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Minister Donohoe welcomes publication of ESRI paper on ‘Recent Trends in SME investment in Ireland: Exploring the Pandemic and the Barriers to Growth’

The Economic and Social Research Institute (ESRI) published a paper, co-authored by officials from the Department of Finance, entitled Recent trends in SME investment in Ireland: exploring the pandemic and barriers to growth"

The paper looks in-depth at how SME investment activity fared in 2020. It also provides a detailed examination of the information available on SME investment across a range of asset categories, how this investment is financed and the investment challenges faced by SMEs in the current environment.


This research utilises the Department of Finance's SME Credit Demand Survey to analyse detailed information on investment activity at firm level.


Some of the key findings of the paper include:


  • The number of firms and the level of investment both dropped in 2020 relative to 2019, indicating that Covid-19 pandemic is having a marked effect on investment in smaller firms.
  • SME investment and demand was in a downward trend pre-pandemic, which may be linked to Brexit uncertainties during this period.
  • Larger SMEs cut their level of investment by more than smaller firms. While the share of investing firms dropped across all asset classes, the steepest drops were in fixed assets.
  • The level of investment declined sharply in sectors hit particularly hard by the public health restrictions such as hotels and restaurants, wholesale retail and construction.
  • The share of enterprises investing was lowest in Dublin (45%) and highest in the Midwest (65%) which may reflect the structure of high-tech and knowledge capital firms that are clustered around the capital city.
  • The two factors impacting firm investment choices are risk and uncertainty. 57% of firms indicated that uncertainty was a major barrier to business investment. 
  • Irish firms continued to display a preference for self-financing of investment and this trend has continued for many years. 
  • Close to one-third of firms agreed or strongly agreed that access to finance was a barrier to investment. This is highest among younger firms. In contrast, 47% of enterprises disagreed that access to finance was a problem.
  • In terms of willingness to expand, 37% of enterprises would be willing to borrow to expand while 48% or nearly one-in-every-two firms would not be willing to borrow. A very clear drop in borrowing appetite has occurred since the pre-pandemic period with the share of firms willing to borrow to expand falling from 45% in 2019 to 38% in 2021. The share of firms who indicate they would not borrow to expand has increased by 39% to 48% which highlights the drop in credit demand for investment purposes that has occurred since the onset of the Covid-19 crisis.


Commenting on the release, Minister for Finance, Paschal Donohoe T.D. said:

“I welcome the publication of today’s paper, which provides an important insight into the investment activity of Irish SMEs over the course of 2020 in the face of uncertainties caused by Brexit and the pandemic. 

This research will ensure a better understanding of the investment activity of Irish SMEs and provide evidence to support the further development of targeted policy initiatives around investment and investment financing.”