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South Africa: Advancing or Inhibiting Entrepreneurs

Is South Africa an ideal environment for entrepreneurs? What conditions do our risk-takers operate in when measured against the rest of the world? A global report on the factors that enhance and inhibit the creation of new businesses – which are, of course, the very things that can make or break an economy – seeks to answer these profound questions.

Kevin Bloom

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Advance or Inhibit entrepreneurs

You don’t have to be a business genius – or an avid reader of this magazine – to understand that there’s a very tight correlation between the level of entrepreneurship in a country and its rate of economic growth. And you don’t have to be an economics major to understand that “real” progress is measured by productivity rates and income per capita, which (if they’re both on the up) tend to pull countries out of an extractive growth phase, through an intensive manufacturing phase, and finally to a phase where the service sector predominates. Still, just in case you’ve been too busy watching your bottom-line to focus on the macro-economic implications of your start-up enterprise, here’s a bird’s-eye-view recap of the situation:

Entrepreneurs drive innovation. In developing or advanced markets, they are the people who get rid of inefficiencies by attacking the big in cumbents and forcing them into shape. In fact, high-impact entrepreneurs – those that have the ambition and drive to build pioneering, fast-changing businesses – are the ones that generate the majority of GDP growth, job creation and wealth in an economy. In other words, without entrepreneurs (literally, those who “undertake” risk) the world might still be back in the dark ages.

This is why in 1997 a multinational project called the Global Entrepreneurship Monitor (GEM) was launched to study the phenomenon. As the first and largest worldwide initiative of its kind, the aim of GEM is to fully comprehend the various factors that enhance or inhibit entrepreneurship, so that countries –or, more specifically, bureaucrats – will be in little doubt as to what policies are the most enabling.

Importantly,the primary purpose of GEM is not to quantitatively compare the number of new businesses across different countries, although it does this quite comprehensively too. It is rather, as the 2008 report states, “about measuring entrepreneurial spirit and entrepreneurial activity through different phases of the entrepreneurial process.”

South Africa has been part of this “attitude-based” initiative since 2001, under the auspices of the UCT Centre for Innovation and Entrepreneurship at the UCT Graduate School ofBusiness. It’s an expensive exercise, costing in the region of R1,3 million annually, but is believed by many to be worth the outlay. In the 2008 GEMreport, South Africais one of 43 countries measured.

How do we fare? The short answer: not great.

Overall, South Africa ranks 23rd in early-stage entrepreneurial activity, which admittedly doesn’t seem too bad when considered in the context of the following measurement: 7,8%of South African respondents – the population sample falls between the ages of 18 and 64, and covers both rural and urban areas – are in the process of starting a business. Unfortunately, although the 7,8% figure does denote a substantial increase for the country over the last few years, it is bad when held up against the average for all lower- and middle-income economies measured: 13,2%.

So what gives? Before this question can be adequately answered, it’s necessary to delve deeper into the framework that the GEM compilers use to ensure that they compare apples with apples.

Countries that participate in the GEM survey are placed into one of three categories: factor-driven economies, efficiency-driven economies and innovation-driven economies. For the sake of simplicity, it can be said that the first category is concerned mainly with countries where there is a large agricultural sector and an extractive industry based around natural resources; the second category is concerned with countries where large-scale industrialisation has led to niching and economies of scale; and the final category is concerned with countries where an expanding service sector caters for an affluent population and innovative entrepreneurial firms are the chief drivers of growth.

It’s no surprise, of course, that in the latter category you’ll find the likes of the United States, Japan, France and the United Kingdom. Some what surprising, however, is that India is measured as a factor-driven economy, against Angola, Bolivia and Iran, while South Africa is considered an efficiency-driven economy, alongside Brazil, Turkey and Russia.

Mike Herrington, lead GEM researcher and director of the UCT Centre for Innovationand Entrepreneurship, is himself struck by the anomaly. “It is, I think, because a large percentage of the Indian population is factor-driven,” he says.“It’s an amazing one, I know. Many reporters have asked me about it. But then I’d also say that South Africa is somewhere between factor and efficiency.”

Given Herrington’s assessment here, one can’t help but think that maybe, for the sake of appearances, it would have been better for us in the lower category –because, as already indicated, we are significantly below the average of efficiency-driven economies in certain key measurements, and lower than many factor-driven nations in others.

In the “new firms” measurement, for example, where countries are compared on the basis of the percentage of businesses that are older than three months, we are 38 out of 43. And in the established business category (older than 3½ years) weare even lower: 41 out of 43.

“What this indicates,” says Herrington, “is that we require a large number of start-ups to get us through. We have a high failure rate, so we need some sortof policy intervention that supports and nurtures companies through the start-up phase.”

A simple drill-down into some of the attitude-based measurements of the 2008 GEM report adds yet more weight to Herrington’s call.

For starters, 60% of South African respondents answered “yes” when asked if they saw a “good opportunity for starting a business in the next six months” – as against 40% for Egypt and 58% for India. Brazil, a country that South Africans often look to as a benchmark, came in at 44%.

But in the same set of questions, only 31% of South Africans said they had the “required knowledge and skills to start a business” – against 44% for Angola, 53% for Egypt, 45% for India and 49% for Brazil. Also, a paltry 13% of South Africans said they “expected to start a business in the next three years”, significantly lower than Angola’s 27%, Egypt’s 35%, India’s33% and Brazil’s 26%.

“What’s more,” says Herrington, “the report shows that we have comparatively poor management skills. This is because of a lack of adequate training and education, which could be attributed to apartheid. But entrepreneurship is not taught in our schools today. They say it was introduced as part of the syllabus in 2005, but that’s not entirely true. It’s not taught at all in the poorer areas.”

Exacerbating the situation is the fact that two of the key organisations established to support entrepreneurial initiatives in South Africa have so far met with very little success.

The Umsobomvu Youth Fund has been fraught with problems from the get-go, while Herrington hopes that government’s other major project, the Small EnterpriseDevelopment Agency (SEDA), an arm of the DTI, will buck the trend. “SEDA are restructuring. With new management, I think they’ll do a good job. I’ve met thenew bunch. Of course they still need to prove themselves, but I think they’ll do better than the last group.”

And then there are the other things that Herrington thinks are worth being cautiously upbeat about. Early-stage entrepreneurship, for instance, has increased dramatically over the last two years. Although our above mentioned figure of 7,8% is well below the factor-driven and efficiency-driven average, it is still 50% up on our 2006 figure – which came in back then at 5,5%. “This rise,” Herrington suggests, “is fairly important when we take into account the fact that our start-up businesses have a very low survival rate.”

Added to this is the favourable mix in South Africa of necessity-driven versus opportunity-driven entrepreneurship, the former of which is a wholly subsistence-based impetus to starting a business (no good jobs are to be had, so the only way to feed and clothe one’s family is to “hustle”) and the latter of which actually creates jobs and wealth by finding and exploiting market gaps.

Since 2004, in fact, the level of opportunity-driven entrepreneurship in South Africa has been rising steadily. “We’re surprised that necessity-driven entrepreneurship in South Africa has been decreasing since 2004,” Herrington observes, “because in Angola and Uganda it has been increasing.”

Soare these signs that South Africa is actually acquiring the hallmarks of an innovation-driven economy, even if the progress is so slow as to be imperceptible? Perhaps. What’s still uncertain is whether we now have agovernment that will lead us with intent. President Jacob Zuma may have stated in his recent State of the Nation address that he will soon be slicing the red tape that faces every new business owner, but then– as Herrington snidely point out – that’s a promise Thabo Mbeki made more thana few times.

Ultimately, it’s not just South Africa’s entrepreneurs who’re waiting with bated breath.

Kevin Bloom, an award-winning South African journalist, is currently a writing fellow at the Wits Institute of Social and Economic Research (WISER). His first book, Ways of Staying, a narrative non-fiction journey through selected concerns of contemporary South African life, was released by Picador Africa in May 2009.

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Business Landscape

We Need To Unite For A Better Entrepreneurial Future!

Here are my key entrepreneurial tips from The Passport Showcase.

Godfrey Madanhire

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entrepreneurship

In our modern world, where nationalists walk the street and xenophobic beliefs are on the rise, as a Zimbabwean serial entrepreneur and motivational speaker, I’ve identified that we need to bridge this division and unite us all through celebrating our diversity.

We need to come together not because it’s the right thing to do, but because united, we can work towards a profitable future.  However, before this can happen, we need to change the global mindset. That’s why I transformed my book The Passport into a showcase in which performers from across the continent took part and showed off their talents.

While preparing for the show I noted some important lessons that I learnt along the way. Here are my key entrepreneurial tips from The Passport Showcase.

Success can’t happen in a vacuum!

Setting up The Passport Showcase took a lot of collaboration. As an entrepreneur and a believer in a united Africa, I’ve learned you can’t operate a successful business if you’re not willing to work and deliver services to everyone. It’s for this reason I invited fashion designers, artists, and dancers, to come together and educate us about the dangers of xenophobic beliefs through their art forms.

We need to be able to blend skills and overcome our preconceived notions, in business and the arts, so that we can achieve great things.

Related: As An Entrepreneur, Be A Motivational Leader To Your Staff

Education is the key to every problem

It’s a part of starting any business; educating the public about your company and quickly converting them into consumers. Arguably the same was true of the showcase, creating a truly unique experience to inform the public about celebrating diversity.

Helping individuals understand that acceptance is key for a better future is critical for business expansion. If any of us want to expand our businesses, we need to be able to engage with different markets – who won’t chase away the unknown.

Be different

Identifying a new opportunity is one of the fundamental building blocks for a new business. Finding unique solutions is a truth that echoes across corporate industries and the arts. But change can cause concern and adverse reactions.

On our continent, ideas that disrupt the norm are needed to catapult our brothers and sisters to a brighter future. But this can only be achieved when we celebrate our diversities and collaborate.

Related: 8 Books Every Manager Should Read To Become A Better Leader

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Business Landscape

9 Ways To Elevate Your Small Business To The Next Level

The South African economy is strongly supported by the nation’s entrepreneurial spirit, which encourages a culture of growth and development in communities.

FedEx

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small-business

With the unemployment rate currently at 27.71%, people of all ages and backgrounds are looking for an opportunity to work.

Although many entrepreneurs have enjoyed great success on their small business journeys, choosing to start your own business comes with many risks. One of these risks is the financial burden it can bring. While there are various challenges faced by small businesses, it is possible to overcome these and jumpstart your business with these useful tips from FedEx Express, the world’s largest express transportation company.

1. Connect with customers

As a small business owner, it is important to know who your customers are, where they spend their time, what they are looking for and how your business can meet their needs. Times have changed and waiting for customers to come to you is no longer a feasible business strategy. In today’s evolving business environment, entrepreneurs need to be approaching their customers and building strong relationships with them to form a lasting impression. If your small business cannot grow its customer base, it cannot grow profits.

2. Network

Attending networking events will allow you to find professionals and other small business owners who offer services your business may require. Many small business owners get this critical aspect of starting a new business wrong by networking purely to gain customers, not realising that networking with other business can assist you in acquiring the services you need to continue the growth of your business. Small businesses have a lot to gain through networking at the right time and at relevant events.

Related: Licensed To Thrill: Meeting The Global Demand For Merchandised Products

3. Use social media

There are a number of social media networks and social networking platforms that can drastically grow your business, however, it is important to understand your customers and identify the channels they prefer to communicate on. By implementing a comprehensive social media strategy, you can ensure social media works as a driver of new business that positively promotes your service offerings.

4. Build customer loyalty

Building customer loyalty begins with great customer service. Great customer service starts with a positive customer experience and first impressions are vital in this regard. If a customer has an enjoyable experience when using your services, it is likely they will return and use your services on an ongoing basis. By ensuring your business has a user friendly website and informative brand collateral, new business prospects will increase and those who have experienced quality customer service from your business are likely to refer you to friends and colleagues.

5. Ask for help

All small businesses face challenges, particularly in the early operational stage. This is why asking for help from your peers/mentor who may be more experienced than you is critical. Tapping into the mind of someone with more experience and a broader knowledge base will ensure you learn and acquire the skills needed to make a success of your business. The FedEx Small Business portal offers business owners useful advice that will assist you on your small business journey. Visit www.smallbusiness.fedex.com for tips and success stories that will inspire and help you to grow your small business.

6. Hire the right people

Each person that forms part of your business needs to share the same vision with you that will drive growth. Your workforce will be responsible for the success of your business therefore, ensuring your staff remains motivated is important. When hiring a new employee, implement a check list that includes traits that you feel are imperative to the culture of your business.

Asking out-of-the-box questions in the interview will also assist you in determining if the potential employee is a suitable candidate to fill the open position.

7. Manage cash flow well

Many small businesses close due to cash flow problems. Managing money spent versus money earned is critical as it provides you with a clear indication of whether your business is running at a loss or whether you are excelling. If your small business is losing money, you can implement a strategy to iron out the issues that are contributing to this and identify ways that will ensure your business generates profits.

Related: How Online Embroidery Shop Trish Burr Found Business Success With Support From FedEx Express

8. Work to build success

Work to make a success out of your business with your employees by being involved in the everyday activities that are critical to your businesses success. Being involved will ensure employee morale remains high while allowing you to identify areas that need improvement.

9. Find inspiration

There will always be someone who has been in your current position, even if it is a different business to yours. Learning how they made a success of their business during hard times will provide you with the knowledge you need to succeed as a business owner. Starting your own business is a learning experience made easier by speaking to others who inspire you.

A business can safeguard its success if it continues to innovate. For example, e-commerce has changed the way the world conducts business, and the rise in technology has made it easier to interact with customers quickly and across borders. With economies becoming more interconnected, companies large and small are now able to access markets that were previously unattainable. E-commerce will assist small businesses in establishing their territory in the market and as a result, guarantee growth and longevity,” concludes Higley.

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Business Landscape

How Algorithmic Forecasting Can Improve Business Efficiency In Challenging Economic Times

Harnessing the power of predictive analytics, in-memory computing, and artificial intelligence to forecast risks will help entrepreneurs stay ahead.

Carryn Tennent

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Algorithmic Forecasting

The ability for businesses to accurately predict risk and develop insights has traditionally involved manual drudgery, spreadsheets, and been confined mainly to the finance department.

With the advent of new technologies such as predictive analytics, in-memory computing, and artificial intelligence (AI), smart Chief Finance Officers (CFOs) are harnessing their power to automate the process, free up human capacity, and get deeper, more accurate insights.

The success of any business, from small start-up to large enterprise, depends on how accurately they can predict future performance, as well as recognise and respond to warning signals.

Deloitte recently launched a report titled Forecasting in a digital world, the sixth in its Crunch Time series for CFOs, which delves into the advantages of algorithmic forecasting and why it will change and challenge the way businesses look at and consume data.

There is a shift away from having people gather, compile and manipulate data, to handing over the menial work to the machines – which employ data-fuelled, predictive algorithms to sift through historical data and use statistical models to describe what is likely to happen in the future.

It is a process that relies on warehouses of historical company and market data, statistical algorithms chosen by experienced data scientists, and modern computing capabilities that make collecting, storing, and analysing data fast and affordable.

Algorithmic forecasting is a well-oiled machine, with more than 80 percent of the work happening automatically. Every piece of financial data a decision maker could want is available on their device and all they need to do is ask—literally.

How it change the workforce

While it seems like the machines are taking over, humans are not left entirely out of the process. The success of algorithmic forecasting depends on collaboration with the machines and among people from different teams, including finance, data analytics, and business.

The business finance talent model should evolve to keep up with changes in how work gets done and that will likely require a different mix of people than what organisations have in place today.

However, once they hit their stride, these teams can move across the range of forecasting needs, embedding capabilities in the business and driving integration. These teams are integral to establishing an algorithmic solution that can work for the business, bring insights to life within the organisation, and support continued business ownership of the outcomes.

Related: Workflow And Business Efficiency – 5 Strategies You Ignore At Your Peril

How it changes the workplace

The new teams required for algorithmic forecasting to succeed and the pulling of human resources from other departments will need the workplace to evolve into a more collaborative space, banishing outdated silos.

Forecasting is not limited to finance but all functions, from marketing to supply chain to human resources – basically all functions that need to predict the future to drive important decisions.

While CFOs may not lead function-specific forecasting, they should help shape these forecasting initiatives since finance will inevitably use the outputs they generate.

A shared forecasting infrastructure — even a physical Centre of Excellence (CoE)—can help improve collaboration and coordination while providing efficiencies in data storage, tool configuration, and knowledge sharing.

The beauty of algorithmic forecasting is that once the work is done to solve one specific problem, the same process and capability can be extended and applied in other areas.

Algorithmic forecasting doesn’t create anything out of thin air and it doesn’t deliver 100% precision. However, it is an effective way for getting more value from planning, budgeting, and forecasting efforts.

A commitment to algorithmic forecasting is both cultural and statistical. Making it happen involves people working with technology – neither is enough on its own. Every company will make its own unique journey from its current approach to planning and forecasting to an improved approach.

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