Young Business Entrepreneurs - Insights into entrepreneurial activity

National Lotteries Good Causes Fund

Young Business EntrepreneursParticipation of youth in the labour market and insights into entrepreneurial activities

May 2015

In collaboration with:

B | Young Business Entrepreneurs May 2015

Participation of youth in the labour market and insights into entrepreneurial activities

AbbreviationsEC European Commission

EU European Union

GZ Gozitan respondents

SME Small and Medium Enterprise

SBA Small Business Act

p Percentage

n Number of sample respondents

MT Maltese respondents

YBE Youth Business Entrepreneurs

1Young Business Entrepreneurs May 2015 |

ContentsForewords ................................................................................... 2

YBE ........................................................................................ 2

Ministry for Gozo ..................................................................... 3

EY .......................................................................................... 4

APS Bank ................................................................................ 5

Project Background .................................................................... 6

Research Methodology ............................................................... 8

Labour status ........................................................................ 10

Educational level ................................................................... 11

Industries registering the highest levels of student enrollment . 11

Youth active in the labour market ........................................... 12

Industries in which youth active in the labour market work ....... 12

Preference of work location .................................................... 13

Entrepreneurship amongst Youth ........................................... 14

Motivation to start up a business ............................................ 14

Most attractive industries to start up a business .......................15

Obstacles that hinder starting a business ................................ 16

Financing the business ........................................................... 17

Business support structures ................................................... 18

Women in Business ................................................................ 21

Way forward ............................................................................. 23

Euchar SultanaCEO, FounderYoung Business Entrepreneurs Young Business Entrepreneurs (YBE) was founded in 2013 with the sole objective of

supporting young entrepreneurs in Malta. Our work is based on fi ve strategic priorities whereby each priority contributes towards the objective of the organisation: Scientifi c Research; Programmes; Education; Awareness and Policy Making.

In the two years since 2013, we have seen interest in entrepreneurial activities increase substantially. Three centres dedicated to promote entrepreneurship have been developed; seed funding and venture capital have entered the mainstream vocabulary; and stakeholders from academia and both the public and private sectors have beefed up their resources to provide new initiatives and incentives to the local start-up community.

I am very pleased to see the progress made over the recent years when it comes to supporting young entrepreneurs in developing their own business ideas. However, I believe that the local ecosystem still faces various challenges that require urgent attention and action to be able to maximise and capture the full potential of developing start-ups in Malta.

One of YBE’s strategic priorities is to conduct scientifi c research to address the lack of scientifi c data available on the market. With this study, YBE aims to provide a general understanding of the local youth community vis-a-vis their knowledge and interest in entrepreneurship. We also hope to raise awareness of the various support schemes which can support their entrepreneurial endeavors.

This is an opportunity for all stakeholders involved in the local start-up scene to understand the current scenario and work together to plan ahead in order to provide a more rich and versatile entrepreneurial ecosystem. I hope that this study will also trigger discussion among all stakeholders involved to come up with a plan ahead to reach out to more youth to help them scale-up their idea. The need to work together and act is clear. Young entrepreneurs have the ability to create jobs and drive growth. We need to provide the right tools and a supporting environment to help them succeed.

I wish to take this opportunity to express my gratitude to Erasmus+, the Ministry for Gozo, EY, APS Bank and the Good Causes Fund who supported this study right from the beginning. Without the support and involvement of each stakeholder, this study would have just remained an idea.

Euchar SultanaCEO, FounderYoung Business Entrepreneurs

YBEFo

rew

ords

Hon. Dr. Anton RefaloMinister for Gozo

The future of Gozo is about helping our youths believe in their island. There is a level of trust that needs to be restored, to help our visionary young generation make the leap, to create opportunity within a supportive administrative and legislative framework...to make aspirations and ideas viable in the labour market. Challenges abound and the most durable are often cultural rather than market based, as notions of island limitations have rooted themselves across generations, perhaps limiting us in identifying, creating and in taking up opportunities. The way the world does business has changed dramatically in the past decade and in ways that are often to the advantage of small regions. Business communities are more than ever interconnected through the web and can exploit available knowledge to do business more effi ciently, to share ideas and to innovate as market demands change.

Gozo should be an island of opportunities and there are fi ne examples of business initiatives who have thrived because our entrepreneurs have the vision, the aspiration and the resilience to succeed. We need to be there for those young people who have the potential to start a new business venture but need the reassurance through extra training, access to seed funding or expert advice. The Young Business Entrepreneurs’ initiative to focus on young people’s outlook on participation in the labour market and their insights into entrepreneurship is commendable and has received the Ministry for Gozo’s full support. The results confi rm the developments of the past decade and beyond - that young Gozitans employed in Malta would consider working in Gozo if the opportunity arises and that their decision to live in Malta is opportunity-related. Indeed, 66% of Gozitan active labour market participants who are not self employed, list Gozo as their preferred base if they were to open up a business. However, it is also true that our young generation’s aspirations for entrepreneurship are not as strong as their mainland’s counterparts and we will do our share to restore this trust.

Government’s plan to have Barts, a faculty within Queen Mary University of London, opening a medical school in Gozo, the call for expression of interest for the development of a new acute general hospital and a geriatric hospital in Gozo, which should accompany the investment by Barts medical school and the plans by RS2 software company to have a base in Gozo, give new impetus to the island and to future opportunities for young people. We have also ongoing discussions with Government entities to have policies address labour market defi ciencies and at the local level, we collaborate with NGOs to reach young people in their micro realities and to facilitate their success. Our objective is to restore the trust that our island can truly offer a future to our young ones and to help them translate their vision into successful business initiatives.

Hon. Dr. Anton RefaloMinister for Gozo

Ministry for Gozo


Ronald AttardCountry Managing Partner, EY Malta

As a global leader in assurance, tax, transaction and advisory services, we understand that we can play a signifi cant in contributing to the community and local economic scenario. Through the insights and services we deliver as an organisation, we are helping to build trust and confi dence in in the capital markets and economies. But our infl uence goes beyond our core business. We support entrepreneurship because it’s a key engine for creating sustainable economic growth. By working with groups that support entrepreneurs, our people can make a difference.

We have recently embarked on a number of projects in conjunction with various stakeholders to support the entrepreneurial eco-system in Malta. These include:

• Supporting Young Business Entrepreneurs (YBE) with various activities across Malta and Gozo, including research and technical skills workshops for aspiring young entrepreneurs.

• Assisting the University of Malta’s TAKEOFF Business Incubator to encourage the development start-up business community in Malta. Our ‘Exceptional Entrepreneurs’ speaker series brings alumni from EY’s World Entrepreneur of the Year™ programme to Malta to share their experience with emerging local entrepreneurs.

• Teaming up with MCAST to launch the ‘Supporting Entrepreneurship’ programme to nurture young entrepreneurs who are willing to explore the idea of starting up their own business.

• Undertaking research studies on access to fi nance and market failure instances in Malta, on behalf of the Malta Business Bureau and the Ministry for European Affairs.

We are delighted to be supporting Young Business Entrepreneurs with this research project. We hope it can assist to provide an understanding of some of the drivers and barriers to Maltese and Gozitan youths pursuing entrepreneurial activities. We urge stakeholders and policy makers to leverage its fi ndings, and those outlined in EY G20 Entrepreneurship Barometer, so that together, we can remove the barriers to entrepreneurial success in order to build a better working world.

Ronald AttardCountry Managing Partner, EY Malta

EY

4 | Young Business Entrepreneurs May 2015

Malta’s economic growth has been for many years driven by migration and exports. Emigration reduced the excess supply of labour at times when private sector activity was too low to absorb the upcoming manpower. Exports generated foreign exchange with which to pay for imports; this condition held true under a defence-driven economy and one when private investment in manufacturing, the leisure sector, and, more recently, in the financial and technology-related industries became more pronounced.

Malta’s demographic profile underwent a radical change to what it has been a few decades ago. An ageing society is bearing pressure on resources in the Maltese Islands and, indeed, in the entire euro-zone. As a result immigration in Malta is becoming more pronounced. Since euro-zone governments are constrained in their fiscal behaviour by the rules governing competition, taxation and expenditure, it is important for future economic sustainability to utilise all scarce resources as efficiently as possible in both the public and the private sectors. This holds especially true for domestic labour resources.

A valid starting point in such a quest is knowledge of the perceptions and attitudes of the various cohorts that make up the labour force. The present study aims to contribute to this information build-up. It compiles several characteristics of the 16-35 cohorts in Malta and Gozo regarding their inclination to enterprise, their perceived hurdles to collaboration and taking risks, and their awareness of support packages readily-available on the market. The data compiled are useful for debate and further analysis especially in relation to the existing package of legislation ruling company formation, educational standards, migration, family-support measures and tax regimes.

Sustainable economic growth and personal well-being are ongoing challenges that demand constant, but innovative, attention. The participation of youth in the labour market and their drive to enterprise represents a sound point of departure.

Prof. Emanuel Delia Chairman, APS Bank

APS Bank



Project Background


In line with the Europe 2020 strategy, the European Employment Strategy seeks to create more and better jobs throughout the European Union. Having a professional occupation through employment or self-employment is of great importance to many young people aiming to achieve independence. The need to develop innovative business ideas has become more and more important. Entrepreneurs create jobs, reduce unemployment and drive economic growth.

This Young Business Entrepreneurs (YBE’s ) survey forms part of a wider project that is currently being conducted by YBE. It is funded by Erasmus+, the EU programme for Education, Training, Youth and Sport for 2014-2020.

YBE’s survey forms part of the Youth Start-up Framework Programme. This aims to establish a structured platform that enables policy makers and other key stakeholders to understand the needs of the market by involving young adults in the decision making process. It also aims to engage different stakeholders, including local government, independent and private bodies in a structured dialogue to discuss specific themes with young people interested in entrepreneurship. The end result aims at providing useful insight for policy-making.

Through the report YBE aims to provide a general understanding of:

• Youth in the labour market

• Their knowledge and interest in entrepreneurship

• Their awareness of the funding opportunities and business support schemes

• Whether Maltese and Gozitan youth face different challenges

• Any perceived additional challenges faced by female entrepreneurs

The methodology that was used for this YBE research study was quantitative in nature. Malta National Statistics Office (NSO) gathered feedback from 1,027 respondents by telephone. The sample consisted of 70% Maltese and 30% Gozitan respondents aged between 16 and 35. The sample was divided into various sub-groups which included Maltese and Gozitan youth that are currently in full time employment, unemployed, full-time students, Gozitans working in Malta, Gozitans working in Gozo and self-employed. In order to enable such an analysis, each of these categories had a set of dedicated questions.

The results of the study will provide valuable input to the whole project, particularly during the planned structured discussion fora. This report also aims to highlight the viewpoints of these different cohorts and raise awareness of the various support mechanisms in place to assist entrepreneurial activities. All data/references were valid as at mid-May 2015.


Research Methodology


The target population for this telephone survey consisted of individuals aged between 16 and 35 years residing in private dwellings. According to the latest National Statistics Office data, a total of c. 112,000 persons were eligible to participate in the survey. Table 1 and 2 illustrate the distribution of individuals by sex, age group and region of residence.

The National Statistics Office was responsible for the collection of data. It adopted a stratified random sampling process (without replacement) throughout the survey. This entailed the partitioning of the population into mutually exclusive sub-groups, and an independent (simple) random sample was selected from each of these sub-groups to ensure a uniform distribution of the sample relative to a number of pre-selected characteristics of the population. In this case, sub-groups were constructed relative to different combinations of gender and age group.

A total of 2,779 persons were contacted by the National Statistics Office and a sample size of 1,027 was achieved with a margin of error of 3.04%.

Tables 3, illustrates the distribution of the sample by gender and age group.

Age group Male Female Total

No. % No. % No. %

16-20 12,633 22.1 11,811 21.7 24,444 21.9

21-25 14,445 25.2 13,918 25.5 28,363 25.4

26-30 14,844 25.9 14,044 25.8 28,888 25.8

31-35 15,352 26.8 14,730 27.0 30,082 26.9

Total 57,274 100.0 54,503 100.0 111,777 100.0

% Share 57,274 51.2% 54,503 48.8 111,777 100.0

Table 1: Distribution of individuals by gender and age groups

Source: National Statistics Office

Age group Male Female Total

No. % No. % No. %

16-20 120 22.7 112 22.4 232 22.6

21-25 135 25.6 131 26.3 266 25.9

26-30 140 26.5 129 25.9 269 26.2

31-35 133 25.2 127 25.5 260 25.3

Total 528 100.0 499 100.0 1,027 100.0

% Share 51.4 48.6 100.0

Table 3: Distribution of YBE survey by gender and age group

Source: YBE survey data (2015)

Region Male Female Total

Malta 52,951 92.5 50,530 92.7 103,481 92.6

Gozo and Comino 4,323 7.5 3,973 7.3 8,296 7.4

Total 57,274 100.0 54,503 100.0 111,777 100.0

Table 2: Distribution of individuals by gender and region

Source: National Statistics Office



Labour statusThe total percentage of economically active respondents amounted to 66%. Out of the 34% of total respondents who were not economically active, 68% were students.

Out of the total respondents who were following an academic course, 77% were not economically active. However, 92% of these were students undergoing training with the aim of entering the labour market.

Total respondents Gozitan respondents Maltese respondents

Employed on a full-time basis

56%57%

55%

6%4%

7%

5%

5%

4%

22%

1%

5%

4%

3%

26%

2%

6%

5%

5%

21%

1%

Employed on a part-time basis

Self-employed

Temporarily absent from work

Cannot work due to illness or disability

Unemployed

Taking care of the house and/or family

Student

Other inactive

Labour status of youth following an academic course

0%

0%

0%

0%

0%

0%

Act

ive

Inac

tive

Total respondents

Gozitan respondents

Maltese respondents

Base: All respondents (1,027), Maltese respondents (722), Gozitan respondents (305)

Base: Respondents following an academic course (321), Maltese Respondents (223), Gozitan Respondents (98)

Student Taking care of the house and/

or family

Unemployed Employed on a part-time basis

Employed on a full-time basis

71%

1% 5%4%

19%

80%

0% 2% 1%

17%

68%

1% 6% 6%19%



Industries registering the highest levels of student enrollmentFull-time students were requested to outline what course they were studying. The results were then grouped according to NACE (The Statistical Classification of Economic Activities in the European Community) categories. The most popular courses amongst the 229 fulltime students fell within the following NACE categories: Professional, Scientific and Technical industry (n=39); Human Health and Social Work (n=36); Arts; Entertainment and Recreation industries (n=17); and the Information and Communication (n=16).

The findings could indicate that students are aiming to tap into the opportunities offered by the already existing and forecasted increase in demand for ICT, professional, scientific and technical industry professionals both in Europe and in Malta. Europe, in fact, is forecasted to have a shortage of 900,000 ICT professionals by 2020.1 The ICT and professional industry in Malta also face various skills shortages in Malta, as also documented in the annual EY Malta Attractiveness Survey.2

A number of initiatives have been undertaken to counter-act this shortage in demand. The European Commission launched the Grand Coalition for Digital Jobs partnership, comprising a number of stakeholders, including public and private companies as well as education providers. The main objective of this was to attract and retain more people in the ICT sector1. A similar initiative was launched in Malta in 2014 through the formation of the eSkills Malta Foundation.

Initiatives are also underway to encourage students to set up entrepreneurial ventures in such fields. These include the University of Malta’s Centre for Entrepreneurship and Business Incubation (CEBI) to educate and support graduates in the creation of successful Knowledge-Based and Knowledge-Intensive business ventures. It started delivering its first NQF Level 7 programmes in July 2013.3

Educational level The education level reached by most of the students (p=44%) was a first degree level of education.

An additional 8% had completed post-graduate and research related studies (p=7% n=16 Masters or Post-graduate diploma, p=1% n=3 at Doctorate research level).

Educational level reached by students

O’ Level A’ Level Diploma First degree Masters/Post-graduate

diploma

PHD

3% 4% 3%

17% 21%15%

7% 6% 7%

27% 22%30%

44% 46% 43%

1% 1%1%

Base: Total number of full-time students (229), Maltese full-time students (151), Gozitan full-time students (78)

1 Ministry for Education, National Employment Policy, pg.52 2 EY (2014), Malta Attractiveness Survey, pg.40

3 The University of Malta, About CEBI http://www.um.edu.mt/cebi/aboutcebi


Accommodation and food services activities 6% 8% 6%

Administrative and support service activities 2% 1% 2%

Agriculture, forestry and fishing 1% 2% 0%

Arts, entertainment and recreation 1% 3% 1%

Construction 6% 7% 6%

Education 16% 25% 12%

Electricity, gas, steam and air conditioning supply 0% 0% 1%

Financial and insurance activities 6% 3% 7%

Human health and social work activities 7% 8% 6%

Information and communication 6% 3% 8%

Manufacturing 13% 9% 5%

Other service activities 2% 1% 2%

Professional, scientific and technical activities 7% 4% 9%

Public administration and defence; compulsory social security 7% 12% 15%

Real estate activities 0% 1% 0%

Transportation and storage 5% 2% 6%

Water supply; sewerage, waste management and remediation activities 0% 0% 1%

Wholesale and retail trade, repair of motor vehicles and motorcycles 15% 14% 15%

Base: Total Number of respondents active in the labour markets (689), Maltese Respondents (490), Gozitan Respondents (199)



Youth active in the labour marketThe largest segment of the 689 respondents who were active in the labour market had between six to ten years of work experience.


<1 year 1 - 2 years 3 - 5 years 6 - 10 years 11>

15% 12%17% 20% 26% 18%13% 14%

31% 30% 31%20% 22% 20%

11%

Industries in which youth active in the labour market workMaltese and Gozitan respondents who were active in the labour market were asked to indicate which industry they worked in.

The most common were the education industry (p=16%, n=107), the wholesale and retail industry (p=15%, n=100) and the manufacturing industry (p=13%, n=91). A significantly larger cohort of Gozitan respondents worked within the education industry than their Maltese counterparts.

Work experience

Industry in which youth work

Base: Total Number of respondents active in the labour markets (689), Maltese Respondents (490), Gozitan Respondents (199)

75%25%

97%

80%

20%


Total respondents

Yes

Gozitan respondents

No

Maltese respondents

Preference of work locationThe majority (p=97%, n=734) of Maltese residents, preferred to work in Malta. On the other hand, the majority of Gozitan residents (p=85%, n=231) preferred to work in Gozo.

The majority (p=77%, n=50) of Gozitan respondents who are working in Malta and not-self-employed, stated that the main reason for them not working in Gozo was a lack of job opportunities. Most of these respondents (p=80%, n=52) also stated that should the opportunity arise, they would consider working in Gozo. This may suggest inequality in terms of job opportunities in Gozo when compared to Malta.

Double insularity is still considered a main drawback for investment in Gozo. Such double insularity is also outlined in various Government of Malta policy documents.4

Whilst a significant percentage of Gozitan respondents (p=34%, n=32) identified Malta as their preferred location to set up an entrepreneurial venture, only (p=2%, n=8) of Maltese respondents preferred Gozo as a location to set up a business.

85%

Preference to work in Gozo Preference to work in Malta

Base: All respondents (1027), Maltese Residents (755), Gozitan Residents (272)

Base: Gozitan non self-employed respondents who work in Malta (65)

Base: Maltese active labour market participants who are not self-employed and who would consider setting up a business (331)

Base: Gozitan active labour market participants who are not self-employed and who would consider setting up a business (95)

Base: Gozitan non self-employed respondents who work in Malta (65)

Assigned to work in Malta

I prefer to work in Malta

Career progression I needed was not available in Gozo

Wages are low

No job opportunities

Reasons for not working in Gozo

Preferred location for entrepreneurial venture amongst Maltese youth

Preferred location for entrepreneurial venture amongst Gozitan youth

Propensity to work in Gozo

2%

8%

12%

2%

77%

Malta MaltaGozo Gozo98% 66%

Preference of work location

4 MEUSAC, Addressing Gozo’s ‘double insularity’ (2012)



Entrepreneurship amongst YouthA higher percentage of Maltese respondents active in the labour market who were not self-employed (p=48%, n=330) showed an interest in setting up a business when compared to their Gozitan counterparts (p=33%, n=95).

This may point towards a higher propensity towards self-employment amongst Maltese youth when compared to their Gozitan counterparts.

Base: Respondents Interested in Setting Up Business (426), Maltese Respondents (331), Gozitan Respondents (95)Base 1: Maltese Respondents (681), Base 2: Gozitan Respondents (291)

Do not know

Requiring a mobile structure

Online/e-commerce/virtual/online services

Requiring physical premises

Infrastructure requiredInterest in starting up a business

3%

5%

19%

73%

3%

4%

20%

73%

4%

8%

17%

71%

48%

33%

Maltese active labour market participants who are not self-employed and are interested in setting up a business

Gozitan active labour market participants who are not self-employed and are interested in setting up a business

Respondents were also asked what type of infrastructure they would require for any business venture. The majority opted for physical premises (p=73%, n=309) over a mobile or virtual presence.

Motivation to start up a businessPersonal motivation was the major contributing factor which led Maltese self-employed respondents to start up a business (p=43%, n=17).

On the other hand, inheritance of the family business was the leading factor which led most of the Gozitan self-employed respondents (p=43%, n=6) to take on an entrepreneurial role.

Personal motivation to start up a business

Total respondents

Total respondents

Gozitan respondents

Gozitan respondents

Maltese respondents

Maltese respondents

Base: Total Self-Employed Respondents (54), Maltese Respondents (40), Gozitan Respondents (14)

Family run business

Independence Identified an opportunity

Inherited the business

Necessity to earn more

money

Personal motivation

20%

43%

13%6%

0%8%

15%21%

13%7%

0%10%

35%

14%

43%

17% 21%15%



Accommodation and food services activities 14% 16% 13%

Administrative and support service activities 0% 0% 1%

Agriculture, forestry and fishing 1% 1% 1%

Arts, entertainment and recreation 2% 1% 2%

Construction 3% 6% 2%

Education 3% 0% 4%

Financial and insurance activities 5% 9% 4%

Human health and social work activities 5% 1% 6%

Information and communication 7% 7% 7%

Manufacturing 3% 4% 3%

Other service activities 5% 5% 5%

Professional, scientific and technical activities 9% 11% 9%

Real estate activities 0% 0% 1%

Transportation and storage 1% 1% 1%

Water supply; sewerage, waste management and remediation activities 0% 1% 0%

Wholesale and retail trade, repair of motor vehicles and motorcycles 29% 24% 30%

Do not know 12% 12% 11%

Base: Active labour market participants who are not self-employed and who are interested in setting up a business (426), Maltese labour market participants who are not self-employed and who are interested in setting up a business (331), Gozitan labour market participants who are not self-employed and who are interested in setting up a business (95)

Most attractive industries to start up a businessRespondents were asked to indicate which sector they would like to start a business in. The three most popular by NACE code included:

• Wholesale and Retail Industry (mentioned by 28% of total respondents);

• Accommodation and Food Service industry (mentioned by 14% of total respondents);

• Professional, Scientific and Technical industry (mentioned by 9% of total respondents).

This suggests that the most attractive industries to open new businesses remain the more traditional ones.

Attractive industries to set up a business



The European Commission (EC) aims to promote successful entrepreneurship and improve the business environment for SMEs, to allow them to realise their full potential in today’s global economy. The EC works on broad policy issues affecting entrepreneurship and SMEs across Europe, and assists SMEs through networks and business support measures. It also helps existing and potential entrepreneurs to grow their businesses, giving special attention to women entrepreneurs, crafts and social economy enterprises. The European Commission’s (EC’s) 2008 Small Business Act (SBA) for Europe, embodies the EU’s commitment to SMEs and entrepreneurship. Member States have committed to implementing the SBA alongside the EC in an effort to make the EU a better place to do business. The EC SBA encompasses a host of policy areas targeted at SMEs which could be undertaken at an EU-wide level as well as Member State level. It aims to improve the overall approach to entrepreneurship, permanently adopting the ‘Think Small First’ principle in policy making, from regulation to public service, and to promote SMEs’ growth by helping them tackle the remaining problems which hinder their development.

The ‘Think Small First’ principle requires that legislators take SMEs’ interests into account at the very early stages of policy making in order to make legislation more SME friendly.

One of the key priorities set out in Europe 2020, as well as in the Commission’s Single Market Act and the SBA, is the facilitation of access to finance for SMEs. The EC aims to respond to this common pan-European funding need reality by putting into place a number of “access to finance” business support initiatives. These include various types of financial instruments to benefit enterprises. It acknowledges that challenges remain in this regard, particularly given that access to finance is largely in the hands of the individual member states. Hence it suggests that additional initiatives be undertaken, including the exploitation of capital markets and encouraging investment through fiscal policies, investing revenue in equity, boosting public SME finance schemes and devoting particular attention to financing the first growth phase of firms This initiative offers various potential benefits to Maltese SMEs.

Obstacles that hinder starting a businessAll of the respondents (except those who were self-employed) were asked to outline the main obstacles which hinder them from setting up a business. The results provide a clear indication that

financial problems (p=46%, n=450) are a critical barrier to starting a venture. A lack of interest (p=20%, n=195) and an aversion to the risks entailed (p=13%, n=124) were the second and third most commonly highlighted obstacles to set up businesses.


Competition 2% 1% 2%

Financial problems 46% 39% 49%

Having own business is very time consuming 1% 0% 1%

I am not interested to start up my own business 20% 23% 19%

It is not something which is currently feasible 2% 2% 2%

Lack of experience and skills 7% 9% 6%

Lack of job security 3% 3% 3%

Lack of knowledge about available business support 1% 0% 1%

Lack of knowledge about steps involved 1% 2% 1%

Lack of will to incur the risk(s) involved 13% 15% 12%

Market/industry limitations 1% 2% 1%

Other obstacles 2% 2% 2%

Do not know 1% 1% 0%

None 1% 1% 1%

Base: Total respondents excluding self-employed respondents (973), Maltese respondents excluding self-employed (682), Gozitan respondents excluding self-employed (291)

Main obstacles to start up a business


Bank loan

19%29%

15%

Personal/Family financial

support

78%

64%

83%

Government grant

2% 7%0%

Do not know

2% 0% 3%

Financing the businessAccording to the Malta Business Bureau’s 2013 report, ‘Market gaps in access to finance and feasibility of new financing instruments in the EU addressing the credit needs of Maltese business’, ninety percent of start-up financing in Malta is derived from personal savings and grant assistance.5 It was also shown that commercial banks in Malta are generally very cautious to provide assistance at this start-up stage since the risk is considered to be relatively high and the project idea often still uncertain. At this stage, it is more common for personal bank loans to be taken, which may be at a higher rate of interest rate rather than commercial ones. Very often such loan facilities can only be secured against property collateral (generally first residence). This makes potential entrepreneurs look for other sources of assistance.

In line with the above, the most commonly used source of financing self-employed respondents used for their businesses was personal/family financial support (p=78%).


Business financing options

Base: Self-employed respondents (54), Maltese self-employed (40), Gozitan self-employed (15).

5 Malta Business Bureau, 2013, Market gaps in access to finance and feasibility of new financing instruments in the UE addressing the credit needs of Maltese business, pg. 63


Preferred financial support schemes

Base: Active labour market respondents who are not self-employed (450), Maltese active labour market respondents who are not self-employed (337), Gozitan active labour market participants who are not self-employed(113)

Personal/family financial

support

15% 14% 15%

Bank loan

57%52%

59%

Do not know

3% 4% 2%

Government grant

23% 27% 21%

Tax credit

2% 1% 2%

Venture capital

1% 2% 1%



Developing entrepreneurial ecosystems

The EY G20 Entrepreneurship Barometer 2013 outlines the factors that are key to develop robust entrepreneurial ecosystems: access to funding, entrepreneurship culture, tax and regulation, education and training, and coordinated support.6


Business support structures

Base: Total Self-Employed Respondents (54), Maltese Respondents (40), Gozitan Respondents (14)

Infrastructure

13%7%

15%

Financial support

54% 57% 53%

Training/Human

resources

15%21%

13%

No plans/need for business

growth

13%

0%

18%

Do not know

6%14%

3%

Business support structuresSelf-employed respondents were provided with a list of business support structures and asked to select all the necessary structures to help their business grow (multiple answers were possible).

The need for financial support was the most frequently cited business support structure mentioned (p=54% n=29).

6 Note: The areas were originally identified as being key to any entreprenurial ecosystem at the G20 YEA Summit in Toronto, 2010

Source: The EY G20 Entrepreneurship Barometer 2013, pg. 3


Developing entrepreneurial ecosystems (continued)

The research highlights how coordinated support is central to creating the right foundations for entrepreneurial success. Business incubators are a powerful means of teaching and mentoring entrepreneurs, while introducing new contacts, investors and networks. It is therefore encouraging to note that four centres dedicated to promoting entrepreneurship have been developed in Malta in recent years.

• The University of Malta’s TAKEOFF Business Incubator supports technology and knowledge-based start-ups to transform their ideas and innovations into market- and investor-ready businesses which can scale rapidly. It provides fledgling start-up companies with private and shared work spaces, business support, advice and vital connections. A network of mentors provides practical hands on support and guidance to improve their chances of success.

• The Kordin Business Incubation Centre (KBIC) is managed by Malta Enterprise. KBIC is a mixed technology oriented style incubator which provides a cost-effective business environment with managerial expertise geared to the needs of small business. The formal incubation period is set between a minimum of one year to a maximum of three years. A number of Workshops at KBIC have been reserved for start-ups by MCAST students.

• The MITA Innovation Hub is a place where students, startups and innovators can develop ideas and solutions for the public sector into a product or service through digital technologies. They do this through by providing physical space, mentorship, access to technologies, legal advice and the right connections.

• The Microsoft Innovation Centre in Malta provides support for startups through its facilities, software and hardware devices. While the startup program is offered to all entrepreneurs, its focus is on startups in the early stages of development. The incentives are targeted at relieving initial costs such as office space, hardware, technology and business skills.

The high dependence on bank financing also resulted from this survey. A significant proportion of the respondents11 (p=35%, n=232) were aware of bank loans as a source of financial support to businesses. On the other hand, respondents had the least awareness about EU funds (p=9%, n=62) and graduate packages (p=2%, n=15).

The findings indicate that the vast majority of respondents are not aware of the business support schemes in place, even in the cases where the schemes or services have been in place for some time. Targeted communication campaigns, possibly using a variety of marketing and information channels, may be required to raise greater awareness amongst youth and other target groups.


Business support scheme awareness

Base: Total Respondents (658), Total Maltese Respondents (455), Gozitan Respondents (203)

Other funding schemes

0% 0% 0%

Micro invest

12% 13% 12%

EU funds

9% 11% 9%

Erasmus for Entrepreneurs

17% 16% 17%

Graduates package

2% 2% 2%

Business first

15% 13% 15%

None

9% 12% 8%

Bank loans

35% 33% 36%



Addressing market gaps in access to finance in Malta

According to the Malta Business Bureau (MBB) report, ‘Market gaps in access to finance and feasibility of new financing instruments in the EU addressing the credit needs of Maltese business’, Malta may be experiencing a market failure with regard to access to finance for start-ups and SMEs. It highlights how the market is over-reliant on bank borrowing and that banks have high requests which they often cannot meet, thus creating a gap. This is resulting in ninety percent of start-up financing in Malta being derived from personal savings and grant assistance.

The report states: “Specifically, the inability of Malta’s SMEs to raise capital may stem from a number of reasons, including a non-existent venture capital market, limited presence of business angels, adverse collateral requirements and debt pricing. Malta’s small size also makes the capital market not economically viable for small ventures. As a result commercial banks remain the main (and in the case of some sectors the only) source of finance despite not providing risk capital. Such retail banks are, however, unable to provide extensive support because they are fundamentally lenders not investors.”

This gap in opportunities is pointing towards a potential instance of market failure which is often a justification for government intervention.

The European Commission aims to respond to this funding need reality by putting into place a number of “access to finance” business support initiatives, including financial instruments to benefit enterprises. It acknowledges that challenges remain in this regard, particularly given that access to finance is largely in the hands of the individual member states. Hence it suggests that additional initiatives be undertaken, including the exploitation of capital markets and encouraging investment through fiscal policies, investing revenue in equity, boosting public SME finance schemes and devoting particular attention to financing the first growth phase of firms.

In line with the above, at a national level, a number of Access to Finance schemes have been introduced with the aim of supporting research, innovation and development, hence, facilitating the move towards a knowledge-based economy.

These include:

• Loan Interest Rate Subsidies introduced with the main objective of providing an incentive to enterprises in embarking on new investment projects related to manufacturing;7

• Loan Guarantees which enable better access to finance with the aim of assisting enterprises in the acquisition capital assets which will be used in enhancing the efficiency of production and service delivery;8

• The Micro Guarantee Scheme which provides eligible undertakings with a guarantee of up to 80% on loans of up to €100,000. Such loans will be used to finance projects, leading to business enhancement, growth and development;9

• Soft loans, granted by the Malta Enterprise and cover from 33% up to 75% of the cost of plant, machinery and equipment used in an approved project.10

• As part of the Horizon 2020 program, the European Commission is selecting and investing in a number of small and medium enterprises (including start-ups) as part of the SME Instrument. Start-ups could receive up to €2.5 million in funding and business coaching.11

A number of funding programmes have also been put in place by the University of Malta’s TAKEOFF incubator to support early-stage start-ups.

• The TAKEOFF Seed Fund Award will provide seed funding to groups of innovators and entrepreneurs to support them in developing their product and business ideas towards eventual commercialization;12

• The MCA TAKEOFF Award aims to support local start-ups in the development of innovative business ideas in communications, with a view to take such ideas to the commercialisation stage.

The Malta Budget 2015 also announced two measures to encourage seed and venture capital investment.

• A Seed Investment Programme will be introduced, which provides tax credits for investors, equivalent to investment made in start-ups, up to a maximum of €250,000 per year.13

• An amendment to Venture Capital Fund (Tax Credit) Regulations was announced, to enable a wider range of Venture Capital Funds operators to benefit from such incentives.

7 Malta Enterprise, 2015, Loan Interest Rate Subsidies 8 Malta Enterprise, 2015, Loan Guarantees 9 Malta Enterprise, 2015, Micro Guarantee Scheme 10 Malta Enterprise, 2014, Soft Loans

11 EASME Executive Agency for SMEs, 2015, Horizon 2020’s SME Instrument

12 Takeoff Launch your Startup, 2015, Another €100,000 Allocated for Startups 13 Ministry for Finance, Malta Budget 2015


14 Research study carried out amongst 37 countries, including the 28 EU Member States, Albania, Former Yugoslav Republic of Macedonia (FYROM), Iceland, Israel, Turkey, Liechtenstein, Montenegro, Norway and Serbia. 15 European Commission, 2014, Statistical data on women entrepreneurs in Europe, pg.25

Women in BusinessIt has been shown that fewer women than men are entrepreneurs in Europe. According to a study on women entrepreneurs in Europe, females account for only 29% of entrepreneurs in Europe-37.14

Malta is second from the last (after Turkey) out of the EU-28 in terms of female entrepreneurship rate (with 15% out of Maltese entrepreneurs being female).15

The above statistics may reflect the challenges which women face and which are also highlighted in the responses to this YBE survey. In fact, most of the female respondents (p=52%, n=258) were of the opinion that female entrepreneurs face additional challenges in setting up their own business (when compared to their male counterparts).

The main challenge mentioned by female respondents were family related responsibilities (p=85%, n=219). Family friendly measures were cited by the vast majority (p=90%, n=233) of respondents as a possible way to support women wishing to participate in the business environment.

Base: Total female Respondents (499), Maltese Respondents (356), Gozitan Respondents (143)

Base: Female respondents who are of the opinion that women face additional challenges in business (258), Maltese respondents (182), Gozitan respondents (76)

Problems encountered by female entrepreneurs

Maltese respondents Maltese respondentsGozitan respondents Gozitan respondents

Total respondents Total respondents

51% 86%

52% 85%

53% 82%40%

13%

39%

14%

39%

17%9% 1%

9% 1%

8% 1%

Yes Family responsibilities

No Gender discrimination/lack of equalityDo not know

Do not know

Additional challenges faced by women in setting up their business



Measures to improve female participation rate

With the prospect of a shrinking working-age population and in the light of one of the headline targets of the EU 2020 (75% of the population aged between 20 to 64 in employment by 2020), measures to increase the labour market participation and the upward push towards female participation in the labour market have set in. This requires a continuous effort to address gender gaps, in particular, in terms of pay, economic activity, career prospects and subsequently pensions.16

A number of measures have been implemented locally to support female participiation in the labour market.

• A number of tax credits (which can be set off against the women’s tax chargeable in respect of gains or profits from her work, as opposed to income from other sources) are in place in order to entice women to enter/remain in the labour market.

• The Malta Budget 2015 also announced a number of measures to increase Maternity Benefit for women. In the case of self-employed women, the maternity benefit will increase by more than €73 per week over the first 14 weeks of entitlement.

• Free child care centres were introduced in 2014 to support single-parent families and families where both parents work. The allowable income tax deduction was also increased for parents who opt to pay for child care.

• Klabb 3-16 is an after-school hours’ care service for school-age children. The service bridges the gap between when school finishes and when parents finish work, and provides care during out of school holidays where needed. 17

• An Early Hour School Service providing pupils with a healthy breakfast was introduced in April 2014. 18

16 European Commission, Female Labour Market Participation 17 Government of Malta, KLABB 3-16 After school service 18 European Commission, European Platform for Investing in Children, Malta - Empowering Children and Investing in their Wellbeing

Way forward



With this study, YBE aims to provide a general understanding of the local youth community vis-a-vi their knowledge and interest in entrepreneurship. On a national scale, SMEs are the engine of the Maltese economy, and this is the case across both Malta and Gozo. They employ about two-thirds of the private sector workforce, and contribute more than half of the country’s value added. This situation is similar to all countries in the EU, where SMEs provide an essential source of jobs, create entrepreneurial spirit and innovation, and foster competitiveness.

It is clear that today’s youth in Malta and Gozo face a number of challenges when starting a venture, and that these challenges are greater for certain specific cohorts (such as Gozitans and female) than for others.

In the light of the challenges faced, the creation of an eco-system which fosters and supports successful entrepreneurship is of fundamental importance in order to enable entrepreneurs to reach their full potential in today’s global economic environment.

As outlined earlier these will include a mix of European Union and locally led initiatives which will help to:

• Promote and further develop coordinated support measures, including incubation centres and business guidance services

• Incentivise further take up of incentives and services by ‘disadvantaged’ groups

• Make legislation more SME’ and start-up friendly

• Assist in the development of new financing instruments to bridge the funding gap

• Help educational institutes equip potential entrepreneurs of the future with the right skills and attitudes

• Facilitate greater dialogue and collaboration between entrepreneurs, government and business

The need for the different stakeholders within Malta and Gozo to work together and act is clear. YBE hopes that this report can provide the foundation to trigger discussions amongst them to develop a concerted plan which will encourage the spirit of entrepreneurship amongst youth and assist them to buid successful ventures.

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2015 Ernst & Young LimitedAll Rights Reserved.

ey.com

This publication has been issued by Young Business Entrepreneurs and funded with support from the European Commission, Ministry for Gozo, EY, National Lotteries Good Causes Fund and Agenzija Zghazagh. This publication reflects data gathered in 2015 by the National Statistics Office specifically for this study. None of the organisations involved in issuance or support of this publication can be held responsible for any use which may be made of the information contained therein.

Documents

Young Business Entrepreneurs - Insights into entrepreneurial activity