Cape Town means business

It’s no Silicon Valley, but “Slaapstad” may be more awake than most South Africans assume.

A recent analysis of six years’ worth of data from the Global Entrepreneurship Monitor (Gem), an annual survey that measures and compares business start-up levels worldwide, shows that Cape Town may be South Africa’s entrepreneurship capital.

About 13 out of every 100 adult Capetonians own a business less than three-and-a-half years old. This is 65% more than the national average of 7,8 adults per 100. This puts Cape Town on a par with the international average for countries with South Africa’s gross domestic product size, whereas the rest of the country lags behind.

Johannesburg, the other city included in the analysis, has business start-up rates similar to South Africa’s average.

The latest Gem report urges further “research on the factors that contribute to Cape Town’s significantly higher levels of entrepreneurial activity” and takes a swipe at the city traditionally associated with South African entrepreneurship.

“The Johannesburg of 2008 is characterised by decaying infrastructure, power shortages, rising transport and power costs, uncoordinated spatial development and burgeoning peri-urban slums and townships, swollen by successive waves of migration from rural areas as well as neighbouring countries ... Small and medium businesses are struggling to survive in Johannesburg’s current business environment.”

This is the first year since the start of the annual Gem survey in 2001 that necessity entrepreneurship -— when hardship forces people to start businesses —- has overtaken opportunity entrepreneurship in Gauteng.

“Gauteng has always been regarded as a hub of dynamic business activity in South Africa and this reversal is therefore worrying,” reads the report. Opportunity entrepreneurship has been shown to create more sustainable businesses and more jobs.

Retrenchments of semi-skilled and unskilled workers from the mining and industrial sectors and a flood of Zimbabwean refugees may be behind the surge of survivalist businesses. “The surplus workers are often forced into survivalist entrepreneurship as the only available means of livelihood.”

Mike Herrington, leader of the team of Gem researchers in South Africa and director of the Centre for Innovation and Entrepreneurship at the University of Cape Town Graduate School of Business, says it is not clear why entrepreneurial activity is higher in Cape Town.

But he suggests two possible reasons. One is that Cape Town’s youth culture attracts young people not only from the rest of South Africa, but also from outside country. “Younger people are more entrepreneurial, specifically [those] between the age brackets of about 25 to about 38 or so.”

The other reason may be the existence of economic hubs that seem to be spawning a lot of start-up activity, such as biotech and information technology.