Last month the National Statistics Office published data on the structure of Maltese businesses. It aptly called the report Business Demographics. It provides data for the period 2002 to 2010 and so one can note changes that are happening on a yearly basis. What I found most interesting in this report is the actual comparison between 2002 and 2010, as this provides a great insight into the way our business structure has changed. One needs to put such a comparison into a historical perspective.
The year 2002 was the last full year before our decision to become members of the European Union. Once we had taken that decision in 2003 (although we actually became members in 2004) the business sector had to gear itself up to meet the challenges of membership and to exploit the opportunities thereof.
By the end of 2010 we had been EU members for six-and-a-half years and members of the eurozone for three years. Thus changes in the structure of the business sector would have consolidated themselves. In addition, during this eight-year period the world’s leading economies had been through a boom period as well as deep recession, which they have not yet got out of completely.
Focusing on the data of the NSO, one notes that the total number of businesses in 2002 was 48,407, compared to 64,298 in 2010. This represents an increase of 32.8 per cent. This increase reflects a very healthy state of the business sector, but the data do not show the percentage of new businesses that form part of already-existing groups. Thus the increase does not mean 15,891 new entrepreneurs, as a number of these 15,891 new businesses may well be owned by existing entrepreneurs.
The data also show the number of births and the number of deaths of businesses. Unfortunately they do not show the number of dormant businesses that exist only in name and engage in no productive activities. Thus the overall numbers look very positive but may not be telling the full story.
The data split the total number by sole ownerships or partnerships, limited-liability companies and other. Up to 95 per cent of the increase in the number of businesses is attributable to an increase in the number of sole ownerships and partnerships. The increase in the number of limited-liability companies has been of just 737 during the eight-year period. This may be partly explained by the fact that business owners are more likely to wind up a limited-liability company and far less likely to wind up a sole ownership or partnership. In any case, a net increase of just 737 limited-liability companies over an eight-year period is judged to be minimal, as it averages out at just over 90 companies a year.
When analysing the data by size of enterprise, one obtains a similar indication. The increase in the number of medium-sized enterprises was of just 36 in eight years (making it four a year), while the increase in large enterprises was of just 17 (two a year). On the other hand the increase in micro enterprises was of 15,611 and the number of small enterprises increased by 227. One needs to keep in mind that these are net increases, and as such, one notes a fairly flat trend line, with the exception of micro enterprises that are solely owned. Are there any lessons to be drawn for the future from these NSO data? Directly maybe not, but indirectly there are two lessons that in my opinion are becoming critical. First, businesses need to be helped to grow in size. Second, business owners need to appreciate the importance of appropriate legal structures. From these two lessons two policy issues emerge.
The first policy issue is related to the need for reform. We may not require big reforms in this area, but this does not mean that we do not require any reforms at all. The programme of reform that the government has pushed over the last 25 years in relation to business needs to be maintained, especially to avoid small businesses being choked by public sector bureaucracy and big businesses.
The second policy issue is related to the promotion of innovation – innovation in product and service design, in sales and marketing, and in operations, people and financial management. It is only through such innovation that the business sector can continue to evolve in this country, become more outward looking and, eventually, thrive. Maybe more about these aspects of reform and innovation in future contributions.