Complex procedures, financing shortfall holding back SMEs

EU

Online small and medium-sized enterprises (SMEs) are booming in Eastern Europe, which has triggered a study by PayPal and Deloitte on how new technologies in commerce and payment services are helping drive the prosperity of the region.

Taking as its basis data gathered from 13 countries in the region, including Hungary, the study bears the title "The New European Tigers." The surveyed countries are those from the EU’s eastern flank, from north to south: Finland, the Baltic states, the Visegrád Four (including Hungary), and the EU member states of Southeast Europe, ending in Greece.

A common finding among these countries is that they are catching up with Western Europe in terms of education, internet access, investment in infrastructure and in other segments.  As for specific areas, the study observes that "the region is very competitive in terms of the labor market." It notes that there are significantly lower operational costs, as average compensation per hour in the region is about one-third of that in the rest of the EU, at EUR 10 in the region, compared to EUR 27 in other EU economies.

In the case of Hungary, scores were better in infrastructure and logistics metrics, while the country is seen as underperforming in the institutional and legal environment (see diagram). The study points to areas in need of improvement, including:
- the availability of financing, which is lower than average in the region, especially in stock market capitalization or the value of domestic credit, which may negatively impact businesses both at the startup and later stages;
- government expenditure on education, also relatively low;
- low scores obtained for government e-services and complicated business procedures; the tax system may also be an obstacle.

SMEs in Hungary are seen as slightly below the regional average in terms of digitization, the study shows. Nevertheless, the pace of improvement is very high, showing the big potential of the economy. Growth in the share of SMEs in web sales reached 7.6%, one of the greatest improvements in the region (average 5.5%).

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