After years of coping with the depressing entrepreneurship measures coming out of the annual Global Entrepreneurship Monitor Report, where South Africa consistently tracks last out of all African countries participating, with both low volumes and low quality of entrepreneurship, it is pleasing to get better news. This came in the form of South Africa’s ranking in the 2015 Global Entrepreneurship Index (“GEI”) released at the end of last year.
According to the GEI, South Africa places 53 out of 130 countries participating and by virtue of its score is operating at 40% of its entrepreneurship capacity. (By comparison the index suggest that, as a whole, the world is at 52 % of its entrepreneurial capacity.) This score places South Africa at the top of the Sub Saharan Africa region, well above the next highest ranked country, Botswana which placed 66.
The GEI is an annual index that measures the health of the entrepreneurship ecosystems in each of 130 countries. The GEI is composed of three building blocks or sub-indexes: entrepreneurial attitudes, entrepreneurial abilities, and entrepreneurial aspirations. These three sub-indexes stand on 14 pillars, each of which contains an individual and an institutional variable, unlike other indexes that incorporate only institutional or individual variables.
|Entrepreneurial attitudes||Societies’ attitudes toward entrepreneurship, which we define as a population’s general feelings about recognizing opportunities, knowing entrepreneurs personally, endowing entrepreneurs with high status, accepting the risks associated with business start-ups, and having the skills to launch a business successfully|
|Entrepreneurial abilities||Entrepreneurs’ characteristics and those of their businesses. Different types of entrepreneurial abilities can be distinguished within the realm of new business efforts. Creating businesses may vary by industry sector, the legal form of organization, and demographics such as age and education|
|Entrepreneurial aspirations||The early-stage entrepreneur’s effort to introduce new products and/or services, develop new production processes, penetrate foreign markets, substantially increase their company’s staff, and finance the business with formal and/or informal venture capital. It reflects the quality aspects of start-ups and new businesses|
Source: GEI 2015
As explained by GEW President, Jonathan Ortmans: “The Global Entrepreneurship Index, while by no means the definitive answer, seeks to provide more than just a country’s relative global ranking. The Index sheds light on the efficiency of national start-up ecosystems through analysis of 34 essential individual and institutional variables. It attempts to reveal the bottlenecks that erode hard-won competitive advantages for start-up ecosystems and provide rankings by region to provide policymakers regulatory environment comparisons with surrounding economies.”
Watch the introduction of the 2015 GEI here.
An interesting question that immediately arises is why South Africa would fare so much better in this index relative to others? The most significant reason is the fact that this index combines both individual and institutional variables. Sadly for our levels of human capital, South Africa currently performs much better in indexes that give more weight to institutional capacity. The GEM report for instance focuses entirely on individual variables.
Analysing the South African performance more carefully across the three sub-indexes, it is evident that our relative weakness is in the area of entrepreneurial attitudes (where our score is 33.4 relative to abilities at 38.5 and aspirations at 48.1). While there is growing recognition of the importance of entrepreneurship in the country, this index confirms that there is still significant work that needs to be done in building a vibrant entrepreneurship culture.
Exploring further at the pillar level our three biggest areas for improvement are in start-up skills, human capital and risk capital. The worst of these is our start up skills where we are hit by a combination of our low gross enrolment levels into tertiary education (institutional) and the fact that only 42.7% of our population perceive that they have the capabilities for starting a business, compared to a Sub Saharan Africa average of 74% (individual).
The GEI therefore provides interesting food for thought, giving both cause for increased optimism around the South African entrepreneurship eco-system as a whole, while giving direction to the nature of our bottlenecks. Entrepreneurship is too important to our future for us not to take hold of these valuable insights to improve our overall entrepreneurial capacity.