Why fewer South Africans want to start their own businesses

 ·18 May 2017

Global Entrepreneurship Monitor (GEM), the world’s foremost study of entrepreneurship, has released its 2016-2017 South Africa report, detailing the state of entrepreneurship in the country.

According to the report, fewer South Africans are keen to start their own businesses this year compared to last year, as the current political and economic landscape of the country has put a damper on the entrepreneurial spirit.

“This year’s study found that only 37.9% of South Africans believe that they have the required skills and knowledge to become entrepreneurs,” said Mike Herrington, Executive Director of GEM and co-author of the South Africa report.

“This is down from 45.4% last year.”

He added that South Africa’s performance was “dismal” when compared to the global average of just over 50%, ranking South Africa 55th out of 62 economies surveyed.

“We believe that the current political and economic malaise in the country has seriously dented the fragile entrepreneurial spirit in the country helping to accelerate the decline of this critical sector that we look to to create much needed jobs in the country,” said Herrington.

Only 35.0% of South Africans now believe that there is a good opportunity to start a firm in the area in which they live, compared to 40.9% last year.

More disconcertingly says Herrington, is the number of South Africans of working age who intend to start their own business within the next three years has fallen by more than a third compared to 2013, and almost halved since 2010.

“Just 10.1% of the adult population between the ages of 18 and 64 now intends to open a new business,” said Herrington.

“Just four years ago this number was 15.4%, and in 2010 it was at a high of 19.6%.”

This figure is way below the African region as a whole, where 41.6% of people of working age intend to become entrepreneurs. It is also less than half of the 26.0% of people in similarly structured (efficiency-driven) economies around the world who plan to open their own firms.

The GEM measure of Total Early-stage Entrepreneurial Activity, which looks at actual participation in the entrepreneurial process, has also been declining sharply. By this measure, South Africa has fallen from 22nd out of 69 countries in 2012 to 46th out of 65 countries this year.


One positive finding of the report however, is that almost three-quarters of South African entrepreneurs are opportunity-driven, which is higher than the average for efficiency-driven economies, as well as substantially higher than the average for the Africa region.

“This suggests that although fewer entrepreneurs are engaged in TEA activity in 2016, these individuals are pursuing an opportunity, rather than pushed by necessity,” said Herrington.

“This is significant because it is these businesses that are most likely to generate jobs and help to grow the economy.”

“For policy makers and service providers to stimulate and support new generations of entrepreneurs – especially opportunity-driven entrepreneurs, they must identify and reduce the factors that are putting people off starting their own business,” commented Penny Kew, co-author of the report.

“It is clear that in South Africa, even if the potential returns from entrepreneurship are considerably higher than the best alternative, the perceived risks involved may be too high for an individual who is thinking about starting a business.”

Read: 6 SA based fintech startups to watch

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