To Be or Not To Be: More Entrepreneurial as a Nation (South Africa)

The latest Global Entrepreneurship Monitor (GEM) data shows that SA’s entrepreneurship ranking has dropped to 30th position (out of 42 countries) from 25th position (out of 35 countries) in 2005 from 20th (out of 34 countries) in 2004.

South Africa’s Total Early-stage Activity (TEA) was only 5.2 percent in 2006, compared with over 15% in countries such as New Zealand, Thailand and Venezuela

Why?

When I asked an MBA class to discuss and debate the reasons for this low level of entrepreneurial activity in SA, these were some of the themes that emerged:

Regulatory
Red Tape
The regulation and legislation in SA are impediments to the development of new business:
· Labour legislation makes it risky and difficult for new businesses to hire (and fire employees)
· Tax rates are high for a developing economy making it expensive to do business in SA.
The administration that for the registration and legalization of new businesses makes it a slow and painful process. There are many forms to be filled in, they take time to be processed and thus many entrepreneurs are put off or crippled by the bureaucracy.

BEE and Employment Equity
There are DIFFERING views on the impact of BEE and employment equity on entrepreneurship. Some people argue that the educated black business people are being trapped in high paying corporate jobs instead of looking for and going after entrepreneurial opportunities. The big monthly pay check for black professionals working in corporate is acting as an barrier to entrepreneurial activity. It is also argued that black professional setting up new BEE companies are just looking for deals instead of actually looking to build sustainable businesses that actually create and deliver valuable goods or services.

The opposing view is that employment equity legislation gives previously disadvantaged individuals the opportunity to gain skills in corporate jobs that they can ultimately use in starting new businesses and the BEE legislation creates good opportunities for black owned start ups to win contracts and get businesses. So there are two sides to the argument and the first argument (BEE and EE as having a negative impact) has more effect in the short term where as the second argument (the positive effect of BEE and EE) will more likely play out in the longer term.

Policy
There is no coherent policy for enterprise development and industry creation in SA. There are no real clusters of excellence in SA and where there is an attempt to develop such clusters, the incentives and opportunities are focused on big business (e.g. Coega amd the Motor Industry Development)

Funding
Venture Capital
There is no venture capital industry in South Africa to support and finance the development of new, high growth businesses. Government is trying to develop mechanisms to fund new businesses but government is less efficient than a market driven venture capital sector.
Entrepreneurial businesses in the USA and Israel are funded largely by a very vibrant and active venture capital industry. This has a major impact on high growth businesses with global appeal and these are the types of businesses that impact a countries competitiveness.

Education and Skills
There is a major concern that skilled people are leaving this country in droves. Some students argue that this is more of a “brain exchange” rather than a “brain drain” as South Africa is attracting skilled professionals from north of our boarders in Africa (Zimbabwe; Nigeria; Kenya)

There is view that many sectors of South African society are brough up with the cultural mindset of “go to school, get some tertiary education, get a job”. Children are brought up to believe that the ultimate is to have a job rather than create jobs. This is particularly pertinent in the Black and Afrikaner communities in SA and could be influencing people’s entrepreneurial orientation.

There are many people in the country who want to start businesses but just don’t have the business skill to do so effectively. There needs to be a major skills development drive in the area of basic businesses skills if entrepreneurial activity is to be increased.