Slow recovery of SME investment post Covid ‘concerning', says ESRI report

Irish Times

01-05-2025

The levels of capital investment by Irish SMEs had not recovered from the 'scarring effects of the pandemic' in 2023, a study by the Economic and Social Research Institute (ESRI) has found.
The report, which was co-authored and funded by the Department of Finance, found that, while 60 per cent of small and medium-sized firms in Ireland engaged in capital investment in 2023, that still lagged behind the pre-pandemic levels.
As much as 67 per cent of firms made capital investments in 2017, with the rate holding steady at 64 per cent in 2018 and 2019.
'Investment in SME sectors has recovered compared to pandemic lows,' the study's leading author, Dr Conor O'Toole, said. 'However, in real terms, the levels have not reached pre-pandemic peaks. This is concerning given the importance of investment for long-term growth.'
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Dr O'Toole noted that 'a notable fall-off' in climate-related investments by SMEs represents 'a challenge for the decarbonisation pathway'.
The most common form of investment was on machinery and equipment, at 42 per cent, while 28 per cent of Irish SMEs invested in transport equipment, and 20 per cent of firms invested in buildings. Just 5 per cent made investments into intangible assets such as intellectual property or software.
On average, firms which invested into these categories spent €43,000 on vehicles, followed by buildings at €40,000 and non-transport machinery at €20,000.
The mean level of investment stood at €188,000 per firm, an improvement on €147,000 and €146,000 in 2020 and 2021. While the figure is still comparable to 2019, when firms invested an average of €216,000, once adjusted to 2023 price levels the report says the metric stood lower in 2023.
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Investment in staff slumped 20% in SMEs during Covid - ESRI
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The report found that younger firms, those established less than 10 years, were more likely to invest in capital assets.
The study found 'a clear divergence' across sectors in the trends of the likelihood of firms to invest, with growth in export-focused sectors such as manufacturing; transport, storage and communications; and professional, scientific and technical sectors.
Domestic-focused industries such as hospitality, retail and construction 'had either a fall or only marginal gain in the proportion of investing enterprises', the study found.
Fewer firms reported access to funds as a barrier to investment in 2023 than previously, with 27 per cent of firms reporting it as a constraint to investment compared to 34 per cent in 2021.
Minister for Finance Paschal Donohoe, whose department funded the research, said: 'The Government is committed to supporting the SME sector in Ireland.
'This research will add to our understanding of the Irish SME investment environment and prove invaluable to the formation of policy, not only for my department, but a number of other important financial bodies in Ireland,' he said.