Episode 1: Private Business Landscape

Full transcript

Peter Englisch: Hi everyone. I'm Peter Englisch, Global Family Business and EMEA, Entrepreneurial and Private Business Leader with PwC. Welcome to our new series of podcasts called Up Next for Your Private Business. This is the first episode we will be discussing the highlights of PwC’s new entrepreneurial and private business Heatmap.

The Heatmap is a data explorer that maps out the attractiveness of 34, EMEA jurisdictions and places to set up and grow an entrepreneurial or private business, which we will call EPB. The benchmark is based on scores across 37 metrics divided into seven categories that really matter to EPBs.

It's a tool enabling all stakeholders from government to EPBs to identify the areas where they could raise their game and where they could improve. Crucially, the Heatmap is not a competitive ranking, but an indicator of areas for improvement. And it shows clearly that having policies that help private businesses to flourish and grow is key to creating a thriving national economy. To discuss the Heatmap and what it tells us I'm joined by Agnieszka Gajewska, our Global Government and Public Services Leader with PwC.

Agnieszka, having looked at the Heatmap, what comes across most strongly for you?

Agnieszka Gajewska: Thanks, so much Peter. And thank you for having me here. It's great that I can be the one to open the conversation about the Heatmap. I read it, and I think it's a very useful tool. But let us start by saying what the word is and what our clients, my clients, public sector clients are talking about right now.

And clearly this is about recovering after the epidemic. And so many people are talking right now not only about building back, but what we called building forward better. And I think that the Heatmap tells us quite a lot about how the governments can achieve it and what they should do about it. Let me start maybe by one area that is very close to my heart and also something that we discussed very close with our clients, which is trust. The Heatmap does not refer directly to trust as such, but I think many indicators that you all guys are looking at refer to trust.

And whenever I talk about trust, I always refer to the Edelman report. What was really quite mind-blowing for me this year is that it was for business that has been indicated by respondents as the most trusted and the most competent institution. So more than 61% of all respondents said, actually they trust business most. And I think it shows that the society at large really expects the business to step up and address today's challenges.

And I think when we look at what the governments are doing right now, trying to building forward better. It is just a great mix of different recovery strategies. So clearly it is about the FDIs. It is about increasing trade, increasing global cooperation. Some governments are looking for a very competitive advantage in the new map of supply chains and including nearshoring, bringing the supply chains closer to home.

But what I think is quite important in the conversation that we're having right now is that many governments are thinking hard about supporting the EPB sector, which we believe is a bedrock of an economy and it also creates jobs. So, I think what is quite obvious as an opening statement from me after reading the Heatmap is that we are talking about the right balance. The balance between the governments, the countries, the economies being a safe Harbor.

So to be a solid place to invest and operate with very predictable government behavior. But on the other hand, to also be a market that is nimble, responsive, and very open and supportive to our innovation. So, I think if we have this balance right, also what the Heatmap shows, it gives the governments a very good starting position to attract more investments and also to recover better

Peter: That's very interesting, Agnieszka. I also strongly believe that private businesses are typically the driving force of GDP growth and social and economic development and this is not a new finding, but it's a fact. And they usually don't have a choice where they want to be located. Unlike a big international conglomerate, private businesses can't cherry pick their location, but have to grow and to deal with the condition it fits into their country.

And for me, those came down to the balance between the different criteria as we have developed into the Heatmap and taxation, of course, coupled with regulation is one out of the seven criteria which have a massive impact on how private businesses and EPBs can run the business and how much money after taxation is left to reinvest into the business.

So how would you sum up the role of taxation in the mix of the various criteria for EPB?

Agnieszka: Sure. I would say Peter, I wasn't surprised to see taxation as one of the key criteria you were looking at. I would say clearly taxation is just an aspect of the country's business environment and also a way to support the business.

Again, maybe let us try to look at the taxation right now, given that the countries are trying to building forward better. That COVID financial support to an intervention to the businesses has been totally unprecedented and clearly it also created an unprecedented public sector deficit, and right now public sector debt.

So the governments very understandably are looking for tax revenues to bridge this gap and to somehow plaque this gap, they need to cover. So, to recover better, the governments clearly need predictable and also sustainable tax revenues. And maybe not something that was directly covered by our Heatmap, but something that is, I think, quite interesting in the context of taxation as such is that new OECD agreement that is talking right now about the minimum mobile corporate tax rate of 15%.

I think nobody right now is discussing the need for corporations to pay for taxes and also to contribute to this better recovery. But I think as much as in the past, that governments often relied on low taxations to be an attractive place to do business, right now I think they need to try harder and think harder about how they look at big economies to be more attractive to invest in.

And I think you will probably also have quite an interesting area to comment here, but I was looking at your Heatmap to see that total tax contributions in Germany is just below 50%. In France, just above 60, which I think is the highest of all the countries we were rating in the Heatmap. But what is quite interesting, both of these countries are also ranking very, very high in the Heatmap.

So when we think about being attractive or unattractive for the EPBs, it's much more than taxes and tax rates only. I think it is a very reasonable combination of it that makes a difference for the companies to want to be in the countries. And maybe say the last point about the taxation that this Heatmap, as well as many interactions we have with our private sector clients of a CEO reports that we've been publishing for the last years is talking exactly the same, that entrepreneurs are really looking for taxation stability.

So, it's not only about the tax rates, how many percent of your income you are going to pay, it is about the predictable environment and taxes and value for money. Also, when you look at the quality of public services. And I think if you have this balance right, then it is very probable that you will be seen as an attractive place to invest irrespective of the real percentage of a corporate tax that is to be paid there.

Peter: Yes, that's very interesting. So, one of the findings that we also had is that there is obviously a deficit when it comes to Africa, it seems that African continents are lagging behind with the ability to create a stable, predictable environment so far. I believe that the historically African territories have this competitive disadvantage being rather exploited than developed over the last centuries to say.

And for me this poses a question, what can be done, also in looking at the different geographic insights here, to support continents like Africa, which has a great economic development potential from my point of view. What should be the role of the United Nations, European Union and the rest of the international business and NGO community, helping to create the right environment, this enabling environment?

So, I'm wondering if we look a little bit deeper in what is the right enabling environment? So, could you, from your perspective, share a little bit because you have this expertise. So, what are the right conditions that EPB needs to find to allow for this positive development, even in currently underdeveloped markets?

Agnieszka: Sure. I think it's almost like two questions that you pose here. And I will try to cover them both first, maybe starting with Africa and emerging countries. Clearly there is a need for the international community to help. First of all, with investments and also with building capacities in emerging markets, it is an obvious thing. And I think we need global solidarity in order not to increase this gap. So actually, yes, you are talking about Africa having a great potential, but we also know that the investment needs here are really huge, there's still 1 billion people worldwide without access to electricity and 1.6 billion people without access to safe drinking water.

So when you look at the amounts that we are talking about, I will only give you some sort of background information. OECD calls for as much as 6.9 trillion US dollars in investments each year to 2030 to meet the climate and development objectives. If you'll translate it into maybe some more understandable numbers, it is just a little under $1,000 per year for every single person on this planet.

And you know, I know, the businesses know, the international community knows that this money will not be found in the global south. And somehow, we need to have this solidarity speech about how the global north is going to support the global south. So, this is the first thing. The second thing, even if we look internally in the countries, we still have problems and challenges around how to support most businesses who were focused in the past on fossil fuels and right now we need to transfer from fossil fuels. And this is where we talk about ust transition, just transition plans, just transition funds. If you look at the European Green Deal, which is right now, the largest green financing project. It seeks to mobilise 1.8 trillion Euros for sustainable investments from a mix of public and private sources.

So I think it's almost like when we're looking right now, we need to make sure that everyone pitches in. What I would say is when you look at the existing international funding pledges, that's still not being met. We are looking forward to COP26, and I hope that these commitments are going to be really made and will be some areas and some commitments to support to countries like the countries in Africa and generally in emerging countries to have and create this emerging environment.

Now, the second question you asked Peter was what really enabling environment means for EPB sectors. I think I covered it before saying that first and foremost, it is about the right mixture of stability and entrepreneurial spirit and I still believe it's absolutely the case. If we're looking at things which are very concrete, it's still clearly the access to high quality workforce.

If you want to be a welcoming country and really support innovation, we need to be able to support the upskilling, have a good dialogue with businesses about the workforce of the future, about different curriculum for education, to make sure that everything that you do is aligned with the future needs of other businesses going forward.

The second thing is certainly infrastructure. And here we’re talking about the traditional infrastructures, like roads, bridges, but also more and more about digital infrastructure and clearly, right now, 5g, but also things like renewable energy. It’s all a very good mix and a very important mix for the country to be able to say, actually, they are giving the right infrastructure for the businesses to operate.

And the last point for me, at least from my perspective, is broadly defined ESG and sustainability. Right now, after IPCC report, we have it really scientifically proven, that it is manmade global warming, and we absolutely need to do something about it and we need to step up and think of different investors, big and small thinking more and more about how the governments are supporting sustainable development and also how they are enabling companies to have a sustainable supply chains and to work across global networks.

What is quite interesting for me is also the conversations we are having with the governments in countries in emerging markets as well. Is for them to be able to create the environment wherever local suppliers can live up to the standards to be able to participate in the global supply chains. So, it is about creating transparency.

And then creating quality of reporting to really be able to prove that this has a sustainable supply chain. So, I think it's, again, like the ecosystem of different regulations and certain behaviors and code of ethics to be able to say, actually, this is the enabling environment for the business reports to operate in the 21st century.

Peter: That's very interesting Agnieszka, and I think the way how the enabling environment is defined has also changed over the last years because the challenges have changed and the role of EPBs has changed. As we mentioned already they're number one cause for GDP growth and job creation. They have a role to play for governance and country to recover better after the crisis and to me it sometimes feels that we have a shift in the paradigm from the former shareholder value concept, which was really only focusing on business shareholders and to maximise the profit. And this has totally shifted towards more, a stakeholder sustainable and very positive contribution to a wider stakeholder community. 

Not only the workforce as a shareholder, but also making a positive contribution to the planet for the environment, for healthy working conditions and so on. So, it seems that this has really changed and there's a role to play as an enabler to move to the right, better future in those economies and countries we are talking about. But there's maybe one additional aspect, which I believe is also worth mentioning because private business owners, EPBs, have a responsibility. And as Rockefeller already mentioned, many, many decades back that with wealth comes responsibility. I'm also wondering to what extent building sustainable wealth in a world where the world's inequality is constantly increasing instead of decreasing how to move forward.

And this creates of course, a lot of questions, what the enabling environment, but also entrepreneurs and EPBs can do to become more inclusive and trustworthy and to re earn the trust benefit that they currently have and renew a license to operate. Any thoughts on that?

Agnieszka: It is a fascinating question. And I think we could spend a couple of hours discussing it. It's also fascinating from my perspective. I think it's quite obvious, right now, when talking about wealth, about enabling environment , about what governments should do and what the private sector should do. We all want them to be more inclusive and more trustworthy.

It goes without saying. It brings us a little bit to the question of taxation, especially right now, when we're talking about the wealth taxes and also very urgent needs of the governments to increase the tax revenues. And I think the starting point today, as I said before, is a huge fiscal deficit after the pandemic and the governments having to look for sustainable tax space on the one hand versus very quick tax revenue. This responds to what they need to, try to find somehow.

In some countries, some would say that maybe in too many countries, the agenda is very much focused on how to get this money as quickly as possible. And clearly the richer entrepreneurs are the ones who seem to have very easy tax bases, especially those as you said, those who are embedded in the countries, they cannot change their tax jurisdiction, they just have been there.

So I think it's a very important balance that each responsible government needs to strike right now between taxing the entrepreneurs hard today and having very quick money to be able to finance these very much important social interventions today. And on the other hand, to have a sustainable tax base. To be able to recover better from the pandemic, but to look in a couple of years’ time horizon.

And these conversations that we're having with our clients are really fascinating because there is no one good answer. And I think some countries are really struggling to find this balance. What fair taxation means, and also how to make sure that instead of killing the cow and having meat for the next couple of days, we really preserve what we have and we have a reasonable tax base for the years to come.

In general, if you ask me personally, I think we talk much about wealth redistribution and not enough about long-term facts-based creation. So long-term wealth creation to make sure that we will have money to invest and to finance these positive social interventions in the future, and these are the conversations that we are having with our clients to really make sure that it's fine to talk about stakeholder economics right now.

It is absolutely fine to make sure that everyone is paying for taxes. But I think equally we need to almost like, regain, restore this respect for entrepreneurs, the ones who are building that wealth and innovation in the country and making sure that we all create a sustainable future and sustainable wealth.

Peter: This is great. And I think our private clients who are hopefully listening into this today will appreciate your analogy. That it's not time to kill the cow, but to make sure that we have many more cows that we can benefit from in the future to create the enabling green grass environment that they need to grow and prosper. And we've said that taxation is only one out of different criteria, so attractiveness and to build the right foundation for a promising future and for further growth. As we can see in our EPB Heatmap today, there's already a gap between leading countries and jurisdictions getting the balance right between taxation and the other supporting areas like infrastructure, digitisation, and investing in education.

Also from my point of view, as we are still in the COVID crisis, also the health system. So, it's super important. And looking at emerging countries like Africa or continents like Africa, again, it's not about taxation. It's mainly about the health system fighting corruption and getting infrastructure right, which will be the basis and a strong foundation for further growth and prosperity, which all people in the country will benefit from. So, the time is almost up Agnieszka.

So how can we prevent and what should governance or other organizations, including PwC, do to avoid the gap from getting bigger between those who already have a very enabling and very competitive environment in place and other territories that need further support?

Agnieszka: I tried to focus a little bit on this before by giving you some numbers and touch points about what are the investment needs and how much we need to focus on bringing the right infrastructure and capabilities and capacities to emerging countries. I think we need to do something, definitely, because if we don't do anything, this gap will only increase and we don't want to.

I would say, and pretty much reiterate what I said right now. We need to find the right responses for both financing, and I think both the private sector, as well as the public sector, both local governments, as well as international governments and the international organisations need to pitch in and have a very strategic approach.

Maybe one point, which I haven't touched upon before, is about the role of international support. I think we need to differentiate between the role that international institutions like the World Bank UN can play. I think they are fantastic in orchestrating people in building capacities and also help with investments.

So mobilise investments, both local public sector, as well as international private sector. But I think we also need to be quite realistic about how much fire power we have, as it comes to two way balance sheets, they will help. And it's definitely something that they should do. But I think we also need the governments to step up.

That is why I was talking about this solidarity between the global north, with the global south, that is why I was referring to COP26, because I think we absolutely need to make sure that even the existing international funding pledges are being met and make sure that these investments are going there. I'm also reiterating, so maybe I will repeat what I just said. You know, part of this is to make sure that these countries are part of an international ecosystem.

So when I was talking, make sure that we get all the support to these people as possible. So for them to be part of the international supply chains to be part of the international ecosystem is definitely something that we should be focusing on.

So we as PwC, are working currently with governments, with local governments, but also with international institutions to see how we can be supportive with our knowledge, experience and also business models. The future is quite scary. When you look at the pandemic, it is still not over. Global warming is hitting us really badly.

But I think what is really great right now is that finally we all came to the conclusion that the challenges of today's are too big for any stakeholder group to be able to address these challenges by themselves. So, I think if you ask me what we need to do to make sure that this gap is not even growing bigger, we definitely want to come together and it needs to be local and international and public and private.

And I hope that once we are able to orchestrate it in the right way, this gap will not get any bigger. Hopefully it will get smaller.

Peter: Thanks Agnieszka, and I also believe in the concept of solidarity learning from each other. So, what good practice looks like and also confidence. And I'm pretty confident that many companies also will invest in countries who need support.

I'm pretty confident, not only because there's a push from the regulators because there is the sense of responsibility to have a look and to review your entire value chain, how you make business in emerging territories countries, for instance, how conscious you are treating the environment, how you treat your workforce along the entire value chain, and this will become more transparent, through more transparent ESG reporting, and also investment in infrastructure could be government, but also could be private investment.

So, thank you so much for joining in and helping me to bring our series Up Next for Your Private Business to live with the first podcast on the EPB Heatmap findings. So, we will, of course, continue the series of podcasts by digging deeper into each of the Heatmap criteria from the macroeconomic factors to education ESG and public health systems and more.

Agnieszka: Thank you so much Peter.

Peter: Thanks to everyone for listening. And I hope you found this discussion very enjoyable and interesting. So please watch out for our next episode of Up Next For Your Private Business. Until then, stay safe and healthy and goodbye.