South Africa trails in global entrepreneurship rankings

25 November 2002
SOUTH Africa is less entrepreneurial than other developing countries, a fact which could impact negatively on the country's economic growth and job creation prospects.

According to the 2002 Global Entrepreneurship Monitor (GEM), released at the United Nations last week, South Africa is below the average rate of entrepreneurial activity when compared to the 36 other countries taking part in the survey and ranks lowest of all developing countries, including Chile, Brazil, Mexico, India, Argentina and Thailand.

The South African GEM survey, which was led by the UCT Graduate School of Business, interviewed a representative sample of 3 500 adults and conducted face-to-face interviews with 53 South African experts selected because of their insights into aspects of entrepreneurship. This is the second year that South Africa has participated in the survey.

Mike Herrington, Director of the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business, said that the report highlights a number of challenges for South Africa.

“The results show that South Africa is in the bottom quartile of all countries on measures of opportunity entrepreneurship and new firm activity – both critical gauges for economic growth potential,” he said.

“Equally concerning is the fact that South African start-ups have a low success rate compared to the majority of other countries surveyed. This indicates that although South Africa has long recognised the need to support entrepreneurship to boost economic growth and job creation, the existing policy interventions and programmes are simply not making a big enough impact.”

Entrepreneurship in South Africa is affected by a number of factors, including race, gender and location. But GEM 2002 found that the greatest obstacle facing entrepreneurs is a lack of education and training followed by ineffective financial support.

The report shows a clear correlation between education and entrepreneurial success. Those with a tertiary education, for example, are three times as likely to progress their business beyond the start-up phase to become a new firm (defined by GEM as a company that has paid salaries for more than three months). This is critical because it is new firms that promise to be most effective in creating jobs. New firms employ significantly more people (an average of 2.17) than do start-ups, most of which have no employees.

“These results highlight the importance of increasing the number of young people who obtain a matric,” said Herrington. “Such an increase is likely to raise both the proportion of firms that progress beyond the start-up phase and the average number of jobs created by new businesses.”

GEM 2002 also argues that a more targeted approach to promoting entrepreneurship could help boost South Africa's entrepreneurial performance by directing resources where they are most effective.

“If scarce resources are to be used effectively, it is important to channel support to particular groups of entrepreneurs, those who are capable of contributing to wealth and job creation,” said Herrington.

Additional surveys carried out by the GSB to complement GEM 2002 have helped to identify which groups of entrepreneurs hold more promise for wealth and job creation. Formal entrepreneurs with registered businesses operating in South Africa's townships, for example, employ more people (an average of 7.2) than do their informal (unregistered) counterparts who employ an average of 0.8 people. This makes formal township entrepreneurs a more viable group to target.

The report concludes that addressing the situation of disadvantaged entrepreneurs in a more targeted way is also important politically as the emergence of a larger number of successful black entrepreneurs is clearly essential to increase the pace of black economic empowerment in South Africa.

“The challenge is to create a more entrepreneurial climate and to provide effective and targeted support for each group of entrepreneurs so that South Africa can reap increasing economic benefit from them,” said Herrington.

“The advantage of the GEM study is that we will be able to measure and track South Africa's performance over the years, which will help to inform policy development.”

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