Britain’s economy is “missing out” on prosperity and society is more unequal because Black, Asian and minority ethnic-owned businesses don’t get enough support to grow, a think-tank says today.
The Social Market Foundation said that ethnic minority-owned businesses (EMBs) are often more innovative than average, and could help to reverse the economic decline of deprived areas and “level up” the economy.
But a lack of consistent policy support for such businesses prevents many reaching their full potential, the SMF said in a new report, calling on policymakers to make EMBs a higher priority.
Local-level support from Local Enterprise Partnerships should be part of a new long-term strategy for EMBs, the report concluded. (See Notes for full list of policy options.)
The SMF report will be presented at a Westminster debate with speakers including Seema Malhotra MP, the shadow business minister.
The SMF report was supported by the British Business Bank, whose research last year found that business start-up rates were lowest among entrepreneurs from Asian and Other backgrounds, while Black and White entrepreneurs have similar start-up success rates. Asian and Other businesses have better outcomes than those run by Black entrepreneurs, while White-owned enterprises had the highest productivity on average and they were more likely to be profitable.
The median turnover of Black-owned businesses is £25,000, compared to £30,000 for White-owned firms.
84% of firms owned by White men were profitable in 2019, compared to 76% of businesses owned by Black men and 64% of Asian men.
85% of firms owned by White women were profitable, compared to 63% of business owned by Black women and 64% of Asian women.
Estimates for total EMB contributions to the UK economy range between £25bn and £74bn a year. They employ around 3 million people and contribute almost £5bn a year in corporation tax.
The SMF said that conventional economic data do not always capture the additional value EMBs can bring to the UK.
One way EMBs currently generate value, is through serving “local niche markets”, especially in areas with large ethnic minority populations. As a result, EMBs can help bring economic improvement to otherwise deprived areas, the SMF said.
The report also found that EMBs are more likely than White-owned firms to innovate. 21% of ethnic minority businesses introduced a “process innovation”* in 2019 compared to 15% of non-ethnic minority firms. 30% introduced at least one “product innovation”** in 2019 compared to 19% of non-ethnic minority businesses.
However, the SMF said there are worrying signs that that some ethnic minority businesses are not reaching their full potential. That means individuals and wider society are missing out on significant additional benefits that could be generated by more ethnic minority entrepreneurship, the think-tank said.
Richard Hyde, Senior Researcher at the SMF, said:
“Ethnic minority businesses can be more innovative than others, meaning that their further expansion can play a key role in improving the UK’s poor productivity growth record.
Ethnic minority businesses can make a significant contribution to local economies, something that is especially important because places with large minority ethnic communities often suffer from deprivation. Anyone who wants to level up the UK economy should put ethnic minority businesses high on their agenda.
Doing more to ensure the greater success of ethnic minority businesses would boost the UK economy and make our society fairer and happier.”
Seema Malhotra MP, Shadow Minister for Business and Consumers, said:
This report is a wakeup call. We must tackle the systemic barriers BAME-led start-ups, entrepreneurs and SMEs face. This is an issue of social justice and economic justice that is impacting jobs, growth and opportunity. I welcome the SMF taking steps to tackle this challenge.
Professor Monder Ram OBE, Director, Centre for Research in Ethnic Minority Entrepreneurship, Aston University, said:
“Black and ethnic minority businesses make a significant contribution to economy – yet their strengths and continuing challenges are often underappreciated. This event shares important perspectives on the future of this important yet overlooked segment of the small firm population.”
*“Process innovation” describes the implementation, by a business, of changes to existing methods of working (i.e., production or service delivery) or the introduction of wholly new methods of production or service delivery by a firm.
**“Product innovation” describes the introduction of new products or services to the market by a business or incremental improvement to an existing product or service that are currently supplied to the market by a business.
NOTES:
The report will be presented at our panel event, Entrepreneurship and diversity in the UK: supporting ethnic minority businesses, held in partnership with British Business Bank. The report, Unlocking the potential of ethnic minority businesses, will be published on 23rd November, 2021 at 09:00 AM at smf.co.uk/publications/unlocking-bame-entrepreneurship/
In his report, Hyde set out several policy options for policymakers to consider:
- Option one – better and more extensive data collection by the Government and state agencies. The Government could mandate the collection of more granular and standardised data on ethnic background and other relevant factors from business focussed departments and agencies (such as Companies House).
- Option two – a historical review of success and failure. The process needs to begin with establishing a clear picture of the policies to support EMBs that have been tried in the past, in order to identify the kinds of measures that worked (i.e., good practice) and why, and equally importantly which ones failed to deliver and why.
- Option three – taking stock of the existing EMB support landscape. The Government could undertake a parallel landscape review of the organisations across the country currently delivering support to entrepreneurs in general and ethnic minority entrepreneurs in particular.
- Option four – develop a new coherent plan for supporting EMBs, within a wider strategic approach to entrepreneurship. A cohesive strategy should explain how the current business support structures in England (Wales, Scotland and Northern Ireland have their own arrangements) can be enhanced to provide more comprehensive support to EMBs, especially at the local level.
- Option five – set out a clearer and more active role for local economic bodies (i.e., LEPs) towards EMBs, as part of the new approach. The latter could involve establishing a comprehensive framework for LEPs that incentivises the integration of EMBs into their local strategic economic planning and the delivery of appropriate support to EMBs in their localities.
- Option six – take further steps to encourage more competition in banking and improve industry lending standards to be more sensitive to different socio-economic and cultural circumstances. Reducing barriers to entry for new banks and facilitating business account switching can help drive competition in banking and in-turn expand the opportunities accessing debt finance (and equity finance where appropriate) by entrepreneurs in general and EMBs, in particular.
This report is sponsored by the British Business Bank. The SMF retains full editorial independence over all its work and declares all its sources of funding.
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