Migrants start 170,000 new businesses each year

• Migrants in Germany are more active entrepreneurs than average
• Rate of entrepreneurship is particularly high among migrant graduates
• Migrants pursue start-up projects more aggressively

Migrants start around 170,000 new businesses in Germany each year. One in five entrepreneurs is therefore either a foreigner or naturalised. Migrants make up 20% of entrepreneurs but only 18% of the total population, which means they are more active entrepreneurs than the average. Their start-up rate is 1.77%, significantly above the overall rate of 1.6% (based on a multi-year average). These are the findings of a special evaluation of the KfW Start-up Monitor, the representative survey of start-up activity in Germany.

“Migrants venture into self-employment more often than average and thereby make an important contribution to start-up activity. What is exciting is that we see particularly high entrepreneurship among graduate migrants”, said Dr Jörg Zeuner, Chief Economist of KfW Group. The overall rate of entrepreneurship among graduates averaged 2.3% between 2009 and 2015, but that of graduate migrants averaged 3.1%. “Migrants with a university degree are also less likely to quit. Education pays off”, Zeuner added.

Migrants start businesses not only more frequently but on a higher scale. First, migrants start their business more often on a full-time basis. On average across the period under review, 42% of all new businesses in Germany are full-time start-ups but 47% among migrants. Second, they invest more time in their start-up projects than the average entrepreneur – 3.2 hours a week or 11% more. Third, migrants are less likely to set up their business on their own – nearly half of them start with employees and/or with team partners (48% vs. 37% for all business start-ups).

A look at the funding situation reveals relatively few differences between migrants and the group of all entrepreneurs. The proportion of business founders with external funding needs is average (at 23%), as are the sums they seek. However, there are differences in the funding sources they tap. For one thing, migrants use funds from their personal networks much more often, such as money from family members or friends. For another, migrants are much more likely to use overdraft facilities regularly (29% vs. 16%) and bank loans less often (31% vs. 38%). “Their tendency to use more costly overdraft facilities can be indicative of difficulties in accessing credit, for example because language barriers make it hard for them to obtain information or negotiate loans”, said Dr Zeuner.

The flipside of the higher rate of migrant entrepreneurs is also a higher rate of failure. In the first two years, 22% of entrepreneurs abandon their project in Germany overall, but among migrant entrepreneurs this rate is 30%. “Citizenship is not the decisive factor for the risk of a business start-up failing”, said Dr Zeuner. “The start-up activity of migrants is even more dependent on the labour market than is already the case. Migrants are more likely to start their own business for lack of employment alternatives – and they are more likely to quit their project when an attractive job opportunity presents itself.”

Note:

The focus “Migrants have more and larger start-ups” can be found at www.kfw.de/fokus, press material (charts, photos etc.) is available at www.kfw.de/gruendungen-durch-migranten.