SA’s dismal entrepreneurial record

 ·24 Apr 2013

A new study has shown that South Africa’s entrepreneurship levels are not only at their lowest in three years, but also the lowest in Sub-Saharan Africa.

The latest Global Entrepreneurship Monitor (GEM) report has shown that entrepreneurial activity in South Africa fell to 7.3% in 2012, compared to 9.1% in 2011, and 8.9% in 2010.

The study, which was conducted through face-to-face interviews with 2,298 South Africans, and gauges the percentage of the population of working age (18 – 64) about to start a business, as well as “new firms” which have been in operation for 3.5 years.

When it comes to these “new firms”, only 2% – the lowest rate in the region – make it past their formative years into established businesses, which does not paint a pretty picture for country’s aims to boost job creation.

“This reveals that relatively few people are starting businesses in South Africa and even fewer are sustaining them,” the GEM report said.

This is in stark contrast to other countries on the African continent, where entrepreneurship is booming.

According to the report, the highest entrepreneurship rates can be found in Sub-Saharan Africa, with Zambia highest at 41%.

South Africa is the only economy in the region with a total entrepreneurial activity (TEA) rate below 10%, the report said.

Additionally, only 35% of the South African participants said that they saw opportunity to start a business in the country – half of the regional average (70%) and again the lowest out of all Sub-Saharan countries taking part.

Red tape, regulation and social ills

According to the report, South Africa’s poor showing is mainly due a troubled labour market and widespread crime and corruption.

These findings echo similar comments made in the World Economic Forum’s (WEF) Global Competitiveness Report, which showed that South African businesses are hampered by poor security, poor education, a volatile labour market and a high rate of violence and crime.

“With unemployment and a growing youth population as a key issue in regions such as Sub-Saharan Africa, identifying and successfully implementing policies that both encourage youth to start businesses and support businesses with high employee growth expectations will be critical to creating jobs and ensuring economic growth and societal stability,” GEM said.

“A low regulatory burden (light regulation of entry) only encourages the entry of high-aspiration entrepreneurs if the country’s rule of law is strong.”

“In other words, absence of red tape will not encourage high-aspiration entrepreneurs if entry regulations are not enforced,” the report said.

More than 198,000 adults in 69 economies took part in the GEM survey. This group of economies represents an estimated 74% of the world’s population and 87% of the world’s GDP. GEM research teams in each economy administered the survey to at least 2,000 adults.

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