Discussion of South Africa’s economic fortunes invariably seems to default to our ability or otherwise to attract foreign investment. As important as this is – especially in the present time of crisis, as the country confronts the threats arising from COVID-19 – foreign capital will not on its own propel the sort of take-off that South Africa’s economic so desperately needs. There is plenty to be done within the domestic economy, and without this, our prospects will remain bleak indeed.
One of the most pressing of these projects is ‘entrepreneurialism’ – South Africans pursuing opportunities for their own benefit, by opening and operating their own businesses. And so there is something praiseworthy in the intention of the National Youth Development Agency to spur this on. Its chairperson, Sifiso Mtsweni, recently said that its goal was to assist 1 000 businesses over 100 days, in the March-to-June period.
In an interview with the website, Inside Education, Mtsweni said – correctly – that entrepreneurship ‘is one of the ways South Africa can turn its economic fortunes around, like the Asian Tigers countries, who went through rapid growth by supporting small businesses and encouraging entrepreneurship at all levels.’
Something of an entrepreneur himself, Mtsweni said that youth entrepreneurship warmed his heart.
Yet there is a severe and long-standing entrepreneurial deficit in South Africa. Even before the advent of democracy, the incumbent government recognised this. Over the past two decades, the Global Entrepreneurship Monitor has presented a picture of a country which continues to lag badly behind many of its peers.
In the GEM’s 2019/20 report, South Africa’s established business ownership rate sits at 3.5% of the adult population – even though this is a little better than in previous years – and in 44th position of the 50 countries studied. South Africa’s performance on other measures, such as involvement in early-stage entrepreneurship and confidence in seizing opportunities, failed to inspire.
Post-1994, encouraging entrepreneurship and small business has been a policy constant, at least in theory. While various state support schemes have been tried, and while various agencies have been established to manage them (along with others in the private sector), these have been notable more for the intentions they signalled than for the results they produced.
The Centre for Development and Enterprise described government’s approach some years back as ‘the delivery of support through bureaucratic structures’. These were often not really up to the task, being staffed largely by people who had little experience of business.
Perhaps more to the point was that government support was never going to be able to underwrite the sort of entrepreneurial development that South Africa needs.
Not only is that support inherently limited – neither state financial resources, nor incubation facilities, nor advice and mentorship are infinite – but it fails to deal with some of the critical inhibitors to entrepreneurship in South Africa.
What makes for successful entrepreneurship has been extensively researched across the world. Some of the contributory factors include a personal background in which entrepreneurship features prominently (perhaps family members are business owners), a decent education, and career experience before embarking on their own ventures. There is much more to entrepreneurship than energy and ambition.
This was very much the picture of South Africa’s small-scale entrepreneurs put forward in field research by the small business think tank, SBP. Commented a report it published in 2011: ‘It challenges the conventional wisdom of the entrepreneur as a bright young thing striking out on his or her own.’
In other words, while not everyone will have the temperament to be an entrepreneur, the overall environment can constitute an ecosystem within which more people are empowered to consider it. This would imply, for example, a culture that esteems entrepreneurs, a solid education system, and a growing economy to absorb job seekers and expose them to business and the opportunities on offer.
South Africa’s performance on these measures is mixed, to say the least.
The overall environment is important in another way, too. It determines the chances of growth – and even survival – of the businesses operating within it. This is especially the case for new and small firms, for which even modest strains can be detrimental. Given such challenges as crime and fraying infrastructure, operating a business in South Africa is difficult.
It is made unconscionably more difficult by the choices that South Africa has made. A major theme in scholarship on business globally is that very little is as valuable as an appropriate regulatory environment. Not necessarily a lack of regulation, but good regulation – dealing with real problems to be sure, but without excessive costs and administrative burdens.
But in South Africa these are heavy indeed. One attempt to quantify the cost of compliance with regulatory demands in 2004 pegged it at the equivalent to a staggering 6.5% of GDP. While this may be well over a decade old, it is likely that the overall problem remains little changed. Despite regular commitments to reducing the complexity and the cost of doing business – especially for small firms – the comment of then finance minister Pravin Gordhan is still true today: government has been ‘pathetic in terms of helping small businesses’.
Government policy in its various manifestations – licensing, labour policy, clearance certificates, empowerment demands – have done much to undermine entrepreneurs, and even more to discourage the growth and opportunity-driven expansion that is so much a part of a successful entrepreneurial culture. And even as South Africa lags behind many of its peers, government’s intention is to ramp up this interference.
There is an ample body of research to indicate that the current broad-based black economic empowerment model is seen as cumbersome and of benefit mainly to the politically connected – it offers very little to entrepreneurs of any colour. Yet we brace for more of the same. The Department of Labour intends to be ‘very hard’ on business for failing to meet the racial targets it demands.
Meanwhile, Mr Mtsweni is to be commended for using his position to affirm the importance of entrepreneurship. That the organisation he oversees wishes to encourage it is to be welcomed. But the reality is that official policy needs to attempt to help the country’s entrepreneurs much less than it needs to merely stop harming them.
As we battle the manifold existential threats posed by the coronavirus, this is an all the more urgent factor in our capacity to confront our economic challenges.