Creation of Enterprises out of Unemployment - The Case of Brandenburg

Background

Unemployment is a burning issue in Brandenburg. Although the unemployment rate of 18.4% is slightly inferior compared to the average of the four other new German Länder it more than doubles the rate of the old Länder (8.7%). The percentage of women among the unemployed in Brandenburg turns around 52%. Long-term unemployed represent almost 40% of all job seekers. With regard to long-term unemployment the situation of women is particularly critical: Among all long-term unemployed persons their proportion is of 63.2% against the proportion of men with 36.8%.

Since the early nineties the Ministry of Labour, Social Affairs, Health and Women (MASGF) in Brandenburg in cooperation with the Agency for Structure and Labour (LASA) fights unemployment not only through measures to reintegrate unemployed in jobs but also through the support granted to businesses set up by unemployed using public funds in combination with financial allocations of the European Social Fund (ESF). The overall balance of the past 10 years is positive: 13.000 new businesses have been created at a cost of roughly 100 million DM. The survival rate of the start-ups is encouragingly high: Three years after creation, 70% of the enterprises are still in the market . In this respect, the businesses created by unemployed do not differ from other business creations in Germany. On an average, each new enterprise has created within two years after creation 2.8 new jobs including the job of the owner.

The original concept of new business promotion and its limits

Due to the changing overall conditions and requirements, the approach and instruments to support new business creation have been adapted several times over the 10-year period of promotion. In the beginning, the concept was principally based on a contribution to the living cost of the new entrepreneur and the reimbursement of costs which he or she had spent on qualification and advisory services during the phase of business preparation. A first evaluation which took place in 1996 assessed the MASGF/ LASA programme as being successful from an overall point of view, but underlined the need for change with regard to the following aspects:

• The principle of indiscriminate distribution of grants which was justifiable for a first wave of new business creations after the political and economic changes of 1989, was no longer the appropriate approach in view of the changing economic conditions (saturation of markets) and the specific needs of potential and existing entrepreneurs. The declining number of business registrations in Brandenburg was an indicator that business creations were becoming more and more difficult and that the standards which new entrepreneurs had to meet were rising.

• The training and advisory services provided so far did not deal with aspects of entrepreneurial behaviour. In addition, the qualification offer was of quite general nature. The trainings offered did not highlight the particularities of the different business sectors; they were also not adapted to the requirements of the creation process and of the post-creation phase of micro and small enterprises.

• There was an unsatisfied demand for loans by those enterprises which had successfully completed business creation and wanted to expand.

• The relatively high number of businesses given up during the first year of operation compared to the following years showed that new entrepreneurs needed particular support during the post-creation phase in order to overcome the initial difficulties.

Concept and instruments of promotion and experiences after 1997

Following the recommendations of the evaluation, the 'Guidelines on training and advisory services for new business promoters out of unemployment' were changed. As a first step, the support was no longer directed to the target group itself but to the institutions providing training and advisory services to the potential entrepreneurs. Most frequently, the recipients of MASGF/ LASA allocations were training institutions which had to prove that they were able to offer adequate training programmes and that they cooperated closely with experienced business consultants. Initially, 390 hours per business promoter were funded to be shared between training and advisory services. This was to adapt the support to the specific needs of the individual beneficiary. The unemployed who wanted to create a business had to rely on the bridging allowance granted by the Federal Agency for Labour, BA (the national unemployment insurance institution), under certain conditions. The potential entrepreneurs were also given the opportunity to participate in a 10-day 'decision training' which should help them to find out if they embodied essential entrepreneurial talents and what personal strengths and weaknesses they had.

Originally, qualification measures were offered part-time over a period of nine months. Due to the fact that the BA had no legal basis to pay unemployment benefit over such a long period to persons who, in fact, could not be placed in the labour market, the approach had to be changed into a 12-week full-time measure. Another change was that the business start-ups could now benefit from advisory services even after business creation, for a period of six, later of 12 months. It was expected that the coaching would help new entrepreneurs to overcome the initial difficulties in business operation and ensure a smooth 'take-off' of the business. For financial reasons, the 10-day decision training was reduced to 5 days.

The guidelines of December 2000 introduced the new concept of 'driver-guide' services and business creation networks. The 'business creation offensives', initiated by MASGF/ LASA and funded in six regions of Brandenburg by the European Community, were attached to local economic promotion agencies or technology and business start-up centres. Their most important aspect was the creation of a support network structure (business creation networks), bringing together all actors involved in the business creation process in the respective region (chambers of crafts, commerce and industry, banks, employment agencies, regional centres of 'woman and labour market', partly also the local administration, university structures, business associations etc).

The present approach: 'Scout' services and business creation networks

To date the concept of business creation networks which had proved to be an efficient instrument under the 'regional business creation offensives' has become an integral part of the Ministry/ LASA approach to promote the creation of new enterprises out of unemployment. Within these networks, the so-called 'scout' service providers, private or public institutions with relevant experience in the field of small enterprise promotion, play a crucial role. Being now the immediate partners of MASGF/ LASA and the exclusive direct recipients of funds, their task is to accompany the potential entrepreneurs through the process of business creation and the first months of operation and in particular

• to be a permanent contact partner for the (potential) entrepreneurs

• to conceive together with them a timetable for the business creation process

• to establish a qualification programme on the basis of the individual needs and priorities

• to direct the future business promoters to other relevant players and service providers in the region

and to initiate and moderate a business creation network. The provision of 'scout' services to the potential and new entrepreneurs through one single institution/ agency per region contributes to the decentralisation and to more transparency of the promotional system in Brandenburg. The idea is that through the regionalisation of the system and, at the same time, the centralisation of the different support measures in one network, new entrepreneurs will more easily get access to the services needed (including credit), services will be delivered in a more adapted and timely manner and the different steps of the start-up process will become more manageable; in summary: the promotion of new enterprises will become tailor-made. From an overall perspective, the Ministry's/LASA's new approach wants to improve the business creation climate in the regions of Brandenburg through

• comprehensiveness of the support on the one hand and the adaptability of services to individual needs on the other hand

• decentralisation of responsibility and competence

• higher awareness of the protagonists involved in business creation concerning the problems of new entrepreneurs.

The totality of funds is channelled through the 'scout' service providers who pay the training institutions and business consultants up to a maximum amount according to the time the beneficiaries have spent on assessment, training, counselling or coaching during business preparation and the post-creation phase. The 'scout' service providers themselves receive a lump sum per service provided and person attended to whereby some of the services are only paid upon success.

Participation of women, gender aspects

With more than 43% of all beneficiaries reached, the part of women is considerable compared to similar programmes. In this respect, the Ministry has almost met its target to promote women according to their relevance in the overall target group. The new guidelines of December 2000 point out that "..the principle of gender mainstreaming has to be applied which means that during planning, implementation and monitoring the impact of all measures on the equality of women and men has to be assessed and actively taken into account. Gender equality also has to be part of the reporting..". In this way, the guidelines follow the 'general regulations' governing the structural funds of the European Community where part of the funds come from. To respond to the principle of gender mainstreaming, the following measures are taken:

• besides other criteria the implementers of the MASGF/LASA programme are assessed on the basis of their gender responsiveness and on the degree of integration of gender concerns into their programmes

• women are specifically addressed during acquisition

• female business consultants are integrated into the business creation network

• network members and other protagonists are made aware that women create businesses in a different way and that the problems they encounter differ from those of men

• gender aspects are made an issue in the exchange of experiences organised quarterly for all the 'scout' service providers of Brandenburg.

Because of the decentralised approach and of the fact that gender aspects form an integral part of the Ministry's concept, one can expect that the percentage of women reached by the programme will be maintained in the future.

Perspectives

It is planned that starting with the year 2002 MASGF and the Ministry of Economics of Brandenburg will combine their funds available for the promotion of business start-ups in one joint programme. The promotional approach will be maintained as described above. The most relevant change will be the extension of the target group to persons who are still in employment but are willing to create a new business. Additional means from the European Regional Fund (EFRE) allocated to the Ministry of Economics will allow to extend the duration of support and to increase the amount available per individual beneficiary.

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