The State Of South African Entrepreneurship

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The latest data from the Global Entrepreneurship Monitor shows the entrepreneurial intention is nose-diving in South Africa contributing to a worsening economic situation. Fewer and fewer people in South Africa want to start a business that could potentially go on to create jobs and build the economy. According to the latest Global Entrepreneurship Monitor (GEM) South African report –released on the 25th May 2016, entrepreneurial intention in South Africa is at an all time low while rates of start-ups remain sluggish and job creation is suffering.

The report shows that entrepreneurial intentions in the country have dropped by almost 30% (from 15.4% to 10.9%) when compared to 2013 and almost halved when compared to 2010.

Entrepreneurial intentions in South Africa are also significantly lower than for the African region as a whole. The regional average is 3.6 times higher than for South Africa – while the average for similar efficiency-driven economies in the GEM survey is more than double South Africa’s score.

According to Mike Herrington Executive Director of GEM and co-author of the South Africa report, the new data is cause for alarm.

“If news last week that Egypt has overtaken South Africa as Africa’s second largest economy was not enough to sound the alarm that it has never been more important or urgent for South Africa’s policy-makers to make a strong commitment to growing the economy, then this latest data should. In addition, the country has just revised its growth rate to 0.45% which is four times less than population growth. Very worrying indeed,” said Herrington

“A key priority is to introduce reforms aimed at fostering a more enabling business environment, particularly for the small and medium-sized enterprises that contribute so much to employment,” he added.

National experts interviewed as part of the research cited three main areas as critical constraints to entrepreneurship in South Africa namely: government policy (61%), access to finance (44%) and education and training (42%).

“These three areas have been highlighted as critical factors since South Africa first participated in GEM in 2001. The fact that government policies are rated as a critical constraint by almost two-thirds of the experts is particularly disappointing in light of the fact that the government has repeatedly identified the SMME sector as an important vehicle for addressing the challenges of job creation, economic growth and equity, and committed itself to helping to create an environment in which businesses can get on with their job,” commented Penny Kew, co-author of the report.

The report notes that a weak job-creating capacity in the economy has led to chronically high unemployment and – even more significantly – under-employment, which has in turn been a critical contributing factor in the country’s persistent poverty and inequality.

Kew said that the latest data indicate that this is only going to get worse. “Two things that we are seeing which are worrying is an increase in the number of entrepreneurs who are starting businesses because they have no other choice – what GEM calls necessity motivated business – and a low rate of established businesses in the economy ( i.e. business that survives for more than three years).”

Necessity-motivated entrepreneurship was up by 18% in 2015 and the rate of established business in 2015 was 3,4%, which is significantly lower than the average for efficiency-driven economies at 8%.

“Of particular concern is that South Africa has one of the lowest established business rates of all the economies that participated in GEM 2014 (ranked 53 rd out of 60 economies),” said Herrington.

“Also worrying is the percentage of early-stage entrepreneurs who say that they expect to generate no jobs within the next five years. This has increased considerably since 2013. Entrepreneurs in 2015 were almost four times more likely to anticipate making no contribution to job creation besides self-employment for the entrepreneurs themselves.”

On a more positive note, South African entrepreneurs are on average more innovative than their counterparts in the rest of Africa. Half of South African entrepreneurs believe that their products/ services are new to all or some of their customers, compared to the African average of just over a third. South African entrepreneurs also display relatively high levels of international orientation, with almost a quarter of entrepreneurs reporting that 25% or more of their revenue comes from international sales.

“There is still much potential in the entrepreneurial sector, despite what the numbers are showing,” said Herrington. “But first we need to address the inhibitors; at the top of the list of which is inefficient government bureaucracy. Government bureaucracy also featured strongly in the 2015/16 Global Competitiveness Report’s list of most problematic factors for doing business in South Africa (in second position, up from third position in 2014/15). Human capital development, stimulating female entrepreneurship and encouraging an entrepreneurial culture in South Africa are also key.”

Herrington said that GEM is the longest running and most rigorous research project on entrepreneurship globally. It annually measures perceptions and rates of entrepreneurship and entrepreneurship intention in adults between 18 and 64 in more than 60 participating economies around the world.

“South Africa has participated in the survey for the past 15 years and so there is a wealth of data available to inform policy going forward – for those who want to heed it,” he said.

 

You can download the full report here.

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