Founders Not Discouraged by Pandemic

The pandemic has only slightly slowed down the start-up activity in Germany in 2020. According to a joint study by Creditreform and ZEW Mannheim, almost 165,000 new companies were founded last year. However, the development varied greatly depending on the sector. Regardless of the COVID-19 crisis, the number of companies grew slightly last year to nearly 3.3 million. Once again, more companies were founded than closed. The Mannheim Enterprise Panel (MEP), conducted by ZEW, recorded around 156,000 firm closures, for example due to withdrawal from business or insolvency.

According to the study authors, many founders have stuck to their start-up plans despite the pandemic thanks to the quick intervention of politics. “The pandemic aid payments, the extended short-time working scheme and the temporary suspension of the obligation to file for insolvency played a decisive role in ensuring that the number of start-ups did not collapse in 2020,” explains Patrik-Ludwig Hantzsch, head of economic research at Creditreform. There were significant fluctuations in the development of start-ups over the course of the year. In spring 2020, in the midst of the first state-imposed lockdown, significantly fewer companies were founded than in previous years. In contrast, the number of start-ups was disproportionately high in the summer, autumn as well as in December. “During the period when restrictions were toughest, many start-up projects were apparently interrupted but not abandoned and resumed later in the year,” says Dr. Sandra Gottschalk, researcher at ZEW and author of the study.

Even if the overall impact of the pandemic on start-up activity is small, there were considerable fluctuations within individual sectors. A significant slump (by 5.3 per cent to 50,000 start-ups) was recorded in consumer-oriented services. These include the hotel and restaurant industry, hairdressers, cinemas, as well as freelance scientific, creative and artistic activities. All these services were particularly hard hit by the pandemic-related restrictions. This is less true for the construction industry. Nevertheless, only 16,000 new enterprises were founded in this sector last year (minus 13.3 per cent). “Due to the high demand for maintenance and construction services, employment opportunities in this sector were so good that there were only a few ‘makeshift’ start-ups,” explains Dr. Sandra Gottschalk. Past crises have shown that in times of weak economic activity, many businesses are started for the sole purpose of escaping unemployment. This time it was different: the construction industry experienced particularly high demand as a result of the pandemic, as people increasingly focused on their homes.

By contrast, start-up activity was particularly strong in the mail-order and internet trade (up 24 per cent to 3,100 start-ups), among manufacturers and service providers of information and communication equipment (up 5.2 per cent to 7,500 start-ups) and in the chemical and pharmaceutical sector (up 15.7 per cent to 430 start-ups).

“It will be exciting to see how the start-up scene develops in the post-pandemic period. If the new federal government launches an infrastructure and economic stimulus package, this will likely lead to numerous start-ups, especially in the high-tech and technology sector,” Patrik-Ludwig Hantzsch expects.