Hanging on By our fingertips

Hanging on By our fingertips

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It is a truth, pretty much universally accepted now, that entrepreneurship has a significant role to play in creating new jobs and growing economies. The news that South African entrepreneurship is still performing below its potential – despite gains made in 2010 – is therefore concerning.

According to the latest South African Global Entrepreneurship Monitor (GEM) research released by the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business in mid-June, Total Early-stage Entrepreneurial (TEA) activity in South Africa was at 9,1% in 2011, statistically not different from the level of 8,9% in 2010, but the country has slipped back below the median of entrepreneurship rates of all 54 countries participating in the survey.

GEM is the largest research project of its kind in the world and South Africa has participated in the study for the past 11 years. This provides us with unrivalled longitudinal data set upon which to draw conclusions and base policy recommendations.

No new growth

The cumulative data from GEM shows that entrepreneurship in South Africa, after holding steady at low levels for many years, jumped 62% from 5,9% in 2009 to 8,9% in 2010. This was largely ascribed to the 2010 World Cup.

But while we should celebrate the fact that we have not slipped back to pre-2010 levels, something that many observers predicted would happen, we cannot afford to ignore the fact that the numbers also show us that more work needs to be done to support this crucial segment of our economy.

Historically,South Africahas always been below the GEM median. In 2010, the country managed to get above it (by two points) for the first time. The fact that we have slipped below again, despite the fact that our TEA rates are holding steady, is a red flag that alerts us to the fact that we are not performing as well as we should be on the global stage. As global economic conditions have improved, other countries are taking better advantage of this than we are.

There is huge potential for entrepreneurship in this country. Arguably enough potential even to help the government meet its ambitious targets of 5 million jobs in the next five years. If you compare South Africa with similar economies like Brazil and China, we should be performing at about 14 or 15%. In other words for every 100 adults between the ages of 18 and 64, 14 or 15 should be engaged in running their own business. Why this is not happening needs to be interrogated.

SA’s perception of entrepreneurship

The report shows that people’s perceptions towards entrepreneurship in South Africa are changing. Five years ago, only 36% of those surveyed thought that they had the ability to start and run a business and 27% saw opportunities to do so. In 2011, by contrast, 42,8% more people believed that they have what it takes to be an entrepreneur and 40,7% say they can see opportunities out there. And yet this is still not translating into gains on the ground, suggesting that the problems are more systemic.

Over the years, the GEM research has pointed to several factors that inhibit entrepreneurship in South Africa. The major challenges remain top-down corruption, high levels of crime, low standards of education – particularly at primary school level – and poor health among South Africa’s labour force. Significantly,South Africa performed badly on all these metrics in the latest Global Competitiveness Index.

2012 and the BRIC countries

This year the research also looked specifically at BRIC countries – weighing up how South Africa performs relative to this group. The picture that emerged was not pretty, with South Africa only barely pipping Russia at the post on many key metrics.Brazil and China lead the pack with high levels of TEA (14,9% and 24% respectively).

InBrazil, the TEA rate has increased by 28% since 2006 – an improvement attributed to well-managed government programmes to stimulate and support small businesses, as well as numerous legislative reforms that focus on making it easier to start businesses. Surveys amongst citizens also showed a significant increase in perceptions in the population about their ability to start and run businesses.

Media support for entrepreneurship is also a significant factor. In Brazil the media supports entrepreneurial initiative with free advertising and coverage and by publicizing issues affecting entrepreneurs.

National experts participating in the study ratedSouth Africa’s physical infrastructure highest in terms of stimulating entrepreneurial activity, while government entrepreneurship programmes scored lowest. There was strong criticism levelled at the fact that government agencies with significant funding were often still not addressing the needs of entrepreneurs adequately.

Addressing these issues

There are plenty of things that we can do to address these issues. From investing in education and training – especially for the youth who represent the largest segment of the unemployed – R&D transfer, and infrastructure to promoting access to finance and further reducing of red tape. Established business should also be encouraged and incentivized to support small business.

Understanding what is holding us back and finding ways to fix this is important not only to create opportunities for more businesses to emerge, but also to ensure top level support for those business that have managed to hang on since 2010 so that they mature into established firms that will generate more jobs.

Historically South Africa has had a high attrition rate meaning that new business mostly fail before they reach maturity. This is disastrous for the economy as mature businesses generate the most jobs.

We cannot let up the efforts to support and grow these entrepreneurs, transforming South Africa’s entrepreneurial environment, and creating opportunities for lasting economic growth is vital for us all.

Mike Herrington
Mike Herrington is the team leader on the South African GEM project. The GEM research is funded by South Africa Breweries, The Swiss South Africa Cooperative Initiative and the Small Enterprise Development Agency.
  • Thanks for a very interesting report Mike. For me the crucial factors were only mentioned towards the end – namely the support that Big Business should be giving the Baby Brothers. We are no threat to them and if the small business is going to contribute towards a healthy economy, then there is benefit to be had by all. Yes Government needs to support potential entrepreneurs. But let us not depend on them alone.

    I just want to take this opportunity to speak as a “on the ground, small business entrepreneur”.

    I have to wonder: are the negative influences mentioned in your article ( such as crime etc) the only factors impacting on the slow growth of entrepreneurship in SA. Yes, there are many of us who see the potential to open and run our own business and we know the potential we have within us. But, entrepreneurship I have discovered can be likened to building a house. Line upon line starting with the foundation. My question is : how many of us know how to ‘ build’ a business thinking like an entrepreneur, instead of like a Technician or Manager. When I started out, I didn’t!

    When I woke up to the fact that I have to transform my mindset and behaviour as a business owner from being a Technician to being just that – an Entrepreneur- I realized what I was in for.

    I have looked around me, seen many new businesses fold and not felt very encouraged by this. Again I wonder, could this also be a contributing factor that puts other potentials off becoming entrepreneurs?

    But, there is nothing more that I want than to grow myself as an entrepreneur and to grow my business. I hope that many more potential business owners will join me on the entrepreneur’s journey. But I have to say this in closing – I do wish that the successful entrepreneurs who made it big would come alongside us, without charging us an arm and a leg to gain the knowledge and understanding we need to grow. Somehow it would speed the process up a little more. If they are out there, can someone please point me to them.