The graph below analyses the entrepreneurial pipeline with respect to Gauteng, the rest of South Africa and the Western Cape.
- The pipeline begins with potential entrepreneurs: In this stage individuals have not embarked on any specific actions to start an enterprise, even though they believe they have the capacity and believe that there are plenty of opportunities to start a business.
- The second stage in the pipeline is intentional entrepreneurs: those individuals who intend to exploit these opportunities and express an intention to start a business. The following stage is represented by nascent entrepreneurs and new entrepreneurs, and
- Finally established businesses: Those who have started and are running their businesses.
Potential entrepreneurs are individuals who believe they have the capacity to run a business and that there are plenty of opportunities to start a business. This perception is important, as GEM has found that individuals who are confident that they possess the skills to start a business are four to six times more likely to be involved in entrepreneurial activity.
Gauteng (29.7%) has the highest provincial rate of potential entrepreneurs while just over a fifth (22%) of the population in the Western Cape and the rest of South Africa believe they have the skills and knowledge to start a business and that there are opportunities in the area they live.
The higher rate of potential entrepreneurs in Gauteng is unsurprising, as it is the commercial hub of South Africa.
Gauteng contributes over a third (33.7%) of South Africa’s GDP and has a gross regional product which is 2.4 times greater than the gross regional product of the Western Cape.
The increased amount of business activity is likely to increase the possibility of individuals believing that they perceive business opportunities.
42.2% of people living in Gauteng indicated that they perceive good business opportunities in the area in which they live, while only 34.5% of people living in the Western Cape indicated that they perceive good business opportunities in the area in which they live.
The rate of intentional entrepreneurs represents non-entrepreneurial individuals who have indicated an intention to exploit opportunities and an intention to start a business within the next three years.
A fifth (19.2%) of non-entrepreneurs in Gauteng expressed an intention to start a business in the next three years.
The rate of intentional entrepreneurs in Gauteng is 1.7 times the rate in the rest of South Africa and 2.7 times the rate in the Western Cape.
Even though an individual may indicate an intention to start a business, before this becomes an actuality there will be an assessment of opportunity costs, which involves comparing the expected returns of entrepreneurship to the expected returns of an alternative occupation.
The most common alternative is being employed. Remaining employed may be a more attractive option to many, especially where employment opportunities are sparse.
While the Western Cape has the lowest provincial unemployment rate, South Africa’s unemployment rate is extremely high and the opportunity cost of leaving formal employment to pursue an entrepreneurial opportunity is therefore high.
60% of the Western Cape businesses have medium and high growth perceptions compared to 38% in Gauteng and 26% for the rest of South Africa.
The TEA rate captures individuals that have actually acted on their intentions. The TEA rate includes both nascent and new entrepreneurs.
Nascent entrepreneurs are individuals who are actively involved in setting up a business or who already own a business but whose business has not paid any wages or salaries for 0 to 3 months.
New entrepreneurs are individuals who are owners/managers of an active business that has been in existence for 3 to 42 months.
Gauteng has a TEA rate of 15.4%, the rest of South Africa has a TEA rate of 9.5% and the Western Cape has a TEA rate of 7.0%.
One explanation for the lower TEA rate in the Western Cape is the population demographics within the Western Cape, in relation to the population demographic in Gauteng and the rest of South Africa (as regions).
Fifty percent of the Western Cape population is coloured and this race grouping has the lowest TEA rate.
Gauteng and the rest of South Africa (other than the Northern Cape) have a lower percentage of coloured people in their population demographics.
Entrepreneurs in Gauteng are 3.2 times more likely to be opportunity-driven than necessity-driven.
In KwaZulu-Natal, the Eastern Cape and Limpopo, the informal sector accounts for a larger share of total employment compared to most of the other provinces.
This would explain why entrepreneurs in the rest of South Africa are only 1.7 times more likely to be opportunity-driven than necessity-driven entrepreneurs.
Western Cape entrepreneurs are 6.7 times more likely to be opportunity-driven than necessity-driven compared to 3.2 times in Gauteng and 1.7 times in the rest of South Africa.
This is positive with respect to employment creation, as GEM has shown that opportunity-driven businesses have a more positive impact on job creation.
The Western Cape has the highest rate of intended high-growth businesses that are intending to generate 20+ jobs over the next five years.
Entrepreneurs in the Western Cape (71.9%) perceive themselves, on average, to be slightly more innovative with respect to the extent to which their product or service is new to some or all customers and where few or no other businesses offer the same product than Gauteng (69.9%) and the rest of South Africa (66.7%).
This is a positive sign, as a high degree of innovation orientation within businesses is expected to have a positive impact on economic development.
When asked to respond to the following question, “Where you live, working for the government is the best way to earn a good living”, over half of Gauteng (53%) and Western Cape (58%) respondents agreed and just less than three-quarters (70%) of the rest of South Africa agreed that working for the government is the best way to earn a living.
A further concern is high levels of government corruption which creates the belief that ‘who you know’ is more important than ‘what you do’.
Finding entrepreneurial opportunities and indicating an intention to develop the opportunity into a business will be hampered by the belief that your success is more dependent on ‘who you know’ than ‘what you do’.
Added to this perception is increasing dependence on state welfare, with 16 million people in South Africa receiving social grants, of which 11.3 million receive child support grants.
Of the 58 million people in South Africa, the public sector currently employs 22.8% percent of the working population, 27.5% (16 million) are receiving social grants and 36.7% (6.9 million people) are unemployed (expanded definition).
The development of an entrepreneurial culture in South Africa is likely to be eroded by the perception that working for the government is the best way to earn a living, by the number of discouraged work seekers and the number of people on social grants.
GEM has shown that knowing an entrepreneur has a positive impact on the decision to start a business. However, in many communities, knowing people who are discouraged work seekers or are a recipient of a social grant is significantly more likely than knowing an entrepreneur.