/ 1 November 2022

Entrepreneurs won’t create enough jobs without a rethink in how they are supported

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South Africa’s economic crisis, which will be laid bare in next week’s unemployment data, has robbed us of far more than just jobs. (Delwyn Verasamy/M&G)

It’s no secret that South Africa has an unemployment problem. In the past few years, the country’s already besieged labour market has been further hit by a range of problems. Flooding, unrest, persistent power shortages and the Covid-19 pandemic have all left their mark. 

According to Statistics South Africa, the unemployment rate in South Africa is just under 34%, and the International Monetary Fund projects it will soon exceed 35%, giving the country the dubious distinction of having the highest jobless rate in the world.

Entrepreneurship has frequently been hailed as the solution to the problems of unemployment, poverty and inequality that continue to hamper South Africa’s development goals. But, in addressing complex issues such as job creation, traditional approaches that focus solely on the problem, without considering the power dynamics and systems at play, are unlikely to translate entrepreneurship into the progress that is so sorely needed.

For instance, in the past 20 years, physical and virtual innovation hubs, intended to promote technological advances and entrepreneurship, have sprung up around Africa. But the effect of these hubs on shared progress has remained elusive. 

Since hubs tend to be concentrated in wealthier countries, and urban areas, those who are poor, uneducated, lack the relevant networks or live far from cities, struggle to access these resources. As a result, hubs tend to perpetuate the status quo, rather than expand the advantages of entrepreneurship to those who need it most.

Similarly, when it comes to entrepreneurship in the South African context, we cannot simply “copy and paste” global templates and expect to see real progress. Instead, a more nuanced approach is needed, one grounded in a realistic assessment of the country’s structural problems and how these result in an uneven playing field that continues to exclude marginalised groups.

By looking beyond trying to fix problems in isolation, and instead considering the context and systems that underpin them, real social change is possible. This is the power of a systems approach; it seeks to shift the system that creates the problems in the first place, tackling big systemic issues, often by first identifying and addressing local challenges in affected areas.

Systems change offers the chance for innovations that actually create social change, rather than simply replicating and preserving existing conditions. To hack the system, interdisciplinary thinking is required; we need to draw on the expertise of people across a broad range of sectors and disciplines, expose ourselves to different viewpoints, and involve and connect the people who are most affected by the change in the problem-solving process, instead of seeing them simply as a testing ground.

For example, at a recent Business Grow Africa workshop — an initiative led by the Western Cape Economic Development Partnership to grow small businesses and support entrepreneurship and job creation in the province — a group of experts from different focal areas in the small business ecosystem met to gather perspectives and explore innovative and practical solutions to address the gaps in support small businesses receive. 

Entrepreneurs had discussions with representatives from local government, tech hubs, academia, funding community and civil society in an effort to really understand the problem and then agree on innovative ideas to help unlock job creation in high-potential enterprises and support businesses and communities that are often underfunded.

Several promising pilot ideas emerged from the workshop. For example, the development of an early-stage start-up fund aimed specifically at female and youth entrepreneurs. According to the 2020 Venture Capital and the Gender Financing Gap report, women have been systematically excluded from entrepreneurship, with female-led start-ups in emerging markets raising only $1 of seed funding for every $9 raised by all-male teams. 

Unemployment figures also show that almost half of the working-age women in South Africa are out of the labour force, compared to 35% of working-age men. A fund of this nature could, therefore, open up the field to those who are chronically under-represented in the entrepreneurial space.

Another pilot idea focused on increasing support offered to the “missing middle” — the term used to describe companies that are “too big” (medium size) for early-stage finance initiatives but not growing consistently to be attractive to big investors. 

In South Africa, most funding is focused on start-ups or well-established bigger businesses, which means that small businesses are unable to access the funding needed to grow. Considering that the National Development Plan envisions that by 2030, nine out of 10 new jobs will be generated by struggling small, micro and medium enterprises, supporting the growth of missing middle businesses is critical to job creation in the country.

A systems lens helps us to see that progress requires a fundamental rethink across a broad range of assumptions about what we value, how we invest, the rules set by governments and markets, as well as the people and interests we prioritise. 

None of this is simple. It is a messy, informal, non-linear process that depends on understanding context, developing proposals for setting up business prototypes, learning from carefully designed social experiments, and attracting the necessary support and resources that can help to turn a prototype into a project to drive social change.

But it is only by being brave enough to immerse ourselves in the “messiness” of complex landscapes like the Western Cape innovation ecosystem that we stand a chance of reimagining the systems that have created problems like rampant poverty and unemployment. We need to start thinking and acting differently if we want to empower our entrepreneurs to create the quantity and quality of jobs and social progress we so desperately need to deliver on our vision of shared prosperity in this country.

Dr Phumlani Nkontwana is a development economist and entrepreneurship development specialist. He is a co-convenor of the University of Cape Town’s GSB’s Bertha Centre for Social Innovation and Entrepreneurship  Systems Change and Social Impact short course.

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.