In 2009, South Africa faced the first recession in 17 years, which lead to the shedding of more than 900,000 jobs. While things are slowly starting to improve, unemployment is currently sitting at a massive 24%. Some of the unemployed are turning to entrepreneurial endeavours in order to change their current situation. There are two main factors which stoke the entrepreneurial fire; the first is necessity and the second is a desire to gain independence and improve one’s current situation.
While the government is promising to focus on job creation (again), there are still hundreds of thousands of people without jobs and a means of putting food on the table. Many of the unemployed are starting up new businesses through necessity. It is a hope that these businesses in turn grow sufficiently to support not only the founders, but generate enough profit to have a roll-over effect which creates further job opportunities in the market place.
The Global Entrepreneurship Monitor (GEM) Global Report 2010, shows that in 2010 only 16.7% of South Africans had entrepreneurial intentions and that 29% have a fear of failure. It is probably this fear of failure that is a major contributing factor to their failure to launch.
In Endeavour’s White Paper on the State of Entrepreneurship in South Africa they identify a number of factors which are causing a barrier to entry into the entrepreneurial arena. Some of these include the country’s financial and operating environment being unsupportive of entrepreneurs in terms of regulations, policies and access to capital. In South Africa, the main source of start up capital is still the banking sector.
They go on to highlight the concern that there is a low tolerance for entrepreneurial failure in South Africa. “People disassociate themselves from them, banks shut them down and the press demonises them”. Entrepreneurial failure is an experience that financers in other parts of the world look for in entrepreneurs that they consider funding. This culture in South Africa of not supporting entrepreneurs who have failed needs to be confronted if we are to create an environment conducive to fostering more entrepreneurial activity.
Likewise the GEM report states that, “if the economy in general has positive attitudes toward entrepreneurship, this will generate cultural support, financial resources, networking benefits and various other forms of assistance to current and potential entrepreneurs.”
Attitudes and Perceptions about Entrepreneurship
In the GEM report South Africa and a further 23 other countries, are classed as efficiency driven economies. When it came to indicators of attitude, GEM noted that in SA 40.9% of respondents’ perceived opportunities in the entrepreneurial arena, and that South African’s were 2.7% less fearful of failure than the un-weighted average. 77.5% of people surveyed thought entrepreneurship was a good career choice, yet only 16.7% of respondents had entrepreneurial intentions, 6.5% below the un-weighted average for this category.
With perceptions indicating that a high status is given to successful entrepreneurs and that there is a great emphasis placed on entrepreneurial endeavours in the media, why are our entrepreneurs still battling to find support and succeed?
Why Entrepreneurs are either failing to launch or floundering in South Africa
Some of the insights into why there is a failure to launch or a failure post- launch that come out of the Endeavour white paper include:
The lack of entrepreneurial skills, awareness and preparedness amongst entrepreneurs
- Most entrepreneurs have no idea how to physically run a business. They don’t know how to register their company or the implications of the type of company registered, they’re not sure how to run their accounts, or source materials at a discount. They don’t understand how to price and market themselves, how and when to perform market research much less hire and manage additional staff.
Lack of funding – particularly hindering township entrepreneurs
- The banks are still the primary funders of new business. Entrepreneurs face many uphill battles to secure funding, and get bogged down in all the red tape. They are not sure where to look for other sources of funding and what documentation to have in place in order to convince the lenders to part with their much needed funds.
Perceptions and attitudes towards entrepreneurs
- Lack of respect and recognition of the contribution made by entrepreneurs in South Africa
- The fact that corporate careers are still deemed more desirable than creating a new venture that has the potential to create jobs and contribute positively to the country’s economy
Sub-optimal infrastructure is impairing the culture of entrepreneurship in South Africa
- More than 10 million South Africans still do not have access to transport which translates into the entrepreneurs inability to reach markets outside their immediate surrounds
It’s difficult to sum up the challenges in one article, so we’ll address specific issues in a series of follow up articles. A good place to start learning more is to read the Endeavour White Paper and the GEM Report to gain a good understanding of the global and local picture.
Facts and figures in this article were sourced from:
- Endeavour White Paper on the State of Entrepreneurship in South Africa
- Global Entrepreneurship Monitor
- South African specific documents on entrepreneurship at the Global Entrepreneurship Monitor
Copyright © 2011 Lindsay Grubb
