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.

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