June 2, 2013 12:16 pm

Spain hopes new law to cut red tape will attract entrepreneurs

When José Luis Martín de Bustamante and his partners decided to launch a start-up technology company last year, they were quick to settle on locations: the headquarters of their new business, called Nutrino, would be in Israel, with a commercial office in London and a third base in the US.

One location that failed to make the list was Mr Martín de Bustamante’s home country. The four founders decided to shun Spain even though two of them are Spanish (the others are Israeli), and despite the fact that three of them were studying at a business school in Barcelona when they hit on the idea to launch a company that provides nutrition plans based on a computer algorithm.

“I would love to do something in Spain. A city like Barcelona could be one of the best places in Europe to launch a start-up: it’s cheap, it has perfect weather and it has great connections to Europe,” says Mr Martín de Bustamante.

Spain’s attractions as a business location, however, were overshadowed by a series of drawbacks that have frustrated corporate leaders and budding entrepreneurs for many years: funding for start-ups is far more difficult to obtain in Spain than in countries such as Britain or Israel; the bureaucratic hurdles faced by new businesses are high; and Spain has been slow to match the incentives and tax breaks for new companies on offer elsewhere.

At the height of Spain’s property boom, when construction companies and other established businesses were hiring workers at a blistering pace, such obstacles seemed less of a worry. Today, however, Spain is struggling to get more than 6m unemployed workers back into jobs, and desperate to replace at least some of the tens of thousands of companies that were forced into bankruptcy during five years of economic crisis.

Encouraging more start-ups has emerged as a crucial new government priority. Earlier this month, the cabinet approved a sprawling “Entrepreneurship Law” that Madrid claims will sweep away many of the obstacles faced by new businesses and that promises new incentives for start-ups. Business groups say they like the general thrust of the law, but also warn that Spain has a long way to go.

The experience of Nutrino’s founders illustrates the scale of the challenge.

“Starting a company here in the UK took us a day,” says Mr Martín de Bustamante. In Spain, where he and his partners launched a start-up while still at business school, the paperwork took them almost a month.

His experience is far from unique: the World Bank currently puts Spain in 136th position on a list of 185 countries ranked according to the ease of starting a business – four places below Syria, 10 below Kenya.

Starting a business in Spain, according to the bank, requires 10 procedures and takes 28 days – far longer than the averages for both the developed world and Europe. In neighbouring Portugal, by comparison, a new business needs to clear only five procedures which typically last just five days. Italy, too, is far nimbler than Spain – demanding just six procedures lasting six days.

Under the new regime, which the government hopes to have in place before the end of the year, entrepreneurs would be able to obtain all the necessary permits in one place – in most cases within 24 hours, officials say.

The law also introduces a new form of limited-liability company which Madrid says will make it easier to start out, as well as tax breaks for new businesses and measures to help small- and medium-sized companies win more public contracts and expand their business outside Spain.

Spanish business groups have welcomed the proposals, but quibble that the reforms do not go far enough in some areas. Alicia Coronil, an adviser at the Círculo de Empresarios, Spain’s biggest business lobby group, says she would have liked the government to adopt measures to encourage co-operation between universities and the private sector, an area where she says Spain lags far behind other countries.

A new drive to encourage a “spirit of entrepreneurship” in schools, on the other hand, has won strong backing.

“We are not looking only for short-term effects – we need to change the mentality,” says Ms Coronil. “Traditionally, our model of education is very theoretical and conservative. It encourages people to look for safe jobs and not to launch themselves as entrepreneurs. We think education should encourage creativity and innovation.”

According to Gabriel Herrero-Beaumont, co-founder of a car-sharing company called Bluemove that was launched in Madrid three years ago, the recent crisis and surge in unemployment has already helped change attitudes towards business start-ups. He laments that red tape and high taxes make it harder for start-ups to succeed, but argues that they should not put off potential entrepreneurs – especially in the present climate.

“Now people are starting to feel that there is no safety anyway, no matter whether you work for the public sector or a big company,” says Mr Herrero-Beaumont. “So the risk of starting your own company seems less, and the rewards are higher.”

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