Entrepreneur ecosystem needs sweeping overhaul
Finance Minister Malusi Gigaba is repeating the threadbare mantra of creating more jobs, boosting entrepreneurship and growing SA’s economy, which has grown just 1% a year in real per-capita terms over the past 25 years.
SA is not even out of the starting blocks of what could be achieved in the country. If the conditions for entrepreneurship were improved just 10%, another $176bn could be added to the economy — almost half of its current worth.
This is according to a recent report commissioned and funded by the SAB (South African Breweries) Foundation and Allan Gray Orbis Foundation, in partnership with The Global Entrepreneurship and Development Institute, The Global Entrepreneurship Network SA and SEA (Sustainable Entrepreneur Accelerator) Africa.
The report, The Entrepreneurial Ecosystem of SA: A Strategy for Global Leadership 2017, emphasises entrepreneurship should not be confused with selfemployment. Entrepreneurship is about aspiration, opportunity and start-up growth by people aiming to achieve high-growth businesses and create employment. Conversely, in economies with major challenges around job creation, too many people are forced into self-employment because they do not have a choice. These economies experience a negative relationship between total entrepreneurial activity and GDP growth.
An increase in total entrepreneurial activity leads to a reduction in GDP growth, the opposite of what should be achieved. A reduction in activity means the global entrepreneurship index is increasing, resulting in an increasing GDP growth rate as well. The ideal situation is low total entrepreneurial activity and a high global entrepreneurship index.
The report refers to SA as an entrepreneurial leader in subSaharan Africa that has produced some of the most innovative and successful enterprises on the continent. It says SA provides better conditions for entrepreneurship than 20 countries that have a higher per-capita GDP — including Russia, Mexico, Brazil and Thailand.
But there are too many areas in which SA falls down on key issues. The report gauges the strengths and weaknesses of the country’s entrepreneurial ecosystem. It states that while SA is able to compete on the global stage and, while the businesses that start are very competitive, there is not enough new-business growth because the country is very weak on start-up skills, risk capital, technology absorption, human capital, social capital and unicorns (start-up companies valued at more than $1bn, such as Uber, Snap, Airbnb, Dropbox and Xiaomi).
The lack of supportive infrastructure for start-ups including the abysmal performance of the Small Business Development Ministry, not only limits the development and success of start-ups, but also reduces the level of innovation achieved in the economy.
The first major South African problem the report observes is “the demographic structure of the country, with almost 50% of the population under 24, youth unemployment close to 50% and unemployment of 25%. A young population could be an advantage for a country, even a large advantage. Young people are more energetic, more ambitious, and should be better educated than the older population. However, a young population also poses challenges for a country,” the report reads.
“Human development and education are crucial for a young population if they are to achieve their dreams and if a country is to benefit from their vitality. A country that has the demographic structure of SA should make education the number-one priority for all of South Africans. This is not a quick fix but it is the only policy that cannot be ignored.”
Education should include young people being educated about business and what it means to be entrepreneurial in an interesting and inspiring way. This should start when they enter school and continue all the way through to matric and beyond. At university or higher-education level, much more needs to be done to embed entrepreneurism in the curriculum across all faculties and all disciplines. A key part of transforming education is to produce graduates with the mind-set of being employers
THE LACK OF SUPPORTIVE INFRASTRUCTURE FOR START-UPS REDUCES INNOVATION IN THE ECONOMY
rather than the current mindset of being employed.
The report observes SA has not made much progress in improving the overall entrepreneurial ecosystem or its constituent components according to the global entrepreneurship index data.
“SA should be the easiest country in Africa to start a business on account of its welldeveloped infrastructure, not the hardest,” it reads.
The ease of starting a business in Mauritius is a far cry from what is required in SA.
Another major problem the report cites is that while SA is stronger than most of its peer countries in competition, product and process innovation (more like China than Russia or Brazil), when it comes to technology absorption and human capital, it is more like Russia and Brazil.
SA lacks the skills required “to close the distance to frontier gap: the distance to the frontier is the difference between countries that are using the best technologies and those that are not”, the report states.
“We live in a digital age. Any country that does not embrace the digital age will fall behind the technological frontier and will not be able to compete in the global economy.
“SA must make digital technologies, broadband, smartphones and mobile phones available to the whole population and make it available quickly, cheaply and easy to use. The 2014 UK Digital Inclusion Strategy states that ‘helping more people to go online can also help tackle wider social issues, support economic growth and close equality gaps’.”
SA achieves 33% on the overall global entrepreneurship index score. It ranks 55th out of 137 countries globally and second in sub-Saharan Africa behind Botswana.
The report concludes that top actions that could strengthen the ecosystem include helping more entrepreneurs get the skills and education they need; expanding access to banking, particularly mobile banking, to empower traditionally excluded entrepreneurs (such as the informal sector); and accelerating technology absorption with a focus on digital technology.