South Africa is alarmingly bad at entrepreneurial activity

South Africa has an ‘alarmingly low level of entrepreneurial activity’ in spite of high unemployment, according to a global report.

The Global Entrepreneurship Monitor (GEM) report, released by Babson College and Baruch College, surveyed 206,000 individuals and 3,936 national experts on entrepreneurship, across 73 economies.

GEM participant economies represent 72.4% of the world’s population and 90% of the
world’s GDP.

In terms of total early-stage entrepreneurial activity (TEA), the report found that a paltry 7% of 18-64 population in SA are starting or running new businesses.

Only 2.7% of respondents in SA are currently an owner-manager of an established business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than 42 months.

Barriers to entry

Four in 10 (37%) of respondents – individuals involved in any stage of entrepreneurial activity excluded – see good opportunities to start a firm in the area where they live, while 38% believe they have the required skills and knowledge to start a business.

Only one in 10 said they are latent entrepreneurs who intend to start a business within the next three years, while worryingly, a quarter (25%) said that fear of failure would prevent them from setting up a business.

“The level of business discontinuance still exceeds that of business start-ups, resulting in a net loss of small business activity and subsequent job losses,” the report said.

It noted that the typical South African entrepreneur is male, 25 – 44 years of age, lives in an urban area, is involved in the retail and wholesale sector and has a secondary or tertiary level of education.

SA vs Africa

Entrepreneurial activity in South Africa, although very low, has increased marginally over the last 10 years, but in 2014 dropped by a staggering 34% (from 10.6% to 7%).

“There has been an increase in women’s entrepreneurship primarily due to government support, but the perception of opportunities to start a business, and confidence in one’s own abilities to do so, remains alarmingly low compared to other sub-Saharan African countries,” the report said.

Uganda recorded the highest youth entrepreneurial propensity with 55.4% followed by Malawi (52.3%) and Namibia (44.1%).

Alarmingly, South Africa showed the lowest youth entrepreneurial propensity of only 23.3%.

Among the sub-Sahara African countries surveyed, Uganda recorded the highest youth entrepreneurs with 55.6% of the youth population involved in nascent, new or established businesses.

Uganda is followed by:

  • Zambia – 53.4%
  • Nigeria – 52.7%
  • Ghana – 40.6%
  • Malawi – 37.9%
  • Namibia – 32.9%
  • Angola – 26.5%
  • Botswana – 21.6%

South Africa had the lowest youth entrepreneurship participation of only 12.8%.

“At least 60% of youth population in all countries except South Africa showed
entrepreneurial propensity or were currently actively pursuing an entrepreneurial opportunity,” the report said.

Wider impact

A lot of the entrepreneurial activity in sub-Saharan Africa is currently concentrated in over-traded sectors such as retail, the report pointed out.

On average, the level of employment generated per entrepreneur in sub-Saharan Africa is
very low. In Malawi (81.5%), Ghana (59.1%) and Uganda (58.8%) the impact entrepreneurs have on job creation is minimal, with the majority of enterprises being own
account ventures.

However, countries such as Angola (6.1%), South Africa (4.5%) and Namibia (3.1%) have
a small pool of entrepreneurs that are currently offering employment to 20 or more employees.

Importantly, the report pointed out that the general level of innovation tends to be low with many entrepreneurs indicating that none of their customers would consider their products and services to be new and that there were many competitors selling similar products and services.

“With respect to entrepreneurial activity, the issue in much of sub-Saharan Africa seems to be less about developing entrepreneurial activity 79% self-employed but recognizing that much of the current entrepreneurial activity within the region is not leading to sustainable livelihoods.”

Enablers and Constraints

A good infrastructure and banking system are the biggest enablers of entrepreneurship in South Africa.

Major constraints are an inadequately educated workforce, inefficient government bureaucracy, high levels of crime and onerous labour laws.

There are very few government initiatives that are contributing towards improving entrepreneurship, the report said.

Challenges for the Future

The main challenge is to provide jobs and/or opportunities for the youth, where the estimated unemployment level is in excess of 60%, the report said.

This can be assisted through education; however, the level and quality of education in South Africa is one of the worst in the world. The level of maths and science education in the country, as assessed by the Global Competitiveness Report (2014/2015), puts South Africa at 144 out of 144 countries.

“Regulatory requirements make it very difficult for people to start businesses; this is further exacerbated by onerous labour laws and the low efficiency of the labour force. Corruption starting at the highest levels of government remains a major challenge, together with high levels of crime,” the report said.

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