Connect with us

Business Landscape

Rise Up, Entrepreneurs!

A fresh focus needed to drive entrepreneurship and job creation.

Allon Raiz




The South African government has implemented many policies and programmes to promote job creation and entrepreneurship, particularly amongst the alarmingly high numbers of unemployed youth. The focus of these policies and programmes has been on the creation of start-up businesses.

Despite the vast resources committed to these programmes, their success at reducing unemployment is almost negligible.

Given that South Africa is resource strapped, does this focus on start-up creation represent the most effective policy stance towards small business? And if not, what policy measures should the government be focusing on instead?

Job creation power

The importance of small businesses overall in terms of employment is unquestionable. The Adcorp Employment Index for March 2012 shows that, in South Africa, 68% of employees are employed by small businesses employing less than 50 people, with two-thirds working at businesses that have less than five employees.

South Africa’s start-up business rate of 5.2%, as per the GEM 2011 Report, is notably higher than its new business rate of 4.0%, indicating that start-up firms dominate the country’s total early-stage entrepreneurial activity.

The GEM 2005 Report found that less than 4% of start-up businesses (defined as functioning for less than three and a half years) take on any staff. Mike Herrington, executive director of the Centre for Innovation and Entrepreneurship at the UCT Graduate School of Business, points out that this means that for every 100 new small businesses, only about 10 additional jobs will be created.

On the other hand, further evidence from GEM shows that established small businesses, those that have survived for three and a half years or longer, are the ones that create jobs. The GEM 2011 Report states that these businesses create 3.2 jobs on average, and further states that established small businesses create 32 times the employment opportunities that start-up businesses do.

The GEM 2011 Report indicates that South Africa has an established business ownership rate of 2.3%, which is substantially lower than the average of 7.2% for all participating efficiency-driven countries. In terms of established business activity, South Africa ranked 52nd out of 54 countries.

This suggests that to create more jobs government policy should focus on supporting established small businesses rather than start-ups.

Related: (Video) What Makes SA  a Good Place To Do Business

Interventions for sustainable job creation

While the government’s New Growth Path (NGP) targets for job creation appear ever more unlikely to materialise, it is essential to identify the interventions that are most likely to lead to sustainable job creation.

Focus on established businesses with potential for considerable growth

Most often it is the operation that employs around 10 people that is ready to cope with expansion. These are the businesses that should be receiving the bulk of our support services in the form of incentives, grants, export assistance, access to new markets, mentorship for the processes of business expansion, and even subsidies for selected essential services such as financial and HR consulting.

Agencies such as the National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC) should actively court these small businesses and provide them with proposals for expansion. Private sector agencies and banks should aggressively target this sector. In addition, giving procurement preference to this sector would assist suppliers with capacity building.

Relax labour policies

A working paper published by the African Development Bank in October 2012 states that:

Firm level surveys indicate that the single greatest impediment to the more rapid growth of outward-oriented manufacturing in South Africa is the high level of real wages relative to productivity levels. […] Labour market regulation – in particular the “extension provision” which requires collective bargaining agreements to be extended to all firms in an industry, regardless of size – is inhibiting investment and growth.

Small businesses cannot currently hire staff in confidence, because it is so difficult to fire people who are not performing. The Global Competitiveness Report 2011-2012 ranked South Africa 139th out of 142 countries in terms of rigid hiring and firing practices.

While laws to protect employees against exploitation and abuse are needed, there has to be a balance that makes it easier for companies to choose and retain the best person for the job. Relaxing the current dismissal regulations for the discretionary probation period would go a long way towards addressing this matter.

The existing regulations are counter-productive. Thousands of small businesses in South Africa, in fear of the arduous and costly dismissal process, are resorting to using temporary staff or hiring people only on short-term contracts.

The Adcorp May 2012 Employment Index notes that since 2000, permanent employment has fallen from 11.0 million to 9.1 million workers, a decline of 1.9 million workers or 18.7% of the workforce. In the same period, the number of temporary workers has increased by 2.6 million workers or 187.5%.

For the people in these jobs there is no job security; neither is there an incentive to strive to become a valued member of the workforce.

Related: Africa’s Got the Talent

Import needed skills

The concern that foreign workers will take jobs away from local people is misdirected – a lack of skills inhibits job creation because without a skilled workforce the economy cannot grow. When intellectual capital flows freely, it supports growth; yet current policies deny South Africa the benefit of an influx of skills, further stifling our economy.

Brazil, which has the world’s sixth largest economy, has traditionally had a permissive immigration policy. Its booming economy is now attracting growing numbers of Portuguese speaking immigrants from job-starved Europe.

Entrepreneurship is flourishing in Brazil– its Global Entrepreneurship Week in 2010 attracted 50 000 entrepreneurs, compared with the 8 000 who attended South Africa’s.

Open up access to African markets

Intra-African trade is tiny relative to what it could be. Given a giant market on our doorstep (up to 30% of Africans are now middle-income earners)South Africa fails to compete with suppliers from abroad. Indian, Chinese and South American products are flooding into Africa– where are the South African goods?

Our potential exporters are hampered by old trade monopolies, cumbersome Forex regulations, corruption, cross-border nightmares and a lack of infrastructure.

Government is not working hard and fast enough with its African trading partners to ease the trading environment, improve capacity at border posts, and clear the obstacles to a smooth movement of goods. South Africais ranked as 115th out of 185 economies for ease of trading across borders in The World Bank’s Doing Business Guide 2013. This is a regional problem that is stifling cross-border trade: Sub-Saharan Africa on average ranks 137th.

Focus on entrepreneurial education rather than start-up financing

Contrary to popular opinion, lack of access to finance is not the primary obstacle to small business growth. More money won’t solve the problem. A bigger concern should be entrepreneurial skills development and education.

A Development Bank of Southern Africa working paper published in 2011 summarises the South African government’s youth entrepreneurship programmes as follows:

The NYDA is responsible for overseeing and monitoring these interventions for young people, including the provision of loans for young entrepreneurs, business development services, potential support for youth cooperatives and the introduction of youth entrepreneurial training in schools. However, the number of young people accessing these services in 2010 was almost negligible. Hence, there is a major gap in youth entrepreneurial training, which needs to be addressed if self-employment is to provide a pathway into employment for young people.

Emerging entrepreneurs urgently need to learn to understand the concept of a commercially viable business. A legacy of our failed education system and the previous deliberate marginalisation of black entrepreneurs is that the majority of emerging entrepreneurs have not had exposure to the complexities of building a viable and sustainable business.

They also often have no experience in identifying viable opportunities and developing these into sustainable ventures.

Banks would love to lend more money if it meant that they could get a competitive return on their investment. There is a great deal more money chasing good ideas than there are good ideas trying to get funding. Again, the solution is to give targeted support to those businesses that have the right potential, and the funding would follow.

Here, the private sector could make a strong contribution in the short-term by deploying skilled personnel (even for a few hours a month) to mentor smaller companies within their supply chains.

High potential

Whatever the problems in the small business sector, South Africans are enterprising. With the correct support directed at high potential established small businesses, a lighter corporate governance load and entrepreneurially friendly legislation, entrepreneurship can be the solution to reducing poverty and increasing job creation.

Continue Reading
1 Comment

1 Comment

  1. Wendy Ferguson

    Feb 27, 2015 at 11:56

    The IDC has to be the worst funding agent to approach they disrespect women by the CEO referring to me as his darling and sweetheart and that I will be under his “personal” protection and not respecting me as a professional businesswoman and when I objected he cut my funding off. They also demanded my formulations and customer data base (have a look at their financials page they own a cosmetic and skincare company of their own) my products is a skincare range for cancer patients. They refused to sign a NDA stating that should my IP be exposed that the IDC would be responsible for ALL legal costs and now refuse to return any telephone calls, emails or personal calls at their offices and I have had to take them to the public protector. they literally have brought my company to insolvency as I cannot approach another funder because I had to sign over 100% of my company shares and the contract states that should I ever go to a resolution body or seek legal advice the contract is immediately cancelled and the funds already borrowed have to be paid back immediately! So THIS is the famous IDC stay away from them!

You must be logged in to post a comment Login

Leave a Reply

Business Landscape

How Economic Crime Is Impacting Business In South Africa

77% of SA organisations have experienced economic crime and CEO’s and boards are increasingly being held accountable for economic crime.






South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey.

South African organisations that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire.

The Global Economic Crime and Fraud Survey examines over 7200 respondents from 123 countries, of which 282 were from South Africa.

The rise of economic crime

Trevor White PwC Partner, Forensic Services and South Africa Survey Leader, says: “ Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%. However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”

Related: PwC Focus On Sugar Tax

Economic crime in South Africa is now at the highest level over the past decade. It is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.

While the overall rate of economic crime reported was indeed the highest for South Africa, the period-on-period rate of increase for South Africa and Africa as a whole was below that of our American, Asian and European counterparts.

Global indicators of a rise in economic crime

From a regional perspective, the biggest increase in experiences of economic crime occurred in Latin America, where there was a 25% increase since 2016 to 53% in respondents who indicated they had experienced economic crime. The US was a close second with a 17% increase over 2016 to 54% of respondents, while Asia Pacific and Eastern Europe experienced increases of 16% and 14%, respectively.

Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents. While the instances of reported cybercrime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016.

One of the new categories of economic crimes was that of “fraud committed by the consumer”.

It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in SouthAfrica is fraught with criminality.

Related: PwC: Pria Chetty

When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling. Accounting fraud, which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%.

Accountability of the board

Accountability for fraud and economic crime has moved into the executive suite, with the C-Suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.”

The survey shows that almost every serious incident of fraud has been brought to the attention of senior management (95%).

85% of South African respondents indicated their organization had a formal business ethics and compliance programme in place.

In addition, 20% of local respondents indicated that the CEO (who is part of the first line of defence) has primary responsibility for the organisation’s ethics and compliance programmes, and is therefore more instrumental to the detection of fraud and the response to it.

Continue Reading

Business Landscape

PwC Focus On Sugar Tax

The proposed sugar levy is unlikely to make sizeable dent in fiscal deficit, but the Sugar Beverage Industry is offering a helping hand to reduce obesity.






In 2016, the National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect April 2018. The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.

The fiscal deficit has been widening as National Treasury faces slow economic growth and a shrinking tax base. Initially estimated at 3.1% of GDP, fiscal deficit projections increased to 4.3% of GDP in October last year.[i]

However, official data suggests the deficit already reached R195 billion in the first 8 months of the 2018/19 fiscal year, so it could amount to approximately R250 billion, thereby exceeding Finance Minister Gigaba’s October projections by 25%.

The levy has undergone various changes since it was first announced.

When the levy takes effect in April this year, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml.

This is down from an initial 2.29 cents per gram of sugar with no exempted amount.[ii]

Related: Silver Linings For Smaller Businesses In Budget 2018

Our estimations suggest the tax burden is approximately 10% given current levels of sugar content, down from approximately 20% previously. In addition, industry has recently reacted to the news of the SBL, reducing the sugar content of popular beverages by including non-nutritive sweeteners.

In addition to efforts to reformulate, the industry introduced smaller bottle sizes to curb excessive sugar consumption and limit the excise tax burden.

SBL excise revenue estimations

We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R 1.4 billion excise revenue gain for government.

However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07bn and lower than expected excise revenue gain for government of R990mn.

Given the estimated fiscal budget deficit of up to R250bn, additional revenues of between R990mn and R1.4bn are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.

In our quantitative analysis of the proposed tax on SSBs, we use the PwC Economic Impact Assessment Model to derive the potential impacts, based on a 10% sales reduction calculation due to potential excise driven price changes.

Although excise revenues are expected to increase, other tax revenue streams are likely to experience a decline. Not considering excise impacts, the prospective tax revenue loss stemming from reduced sales revenues and showing in lower VAT, corporate income tax (CIT) and personal income tax (PIT) could range between R363 million and R518 million in the reformulation and non-reformulation scenarios, respectively.

Related: 4 Budget Speech 2018 Outcomes To Know For Your Business

Therefore, the net impact on estimated tax revenue combining the implications for excise tax, VAT, CIT and PIT revenue would only range between R631 million and R856 million, subject to which scenario is implemented.

It is unclear whether the SBL levy will assist in reducing consumers’ sugar consumption. However, industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.

Smaller sizes nudge consumers to lower sugar consumption

In addition to reformulating popular SSBs, the beverages industry has altered the size of the 500ml buddy bottle to 440ml, potentially nudging consumers to reducing their sugar consumption.

The move to the 440ml bottle represents a 12%[iii] reduction in size and means that sugar content fell from 53 grams in the 500ml bottle to 46.6 grams in the 440ml bottle.

The implementation of the new levy could still result in an approximately 61 cent increase in the price of the 440ml bottle.

It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the SBL can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.

Continue Reading

Business Landscape

What It Will Really Take For South Africa’s Businesses To Scale And Create Jobs

It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.

Graham Mitchell




Much has been said about the potential of SMEs to drive job creation and economic growth for South Africa. Our unemployment rate is at 26.7% – an astonishing figure that speaks volumes about the dire need for job creation. On the back of this, we are seeing increasing amounts of money being channeled into incubators and the funding of startup companies.

Although important, the starting of new businesses, unless they are completely innovative, well-timed and highly scalable, will not provide us with much-needed quick wins on our path to job creation and economic growth. It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.

The state of established businesses in South Africa

Established businesses that already employ 10-20 people have a working product, willing buyers and a proven business model and with some modifications, increased guidance and adequate management, they have the potential to increase their number of employees significantly as they scale up. However, a 2016/2017 report by the Global Entrepreneurship Monitor (GEM) in partnership with the University of Cape Town found that the rate of established businesses in South Africa has declined by an incredible 26% since 2015.

Related: How South Africa’s Small Businesses Plan To Invest Their Money In 2018

In fact, South Africa had one of the lowest established business rates of all the economies that participated in the GEM 2016 study (ranked 61st out of 65 economies). This, the report says, “paints a bleak picture of the SMME sector’s potential to contribute meaningfully to job creation, economic growth and more equal income distribution.” While we should not neglect the starting of new businesses, scaling up established businesses will provide young people with much needed experience to ensure that when they eventually start their own businesses, they may have greater chances of success.

How to increase the proportion of established businesses that scale up    

Have a clear vision for your business

When we as business coaches work with established businesses that are scaling up, we make sure to start with the founder as their attitudes and desires determine how far the business will go. Scaling up an established business begins with a clear vision. Often, we find that the businesses owners don’t have a clear vision of where they want to take their business, and without a vision, it’s very difficult to scale.

Determine why your business exists

Linked to a clear vision, business owners need to have a strong purpose that answers the question of why they want to scale. Some business owners often see their business as a vehicle that provides them with an income, rather than the business serving a bigger purpose to impact an industry or the broader society. As a result, they often stop short of developing the full potential of their businesses.

Be willing to learn and seek help where needed

Business owners also need to have a willingness to learn. Being entrepreneurs, they often have a definitive view of the world and how it should work, which drives them to create something that they believe needs to exist (a new business venture). A risk to these strongly held views and high levels of confidence is that entrepreneurs potentially won’t open themselves up to new ideas, or to being challenged that some of their beliefs and views may, in fact, be holding their businesses back.

Business owners need to realise that they may not have all the skills to scale their business. I’ve found that entrepreneurs tend to be strong in customer service, innovation and sales, and are often weaker in people management and attention to detail – skills that become a lot more critical at the point of scaling the business.

Related: Levergy Founders Tell You How To Scale Quickly – And Intelligently

business-day-tv-sme-summitOther areas of importance in scaling up

There are other critical areas that businesses need to address in scaling up but dealing with the founder is most critical. Strategy is one, cash flow is another, as is the question of hiring/finding and developing key talent. I will be unpacking these and more at the upcoming Business Day TV SME Summit on 8 March; and with increasing efforts by government to address the unemployment crises through platforms like the Jobs Summit announced in the State of the Nation Address, we hope that more conversations are had around harnessing the job creation power of established businesses that manage to scale up quickly and sustainably.

Continue Reading



Recent Posts

Follow Us

We respect your privacy. 
* indicates required.


FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​