Entrepreneurship in South Africa
Content
Table of Contents
What is the status quo of Entrepreneurship SA?............2
Profile of the South African entrepreneur...........................................................3 Sector Activity.................................................................................................... 3 Education............................................................................................................ 4 Tax burden......................................................................................................... 5 Business support services.................................................................................. 5 Financing............................................................................................................ 6
International Comparisons...........................................6
Entrepreneurial Activity...................................................................................... 6 Entrepreneurial Aspirations................................................................................ 6 Education and training........................................................................................ 7
Is this a favourable environment for ME (you) to start a business? (Support your arguments with valid facts). . . .7
Interventions aimed at increasing female participation......................................8 Education and training........................................................................................ 8 Government policies........................................................................................... 8 Access to finance................................................................................................ 9
Conclusions.................................................................9
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What is the status quo of Entrepreneurship SA? South Africa has participated in the Global Entrepreneurship Monitor (GEM) survey since 2001, and in the time since, has compiled historical data that provides insight into the extent and the nature of entrepreneurship activity in South Africa. In 2002, an analysis of 37 countries showed that South Africa ranked 19 th in overall entrepreneurial activity with 6.54% of the adult population involved in an entrepreneurial venture. This rate was the lowest of all the developing countries involved in the survey, which included Thailand, India, Chile, Argentina, Brazil, and Mexico along with South Africa. Other measures showed South Africa ranked 15th in start-up activity and 29th in new firm activity, with almost 5% of the adult population involved in starting a business and only 2% of the adult population involved in new firms. In 2002 South Africa, ranked lowest of all participating developing countries in all measures of entrepreneurship. Looking at the 2003 data, South Africa’s ranking continued to drop in the international rankings of entrepreneurial. South Africa was ranked 22 nd out of 31 countries in terms of new business formation. According to a new measure of entrepreneurial activity within established firms introduced by the GEM survey, South Africa ranked 36 th out of 40 countries. Once again, South Africa was ranked last amongst the developing countries. For the first time in 2003, another African developing country was included in the survey. The inclusion of Uganda showed that low total entrepreneurial activity (TEA) rates are not an African phenomenon as Uganda showed the highest TEA rate of all the participating countries in 2003 (GEM, 2003). By 2004 the TEA index in South Africa was 5.4% compared to an average of 9.4% and 21.0% in the developing countries. By 2004, it is pretty certain that South Africa has a relatively low TEA rate compared to the other countries. South Africa’s Total Early-stage Activity (TEA) rate in 2005 is 5.1%. The 2006 report indicated that South Africa’s position in the GEM rankings has deteriorated over time despite improved macro-economic conditions in the country (GEM, 2006). In 2008, South Africa ranked 23rd out of 43 countries, with a TEA rate below the average rate (10.6%) of all participating countries. South Africa’s TEA rate of 7.8% is significantly lower than the average for all efficiency-driven economies (11.4%) as well as the average for all middle
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to low income countries (13.2%). South Africa’s performance in terms of relative position has, since 2001, consistently been below the median and this trend continues in 2008 (GEM, 2008). The latest data on South Africa’s low entrepreneurial activity rates continues to paint a bleak picture of the SMME sector’s current potential to contribute meaningfully to job creation, economic growth and more equal income distribution (GEM, 2008). In fact, given that South Africa is characterised by a dual economy – a formal and an informal economy – it would be expected that TEA rates would be in line with other developing or emergent economies such as Argentina, Chile, Brazil and Peru. In 2008, these countries achieved TEA rates that are two to three times higher than that achieved by South Africa (GEM, 2008).
Profile of the South African entrepreneur The
2004 GEM survey discovered that men and people between the ages of 25 and 44 are more likely to become entrepreneurs than women and people younger than 25 and older than 44. Whites were also more likely to be entrepreneurs than black Africans. However, the survey went on to indicate that the differences between whites and black Africans largely reflect lower levels of education and a higher probability of being located in a rural area for black Africans compared to whites (GEM, 2004).
The GEM 2007 report concludes that youth in South Africa are positively orientated towards entrepreneurship. Despite this positive orientation however, there seems to be resistance or fear towards starting one’s own business. Various factors can be cited for this phenomenon such as a lack of self-confidence, the complexity of starting a new business and the level of knowledge/education, which might hamper entrepreneurial activities. Although other factors were also identified, such as a general lack in understanding of small business management, the important factors were more in terms of education and self-confidence. The profile of South African entrepreneurs remains largely unchanged throughout the years South Africa has participated in the GEM surveys. Men are still 1.6 times more likely than women to engage in entrepreneurial activity. The 2008 research shows that population group still has a strong influence on entrepreneurial activity, with whites and Indians being more likely to start a business than coloureds or black Africans (GEM, 2008).
Sector Activity Almost two-thirds of early-stage entrepreneurial activity in South Africa is in the consumer services sector as can be seen in Table 1 below. Although
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the consumer services sector also accounts for the majority of established business entities, it is by a much smaller margin. Both the transformative and business services sectors are well represented among established businesses (GEM, 2008). Given the low levels of skills and education in the South African population, it is unsurprising that the majority of TEA business entities are in the consumer services sector. Barriers to entry into this sector, in terms of both skills and capital required, are low. Table 1: Sector Extractive Transformative Business services Consumer services Involvement in entrepreneurial activity, by sector TEA business Established business entities (%) entities (%) 1.5 18.2 15.3 65.0 0.0 33.0 19.0 48.0
Source: GEM Report, 2008 Overall, however, the majority of businesses have a low technology orientation. There are a number of possible reasons for this, the most important being the low level of technological and science skills in the majority of the South African population, as well as the high cost of new (often imported) technology which is beyond the means of most small businesses. Given that technology is an important productivity enhancer, it is worrying that South Africa is lagging in terms of uptake of new technology.
Education Education is strongly associated with rates of new firm activity. Entrepreneurs with a matric and/or tertiary education are, on average, more likely to be able to take a new venture beyond the start-up phase. Increasing the proportion of young people who obtain matric is likely to increase success rates of start-up activity and have a positive impact on job creation. Increasing access to and success in secondary and tertiary education will ensure a higher rate of entrepreneurial activity among future generations of South Africans. In 2002, the long-term priority for increasing entrepreneurial activity was cited as the need to improve access to and success in education. The biggest concern was the lack of core skills among entrepreneurs, i.e.
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financial literacy, record-keeping and marketing. Again in 2003, two priorities seemed to stand out. Firstly, changes in the school education system are required to raise entrepreneurial awareness and create a good grounding in basic financial and businesses skills. Secondly, effective training in specific financial administration skills is required on a fairly large scale amongst existing entrepreneurs. The experts in South Africa proved to be more pessimistic than the majority of efficiency-driven countries about the availability of help outside the education system as well as the quality of school-level and post-school entrepreneurship training. The strongly negative rating of the quality of entrepreneurship education at school level is also a clear indication that the education system in South Africa is failing to prepare learners adequately for meaningful participation in the economy. These findings suggest that a lack of human capacity is one of the key obstacles to increased entrepreneurial activity in South Africa. However, without a more enabling environment that encourages individuals to see entrepreneurship as a financially viable employment option, it is debatable whether South Africa will experience a significant increase in entrepreneurial activity. This is particularly the case in rural areas as well as the less developed provinces.
Tax burden In 2002, it was cited that entrepreneurs in the formal sector are hindered by the tax compliance process which imposes a heavy administrative burden on young firms. There is a great need to reduce the administrative burden of compliance on firms in the early stage of development by introducing three-monthly cycles for payment of PAYE, skills development levy and UIF.
Business support services Business support services for registered businesses, particularly those provided by government, are often inaccessible or of poor quality. We believe that the relevant public authorities urgently need to develop the capacity to raise the quality of support services delivered to entrepreneurs. Implementation of successful government programmes depends on private sector partnerships and the involvement of experienced and successful entrepreneurs at all levels in the process.
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Financing A micro-finance industry which can operate effectively on a large scale to support the informal sector would enable a greater number of opportunity entrepreneurs to rise up from the informal sector. This micro-finance industry should be more oriented to production rather than consumption. In 2003, however, “financial support“is identified as the number one limiting factor. Overall for developing countries financial support is the number one limiting factor according to the country experts in these countries.
International Comparisons Entrepreneurial Activity In comparing South Africa to other efficiency-driven economies, it can be seen that Latin American countries have a relatively high early stage entrepreneurial activity and Eastern European countries have relatively low rates of early-stage entrepreneurial activity. The United States has more early-stage entrepreneurial activity than EU countries and Japan. Some European countries such as Belgium, Germany and France have the lowest rates of entrepreneurial activity levels. This is indicative of the mindset of Europeans in terms of risk aversion and their preference for employment over self-employment. However, this also demonstrates that the alternatives available to Europeans such as good income, job or social security is more advanced that the South African system.
Entrepreneurial Aspirations The international GEM survey shows that high-growth expectation entrepreneurial activity (HEA) varies between countries. So does the relative prevalence of this activity within early-stage entrepreneurial activity as a whole. For example, among innovation-driven economies, there is a 15-fold difference between the adult-population prevalence rate of high-expectation early-stage entrepreneurship of the United States and Greece. The difference is over five-fold between the two largest emerging economies in the world, China and India. Colombia, China, Peru and Chile exhibit the highest prevalence rates of high-expectation entrepreneurship of the factor- and efficiency-driven GEM countries.
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Education and training GEM expert surveys in most participating countries have almost without exception, cited entrepreneurship education and training as poor or inadequate. The relationship between training in starting a business and entrepreneurial attitudes, aspirations and activity has been found to be generally positive, but varies by phase of economic development (GEM, 2008). In factor-driven economies, quality and quantity of training is associated with higher levels of necessity based entrepreneurial activity, while in efficiency driven countries, it is associated with higher levels of marketexpansion entrepreneurial activity. However, once again South Africa proves to be outside the expected norm as this is not the case. In innovation-driven countries, training levels are negatively associated with some attitudinal and activity measures (GEM, 2008).
Is this a favourable environment for ME (you) to start a business? (Support your arguments with valid facts) The GEM 2008 surveys were conducted mostly during May and June, when the start of the credit crisis loomed but before the true impact of the current economic crisis became apparent. Nevertheless, an overall decline in perceived opportunities to start a business in 2008 was observed. Countries showing the severest declines in the rate of perceived opportunities (between 50 and 30 percent) include Iceland, Chile, Ireland, Latvia and Hungary. Perceived skills and knowledge to start a business were not affected by the business cycle. Also intentions to start a business within three years do not appear to have declined as much in 2008 as perceived opportunities. There are several possible explanations for this. First, the crisis may actually cause individuals to seriously consider becoming entrepreneurs in the near future because they fear they might lose their jobs. Second, the group of (potential) future entrepreneurs may be less pessimistic than the total adult population and may not perceive the financial crisis as a substantial burden for getting their own business started – they might for instance draw more heavily on their own (perceived) capabilities to start a business. Thirdly, they may have decided to defer the start-up to near the end of the three year period, with the expectation that the recession will be over within three years. In this context of difficult economic times, it may seem counter-intuitive to choose this moment in time to launch entrepreneurial activities. However, it is my view that now is as good time as any, provided of course one is
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not launching a luxury item. Although the general environment still has some way to go before it can become fully enabling of entrepreneurs and entrepreneurial thinking, I believe that the government is taking steps in the right direction and demonstrating a willingness to address the issues raised in the sections above.
Interventions aimed at increasing female participation Africa has ‘considerable hidden growth potential in its women, and that tapping into that potential can make a substantial difference for Africa’s growth and poverty reduction’. Interventions aimed at increasing female participation in the SME sector are thus an important strategy for economic development in South Africa. The Business Partners Women’s Fund, launched in 2007, is an important initiative in this regard. Jo Schwenke, former MD of Business Partners, notes that his organisation has found women to be better business risks than men, with a significantly lower rate of failure. An estimated 14 new jobs are created every time they invest in a woman-owned business. It is important that government programmes follow this lead to enable more female entrepreneurs to take up meaningful roles in the business community.
Education and training Of all 30 GEM countries who conducted the national experts’ survey in 2008, South Africa had the highest percentage of experts identifying education and training as a major limiting factor. This was also the finding in 2001 – the first year that South Africa participated in the GEM project – and it is disturbing to note that in this respect there has been no improvement in the past seven years. Talk about education and MBA entrepreneurial course
Government policies An interesting case is government policy, which ranks high as both a limiting and a supportive factor. The government’s BEE initiatives are seen as providing a framework for channelling previously excluded groups into business environments. Regulations associated with starting a business have eased in recent years. In 2007 nine procedures were required, taking 35 days; in 2009 this has been reduced to six procedures, taking 22 days. On the other hand, South Africa’s restrictive employment laws are seen as one of the biggest regulatory obstacles to business growth, cited by a
Page |9
third of businesses in the Thornton survey, as is inefficient government bureaucracy or ‘red tape’. Simplify business registration procedures, for example a single form of no more than three pages for bank/ tax/ CIPRO. Provide online facilities (where possible) for forms, returns and access to other entrepreneurs. – Government has launched an efiling version for small business Reduce telecommunications costs (by allowing for competition) as well as other infrastructure-related bottlenecks (particularly in transport and logistics). Addressing mobile phone connect fees
Access to finance The finding that access to finance is a key problem is a common feature of research on problems facing all entrepreneurs and is apparent in research done in both developed and developing countries. Given that start-up funding for small businesses often comes from personal savings or money from families, the youth, women and people in rural areas are likely to be particularly disadvantaged in their attempts to start small businesses. A number of government initiatives exist to assist with funding of entrepreneurial ventures, including Khula Enterprise Finance, Small Enterprise Development Agency (SEDA), Umsobomvu Youth Fund and the Industrial Development Corporation (IDC).
Conclusions The factors that affect whether or not the environment in South Africa is right for me to become an entrepreneur depend on my entrepreneurial orientation, a supportive environment and a cooperative environment. Although the supportive business environment in the country is not at a desirable level, definite steps are being taken by the government to facilitate SMME development. These include business oriented packaging for tax e-filing and various organisations for financing and mentoring. A cooperative environment of tertiary education programmes that encourage entrepreneurial development are slowly emerging.
What is the status quo of Entrepreneurship SA?............2
Profile of the South African entrepreneur...........................................................3 Sector Activity.................................................................................................... 3 Education............................................................................................................ 4 Tax burden......................................................................................................... 5 Business support services.................................................................................. 5 Financing............................................................................................................ 6
International Comparisons...........................................6
Entrepreneurial Activity...................................................................................... 6 Entrepreneurial Aspirations................................................................................ 6 Education and training........................................................................................ 7
Is this a favourable environment for ME (you) to start a business? (Support your arguments with valid facts). . . .7
Interventions aimed at increasing female participation......................................8 Education and training........................................................................................ 8 Government policies........................................................................................... 8 Access to finance................................................................................................ 9
Conclusions.................................................................9
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What is the status quo of Entrepreneurship SA? South Africa has participated in the Global Entrepreneurship Monitor (GEM) survey since 2001, and in the time since, has compiled historical data that provides insight into the extent and the nature of entrepreneurship activity in South Africa. In 2002, an analysis of 37 countries showed that South Africa ranked 19 th in overall entrepreneurial activity with 6.54% of the adult population involved in an entrepreneurial venture. This rate was the lowest of all the developing countries involved in the survey, which included Thailand, India, Chile, Argentina, Brazil, and Mexico along with South Africa. Other measures showed South Africa ranked 15th in start-up activity and 29th in new firm activity, with almost 5% of the adult population involved in starting a business and only 2% of the adult population involved in new firms. In 2002 South Africa, ranked lowest of all participating developing countries in all measures of entrepreneurship. Looking at the 2003 data, South Africa’s ranking continued to drop in the international rankings of entrepreneurial. South Africa was ranked 22 nd out of 31 countries in terms of new business formation. According to a new measure of entrepreneurial activity within established firms introduced by the GEM survey, South Africa ranked 36 th out of 40 countries. Once again, South Africa was ranked last amongst the developing countries. For the first time in 2003, another African developing country was included in the survey. The inclusion of Uganda showed that low total entrepreneurial activity (TEA) rates are not an African phenomenon as Uganda showed the highest TEA rate of all the participating countries in 2003 (GEM, 2003). By 2004 the TEA index in South Africa was 5.4% compared to an average of 9.4% and 21.0% in the developing countries. By 2004, it is pretty certain that South Africa has a relatively low TEA rate compared to the other countries. South Africa’s Total Early-stage Activity (TEA) rate in 2005 is 5.1%. The 2006 report indicated that South Africa’s position in the GEM rankings has deteriorated over time despite improved macro-economic conditions in the country (GEM, 2006). In 2008, South Africa ranked 23rd out of 43 countries, with a TEA rate below the average rate (10.6%) of all participating countries. South Africa’s TEA rate of 7.8% is significantly lower than the average for all efficiency-driven economies (11.4%) as well as the average for all middle
Page |3
to low income countries (13.2%). South Africa’s performance in terms of relative position has, since 2001, consistently been below the median and this trend continues in 2008 (GEM, 2008). The latest data on South Africa’s low entrepreneurial activity rates continues to paint a bleak picture of the SMME sector’s current potential to contribute meaningfully to job creation, economic growth and more equal income distribution (GEM, 2008). In fact, given that South Africa is characterised by a dual economy – a formal and an informal economy – it would be expected that TEA rates would be in line with other developing or emergent economies such as Argentina, Chile, Brazil and Peru. In 2008, these countries achieved TEA rates that are two to three times higher than that achieved by South Africa (GEM, 2008).
Profile of the South African entrepreneur The
2004 GEM survey discovered that men and people between the ages of 25 and 44 are more likely to become entrepreneurs than women and people younger than 25 and older than 44. Whites were also more likely to be entrepreneurs than black Africans. However, the survey went on to indicate that the differences between whites and black Africans largely reflect lower levels of education and a higher probability of being located in a rural area for black Africans compared to whites (GEM, 2004).
The GEM 2007 report concludes that youth in South Africa are positively orientated towards entrepreneurship. Despite this positive orientation however, there seems to be resistance or fear towards starting one’s own business. Various factors can be cited for this phenomenon such as a lack of self-confidence, the complexity of starting a new business and the level of knowledge/education, which might hamper entrepreneurial activities. Although other factors were also identified, such as a general lack in understanding of small business management, the important factors were more in terms of education and self-confidence. The profile of South African entrepreneurs remains largely unchanged throughout the years South Africa has participated in the GEM surveys. Men are still 1.6 times more likely than women to engage in entrepreneurial activity. The 2008 research shows that population group still has a strong influence on entrepreneurial activity, with whites and Indians being more likely to start a business than coloureds or black Africans (GEM, 2008).
Sector Activity Almost two-thirds of early-stage entrepreneurial activity in South Africa is in the consumer services sector as can be seen in Table 1 below. Although
Page |4
the consumer services sector also accounts for the majority of established business entities, it is by a much smaller margin. Both the transformative and business services sectors are well represented among established businesses (GEM, 2008). Given the low levels of skills and education in the South African population, it is unsurprising that the majority of TEA business entities are in the consumer services sector. Barriers to entry into this sector, in terms of both skills and capital required, are low. Table 1: Sector Extractive Transformative Business services Consumer services Involvement in entrepreneurial activity, by sector TEA business Established business entities (%) entities (%) 1.5 18.2 15.3 65.0 0.0 33.0 19.0 48.0
Source: GEM Report, 2008 Overall, however, the majority of businesses have a low technology orientation. There are a number of possible reasons for this, the most important being the low level of technological and science skills in the majority of the South African population, as well as the high cost of new (often imported) technology which is beyond the means of most small businesses. Given that technology is an important productivity enhancer, it is worrying that South Africa is lagging in terms of uptake of new technology.
Education Education is strongly associated with rates of new firm activity. Entrepreneurs with a matric and/or tertiary education are, on average, more likely to be able to take a new venture beyond the start-up phase. Increasing the proportion of young people who obtain matric is likely to increase success rates of start-up activity and have a positive impact on job creation. Increasing access to and success in secondary and tertiary education will ensure a higher rate of entrepreneurial activity among future generations of South Africans. In 2002, the long-term priority for increasing entrepreneurial activity was cited as the need to improve access to and success in education. The biggest concern was the lack of core skills among entrepreneurs, i.e.
Page |5
financial literacy, record-keeping and marketing. Again in 2003, two priorities seemed to stand out. Firstly, changes in the school education system are required to raise entrepreneurial awareness and create a good grounding in basic financial and businesses skills. Secondly, effective training in specific financial administration skills is required on a fairly large scale amongst existing entrepreneurs. The experts in South Africa proved to be more pessimistic than the majority of efficiency-driven countries about the availability of help outside the education system as well as the quality of school-level and post-school entrepreneurship training. The strongly negative rating of the quality of entrepreneurship education at school level is also a clear indication that the education system in South Africa is failing to prepare learners adequately for meaningful participation in the economy. These findings suggest that a lack of human capacity is one of the key obstacles to increased entrepreneurial activity in South Africa. However, without a more enabling environment that encourages individuals to see entrepreneurship as a financially viable employment option, it is debatable whether South Africa will experience a significant increase in entrepreneurial activity. This is particularly the case in rural areas as well as the less developed provinces.
Tax burden In 2002, it was cited that entrepreneurs in the formal sector are hindered by the tax compliance process which imposes a heavy administrative burden on young firms. There is a great need to reduce the administrative burden of compliance on firms in the early stage of development by introducing three-monthly cycles for payment of PAYE, skills development levy and UIF.
Business support services Business support services for registered businesses, particularly those provided by government, are often inaccessible or of poor quality. We believe that the relevant public authorities urgently need to develop the capacity to raise the quality of support services delivered to entrepreneurs. Implementation of successful government programmes depends on private sector partnerships and the involvement of experienced and successful entrepreneurs at all levels in the process.
Page |6
Financing A micro-finance industry which can operate effectively on a large scale to support the informal sector would enable a greater number of opportunity entrepreneurs to rise up from the informal sector. This micro-finance industry should be more oriented to production rather than consumption. In 2003, however, “financial support“is identified as the number one limiting factor. Overall for developing countries financial support is the number one limiting factor according to the country experts in these countries.
International Comparisons Entrepreneurial Activity In comparing South Africa to other efficiency-driven economies, it can be seen that Latin American countries have a relatively high early stage entrepreneurial activity and Eastern European countries have relatively low rates of early-stage entrepreneurial activity. The United States has more early-stage entrepreneurial activity than EU countries and Japan. Some European countries such as Belgium, Germany and France have the lowest rates of entrepreneurial activity levels. This is indicative of the mindset of Europeans in terms of risk aversion and their preference for employment over self-employment. However, this also demonstrates that the alternatives available to Europeans such as good income, job or social security is more advanced that the South African system.
Entrepreneurial Aspirations The international GEM survey shows that high-growth expectation entrepreneurial activity (HEA) varies between countries. So does the relative prevalence of this activity within early-stage entrepreneurial activity as a whole. For example, among innovation-driven economies, there is a 15-fold difference between the adult-population prevalence rate of high-expectation early-stage entrepreneurship of the United States and Greece. The difference is over five-fold between the two largest emerging economies in the world, China and India. Colombia, China, Peru and Chile exhibit the highest prevalence rates of high-expectation entrepreneurship of the factor- and efficiency-driven GEM countries.
Page |7
Education and training GEM expert surveys in most participating countries have almost without exception, cited entrepreneurship education and training as poor or inadequate. The relationship between training in starting a business and entrepreneurial attitudes, aspirations and activity has been found to be generally positive, but varies by phase of economic development (GEM, 2008). In factor-driven economies, quality and quantity of training is associated with higher levels of necessity based entrepreneurial activity, while in efficiency driven countries, it is associated with higher levels of marketexpansion entrepreneurial activity. However, once again South Africa proves to be outside the expected norm as this is not the case. In innovation-driven countries, training levels are negatively associated with some attitudinal and activity measures (GEM, 2008).
Is this a favourable environment for ME (you) to start a business? (Support your arguments with valid facts) The GEM 2008 surveys were conducted mostly during May and June, when the start of the credit crisis loomed but before the true impact of the current economic crisis became apparent. Nevertheless, an overall decline in perceived opportunities to start a business in 2008 was observed. Countries showing the severest declines in the rate of perceived opportunities (between 50 and 30 percent) include Iceland, Chile, Ireland, Latvia and Hungary. Perceived skills and knowledge to start a business were not affected by the business cycle. Also intentions to start a business within three years do not appear to have declined as much in 2008 as perceived opportunities. There are several possible explanations for this. First, the crisis may actually cause individuals to seriously consider becoming entrepreneurs in the near future because they fear they might lose their jobs. Second, the group of (potential) future entrepreneurs may be less pessimistic than the total adult population and may not perceive the financial crisis as a substantial burden for getting their own business started – they might for instance draw more heavily on their own (perceived) capabilities to start a business. Thirdly, they may have decided to defer the start-up to near the end of the three year period, with the expectation that the recession will be over within three years. In this context of difficult economic times, it may seem counter-intuitive to choose this moment in time to launch entrepreneurial activities. However, it is my view that now is as good time as any, provided of course one is
Page |8
not launching a luxury item. Although the general environment still has some way to go before it can become fully enabling of entrepreneurs and entrepreneurial thinking, I believe that the government is taking steps in the right direction and demonstrating a willingness to address the issues raised in the sections above.
Interventions aimed at increasing female participation Africa has ‘considerable hidden growth potential in its women, and that tapping into that potential can make a substantial difference for Africa’s growth and poverty reduction’. Interventions aimed at increasing female participation in the SME sector are thus an important strategy for economic development in South Africa. The Business Partners Women’s Fund, launched in 2007, is an important initiative in this regard. Jo Schwenke, former MD of Business Partners, notes that his organisation has found women to be better business risks than men, with a significantly lower rate of failure. An estimated 14 new jobs are created every time they invest in a woman-owned business. It is important that government programmes follow this lead to enable more female entrepreneurs to take up meaningful roles in the business community.
Education and training Of all 30 GEM countries who conducted the national experts’ survey in 2008, South Africa had the highest percentage of experts identifying education and training as a major limiting factor. This was also the finding in 2001 – the first year that South Africa participated in the GEM project – and it is disturbing to note that in this respect there has been no improvement in the past seven years. Talk about education and MBA entrepreneurial course
Government policies An interesting case is government policy, which ranks high as both a limiting and a supportive factor. The government’s BEE initiatives are seen as providing a framework for channelling previously excluded groups into business environments. Regulations associated with starting a business have eased in recent years. In 2007 nine procedures were required, taking 35 days; in 2009 this has been reduced to six procedures, taking 22 days. On the other hand, South Africa’s restrictive employment laws are seen as one of the biggest regulatory obstacles to business growth, cited by a
Page |9
third of businesses in the Thornton survey, as is inefficient government bureaucracy or ‘red tape’. Simplify business registration procedures, for example a single form of no more than three pages for bank/ tax/ CIPRO. Provide online facilities (where possible) for forms, returns and access to other entrepreneurs. – Government has launched an efiling version for small business Reduce telecommunications costs (by allowing for competition) as well as other infrastructure-related bottlenecks (particularly in transport and logistics). Addressing mobile phone connect fees
Access to finance The finding that access to finance is a key problem is a common feature of research on problems facing all entrepreneurs and is apparent in research done in both developed and developing countries. Given that start-up funding for small businesses often comes from personal savings or money from families, the youth, women and people in rural areas are likely to be particularly disadvantaged in their attempts to start small businesses. A number of government initiatives exist to assist with funding of entrepreneurial ventures, including Khula Enterprise Finance, Small Enterprise Development Agency (SEDA), Umsobomvu Youth Fund and the Industrial Development Corporation (IDC).
Conclusions The factors that affect whether or not the environment in South Africa is right for me to become an entrepreneur depend on my entrepreneurial orientation, a supportive environment and a cooperative environment. Although the supportive business environment in the country is not at a desirable level, definite steps are being taken by the government to facilitate SMME development. These include business oriented packaging for tax e-filing and various organisations for financing and mentoring. A cooperative environment of tertiary education programmes that encourage entrepreneurial development are slowly emerging.
