Immigrants make important contribution to start-up activity in Germany

• Immigrants create more businesses and more jobs than average
• Immigrants’ decision to become self-employed more strongly determined by labour market

The proportion of immigrants engaging in start-up activity has been relatively stable for years. One out of every five business founders is a non-German citizen or has acquired German citizenship after birth. The annual rate of start-up creation by immigrants has been 1.86% on average between 2009 and 2014, which is roughly one tenth higher than the general start-up rate of 1.68%. In 2014, 179,000 immigrants founded their own business. These are the findings of the latest special evaluation of the KfW Start-up Monitor, the annually published representative survey of start-up activity in Germany.

The labour market plays an important role in immigrants’ decision to become self-employed. They start a business more often for lack of more attractive income alternatives and are thus more often unemployed before they start. Still, immigrants create more jobs more often. ‘Immigrants engage in their start-up projects more proactively, even if the decision to found a business was due to lack of income alternatives. With their higher propensity to start a business and higher job creation effect, immigrants thus make an important contribution to start-up activity in Germany’, said Dr Jörg Zeuner, Chief Economist of KfW Group.

The lower age of immigrants in the overall population is reflected in the age of business founders, which is around one and a half years lower, at 36, than the age of the average business founder. The propensity for start-up creation among younger immigrants up to the age of 30, however, is actually somewhat lower (2.18% vs. 2.34%) but significantly higher than average among university graduates (3.46% vs. 2.44%). Like all business founders, immigrants mostly start in the services sector (around 70%), but in general somewhat more often in retail than the average (21% vs. 17%).

Despite their higher start-up activity, more immigrants face obstacles – including difficulties obtaining start-up finance. In the period from 2009 to 2014, 16% of all business founders had to overcome financing difficulties at the start, but for immigrants the share was 24%. However, 13% of immigrants also admitted having gaps in financial knowledge (vs. 8% overall).

Immigrants are more often and more readily willing to abandon their new business after founding it. Three years after their creation, 70% of all new businesses remain while only 60% of immigrants’ businesses are still running. This is mainly due to their structural characteristics. The business founders’ younger age, their more frequent start-up from unemployment and stronger focus on retail are among the factors associated with the lower survival rate of start-up projects. ‘What is crucial for the risk of closure is not citizenship, but the founder’s experience and knowledge, and what projects they have realised", said Dr Zeuner. Overall, however, the labour market plays a more important role for immigrants. They are more likely to end their self-employment when offered attractive paid employment.’

Note:

The findings are from a special evaluation of the KfW Start-up Monitor 2015, a representative survey of start-up activity in Germany, which is available at www.kfw.de/fokus(only in german language). Press material such as charts and photos on the topic is available at www.kfw.de/gruendungen-durch-migranten.