How to stimulate entrepreneurship in Belgium
Innovation is central to economic growth and business competitiveness. Over the past 10 years, Belgium has worked hard to capitalize on its outstanding research and education facilities and highly skilled workforce by encouraging even more R&D activities with fiscal incentives. This has been a great success, with US companies alone investing $2 billion in Belgian R&D in 2012. However, while Belgium excels in R&D, it still needs to take action to foster a true innovation hub by stimulating something far less tangible: its entrepreneurial culture.
At the World Economic Forum in Davos, Vice President of the European Commission Neelie Kroes re-emphasized the importance of entrepreneurship in economic growth, saying, “Politicians don’t create jobs, entrepreneurs do.” By using innovative technologies and platforms, app entrepreneurs have created 800,000 jobs in Europe in the past five years alone.
However, as Belgium’s chemical cluster demonstrates, innovation-driven employment extends much further than the digital economy. A recent study by KU Leuven revealed that 100,000 high-tech sector jobs have been created in Belgium since 2000 – and this figure is just the tip of the iceberg. The same study estimates that for every high-tech job, 4.3 more jobs are created in other sectors, emphasizing the importance of innovation for the whole economy.
Unfortunately, Belgium has not proved to be the best location for startup ventures, with many entrepreneurs departing for greener pastures abroad, especially the US. The secret to Silicon Valley’s success includes its large pool of talent, easy access to capital and its general philosophy that failure is the first step towards success. So, how does Belgium compare, and what can be done so that the country can ensure competitiveness in this field?
The first requirement in stimulating innovation is the presence and development of local talent. Belgium already boasts a highly skilled, highly educated and multilingual workforce; however, the current education system does not do enough to encourage initiative, creativity and a general foundation in business. This can be facilitated through teaching entrepreneurship in all schools and making internships an integral part of education. Teachers have to be prepared for this change by giving them the opportunity to see for themselves how businesses operate.
Diversity and talent migration are also important factors in fostering innovation. To be at the cutting edge of innovation, the best talent from around the globe is required. In 2005, a study by Wadhwa et al from Duke University found that 52% of startup founders in the US were immigrants, and their respective companies creating over 450,000 jobs. Deloitte’s 2013-2014 Comparative Immigration study in the EU has shown that Belgium performs well in attracting international talent. Recognizing the importance of high-skilled foreign workers, Brussels, Flanders and Wallonia have worked to harmonize their immigration procedures, eliminating regional differences which are characteristic of Belgian administration. Our leaders should be mindful not to take a step backward in this regard when more powers are transferred to the regions in the sixth State Reform.
Trends reports that 80-90% of startups in the US receive funding through private equity, where private investors offer their capital, experience and know-how to help get the startup off the ground. Since the start of 2009, venture capital firms have invested $31.5 billion across 3,308 deals in Silicon Valley-based tech startups.
While Belgium has competitive financial incentives for established companies, measures tailored to the needs of emerging companies remain underdeveloped. Capital is difficult to acquire as private equity is in its infancy. In addition, entrepreneurs frequently struggle to get a bank loan. Without seed capital, they are unable to turn their ideas into reality, unless they are fortunate to have family or close friends with financial means.
A more consistent and readily available channel of private equity would reduce the dependence of startups on banks. Moreover, private equity invests more than just capital, as it creates the opportunity for the entrepreneur to tap into the knowledge and expertise of the investor, such as how to position themselves in the market, a skill that is mainly learnt through experience. Additionally, the investor could introduce the entrepreneur to a whole new business network.
To improve access to capital for high growth potential companies, policymakers should focus on fiscal incentives and reducing red tape in the legal and regulatory environment.
Finally, Silicon Valley’s most significant secret to success is that risk – and failure – are accepted, and even encouraged, as they are seen as a necessary step in starting a new business. In Belgium, this is not the case. Here, failure casts a long shadow, making it virtually impossible to secure capital, either through private equity or a bank loan after a failed venture. This has prompted many Belgian innovators to take their ideas elsewhere.
This has not gone unnoticed. The 2013 European Innovation Scoreboard observed a strong decline in non-R&D innovation expenditure, which is reflected in the fact that the number of patents registered in Belgium has dramatically declined on an annual basis.
Young entrepreneurs are the engine of the economy. If Belgium wants to avoid a veritable ‘brain drain’, then it must take action to encourage its entrepreneurs to set up shop in Belgium. The entrepreneur must be given more opportunity to succeed - and fail - in Belgium. Changing mentalities is no easy task, but government can help by sending the right signals.
A step in the right direction
Well implemented, modern policies can be a crucial enabler of financial and economic development, and Minister of Finance Koen Geens appears to be the right man for the job. Belgium has one of the highest saving rates in the world. Recognizing that the average Belgian does not like to take risks with his or her money, Geens has suggested implementing a crowdfunding system to help relax the tight grip on the country’s savings and stimulate investment in innovative ventures.
Crowdfunding is a collective effort to fund an initiative by pooling contributions. The maximum amount an individual can contribute is €300, and the total amount that can be raised will be capped at €300,000, which means that the entrepreneur must find 1,000 investors. This approach is beneficial as it mitigates the fear of risk and minimizes potential losses. If the fundraising target is not reached, all investments are returned.