Almost three years after the FIFA Soccer World Cup, entrepreneurial activity in South Africa has dropped to an alarming new low.
Entrepreneurship in South Africa has fallen dramatically with economic experts worrying about the impact on the economy and job prospects for young South Africans.
According to research released by the Global Entrepreneurship Monitor at the University of Cape Town’s Graduate School of Business, Total Early-Stage Entrepreneurial activity (TEA) in South Africa dropped to 7.3% from a high of 9.1%, an almost 20% drop from the previous year and the lowest in four years.
“This shows us that any impact of the FIFA Soccer World Cup is gone,” says Mike Herrington, executive director of the GEM, explaining that after an initial boost following gains in small business creation, most of the momentum appeared to have been lost, almost three years following the 2010 FIFA World Cup.
He attributes this loss of entrepreneurial spirit to a complicated cocktail of problems, including SA’s poor education system, difficult and onerous labour laws, crime, government corruption and nepotism and generally unfavourable conditions for entrepreneurs in South Africa.
The GEM annual survey is a widely recognised international study of entrepreneurship and each year takes a comprehensive snapshot of entrepreneurs in countries around the world, measuring the attitudes of a population and the activities and attributes of individuals participating in various phases of entrepreneurship. In 2012, the survey was conducted in 69 countries, which included 10 sub-Saharan African countries
The primary measure of entrepreneurship used by GEM is the Total Early-Stage Entrepreneurial Activity (TEA) index. TEA indicates the prevalence of business start-ups and new firms in the adult (18 – 64 years of age) population and is therefore a good indicator of the level of dynamic early-stage entrepreneurial activity in a country.
“South Africa needs a wake-up call. If the climate for entrepreneurship is not improved, then in a very short period of time, SA will no longer be the number one economy in Africa – Nigeria will overtake it,” warns Herrington.
This view is supported by GEM research, which shows that South Africa’s pool of intentional entrepreneurs is only 14% – far below the average of 27% among similar efficiency-driven economies. Of particular concern is that only 5% of South Africans in the 18-24-year age group are involved in early-stage entrepreneurial activity, another decrease from 2011. The study found a positive correlation between early-stage entrepreneurial activity among youth and the level of education attained.
GEM research also found that one of the biggest impeding factors on early-stage entrepreneurial activity was government policy (in terms of the process for starting a new business). Where registration of a business was concerned, even though the process has improved somewhat, delays are still common and although finance exists for new small business start-ups, this finance is not readily available from the public and private sectors.
Herrington compares South Africa to Peru where Total Early-stage Entrepreneurial activity rose to 20% – almost three times as much as in SA – after regulations were changed to favour new businesses, making the bureaucratic process much easier – and free – to start a new business.
What is especially worrying is that South Africans scored lowest among 10 sub-Saharan African countries in terms of perceived opportunities and capabilities as well as entrepreneurial intentions – far below countries with smaller economies like Zambia and Angola.
Herrington sees the solution to SA’s lagging entrepreneurial spirit in terms of short-term and longer-term solutions but keeps coming back to the problem of poor education, especially regarding Maths and Science.
The Department of Education’s Annual National Assessments Report 2012 on education results from Grades 1 – 6 and Grade 9 showed that the higher the grade under consideration, the lower the mark was for maths. Further cause for concern was that the country’s average mark for Grade 9 maths was 13%.
“That we are the second worst in the world where the quality of maths and science education is concerned bodes badly for entrepreneurship prospects, since one of the cornerstones for success in business is a mind that can problem-solve and think quickly in the face of challenging and changing scenarios,” says Herrington.
“In order to increase the size of South Africa’s pool of potential entrepreneurs, it will be important to focus on increasing the levels of perceived opportunities, through market dynamics and research and development, as well as on increasing levels of perceived capabilities, through education.”
For more information on UCT Graduate School of Business