The number of small and medium sized firms investing here and the level of investment both dropped in 2020 relative to 2019, indicating the COVID-19 pandemic had a marked effect on investment for smaller firms new research by the Economic and Social Research Institute (ESRI) has found.

The study found that the drop in the level of investment was greater than the fall in the number of firms investing which it says suggests capital plans have been scaled back rather than cancelled altogether.

A sharp fall between 2018 and 2019 is also evident in the data and may be linked to the Brexit difficulties occurring during this period, the research claimed.

The analysis found that the proportion of investing SMEs was relatively constant between 2017 and 2019 at approximately 64%.

But the impact of the pandemic saw the share of investing enterprises dropped by 9 percentage points to 55%.

In 2020 the mean investment was just over €93,000, down from €106,000 in 2019.

The study claimed that larger SMEs cut their level of investment by more than smaller SMEs and across asset classes the steepest drops were in machinery, equipment and other fixed assets.

Perhaps unsurprisingly, the level of investment declined sharply in sectors hit particularly hard by the public health restrictions such as hotels and restaurants, wholesale and retail and construction.

"While many firms continued to invest in these sectors, the typical value of each investment was markedly down in 2020 on 2019 levels," the report claimed.

Regionally, the share of enterprises investing was lowest in Dublin at 45% and highest in the Mid-West at 65%.

The paper found that firms continued to display a preference for self-financing of investment and this trend has continued for many years.

But if external finance is being sought, bank loans remained the most prevalent source.

"Close to one-third of firms agreed or strongly agreed that access to finance was a barrier to investment. This is higher amongst young firms," the report concluded.

The findings were welcomed by Minister for Finance, Paschal Donohoe, who said they provide an important insight.

"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," he said.