Entrepreneurship

Melanie Veness:  PCB CEO 

As large enterprises have restructured and downsized, small, medium and micro enterprises (SMMEs) have come to play an increasingly important role in South Africa's economy. A closer look will show that the sector has grown significantly. In 1996, around 19% of people employed were working in the SMME sector of the economy. By 1999 this figure had risen to 26%, and recent studies show more than 54.5% of South Africa's employed population, contributing more than 30% of total gross domestic product (GDP), is working in this sector.  Interestingly, one out of every five units exported, is produced in the SMME sector.  So, clearly the sector has grown, but has it grown significantly enough?

The Global Entrepreneurship Monitor (GEM) study, conducted annually since 2001 by the UCT Centre for Innovation and Entrepreneurship, is South Africa's largest survey of entrepreneurship, and it forms part of a global body of GEM research in 54 countries. Reading the latest study results, one has cause for alarm. Consider that in 2008, South Africa was ranked 23rd out of the 43 countries surveyed and we had a Total Early-stage Entrepreneurship Activity (TEA) rate of 7,8%. TEA is measured by the percentage of economically active people (aged between 18 and 64) who are involved in starting or running a business. South Africa's TEA rate dropped from 7.8% in 2008, to 5.9% in 2009. In 2009, we ranked 35th out of a study of 54 countries, with a TEA rate significantly below the average of all participating countries (11.7%) and well below the average rate of countries with similar economies (14.8%).

There is little doubt that the global economic crisis dealt entrepreneurship in South Africa a major blow, and although the drop in TEA is in line with global trends, emergent economies with a similar GDP per capita, such as Argentina, Chile, Brazil and Peru, achieved TEA rates three to four times higher than ours.  Dr Mike Herrington (Director of the UCT CIE) believes that these findings “confirm the trend of below-average entrepreneurial activity in South Africa demonstrated in previous GEM surveys”.  According to GEM data, a country at SA’s stage of economic development should have a TEA rate of around 13%, which is more than double our actual rate of 5.9%.  Herrington expressed concern about the drop in the established business rate (businesses that survive beyond three and a half years) from 2.3 % in 2008 to a worrying 1.4% in 2009. The findings also show that necessity-driven entrepreneurship increased from 21% to 33% in 2009 – this means that more entrepreneurs said that they started a business because they had no other way to survive. This increase can probably be attributed to the high levels of retrenchments over this period.

The GEM study also highlights our high unemployment levels are relative to the other countries studied. Given the structural problems of the formal sector to grow jobs, the onus is on entrepreneurship to do this. Yet, we have a low and falling early stage entrepreneurial activity rate, as well as an accelerating established business failing rate. Why? Herrington reckons it time for “policy interventions aimed at supporting and mentoring entrepreneurs through the difficult process of firm birth”. I couldn’t agree more. And that doesn’t necessarily mean more business plans, but greater mentorship.

Leave a Comment