Small Business Doing Well

The Results Post 2010 Are Looking Good

Thumbs up for small business in SA
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Two years after the 2010 FIFA World Cup South African entrepreneurs have managed to maintain the gains they made during the boom, the latest South African Global Entrepreneurship Monitor (GEM) survey confirms.

According to the research, released recently by the University of Cape Town’s Graduate School of Business, Total Early-stage Entrepreneurial (TEA) activity in South Africa held steady at 9.1% in 2011 (compared to a statistically similar 8.9% in 2010).
GEM is the largest research project of its kind in the world and South Africa has participated for the past 11 years. 

Team leader Mike Herrington says the cumulative data showed that entrepreneurship in South Africa, after holding steady at low levels under the median of the 54 countries surveyed, jumped from 5.9% in 2009 to 8.9% in 2010 as a result of the 2010 FIFA World Cup.

“What we are seeing are some of the many excellent initiatives across the country starting to pay off and that entrepreneurship is gaining ground,” says Herrington. “This is good news for our economy and for job creation because entrepreneurship has been shown conclusively to be key in creating jobs.”

But, while maintaining gains pleasantly surprised many academics, South Africa is in danger of once again slipping below the median of the GEM survey participants.

“There is huge potential for entrepreneurship in this country. If you compare us with similar economies like Brazil and China, we should be performing at about 14 or 15%. We really need to interrogate why this is not happening,” says Herrington. The report shows that people’s perceptions towards entrepreneurship in South Africa are changing: “More people believe they can start and run a business now than they did a few years ago which is positive – but this is still not translating into gains on the ground,” says Herrington.

Understanding what is holding us back is important not only to create opportunities for more businesses to emerge, but also to ensure top level support for those business that have survived since 2010 so that they mature into established firms that will generate more jobs. 

Historically South Africa has had a high attrition rate - meaning that the majority of new businesses fail before they reach maturity. This is disastrous for the economy as mature businesses generate the most jobs.

The GEM research points to several factors that inhibit entrepreneurship in South Africa. The major challenges remain top-down corruption, high levels of crime, low standards of education – particularly at primary school level – and poor health among South Africa’s labour force. Significantly, South Africa performed badly on all these metrics in the latest Global Competitiveness Index.

This year the research also looked specifically at BRIC countries (Brazil, Russia, India, China) – weighing up how South Africa performs relative to this group. The picture that emerged was not pretty, with South Africa only slightly ahead of Russia on many key metrics. Brazil and China led the pack with high levels of total early-stage entrepreneurial activity (14.9% and 24% respectively).

In Brazil, the TEA rate has increased by 28% since 2006 – an improvement attributed to well-managed government programmes to stimulate and support small businesses, as well as numerous legislative reforms that focus on making it easier to start businesses. Surveys amongst citizens also showed a significant decrease in their fear of failure.

Media support for entrepreneurship is also a significant factor: In Brazil the media supports entrepreneurial initiatives with free advertising and publicity for issues affecting entrepreneurs.

National experts participating in the study rated South Africa’s physical infrastructure highest in terms of stimulating entrepreneurial activity, while government entrepreneurship programmes scored lowest. Strong criticism was leveled at government agencies for not addressing the needs of entrepreneurs adequately even though funds were available.

“The GEM project aims not only to create awareness of the state of entrepreneurship, but also to contribute to the debate around how an entrepreneurial climate can be fostered,” says Herrington. “Recommendations are offered in the hope that real, concerted effort will be applied to transforming South Africa’s entrepreneurial environment, and creating opportunities for lasting economic growth.” This effort is essential in order to keep the momentum of 2010 going, otherwise it’ll be another case of dropping the ball.

GEM research is funded by South Africa Breweries, The Swiss South Africa Co-operative Initiative and the Small Enterprise Development Agency.

For more information or to arrange interviews, please contact natasha@rothko.co.za 


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