Why ethnic minorities are so important to the UK economy

‘People from ethnic minorities are twice as likely to set up a business’: Sharniya Ferdinand, NatWest’s Enterprise Community Strategy Director.

More people are setting up businesses in the UK than ever before, with 2023 seeing 900,000 new companies incorporated, a record annual high. Of this demographic, a large proportion come from ethnic minority communities, despite the disproportionate array of barriers faced by many ethnic minority businesses (EMBs) in the UK.

Breaking down these barriers has become the focus of several organisations and institutions, such as the NatWest Enterprise team, which is currently working with Aston University’s Centre for Research in Ethnic Minority Entrepreneurship (CREME) following their joint-led flagship report: Time to Change: A blueprint for advancing the UK’s ethnic minority businesses, released in 2022.

At the 7th Incubator and Accelerator Network conference, an annual gathering of the UK’s incubator managers, Sharniya Ferdinand, NatWest’s Enterprise Community Strategy Director, shared some of the report’s key messages and recommendations, which continue to guide NatWest’s work and mission for EMBs and inclusive entrepreneurship.

Q: What are some of the key trends among ethnic minority groups in small business?

A: People from minoritised populations are about twice as likely to start a business. So, if you’re from an ethnic minority background, you’re more likely to either want to start a business, or actually start a business, than the rest of the population.

Currently, there are an estimated 250,000 ethnic minority businesses in the UK, that contribute a whopping £25 billion gross value added (GVA) to the UK economy. And that’s based on estimates, so it could be slightly more, but in any case, that figure outweighs the GVA contribution of large sectors like pharmaceuticals and large cities like Birmingham. So, it’s a massive contribution that these businesses are already making.

Beyond economics, EMBs also make a unique social and cultural contribution. For one, they tend to provide more employment to those from marginalised ethnic backgrounds, playing key roles in revitalising deprived areas and becoming hubs or spaces for people from the community. They also tend to offer a wide range of products and services across diverse sectors, especially those that are tailored to communities that have been left out of mainstream products and services.

Q: What are some of the key barriers that EMBs tend to encounter?

A: Despite high entrepreneurial ambitions, we found that EMBs are less likely to operate established or mature companies beyond that very crucial 42-month mark (at which point a business usually becomes income-generating). And so, despite having been twice as likely to start a business, just 43% of EMBs go on to become mature businesses, while for white-owned companies that figure is 67%.

Part of the problem here is about having access to the right support at the right time, and from established places as well. We know that another factor impacting the success of entrepreneurs from ethnic minority backgrounds is disparities in levels of personal wealth when starting a business.

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EMBs are also less likely to look for support from external mainstream sources. This latter issue is also linked to a lack of trust in formal institutions, as well as a greater likelihood of being discouraged. For example, people from ethnic minority backgrounds are more likely to take a “no” from a formal institution to mean “no forever”. Meanwhile, there’s also a higher chance of people from these communities just avoiding these formal institutions altogether, due to historical and social factors.

As a result, people from ethnic minority backgrounds tend to go to family and friends first, when looking for financial support. But one of the key things that we found is that, of the EMBs that never applied for funding, many would have been able to access it if they attempted to.

Q: How is your team at NatWest supporting EMBs?

A: Our 2022 report with CREME set out 10 recommendations for organisations who want to help tackle the multiple barriers faced by EMBs, in particular access to finance, markets and quality business support. If we saw these recommendations through nationally, it would increase their GVA contribution from the current £25 billion a year to £100 billion. A four-fold increase. Supporting these businesses is a huge opportunity for the UK economy.

We are working to help implement these 10 recommendations, one of which is around providing EMBs with comprehensive, intensive and bespoke business support. This is where our accelerators are playing a key role.

We’ve reserved at least 20% of our Accelerator Hub places for Ethnic Minority Businesses and work cooperatively with our other partners, such as Black Seed Ventures (who we’re working with to deliver a ‘Lyan’s Den’ pitching competition for Black Founders in Manchester this April) and CREME, to reach wider communities – with the aim of improving access, tackling perceptions, providing guidance, building confidence and helping entrepreneurs to succeed.

We’ve also recently supported Black British Initiative’s MBA course, a targeted education programme for black entrepreneurs designed by University of London’s SOAS. I’m proud to say that we’ve funded 30 entrepreneurs to participate in the programme, which has been put in place to provide black entrepreneurs with the skills, knowledge, and networks to thrive in their respective industries.