Business Irish

Monday 5 December 2016

Kenny's promise of 'best little country' for business by 2016 is still under water

Published 07/01/2016 | 02:30

Taoiseach Enda Kenny chats with Cllr Tom Farrell Mayor of Athlone in Carrickobreen during the flooding
Taoiseach Enda Kenny chats with Cllr Tom Farrell Mayor of Athlone in Carrickobreen during the flooding

Five years ago this month Enda Kenny, out on the election trail, promised to make Ireland the best small country in the world in which to do business by 2016.

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It seemed like a bold and brave statement given that the economy was on its knees; we were at the beginning of an IMF bailout programme; we had huge loss of confidence and severe international reputational damage.

Yet, it wasn't as challenging as it might have seemed. Being the best small country in the world in which to do business could mean a lot of things. There are lots of criteria, indices, parameters and measures used to assess these things.

Forbes Magazine does its own best for business study and Ireland actually featured at the top of it in 2013 - three years early based on Enda's target.

However, the Forbes study measures performance on things like property rights, technology and stock market performance. It doesn't necessarily tell us much about the ease with which business can be set up, run and sustained.

The World Bank index is the best because it measures countries that are most friendly to entrepreneurs and the least onerous on keeping an enterprise running.

In 2011 when Enda Kenny delivered his pledge Ireland scored 9th in the world in the World Bank index. If you excluded bigger countries from the index, we were even further up. The World Bank Doing Business Report 2016 showed we fell eight places in the last five years to 17th.

The UK, Canada, the US, Australia and Germany are all ahead of us. Small countries ahead of us include Singapore (No 1), Estonia (No 16), Finland (No 10), Norway (No 9), Denmark (No 3) and New Zealand (No 2.) .

Sliding eight places in the last five years means Ireland has either become a worse place for entrepreneurs or has improved but not by as much as our international competitors.

This is ironic when you look at the economic progress that has been made in the last five years. It is an irony that masks the deeper picture of what is happening with the development of a sustainable long-term enterprise culture.

As recently as this week, small business lobby group ISME put out its quarterly business trends survey and found that its members were more confident about employment prospects (with the exception of retail), current sales levels and future sales expectations. Some of the metrics were at their highest level since 2007. This is positive news.

However, within that, firms have seen a tougher environment in relation to insurance costs, rents, energy and legal costs, as well as wage costs.

To some extent the good news in the survey reflects improving economic conditions after years of recession as the economy takes off again. It doesn't mean the country is becoming a better place in which to do business.

It could mean it is getting easier for now for existing small businesses.

Some of the barriers are systemic while some of the current advantages are external and could be temporary, such as low interest rates, cheap oil and a cheap euro for exporters.

There is no doubt that the business environment is improving as the economy grows at over 6pc per year. But if we are serious about building on what has been achieved in the economic turnaround and creating something more enduring, then helping small business in particular should be a priority.

The current government has introduced some very effective changes from action plans for jobs, to incentives for hiring and social welfare reform. It has clearly done very well in attracting multinationals.

Yet, the best way to build lasting improvements is through facilitating more start-ups.

Over 80pc of start-up companies fail in the first five years. Studies show that even among tech start-ups in Silicon Valley, the figure can be as high as 80pc. The difference is that in Silicon Valley the ones that succeed, can become enormous.

So in Ireland we need more start-ups and we need a solid environment to ensure lower failure rates or facilitating a second chance for people. Is setting up a business as attractive an option as we can make it? Definitely not.

Two years ago entrepreneur and former TV Dragon Sean O'Sullivan chaired a forum on entrepreneurship. It made over 60 recommendations, including things like the use of unoccupied and Nama buildings for co-working space; a national education strategy for entrepreneurship; tax incentives for investment in enterprise and mandatory training in commercialisation of business ideas for all third level science technology, engineering and maths students.

Very little has changed on the back of what was a practical and insightful report. The investment incentives, included in the Budget in October involve a 20pc Capital Gains Tax regime for investing in an enterprise with a lifetime limit of €1m. The equivalent UK package is 10pc CGT and a £10m lifetime limit.

We still have discrimination against the self-employed in the tax system. The last budget introduced a €550 tax credit for the self-employed which is still short of the €1,610 available for PAYE employees.

The 11pc USC on self-employed income over €100,000 remains, as does the higher PRSI bill for self-employed below certain income thresholds.

The World Bank wasn't the only survey to show we were heading south. Ireland slipped in the ranking of early-stage entrepreneurial activity in 2014 as compiled by the Global Entrepreneurship Monitor.

Ireland slid from second in the EU-15 to eighth. Our entrepreneurs were very high on ambition and aspiration, but there just aren't enough of them.

I remember watching dozens of people come into Dragons Den to pitch their businesses during the recession. In many cases they had lost their job and were forced into setting up their own business.

Necessity can be the mother of invention but it isn't always the best motivation for a start-up. The Global Entrepreneurship Monitor showed that while we have more start-ups per head of population than Denmark or Finland, around 30pc of our start-up entrepreneurs were doing it out of necessity.

Compare that 30pc with just 12pc in Austria or just 6pc in Denmark. Our start-up entrepreneurs were more reliant on financing from family and friends than other European counterparts, suggesting a dearth of start-up funding.

It also showed that 80pc of early stage entrepreneurs believe support for growing firms is a high government priority. Yet one third of those who believed there were sufficient start-up programmes available, were of the view that the programmes were not effective.

As newspaper stories appear of the New Year babies being born, what kind of business environment will the business "newborns" of 2016 arrive into?

With an improving economy, it may be a good time to start a business. But falling taxes and rising wages may encourage more would-be entrepreneurs to hang on to their salaried jobs and not start up at all.

The economic environment is so much better than it was five or even just three years ago. The chances of survival for new start-up companies should improve but it will still be relatively low.

There is so much more to be done to develop a genuine enterprise culture in Ireland. Unfortunately, people who might start a business this year don't make up a distinctive voting bloc.

Two thirds of all new jobs come from start-up businesses in the first five years of their existence. Yet in general election terms, these disparate and scattered job creators are very low down the pecking order. They are not a single large constituency, like pensioners, teachers, working parents etc.

With 2016 upon us, Kenny's best little country for business promise looks bogged in winter floods.

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