Is entrepreneurship really the right way to go?

STATISTICS SA showed last week that the unemployment rate of the youth (ages 15-34) is double that of adults, at 35.5%. With that, cajoling young people into entrepreneurship gained more momentum. However, preaching entrepreneurship to them as their way into economic participation may be a cruel hoax given our context and structure.

First, entrepreneurial ventures have a very low chance of prosperity. We have heard various numbers bandied about on the probability of success of “startups”. In the US, where various models of measurement have been employed, the failure rate of startups is as high as 93%. And even when these ventures succeed, they have limited capacity to hire more than the entrepreneur in the venture.

To start a business requires enormous dedication, an almost extraordinary level of endurance, and the kind of social and financial capital that many of the unemployed youth lack access to. So why do we believe we are going to have some economic revolution led by an entrepreneurial surge?

In the year since I took the path of entrepreneurship myself, I have met many entrepreneurs. The defining feature of these individuals is a strong sense of enthusiasm, energy and ideas. But, sadly, many of them have returned to full-time employment. These were people who had work exper- ience, and some resources to set themselves up. But, as it turns out, one has a higher chance of finding a job than succeeding in entrepreneurship. Of course, time may be a factor — it may be quicker to find a job than to succeed in business.

This road is wrought with stories of hardship, rejection, depression and downright failure to access a steady flow of support financially and access through the doors of potential funders and clients. Those who are succeeding have strong connections and access to resources. At the very least, they have support from families and friends.

Many will find much of what I am saying fallacious, especially because it is based on personal experience and anecdotal evidence. That may be fair. But what do the proponents of entrepreneurship as a solu- tion to unemployment imagine when they think of our poor and unskilled young people, who can hardly raise finance to even go to college?

It may be that when we think of entrepreneurship, we mean “spaza shops”. But the dominance of big business in SA is threatening the very existence of spaza shops as malls anchored by large and cheaper retailers dominate areas where spaza shops once survived. In any event, spaza shops can hardly be regarded as jobcreating enterprises. Further, they do not add to the productive capacity of the country, but work as distributive channels for big business and retail giants.

There are, of course, other issues. Economists and analysts all over the world are dedicating more time to researching entrepreneurship, while business schools are now teaching it. One of the pioneers in this field, economist William Baumol, makes some assertions regarding entrepreneurship, and may have hit the mark on part of the South African problem.

In a 2010 paper, he writes, “We consider individuals to be engaged in enterprising activities if they devote their own independent efforts to the acquisition of wealth, power, and prestige…. In the entrepreneurial process, they display initiative to a considerable degree. It seems clear that two primary avenues have been followed in this undertaking, which we label, for con- venience, redistributive entrepreneurship and productive entrepreneurship. Examples of the first are obvious: aggressive warfare, larceny, bribery, and rent-seeking litigation. It is practitioners of the former who can prosper and garner respect even in highly organised and ‘well governed’ societies. And it is to be noted that many such undertakings were once considered commendable and some still are. Some who undertook some of them were deemed heroic and were celebrated accordingly.”

Indeed, given the demonstrable success of the “redistributive” entrepreneur in public life, we may see more of this trend, as we have in our crime statistics and the experience of many South Africans.

To be sure, in our business, we deal with many entrepreneurs who are at various stages. Some are starting out, and some are successful to the point at which they are growing. It seems the important factor is how one can mobilise an assortment of resources, form partnerships and think in a fresh and strategic manner about how to overcome the many obstacles on the road.

SA is rich with opportunities and is an exciting place to be. But we have to do more to improve the environment so that even the marginalised can access them because it is not open to all who have the will.

Payi is economist and head of research at Nascence Advisory and Research