New research from the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business (GSB) shows that gains in small business creation made during the 2010 World Cup have been maintained, but South Africa is still performing below its potential when it comes to entrepreneurship.
According to the latest South African Global Entrepreneurship Monitor (GEM) research released by the GSB this week, Total Early-stage Entrepreneurial (TEA) activity in South Africa was at 9.1% in 2011, statistically not different from the level of 8.9% in 2010, but the country has slipped back below the median of entrepreneurship rates of all countries participating in the survey.
GEM is the largest research project of its kind in the world and South Africa has participated in the study for the past 11 years. Team leader Mike Herrington says the cumulative data showed that entrepreneurship in South Africa, after holding steady at low levels, jumped 62% from 5.9% in 2009 to 8.9% in 2010. This was ascribed to the 2010 World Cup. And while researchers had been gloomy about the prospects of holding this gain, they are pleasantly surprised by the latest data.
Good news for job creation
“What we are seeing are some of the many excellent initiatives across the country starting to pay off and that entrepreneurship is gaining ground,” says Herrington. “This is good news for our economy and for job creation because entrepreneurship has been shown conclusively to be key in creating jobs.”
However, Herrington adds that the numbers were not all rosy. Looking a little deeper reveals that South Africa has once again slipped below the median of all 54 countries that participated in the 2011 study. Historically, South Africa has always been below the median, only managing to get above it in 2010. This shows that the country is still not performing as well as it should be on the global stage.
What is holding us back?
“There is huge potential for entrepreneurship in this country. If you compare us with similar economies like Brazil and China, we should be performing at about 14 or 15%. We really need to interrogate why this is not happening,” says Herrington. “The report shows that people’s perceptions towards entrepreneurship in South Africa are changing – more people believe they can start and run a business now than they did a few years ago which is positive – but this is still not translating into gains on the ground. This suggests that the problems are more systemic.”
Herrington adds that understanding what is holding us back is important not only to create opportunities for more businesses to emerge, but also to ensure top level support for those business that have survived since 2010 so that they mature into established firms that will generate more jobs. Historically South Africa has had a high attrition rate meaning that new business mostly fail before they reach maturity. This is disastrous for the economy as mature business generate the most jobs.
The GEM research points to several factors that inhibit entrepreneurship in South Africa. The major challenges remain top-down corruption, high levels of crime, low standards of education – particularly at primary school level – and poor health among South Africa’s labour force. Significantly, South Africa performed badly on all these metrics in the latest Global Competitiveness Index.
SA in the BRIC context
This year the research also looked specifically at BRIC countries – weighing up how South Africa performs relative to this group. The picture that emerged was not pretty, with South Africa only barely pipping Russia at the post on many key metrics. Brazil and China led the pack with high levels of TEA (14.9% and 24% respectively).
In Brazil, the TEA rate has increased by 28% since 2006 – an improvement attributed to well-managed government programmes to stimulate and support small businesses, as well as numerous legislative reforms that focus on making it easier to start businesses. Surveys amongst citizens also showed a significant decrease in their fear of failure.
Media support for entrepreneurship is also a significant factor, argues the report: in Brazil the media supports entrepreneurial initiative with free advertising and coverage and by publicising issues affecting entrepreneurs.
Government needs to up its game
National experts participating in the study rated South Africa’s physical infrastructure highest in terms of stimulating entrepreneurial activity, while government entrepreneurship programmes scored lowest. There was strong criticism levelled at the fact that government agencies with significant funding were often still not addressing the needs of entrepreneurs adequately.
The report makes extensive policy recommendations for education and training, R&D transfer, infrastructure, market openness, access to infrastructure, entrepreneurial capacity, financial support and improved government programmes.
“The GEM project aims not only to create awareness of the state of entrepreneurship, but also to contribute to the debate around how an entrepreneurial climate can be fostered,” says Herrington. “Recommendations are offered in the hope that real, concerted effort will be applied to transforming South Africa’s entrepreneurial environment, and creating opportunities for lasting economic growth.”