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Hanging on By our fingertips

South Africa’s entrepreneurs are holding on to gains made in 2010 but are still performing below their potential.

Mike Herrington

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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 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.

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Business Landscape

Customer Control For Entrepreneurs

How can small companies exert a degree of control over their customer base and help ‘guide’ them in such a way that they remain loyal and continue purchasing from them?

Gary Harwood

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No organisation, irrespective its size, industry, and geographic location, can succeed without customers. And given how the digital environment has made it easier for competitors across sectors to emerge, entrepreneurs are especially under pressure to balance customer needs and desires, with value propositions that still make them money.

There is clearly a fine balancing act to manage.

On the one hand, you have people who (thanks to technology) are aware of the power they have over product development and pricing. After all, if a competitor sells a product or service at a lower price, who is the customer going to go with? Add to this, the ability to customise solutions according to data analysis of specific end user needs, then you have a situation where many entrepreneurs feel they are facing a never-ending struggle.

On the other, small to medium businesses must be able to produce products and services in such a way that cash flow is maintained. As any entrepreneur can attest to, not having a reliable cash flow is tantamount to business failure. So, how can small companies exert a degree of control over their customer base and help ‘guide’ them in such a way that they remain loyal and continue purchasing from them?

Related: How English Language Skills Play An Essential Role In Building Trust With Your Customers

Managing expectations

One of the most important elements in this regard is managing customer expectations. The emergence of social media and the power it has to influence people’s buying decisions, cannot be overestimated. Today, more than ever before, the likes of word of mouth, marketing, and public relations as a direct result of social networking can often grow or sink a burgeoning business.

It has also created a dynamic where customers feel that if they leave a negative comment or ask a question, they expect a response almost immediately. For entrepreneurs already trying to do everything themselves while managing the business, this can often be a major cause of frustration. But it does not have to be the case.

By setting parameters up front with customers in terms of response times, queries, and even experiences, small businesses can start leveraging the power of social networking and other digital communication technologies for their benefit.

Being pro-active and taking charge of these expectations puts the organisation in more control than if a hands-off approach is followed.

Being open

Openness and transparency might sound like luxuries no entrepreneur can afford, but these concepts build strongly from managing expectations. Having open discussions with customers on aspects of support, product requirements, and even their (the end user) own expectations can greatly assist a small company to provide a more bespoke approach to products and services.

Related: 5 Techniques To Leave Customers Grinning And Vowing To Return

In addition, by providing customers with various resources (think troubleshooting or ‘self-help’), the entrepreneur is empowering them to take control of their own experiences with the company. It also means they are not as reliant on company resources if they were to phone the organisation or email a complaint. The added benefit to this approach is the customer can manage their own experiences when they have the time to do so irrespective of whether it is 10:00 or 22:00.

Granted, the path to customer control (perceived or otherwise) is not an easy one to take. However, no entrepreneur can afford not to take notice of these requirements and put the customer at the forefront of their thinking.

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Business Landscape

What Can Businesses Expect From The Future Of Work?

While the future of work will always be a constant process of innovation and change, here are a few things that business today can expect in the near future.

Josh Althuser

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The phrase “future of work” is something professionals have been talking about since the birth of the traditional workplace in the late 19th century.

Once defined by cubicles that were arranged neatly side by side with meeting rooms and, of course, the head office with an amazing view of the skyline, today’s offices are strikingly different.

Over the last decade, there has been a surge in the development of open-plan offices, and more and more companies are moving their employees to co-working spaces and experimenting with remote work. For businesses that are still straddling the traditional office, but looking to embrace the future of work, it could be overwhelming at first. While the future of work will always be a constant process of innovation and change, here are a few things that business today can expect in the near future.

Expect flat hierarchies

In 2017, most companies have recognised that employees, especially younger ones are turned off by the conventional hierarchies that once dominated the world place.

Related: 5 Inexpensive Workspace Improvements That Boost Productivity

Start-ups and small businesses often pride themselves on their “flat” workplace culture, which aims to give both leaders and employees the chance to give input on an equal level. In theory, these structures aim to make room for more innovation and also to help workers feel more appreciated in their roles.

Yet, it doesn’t come without its issues. There have been various studies showing that egalitarian workplace structures can be disorienting and can potentially result in higher turnover rates, as employees feel lost in their roles. Thus, it will take time for the workplace to strike a balance between structure and equality, but so far it seems we are well on our way. 

The architecture of the office space is changing rapidly

Chances are you’ve heard of open-plan offices. With corporate giants like Facebook and Google companioning the flexible workspace, company around the world are breaking down literal walls to create airy and open offices that encourage collaboration.

Again, much like the flat workspace, open-plan offices need to be considerate of individual needs. While many workers appreciate the chance to work in a more informal setting, the open office has also faced criticism for introducing new distractions by not including enough private areas, which can lead to a downturn in productivity. As a result, more companies are turning to co-working spaces, which offer both workspace and community space.

Co-working spaces differ from open-offices in the way that they provide community management, structure, and flexibility, ensuring that workers have their needs met, whether that means a private office for the whole company or a hot desk for workers who just want to come in a couple of times during the week. 

Related: Workplace Evolution 2.0: Are You Ready For The New Era?

Remote work will be commonplace

Allowing employees to work remotely has proven to be successful. Companies have been introducing remote days over the last five years, and some even allow their staff to telecommute on a full-time basis. In the early days of the freelance ecosystem, remote work was considered to be unprofessional, but we have learned over the years the allowing employees to telecommute, even on a part-time basis can make them more productive and satisfied in their roles.

There’s no doubt that advancements in communication tools, such as Slack, have allowed workers more freedom, but there are also enormous benefits for businesses as well.

Companies can save on overhead costs by moving teams into a co-working space, or take out a flexible lease in combination with allowing workers to work outside of the office, even if it’s just a few days a week. By saving on rent and utilities, leaders can make room in their budget to invest in employees, by offering educational workspaces or purchasing new equipment.

Overall, these changes have a long way to go before they become permanent fixtures in the workplace. In fact, many businesses are now experimenting with various workplaces trends to find what works best for them and their employees.

Yet, even if you are not ready to grant your staff remote days or turn your office into a single shared space, it’s vital that your business is aware of these trends so you can keep up with the rapidly changing future workplace.

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Business Landscape

How Investors Can Take Advantage Of The Rand’s Currency Trading Rates

Negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

Harald Merckel

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The USD/ZAR currency pair is trading in the 13.65 range heading into mid-December 2017. Over the past year, the 52-week low was 12.3126, and the 52-week high was 14.5742. As one of the more volatile currencies in the trading spectrum, the ZAR is closely associated with the political shenanigans taking place in South Africa.

The year to date return for the currency pair is -0.50%, after having started 2017 at 13.7351. Much of the activity taking place with the ZAR is speculative. Futures contracts are largely responsible for the whipsaw movements in prices.

Wilkins Finance strategists stress the importance of credit ratings agencies on currencies:

‘Whenever credit ratings agencies such as Moody’s and Fitch downgrade their assessments of the South African economy, this has a negative impact on the ZAR. The impact is not always predictable however – towards the end of November 2017, the USD/ZAR had appreciated after the recent ratings downgrade of the economy.’

Moody’s Investors Service downgraded South Africa’s economy to a rating of Baa3. This is the lowest rating level for Moody’s. Further ratings will be announced in February next year. Fitch has already downgraded the foreign currency and local currency to BB +, but has offered a stable Outlook for the ZAR.

Related: The Business Of Anxiety In Business: Giving Heroes Permission To Feel Vulnerable

That S&P also downgraded the South African economy to sub-investment grade is an important decision, and one that will have negative ramifications for the South African bonds market. Now, the Barclays Global Bond Index will no longer feature South African bonds. That South Africa’s bond market will be excluded from the World Government Bond Index will also be a bugbear to any hopes of the ZAR appreciating.

Interest Rates in the South African Economy

The South African interest rate is highly attractive to foreign investors, given that the UK, US, Canada, Japan, and European bank rates are at historic lows. There is little to be gained by investing cash in fixed-interest-bearing securities in these economies. The current interest rate in South Africa is 6.75% (as at November 23, 2017). The interest rate has dropped to expand economic activity in the country.

Overall, South Africa’s inflation rate for the year is expected to remain at 5.3% dropping to 5.2% in 2018 and rising to 5.5% by 2019. Global investors remain concerned about the risk/reward environment in South Africa. The country has experienced significant capital outflows in recent years, driven in large part by uncertainty regarding future prospects. The USD/ZAR was trading at 14.60 in late November, and current ZAR strength is being attributed to USD weakness.

Related: Offshore Business Opportunities Abound For South African ‘Oldpreneurs’

Factors on Both Sides of the Atlantic

One of the major economic events affecting exchange rates will be the reconciliation of the House and Senate bills on US tax legislation. Any major overhaul of the US tax code will invariably result in a dramatically boosted USD, and a weakened ZAR. For traders, it appears to be short-term call options on the local currency and long-term call options on the USD.

It is evident that currency traders are hedging against the ZAR over the long-term. The fundamentals of the economy are structurally unstable. The power grid infrastructure, water supply problems, and political instability at the highest echelons are but a few of the many problems plaguing South African growth prospects.

However, the ZAR will draw strength from the election of a credible leader, and this will be particularly noteworthy with Cyril Ramaphosa’s appointment. Overall, negative sentiment is likely to be pervasive with the SA economy, and it will take more than a new figurehead in government to right the wrongs of a mismanaged economy.

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