Last week was the South African launch of the Global Entrepreneurship Monitor (“GEM”) 2013 Report. Happily there were some positive trends noted in the report, but in total it again served to highlight the extent of the challenge if we wish to move South Africa to the full potential of a truly entrepreneurial nation. And while the quality of our education remains one of the biggest stumbling blocks to achieving this dream, there is a more immediate opportunity to drive a concerted national effort towards building a more entrepreneurial culture in our country.
Over the last 17 years GEM has grown to be the largest annual research report on entrepreneurship in the world with the 70 participating countries representing 90% of the world’s GDP. GEM is designed to assist in understanding the overall level of entrepreneurial activity in a particular country as well as being able to make comparisons between different countries. In recent years the research model has been refined to give a better picture of the entire entrepreneurial pipeline starting with potential entrepreneurs to those reporting entrepreneurial intention before the final hard figures of entrepreneurial activity. This gives a much more holistic picture of the total entrepreneurial pipeline.
Having attended these GEM launch events for a number of years, there was reason to be encouraged this year. Firstly the event was well attended, which has not always been the case despite the centrality of entrepreneurship to our economic future. Secondly there was genuine government involvement from the Western Cape Government, but more importantly government involvement understanding its role as facilitating the context for entrepreneurship rather than trying to be the main player. And finally the important measure of adult Total Entrepreneurship Activity (“TEA”) had increased from 7.3% in 2012 to 10.6% in 2013¹. This is the measure of all adults in the population that are involved in early stage entrepreneurship.
But these positive developments are largely overshadowed by three much bigger entrepreneurial challenges faced by South Africa. Firstly despite the 2013 increase, there remains the challenge of lack of entrepreneurial quantity: South Africa is the lowest of all Sub Saharan countries participating (Angola, Botswana, Ghana, Malawi, Nigeria, Uganda and Zambia) who have an average TEA rate of nearly 27%. Part of this is because all other Sub Saharan countries are classified as factor driven economies (who generally have higher levels of less ambitious entrepreneurship) while South Africa is an efficiency driven economy, but the gap is stark, with the next lowest TEA rate being Botswana at 20.9%.
The quantity challenge then extends to a quality challenge for the quality of South Africa’s new businesses remains a concern, with the discontinuance rate increasing to 4.9%. So while 10.6% have embarked on entrepreneurial activity, nearly half that number (4.9%) have had to exit from running a business.
But perhaps the most concerning challenge is the weakness of the South African entrepreneurial pipeline, particularly when considering youth (18-34 years old). The pipeline of potential youth entrepreneurs in South Africa (those that believe they have both the capabilities and perceive opportunities) is 25%. This is in comparison to a similar pipeline in Sub Saharan Africa of 60%. Our starting point for potential entrepreneurs is 40% the size of our Sub Saharan contemporaries! There are many reasons for this but the most significant is, as eloquently stated in the GEM report, that the quality of education is “choking” entrepreneurship. South Africans do not believe they have the capabilities largely because our education system has not given them the capabilities.
The second contributor to our diminished entrepreneurial potential is a lack of perception of opportunity. Part of the response to this is to build a greater entrepreneurial culture. And while progress is being made on this front in South Africa with 74% of South Africans believing in 2013 that entrepreneurship is a good career choice, up from less than 50% ten years ago, there is much more work to be done. To illustrate this weakness in entrepreneurial culture, one of the most powerful opportunities for building national entrepreneurial culture is the annual Global Entrepreneurship Week. At this event last year 1.6 million people participated in Brazil. In South Africa the number was 1,800.
Yet the most poisonous impact on our perceptions of opportunity has been our growing reliance on government. In answer to the statement, “Where I live, working for the government is the best way to earn a good living” a staggering 67% of South African youth agree with this statement. If our youth continue to see government as their aspiration in such large numbers, we will never achieve our entrepreneurial aspirations as a country.
So what does this all mean? In simple terms we need to start with what we can control. And the first step is at the beginning of the entrepreneurial pipeline, looking at perception of opportunity. The level of perceived opportunity is closely related to the level of entrepreneurial culture. How can we drive a movement towards a greater entrepreneurial culture? First on the agenda is that the scale of the South Africa’s Global Entrepreneurship Week activities needs to grow exponentially. What other suggestions do you have? I look forward to joining you in this entrepreneurial revolution. I can’t wait for the day when I leave the South African GEM Report launch without a mild dose of depression!
¹Although there was surprisingly little attention given to the fact that this almost unbelievable increase of 45% in one year, when applied to the 2011 South Africa Census population data would mean that there were around one million new entrepreneurs starting in South Africa in 2013. Did we miss this in all the job loss headlines of the last year? Adcorp’s respected Employment Index suggested that we lost around 170,000 jobs in 2013. Not a great return from the suggested million new entrepreneurs. Given this level of year to year fluctuation, it is probably better not to be fixated with the current year percentage but to look at the long term trends in TEA rates which in South Africa have shown a gradual increase from around 5% in 2003 to around 10% ten years later.