By encouraging entrepreneurship, South Africa can sustain a more inclusive, diversified economy which can withstand shocks and is set up for long-term growth
In recent articles, I’ve delved into South Africa’s significant economic challenges. These trying times have placed immense pressure on both large and small businesses, with liquidity challenges forcing some to shut down after over a decade of operations. The closure of these businesses affects not just the owners but also employees, clients and the broader stakeholders who built relationships with them.
Despite these odds, I continue to advocate for entrepreneurship as a critical solution to rebuilding our economy. Entrepreneurship, particularly in emerging sectors, is essential for fostering innovation, creating jobs and contributing to a more inclusive economy.
South Africa’s economy is dominated by sector oligopolies, where three to five enterprises control 80 to 90% of the market share, and the failure of these giants has devastating ripple effects on the broader economy. This overconcentration stifles diversification and leaves the country vulnerable to sizable and hard-to-overcome economic shocks.
Now, more than ever, promoting smaller enterprises is essential, not just for short-term economic recovery, but for long-term sustainability.
The Case for a More Entrepreneurial Economy
South Africa’s economy is not as diversified as it needs to be. A prime example of this is the case of MultiChoice, one of the country’s dominant media companies. If MultiChoice were to experience financial difficulties, it would not only affect the company itself but also the broader film and television industry.
Film producers, content creators, and countless other small enterprises that rely on MultiChoice’s platforms for distribution and revenue generation, would suffer. This creates a vicious cycle, where fewer opportunities for content creation limits skills development in the industry, making South African filmmakers less competitive on the global stage.
Without strong domestic content consumption from players like MultiChoice, it becomes increasingly difficult for independent filmmakers to secure funding, as financiers are hesitant to invest in productions that lack a reliable local distributor.
Thus, when a handful of large players falter, they take entire ecosystems with them. A more diversified, entrepreneurial economy, one in which small businesses play a greater role would, therefore, help mitigate this risk.
Strategy 1: Cultivating Entrepreneurship from an Early Age
One of the keys to promoting entrepreneurship is fostering it from an early age. Referring back to the MultiChoice example, South Africa’s education system could encourage students to not just consume content but also to create it from as early an age.
If students are given opportunities to experiment with content creation early on, they develop the skills necessary to innovate within their industries by the time they reach tertiary education. Such an approach is substantiated by examples such as technology industry enterprises Dell, Facebook and Microsoft, which were founded by young entrepreneurs who began exploring their craft before and during their tertiary education.
Early exposure to practical entrepreneurship enables individuals to refine their skills over time. If South Africa adopts this approach, we can build a new generation of entrepreneurs who can think critically and creatively about the problems facing their industries.
In addition, encouraging students to work with limited resources fosters innovation and inventiveness. By the time these students enter the workforce, or launch their own businesses, they will have the necessary experience to navigate the challenges of scaling a company under difficult circumstances.
South Africa’s future entrepreneurs should be cultivated from primary school onwards, ensuring that they have the confidence and skills to build sustainable businesses even in challenging economic times.
Strategy 2: Incentivising Entrepreneurship
South Africa does not do enough to incentivise entrepreneurship. While there are some venture capital initiatives, the scale is too small to generate widespread impact. Moreover, many tertiary institutions continue to focus on training students for employment rather than entrepreneurship. This must change if we are to build a robust pipeline of new businesses.
To incentivise entrepreneurship, the government and private sector need to offer more support to young entrepreneurs. This could include commercialisation sponsorships, lower interest rate financing for start-ups and guaranteed customer orders for innovative solutions, especially from government entities. Programmes such as these would provide budding entrepreneurs with a safety net, allowing them to take calculated risks and develop innovative products and services.
Another approach would be to facilitate strategic partnerships between new entrepreneurs and established companies. Large corporations have the resources and expertise to help smaller businesses grow and these partnerships could benefit both parties by creating new market opportunities and fostering innovation.
Many of the world’s most successful companies, including Google and Under Armour, began as start-ups with strong support from their ecosystems. South Africa should encourage similar partnerships to help its entrepreneurial sector flourish.
Strategy 3: Preventing the Premature Acquisition of Start-Ups
In South Africa, many entrepreneurial ventures are sold to larger companies before they reach their full potential. This is a direct result of the oligopolistic structure of many industries, where small businesses become “nuisances” to established players.
Instead of allowing these businesses to grow, larger companies buy them out to eliminate them as competition.
While selling a business can be an attractive option for an entrepreneur struggling with high debt or liquidity issues, it is not always the best long-term strategy. With the right support, such as affordable debt and financial and strategic advice, some of these businesses could scale much further, creating more value over time.
A key part of promoting entrepreneurship in South Africa is ensuring that such businesses have the tools and support they need to grow independently, rather than selling out prematurely.
The initial strategies outlined above provide a foundation for strengthening South Africa’s entrepreneurial landscape. Additional considerations include fostering innovation, leveraging infrastructure (particularly digital platforms) and promoting businesses that are able to expand regionally and globally with relative ease.
By restructuring the economy to support entrepreneurship, South Africa can, therefore, build a more inclusive, diversified economy that is resilient to shocks and capable of sustaining long-term growth.
James Maposa is the managing director of Birguid, which offers strategic research and advisory services.