Spain: Entrepreneurs begin the de-escalation measures with caution


We are gradually returning to a state of normality, which, while not new, will be different. Beyond the landscape of faces at a distance of one and a half metres and covered by masks, the business world is obviously faced with limitations in terms of capacity, protective screens and constant cleaning and disinfecting of fitting rooms, chairs, tables and premises. What is not so obvious is that it will live pending the evolution of consumption, a possible new closure of the financing flow and the rumour of an increase in the tax burden that will balance the battered government accounts.


Of course, this has an impact on the entrepreneurship ecosystem, which, despite the slight improvement seen in May, is still being very cautious. Throughout the fifth month of the year, 3,302 new companies were created, which is 22% (587 in absolute terms) more than in April, according to the data collected in the Business Radar, prepared by Axesor's Economic Studies Department. A necessary breath of fresh air for economic recovery, which hides one of the most important consequences of the pandemic, the cuts in investment. The capital allocated for the incorporation of the new companies was 129.99 million Euro compared to 269.65 million Euro in the previous month. In other words, it fell at a rate of almost 52%.


The restraint in investment is accompanied by further bad news. Despite remaining at a low level due to the measures adopted following the announcement of the State of Emergency, the number of bankruptcies tripled in the fifth month of the year. There were 150 registered bankruptcies compared to only 54 in April. A sign of what may happen in the coming months and which could be aggravated by the plight of many other companies, which will try to ride out the storm clutching at the lifeline of bank refinancing. 


If we consider the cumulative figures for the first five months of 2020 and compare them with the same period last year, things look pretty bad. Compared to the 44,021 undertakings that took place between January and May 2019, only 29,720, or 32.5% less, have been recorded in 2020. Regarding the disbursement made by the companies to start their activity, despite having just exceeded 2 billion Euro, the decrease was of 15.7%.


If we look at the glass as half full, it seems that the crisis has planted the seed for the transformation of the business world, which will necessarily have to go through sustainability and digitalization. Activities that require higher qualifications are gaining in importance among entrepreneurs. While commerce, hotels and construction recorded decreases of between 60% and 75%. Thus, even if it is little by little, the evolution towards an economy based on talent, innovation and qualification will make Spanish companies grow in size, becoming more international, better valued in international markets, investing more, reducing the stigma of temporary employment... In short, it will make Spain more competitive. Nonetheless, they cannot do it on their own and will need the support of each and every government department with, among others, measures of fiscal flexibility and reductions in labour costs (not wages) to promote job creation.


Another change that Axesor's Business Radar reveals is how new ventures are distributed. For the first time since January 2019, Catalonia has become number four in terms of the number of companies created, behind the Community of Madrid (870 new companies), the Community of Valencia (536) and Andalusia (491). It is an important fact if we take into account measures such as the extension of the Flat Tax for the Andalusian and Madrid self-employed workers, or the recent aid aimed at financing the fixed costs of inclusion in the RETA (Special Regime for Self-Employed Workers) approved by the Valencian Government.



That being said, if the present doesn't look too bright, the future doesn't look any brighter either. The “V-shaped” recovery (somewhat inclined) is taken for granted in all economic forums and the virus of uncertainty - the worst for the business world - will be felt in the coming months. Although after obtaining the permit we Spaniards have been going out with a renewed desire to visit shops, bars and restaurants, the enthusiasm of the first few days will gradually fade. Furthermore, the fear of a possible second wave and a new paralysis of the activity hovers over one's own mind and that of others. More so, after being informed that the OECD (Organisation for Economic Co-operation and Development) assures that if this were to happen, Spain would be the most affected country and the GDP would fall by up to 14.5%.


Source/author: Axesor

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