The net rate of business creation among BRICS1 economies has been over seven times faster than the G7 since the financial crisis, according to research by RSM, the seventh largest global network of independent audit, tax and consulting firms.
Over the last five years2, the G7 countries3 have seen a net gain of 846,000 businesses, representing an annual compound 0.8 per cent growth 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 cent per annum.
RSM professionals studied data on business ‘births’ and ‘deaths’ over the last five years in 35 countries across its international network, including the G7, as well as key emerging economies, including the BRICS nations.
According to RSM, 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.
Of the 35 countries sampled, Hong Kong has exhibited the fastest rate of new business creation over the last five years – 9.9% on an annualised basis, from 655,000 to 956,000 – while South Africa has seen the steepest decline in the number of active enterprises, - 3.8% per annum, from 956,000 to 817,600.
Jean Stephens, CEO of RSM, comments: “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.”
“Business is vital to jobs and prosperity, but with many countries, particularly in the West, cutting spending and raising taxes, makes creating and growing a business even more challenging than ever before.”
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 hindered their ability to lend to businesses.”
The research by RSM shows that Mexico has seen one of the fastest rates of increase in the total number of active businesses over the last five years, from 1.1 million to 1.4 million.
Alfonso Elias, President of RSM Bogarin in Mexico, comments: “Mexico was hit hard by the financial crisis but the recovery has been equally dramatic, with economic growth now outpacing Brazil. As Chinese labour and shipping costs rise, Mexico is becoming a more attractive destination for businesses supplying the US market.”
At the other end of the table Portugal has seen the number of active businesses decline by 0.8% on an annual compound basis, from 616,000 to 596,000.
Joaquim Patricio da Silva, Managing Partner of RSM Patricio, Moreira, Valente & Associados in Portugal, comments: “Portugal is struggling with its deepest recession since the 1970s. The government is looking at ways to make Portuguese businesses more competitive and attract foreign investment, such as slashing the corporate tax rate, which currently stands at 24 per cent.”
One of the most interesting contrasts is the relative strong performance of European countries compared to North America (the US and Canada). Over the last five years, EU countries (12 were included in the research) produced a net gain of 1.2 million businesses, a 1.4 per annual growth rate over the five-year period of the study.
By contrast, North America has added just 158,000 new enterprises, representing a 0.4 per cent annual rate of increase from 2007 and 2011.
Jean Stephens, CEO of RSM, comments: “Much has been made of the rise of ‘zombie’ businesses 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 the US or Canada.”
1 Brazil, Russia, India, China and South Africa
2 2007-11 (most recent data available)
3 Canada, France, Germany, Italy, Japan, UK and US