Fewer entrepreneurs in SA – report

Henry

There are now even fewer entrepreneurs in South Africa than before the Covid-19 pandemic, according to a report by Global Entrepreneurship Monitor South Africa (GEM SA).

The outlook doesn’t look much better either, as the report further indicates that fewer people than before are considering starting new businesses.

What is even more worrying is the motive that drives people to become entrepreneurs at the moment. Usually people choose to become entrepreneurs because they want to make a difference in the world, build wealth or continue a family tradition. In South Africa, however, the biggest motive for becoming an entrepreneur is the need to make a living, as job opportunities here are extremely rare. This seems to be especially the case among men.

“These key findings raise concerns that the country’s weak economy and an insufficiently enabling environment for business are hindering the potential of entrepreneurship, which would ultimately contribute to economic growth, job creation, innovation and technological progress, as well as social cohesion,” says Angus Bowmaker-Falconer, lead author of GEM SA and research associate at the Stellenbosch School of Management.

South Africa did rise by five places on the GEM National Entrepreneurial Context index (NECI), a measure that indicates the favorability of an environment for entrepreneurship and potential for new businesses. Out of the 51 countries measured in 2022, South Africa now ranks 40th. However, South Africa was one of only three countries on the index where all 13 of the “enabling conditions for entrepreneurship” were rated as insufficient.

According to Bowmaker-Falconer, South Africa is lagging behind in entrepreneurial activities on a global as well as an African level.

“Overall, we do not see resilience and recovery of entrepreneurial activity to pre-pandemic levels in South Africa compared to global and African perceptions, although this is not optimistic either.

“This reflects our poorly performing economy, the effects of the energy crisis, deteriorating transport, logistics and other public infrastructure and service delivery, and the lack of a favorable environment that enables entrepreneurs to start, grow and sustain new businesses .”

‘Less intent on starting businesses, owning’

Natanya Meyer, associate professor in entrepreneurship education at the University of Johannesburg and co-author of the report, says the low intention to start or own new businesses is particularly worrying.

“The number of people aged between 16 and 64 who intend to start a new business in the next three years fell to 10% in 2023 – the lowest in 20 years after reaching a peak of 20 in 2021/2022 % reached.

“Total Entrepreneurial Activity (TEA) – which includes active enterprises less than three months old and new enterprises up to three and a half years old, has increased from 17.5% during the Covid-19 pandemic, to 8.5% in 2022/2023 decreased – lower than the 11% in 2019.”

Ownership of established businesses (older than three and a half years) has almost halved: From 3.5% in 2019 to 1.8% in 2022/23, after reaching an encouraging high of 5.2% during the Covid-19 pandemic have reached

“The extent to which the pandemic has affected entrepreneurship levels remains complex,” says Bowmaker-Falconer.

“Lockdowns and related restrictions have severely disrupted the way people worked and negatively affected trade and markets, putting pressure on economies worldwide. At the same time, this crisis has presented problems that need to be solved, with many new and established businesses seizing opportunities.”

Although this increased entrepreneurship figures, all these new ventures were not successful or sustainable and many could not survive in a post-pandemic landscape.

The prospects for new businesses to employ people have also declined.

In 2019, three out of ten new business owners expected to employ an additional six people or more employees in the next five years. However, this has dropped to two in ten in 2022, reflecting the generally weak economic conditions and unfavorable entrepreneurial environment, says Bowmaker-Falconer.

The 13 conditions that South Africa must meet in order to be a favorable entrepreneurial environment, but fall short, include the following:

  • Availability and easy access to financing for new businesses;
  • Supporting government policies and programmes;
  • An excess of tax and administrative red tape;
  • Levels of training for entrepreneurs;
  • Infrastructure and services;
  • Market dynamics and regulations;
  • A culture that encourages and celebrates entrepreneurship.

These are all factors that can hurt or promote the start of new businesses. Although South Africa has made progress with some of the conditions, it often requires more support or medium to long-term interventions such as a policy change, improvement of infrastructure, investments and the like.

“Entrepreneurship remains an essential economic and social lever to grow the economy and create jobs. This is an urgent need in South Africa, given the high levels of inequality and unemployment, and the need to accelerate the pace of economic and social transformation towards an inclusive society and economy,” says the report.