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Start-ups fill void left by Spain’s 26pc jobless rate

Published on Monday, 26 Aug 2013
An unemployed man begs for money as he shows a banner reading “I give you my curriculum vitae as a gift” next to a closed down shop in Madrid. According to Spain’s labour ministry, the country’s unemployment rate dropped for a fifth consecutive month in July as the busy summer tourist season continued to create jobs, most of them involving small start-up companies. (AP)

MADRID: The rush starts at about 8pm at La Infinito. That’s when Antonio Rojas Fernandez and Paloma Perez Rodriguez’s Madrid cafe usually fills up, typically keeping them busy until midnight.

While they have two part-timers to help prepare food and bus the dozen tables a few times a week, the couple hasn’t taken more than a day off each since opening in May 2012, five months after they lost their jobs. She was a teacher, while he installed television antennas.

“It’s not easy, but it’s working,” said Perez, 36, popping her head through a beaded curtain from the kitchen as the fruit blender’s whir covers the music.

“I tell people it’s true I still have problems,” said Rojas, who is a year older. “The difference is that now they’re the ones I’ve chosen.”

 As Spaniards endure the worst economic crisis and deepest austerity measures in their country’s democratic history, start-up companies are proliferating.

 Over the first seven months of the year, registrations of self-employed people increased by 21,992 while they fell by 6,826 over the same period a year earlier. The number of companies created increased by 8.2 per cent in the first half as a 26 per cent jobless rate spurs entrepreneurship in a country where the government still accounts for one in six jobs.

SPANISH ROSE

That compares with a 20 per cent increase in new businesses in neighbouring Portugal, where unemployment is at 16.4 per cent. The number of start-ups in Germany and France, the euro area’s two largest economies, is declining, data from national statistical offices show.

“There are indices that necessity entrepreneurship – people who create a business to exit unemployment rather than by opportunity – is increasing in Spain,” said Mariarosa Lunati, Paris-based economist at the Organisation for Economic Cooperation and Development (OECD) who specialises in entrepreneurship. “This seems to be happening in other countries that are in a situation of crisis as well.”

The crisis has jolted people out of their comfort zone, said Paris de L’Etraz, general director of the Venture Lab at the Madrid campus of the IESE Business School. “Necessity is changing this unfortunate chip in people’s mind that led to a situation in which, even four or five years ago, more than half the population wanted to work for the government.”

New companies will help foster an economic recovery in Spain if they can generate jobs, business for other firms and revenue for the state, said Pedro Nueno Iniesta, an entrepreneurship professor at Madrid’s IESE.

TAMING BUREAUCRACY

Prime Minister Mariano Rajoy predicts the economy will grow this quarter after the recession abated in the first half of this year, reducing the unemployment rate for the first time since 2011 in the second quarter.

Spain’s parliament last month approved a law simplifying paperwork and creating tax breaks to encourage more Spaniards to become self-employed or start a company. Lawmakers are in the process of looking at another one to reduce the risk of losing personal assets in the event of a bankruptcy.

“It’s very positive that people aren’t just staying paralysed and it’s normal that all businesses don’t prosper,” Nueno said. “Some will last and that means a job is created and another can follow that contributes to the economic recovery.”

Yet the fragility of the new companies poses a risk to the economy, said Pilar Andrade Sanchez, president of Ceaje, the young entrepreneurs’ business lobby in Spain.

WHERE ARE THE WORKERS?

 Figures from the statistics office, INE, show that 53 per cent of Spanish companies have no employees, as many can’t afford to hire full-time workers. That portion reached 55 per cent last year. The total number of businesses declined for a fifth year in 2012, falling to the lowest level since 2005, the INE said.

While the number of companies seeking protection from creditors fell to 2,408 in the three months through June, the count was 62 per cent higher than in the same period in 2011.

“We need to help companies to consolidate or else we’ll keep on churning out companies that go bust after a year,” Andrade said.

Interest in start-ups increased as Rajoy made it tougher to find work funded by taxpayers.

Since he came to power at end-2011, the number of people employed by the state and related companies and organisations dropped 12 per cent after rising to 3.22 million, the most since the start of data in 1976, INE data show. Over the same period, private employers cut 6.7 per cent of jobs.

CRISIS NAVIGATION

Sara Gonzalez Servant, 29, and Cristina Jimenez Diaz, 30, set up consulting firm Indaga Research after the Fuenlabrada municipality in the Madrid region stopped renewing their temporary contracts because of spending cuts. Fuenlabrada now only buys their reports on local development sporadically and the pair is looking for new clients.

Both had flitted between jobs, unemployment and training since earning university degrees in 2006 and 2007 as the real-estate boom ended. Youth unemployment in Spain is the second-highest in the European Union, after Greece, at 56 per cent.

“We set up shop to find a way out of the crisis,” said Jimenez. “It’s not easy. There are months without pay.”

About 1.8 million Spanish households, or one in 10, didn’t have a single breadwinner in the second quarter, 5 per cent more than last year, according to INE. Average household spending fell 3.4 per cent last year from a year earlier, the statistical office said last month.

OPTIONS WANTED

While the government approved a budget extension of €5.9 billion (US$7.9 billion) last month for financial aid for the unemployed, the conditions to claim it have become stricter. Sixty-two per cent of jobless received compensation in June, down from 66 per cent a year earlier, labor ministry data show.

Jobseekers are trying to widen their options, according to the Spanish unit of Randstad Holding, a Dutch recruiter that’s hired by companies to help dismissed workers find new employment. The proportion of those people losing their jobs who decide to start a business has risen to 15 per cent, more than three times the historical rate, said Carmen Sebrango, Randstad’s outplacement director in Spain.

“Some sectors are particularly punished by the crisis and simply don’t have any more capacity to absorb people,” Sebrango said. “People opt for creating a business because it’s too difficult for them to find work with another company, or because wages are falling or they can’t move to another place.”

At La Infinito in central Madrid, Perez said she felt angry and hurt when she lost her job with the daycare centre run by the Leganes municipality on the outskirts of the Spanish capital as it cut spending. Then the Rojas family’s TV antenna business folded around the same time.

BUSIEST SQUARE

The couple set up the cafe in the hilly, narrow streets of Madrid – a 10-minute walk from Puerta del Sol, the city’s most central and busiest square. They reckoned a small eatery was the quickest, most feasible way of making a living while doing something that interests them.

They raised €70,000 from a combination of savings, money Perez received when losing her job and loans and now take home about €1,000 a month each. They are waiting for people to return from summer vacations in September so they can restart events in a small theatre in the cafe’s basement.

Trial 20-minute plays and recitals last month brought a full house and they are hoping to do well enough to be able to hire a full-time waiter rather than relying on the temporary help they get on weekends and performance nights. It’s not only a question of lightening their load, Perez said as she wiped a table clean.

“What could be more rewarding than creating a job, not only ours but another one?” she said.

(BLOOMBERG)

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