The FINANCIAL–Private businesses across Europe see regulation and bureaucracy in their domestic economies as more of a threat to the development of their companies than regulation and bureaucracy coming from the European Union (EU). In our survey of 2,447 companies across 31 European countries, 39% said domestic red tape was a concern, compared with about 29% citing EU red tape as a problem.
That sentiment was particularly pronounced in countries such as Croatia, Greece, Finland, Hungary, Italy and the UK. In our survey, for example almost 71% of respondents in Greece cited Greek red tape as a concern, compared with 24% pointing the finger at EU red tape.
Private businesses’ biggest problem is a skills shortage that is preventing them from hiring the right talent for growth. Shining a timely private business spotlight on a wider, ongoing issue across the EU, PwC has calculated that the skills shortage is costing the region a massive €324 billion annually in lost revenues – just from private businesses. That’s around the combined annual GDP of Portugal, Hungary, and Croatia.
Nonetheless, private businesses are more optimistic than they have been for some time. They are particularly confident they can grow their companies in their domestic markets by focusing on their customers and embracing digital technologies.
Mid-sized companies (defined as those with annual revenues of €50 million to €100 million) are the most positive of those we surveyed.
That said, digitalization was mentioned as a priority by a modest 31% of private businesses in Europe.
This implies that still many private businesses are underestimating what a digital future means for their companies and are underestimating its potential, as well as the disruptive forces it is unleashing.
Bureaucracy, Brexit and Brussels
The most striking finding from our survey is that while it is often perceived in some quarters that regulatory and bureaucratic intervention by EU authorities – including Brussels – is stifling businesses’ initiative and ensnaring companies in red tape, most private businesses don’t feel that way. Indeed, they tend to feel the opposite: that regulation and bureaucracy in their domestic economies is more of a threat to the development of their companies than any red tape
from the EU.
39% of respondents said domestic red tape was a concern, compared with about 29% citing EU red tape as a problem. Of course, an amount of EU regulation makes its way onto national statute books when EU directives are adopted by national parliaments. It is important to note that our survey did not ask respondents to distinguish between what they regarded as domestic regulation and regulation that could be directly attributable to EU law-making.
In Italy, where anti-establishment, euro-sceptic parties have very recently scored electoral success, as many as 49% of respondents felt domestic bureaucracy was a problem, compared with 20% singling out EU red tape.
“Our respondents said they believe that their own governments aren’t doing enough to promotetheir interests. They also see big business as the beneficiaries of regulation and bureaucracy, while they are the losers. This may help explain why, when asked about satisfaction levels with various aspects of their home country’s infrastructure (broadly defined), 41% of respondents cited the most dissatisfaction with government services, followed by environmental protection and the education system coming third.
“We see this as a wake-up call for many national governments. They need to do much more to gain the confidence of private businesses in their jurisdictions, starting with tackling red tape and also the cost of regulatory compliance.
“Equally, the EU may not be able to take too much comfort from these findings, given that almost 29% of respondents felt that EU red tape was a problem. The rise of populist movements in the EU – exemplified by the rise in Italy of the Five Star Movement and the far right League – serve notice that pressures remain on EU authorities to respond too”.
Private businesses in Ireland are particularly sensitive to the outcome of the Brexit negotiations between Brussels and London. A hard Brexit outcome could lead to a significant disruption of trade between Ireland and Northern Ireland, damaging businesses on both sides of the border. That is why Irish private businesses were among the most negative towards Brexit in Europe. Notably, private businesses in Germany and Austria – home to the Mittelstand group of small- and mediumsized family-owned businesses that are the backbone of these two economies – were also among the most negative towards Brexit.
However there are private businesses in some countries that see Brexit as an opportunity, such as Turkey. Given Turkey is outside the EU some businesses there perceive Brexit as a chance to forge new relationships with British companies. Also, businesses in Norway – not an EU member too – were much less negative about Brexit than its Nordic neighbors, which are all members of the EU.
Skills shortage
Private businesses see hiring skilled staff being important to their growth strategies, but asked what the number one problem is for them, private businesses cite their inability to recruit enough qualified staff.
“In fact, we estimate skills shortages are costing the EU28 and the three other economies in the survey (Norway, Switzerland and Turkey) a massive €324 billion a year in lost revenues just from private businesses. For the EU31 that’s equivalent to 2% of their gross domestic product in one year, or around the GDP of Portugal, Hungary, and Croatia combined. That should alert politicians to the scale of the problem”, PwC study said.
Private businesses in Eastern Europe were among the most vocal about the difficulty of hiring skilled employees. Sectors most affected were building and construction, and industry and manufacturing.
Talent scarcity comes at a time when unemployment is falling through much of Europe. Unemployment rates among the EU28 have been improving since 2013 and stood at 7.1% in February 2018, down from 8% a year ago. The employment market is tightening at a time when private businesses are wanting to invest more and recruit more qualified staff to grow their businesses. One problem is that while youth unemployment is still above 10% in many economies in Europe, many young people aren’t able to take up new positions because they lack the right skills.
“Governments need to take the issue of skills shortage more seriously, because educational systems in many of these countries aren’t training enough people with the right skills for the growing demands of private businesses. This will only become more urgent as demand for skilled employees rises and as private businesses invest more in skills-intensive digital technologies to make them more competitive”, study concludes.
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