The pandemic has left the global economy with two key points of vulnerability — high inflation and jumpy financial markets. A few months ago, entrepreneurs were optimistic about 2022, according to Eurochambres Economic Survey 2022 (EES2022), saying that it would be another tough year, but better than 2021. The Russian invasion of Ukraine in late February and subsequent escalation and developments have, however, led to a significant change in this outlook.
A key challenge identified by respondents to EES2022 was the price of energy and raw materials. This concern has heightened considerably as a consequence of the geopolitical tension with Russia.
We wanted to find out more about this, so we spoke to Mr. Luc Frieden, President of Eurochambres. We had an inspiring conversation with Mr. Frieden about how some of the challenges SMEs are facing have intensified from year to year, but also about the specific needs of SMEs for the navigation through the twin transition and the priorities of Eurochambres for this year.
I. What are the biggest challenges for SMEs in 2022?
Many European companies have already been impacted by the crisis, whether by closing down their production and distribution sites in Russia and Ukraine to keep their workers safe, as a result of unprecedented supply chain disruptions, or indeed further increases in already historically high energy, raw material and commodity prices.
While Eurochambres supports the sanctions imposed in response to Russia’s military aggression, we cannot ignore the significant effect that they – as well as potential retaliatory measures from Russia – will have on Europe’s economy. Mitigating action is crucial to help European businesses absorb the impact. With the economy only just recovering after two years of deep recession, businesses need a favourable environment to help Europe get back on its feet.
The worsening of the overall situation of course strongly undermines business confidence, which showed a significant upturn a few months earlier in the Eurochambres Economic Survey 2022, based on responses from over 52.000 entrepreneurs in 26 European countries.
The survey showed that “affordable access to energy and raw materials” was seen as the greatest challenge for businesses this year, even before the impact of the Ukraine crisis.
The second main challenge that businesses highlight is the lack of skilled workers. The accelerating evolution of the labour market is exacerbating long-standing skills shortages in ICT and digital skills.
Labour costs rank third, followed by financing conditions, digitalisation of activities and lastly sustainability requirements. As most European Green Deal legislative proposals are still under negotiation, “sustainability requirements” are considered as a less important challenge for 2022. However, over the next few years, upcoming legislation in this crucial area – while primarily targeting big companies – will have an impact on SMEs and this needs to be measured and monitored carefully.
II. How did these challenges change in comparison to 2021?
The main challenges for European businesses identified for 2021 were labour costs, the repayment of debt accrued due to the COVID-19 crisis, and financing conditions. So energy and raw material costs as well as skills shortages are the two challenges that have heightened most year on year, while financial constraints abated somewhat compared to the height of the pandemic as businesses benefitted from a variety of instruments designed to increase their access to address liquidity shortages and stimulate investment.
These businesses challenges will unfortunately not be alleviated anytime soon. In the current circumstances, energy, raw material, commodity and product prices are increasing, and it will be critical to adequately support businesses financially, particularly in highly export-oriented sectors that need to maintain competitiveness.
The transformation to a climate-friendly and CO2-free economy requires great efforts from all companies in Europe. What do SMEs need in order to navigate through this transition?
Going green is not only a survival imperative, but also a business opportunity. For most SMEs, reaching zero or close to zero GHG emissions across the entire value chain would currently be very difficult. SMEs may not have the in-house sustainability expertise, time or resources to address their carbon footprint, and may find it difficult to measure and reduce value-chain emission reductions in line with limiting global warming to 1.5°C.
The EU’s strategy of diversifying energy suppliers as quickly as possible, particularly with liquified natural gas deliveries from the US and the Middle East, is welcome. We must ensure that there is enough energy for consumers and businesses at reasonable prices. Failure to do so would have grave socio-economic implications across much of Europe.
SMEs need tailored and clear energy transition policies that incentivise investments in renewable and low carbon energy and hydrogen-based technologies. Considerable investments in research and development will be necessary – be it to align products with new requirements or new technologies – and they must come from both the private and the public sectors.
On the way to climate-neutrality, companies need planning security, a simple and clear legislative framework and minimised administrative burden, especially for SMEs.
To take the example of the EU’s Corporate Sustainability Reporting, we believe that in the case of smaller companies, reporting should be exclusively voluntary as the scarcity of relevant information reported by smaller players is overwhelmingly linked to high costs and difficulties when it comes to illustrating ESG risks, scale breadth and complexity. Member States must adopt a bottom-up approach and uphold the use of the simplified standard across the supply chain, instead of forcing small businesses to comply with disproportional reporting requirements pushed by larger suppliers or buyers.
Moreover, competitiveness for European companies must be ensured, especially as long as other major economies have not reached and implemented equally ambitious measures in terms of climate policies.
Financing is a key prerequisite for SMEs to green their business models and drive the transition through eco-innovations; yet many small businesses lack the human and financial resources to undertake green actions.
European businesses are experiencing significant skill shortages, which will worsen as a result of the green transition. To avoid overburdening companies, which already fund most of employee training, new solutions must balance contributions while ensuring that training opportunities remain in line with labour market demands.
The green transition will be successful only if businesses receive the assistance they require to prepare their employees for new challenges and market developments.
III. What are the priorities of Eurochambres under your presidency?
Although this was not something I could have envisaged when my term started in January, our priorities right now relate to the war in Ukraine.
Most pressingly, we are working with the chamber network and humanitarian aid organisations to provide supplies to Ukraine and help displaced citizens to settle in other parts of Europe, building on chambers’ expertise in the integration of refugees in the workplace.
We are also gathering feedback from our members on how the war is affecting European businesses. This allows us to work with public authorities to mitigate the economic damage, not least at EU level.
The conflict in Ukraine is relevant also to the legislative agenda of the von der Leyen Commission. Priorities, timing and initiatives need to be reappraised and potentially recalibrated in consideration of the new economic shockwaves reverberating around Europe, just as the impact of the pandemic was abating. Eurochambres can play a key role in this process by providing information from the grass roots economy.
The crisis impacts on the pursuit of the twin digital and green transition; we fully support this, but will work with the institutions to ensure that it is pursued in a manner that takes into account the unprecedented increase in energy prices and concerns about supply chain security.
We will continue to contribute actively to the rollout of the Fit for 55 package, especially regarding the crucial availability of affordable green energy (including hydrogen) and a global level-playing field in CO2 pricing, thus defining critical legislative parameters for the energy transition and decarbonisation of the economy.
Global problems require global solutions, whether this is combatting the pandemic or addressing climate change. In this regard, Europe must work with its partners in the G20, the relevant UN bodies and the WTO to find multilateral solutions. Climate diplomacy and efforts toward a global CO2 price should be actively pursued. Eurochambres will thus continue to advocate for global economic cooperation and a proactive EU trade policy that will cement our links with key global growth centres such as the US, MERCOSUR, the ASEAN and others.
I firmly believe in the need to deepen the single market, a crucial tool in strengthening the European economy. It’s reassuring that the binary distinction between the single market and digital single market no longer prevails as these two aspects of our economy are inextricably linked. Several legislative files integral to the ‘Digital Decade’ are at different phases in their evolution; Eurochambres is working on each of these and the French and Czech Presidencies of the Council will be instrumental in their progress.
For more information on these topics, please follow the Eurochambres website. For the latest updates on SMEs, please follow the European Commission website, our Promoting Enterprise News Portal as well as our social media Twitter, Facebook and Instagram.
About Luc Frieden, President of Eurochambres
Luc Frieden is President of Eurochambres, the Federation of the European Chambers of commerce, industry and services. He also serves as Chairman of the Luxembourg Chamber of Commerce.
Luc Frieden is Chairman of the Board of Directors of Banque Internationale à Luxembourg (BIL) S.A., Luxembourg’s oldest bank. In addition, he is a qualified lawyer (avocat à la Cour) and a partner with Elvinger Hoss, one of the largest Luxembourg law firms, where he advises on international corporate and banking matters. He further sits on the Board of Directors of the Luxembourg Stock Exchange.
From 2016 to 2019, he served as Chairman of the Board of the media group Saint Paul Luxembourg SA, the publisher of the leading Luxembourg newspaper. From 2014 to 2016, Luc Frieden was Vice-Chairman of Deutsche Bank Group in London and Chairman of the Supervisory Board of Deutsche Bank Luxembourg.
For most of his professional career, from 1998 to 2013, Luc Frieden was a cabinet minister in the Luxembourg Government. He served as Minister of Finance, Minister of Defence as well as Minister of Justice.
During his ministerial tenure, he was Chairman of the Council of Ministers of Justice of the European Union (2005) and Chairman of the Board of Governors of the IMF and the World Bank (2013). He was a member of the Eurogroup and Ecofin Council of Ministers.
Luc Frieden was visiting professor in business law at the University of St. Gallen, Switzerland and has published numerous articles on legal and political topics. He is the co-author of the book Europa 5.0 on economic growth in Europe.
He sits on the board of the Luxembourg Red Cross, the Luxembourg Bankers Association and is a member of the Trilateral Commission.
Luc Frieden graduated in law from the University of Paris 1 Panthéon-Sorbonne and holds LLM degrees from the University of Cambridge and Harvard Law School. He speaks English, French, German and Luxembourgish fluently.
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