Nicholas Richards, Gleaner Writer
GLASGOW
NEARLY HALF of Jamaican businesses fail to survive the early start-up years, a study conducted by the University of Technology (UTech) has found.
The main obstacles to their survival are high taxes, bureaucracy, and red tape, according to the study. Commissioned by the Global Entrepreneurship Monitor (GEM), the research project assesses entrepreneurial activity and provides information on entrepreneurship globally.
Its 2005 report on Jamaica showed that of the approximately 391,000, or 17 per cent of Jamaicans who started or were planning on starting a new business, only 9.5 per cent of them survived within the first few years of being established.
Of this 17 per cent, 241,500 were nascent entrepreneurs and 154,100 had established a business within the 42 months prior to June 2005.
Sandra Glasgow, who headed the study team and who is senior vice-president of corporate services at the UTech said, "Our research found that the main obstacles to small businesses were, high taxation, bureaucracy, and red tape."
HIGH LEVELS OF CRIME
As well, she said the continued high levels of crime and violence, "suppress business development and expansion of new and existing businesses and reduce the attractiveness of the country for investment."
Government should minimise the number of agencies that deal with registration and licensing for new and existing businesses and act 'urgently' to stem the levels of crime and violence, said lecturer in the faculty of Business and Management at UTech and member of the research team, Vanetta Skeete.
Ms. Skeete added that, "The key agencies need to be consolidated into one or two agencies, to significantly reduce the bureaucratic red-tape that frustrates entrepreneurs and leads them under ground."
But other international studies also show a high failure rate, in some cases higher than that in Jamaica, among small enterprises.
One recent study of U.S. small businesses showed that they do not create as many jobs as was thought, because the high failure rate simply resulted in a churn of employment, rather than a high net gain in the number of jobs. It suggested that much of the net gains came from a few high performing small businesses which were on their way to becoming big businesses.
Kingston businessman Oliver Chen said the biggest obstacle to business success in Jamaica was the country's poor economic performance over the past decade, linked back to the fallout in the financial sector. That poor performance had created a self-perpetuating gloom in the business community, he said.
"When economy is booming, everyone makes money," Chen said. "Now it is more competitive. You just have to be more selective and creative."
He pointed to Juici Patties and E-Services Group as two small companies which have grown substantially over the past decade, despite the environment.
During the presentation of the findings at UTech Technology Innovation Centre on Tuesday, Skeete emphasised that implementing subsidies, tax holidays and other incentives for new businesses would be conducive to entrepreneurship in Jamaica.
Against this background, Skeete urged the government to undertake tax reforms that are in line with the Matalon Committee report and the recent private sector assessment undertaken by the Inter-American Development Bank (IDB).
The IDB study revealed that informal investment prevalence rate in Jamaica was very high, "which means that there is a huge institutional gap in finding financing for starting up businesses," said Glasgow.
Businesses which are not formalised, "cannot source the traditional forms of finance or support," she said.
Phillip Paulwell, Minister of Industry, Technology, Energy and Commerce, (MITEC), told the UTech team that he had looked at the recommendations, and vowed to fully support and implement those that "pertain to government and those dealing especially with intellectual property rights because I do believe that that's an area that our micro enterprises are fully aware of the advantages of exploiting."
Small businesses account for over 30 per cent of employment on the island, Paulwell said. To spur their government announced the concept of an islandwide small business incubator project which will involve the establishment of small business incubators across the island.
"They will be responsible for the production and marketing of
goods and services where appropriate."
