Finding solutions to South Africa’s weak entrepreneurial pipeline – Commentary on the South Africa 2014 GEM Report Part II

Finding solutions to South Africa’s weak entrepreneurial pipeline – Commentary on the South Africa 2014 GEM Report Part II

In Part I of our commentary on the 2014 SA GEM Report, posted earlier this month, we concluded by saying that this second and final commentary would suggest solutions to address the alarmingly downward trend in entrepreneurship in South Africa.

The GEM report elegantly concluded with self-explanatory recommendations for policy and practice under five distinct categories:

  • Education and training
  • Government policies and regulations
  • Market openness (which is often heavily influenced by government policies and regulations)
  • Government programmes
  • Entrepreneurial finance support

Our intention here is not to reproduce the GEM’s findings, so with the help of two members of Foundation Talent Sara Bux (PhD Candidate and Regional Fellowship Manager) and Phumlani Nkontwana (Fellowship Programme Officer: Entrepreneurial Leadership) we focus on two inter-related factors, that is, educational attainment and youth entrepreneurship.

As illustrated in the figure below, the 2014 GEM report shows clearly the strong correlation between perceived capabilities (skills) and the Total Entrepreneurial Activity Rate, confirming that all forms of education are important in developing entrepreneurial competencies.

Screen Shot 2015-06-23 at 8.17.54 AM

 

In an, as yet, unpublished paper for the University of Pretoria, Bux maintains that the problem in South Africa is not restricted to the quality of entrepreneurship education and training per se. In her opinion, the broader challenge exists at primary and secondary education level. SA’s youth need to experience favourably revised patterns of quality education and to access opportunities that enable them to grow, develop and prosper as fully engaged, responsive and productive citizens. That we would have to adopt transformative strategies to fast track the inclusivity and economic growth of youth is implicit in the assertion that youth must be equipped with education and training that enables them to become job creators – regardless of the stage at which they exit the formal school system.

Youth entrepreneurship education promotes both enterprise culture and provides a long-term solution to unemployment. The type of education associated with Higher Education Institutions alone, can no longer be seen as a ‘reliable’ solution to youth unemployment problems because entrepreneurship requires a specific kind of education and experience.

Nkontwana notes that the GEM Report begins with the bold acknowledgement that “the main challenge is to provide jobs and/or opportunities for the youth, where the estimated unemployment level is in excess of 60%.” Of the 500 000 pupils who write matric exams every year in SA only about 23% get a ‘pass’ and merely half of these even qualify for university entrance.

Over 74 million young people aged 15–24 were unemployed in 2013. Viewed as a function of lack of opportunities, youth unemployment contributes to rising impatience, intolerance and frustration in the society. Empirical evidence supports the positive association between youth bulges and political violence. Hence Nkontwana believes that Moeletsi Mbeki’s description of SA as a ‘ticking bomb’ is apt.

The prevalence of early-stage entrepreneurial activity tends to be relatively low in the 18–24 years cohort, peaks among 25–34 year olds, and then declines as age increases with the sharpest decrease after the age of 54. South Africans aged between 25–44 years are the most entrepreneurially active. They account for between 50% and 60% of all early-stage activity.

In order to shift youth entrepreneurship we need to address the weakest link in South Africa’s already weak entrepreneurial pipeline, namely our level of entrepreneurial intention (what proportion of the population intend to become entrepreneurs), which sits at 10% which is less than half of the level of other efficiency driven economies.  The biggest lever we have to shift intention is to improve the country’s entrepreneurial culture. Shifting entrepreneurial culture is a multifaceted exercise but we have an immediate opportunity with Johannesburg hosting the 2017 Global Entrepreneruship Congress.  This is one of the most important annual entrepreneurship events on the calendar and will be the first time this “world cup” of entrepreneurship is hosted in Africa. This opportunity can be a powerful catalyst and platform for shifting the nation’s perception around entrepreneurship. It is a unique opportunity we can’t afford to waste.

Finally it must be borne in mind, as stated in the GEM, that while it is not the government’s responsibility to start new businesses and provide employment, it is their responsibility to provide an environment that is conducive to starting and sustaining a new business, through reforms and regulations that increase the ease of doing business and lessen unnecessary bureaucratic burdens. An alternative measure of the government’s success in achieving this is to review the country’s performance in the annual index of Economic Freedom.  Over the last ten years South Africa’s ranking has fallen dramatically in this index from 53 to its current ranking of 72. What is the implication of such a fall? It is conveniently quantified by looking at the example of Colombia a country very similar in economic size, levels of inequality and even crime. Colombia has been committed in recent times to economic freedom enhancing measures.  As a result over the same 10 year period they have moved from a ranking of 72 to a current ranking of 28. In the previous GEM blog piece it was noted that relative to its economic size South Africa was missing two thirds of its entrepreneurs and should have around 20% of its adult population engaged in entrepreneurial activity instead of the current 7%.  It is therefore interesting to note that the entrepreneurship level in Colombia last year was 18.5%. As they say, freedom works!

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