South Africa’s entrepreneurship levels have dropped – here’s why

Updated on 19 February 2015

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The percentage of adult South Africans involved in entrepreneurial activity has dropped by 34% since 2013. This is according to the Global Entrepreneur Monitor (GEM) 2014 report published last month.

The percentage of adults in South Africa involved in a business that are less than three-and-a-half years old (also known as early-stage entreprenerus) fell to 6.97% last year from a 13-year high of 10.6% in 2013.

GEM does an annual assessments of the entrepreneurial activity across a wide range of countries. The 2014 report surveyed over 206 000 individuals and 3 936 national experts on entrepreneurship across 73 economies.

The GEM report shows that the rating of South Africa’s entrepreneurial eco-system – the conditions that enhance (or hinder) new business creation – have slipped. The biggest reasons for the decline are the country’s poor ratings on government programmes, primary education, restricted and inhibiting regulatory environment and restrictive labour laws.

According to Mike Herrington, the executive director of GEM, when compared with the entrepreneurial activity rates of different countries, South Africa should have an increasing rate in the region of 14%, which if achieved would go a long way towards reducing unemployment and alleviating the poverty experienced by much of its population.

“Further studies showed that education plays a major role in entrepreneurial activity in that the more educated the person, the more likely that person is to start a business and that the business continues to be sustainable,” he said.

He added: “This finding emphasised the need for training in South Africa, particularly amongst the youth where unemployment continues to increase year on year”.

“South Africa has the highest business failure rate”

How SA compares to BRICS countries

South Africa performs below other similar, efficiency driven economies, where the average early-stage entrepreneurial activity rate rate is 14% of adults, while the rate of established businesses is 4.5%.

India also saw a drop in the rate of adults starting new businesses (along with its established business rate), while Russia only slipped slightly.

Of a group of eight emerging economies (Brazil, Chile, Colombia, Malaysia, India, Russia, Georgia and South Africa), South Africa has the highest business failure rate.

Herrington believes there is cause of concern for South Africa.

“What makes South Africa’s case concerning is the low number of adults involved in startup activity and in running established firms.”

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