Can do, get up and go

All our social partners say they want to boost the entrepreneurial spirit in Malta. But how can it be done?

Star Trek fans will always remember the famous moment from the movie Star Trek: Generations, when Captain Picard requests urgent assistance from his forerunner, Captain Kirk.

"I take it the odds are against us and the situation is grim," says Kirk, parodying the very film in which he appears.

"You could say that," replies Picard. "You know, if Spock were here," says Kirk, "he'd say that I was an irrational, illogical human being by taking on a mission like that. Sounds like fun!"

Well, no piece of dialogue better expresses the challenge of being an entrepreneur.

The odds are against you and the situation is grim. But it's fun if you can get it to work.

The belief that, as a country, we should encourage people to accept the mission of setting up their own business is now widely shared.

All successful economies - capitalist, socialist or mixed economy social democratic - have to harness the talents of people who have ideas and organisational acumen.

If there is one thing on which the social partners can agree, it is the desirability of promoting a more entrepreneurial culture with a view to creating more small businesses. It is also what the EU is trying to do with its impending revamp of the Lisbon Agenda. We could all do so much better if we emulated America's "can do, get up and go", dynamic entrepreneurial culture.

Many people in Europe are asking why something like a third fewer people in Europe say they are considering starting up a business compared to the US. And Wim Kok, the former Dutch Premier who a few weeks ago reported on why the Lisbon Agenda has not delivered on a lot of its promises, has good reason to be convinced that the EU can do more to promote entrepreneurship.

It's easy to identify the objective; less easy to find practical policies to promote new business formation.

How do you get the culture change the authorities think the country needs? In one of my columns, I had suggested, knowing that you don't change a country's culture overnight, that entrepreneurship should be made a compulsory subject at certain stages of the educational ladder. How about Malta Enterprise, the FOI and GRTU organising a "week of entrepreneurship" during which they promote the concept to one and all and also explain their various programmes?

But these are small steps to the giant culture change the country needs to undertake. In Malta, we seem to have an innate resistance to thinking of business as a route to wealth or status. Young talented people rarely look on business as a career of choice. Maybe it is something to do with the venerable tradition that commerce is left to lesser folk, the ones who do not even get their A levels, let alone a degree, while true high-IQ people take to the courts or practise medicine.

Maybe problems of over-regulation and stifling bureaucracy inhibit the creation of new businesses. It is good to note what the Parliamentary Secretary for Small Businesses and the Self-Employed had to say recently about the simplification of business licensing procedures, which seems to have contributed to more trading licences being issued. Can he make the same claim for the approval of other business enterprises?

Maybe it's hard for entrepreneurs to raise the money to get going in a country where venture capital is virtually unknown. Catering for the needs of small businesses is mainly the mission of Malta Enterprise. It certainly has a plethora of programmes and initiatives. One can mention the Kordin Business Incubation Centre, EQUAL (the EU's Innovation Relay Centre) and CORDIS, assistance schemes such as ERDF-sponsored programmes for SMEs in operations, market entry and internationalisation and other support schemes such as in food processing and compliance. But is it delivering? Getting performance statistics is not easy.

Overcoming these issues - or the many others that obstruct new businesses - will be a long slog.

For example, in the UK the government exempted the majority of small companies from the requirement to have a statutory audit of their accounts by almost tripling the audit exemption threshold from a turnover of £350,000 to £1 million. In Malta there is no comparable exemption from a statutory audit for any company. In fact all companies must prepare financial statements that comply with International Financial Reporting Standards and with the Companies Act.

Where there are exemptions is in what information is filed at the Registrar of Companies and whether consolidated financial statements need to be prepared. In essence, where a private company (a company with less than 50 shareholders and with no publicly traded instruments) is small (under Lm2.1 million turnover, less than Lm1.1 million total assets and less than 50 employees or at least two of these parameters), it can file an abridged version of the financial statements rather than a full set.

Again, the British government has made a substantial effort in cutting VAT red tape by introducing a flat rate scheme, where businesses just pay a flat rate based on turnover rather than having to spend time accounting for every single item. Although in Malta, SMEs, whose annual turnover falls below certain thresholds (Lm6,000 - Lm15,000, depending on their activity), may opt to be classified as exempt persons, that is not charge or collect VAT, the GRTU believes there is further room for simplification. As for interrogations and fines, in the UK the VAT penalty system has been reformed so that businesses are first offered support and advice before incurring penalties, while inspectors are encouraged to demonstrate more understanding of the problems people may face.

An Economist Intelligence Unit study that ranks 60 countries on their attractiveness for start-up businesses - awarding points for low levels of red tape, favourable tax regimes, flexible labour markets, open financing system and modern infrastructure - placed the UK joint second (6.4 per cent) after The Netherlands and ahead of the US (11.9 per cent). Such studies conclude that the red tape burden in most other countries is far tougher than in the UK. For example, Italy scored 3.2 per cent while France was even unfriendlier, scoring 1.4 per cent. One wonders what Malta would score.

Of course, business is not for everyone and, of course, it's a waste of national resources to entice unsuitable people into a hopeless business career. And no one should set up a firm thinking it's a sure win: Kirk is right - the odds really are against you. Statistically, in most countries, a third of new businesses fail within three years.

And according to research published by economist David de Meza in the 2002 Economic Journal, "in line with much psychological evidence, most people overestimate the chance of success. The bias is especially true of entrepreneurs".

Yes, Spock would be right to say you are illogical to think you can make it. But you may be right to try. And the rest of us will benefit if you do.