Birds of a feather By Rick Ed, Do.Better Business

Transformation of black spending lends itself to cultivating real power and generational wealth. Rick Ed from DoBetter.Business unpacks the Birds of a Feather ideology.

Sweat shop labour proves to be the common factor for disassociation with popular brands, where consumers choose to not support businesses that benefit from slave labour. In a similar way, people have actively supported others with common interests: those who back the same team or those with a common heritage. Kids in school who share common interests – a particular type of music, say – tend to stick together. We socialise with people we feel comfortable with. The downside of such exclusivity means exposure to diversity is limited. Moving out of our comfort zone to try out a new culture, its language and traditions, expands us. People who travel are often more accepting of other points of view and more open to exploring other positions. When it comes to important decisions like the school that we send our kids to, reputation is important. We rely on who and what we know. The same is true for important buying decisions: does this make of car have a reputation for being reliable? Does it keep its resale value? Advertising has taught us that imported is better and apartheid has conditioned us to believe that white is better. Two decades on, many black businesspeople will still trust a white professional over a black one. Reputable black lawyers and accountants still have to fight the perception that superior expertise is to be got at established practices with white names. How do we break this mind-set and give black businesspeople and entrepreneurs the opportunity that they rightly deserve? Established five years ago, the Black Business Council (BBC) has been trying to do for black business what the Broederbond achieved for Afrikaner commerce. But BBC CEO, Mohale Ralebitso, notes that in South African minds, black business is still equated with small business, limiting their access to capital and markets and thus inhibiting growth. As at the end of 2015, according to TimBukOne.com, almost half of the JSE’s top 40 companies (about 80% of the JSE capital) are now controlled by overseas shareholders and the National Empowerment Fund (NEF) says that direct black equity control over the JSE in mid-2014 stood at 3%. Whichever figure you use, black South Africans have little control over their economic destiny through the JSE. Then there’s the legal route. The BBBEE and skills legislations have built-in incentives and penalties but are complex and talk largely to bigger businesses. To date, BBBEE has had a limited impact because many small businesses, black and white, find it too taxing to implement its requirements and maintain their scorecards. It’s a complicated and time-consuming process that is not their core business and they prefer to treat the levy as a tax and write off the possible scorecard benefits. Income tax is the government’s main source of income. Of the R900bn in tax collected by SARS in the 2014 tax year, almost R308bn came from personal income tax and almost R180bn from company tax. VAT accounted for almost R238bn. South Africa’s 16.8-million taxpayers’ spending power is thus a very powerful tool. The bulk of tax is collected from consumers, the same people who make important buying decisions. Additionally, a significant proportion of businesses are informal and hundreds of thousands of employees earn a salary below the tax threshold. Both of these groups can also make an impact by deciding to spend their money with black businesses. There is a multi plier effect at work when South Africans decide who to employ to do a job. When 10 companies choose a black ad agency, and each spends between R10k and R100k, more than half a million rand is injected into the business. It can then hire more staff, contract out work or buy more consumables. Employees have more disposable income. Communities benefit and the economy grows. More importantly, businesses now have the opportunity to grow their expertise and to develop their employees, building their capacity to take on more work and more challenging contracts. And so they share their new-found growth with other businesses, cultivating a symbiotic eff ect. In recent years, there have been a number of uncoordinated “buy black” initiatives. For example, last year Africa is Open for Business author, Victor Kgomoeswana, encouraged the Black Management Forum (BMF) to endorse a “buy black” campaign. But this initiative needed a committed, concerted groundswell of decision makers to swing the tide. Today, searching the web for “buy black South Africa” is discouraging. The only article about supporting black business in South Africa is not a positive one. Yet the opportunities abound: a cursory glance at the members of Kwanele Tshabalala’s Soweto Business Network reveal an exciting list of enthusiastic entrep

entrepreneurs. However, we as consumers still gravitate towards the same suppliers pre-democracy. Commentators enquire about the fact that there is now a sizable black middle class so why are people no longer as determined to strive for the common good as they were two decades ago? Have people become too comfortable? Do we need some outside threat, some force to jog us into collaborating with one another to coordinate our eff orts to support black businesses? There are plenty of NGOs supporting the establishment and growth of small black businesses: Activate!, Awethu Project, Branson Centre, Endevor, Fetola, The Hope Factory… but it’s more than outside help that we need. It has to come from within the community. And we need to extend our scope beyond small businesses. We need a co-ordinated national campaign to persuade people to consciously break out of their comfort zones, to not rely on our only birds of a feather mentality. Can it be done? Yes it can, but it is a slow, deliberate, incremental process. Just talking about it is a step in the right direction. But if each person thinks about where he or she is going to spend their next hard-earned rand, and consciously decides to put it with a black business, we will eventually get there.

The corporate investor – a missed opportunity By Pascal Fröhlicher

With private sectors catering predominantly to high income groups there is a limited understanding of how to serve the majority population. Spotting the potential of lower income customers is where major corporates fall short. Pascal Fröhlicher, an expert on Entrepreneurship and Impact Investing in Africa, expands on the subject.

Narrowing economic disparity should be a pressing goal for anyone with an interest in South Africa’s economic wellbeing. But this type of change, when done sustainably, often moves slowly. Looking at the success rates of numerous remedial policies underscores this point: most have struggled to have a significant impact on South Africa’s extreme economic stratification. Short-term measures can catalyse long-term change, however. This was the thesis behind the hotly debated black economic empowerment policy, whose goal when conceived was to alleviate economic inequality and improve integration of the majority of the population into an economy that competes on a high level internationally. This was again the thesis when the BEE codes were amended to shift the policy’s focus from ownership redistribution to a more comprehensive framework that is supposed to strongly support enterprise development. And while the policy has had limited success so far in moving the needle towards its transformational goal, there is plenty of evidence globally that the new iteration could be used as a catalyst for change — in everyone’s favour. For that to happen, South African corporates have to begin doing what top tier companies all over the world are doing: thinking like investors. Global corporates are increasingly recognising the value of engaging with and enabling innovative ventures to achieve their own strategic business goals. These goals could include anything from entering new markets and testing new business models, testing new products and services (effectively using them as an external R&D department), diversifying their supply chains, or achieving social goals. Whatever the purpose, most are testing it as a way to de-risk some of their core business activities and grow their reach.

Unsurprisingly, technology leaders like Intel, Google or Facebook are leading the so-called “corporate venturing” trend. The tech giants’ models involve setting up venture funds that are strategically aligned to each company’s core business model. They find, finance and in some cases, incubate, ventures that are focused on activities that support the company’s key goals. This model accomplishes two things: it helps the main company — the “investor” — develop a channel for testing and expanding innovative ideas, ensuring that they are at the cuttingedge of their industry. It also fosters a culture of entrepreneurship, encouraging an economic environment where individuals see opportunity in executing ideas and creative problem-solving. Successful “corporate venturing” investments and exits will only propel this trend. South Africa’s corporate sector has dabbled little with this approach to business development. But Enterprise Development could be used as a catalyst for doing more. The reason it has not, at least so far, is because most corporate leaders fail to recognise the potential to develop their own businesses with the help of entrepreneurs who have the potential to be more innovative and who are willing to assume a much higher level of risk. Instead, the Enterprise Development “function” of most South African corporates is either outsourced to external providers or relegated to a department that is not actively involved in core business strategy development. The Enterprise Development Report 2013 found that most corporate professionals responsible for leading Enterprise Development at their companies were based in human resources, corporate social responsibility or general BEE compliance departments; very few reported to have a direction relationship with the company’s procurement or strategic business development divisions. Those which did noted that their Enterprise Development programmes focused on entrepreneurs who distribute or source non-essential products or services. While these initiatives may have positive impacts for those who are directly involved, they are incapable of addressing core issues for either the corporate sponsor or so

include anything from entering new markets and testing new business models, testing new products and services (effectively using them as an external R&D department), diversifying their supply chains, or achieving social goals. Whatever the purpose, most are testing it as a way to de-risk some of their core business activities and grow their reach.

Unsurprisingly, technology leaders like Intel, Google or Facebook are leading the so-called “corporate venturing” trend. The tech giants’ models involve setting up venture funds that are strategically aligned to each company’s core business model. They find, finance and in some cases, incubate, ventures that are focused on activities that support the company’s key goals. This model accomplishes two things: it helps the main company — the “investor” — develop a channel for testing and expanding innovative ideas, ensuring that they are at the cuttingedge of their industry. It also fosters a culture of entrepreneurship, encouraging an economic environment where individuals see opportunity in executing ideas and creative problem-solving. Successful “corporate venturing” investments and exits will only propel this trend. South Africa’s corporate sector has dabbled little with this approach to business development. But Enterprise Development could be used as a catalyst for doing more. The reason it has not, at least so far, is because most corporate leaders fail to recognise the potential to develop their own businesses with the help of entrepreneurs who have the potential to be more innovative and who are willing to assume a much higher level of risk. Instead, the Enterprise Development “function” of most South African corporates is either outsourced to external providers or relegated to a department that is not actively involved in core business strategy development. The Enterprise Development Report 2013 found that most corporate professionals responsible for leading Enterprise Development at their companies were based in human resources, corporate social responsibility or general BEE compliance departments; very few reported to have a direction relationship with the company’s procurement or strategic business development divisions. Those which did noted that their Enterprise Development programmes focused on entrepreneurs who distribute or source non-essential products or services. While these initiatives may have positive impacts for those who are directly involved, they are incapable of addressing core issues for either the corporate sponsor or society at large. In all cases, the result of passive approaches like these is lost money and opportunity. Financially, the potential returns are limited, given the high investment costs required for such a programme. But the opportunity to learn strategic lessons and test new markets and business models is also lost. For South African corporates to remain competitive — both in their own home market and internationally — they should seize the opportunity to use Enterprise Development as a framework for engaging in cutting-edge corporate venturing. This will require them to think at the highest level of how Enterprise Development can support their strategic goals, both within and outside of their supply chains. It also necessitates moving Enterprise Development functions from their marketing, corporate social responsibility and human resources departments into the operational and business development side of the company. Finally, it will demand building up venture capital expertise, as they will need to comfortably wear an investor’s hat for Enterprise Development to succeed. Looking through an investor’s lens will allow South African corporates to follow their pioneering global counterparts towards the goal of building and strengthening sustainable and inclusive supply chains. For example, in financial services there are innovative new models emerging that cater to a customer base that the banking sector has largely failed to engage so far. Right now, these ventures and platforms are competing with traditional institutions. Corporate venturing is an avenue for alignment and shared value instead. There may be a glimmer of recognition of the potential value of this approach. In 2015, Barclay’s Africa Group launched Tech Lab Africa, which claimed to be the “first ever corporate venture accelerator” in Africa. Its mission was to “discover, nurture and empower the next generation of technology innovators”, and of the 90 applicants it received across the continent, it found 10 to support through a six-week acceleration programme. These companies ranged from mobile wallet solutions to unsecured lending platforms to digital healthcare solutions. Barclay’s programme was not South Africaspecific, but the low-income and base-of-thepyramid-focused ventures it attracted highlights the strong potential for such programmes to help South African corporates reach new customer markets while meeting the immediate requirements of supplier diversification and economic inclusion under BEE Enterprise Development. And long term, it could also ensure that corporates foster win-win relationships for everyone — for entrepreneurs, the corporate sector and South Africa’s economy at large. This would strengthen South Africa’s economy by catering for the entire population and prepare businesses for expanding into Africa.

Aligning the enterprise and supplier development strategy to business needs By Sisa Ntshona, CEO of SA Tourism

In most instances, practitioners and other stakeholders, through the prism of BBBEE compliance, grudgingly comply with the Enterprise and Supplier Development component. Sisa Ntshona, CEO of SA Tourism, lends insight into why it should be professionalized.

There is no reason why enterprise development should not be professionalized; as a matter of fact, it is imperative for our country to endeavor to place enterprise development on a different trajectory from the current one. All of us need to come to the quick realisation that enterprise development is a business imperative that big companies can leverage to carve out a significant competitive advantage in the marketplace for their products and services. Accordingly, one of the efforts that companies can invest in is the development of those suppliers who add value to their business. The integration of supply chain into the way you do business is a key imperative. Enterprise development should complement your business strategy and bring about innovation and product or service development. The current economic challenges notwithstanding, the fact of the matter is that the South African economy is open and vibrant, considering that the present-day situation is a far cry from the 1970s and 1980s. Firms had no choice but to invest internally, unlike today where there are dynamic investment opportunities. It thus makes sense for major corporates to invest in enterprise development, thereby creating an opportunity to develop and bring new suppliers into their value chain. Another area that demands serious attention is the level of skills and competency among the community of procurement professionals. According to professional body Chartered Institute of Procurement Professionals, or CIPS, the average procurement professional does not possess the requisite skills to implement strategic procurement principles. Many of the individuals in these positions are just buyers and consequently are primarily driven by securing the best possible price for their employers. Which means that in the process they are missing out on opportunities to develop new suppliers. This phenomenon partly explains the lack of progress in the procurement and enterprise development space. This in itself is not necessarily a reflection on the competency of enterprise development professionals, but rather a consequence of the manner in which the space in which the enterprise development professionals are supposed to practice in is configured. For instance, private and public sector organisations have assigned a myriad people from a diverse range of professional backgrounds such as human resources, corporate social investment and procurement to be in charge of enterprise development. This chaotic approach demonstrates a lack of rules, understating of regulations and common purpose governing the space, and what enterprise development is meant to achieve. The creation of incubation hubs by big corporate seems to be the flavour of the day in corporate South Africa, with small companies subjected to the incubation “silver bullet” irrespective of a company’s development stage and capabilities. Instead these businesses seem to be engaged in a perpetual cycle of mandatory programmes often peddled by consultants who want to extract maximum value for themselves out of developing and facilitating these initiatives. These programmes are seemingly only mandatory for black firms, as if their existing and mainstream suppliers do not require any development or assistance. Against this background it stands to reason that the quality of advice received from advisers also needs to be interrogated in order to understand, among others, what qualifies these consultants to do what they do. The unraveling of some of the highly vaunted and seemingly successful enterprise development programmes amplifies the susceptibility of the current enterprise development model. Amalgamated Beverages Industry’s (ABI) owner driver scheme is a case in point. The major objective of the arrangement was to convert drivers employed by the company into business people contracted to the company. As things stand the intended beneficiaries of the scheme claim that ABI forced them to be a price taker through squeezing their earnings downwards, rendering what was seemingly a relatively lucrative business arrangement into an untenable morass. Consequently, some 150 former owner-drivers have lodged a damages claim in court totaling R6.3bn against the company. The summons accuses the beverages company of unlawfully terminating its owner driver contracts. Industry collaboration as far as suppliers are concerned may need to be considered, especially for niche industries. For instance, the mining industry did this quite well and successfully so. have assigned a myriad people from a diverse range of professional backgrounds such as human resources, corporate social investment and procurement to be in charge of enterprise development. This chaotic approach demonstrates a lack of rules, understating of regulations and common purpose governing the space, and what enterprise development is meant to achieve. The creation of incubation hubs by big corporates seems to be the flavour of the day in corporate South Africa, with small companies subjected to the incubation “silver bullet” irrespective of a company’s development stage and capabilities. Instead these businesses seem to be engaged in a perpetual cycle of mandatory programmes often peddled by consultants who want to extract maximum value for themselves out of developing and facilitating these initiatives. These programmes are seemingly only mandatory for black firms, as if their existing and mainstream suppliers do not require any development or assistance. Against this background it stands to reason that the quality of advice received from advisers also needs to be interrogated in order to understand, among others, what qualifies these consultants to do what they do. The unraveling of some of the highly vaunted and seemingly successful enterprise development programmes amplifies the susceptibility of the current enterprise development model. Amalgamated Beverages Industry’s (ABI) owner driver scheme is a case in point. The major objective of the arrangement was to convert drivers employed by the company into business people contracted to the company. As things stand the intended beneficiaries of the scheme claim that ABI forced them to be a price taker through squeezing their earnings downwards, rendering what was seemingly a relatively lucrative business arrangement into an untenable morass. Consequently, some 150 former owner-drivers have lodged a damages claim in court totaling R6.3bn against the company. The summons accuses the beverages company of unlawfully terminating its owner driver contracts. Industry collaboration as far as suppliers are concerned may need to be considered, especially for niche industries. For instance, the mining industry did this quite well and successfully so. The mining houses collaborated to ensure there was a competent and capable pool of suppliers which they could all draw from. Ultimately true and sustainable enterprise development should be the responsibility of dedicated, capable and talented professionals within organisations. This should be a salient approach with clearly defined objectives, targets, economic and social benefits for all parties and should strengthen our ability to persuade companies that enterprise development is a business imperative and should form an integral part of any business strategy, and not be reduced to an inane tick box exercise. With this approach it will be easier to appeal to the private and public sectors to look at enterprise development beyond BEE and view it as a socioeconomic development imperative. Corporate South Africa should embrace the fact that enterprise development is not inimical to profit generation and sound business principles; if anything, properly implemented enterprise development has the potential of putting businesses on an upward growth trajectory. This is premised on the simple logic that, correctly implemented, it can stimulate economic growth and make a significant contribution to job creation and social stability. I am often asked about what more can be done to enhance the BEE codes in order to extract the desired socioeconomic impact. My answer is always “nothing”, because the BEE codes as currently constituted are adequate – what is lacking is willingness and genuine intent on the part of business leaders. Unfortunately, business leaders still have to understand that it is in their interest to create inclusive economies, otherwise there will be no social cohesion and, consequently, a hostile business environment within which to operate.

Black Industrialists vs Black Youth: Are these ED Ideals Symbiotic or Mutually Exclusive? by Amina Patterson

Our beautiful nation has faced multiple challenges since the end of apartheid. The 22 years of democracy are only in the infancy stages of trying to rectify centuries of injustice and prejudice perpetuated on the people of this land. The product includes the distasteful government corruption, poor service delivery, misappropriation of resources and an all-time high unemployment rate.

Nonetheless, this has not dampened government’s efforts to stimulate economic growth and job creation to meet the National Development Plan (NDP) target of creating 11 million jobs by 2030 through a number of government initiatives. The latest of these is the black industrialist programme, which seeks to support 100 black entrepreneurs to become the future industrialists of our country. Government, through key organisations like the Industrial Development Corporation (IDC), has committed R100 billion to the development of these 100 businesses. Ultimately, the idea is to expand SA’s industrial base and change the skewed ownership and control of the economy, still largely in white hands two decades after apartheid. Government has said it will set aside R1bn during its first year to fund the companies concerned. While the R1bn may be too small to effectively facilitate a capital-intensive industry, it is just the start.

One could say that the black industrialist programme is the evolution of the ESD pillar in the B-BBEE codes. It seeks to offer support to black businesses that turnover less than R50m, only if the programme doesn’t seek to drive the same objectives of ESD – as there are many government programmes that already support start-ups and gazelles, such as Small Enterprise Development Agency (SEDA), National Empowerment Fund (NEF), and the gazelles programme.

The natural fear would be that this would be a patronage exercise to government’s loyalists where only the connected benefit. To curb this notion from becoming a reality, government would do well to not act with haste in the implementation of the programme and to think through the value chain of what it would take to create a black industrialist.

The big question on everyone’s mind is whether an industrialist can indeed be created or whether an industrialist is the result of the organic growth of an entrepreneur who has survived the most difficult of climates through innovation, ingenuity, adaptability and perseverance. In the latter, you would expect an ordinary individual, with an extraordinary vision, pioneering mind and exerted effort of talent to make his/her dreams become a reality.

Surely to create this type of individual, merely funding the said business is not by any means adequate. One would first have to equip an individual with the tools to bring to life his/her innovations. The first level of true empowerment is enlightenment through education. It is clear that this has to take place at the earliest stage of a child’s development. Children can no longer be taught to go to school or university to merely get a job. We should be instilling in our children the fact that they have the power to be problem-solvers at any age and that an education further expands their horizon on how to find solutions to everyday problems or how to be the leaders of new frontiers. These youth go on to become our future black industrialists, not because there is a pot of gold waiting for them, but rather because their passion to contribute to the betterment of society and, for example, making markets more accessible, inherently will create generational wealth – not just from an economic standpoint, but also culturally. And truly, isn’t that where it all begins? Before we can seek to address the economic inequalities and asset/land misappropriation, should we not seek to foster positive mind-sets that look to change the behavioural attitudes of our black society?

Our youth should aspire to educating themselves in order to build for themselves and their communities and they should be taught shared value creation; they should not seek employment for the funding of a lifestyle that is not sustainable and does not promote wealth generation, but quickly lends itself to the vicious circle of debt.

To create black industrialists while allowing these behaviours to continue to be perpetuated would find our communities stuck in the get-rich schemes of “tenderpreneurship”, where we do not pave the way for those coming after us. It is about time that the wealth created seeks to unburden our youth of black tax (having to provide for our families, paying university debts well into our careers etc.), so that we too enjoy the freedom of taking risks – the true essence of entrepreneurship, much like our white counterparts who, after varsity, go on to create ventures that may fail or succeed, but the experience to them becomes priceless on their ongoing quest to become entrepreneurs.

Creating future black industrialists cannot be mutually exclusive of building free-thinking and empowered youth, as it is from them that we will see unbridled innovation taking Africa into new frontiers. We first should show them the realm of opportunity available to them, teach them to look beyond that and then unburden their journey by freeing them of the black tax shackles and “keeping up with the Jones’” mentality.

We can’t manufacture industrialists and expect resounding results, but we can create conditions that allow for forward thinking entrepreneurs to thrive in and it all starts with changing a mind-set of entitlement in our youth to one of ownership of self and can-do.

Entrepreneurship: The Ultimate White Privilege? by Lethabo Sekele

The politics of whiteness or white privilege centre around the systematic manner in which various institutions in society perpetually benefit white people. It is posited that through various historical processes, particularly colonialism, Europeans have inherited a disproportionate amount of power and resources across the globe and this has continued to be the reality even in post-colonial society. In the case of post-apartheid South Africa , white privilege is not only limited to getting away with some indiscretions such as white collar crime but also means that white people have and continue to benefit economically, politically and socially from the legacy of apartheid. As uncomfortable as the conversation might be for some, it is impossible to have a discussion on inequality in South Africa without making reference to and acknowledging the injustices of the apartheid system. The legacy of this system is still evident today especially in areas such as access to quality education, health care and sanitation in black communities. One important area which seems to be under- researched but warrants some investigation is understanding the reasons why there are more white entrepreneurs in South Africa than there are across other racial groups. In particular, the focus is on the over and under representation of white and black entrepreneurs respectively. The reason for this being that much of the research that has been conducted focuses on these two groups due to black South Africans forming about 80% of the population and white South Africans, although in the minority, possess much of the country’s wealth.

The ubiquitous rhetoric of Black Economic Empowerment (BEE) and various other mechanisms which government has employed to redress inequalities in enterprise development, explicitly speak to issues of white privilege which persist in the enterprise development sphere. The disproportionate representation of white entrepreneurs is not unique to South Africa only. A study conducted in the United States (US) found that entrepreneurs were disproportionately white and male, making up about 84 %  of the total number of entrepreneurs in the country. This is despite the many years of having dismantled racial segregation and having the strongest and largest economy in the world which provides an enabling environment for entrepreneurs. In light of the findings of this study, one is then inclined to ask what it is that perpetuates this disproportionate representation of white businessmen despite the availability of resources to other groups. While a historical account which cites reasons such as colonialism and/or apartheid might be an immediate and obvious answer for most, a 2013 study conducted by the University of Cape Town, indicated that the then 5 million black South African middle class opted to join the corporate world rather than start their own businesses. Another study by Richard Shambera (2013, Tshwane University of Tehcnology) found that there is a general lack of an entrepreneurial spirit amongst the South African youth, particularly the black majority. This is despite the strong entrepreneurial support structures provided by the government through organisations such as the National Youth Development Agency (NYDA) which provides funding in conjunction with other programs to guide budding entrepreneurs. The findings of Shambare’s study nullify arguments related to the lack of access to an enabling and facilitating environment for enterprise development and points to the need to explore more reasons as to why the white minority are overly represented in entrepreneurial activities in South Africa.

Accounting for the lack of black entrepreneurs: Structure versus agency

Enterprise Development is an important development imperative in South Africa and is seen as one of the main solutions in dealing with the high unemployment rate amongst the youth. Issues of unemployment and poverty in South Africa unfortunately exist within a complex set of other social issues and cannot be considered an independent variable.  While many would like to believe that we live in a meritocratic society, a sociological school of thought referred to as structuralism posits that people are the product of various structures which can either enable or constrain them in certain endeavors.  In this context, the proponents of this theory would argue that individual traits and psychological factors are far overshadowed by societal structures which are designed to benefit only the elite groups in society.  For example, education is viewed as an important determinant of one’s upward social mobility and is important for the acquisition of necessary skills required to participate meaningfully in the economy. In South Africa, the two-tiered private-public education system means that not everyone will enjoy equal opportunities because of the level of the quality of the education that they have received. Race and ethnicity are closely related to this issue of access to education because the majority of the recipients of public education, which is characterized by a lack of resources and a shortage of skilled staff, are mainly black and concentrated in townships and rural areas. The consequence is of this is that the minority white children in urban areas attending private schools have better chances of accessing opportunities and increasing their levels of education.  Historically, various structures of a socio-political and economic nature, have afforded white citizens better prospects in terms of meaningful participation in the economy and consequently in entrepreneurship.

However, while the structuralist perspective offers some very valuable insight into understanding issues of privilege, it has been criticized for its deterministic outlook implying that individuals born into certain situations will be trapped and will continue to reproduce that situation. Alternatively, the theory of individual agency postulates that individual attributes are an important factor in determining the fate of individuals. It acknowledges the role played by structure but argues that it does account for why some people are able to come out of poverty and move from the working class to the middle to upper class. In this context, subscribers of the theory of individual agency would argue that there have been numerous entrepreneurs who come from underprivileged backgrounds where their situations seemed hopeless but somehow managed to overcome them. There are a number of successful black entrepreneurs such as Lebo Gunguluza , Herman Mashaba and Phuti Mahanyele who  have managed to overcome racial boundaries  in a predominantly white sector. However, some might argue that the common thread in the individual stories of most black entrepreneurs is that they represent a particular class i.e. middle to upper class which means that they have enjoyed a certain level of privilege themselves such as access to tertiary education. Nonetheless, these entrepreneurs have demonstrated that one’s skin colour need not be a barrier to pursuing entrepreneurship.

The structure versus agency debate enables us to move beyond simplistic explanations of phenomena and encourages a holistic approach to making sense of some pertinent issues in our society. On investigating issues of racial disparities in entrepreneurship in South Africa, four recurring reasons for these disparities were identified: historical apartheid, lack of financial resources, lack of human capital, psychological traits and the social capital explanation.

As previously discussed in the former part of this article, the legacy of apartheid remains one of the key explanations in understanding the under-representation of black entrepreneurs in South Africa. It was under the apartheid system that black people were not allowed to own any businesses and the government did not create enabling structures to encourage entrepreneurship in the black community. Furthermore, as previously touched on, not investing in quality education for the black masses meant that they were excluded from engaging in meaningful economic activities. Their white counterparts on the other hand have accumulated years of generational wealth which also includes family businesses and entrepreneurial skills.

Access to financial resources for start-up capital is connected to the previous point on generational wealth where the majority of white entrepreneurs have access to financial resources through their families and other networks. Unfortunately many black people do not have that financial head start and due to living in poverty, no matter how innovative they may be – the desire to turn their ideas to a profitable business is dwarfed by the lack of funds.

Human capital refers to those social and individual attributes which enable individuals to succeed in entrepreneurship. For example, there appears to be a strong correlation between level of education and entrepreneurship, which means that education as a source of human capital is a predictor of the extent to which individuals are most likely to engage in entrepreneurial activities. Education in entrepreneurship is crucial because skills such as numeracy and literacy are required and as was previously stated, the lack of access to quality education for the poor black majority means that their urban-based white counterparts with access to quality education will acquire the necessary skills needed to succeed in business.

Entrepreneurship is a Culture and a Mindset…

Many proponents of the individual agency argument suggest that in order to succeed in business one requires certain psychological dispositions and personality traits regardless of their skin colour.  In a study entitled In Search of Black Entrepreneurship conducted by the Nelson Mandela Metropolitan University (NMMU) , the black participants felt  that black people did not have a psychological inclination to entrepreneurship. They attribute this to years of systematic suppression of their ideas and psychological oppression. According to one of the participants, “the former system has also encouraged a mindset that is afraid to take risks with what they’ve got, they’re afraid to gamble with what they’ve got”.  Individual dispositions and personality traits that one requires in order to venture into entrepreneurship include, determination and  confidence. Confidence is particularly important and is perhaps unfortunately the one trait that aspiring black entrepreneurs might lack due to what Afro-Caribbean philosopher Frantz Fanon termed the black inferiority complex which is the product of colonial oppression. Conversely, the superiority complex of white individuals exudes the level of confidence required for them to boldly pursue entrepreneurship. The trait and mindset approach, however, still supports the idea that regardless of one’s race, class or gender, we live in a meritocracy where individual traits determine the extent to which one is most likely to succeed in entrepreneurship.

“So, how’s business?”. According to author Rick Ed, in an article published in SMEs South Africa, white children grow up hearing the aforementioned phrase at a lot at family gatherings. According to Ed, conversations about business are uncommon in black families which means that white children grow up around entrepreneurs and inevitability learn to have that entrepreneurial spirit instilled in them. For white children therefore, entrepreneurship is a culture and a way of life that is instilled in them from a young age. In the field of sociology this is referred to as Cultural Capital and it assumes that there are certain values and beliefs that one holds about phenomena such as entrepreneurship which consequently influence one’s level of participation. These values and beliefs are usually the product of how one is socialized or raised.

Finally, one of the most important reasons for the disproportionate representation of white entrepreneurs in South Africa is access to social capital. Many of us are not oblivious to the importance of social resources in entrepreneurship which is commonly referred to as networking. social capital refers to the various social networks and memberships to multiple organisations such as sporting and religious groups which naturally increase the chances of individuals forming relationships with potential business partners and clients. This can be attributed to the fact that the more frequent interaction one has with others in various social contexts, the more they access information. Social capital is important insofar as it provides information, pooled labour and trust. Furthermore, it can be said that individual variations in entrepreneurship can be explained in terms of variations in social connectedness, the kinds of social networks people have, or the degree to which, or the form in which those connections are organized. Social capital is inextricable from human capital as it has been observed that individuals who possess the human capital of education and are of higher income tend to have more social networks inevitably exposing them to business opportunities. For white South Africans, social capital is available in the form of educated family members, connections and relationships in various industries spanning many years, which enable and facilitate entrepreneurial endeavors.

This article has attempted to provide a holistic understanding of why entrepreneurship seems to be predominantly limited to the white sector of the population with black South Africans being under-represented. It has been established that there are various complex issues to consider, however, we are living in a time where we are privileged to have measures in place that are attempting to redress the inequalities of the past and there are ample opportunities for black entrepreneurs to be innovative and own successful businesses. While it is acknowledged that there are structures that might constrain individuals, there are also those enabling and facilitating. In the new South Africa, it is important to be mindful of history but also to bear in mind that our agency is no longer as limited. Increasingly, we are seeing the emergence of social entrepreneurship, pro-poor innovation and enterprise development efforts through the Department of Trade Industry (DTI) and initiatives such as the Awethu SME incubation project which ensure that marginalized groups are not excluded. In my opinion, it’s literally a matter of decolonizing the mind, instilling confidence in black children and placing an emphasis on entrepreneurship education in South African schools.

South African Entrepreneurship: Realities, Hopes and Dreams by Dr Jonathan Marks

Dr Jonathan Marks

Gordon Institute of Business Science

 

A Long History

The phenomenon of entrepreneurship has entered the modern business environment in a way that few other movements have done.   Many people assume, because we hear so much about entrepreneurship in the media today, that the concept is a function of the current age.  Successful and youthful dot.com entrepreneurs don’t help this perception, adding weight to the belief that entrepreneurship started with the advert of technology and that to be one means being young, tech-savvy and disruptive.  Being an entrepreneur means being part of a philosophy that began in the 19th Century with Irish-French economist Richard Cantillon.  His work, alongside that of Jean-Baptiste Say and Adam Smith, in many ways is regarded as the cradle of the current political economy.  Early work and thinking around entrepreneurship – a French loan word broadly understood to mean ‘a person who begins or manages something’, was rooted in the massive political and social changes taking place across the Western world.  As the power of the State and the Church began to shift, and as thousand of people left their agrarian lives for the promise of the city, the notion of ‘the entrepreneur’ as an actor on the stage and ‘entrepreneurship’ as a theory for explaining the phenomenon began to interest social, economic and political writers and commentators.  Our understanding of the principles of economics coincided with the role of the entrepreneur as the manager of the factors of production.  The entrepreneur was thus understood to be that individual who was able to derive greater value from land, labour and capital than anyone else, creating novel combination of these inputs in such a way as to deliver a profit.  Often making use of arbitrage opportunities and advance knowledge of market opportunities, these entrepreneurs didn’t really come into contact with innovation until the early 20th Century. The work of Austrian Economist Joseph Schumpter heralded an understanding of the integral role that innovation plays in the entrepreneurial process.  His theory of ‘creative destruction’ perfectly explained how entrepreneurs take advantage of the complacency of mature industry incumbents to develop new products, service sand ways of working.  While Schumpeter was read and understood as an economist of importance, the tech start-up revolution has been substantial boon to his theories.  We need look no further than Uber to see how a start-up business can so dramatically alter not only the taxi industry but also urban transport in general.  Economic theories of entrepreneurs have given way to the current trend of sociological, humanistic and cognitive theories that attempt to explain not so much the phenomenon of entrepreneurship but the actions, motivations and intentions of the entrepreneur.  The move to understanding entrepreneurship at the level of the individual has allowed us to also lionize the ‘celebrity entrepreneur’.  Any half-decent bookshop will be filled with the stories and biographies of these individuals who so capture our imagination – and our hopes and dreams. So often they represent the lives and achievements of those far from our reality – that of the African continent and South Africa in particular. I so often wonder – where are the African stories and what can be learned from our homegrown successes?

 

Africa (Almost) Rising

Africa’s seems to continuously suffer from a conflicted image, never mind the incredulity of being treated like the continent is a single country rather than a collective of fifty-five internally recognized states.  To be sure, Africa has its challenges and problems 0 economic, social and political, and governance remains a challenge for many countries. That aside, the economic growth and expansion that is being seen in many African countries is in no short measure due to a prevalence of ‘ground-up’ entrepreneurship.  Vijay Mahajan, author of the book Africa Rising (from where I have borrowed the title for this section of the article) retells a story in which it was suggested that if the politicians and the army in Nigeria were just handed the oil revenue in exchange for leaving the country and its citizens alone, Nigeria may be a lot better off than it is now.  This speaks volumes not only for the state of government and administration in Nigeria, but also the tenacious and resilient attitude of very-day citizens to improve their lives and take advantage of opportunities in local markets.   The World Bank predicts that six of the 12 fastest growing economies in the world from 2014 to 2017 will be in Africa; Ethiopia, Democratic Republic of Congo, Cote d’Ivoire, Mozambique, Tanzania and Rwanda.  Many African countries are diversifying their economies, moving from traditional extractive industry into manufacturing, retail, telecommunications and infrastructure development.   Much of this economic growth is the result of entrepreneurial activity across the continent.  Some of it bubbling up from a place of need and urgency, but much the result of concerted effort from a growing middle class – many of these entrepreneurs are part of the African Diaspora who were raised and educated abroad.  African entrepreneurs understand and respect the inherent differences that make Africa such a diverse continent. These encompass everything from local knowledge, customs, language and culture to an appreciation for Africa’s long history that, for example in the case of Ethiopia far outstrips that of the developed north.  Africa is indeed rising as a place of substantial opportunity for business.  A growing urbanized population is demanding greater digital access and this represents one of Africa’s most promising opportunities.  African entrepreneurs are often able to leap frog international competition with the latest technology and digital solutions; mobile phone and mobile banking are two such examples of how homegrown entrepreneurs are looking to digital solutions for aspects of market failure.

South Africa’s Entrepreneurial Imperative

Most notable from the World Bank’s list of growing African economies is the absence of South Africa, the continent’s second largest economy.  South Africa’s social and political maladies are having the added impact of stifling and slowing our economy.  While global economic forces are impacting most developing markets – South Africa is no exception, the expected growth of many African economies seems to indicate that there are domestic forces at play that are negatively affecting economic growth.  South Africa’s dual economy – formal and informal, makes the measuring of entrepreneurial activity a challenge. The Global Entrepreneurship Monitor – probably the most definitive measure of entrepreneurial activity in the world has consistently ranked South Africa at the low end of its cluster of world economies.  South Africa is ranked as an ‘efficiency economy’ and since its participation in the Global Entrepreneurship Monitor study in 2002 has dropped from 1 point below the median score for Total Entrepreneurial Activity (a measure of the percentage of adults involved in entrepreneurial activity in any given year) to 18 points below in 2014.  This steady decline, most notable from 2013 to 2014, showed a 24% decline.  South African underperforms on a range of other measures when compared to its international and regional peers.  South Africa has the highest rate of unemployment in sub-Saharan Africa (25,3%) and the lowest rate of Total Entrepreneurial Activity. By comparison, Botswana has an unemployment rate of 18,4% and Total Entrepreneurial Activity of 32% against South Africa’s 2014 rate of 7%.  The Global Entrepreneurship Monitor measures a range of other indicators, including nascent, new and established business ownership; when compared to the five African countries that participate in the GEM study, South African rates lowest in each category. Interestingly, South Africa has above average perceptions as to the social value of entrepreneurship, with the broader population valuing entrepreneurship as a career choice and affording entrepreneurs a high social status. South Africa does suffer with a low perception of opportunity; perceive capability for entrepreneurship and entrepreneurial intention.  South Africa also fails to compete well against its international counterparts.  Among efficiency-driven economies, South African ranks in the bottom 15%, only marginally exceeding the Total Entrepreneurial Activity rates of Malaysia and Russia.  South Africa’s unique history makes understanding the demographic spread of entrepreneurship that much more important. There are low levels of entrepreneurial activity among youth – something we know from everyday experience in South Africa.  You are twice as likely to be an entrepreneur in South Africa if you are over 25 years of age.  This is made worse by the high rate of educational abandonment among young people, who subsequently will find it hard to enter formal training or education for entrepreneurship.  There is not much different between the entrepreneurial activities of men versus women in South Africa, although women do score lower than men on most indicators and certainly when compared to their sub-Saharan African counterparts.  While accurate data doesn’t exist to show the difference in entrepreneurial activity across race groups in South Africa, the Global Entrepreneurship Monitor data shows that Black South Africans are twenty times more likely to engage in necessity-based entrepreneurship than are White South Africans.  Education plays a key role in entrepreneurial inequality in South Africa with the vast majority of entrepreneurs have secondary education and beyond.  Given the historical imbalance in educational access in South Africa, this is a major contributor to a lack of racial parity among South African entrepreneurs.  The root causes of these challenges are multiple and multifaceted, and are also the remedies that South African so desperately requires.

 

Hopes, Dreams and Solutions

South African remains committed to an entrepreneurial path; the Ministry of Small Business Development, while yet to shows its true promise, is a visible enunciation of Government’s entrepreneurial strategy.  The further enhance entrepreneurial activity in South Africa a five-part integrated strategy is required.

 

Policy – South Africa desperately needs good legislations and policy that supports entrepreneurs.  This should cover the full gambit from dealing with red tape and small business registration and compliance, to start-up visas.  The Minister of Small Business Development is a vocal and public proponent of entrepreneurship but what South African needs is an internal activist within Government to bring together Departments and Ministries to rally around the entrepreneurial cause.

 

Education – education is imperative to developing and sustaining high-growth entrepreneurship. South African sorely needs a more robust entrepreneurship curriculum through the schooling system.  Most Higher Education Institutions have academic and outreach programmes that support entrepreneurial activity, but the primary and secondary school curricula have lagged behind.

 

Funding – this is a constant lament from entrepreneurs, and for good reason.  It’s a challenge finding start-up capital in South Africa, and Government does not do enough to provide broad-based schemes for accessing start-up and scale-up funds.  The larger funding eco-system needs a greater volume of risk capital – not all of it targeted towards tech business.

 

Mentorship – while education is essential, learning through observation, activity and mentor engagement will lead to more sustained levels of business creation and sustainability.  Mentorship programmes will be an ideal way to link older experience entrepreneurs with younger novices – addressing not only the knowledge and skills transfer but also social integration and cohesion.

Opportunity Access – many aspirant entrepreneurs lack access to opportunities or ideas.  Providing information, skills and resources, and training in specific sectors could aid the creation of new enterprises.  This should be coupled with market access that is not only linked to supplier and enterprise development initiatives.

 

South Africa’s entrepreneurial path is still littered with obstacles.  Some of them are historical, some structural and others personal to the entrepreneur.  Greater leadership is needed in this space and an integrated series of solutions are required to enhance and build the national entrepreneurial ecosystem.