The State of Entrepreneurship in South Africa: The State We Are In

state-of-entrepreneurship

‘”Throughout the world, shifts in population demographics, technology changes, fluctuating economies and other dynamic forces have transformed societies as never before, bringing new challenges and opportunities to the forefront. Among the responses to these shifting forces is an increased emphasis on entrepreneurship by governments, organisations and the public.” – GEM Global Report, 2012

The most widely used measure of entrepreneurship is the TEA (Total Entrepreneurial Activity) or ‘early stage entrepreneurial activity’ Index. It measures entrepreneurial activity by looking at the percentage of the active population, people between 25 and 64, who are entrepreneurs in any given country.

On the positive side:

  •  South Africa’s GDP has tripled from $136 billion to $385 billion;
  •  The GDP per capita has grown from $4 300 in 1995 to $6 000 in 2012, a 40% increase;
  •  There has been a remarkable progression in the LSM (living standard measure) profile of the country. The number of people in the lower income group (LSM 1 to 4) has decreased significantly from 52% to 31%, resulting in 4.6 million fewer people in the low income group. The number of people in the LSM 5 to 10 category has increased from 48% to 69%, resulting in almost 10 million more people graduating to the middle to upper band;
  •  The middle class has doubled from 7% of the black African population in 1993 to 14% in 2008, an increase of 3.1 million more Africans in the period to 5.4 million; Tax receipts are significantly up – from R114 billion from 1.7 million people to R814 billion from 13.7 million people (although the tax base does still come mainly from the minority of the population);
  •  Government grants are now distributed to 16.1 million people – up by over 600% from 2.4 million in 2007.

In spite of these positives, the Goldman Sachs report highlights a number of serious challenges that still need to be addressed.

  • The exceptionally high levels of unemployment range from 26% to 36% (depending upon how it is measured), where 4.6 million people are looking for and cannot find jobs, to another 2.3 million who have given up looking for work, which means that approximately 7 million South Africans are unemployed representing 36% of the labour force. The triple challenge of HIV, unemployment and poverty still affects the lives of around one-third of the population;
  •  South Africa’s household debt to disposable income has built up to 76% from 57% in 1994. This overindebtedness may have accompanied the rise in the middle class;
  •  Real wages across South Africa’s economy have grown higher than the annual CPI inflation index.
  •  South Africa’s rating, according to the Global Competitive Index (GCI), has dropped from 35th position in 2007 to 54th in 2013; and
  • Public sector employment has grown significantly from 1.7 million in 1994 to over 2.0 million in 2012.

South Africa, like most developing countries, has very positive aspects, but also negative ones that may hamper the required economic growth necessary to reduce its high unemployment. However, unlike many of its sub-Saharan neighbours it seems to be lagging, especially in terms of small and medium business development (Herrington and Kelley, 2012).

The reasons for this disquieting trend will form part of this blog for this week.

Potential entrepreneurs

Potential entrepreneurs are those who see opportunities in their environment, have the capacity to start a business and are undeterred by failure.

Societal attitudes, such as the perception of good opportunities and whether individuals think they have the capabilities of starting a business, have a profound influence on the motivations of people to enter entrepreneurship.

Individuals among the adult population (18 to 64 years) in South Africa have a perception of only almost one-third that of people from other sub-Saharan African countries (SSA – Angola, Botswana, Ethiopia, Ghana, Malawi, Namibia, Nigeria, Uganda and Zambia) that there are good opportunities to start a business with the same result for perceived capabilities.

However, although low, there has been a significant increase of 92% in perceived opportunities from 2001 to 2013 and 40.5% for perceived capabilities.

This is a very positive trend and could, in part, be due to the improvement of conditions for the black population.

Nonetheless, the low perception of skills to start a business is worrying and it is reasonable to assume that the low levels in the quality of primary and secondary information plays a significant role in an individual’s sense of self-efficacy and self-confidence.

Intentional entrepreneurs

Intentional entrepreneurs are those who intend to start a business in the next three years.

This next stage in the entrepreneurial pipeline is important as a strong association exists between entrepreneurial intentions and actual entrepreneurial behaviour.

The factors that influence this behaviour are whether individuals see entrepreneurship as a good career choice, whether high status is given to entrepreneurs and whether the media attention to entrepreneurship is high.

Although South Africa rates significantly below that of other SSA countries in all three conditions the upward trends from 2001 to 2013 are extremely encouraging with a 54% increase in the perception that entrepreneurship is a good career choice, a 56% increase in perceived status and a 65% increase in perceived media attention.

Although the National Experts still believe the factors that also influence entrepreneurial intentions, such as cultural and social norms, education at a post-secondary level and access to finance, remain below, par the movement of improvement is in the right direction, which is very encouraging.

Early-stage entrepreneurial activity

These individuals and the level of early-stage entrepreneurs who are in the process of starting or who have just started a business represent the central indicator for GEM, which is known as the total entrepreneurial activity TEA.

They could be nascent entrepreneurs (have not paid salaries or wages for more than three months) or new entrepreneurs who have moved beyond the nascent stage and have paid salaries and wages for more than three months and less than 42 months.

South Africa’s rate for nascent entrepreneurs at 6.6% for 2013, for new business entrepreneurs at 4.1% and total early-stage entrepreneurs at 10.6% remain significantly below that of other SSA countries showing 15.2%, 17.1% and 16.0% respectively.

Although extremely low compared to most developing countries, the trend since 2003 is showing a gradual improvement year-on-year, which is encouraging and for the second time in 13 years shows a rate above the median for all GEM countries worldwide.

South Africa’s opportunity-driven rates for early-stage entrepreneurial development have increased marginally over the years from 2005 (57.1%) to 2013 (68.6%), whereas that for necessity-driven has decreased from 39.5% in 2005 to 30.3% in 2013.

This is surprising, given the high levels of unemployment in the country.

Table 1

Entrepreneurial Intentions: On average Sub-Saharan countries (SSA – Angola, Botswana, Ethiopia, Ghana, Malawi, Namibia, Nigeria, Uganda and Zambia) view rate 58.3 in terms entrepreneurial intentions. South Africa rate 15.4 which is very low compared to SSA

Entrepreneurship as a good career choice: 77.8% of SSA views entrepreneurship as a good career choice compared to 74% of RSA. This is a big improvement. South Africans’ view of entrepreneurship have improved significantly.

Gives entrepreneurs high status: 80.2% of SSA give high status to entrepreneurs compared to 74.7% of RSA. This is also a big improvement since 2003.

Media attention to entrepreneurs: 77.5% of SSA gives media attention to entrepreneurs compared to 78.4%. South African media gives more media attention and space to entrepreneurs. This is far above SSA.

The State of Entrepreneurship in South Africa is improving, even though we still rate below Sub-Saharan countries, South Africa’s trajectory is on the rise.

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