South Africa’s poor performance in entrepreneurship events
Earlier this month, between November 18 and 24, South Africa and 137 other countries took part in Global Entrepreneurship Week (GEW), an initiative aimed at getting more people to talk about entrepreneurship.
The initiative was started by US think-tank the Kaufmann Foundation in 2008 and last year more than 7.4-million people across the world took part in more than 19 600 workshops, competitions, seminars and exhibitions run by 7 609 organisations.
However, South Africa continues to have one of the most poorly attended GEWs in the world.
Although the number of participants in GEW events in the country peaked at 11 620 in 2011, last year 2 309 people attended 16 events and workshops hosted by 29 organisations.
This is far behind the 1.6-million participants that Brazil attracted last year, or even the 199 000 by the small island state of Barbados.
This year in South Africa, only a handful of organisations hosted events during the week, going on the number of events publicised on the official GEW website Unleashingideas.org. Notably missing were the names of large companies and that of the government’s small business organisation, the Small Enterprise Development Agency (Seda), whose staff had only taken part in events hosted by other institutions, Seda spokesman Marius de Villiers said.
In some cases a number of other organisations ran events during GEW that were not included on the GEW site or branded with the event’s logo — and in so doing minimised the impact the event could have had.
A campaign of this magnitude is necessary because far too few South Africans see being an entrepreneur as a viable career option.
Only 14% of Africans intend to start a business in the next three years, according to the 2012 Global Entrepreneurship Monitor (Gem) report — compared to 43% of Chileans, 36% of Brazilians, 20% of Chinese and 19% of Thais.
GEW is hosted locally by Endeavor South Africa, the sister organisation of Endeavor Brazil, which hosts the event in Brazil.
Managing director of Endeavor South Africa Catherine Townshend admitted that the event did not have the impact it could have had in South Africa, but she said the organisation was limited by its small budget, which is drawn from donations from its board members and a small fee that its member companies pay.
Townshend said support from corporates and the media is also not that forthcoming.
A number of years ago Endeavor South Africa’s former managing director, Malik Fal, complained that media groups did not want to devote space in their publications to cover entrepreneurship that week.
Fal said this month that Endeavor Brazil had been assisted by newspapers, which offered free space in their publications and television channels that offered free time, while designers and an advertising agency had pitched in free of charge.
In contrast, the media in South Africa gives the week little attention, he said.
Endeavor Brazil has already won four awards from the Kaufmann Foundation, including those for the best host country and those for the highest number of participants.
Since its launch in Brazil in 2008, the number of participants has catapulted from 466 000 to more than 1.6-million last year as well as from 168 to 553 partner organisations.
Last year in Brazil newspapers, websites and magazines carried 10.8-million reals (R48.4-million) worth of media coverage in Brazil during the week, according to Endeavor Brazil’s 2012 GEW impact report.
The report revealed that 80% of participants in Brazil were inspired to become an entrepreneur after attending events or workshops during the week, while about a fifth said they would start a new business.
Fal said the key difference between Brazil and South Africa is that there is more commitment from Brazil on the role that entrepreneurship can play in transforming society.
“South African society is very divided so there is not real sense of national unity,” said Fal, who added that organisations here are too self-centred or took the view that “this is not my problem or kind of thing”.
Other national campaigns to promote entrepreneurship have never really had success.
A plan three years ago by the government’s former small business agency, Khula, to partner with Business Unity South Africa (Busa) to launch an entrepreneurship campaign with struggle stalwart Andrew Mlangeni as its patron, came to nought.
South Africans have even battled to work together to promote entrepreneurship on a local level —evident by the City of Cape Town’s struggle to get its Cape Town Activa initiative up and running.
The initiative is modelled on a similar one in Barcelona, Spain and aims to provide an ecosystem of support for the job seeker and the entrepreneur by helping to link those from the city with relevant organisations.
Earlier this month in a speech during GEW Zenariah Barends, the organisation’s programme manager, admitted that, two years later, it was difficult to get organisations to work together.
“Yes, there are collaborations between a few organisations, but it is widely acknowledged that for the most part, the organisations operate in isolation of each other, consciously implementing their particular mandate, their specific targets and less attention is paid to the need for collaboration on the ground,” she said.
Even one of the country’s most sustained entrepreneurship programmes — courses run by Junior Achievement South Africa for school learners — has had limited success. The organisation has been active in South Africa for 33 years, yet despite this it reaches about 5 000 school learners a year.
Last year its figures were inflated by the addition of 14 000 learners who took part in a sponsored programme on environmental entrepreneurship — pushing the organisation’s reach to 19 441.
Managing director of Junior Achievement SA Linda McClure said because the organisation is a non-profit, its reach is limited by the amount available in funding. A big challenge, she said, is the quality of the education system, adding that it was often difficult to work with some schools that were near dysfunctional because of poor leadership.
Entrepreneurship is hardly taught in schools in South Africa. But Taddy Blecher, who chairs an entrepreneurship sub-committee on the Human Resources Development Council that reports to Deputy President Kgalema Motlanthe, pointed to a pilot being carried out by the International Labour Organisation and the department 0f basic education in 63 schools in the Free State to add entrepreneurship to grade 10 studies.
Primestars Marketing, which initiated the bring a girl child to work campaign, will together with the department also run a one-day start-up awards programme aimed at learners from disadvantaged communities.
Primestars Marketing’s Martin Sweet said a date for the day has not been set yet. Added to this, Seda, in partnership with the department, is also running an entrepreneurship in schools programme, which includes a business competition and is aimed at grade eight to 12 teachers and learners.
Enabling business environment
Blecher, a director of the Maharishi Institute, which helped set up the Branson Centre of Entrepreneurship in South Africa, said his sub-committee is working with the department of trade and industry on a number of initiatives to boost the small business sector.
He said that while South Africa had hundreds of entrepreneurship initiatives, what it lacks is integration and the ability to scale up some of these initiatives.
He surmised that GEW in South Africa had a limited impact because it was the time of the year when school learners and university students were writing exams.
“I’m certainly seeing that there are so many individuals — people who are passionate about getting it (entrepreneurship support) right,” said Blecher, who said the corporate sector had shown “amazing” support.
But Allon Raiz, chief executive of business support organisation Raizcorp, isn’t convinced that a mass entrepreneurship campaign is necessarily the way to go.
The risk, he said, is that such a mass campaign will attract too many of the wrong kinds of people — those without the requisite characteristics needed to start up and run their own business.
Too many will then start ordinary “me too” businesses with little to differentiate themselves from their competition.
When they fail to get funding they will simply blame the funders, creating unnecessary negative perceptions of funders, he said.
He said instead of trying to get more people to run their own business, the government should make it easier for entrepreneurs to flourish, by creating a more enabling business environment.
Giving a voice to small businesses
Small businesses could be helping to create tens of thousands of new jobs, but a highly concentrated economy, a poorly skilled workforce, stringent red tape, a high failure rate and a lack of an entrepreneurship culture are all stymying the sector’s performance, say experts.
Small and micro enterprises contribute between 27% and 34% of the country’s gross domestic product (GDP), according to the department of trade and industry’s Annual Review of Small Business 2006 to 2008.
This puts the sector’s contribution to the economy at about the same size as that of Malaysia (32%), but higher than both Chile and Brazil at 20% of GDP.
Yet, South African small businesses are faced with one of the highest failure rates in the world – as high as 70% fail in their first year, the Minister of Trade and Industry Rob Davies said in May.
In Brazil, figures in 2009 from the country’s small business support agency, Sebrae, show that just 24% of businesses closed after two years, while Organisation for Economic Co-operation and Development (OECD)’s 2009 data show that 50% of Dutch firms close after two years and 44% New Zealand firms.
The high failure rate may also explain why South Africa hasn’t been that successful in getting small businesses to drive job creation.
A research paper published in January by Andrew Kerr, Martin Wittenberg and Jairo Arrow for the Southern African Labour and Development Research Unit (Saldru), titled “Job Creation and Destruction in South Africa”, found that big firms create more net jobs in South Africa than small firms do, largely because of the high attrition rate of small businesses.
The authors found that in the period between 2005 and 2011 the category of smallest firms contributed about 75 000 jobs to yearly gross job creation, but around 110 000 jobs to yearly gross job destruction, a net loss of 35 000.
The largest firms contributed about 60 000 jobs to gross job creation on average a year, but only 37 000 to gross job destruction.
One reason why so many small firms fail may be that it’s difficult to operate in South Africa’s marketplace, which remains highly concentrated.
Small business researcher and policy analyst Septi Bukula of Osiba Research believes the concentrated nature of the South African economy is one of the biggest reasons why South Africa doesn’t have a stronger small business sector.
He said the economy is dominated by large companies, which made it very difficult for entrepreneurs to enter any business sector and also contributed to the low number of perceived business opportunities among South Africans, as revealed in the 2012 Gem report.
Only 35% of South Africans believe there are business opportunities in the country, compared to 52% in Brazil, 65% in Chile and 82% Nigeria.
Bukula believes protection from cheap imports in the form of subsidies for local companies and tariff barriers often protect large companies, with the result that these firms shift their attention to taking on small businesses, which are then often the victim of such competition.
What is needed was a combination of strong anti-competitive policies and stronger supply-chain linkages to promote a more open economy, he said.
Added to this Bukula said South Africa did not create the right incentives for its citizens to view entrepreneurship as a viable career option.
Malik Fal, the managing director of the Omidyar Network Africa, which promotes and funds high-impact entrepreneurs, said Omidyar’s Accelerating Entrepreneurship in Africa survey released in April reveals that South Africa’s small businesses are held back by three main challenges: business regulations, access to a skilled workforce and access to finance.
The report, which surveyed about 1 200 respondents in six African countries, also revealed that South African small businesses fared worse in these areas than those of other African countries.
Fal pointed out that the limited number of talented and skilled workers in South Africa means that small businesses often struggle to scale up.
He singled out one finding from the report, that 80% of South Africans find it difficult to source someone who can manage a small business.
Fal said that although the government had the best intentions to assist small businesses, all too often it introduced regulations that might be easy for big companies to adhere to, but which compounded the amount of red tape smaller firms are faced with.
Added to this, exemptions from regulations were often aimed more at micro firms than small businesses. He said the survey revealed that South Africa has one of the widest range of options for business owners when it comes to financing their business — everything from bank loans to venture capital — but that in many cases it remains difficult to obtain finance, particularly as many entrepreneurs don’t understand how to access it.
Government support for the sector has also had limited success, arguably because of the absence of clear and consistent statistics on the sector.
No one really knows how many small businesses the country has with estimates varying between two and six million, because unlike other emerging countries South Africa does not run a regular business census.
Without clear statistics noted Bukula, it was difficult for the government to develop good robust policy to support the small business sector.
Small business support
The government isn’t able to set concrete targets to assist the sector — for instance on areas such as the percentage of exports undertaken by small firms or the percentage of finance that banks are lending to small businesses — which Malaysia was able to do in their SME Masterplan, released last year.
The department of trade and industry has, however, been working on the idea of whether to hold a regular small business census — as is done in Malaysia and India — or a longitudinal study. However it is uncertain when the first such study or census will be held.
Yet with all the challenges the sector faces, one would think small businesses should be lobbying the government and policymakers for support – but instead the voice of small business is hardly heard.
Carl Lotter of the South Africa Small and Medium Enterprises Federation (Sasmef) — which he and others set up in 2011 to lobby for more small business support from the government and corporates — said small business representation is fractured and that there was no voice from the sector at policy level.
Most business chambers represent the voice of big business. Those few that exist are either small local business chambers with little impact on policy or turn out to be more like marketing associations.
Added to this a council of backroom advisors — the National Small Business Advisory Council — was set up in 2006 to advise the minister of trade and industry on small business.
The council has never released minutes of meetings and has been criticised by many in the sector as ineffective.
The small business sector could play an important part in creating the millions of jobs South Africa needs, but instead it remains hobbled by these and other numerous challenges, denying the country the chance to fight unemployment effectively.
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