The structure of the Slovak economy is relatively weighted to micro firms and individual entrepreneurs and to large firms, particularly foreign direct investors. Between the two extremes, there is a “missing middle” of SMEs with between 10 and 249 employees, with a share well below the OECD average. Although there is a high business start-up rate, the survival and growth rates of start-ups are relatively low and small business productivity is low. As many as 12% of adults were starting or running a new business in 2018, but the output per person of Slovak micro firms was only just above half the level of Slovak small firms in 2018 and only one-quarter of Slovak start-ups were still operating five years after their creation, a relatively low rate.
A holistic policy package is required to meet the challenge of scaling up micro firms. There is a need to ensure that labour taxation does not impede the self-employed from hiring. Stronger scale-up support programmes can also offer targeted mentoring to potential growth firms, improve the availability of risk capital to scale-ups and provide export credit to young firms.
The innovation and export performance of larger, established SMEs can also be strengthened. For example, Slovak SMEs generate only 15% of extra-European exports, compared with an average of 29% in European Union countries as a whole and struggle to integrate into the value chains of foreign direct investors. SME innovation and digitalisation levels are also low. Policies are needed to enable existing SMEs to adopt new technologies, build workforce and management skills and operate in wider markets. Inward investment policies should target and incentivise inward investment that creates domestic supply chains.
