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GEM South Africa 2008 National Report
Launched 22/05/2009
GEM South Africa launched their 2008 National Report on May 20th to much media interest at the Graduate School of Business, University of Cape Town. The event was attended by a number of the team’s sponsors including the Small Enterprise Development Agency, Swiss South African Co-operation Initiative and Standard Bank.
The report demonstrates that in 2008, South Africa ranked 23rd out of 43 countries with a Total Early-stage Entrepreneurship Activity (TEA) rate of 7.8%. This is significantly below the average for all middle to low income countries (13.2%) – the findings are consistent with South Africa’s performance in previous years.
In terms of new firm activity South Africa ranked 38th out of the 43 countries with a new business prevalence rate of only 2.1%. This is significantly lower than the average of 4.6% for all GEM countries. The prevalence rate for established business owner-managers follow a similar disturbing trend – South Africa ranked 41st out of the 43 countries, with an established business rate of 2.3% indicating a high failure rate for South African start-ups.
According to Dr Mike Herrington, GEM South Africa Team Leader, the low business prevalence rates remain a major concern for South Africa.
“The poor sustainability of start-ups in South Africa relative to other countries highlights the need for policy interventions aimed at supporting and mentoring entrepreneurs through the difficult process of the firm’s birth. South Africa’s National Small Business Strategy makes it explicit that a primary policy objective is employment creation, but too often the support offered begins and ends with the provision of a generic business plan,” he said.
The GEM 2008 study has also highlighted that entrepreneurs in South Africa have poor business and management skills, and an inadequate enabling environment.
“Expert input that formed part of the GEM 2008 research pointed out the quality of school-level and post-school entrepreneurship training as being poor – 62% of the experts interviewed listed education and training as a key shortfall area. Of particular concern is the rating for the quality of entrepreneurship education and training after school, where South Africa achieved the lowest rating of all the “efficiency driven” (the category SA falls under due to its phase of economic development) countries in this sample,” said Herrington.
In addition, it was found that entrepreneurs still have to deal with poor access to finance, sub-standard infrastructure and regulations that create huge administrative burdens and costs.
Despite the poor overall entrepreneurship rates, there are some rays of hope – a comparison of South Africa’s performance over the last few years indicates that there has been a 2.6% increase in the level of early-stage entrepreneurial activity from 2006 to 2008, and more entrepreneurs are starting businesses because of an opportunity rather than to survive. This is an encouraging finding, the report stated, as opportunity-driven entrepreneurship makes a far more significant contribution to job creation and economic growth than necessity/survival-driven entrepreneurship.
According to the 2008 study, opportunity-driven entrepreneurial activity accounted for 79% of total entrepreneurial activity, and many more black African individuals in particular are starting businesses because of an opportunity.
“Although small, it is statistically significant. South Africa’s performance in global comparisons remains somewhat disappointing, but this increase may mark the start of a more positive trend in entrepreneurial activity,” said Herrington.
Herrington added that the 2008 report reflects that South Africans were relatively positive about the country at the time of the data collection, and cautioned that the effects of the global economic crisis could change things – this would only become fully apparent in future GEM studies.
Herrington said that, despite the encouraging highlights, the GEM 2008 findings broadly indicate that much remains to be done to accelerate entrepreneurship in South Africa.
“South Africa’s low levels of entrepreneurial activity are the result of environmental as well as personal factors. Improving the skills base and fostering positive entrepreneurial attitudes through the education system are critical. However, without a more enabling environment that encourages individuals to see entrepreneurship as a financially viable employment option, it is debatable whether South Africa will experience a significant increase in entrepreneurial activity. This is particularly the case in rural areas as well as the less developed provinces.”
The 2008 GEM study was sponsored by the Swiss South Africa Co-operation Initiative (SSACI), the Small Enterprise Development Agency (SEDA), the South African Department of Trade and Industry, and Standard Bank.