Rate of new business creation in EU over three times faster than in North America

Rate of new business creation in EU over three times faster than in North America since the financial crisis

·         EU average business creation of 1.4% versus USA and Canada (0.3%)

·         France leads the large European economies (4.5%) versus Germany (0.6%)

·         Research by RSM International, seventh largest global accounting network

The net rate of business creation among the EU economies has been over three times faster than in the USA and Canada since the financial crisis, according to research by RSM International, the seventh largest global network of independent audit, tax and consulting firms.

Over the last five years*, the EU** has seen a net gain of 1.2 million businesses, representing an annual compound 1.4% growth rate in the number of active enterprises.  By contrast, North America has added just 158,000 new enterprises, representing a 0.4% annual rate of increase between 2007 and 2011.

Of the largest EU economies, France exhibited the fastest rate of new business creation over the last five years – 4.5% on an annualised basis, from 2.9 million to 3.5 million – while Germany’s new business growth was only 0.6%. The UK saw net new business growth of 0.7%, from 2.2 million to 2.3 million new businesses.

Cyprus was the EU member that exhibited the greatest growth in new business creation, at 8.4%; Portugal showed the weakest performance with negative growth of 0.8%.

Jean Stephens, CEO of RSM International, comments: “Much has been made of the rise of ‘zombie’ firms in struggling economies. These businesses are effectively being kept alive by record low interest rates and political pressure on banks not to cut off life support by recalling loans.

“The banking sector in many European countries has come under significant pressure to support struggling businesses, which may partly explain why many European countries have seen marginally higher rates of new business creation and survival than in North America.

“France’s success can in part be explained by significant steps taken in 2009 to boost self-employment, known as the auto-entrepreneur system, which reduced tax and regulatory requirements for start-up enterprises and may be a model for other mature economies.”

The net rate of business creation among BRICS*** economies has been over seven times faster than the G7**** since the financial crisis.  Over the last five years, the G7 countries have seen a net gain of 846,000 businesses, representing an annual compound 0.8% rate in the number of active enterprises.  By comparison, the BRICS have surged ahead. Over the same period, the BRICS have produced a net gain of 4.8 million enterprises, a compound annual growth rate of 5.8% per annum.

According to RSM International, governments around the world have been looking for ways to stimulate entrepreneurship in the wake of the financial crisis, but the research clearly shows that with many businesses facing tax rises and struggling to access finance, more needs to be done to boost business creation and survival.

Stephens adds: “While most countries have seen the number of active businesses increase over the last five years, for a significant number the annual growth rate is sub two per cent. The divergence between the G7 and the BRICS is particularly striking, with the BRICS creating businesses at more than seven times the rate of G7 economies since the financial crisis.”

She adds: “Governments can do more to encourage entrepreneurship and help businesses thrive. In many economies, lack of external finance is a major impediment to starting and growing a business. Since the financial crisis, banks have de-risked and come under pressure to hold more capital in reserve, which has retarded their ability to lend to businesses.”

RSM International professionals studied data on business ‘births’ and ‘deaths’ over the last five years in 35 countries across its international network.

Total number of active enterprises (in 000s), 2007-11

* 2007-11 (most recent data available)

** 12 EU economies included (see chart)
*** Brazil, Russia, India, China and South Africa

**** Canada, France, Germany, Italy, Japan, UK and USA

For the full findings of RSM International’s research click here 

www.rsmi.com