposure to the Covid shock, the effects of the pandemic are more severe among SMEs in Central Italy, with a decline in revenues of 11.6%. Declines higher than the national average were also recorded in the Northeast (-10.7%) and slightly lower in the Northwest (-10.5%), while in the South a more contained drop was recorded (-9.4%).
Impacts on SME risk
Data on the payment habits of Italian businesses indicate that during the lockdown phase, non-payments by SMEs exploded across the Peninsula, but then, with the recovery of economic activity and the progressive operation of the Liquidity Decree, they have essentially returned to normal. In the most acute phase, in May, southern SMEs did not pay 55% of the value of invoices due or already past due, a figure that has risen sharply from 42% in December 2019. In the rest of the country, the indicator also soared, from 38% to 51% in the Centre, from 31% to 41% in the Northwest and from 27% to 36% in the Northeast. At the end of the year, however, the volume of non-payments returned to levels similar to those of the previous year.
While at an overall level the SME system, although more exposed to risk situations, seems to have held up, in the sectors most affected by the pandemic the effects are much more intense.
These situations of strong difficulties are reflected in risk profiles: the share of risky SMEs rises to 28% in the sectors most affected by Covid (twice the national average), with shares of 36.5% in the South, 29.4% in the Centre, 26.9% in the Northwest and 20% in the Northeast.
In particular, the presence of SMEs with a real risk of default in the next twelve months exceeds two thirds among companies organising trade fairs and conferences, with percentages everywhere above 65%, while 40% of restaurants are at high risk of bankruptcy (17.3% before Covid) but, in this case, with wide gaps between those in the North-East and those in the South (50.9%). One third of hotels are at risk, again with clear gaps between the North-East (20.7%) and the other areas, with maximum values at 46.6% in the South.
Prospects and the effect on employment and investment
In the coming months, the focus will be on the impact of the pandemic on employment and investment, especially in order to assess the possible measures to be taken to offset its negative effects and promote recovery.
To this end, some estimates have been made with regard to the evolution of the health emergency, the effectiveness of actions to counter the pandemic and the implementation of the vaccination plan.
The impact on employment is very close to that estimated by ISTAT, with a loss of jobs for all Italian businesses (not only SMEs, but also micro and large enterprises), between December 2019 and the end of 2021, of about 1.3 million, equal to 8.2% of the total of 16 million employees in businesses before the emergency, most of whom employed in the services sector. At a territorial level, the estimates show more substantial absolute losses in the North-West (399 thousand employees, -7.8%), compared to the North-East (322 thousand, -8.2%), while in relative terms, the effects would be greater in the South (320 thousand, -8.4%) and in Central Italy (289 thousand, -8.9%).
The probable exit from the market of a significant number of companies and the downsizing of the turnover of many others will also have inevitable repercussions on the level of investments. According to estimates, in fact, Italian companies could lose, due to Covid, €43 billion of capital in the two-year period 2020-2021 (-4.8% compared to the total of approximately €900 billion at the end of 2019).
The National Recovery and Resilience Plan to relaunch the economy
The NRRP represents a great opportunity to relaunch the business system, which, in order to be seized, also requires the completion of reform designs and a greater impetus on the public-private partnership front.
The NRRP intends to profoundly change the operating environment of economic activity, orienting it towards green and digital transition, resilience and cohesion at various levels, and should therefore be accompanied by measures to support businesses in the necessary adaptation process.
In terms of cohesion, the NRRP identifies three cross-cutting priorities: territorial (the South), gender (women) and generational (young people). With regard to territorial cohesion, the NRRP highlights a moderately positive impact in terms of South-North convergence, the real (albeit theoretical) additionality of which will depend on a coherent general programming framework that includes, in addition to 'ordinary' public expenditure for investments, also the programming of the European Structural Funds and the Development and Cohesion Fund (FSC) for the 2014-2020 cycle (currently being completed) and the 2021-2027 cycle (currently being launched).
In fact, 2021 is the starting year of the new European Structural Funds programming cycle: for Italy, this amounts to approximately 83 billion euro, in addition to the 28.7 billion euro still to be spent in the 2014-2020 programming period. The challenge will be to know how to use these resources, together with those of the FSC, in a coordinated and complementary manner to those allocated for the PNRR, while maintaining their additionality.
What to do for SMEs: policy proposals
The national strategy for SMEs has so far mainly provided for short-term 'emergency' measures and indirect support to businesses, causing, particularly for medium and small enterprises, clear effects on their financial structure, with an increase in their debt exposure and a consequent reduction in their investment capacity.
For this reason, it is necessary to pursue policies to support businesses on a different basis, with measures that flank those supporting liquidity in order to encourage businesses to grow in size and rebalance their financial structure.
Some of the measures introduced with the Support Decree-bis go in the right direction: the extension of the moratorium on the law for SMEs, the confirmation of the reinforced intervention of the Guarantee Fund for SMEs and of SACE's 'Guarantee Italy', the extension of the repayment period for the repayment of emergency debts in 2020 from the currently envisaged 6 years to 10 years, and the guarantees of the SME Fund in support of bond issues (an intervention that will, however, need to be strengthened to lower the size of issuing companies and the average size of issues).
However, there is still a lack of structured and organic action to support growth in size, capitalisation and strengthening of the financial structure of businesses, with particular regard to SMEs and MidCaps, including through access to alternative financial markets.
In short, actions and instruments should be set up to help SMEs embark on a path of innovation and growth. The spaces and financial resources to support a policy dedicated to the recovery and resilience of SMEs are also widely available beyond the NRP, in particular in the European and national cohesion policy, to be launched in the course of 2021.
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