(Photo: Unsplash / Bruse Mars) The very creditable Business Partners announced on Wednesday they are resuming their Entrepreneur of the Year competition, which has been on hiatus since Covid. This marks the 32nd year of the competition, and Business Partners wants to continue the tradition to, in part, encourage business creation (Enter here). The contest should be distinguished from EY’s World Entrepreneur of the Year award which is, as the name suggests, an international award, but has a local aspect.
In any event, in the process of the competition’s relaunch, I was party to a discussion about the state of entrepreneurship of small or smallish businesses in SA. Perennial subject, I know. Business Partners, a specialist risk finance company for SMEs in South Africa and other countries in Africa, has been doing this now for aeons, with an amazing record to show for it. Anyone who thinks that there is no grassroots entrepreneurship in SA should take a moment to read Business Partners’ annual report. They, and a bunch of other organisations, are doing magnificent work against the odds.
The question is, though: Is it enough? And the answer to that is pretty obvious: no. Just look at SA’s unemployment figures. There are several SME-support organisations in SA, but none is as long-standing and successful as Business Partners. Yet, even after distributing about R700-million a year as Business Partners does, we are not really touching sides here.
The reason we know this is because of something called the GEM report, the Global Entrepreneurship Monitor, which is an international comparative survey of small business entrepreneurship published every year.
The latest survey — the 2022/23 report — divides the world into three sections based on average income. SA is in the lowest income bracket with a GDP per capita below $20,000 a year, so our principal comparators are Indonesia, India, Egypt, Colombia, China, Brazil and a few others.
One of the key questions in the report is, “Are you considering starting a business in the next three years?” SA comes last in this category, not only compared to the low-income group but overall, with only 6% of adult respondents answering in the affirmative — as opposed to more than 50% in Brazil.
And by the way, the reason is not that establishing a business is hard from a regulatory point of view; South Africans don’t generally think that there are too many bureaucratic problems in establishing a business, and they would be right in most cases. Neither is it because entrepreneurship is saturated; less than one in 50 South Africans owns an established business, compared to one in five in South Korea.
It’s noticeable from the comparison that there is a very high proportion of “yes” answers to this question in the lower-income segments, which means there is a lot of “desperation entrepreneurship” out there. The survey addresses this issue specifically, asking entrepreneurs why they are starting businesses. In almost all developing countries, entrepreneurs tend to be enormously high-minded, saying they want to “make a difference”. But more than 80% also agree with the proposition that they are doing it “to earn a living because jobs are scarce” and to “build a high income”.
There is one other area where South Africa stands out, and that is in answer to the survey question, “What holds you back from starting a business?” I would have thought the answer would be “a lack of capital” “lack of skills” or perhaps, “no immediately available opportunity”. But “fear of failure” is huge across the spectrum, and it is an outstanding reason in SA. In no country other than Saudi Arabia is the fear of failure as high as it is in SA, despite the survey finding that people in SA generally do feel they have the skills.
This is interesting. It underlines something about entrepreneurship that is not well understood: even if you have the money, even if you have the skills, starting your own business takes guts. It’s just hard. It’s a huge leap, one that is massively underappreciated. That’s why it would make so much difference if our society and our government were encouraging and supportive in the process. But in SA, politicians are quick with the rulebook and slow with the encouragement, which is one of the reasons SA entrepreneurship is not where it should be.
Yet I do sense things are changing; the education system for one is slowly catching up, and financial support is growing. What is working against entrepreneurs is load shedding, of course, which hits small businesses disproportionately hard. They tend to be customer-facing and are not in a position to drop millions on energy alternatives.
It is interesting that several small business-supporting organisations, including Business Partners, are now focusing on providing energy alternatives, mostly, I presume, solar power.
Another interesting aspect of entrepreneurship is how influenced young people are by what their parents did. One of the leading indicators that someone will be a good entrepreneur is if one or both parents were also entrepreneurs. That is something SA lacks, for which we can partly blame apartheid. But really, the whole sector needs a big push and we all should make a point of helping when at all possible.
One of the other areas of the GEM survey where SA scores low is whether survey respondents have invested in someone else’s entrepreneurial effort; less than 4% of South Africans have done so, compared with 10% of Brazilians. Come on people. This is pathetic. Get with it. Help out a brother or a sister. DM