All Creatures Great And Small

After a decade with the community’s main focus seemingly elsewhere, it is refreshing to have a chief executive who is inclined to be proactive in support of economic development generally and the business community in particular. The decision by Carrie Lam Cheng Yuet Ngor to set aside a first tranche of five billion dollars to turn that support into concrete assistance is a welcome expression of a determination to walk the walk, not just talk the talk.

Lam has already indicated the main purpose will be to help Small and Medium Enterprises (SMEs) flourish. As the owner or part-owner of four SMEs, perhaps I can offer a few observations on how the resources could best be deployed to achieve maximum effect.

First up, I must confess to being puzzled by the proposed priority on introducing a two-tier profits tax regime, with a suggested lower rate for companies’ profits below $ 2 million. The main challenge for SMEs, particularly in the start-up phase, is in achieving profitability at all. Expenditure is being incurred, strenuous efforts are being made to secure revenue, with the result the would-be entrepreneurs can feel like gerbils on a treadmill. The basic issue is survival of the company, and little or no thought is given to the level of profits tax. Make the profit first, before worrying about whether the tax will be 10 or 20 per cent or some figure in between.

One way in which expenditure could be reduced right away would be to lower the annual Business Registration Certificate fee to a nominal amount – say $20 instead of the $2,000 plus for the first few years of operation. If the business cannot cover its costs after (say) three years, then perhaps it is time to wind it up. Similarly with the requirement to produce proper accounts and get them audited, and file necessary returns with Companies Registry and the Inland Revenue Department. There are a multitude of service providers who can perform these tasks relatively cheaply, but for a start-up it all represents money out the door with no return. Could SMEs be given a professional services allowance for the first three years to help meet these costs and get corporate governance off to a good start? Some support on IT and basic office systems could be included.

Business accommodation rental is another huge concern for SMEs. Many professionals keep costs to a minimum at the outset by working from home. For example, I know of one architect who now runs a multi-national organisation with hundreds of staff who began operation in his spare bedroom. But depending on the nature of business this is not always a feasible option. Some help is available in this aspect, especially for high tech companies, but could the scope be expanded? Could the government bulk lease office and workshop space and let it out to SMEs at peppercorn rents for the first few years of operation?

Finally there is the issue of staffing. The owners/operators expect to work for nothing in the start-up phase. Their reward will come as and when the company is successful and they can enjoy a share of the profits. Meanwhile they support themselves from savings, or family funding, or even part-time work for others while they throw their energy into securing business. Could they be given some administrative support in the early days? A school leaver looking for a first job, perhaps – not necessarily on a full-time basis – who could answer the phone and do some simple bookkeeping while the partners/rainmakers were out doing their thing.

A comprehensive support package along the lines suggested could be provided for less than $20,000 per month per enterprise, so $5 billion could carry 20,000 companies for a year. We would have to accept that many companies would fail: the mortality rate of new enterprises is estimated at 90 per cent. But the profits of those who survive and flourish would more than compensate for losses. Perhaps more important, such a scheme would address the fundamental question of what sort of economy and society Hong Kong wants to be. Is it our objective to raise a generation of wage slaves, content to serve their time working for others, and without raising their eyes from the grindstone? Or do we want to unleash the creativity of our young people by giving them the chance to lift themselves up?

Questions have been raised about whether the current generation is sufficiently entrepreneurial in spirit compared to their predecessors. There may be some basis to such a query given the loss of ambition that can sometimes accompany affluence. But to the extent that some of the decline may be attributable to the much higher cost base, and the stranglehold some oligopolists have over large swathes of the economy, then an aggressive support programme may be necessary if we are to forge a new way forward.

Mike Rowse