Belgium saw a "notable" 7.8% rise in business closures in 2023, as small and medium enterprises (SMEs) are struggling with the current economic climate and excessive red tape.
Figures from the Ministry for the Economy (SPF Economy) show there were 1.167 million SMEs operating in Belgium in 2023 – a record high. But the ministry noted that the growth in the number of Belgian SMEs in 2023 (+2.2%) has "significantly slowed" compared in recent years. Between 2018 and 2023, the average annual growth rate of VAT-registered SMEs was 3.7%.
Furthermore, the rise in SMEs is "tempered by a notable rise in business closures", with 88,521 companies winding up operations. "This reflects ongoing economic pressures in Belgium, stemming from a macroeconomic environment weakened by systemic crises across Europe. The prolonged conflict in Ukraine plays a significant role," the SPF Economy said.
The biggest losers
Approximately 10,242 SMEs went bankrupt last year (+ 10.5%) resulting in 25,525 job losses – an average of 2.5 jobs lost per bankruptcy. The three main sectors affected were construction, commerce, and hospitality. Together these accounted for 61.6% of bankruptcies and 54.8% of job losses.
The SPF Economy said that the increase in bankruptcies is due to the delayed impacts of the pandemic, as public authorities implemented a moratorium on bankruptcies in 2020 and 2021. "The normalisation of the number of bankruptcies seen in 2022 continues in 2023, bringing the figures back to pre-pandemic levels," it said.
A spokesperson from the Federation of Belgian Enterprises told The Brussels Times that cost shocks in recent years, including for raw materials, energy and wages, have impacted profitability. "At the macroeconomic level, the net profitability of companies has fallen sharply over the last two years," they said.
Added to this, bankruptcies in the first 11 months of 2024 have "reached the highest level in 20 years, with the exception of 2013... In terms of job losses we are at the level of the financial crisis and the euro crisis. Today many more full-time workers are affected than in the last ten years."
"The economy and population are still growing, so it is not so strange that there is still growth [in the number of SMEs being created]. The slowdown in growth shows that the environment has become more difficult. The fact that there is still growth is not an argument to claim that there are no underlying problems," they stressed.
Is Belgium not business-minded?
Bart Van Craeynest, chief economist with Flemish business association Voka, told The Brussels Times that the current economic climate has made it difficult for businesses to stay afloat.
"Interest rates went up and although they have started to ease, for the past two years it was more expensive for companies to borrow. You also had the big wage increases during 2022 and the beginning of 2023 linked to the wage indexation system, which really hurt a lot of companies," he explained.
He added that there are "a lot of barriers" to starting a company in Belgium, both in terms of red tape and mindset, which could be slowing the pace of SME creation. "There are many barriers in Belgium to starting a company, even if over the past couple of years we have lowered the administrative burden. In these international surveys on entrepreneurship we tend to rank quite low in overall entrepreneurial climate, in terms of this kind of risk-taking mentality."
"If you start something and go bankrupt, it's a bit of a stain on your resumé that you carry around for quite some time. In the Anglo Saxon world, if you try something that doesn't work, you learn from it. Over here it's more of a negative and that holds people back."
Van Craeynest said it is "positive" that incoming governments are speaking about lowering the administrative burden for companies: "The Flemish government has set it as a specific target to lower the administrative burden. They're setting up a project to get companies to suggest things that could be scrapped and by the end of next year they will start to act on that."
"The realisation is there amongst policymakers, so hopefully we see some actual progress. In the last couple of years we have seen things moving more in the other direction, adding even more red tape, so hopefully now we do see some turnaround."
