BUREAUCRATIC BARRIERS OP-ED
Entrepreneurship is a key economic driver – Ramaphosa’s Sona 2022 offers glimmers of hope
The South African entrepreneurial ecosystem and enabling environment is not supporting new and established entrepreneurs as it should. The National Entrepreneurship Context Index ranks South Africa 6th worst on a global scale with similar index scores to countries like Iran and Sudan.
Two important events addressing the significance of entrepreneurship and business development as key drivers of economic growth took place on 10 February 2022. First, on an international level, the Global Entrepreneurship Monitor (GEM) 2021/2022 report was launched at the Expo 2020 Dubai in the United Arab Emirates.
Highlights from this report included that, although the Covid-19 pandemic has caused havoc among businesses, many entrepreneurs identified new opportunities. These new opportunities within an uncertain environment cause disruption leading to growth for certain businesses and closure or decline of other types of businesses. Several speakers attending the GEM 2021/2022 report launch highlighted the importance of entrepreneurship, and that small and medium enterprises (SMEs) are responsible for the bulk of employment globally, even during economic disruptions.
Closer to home, President Cyril Ramaphosa delivered his State of the Nation Address (Sona) on 10 February 2022. The dismal unemployment figures were highlighted, with a record high of 34.9% recorded in Q3 of 2021. President Ramaphosa stated that the government does not create jobs, but the creation of employment is the function of the private sector, and specifically the small and medium businesses driven by entrepreneurs.
This statement by the president was a drastic shift away from previous Sonas and government policy. Government has promised millions of jobs in the past and has failed to achieve the targets set for itself over the last two decades. From both these events, it is clear that the private sector via small and medium businesses should be allowed to create jobs.
Sadly, the president also highlighted the numerous challenges businesses face to stay afloat and that several factors have increased the cost of doing business, thus crippling already struggling businesses. His speech mentioned some of these factors, including unreliable electricity supply, ineffective supply-chain systems — including poor road networks, poor rail networks and ports — and a lack of innovation advancement due to a scarcity of broadband spectrum.
Although he acknowledged for the first time that the government does not create jobs, he admitted that the government is responsible for the creation of an enabling environment for business to start, grow and thrive in:
“The key task of government is to create the conditions that will enable the private sector — both big and small — to emerge, to grow, to access new markets, to create new products, and to hire more employees.”
Unfortunately, government is also failing to provide an excellent conducive enabling environment for businesses to prosper. This vital shortcoming was also highlighted by the findings in the GEM 2021/22 expert ratings of entrepreneurial framework conditions.
According to the expert ratings of entrepreneurial framework conditions assessment (the enabling environment), South Africa is the only country that scored below 50% on all framework conditions of 47 developing and developed countries.
Some of the factors where the country failed include ease of access to finance (3.4/10), entrepreneurial related finance (3.7/10), government policy, support and relevance (3.4/10), entrepreneurial education, post-school (3.6/10), research and development (3.4/10), taxes and bureaucracy (3.5/10) and burdens and regulations (3.6/10).
This clearly shows that the South African entrepreneurial ecosystem and enabling environment is not supporting new and established entrepreneurs as it should. The National Entrepreneurship Context Index (Neci), which measures the quality of an economy’s entrepreneurial ecosystem or environment for entrepreneurship, ranked South Africa 6th worst on a global scale with similar index scores to countries like Iran and Sudan.
Quality education is another vital factor listed by the GEMs report as essential for entrepreneurship and business development. The worst-performing framework conditions were entrepreneurial education at school (2.7/10), followed by government entrepreneurial programmes (3.1/10). Entrepreneurial education should include creative thinking and problem-solving skills, an understanding of how economies function, and general knowledge of running businesses. Are we teaching this in South Africa?
In research on the creation of an enabling environment, where we have compiled an enabling environment index, several factors have been identified to ensure an enabling environment for business success. These include, among others, strong leadership, clear structures and policies, partnership formation, sufficient infrastructure, economic development conditions and safety and security.
None of these factors is well provided for with uncertain electricity supply and poorly performing supply-chain infrastructure, the existence of a mostly policy-uncertain environment leading to limited to no investment, and an increasingly declining law-and-order environment.
A ray of light for business growth and development in South Africa was when President Ramaphosa said the following:
“We are reviewing the Business Act — alongside a broader review of legislation that affects SMMEs — to reduce the regulatory burden on informal businesses. Therefore, we are working to improve the business environment for companies of all sizes through a dedicated capacity in the Presidency to reduce red tape. If we are to make progress in cutting unnecessary bureaucratic delays for businesses, we need dedicated capacity with the means to make changes. There are too many regulations in this country that are unduly complicated, costly and difficult to comply with. This prevents companies from growing and creating jobs.”
The real questions now remain, will these be empty promises, like in previous Sonas? Will our government leaders act upon the various “confessed” problems and improve the entrepreneurial ecosystem? Will they create the needed enabling environment for the private sector to be able to create the millions of jobs we so urgently require?
Policy certainty with relaxed labour regulations will go a long way in allowing renewed investment in the economy with eventual higher levels of economic growth and the needed jobs, especially for the youth of our country.
Without a positive enabling environment, our dream of a rapidly growing economy driven by a dynamic small and medium business section cannot be achieved. DM
Prof Natanya Meyer is with the Department of Business Management in the College of Business and Economics (CBE), University of Johannesburg, and Prof Daniel Meyer is with the School of Public Management, Governance and Public Policy at CBE. The views expressed are those of the authors and do not necessarily reflect those of the University of Johannesburg.
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