Doing Business in Vietnam vs. Spain:

After a recent trip to Vietnam, and given that I have never been in China, I was shocked to witness the growth potential from the region.

Comparing Vietnam with my experience in Cuba ten years ago, what I found was not as close to a communist country as I could have expected. Free market was open in any Vietnamese street in big cities and, surprisingly enough, The Financial Times and Warren Buffet’s biography could be easily found in local news agents. This used to be completely banned in Cuba at least ten years ago and I suspect that it may still be.

What I saw was a very young population eager to progress and able to combine their ancient traditions with the latest hi-tech gizmos and western style. But as usual, l will provide you with some fact-based analysis and will compare how easy or difficult it is doing business in Vietnam vs. Spain based on the Doing Business reports from The World Bank.

Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers. The numbers considered for the analysis are the ranking positions of each country out of a total of 185 economies from Afghanistan to Zimbabwe (for more data details, see www.doingbusiness.org).

As we will see, there is still as much room for improvement for one country as for the other.

A.      Doing Business in Vietnam:

In the following table , we compare how Vietnam performs in the aforementioned categories compared to the regional average (East Asia & Pacific). On average, we see how Vietnam underperforms by 14% compared to its peer countries. In fact, the biggest concern to any entrepreneur in Vietnam should be “investor’s protection” and “getting electricity”. Access to reliable corporate data and as access to reliable and affordable electricity is vital for businesses. However, Vietnam is outperforming its peers in important areas such as “dealing with construction permits” and “getting credit”.

B.      Doing business in Spain:

  

Following the same methodology as of Vietnam, we can see how Spain underperforms by a 27% compared to the regional average (OECD high income). It is extremely worrying to realize how difficult it is to start a business in Spain, as it ranks 136 out of 185 countries. “Enforcing contracts” and “protecting investors” are the next worse categories in which Spain should really focus to become an attractive economy to investors.

C.      Doing business in Vietnam vs. Spain:

The following comparison is not purely academic as it could be easily argued that we are comparing oranges and apples. However, the exercise is interesting as we can see how a rich country such as Spain underperforms Vietnam in as much as 5 categories out of 11. In other words, doing business in Vietnam it is easier than in Spain in 45% of the total categories considered to determine the ease of doing business in an economy.

Overall, we see how Spain’s average position is 61, compared to Vietnam’s average position 95. However, as stated above, Vietnam outperforms Spain in “starting a business”, “dealing with construction permits”, “registering property”, “getting credit” and “enforcing contracts”. Although the differences in these categories are not too significant, Spain should seriously consider making things easier to entrepreneurs and get rid of much of the red tape needed. Another striking fact is that it is easier to enforce contracts in a communist country such as Vietnam than not in Spain.

This is not a complete analysis as we are only considering the ranking positions and disregarding the causes of such differences, be them political, geographical or economical. However, it seems quite clear that today, Spain is not the best (or at least the easiest) place to start a business.  And in a time when unemployment is at historical records, it is a shame that households cannot access to credit, get rid of bureaucracy and start a business with enough assurance regarding their property and interest.

We do need big corporates such as Inditex or Telefonica. But right now, what Spain is in desperate need of is small and medium-sized successful enterprises able to boost employment and consumption.

Sources:

“Doing Business 2013: Smarter Regulations for Small and Medium-size Enterprises”

“A heavy load” The Economist August 31st 2013

www.doingbusiness.org

http://www.worldbank.org/

El Private Equity (2)

(English below)

Siguiendo con el post anterior, cabría puntualizar sobre qué se entiende por private equity, ya que en Europa se tiende a generalizar y confundir el término con el de venture capital o capital riesgo. Por el contrario, la escuela americana distingue entre dos conceptos:

-          Venture Capital: Se refiere únicamente a inversiones en estados iniciales o embrionarios, permitiendo la expansión de nuevos negocios. Hablamos por tanto de inversiones arriesgadas, ya que el negocio objeto de inversión no está todavía probado o suficientemente desarrollado. Como ejemplo, las start-ups. En esta categoría se podría incluir a los Business Angels, aunque en la mayoría de casos, su capacidad de inversión es menor que la de un fondo de PE, pero no por ello menos adecuada para proyectos a menor escala.

-          Private Equity: Los fondos de PE buscan oportunidades de inversión donde un negocio ya probado, demuestre capacidad para un crecimiento potencial realístico en un mercado expansivo. Este crecimiento potencial debe estar perfectamente documentado y soportado por un plan de negocio sólido y un equipo directivo profesional.

Y quien hay detrás de un Private Equity? De dónde sale el dinero? La mayoría de PE “levantan” (del inglés to raise funds) sus fondos mediante inversores institucionales, los cuales pueden ser bancos, compañías de seguros, fondos de pensiones e incluso el propio Estado. Su intención es la de obtener un rendimiento a largo plazo sobre el capital invertido evitando la volatilidad de los mercados.

Como se dijo anteriormente, el Programa Nacional de Reformas de España 2013 (http://estaticos.expansion.com/opinion/documentosWeb/2013/04/30/PNREspana2013.pdf) presentado por el actual gobierno incorpora algunas medidas que pretenden dar aire al sector del PE en España. Entre otras:

-          El PNRE 2013 pretende llevar a cabo actuaciones para “potenciar la dimensión internacional de los fondos de capital riesgo gestionados a través de AXIS (http://www.axispart.com/) y las actuaciones en formato fondo de fondos que permite un mejor aprovechamiento de las capacidades y especialización de operadores privados en el ámbito del capital riesgo”.

-          Implantación de FOND-ICO Global: Consiste en la creación del primer fondo de fondos públicos (1.200M€) español que promoverá la creación de fondos de capital riesgo privados que inviertan en empresas españolas en cualquiera de sus fases de desarrollo.

-          Aprobación de la modificación del marco legal del capital riesgo, reformando la ley reguladora de las entidades  de capital riesgo y sus sociedades gestoras (Ley 25/2005, de 24 de noviembre). Al parecer, dichas reformas pretenden dotar a la ley de más eficacia y realinear los incentivos fiscales hacia las actividades de capital riesgo en las fases tempranas del desarrollo de nuevas empresas.

A pesar de suponer un avance en materia de PE e internalización de la empresa española, parece difícil que estas medidas puedan llegar a ser realmente significativas cuando el crédito ofrecido a la banca y el abaratamiento del dinero no han sido trasladados a la economía real. La conclusión es sencilla: sin facilidades de financiación,  parece poco probable que el PE pueda aportar un plus de competitividad a la economía española. A pesar de ello, estas medidas pueden considerarse como un guiño a los numerosos fondos internacionales que ven en España una oportunidad con potencial de crecimiento.

ENGLISH: 

Following up on the previous post, one might point out what is really meant by private equity.  In Europe the term tends to refer both to “buy-in” “buy-out” strategies as well as venture capital. By contrast, the American School distinguishes between two concepts:

- Venture Capital: Refers only to investments in early stage, enabling new businesses to expand themselves. We speak therefore about risky investments as the business is usually not proven or sufficiently developed yet (i.e. start-ups). We can include in this category the business angels, although in most cases, their investment capacity is less than that of a PE fund, but no less suitable for smaller scale projects.

- Private Equity: PE funds seek investment opportunities where a business has been tested and with proven ability to deliver a realistic potential growth in an expanding market. This growth potential must be fully documented and supported by a sound business plan and a professional management team.

And who's behind Private Equity? Where does the money come from? Most PE raise their funds from institutional investors, which can be banks, insurance companies, pension funds and even the state itself. His intention is to obtain long-term performance on invested capital avoiding market volatility.

As stated earlier, the National Reform Programme of Spain 2013 (http://estaticos.expansion.com/opinion/documentosWeb/2013/04/30/PNREspana2013.pdf) presented by the current government includes some measures that are intended to provide some fresh air to the PE sector in Spain. Worth to mention is the following measures:

- The PNRE 2013 intends to carry out actions to "enhance the international dimension of the venture capital funds managed through AXIS (http://www.axispart.com/) via a fund of funds format that  allows better use of the capabilities and expertise of private operators in the venture capital sector. "

- Implementation of FOND-ICO Global: This involves the creation of the first Spanish public fund of funds (€ 1.200m) to promote the creation of private venture capital funds investing in Spanish companies at any stage of development.

- Approval of the amendment of the legal framework for venture capital, reforming the law governing venture capital entities and their management companies (Law 25/2005, of 24 November). Apparently, these reforms aim to provide a more effective law and realign tax incentives to venture capital activities in the early stages of the development of new businesses.

Although that will be a step towards progress for the Spanish PE industry and the internationalisation of Spanish firms, it seems unlikely that these measures can become truly meaningful if credits offered to the banking system and cheaper money have not been transferred to the real economy. The conclusion is simple: with no financing facilities, it seems unlikely that PE can provide any extra competitiveness to Spanish economy. However, these measures can be seen as a nod to the many international funds who regard Spain as an opportunity with growth potential.