The last quarter of 2017 brought a positive development in regard to the registrations of new entities and the number of terminated businesses remained similar to the total of the fourth quarter of the previous year. The Aruba Chamber of Commerce and Industry (ACOC) has collected the information of registrations during Q4 2017, including the results of the research to point out the most frequent circumstances that lead to the termination of a business.
Surveys conducted by the Central Bank of Aruba indicate that the purchasing power seems to have weakened and the number of investments are limited. Nevertheless, the total of registrations in 2017 increased compared to 2016 and there were fewer cancellations recorded. Moreover, Aruba still has tourism as its main economic pillar. The developments regarding the refinery, however, have yet to level up in order to contribute significantly to the economy of Aruba.
A total of 330 new businesses have been registered during Q4 2017. All of these registrations are onshore entities. During 2017 only two offshore companies were registered at the Chamber. The fourth quarter of 2017 recorded 84 more new registrations compared to Q4 2016. The month November was the month during which the most registrations were documented for Q4 2017. We can see a fluctuation in registrations throughout the year and the Chamber will keep on monitoring this development during the first quarter of 2018.
Regarding the total of new businesses per type of legal entities throughout Q4 of 2017, we can state that the most significant entity types are represented by 155 Sole Proprietorships, 38 Incorporations (Inc.), and 128 Limited Liability Companies (LLC.). All these categories surpassed the numbers registered during same period in 2016. Looking at the whole year, 2017 recorded a total of 1350 registrations, which is 159 more compared to 2016. The upward trend in registrations during Q4 2017 is a turnaround from the fourth quarter in 2016, when the monthly registrations showed a decline. Sole Proprietorship remains the most popular legal form throughout Q4 of 2017 as well. VBA registrations grew significantly with 41 more registrations and the type Sole Proprietorship has 26 fewer registrations compared to the third quarter of 2017.
Business Sectors and Districts
During the fourth quarter of 2017 the development of the business sectors remained consistent with the figures of Q3 2017. Retail stores, Services, and the Hotel & Catering industry persisted in being the principal sectors for new business endeavors. Businesses related to real estate proved to be a bit more popular compared to companies in the construction sector. During the third quarter of 2017 both of these sectors were pretty close in numbers. Commercial development in San Nicolas is very limited. There is no significant growth of new businesses and the fact that the refinery is not in operation (yet) might exert influence on the current situation. The refinery is considered to be an incentive that will trigger the establishment of businesses in San Nicolas. However, the number of businesses show that San Nicolas remains unattractive and more creative and innovative incentives are required in order to make it flourish. Oranjestad had a total of 143 new registrations and Noord followed with 81 new registered entities during Q4 2017. San Nicolas counted for 18 new registrations and this number is much lower compared to other districts, like Savaneta with 32, Santa Cruz with 29, and Paradera with 27 new business registrations.
A comparison of the last fourth quarters shows that Q4 2017 compensated the dip in registrations during the fourth quarter of 2016. Although the number of registrations did not reach the level of Q4 2015, the strong recovery in 2017 promises a positive outcome for the next fourth quarter. Another positive development is the persistent drop of cancellations during the fourth quarters from 2012 onwards. However, it seems to be reaching a plateau, because the number of cancellations of Q4 2016 and 2017 don’t diverge much. Regarding this plateauing decrease of cancellations, we have to keep into consideration the entities that didn’t cancel their registration at the Chamber. Since this is not an automatic process, there are discrepancies in the actual figures.Looking at the cancellation numbers per entity type, there isn’t much difference between Q4 2017 and Q4 2016. Except for the VBA entities, which show a peak in the fourth quarter of 2016.
Reasons for Cancellation
In regard to the economic development of Aruba it is important to understand why companies cease to exist. The Chamber collected data from the entities that have reported their cancellation and inquired about their motivation behind the decision to terminate their business.The results of this research showed that there are some interesting motives for cancelling a business. Thirty percent of the companies indicated that their annulment was due to lack of commercial activities. According to them the sales were not sufficient and the general public was not interested enough in their business. The second most common reason for cancelling, supported by almost eighteen percent of the respondents, does not per se mean the termination of the business. This group just changed their type of entity. In order to change from one entity to another, the previous entity needs to be terminated before a new one can be created. Depending on the success of their business many entrepreneurs reach a point where they might consider a different type of legal form that is more beneficial to them and their business. The Chamber continuously provides information and tries to make starting entrepreneurs aware of the possibilities and consequences regarding whichever type of entity they favor. It is not a simple decision and the choice has to be thought through. Further down the list of motives to cancel their registration almost sixteen percent of the respondents indicate that the high costs of doing business is the reason why they closed their business. This motivation is immediately followed by lack of financing with thirteen percent. The commerce of Aruba is going through a phase in which innovation and creativity are key to the survival of businesses. Due to technological developments and consumer behavior, it is not easy to operate a business the way it has been done for decades. The Chamber intends to keep this research on cancellations ongoing in order to monitor developments and collect data. The collected information will be used by the Chamber to develop workshops and other tools with the intention to stimulate and support the commerce and economy of Aruba.