10
2011
Global
Entrepreneurship
Monitor
South Africa
Mike Herrington, Jacqui Kew, Miranda Simrie
and Natasha Turton
Contents
LIST OF FIGURES ...2
LIST OF TABLES ...3
EXECUTIVE SUMMARY ...4
ACKNOWLEDGEMENTS ...5
THE UCT CENTRE FOR INNOVATION AND ENTREPRENEURSHIP ...6
ABOUT THE AUTHORS ...7
CHAPTER 1: THE GEM MODEL ...8
1.1 The GEM research project ...8
1.2 The GEM conceptual model ...9
1.3 How GEM measures entrepreneurship ... 12
1.4 GEM methodology ... 12
BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Tsiba ...13
CHAPTER 2: THE STATE OF ENTREPRENEURSHIP IN SOUTH AFRICA ...14
2.1 The state of South Africa’s business environment ...14
2.2. The state of entrepreneurship in South Africa in 2011 ...16
2.2.1 Entrepreneurial activity ...16
2.2.2 Established business ownership ...20
2.2.3 Discontinuance ...21
2.3 South Africa’s entrepreneurship profile ...21
2.3.1 Gender ...21
2.3.2 Age ...22
2.4 Brics ...24
2.4.1 Introduction ...24
2.4.2 TEA and established business ownership rates ...25
2.4.3 Gender ...27
2.4.4 Age ...28
2.4.5 Necessity- and opportunity-driven motives ...28
2.4.6 Education ...30
2.4.7 Attitudes and perceptions ...30
2.4.7.1 Perceived opportunity ...31 2.4.7.2 Perceived capabilities ...32 2.4.7.3 Fear of failure ...32 2.4.7.4 Entrepreneurial intentions ...32 2.4.7.5 Societal attitudes ...32 2.4.8 Conclusion ... 34
BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Business Bridge ...36
CHAPTER 3: THE SOUTH AFRICAN ENTREPRENEURSHIP ENVIRONMENT ...38
3.1 The entrepreneurial framework conditions ...38
3.2 An assessment of the entrepreneurship environment ...41
BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Raymond Ackerman Academy of
Entrepreneurial Development ...50
CHAPTER 4: SPECIAL FOCUS 2011: ENTREPRENEURIAL EMPLOYEE ACTIVITY...52
4.1 Introduction ...52
4.2 Entrepreneurial employee activity rates ... 54
4.3 Education ...57
4.4 Employer support...58
4.5 The national experts survey ...60
4.6 Conclusion ... 63
CHAPTER 5: POLICY RECOMMENDATIONS AND CONCLUSIONS ... 64
6.1 Concluding remarks ...67
REFERENCES ... 68
APPENDIX A: NATIONAL EXPERT SURVEY 2011 PARTICIPANTS ...70
List of figures
Figure 1.1: The entrepreneurship process ... 9Figure 1.2: The GEM model ... 11
Figure 1.3: The 12 pillars of competitiveness and their relation to economic development stage ... 11
Figure 2.1: TEA rates for participating countries in 2011, by phase of economic development ... 16
Figure 2.2: TEA and GDP across GEM countries, 2011 ... 17
Figure 2.3: South Africa’s TEA rates over the period 2002–2011 ... 17
Figure 2.4: 2011 TEA rates in efficiency-driven economies ... 18
Figure 2.5: Relative contributions to TEA of start-up and new firm activity in South Africa, 2002–2011 ... 20
Figure 2.6: Comparison of established business ownership and TEA rates across GEM countries in 2011 ... 21
Figure 2.7: Comparison of female and male TEA rates across GEM countries, organized by female TEA rate 2011 ... 22
Figure 2.8: Early-stage entrepreneurial activity rates by age groups, across the three economic development phases ... 23
Figure 3.1: Model of entrepreneurial processes affecting national economic growth ... 39
Figure 3.2: South Africa’s entrepreneurship institution profile ... 42
Figure 4.1: Entrepreneurship process and GEM operational definitions, including entrepreneurial employee activity ... 53
Figure 4.2: Prevalence rates of current entrepreneurial employee activity (EEA) in the 18–64 population ... 54
Figure 4.3: Prevalence of EEA in a leading role, currently active, in the adult population of eight economies ... 55
Figure 4.4: EEA and TEA rates by type of development: Innovation-driven (ID), efficiency-driven (ED) and factor-driven nations (FD) ... 56
Figure 4.5: Percentage of employed population between 18–64 years involved in entrepreneurial activities for main employer in the past eight years based on level of education attained ... 57
Figure 4.6: Percentage of adult population between 18–64 years based on level of education attained ... 58
Table 2.1
Table 2.2: Prevalence rates (%) of entrepreneurial activity across GEM countries in 2011 ... 19
Table 2.3: South African early-stage entrepreneurs’ motivations for engaging in entrepreneurship by gender, 2011 ... 22
Table 2.4: Age breakdown of early-stage entrepreneurs in South Africa and efficiency-driven economies, 2011 ... 23
Table 2.5: Involvement in TEA by age in South Africa, 2010–2011 ... 23
Table 2.6: Total early-stage entrepreneurial activity and established business ownership rates across the BRICS countries ... 25
Table 2.7: Percentage of males and females involved in early-stage entrepreneurial activity across the BRICS countries ... 27
Table 2.8: Percentage of population involved in early-stage entrepreneurial activity by age across the BRICS countries ... 28
Table 2.9: Percentage of early-stage entrepreneurs (TEA) motivated by necessity and opportunity across the BRICS countries ... 29
Table 2.10: Percentage of population involved in early-stage entrepreneurial activity by education across the BRICS countries ... 30
Table 2.11: Entrepreneurial perceptions, intentions and societal attitudes across the BRICS countries (2006) ... 31
Table 2.12: Entrepreneurial perceptions, intentions and societal attitudes across the BRICS countries (2011) ... 31
Table 3.1: GEM’s Entrepreneurial Framework Conditions ... 40
Table 3.2: Summary of experts’ assessments of the entrepreneurial environment, 2010 and 2011 ... 41
Table 3.3: Experts’ views of key factors constraining entrepreneurship in South Africa ... 43
Table 3.4: Experts’ views of key factors that foster entrepreneurship in South Africa ... 46
Table 3.5: Key recommendations from South African national experts, 2011 ... 48–49 Table 4.1: Prevalence of EEA in a leading role in both the adult and employed populations ... 55
Table 4.2: Rankings of four efficiency-driven and four innovation-driven economies for the two pillars of global competitiveness concerning education ... 58
Table 4.3: Comparison of the levels of employer support between efficiency-driven economies ... 59
Table 4.4: Questions asked of South Africa’s national experts specifically linked to entrepreneurial behaviour by employees ... 60
Table 4.5: Questions asked of South Africa’s national experts specifically linked to the conditions that foster entrepreneurship ... 60
Table 4.6: Comparison of experts’ perceptions in three efficiency-driven and three innovation-driven economies ... 62 Table 5.1: Policy recommendations for improving South Africa’s entrepreneurial environment ... 65–66
Executive
Summary
Academics, business leaders and
gov-ernment decision makers are largely in
agreement that entrepreneurship plays a
critical role in an economy’s wellbeing and
its ability to compete on a global scale. In
South Africa, the topic of
entrepreneur-ship is a particularly important one, given
the state of the country’s economic and
social health.
The GEM project is now widely recognized as the most comprehensive and authoritative study of entrepreneurship around the world. South Africa has been participating in this prestigious study since 2001, and has over the years gained much insight into the country’s entrepreneurial context as compared to other similar economies.
GEM’s primary measure of total early-stage entrepreneurial activity (TEA) shows that South Africa’s rate in 2011 (9.1%) has remained constant (8.9% in 2010). However, South Africa’s TEA rate is, again, far below the average of comparable economies around the world. This therefore remains a matter of grave concern, and presents an opportunity for closer investigation and debate around the factors that impact on entrepreneurial activity in South Africa.
South Africa’s nascent entrepreneurship rate of 5.2% and
new firm activity rate of 4.0% are constant with 2010’s nascent entrepreneurship rate of 5.1% and new firm activity
rate of 3.9%. Of greater concern and as was the case in 2010, the prevalence rates for established business owner-managers remain extremely low with South Africa showing a rate of 2.3% in 2011 versus 2.1% in 2010.
The 2011 South African GEM report includes a comparison of entrepreneurial activity between the BRICS countries (Brazil, Russia, India, China and South Africa), for the years 2006 (before the global economic crisis) and 2011. It shows that Brazil’s TEA rate increased by 28.0% between 2006 and 2011. Reasons for this include well-managed government programmes to stimulate and support the development and growth of small businesses, as well as numerous business reforms that have focused on making it easier to start businesses. Improvements in Brazil’s societal attitudes towards entrepreneurship were seen. Its
rate of entrepreneurial intentions increased significantly by
63.0% and its fear of failure rate decreased. These have all contributed to the increase in Brazil’s TEA rate.
Russia’s TEA rate remained low between 2006 and 2011 (4.8% and 4.6% respectively). Russia has the lowest TEA rate of all the BRICS economies and one of the lowest of all the
efficiency-driven economies. Its government programmes
and investments to stimulate small business development have been judged largely ineffective. Other notable reasons for Russia’s low TEA rate include a high fear of failure rate, plus low rates of entrepreneurial intentions, perceived capabilities and societal attitudes, some of which are also
the lowest of the BRICS economies. An interesting finding is
that the rate of female owners of established businesses in Russia outnumber the rate of male owners in 2011.
China experienced the highest increase (48,0%) in TEA rate of the BRICS economies between 2006 and 2011, and has the highest TEA rate of all the BRICS economies. The rapid expansion of the Chinese economy has resulted in more opportunities for entrepreneurial activity, particularly in the big cities. China also experienced the highest growth in female involvement in early-stage entrepreneurial activity (62%). China’s rate of established businesses is also the highest of the BRICS economies, with the business reforms introduced in China since 2007 being cited as some of the key contributing factors.
With respect to South Africa, female involvement in early-stage entrepreneurship increased between 2006 and 2011, but by a much smaller percentage than the increase for male involvement. South Africa’s rates of TEA in the 18–24 years and 25–34 years age brackets are the second lowest of the BRICS economies, which is a cause for concern when one considers the youth unemployment
rate of 48.2%. In most other efficiency-driven economies,
the 25–34 years age bracket drives TEA. Given that South Africa has a very low established business rate (the lowest of the BRICS economies and one of the lowest across all GEM countries), indicates that relatively few jobs are available for youth and that small business development aimed at youth should be one of South Africa’s most pressing priorities.
South Africa experienced marginally increased rates in perceived opportunities and societal attitudes towards entrepreneurship. However, these positive indicators have still not impacted South Africa’s rate of entrepreneurial
intentions sufficiently. While South Africa’s rate of
entrepreneurial intentions increased between 2006 and 2011, it is still very low (second lowest of the BRICS economies). Given South Africa’s very high unemployment rate, improving policies and schemes that increase the number of individuals that pursue entrepreneurship as a positive employment choice are vital.
India did not participate in the GEM 2011 survey. It was found that India’s rates in most categories in 2006 were average relative to the BRICS economies, but had the highest rates of perceived opportunities and perceived capabilities. All
five of the BRICS countries will be participating in the GEM
survey in 2012.
In assessing the South African entrepreneurial environment, national experts participating in the 2011 study appear to agree with experts interviewed in
2010 on the positive and negative factors influencing
entrepreneurship in the country. As was the case in 2010, most experts rate the country’s physical infrastructure highest in terms of stimulating entrepreneurial activity. In 2011, government entrepreneurship programmes score lowest, with much criticism levelled at the fact that a proliferation of government agencies with
significant funding has failed to address the needs of
entrepreneurs. Within this context, this report features three examples of current best practice in the area of entrepreneurship education and development. The Business Bridge, Raymond Ackerman Academy of Entrepreneurial Development and the Tertiary School in Business Administration (TSiBA) all demonstrate a track record of success in teaching entrepreneurial skills and developing entrepreneurs. The special inserts on these institutions provide insight into their different models, the factors driving their success, and their recommendations for other initiatives that share their objective of entrepreneurship development.
The 2011 South African GEM report includes a chapter focusing on special interest issues. Chapter 4 focuses on individual employees who play a leading role in the creation and development of new business activities for the organisation in which they work. These individuals are referred to as employees involved in entrepreneurial employee activity (EEA), in which the EEA rate is the percentage of the population who are currently involved in entrepreneurial activities within the organisation in which
they work. The findings show that South Africa’s EEA rate is the lowest of all the efficiency-driven economies. A poor
Acknowledgements
The South African GEM team wishes to express its gratitude to the following contributors and partners without whom this project would not have been possible:Our sponsors – the Swiss South African Co-operation Initiative (SSACI), South African Breweries (SAB), and the Small Enterprise Development Agency
(SEDA). Thank you for your financial support, without
which this research would not have been possible; The 38 national experts who willingly gave their
time and shared their insights into the state of entrepreneurship in South Africa;
Nielsen South Africa, who conducted the Adult Population Survey on our behalf;
Rothko Marketing & Design for designing and printing the report; and
Penny Kew for editing assistance.
The success of the GEM project is dependent on the enormous efforts of the GEM global team at London Business School and Babson College. The
South African team acknowledges the significant role
they played in the project, and thanks them for their invaluable contribution.
We wish to express our sincere gratitude to Alicia Coduras from the GEM Global team, for her patience as well as generosity of her time. Her assistance enabled us to focus more on the interpretation of our
findings and contributed enormously to helping us to
meet our targets.
Most importantly, we acknowledge the South African entrepreneurs without whom this study would have no meaning, and wish them well in their endeavours. education system, low levels of employer support and the domination of top-down decision-making in South Africa are some of the primary contributing factors to the country’s low EEA rate.
The report concludes with policy recommendations for consideration by government in its efforts to stimulate entrepreneurship and in so doing develop the economy. A key overarching theme in these recommendations is the need for active engagement with all relevant stakeholders to ensure that an enabling environment for entrepreneurship can be created so that the needs of current and future entrepreneurs will addressed.
thE uCt Centre for Innovation
and Entrepreneurship
the Graduate School of Business at the university
of Cape town (uCt) established the uCt Centre for
Innovation and Entrepreneurship (CIE) in 2001, with
financial assistance from Liberty Life, the World
Bank Group and the Gatsby Charitable Foundation.
The ambition was bold – to make the Graduate School of Business Africa’s leading tertiary institution in entrepreneurship teaching and research,
and to become internationally recognised as an authority in this field in
developing economies. The Centre, built on initiatives started in the mid-1990s, was organised around three distinct and mutually reinforcing sets of activities: teaching and materials development, research and public policy, and business creation and growth.
The core focus of the Centre is on the delivery of quality entrepreneurship education at academic and all other levels of society. The Graduate School of Business’s philosophy of entrepreneurship education is that, to be effective, it must be practical. Our students therefore have meaningful interactions with entrepreneurs, are involved in actual entrepreneurial projects, work in multi-disciplinary project teams, and are evaluated by entrepreneurs and investors as well as by academic staff. The entrepreneurship courses delivered by the CIE are closely integrated with new venture activity in the local business and investment communities. The intention is not to compete with incubators or other business promotion projects, but to
seek partnership with the most successful of these for mutual benefit. The CIE’s core activity of ‘quality entrepreneurship education’ has significantly
enhanced its ability to establish such partnerships.
The CIE is involved both in high-value-added and high-potential new ventures, and in township and other community-based enterprises. Since its establishment, the CIE has assisted over 450 township enterprises by
providing practical business advice and access to finance and training,
with the objective of enabling them to become independent, sustainable businesses with greater potential for expansion.
A variety of short courses have been designed to teach entrepreneurs
basic financial and administrative skills, marketing, strategy and a number of other disciplines – all with the objective of encouraging self-sufficiency
and reducing the risk of business failure.
During 2011 the CIE was involved in a number of activities including: research that aims to develop a better understanding of the capacities
and needs of all the different categories of entrepreneurs in South
Africa so that advisory services and finance can be more precisely
targeted;
advising academics, primarily those actively involved in research, on the commercialisation of their intellectual property;
About the authors:
Miranda Simrie
Miranda Simrie has an MBA from the UCT Graduate School of Business. She has been involved in the areas of SMME support and enterprise development for a number
of years, having worked in these fields in both the public
and private sector.
Dr Mike herrington
Mike Herrington is the Director of the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business. He is a recognised entrepreneur, having started four businesses – one in New Zealand and three in South Africa. He was responsible for starting the CIE and is keenly interested in entrepreneurship and all levels of business creation. His major interests are in the areas of entrepreneurship, business planning, venture capital and the internationalisation of business. Mike has been leader of the GEM South Africa team since 2001. In 2010, he was appointed one of four country representatives on GEM’s eight-member international board, and subsequently appointed (in July 2011) as the Executive Director of GEM worldwide.
Jacqui Kew
Jacqui Kew is a senior lecturer in the College of Accounting at the University of Cape Town. She has been involved at the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business on a consultancy-basis since 2003. She has contributed to various GEM reports and has been part of the GEM South Africa team for a number of years. She is active in various small business development programmes and is also involved in executive education short courses at the Graduate School of Business where she specialises
in finance for non-financial managers in both corporate
and small businesses.
Natasha turton
Natasha Turton works as a freelance consultant and researcher. Most of her projects involve entrepreneurship and small business development. She completed an MBA at the University of Cape Town’s Graduate School of Business in 2010. Her thesis examined challenges and successes surrounding MSME development in Zambia. Prior to completing
her MBA, Natasha spent five years in Mozambique in
strategy, marketing and supply chain management in the private sector.
assembling a group of high-profile entrepreneurs in the Western Cape in order to finance and assist high-growth
business ventures;
offering coaching and mentoring services to entrepreneurs;
assisting large companies in nurturing innovative and entrepreneurial behaviour in their organisations;
developing a micro-franchising network targeted at small business entrepreneurs from disadvantaged and/or rural communities; and
providing a five-month full-time programme for young
(18–26 year old) school leavers from poor, disadvantaged communities through the Raymond Ackerman Academy of Entrepreneurial Development. The programme, which operates in Cape Town and at the Soweto campus of the University of Johannesburg, assists selected delegates who graduate to obtain meaningful employment, to pursue further tertiary education, or to start their own businesses.
The CIE is proud to be a longstanding participant in the international GEM project. We believe that the research spearheaded by GEM is essential for the development of global entrepreneurial activity and we are committed to that purpose in South Africa.
thE GEM
model
the Global Entrepreneurship Monitor
(GEM) research programme was initiated
in 1997 as a joint venture between
academics at London Business School
and Babson College in the united States.
1.1 the GEM research project
Its purpose was to explore and assess the role of
entrepreneurship in national economic growth. GEM defines
entrepreneurship as “any attempt at new business or new venture creation, such as self-employment, a new business organisation, or the expansion of an existing business, by an individual, a team of individuals, or an established business” (Bosma, Wennekers & Amorós, 2012, p.9).
Though GEM’s definition of entrepreneurship as new
business activity is rather narrow, it must be noted that it takes a broad view of what it deems (new) business activity
to be – i.e. rather than focus on official records of new
business registrations as an indicator of entrepreneurial activity, GEM adopts a behavioural approach (for example, by considering individuals’ contributions to entrepreneurial ventures irrespective of whether they own the enterprise).
Traditional analyses of economic development and growth tend to focus primarily on the contribution of large
corporations, on the assumption that these firms are the
main drivers of economic growth in modern economies. GEM, on the other hand, recognises and takes into account the role played by new and small businesses in the economy. In its attempt to facilitate understanding of the relationship between entrepreneurial activity and economic growth,
GEM has the following objectives:
to allow for comparison of levels of entrepreneurial activity among countries;
to determine the extent to which entrepreneurial activity
influences economic growth within individual countries;
to identify factors which encourage and/or hinder entrepreneurial activity; and
to guide the formulation of effective and targeted policies aimed at stimulating entrepreneurship.
The first GEM study, comprising only ten developed
economies, was conducted and reported on in 1999. Over the course of the subsequent 12 years, GEM has grown to include over 80 economies, and is now widely regarded as one of the most authoritative longitudinal studies of entrepreneurship in the world. In 2011, more than 140 000 people in 54 countries representing all the regions of the world, as well as varying levels of economic development, participated in the study. Based on this survey, it was estimated that 388 million entrepreneurs were actively pursuing starting a new enterprise or involved in running a new business in 2011. According to Kelley, Singer and
Herrington (2012, p. 4), this finding included an estimated:
163 million women early-stage entrepreneurs;
165 million young early-stage entrepreneurs between the ages of 18 and 35 years;
creating at least five new jobs over the next five years;
65 million early-stage entrepreneurs who anticipated
creating 20 or more new jobs over the next five years;
69 million early-stage entrepreneurs who supply innovative products and services that are new to customers and have few competitors; and
18 million early-stage entrepreneurs who sell at least 25% of their products and services internationally. In addition to the data it usually gathers, the 2011 GEM project focused on entrepreneurial employee activity (or intrapreneurship) as a special topic. 52 countries (out of the total of 54) participated in this special topic survey, and from the data obtained GEM estimates that 46 million employees were actively engaged in entrepreneurial activities within their existing organisations (Kelley, et al 2012). South Africa participated in this aspect of the 2011 GEM study, obtaining an Entrepreneurial Employee Activity (EEA) rate of 0.3% which
is significantly lower than the average of 1.8% for efficiency-driven economies. The findings suggest, therefore, that the
formal South African employment environment exhibits very low levels of entrepreneurship.
GEM provides a comprehensive view of entrepreneurship across the globe by measuring the attitudes of a population, and seeking to understand the activities and characteristics of individuals involved in various phases and different types of entrepreneurial activity. To this end, each country’s GEM team conducts an annual survey of at least 2,000 adults, complemented by in-depth inputs from selected national experts on the factors that impact on the nature and level of entrepreneurship in each country.
South Africa joined the GEM project in 2001, and has participated in all subsequent studies. This year therefore sees the eleventh anniversary of South Africa’s participation in GEM.
Entrepreneurial activity is considered to be an important catalyst for economic growth and development through job creation, innovation and its welfare effect. This realisation has led to a growing policy interest in entrepreneurship at an international level.
The GEM project recognises that entrepreneurship is a process that comprises different phases, from intending to start, to just starting, to running new or established enterprises and even discontinuing these. Because the contexts and conditions that affect entrepreneurship in different countries are diverse and complex, it is not possible to conclude that one phase inevitably leads to the next. For example, a country may have a large number of potential entrepreneurs but this may not necessarily translate into a high rate of entrepreneurial activity. Therefore, the arrows that connect the different phases are not straight lines, suggesting the tentative nature of the relationship between the different phases. The entrepreneurship process and GEM’s operational
definitions are illustrated in Figure 1.1.
The phases of entrepreneurship
The GEM approach to understanding the entrepreneurship process as one that consists of different phases is useful for assessing the state of entrepreneurship in each phase. The entrepreneurship process starts with potential entrepreneurs – those individuals who believe that they possess the capabilities to start businesses and who would not be dissuaded from pursuing the idea of starting a business by fear of failing. For some potential entrepreneurs, their intention to start a business is underpinned by the perceptions society holds of entrepreneurs, the status these individuals enjoy in their society, and whether the media positively represents entrepreneurs.
Source: GEM Global Report, 2011
Entrepreneurship Phases
Potential Entrepreneurs:
Beliefs and Attitudes Intentions Established
Discontinuance
Nascent New
total early-stage Entrepreneurial Activity
(tEA)
For those individuals whose intent to start a business is strong enough, the next phase is nascent entrepreneurial activity – i.e. the first three months of running a new
enterprise. Given the challenges associated with starting a
new business, many fledgling businesses fail in the first few
months, hence not all nascent entrepreneurs progress to the next stage.
New business owners are defined as those former nascent
entrepreneurs who have been in business for more than three months, but less than three and a half years. Nascent and new business owners together account for the total early-stage entrepreneurial activity (TEA) measured by GEM. Established businesses are those older than three and a half years. It is important to consider both established business owners as well as entrepreneurs who have discontinued businesses or exited businesses as these two categories represent a key resource for other entrepreneurs
(for example, through providing financing, mentorship,
advice or other types of support).
The GEM model, shown in Figure 1.2 below, illustrates the institutional environment and the effect it has on entrepreneurship. Two sets of conditions, namely basic
requirements and efficiency enhancers, impact on societies as
well as entrepreneurial activity within societies. Furthermore,
Figure 1.2 also indicates nine entrepreneurship framework
conditions deemed to influence individuals’ decisions to pursue entrepreneurial initiatives and thus influence the rate and profile of entrepreneurship in different economies.
The GEM model suggests that, at a national level, the framework conditions that apply to established business activity differ from those that apply to entrepreneurial
activity. The performance of larger established firms is influenced by general business conditions, which influence firms’ ability to compete effectively, to start new or ancillary
businesses and to create jobs (Von Broembsen, Wood & Herrington, 2005). Both the national and the entrepreneurial framework conditions are dependent on the social, political and economic context in which they exist. These contexts are
influential in creating unique business and entrepreneurial
environments, and should therefore be taken into account when analysing cross-national differences and national developments over time.
GEM classifies the economies that participate in the study as factor-driven, efficiency-driven, or innovation-driven.
These categories are based on the World Economic Forum’s (WEF) Global Competitiveness Report, which identifies three
phases of economic development based on GDP per capita and the share of exports comprising primary goods. The Global Competitiveness Index is determined by measuring different components, each focusing on a different aspect
of competitiveness. These components are clustered into 12 pillars of competitiveness, namely:
institutions infrastructure
macroeconomic environment health and primary education higher education and training
goods market efficiency labour market efficiency financial market development
technological readiness market size
business sophistication innovation.
According to the WEF classification, the factor-driven phase is dominated by subsistence agriculture and extraction businesses, with a heavy reliance on (unskilled) labour and natural resources. Companies compete on the basis of price and trade in basic products or commodities, with low productivity evident in low wages. In this stage of development, competitiveness is primarily related to well-functioning public and private institutions (pillar 1), established infrastructure (pillar 2), a stable macroeconomic environment (pillar 3) and a healthy workforce that has at
least benefited from basic education (pillar 4).
In the efficiency-driven phase, a country has become more competitive with further development accompanied by industrialisation and an increased reliance on economies of scale, with capital-intensive large organisations more dominant. Because of higher wages which are not necessarily coupled with an increase in prices, more
efficient production processes and improved product quality
are required. At this point, competitiveness is increasingly
fuelled by education and training (pillar 5), efficient goods
markets (pillar 6), effective labour markets (pillar 7),
developed financial markets (pillar 8), the ability to exploit
the advantages of existing technologies (pillar 9), and a large domestic or foreign market (pillar 10).
As development advances into the innovation-driven phase, businesses are more knowledge-intensive, and the service sector expands. Wages have increased so that they are able to sustain the associated increase in the standard of living. At this stage, companies must compete by introducing and producing new and unique goods using the most advanced production processes (pillar 11) and by innovating new processes and products (pillar 12). Figure 1.3 provides a graphical representation of the 12 pillars and their relation to the three stages of economic development. The basic requirements sub-index clusters those pillars that are most critical for countries in the factor-driven stage. The
Basic requirements
Institutions Intrastructure
Macroeconomic environment health and primary education
Efficiency enhancers
higher education and training Goods market efficiency Labor market efficiency Financial market development technological readiness Market size
Innovation and sophistication factors
Business sophistication Innovation Key for factor-driven economies Key for efficiency-driven economies Key for innovation-driven economies
Source: GEM Global Report, 2011
Source: Global Competitiveness Report 2011–2012
Figure 1.3:
The 12 pillars of competitiveness and their relation to economic development stage
Basic requirements
Institutions Infrastructure
Macroeconomic stability health and primary education
Efficiency enhancers
higher education and training Goods market efficiency Labour market efficiency Financial market sophistication technological readiness Market size
Innovation and entrepreneurship
Entrepreneurial finance Government policies Government entrepreneurship programs Entrepreneurship education R&D transfer
Commercial, legal infrastructure for entrepreneurship
Internal market openness
Physical infrastructure for entrepreneurship
Cultural and social norms From other available sources Social Economic Development (Jobs, Innovation, Social value) Social, cultural, political context From GEM National Expert Surveys Attitudes:
Perceived opportunities and capabilities; fear of failure; Status of entrepreneurship Entrepreneurship Profile Established firms (Employee Entrepreneurship Activity) Activity: Opportunity/Necessity driven, Early stage; Inclusiveness; Industry; Exits
Aspirations:
Growth, Innovation International orientation Social value creation
From GEM 2011 Adult Population Surveys (APS)
From GEM Adult Population Surveys (APS)
efficiency enhancers sub-index groups those pillars that
are essential for countries in the efficiency-driven stage,
while the innovation and sophistication factors sub-index includes the pillars that are crucial for countries in the innovation-driven stage.
1.3 how GEM measures entrepreneurship
GEM takes a comprehensive snapshot of entrepreneurs around the world, measuring the attitudes of a population and the activities and attributes of individuals participating in various phases of entrepreneurship. The study also considers the aspirations of these entrepreneurs regarding their businesses, along with other key features of their ventures. This orientation to the examination of entrepreneurship sets GEM apart from other research which is heavily
focused on the number of official new firm registrations
as an indicator of entrepreneurial activity. GEM considers both those formally registering their businesses and those running informal ones. These unregistered businesses can, in fact, comprise as much as 80% of economic activity in developing countries (GEM 2010 Global Report). Furthermore, GEM views entrepreneurship as a process, and takes into account the role played by individuals in new business creation in measuring national entrepreneurship levels. The primary measure of entrepreneurship used by GEM is the Total Early-stage Entrepreneurial Activity (TEA) Index, which gauges the level of dynamic entrepreneurial activity in a country by considering the incidence of start-up
businesses (nascent entrepreneurs) and new firms (up to
3.5 years old) among the adult population (i.e. individuals aged 18–64 years).
Another important distinguishing feature of GEM is the distinction it makes between different types of entrepreneurship and how these contribute to economic growth and job creation. Individuals who start businesses in response to a lack of other options for earning an income are deemed to be necessity entrepreneurs, while those who start businesses with the intention to exploit an opportunity
are identified as opportunity entrepreneurs. The latter may
include individuals who aim to maintain or improve their income, or to enhance their independence.
1.4 GEM methodology
One of the key objectives of GEM is to provide reliable data on entrepreneurship that will be useful in making meaningful comparisons both internally and between different countries over time. For this reason, all participating countries make use of standard research instruments. The GEM data is gathered annually and is derived from two main sources, namely:
Adult Population Survey (APS)
Each participating country conducts a survey of a random representative sample of at least 2 000 adults (aged 18 – 64 years). The surveys are conducted at the same time of year (generally between April and June) using a standardised questionnaire provided by the GEM consortium. The APS is generally conducted by an independent research vendor, chosen by each country’s GEM team based on the evaluation of the vendor’s research proposal. The raw data is sent directly to the GEM data team for checking and uniform statistical calculations before being made available to the participating countries.
National Experts Survey (NES)
The NES provides insights into the entrepreneurial start-up environment in each country with regards to nine entrepreneurial framework conditions, namely:
financing
governmental policies governmental programmes education and training
research and development transfer commercial infrastructure
internal market openness physical infrastructure cultural and social norms.
The NES sample is comprised of a minimum of 36 respondents, with four experts drawn from each of the entrepreneurial framework condition categories. Out of this sample, a minimum of 25% must be entrepreneurs or business owners, and 50% must be professionals. Additional aspects such as geographical distribution, gender, the public versus private sector, and level of experience are also taken into account in selecting the sample.
In addition to the APS and NES, the GEM Report also makes use of standardised national data from international data sources such as the World Bank, the International Monetary Fund and the United Nations. This information is used to add context to the report, and to explain the relationship between entrepreneurial activity and national economic growth.
Please tell us about your organisation/ programme’s objectives and the reasons it was established.
TSiBA’s aim is to provide high quality business education for people with a social conscience who have the desire and the skills to build our nation. Access to tertiary education is hampered by many factors including the quality of secondary education
and financial hurdles. For this reason we offer full tuition scholarships to study our Higher Certificate
in Business Administration that acts as a bridge into our degree programme. This foundation curriculum is structured so that additional learner support is fully integrated. Further scholarships are awarded to pursue our accredited Bachelor of Business Administration degree in Entrepreneurial Leadership. TSiBA’s unique focus on Attitude, Skills and Knowledge effectively enables talented and ambitious South Africans to jump the gap between rich and poor. Indeed, we do more than offer a bridge to becoming economically active: TSiBA develops leaders, entrepreneurs and change agents who utilise the business knowledge and skills that they gain for the purpose of the fundamental transformation of our society i.e. not only jumping the divides, but closing them too. At TSiBA, we call this Paying it Forward.
What, in your opinion, are the factors that have contributed to the success of the programme thus far?
Our specific focus on grassroots entrepreneurs/bottom-of-the-pyramid
folk has forced us to really get to know our target market and understand their challenges and, therefore, amend our approach to meet their needs. Mentorship is the glue that holds the model together – without that
nothing works.
The road map, contract etc tidies up the relationships between
the entrepreneurs/beneficiaries and TSiBA: This leads to greater
commitment and an understanding that what we provide is not simply up for grabs but needs to be earned.
Entrepreneurial successes mostly happen not because of out inputs but because of the dedication and determination of the entrepreneurs and their willingness to apply what they learn.
What do you perceive to be the key ingredients of a successful entrepreneurship development programme?
Encouraging innovative thinking, an intrapreneurial attitude, uncovering individuals’ leadership and self-development potential – in a supportive environment which is augmented by our mentorship programme. Exposing students to real business challenges in our courses and
fostering an understanding of social entrepreneurship. Grounding the course in generic business knowledge.
Strengthening the basics in our Certificate year: numeracy, communication
and IT.
Administration (tSiBA) provides an innovative and comprehensive solution to addressing inequality in a sustainable manner. tSiBA (which means ‘to leap’ in Xhosa) is a unique private not-for-profit higher education institution that offers emerging leaders an opportunity to study an enriched degree that is focused on developing entrepreneurship and leadership. tSiBA was founded in 2004 with a vision to ‘Ignite Opportunity’. tSiBA opened their doors to their first 80 students in 2005 and currently serve 330 full-time students at their urban campus in Pinelands, Cape town and their rural campus, tSIBA Eden, in the town of Karatara, near Knysna. We asked Leigh Meinert, Director of TSiBA, to tell us more about this unique initiative.
What highlights/successes stand out for you over the course of your involvement with the programme?
Although we are still graduating small numbers, our throughput rate is excellent (24% compared to national average of 11%) and TSiBA graduates are doing incredibly well in both the work environment and post-graduate studies. 83% of our graduates are employed full time and 15% are enrolled in post graduate studies. We have produced four Mandela Rhodes Scholars (that’s 8.5% of all our graduates). Feedback from employers attests to the
problem-solving ability of our graduates,
their confidence and adaptability.
What are your recommendations for other initiatives aiming to achieve the same/ similar objectives?
Understand the market and focus on developing support models that work for a particular segment.
A single ‘intervention’ is of little sustained assistance: long-term, help over time works – but that requires sustained
operational and financial investment.
It’s about people – not business. Work with partners and donors who understand this.
BESt PRACtICE
ENtREPRENEuRShOP
thE StAtE OF
ENtREPRENEuRShIP
in South
the South African economy has
historically been dominated by large
corporations and the public sector.
Before the advent of democracy in 1994, the economic landscape was characterised by a conspicuous absence of small enterprises in the dominant sectors of the economy – a situation which was exacerbated by prohibitive laws which prevented small businesses, particularly non-white businesses, from developing. Following the country’s
first democratic elections, the formal sector underwent
major restructuring, prompting massive job losses and a resultant increase in informal economic activity. While this led to growth in the informal sector and an increase in the number of small businesses, this change was brought about by necessity rather than opportunity.
Over the last decade, the country’s economic, social and political challenges have increased – clearly evidenced in the growing unemployment, service delivery protests and mounting concerns about corruption, crime and governance. Despite the many strides South Africa has made over the last 10 years, the country’s poverty levels remain unacceptably high – particularly when compared with other emerging economies.
2.1 the state of South Africa’s business
environment
The Doing Business 2012 Report ranks different countries according to the ease of doing business in each country,
as defined by its performance in ten aspects: starting
a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. In 2012, South Africa is ranked 35th out of 183 countries, a noteworthy achievement within the context of the SADC regional
average rank of 114 out of 183. Significantly, South Africa
is credited with the best regional performance in the following areas: the cost of starting a business, dealing with construction permits, getting credit, and protecting investors. The report also notes the following salient
findings with regards to starting a business in South Africa:
It takes approximately six procedures and 19 days to start a business.
The process of starting a business has been made easier with the implementation of the new company law, which removed the requirement to reserve a company
name and simplified the incorporation documents. The Global Competitiveness Report (GCR), an annual publication of the World Economic Forum, provides
comprehensive assessments of the productive potential of countries across the world. The Global Competitiveness Index (GCI) is a comprehensive tool that measures the microeconomic and macroeconomic
foundations of national competitiveness. The GCI defines
competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country” (GCR, 2011–2012). The level of productivity, in turn, determines the level of wealth that can be created by an economy.
The GCR 2011–2012 has seen South Africa moving up by four places to 50thposition (out of 142 countries), remaining the highest-ranked country in sub-Saharan Africa and the second-placed among the BRICS economies
(with China at 26th position). The country benefits from
the large size of its economy, particularly by regional standards (it is ranked 25th in the market size pillar). South Africa also performs well in measures of the quality of institutions and factor allocation, such as intellectual property protection (30th), property rights (30th), the accountability of its private institutions (3rd), and its goods
market efficiency (32nd). Notably, the country ranked 4th for financial market development, indicating high confidence in South Africa’s financial markets at a time
when trust is returning slowly in many other economies. South Africa also performed reasonably well in more complex areas such as business sophistication (38th) and
innovation (41st), benefiting from solid scientific research
institutions (30th) and strong collaboration between universities and the business sector in innovation (26th). This combination of positive attributes makes South Africa the most competitive economy in the SADC region.
However, in order to further improve its competitiveness the country will need to address some key concerns. Prominent amongst these is South Africa’s labour
market efficiency (95th), which is characterised by rigid hiring and firing practices (139th), inflexibility in wage determination by companies (138th), and significant
tensions in relations between employers and the workforce (138th). While progress has been made in increasing basic literacy rates, the quality of South Africa’s education system (ranked 131st for primary education and 73rd for higher education) remains a major concern, with concerted efforts needed to improve the quality of mathematics and science education (138th). A recently conducted diagnostic on the state of the country found that, after four years of training, the average score of teachers taking tests in mathematics (of the same level that they themselves teach) was a shockingly poor at 33% (National Planning Commission, 2011). In addition to the need to address teacher performance and school leadership (as indicated in the NPC diagnostic), efforts must also be made to increase the university enrollment rate of only 15%, which places the country 97th overall, in order to enhance its innovation potential. In addition, South Africa’s infrastructure, although good by regional standards, requires upgrading (62nd). The poor security situation remains another important obstacle to doing business in South Africa. The business costs of crime and violence (136th) and the sense that the police are unable to provide protection from crime (95th) do not contribute to an environment that fosters competitiveness. Another major concern remains the health of the workforce, which is ranked 129th out of 142 economies—the result of high rates of communicable diseases and poor health indicators generally.
2.2. the state of entrepreneurship in South
Africa in 2011
2.2.1 Entrepreneurial activity
Since its inception, GEM has used the Total Early-stage Entrepreneurial Activity (TEA) index as the principal measure of entrepreneurial activity in participating countries. The TEA index provides a benchmark for comparisons across different countries, as well as longitudinal in-country comparisons. It measures the participation of individuals in early-stage entrepreneurial activity and conveys the percentage of the adult population between the ages of 18 and 64 years that is in the process of starting a business or has recently done so. In 2011 the GEM project investigated the extent of entrepreneurial activity in 54 participating economies. As can be seen from Figure 2.1, South Africa remains one of the more poorly-performing countries with regards to entrepreneurial activity – despite the fact that the country exhibits the factors which are conducive to entrepreneurial ventures, including government policies and programmes aimed at stimulating entrepreneurship.
Figure 2.2 plots the TEA rates of the 54 countries against
their GDP per capita levels. South Africa clearly falls way
below the line of best fit – reinforcing the fact that the
country’s TEA rate is lower than expected given its GDP per capita. Previous GEM research has shown that TEA rates (in general) tend to decline with increasing levels of GDP per capita. The decline can be ascribed to increasing availability of job opportunities as economies grow. According to Bosma et al (2012), the relationship between TEA and GDP per capita is less evident for economies in the innovation- driven stage.
With the hosting of the FIFA Soccer World Cup in 2010, the South African economy received a boost – both in terms of the financial returns it gained, as well as the increase in entrepreneurial energy that surged as many new small businesses emerged and entrepreneurial aspirations flourished in anticipation of the opportunities that this major international event signaled. According to Herrington et al (2010), start-ups or nascent entrepreneurship increased from 3.6% (per 100 of the adult population aged between 18 and 64 years) in 2009 to 5.1% in 2010, while the rate
P e rc e nt ag e of a d ul t p o p ul at io n b et w e e n 18 – 64 y e ar s 30% 25% 20% 15% 10% 5% 0% P ak is ta n A lg e ri a B an g la d e sh Ja m ai ca Iran Ve ne zu e la G ua te m al a R us si a M al ay si a h un g ar y C ro at ia B o sn ia a nd h e rz e g ov in a P o la nd S o ut h A fr ic a M ex ic o R o m an ia Li th ua ni a La tv ia tu rk ey B ar b ad o s S lo va ki a B ra zi l u ru g ua y th ai la nd A rg e nt in a P an am a C o lo m b ia tr in id ad & t o b ag o P e ru C hi le C hi na S lo ve ni a D e nm ar k Ja p an G e rm an y B e lg iu m Fr an ce S w e d e n S p ai n u ni te d A ra b E m ir at e s Fi nl an d S w it ze rl an d S in g ap o re N o rw ay Ir e la nd u ni te d K in g d o m P o rt ug al C ze ch R e p ub lic Ko re a ta iw an G re e ce N et he rl an d s A us tr al ia u ni te d S ta te s Factor-driven
economies Efficiency-driven economies Innovative-driven economies
Source: GEM Global Report 2011
Source: GEM Global Report 2011
Figure 2.2:
TEA and GDP across GEM countries, 2011
of new businesses increased from 2.5% to 3.9% – a fact that the authors say could be credited to South Africa’s hosting of the 2010 FIFA World Cup. The TEA rate therefore increased from 5.9% in 2009 (during the global recession) to 8.9% in 2010 (just before the World Cup started) as can be seen in Figure 2.3. According to the 2010 Finscope Small Business Survey, there were 5,979,510 small businesses in South Africa during 2010, a marked increase from the last recorded figure of approximately 2.2 million in 2006 (www.thedti.gov.za).
South Africa’s TEA rate increased by 62% to 8.9% from 2009 to 2010, and remained fairly constant in 2011
(Figure 2.3). South Africa’s absolute rate of 9.1% in 2011
is not a significant increase over 2010 if one takes into
account the spread in standard deviation.
DZ BD th PE BB SK IR CO Gt BR VE PA CL uY MX AR tt CN GR Pt JM PK ZA BA tR LV hu MY RO Ru CZ SI JP DK SE FR DE BE hR KR ES FI uK Au IE tW NL SW uS AE NO SG R2 =0.35 14 12 10 8 6 4 2 0 0 10 20 30 40 50 60 P er ce nt ag e o f 1 8– 64 p op ul at io n i nv ol ve d i n e ar ly -s ta g e e nt re p re ne ur ia l a ct iv ity
GDP per capita in purchasing power parities ($), in thousands
18 16 Algeria DZ Argentina AR Australia Au Bangladesh BO Barbados BB Belgium BE Bosnia & herz BA Brazil BR Chile CL China CN Chroatia hR Czech republic CZ Denmark DK Finland FI France FR Germany DE Greece GR Guatemala Gt hungary hu Iran IR Ireland IE Jamaica JM Japan JP Korea KR Latvia LV Lithuania Lt Malaysia MY Mexico MX Netherlands NL Nigeria NG Norway NO Pakistan PK Panama PA Peru PE Poland PL Portugal Pt Romana RO Russia Ru Singapore SG Slovakia SK Slovenia SI South Africa ZA Spain ES Sweden SE SW Switzerland taiwan tW thailand th
trinidad and tobago tt turkey tR
united Arab Emir AE united Kingdom uK united States uS uruguay uY Venezuala VE Lt PL E ar ly -s ta g e e nt re p re ne ur ia l a ct iv it y P e rc e nt ag e of 1 8– 64 y e ar o ld p o p ul at io n
Changes in SA TEA rates TEA 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2002 2003 2004 2005 2006 2008 2009 2010 2011
Figure 2.3:
South Africa’s TEA rates over the
period 2002–2011
As Figure 2.4 shows, South Africa’s TEA rate is below
average when compared to other participating
efficiency-driven economies.
Table 2.1 below shows that South Africa’s overall ranking
in the last decade of participating in GEM has shown
negligible improvement. This is a significant finding,
especially within the context of the country’s stature on
the continent, as well as the progress it has made over the last decade with regard to economic policy and programmes aimed at stimulating economic growth. When viewed within the context of the rates of entrepreneurial activity in comparable economies around the world, South Africa’s performance with regard to TEA appears even more dismal. As illustrated in Table 2.2, the
Figure 2.4:
2011 TEA rates in efficiency-driven economies
2002 6.3% 20th out of 37 countries 19 1 below
2003 4.3% 22nd out of 31 countries 16 6 below
2004 5.4% 20th out of 34 countries 17 3 below
2005 5.2% 25th out of 34 countries 17 8 below
2006 5.3% 30th out of 42 countries 21 9 below
2008 7.8% 23rd out of 43 countries 22 1 below
2009 5.9% 35th out of 54 countries 27 8 below
2010 8.9% 27th out of 59 countries 30 3 above
2011 9.1% 29th out of 54 countries 27 2 below
Year SA’s TEA rate SA’s TEA ranking Median above/below medianNumber of positions
Table 2.1:
Relative ranking 2002–2011
E ar ly -s ta g e e nt re p re ne ur ia l a ct iv it y P e rc e nt ag e of 1 8 – 64 y e ar o ld p o p ul at io n TEA rates in 2011 Russ ia Malay sia hung ary Croa tia Bosn ia and herze govin ia Polan d Sout h Afri ca Mexic o Rom ania Lithu aniaLatvia turk ey Barb ados Slov akiaBrazil urug uay thail and Arge ntina Pana ma Colom bia trinid ad & toba go Peru ChileChina Efficiency-driven economies 30,00% 25,00% 20,00% 15,00% 10,00% 5,00% 0,00%
Table 2.2:
Prevalence rates (%) of entrepreneurial activity across GEM countries in 2011
Source: GEM Global Report 2011
Factor-driven economies Algeria 5.3 4.0 9.3 3.1 9.5 37 46 Bangladesh 7.1 7.1 12.8 11.6 2.5 27 50 Guatemala 11.8 9.1 19.3 2.5 3.8 33 33 Iran 10.8 3.9 14.5 11.2 6.4 53 32 Jamaica 9.0 5.0 13.7 5.1 12.7 33 40 Pakistan 7.5 1.7 9.1 4.1 1.6 47 25 Venezuela 13.1 2.6 15.4 1.6 3.2 29 43 average (unweighted) 9.2 4.8 13.4 5.6 5.7 37 38 Efficiency-driven economies Argentina 11.8 9.2 20.8 11.8 4.3 33 45 Barbados 10.8 1.8 12.6 4.2 5.5 5 58
Bosnia and Herzegovina 5.4 2.8 8.1 5.0 6.7 61 22
Brazil 4.1 11.0 14.9 12.2 3.8 31 45 Chile 14.6 9.6 23.7 7.0 6.8 27 54 China 10.1 14.2 24.0 12.7 5.3 41 29 Colombia 15.2 6.7 21.4 7.5 6.0 25 30 Croatia 5.3 2.1 7.3 4.2 3.6 35 31 Hungary 4.8 1.6 6.3 2.0 2.3 31 29 Latvia 6.8 5.3 11.9 5.7 3.0 26 46 Lithuania 6.4 5.0 11.3 6.3 2.9 28 47 Malaysia 2.5 2.5 4.9 5.2 2.6 10 72 Mexico 5.7 4.0 9.6 3.0 5.0 19 55 Panama 12.0 9.1 20.8 6.0 2.1 27 40 Peru 17.9 5.4 22.9 5.7 5.1 22 52 Poland 6.0 3.1 9.0 5.0 4.2 48 32 Romania 5.6 4.5 9.9 4.6 3.9 41 34 Russia 2.4 2.3 4.6 2.8 1.5 27 42 Slovakia 9.2 5.3 14.2 9.6 7.0 28 34 South Africa 5.2 4.0 9.1 2.3 5.6 35 39 Thailand 8.3 12.2 19.5 30.1 4.5 19 67
Trinidad & Tobago 13.9 9.3 22.7 6.9 3.9 15 44
Turkey 6.3 6.0 11.9 8.0 3.9 32 45 Uruguay 11.0 6.0 16.7 5.9 4.3 11 10 average (unweighted) 8.4 5.9 14.1 7.2 4.3 28 42 Innovation-driven economies Australia 6.0 4.7 10.5 9.1 4.3 15 73 Belgium 2.7 3.0 5.7 6.8 1.4 10 72 N as ce nt e nt re pr e-ne ur sh ip ra te N ew b us in es s ow ne rs hi p ra te Ea rl y-st ag e en tr ep re ne ur ia l ac ti vi ty (T EA ) Es ta bl is he d bu si ne ss ow ne rs hi p ra te D is co nt in ua ti on of b us in es se s N ec es si ty -d ri ve n (% o f T EA ) Im pr ov em en t-dr iv en o pp or tu ni ty (% o f T EA )
country’s TEA remains at the lower end of the spectrum – comparable to the rates of entrepreneurial activity found in countries such as Algeria, Pakistan and Poland, which all display lower levels of economic development
than South Africa. Significantly, the country’s TEA rate of
9.1% is markedly below the average TEA rate of 14.1% for
efficiency-driven economies participating in GEM 2011.
Van Broembsen et al. (2005) point out that, while the TEA rate provides a quantitative assessment of entrepreneurial activity, it does not provide much insight into the quality of that entrepreneurship. An important factor to consider in this regard is the nascent entrepreneurship rate (i.e. the proportion of start-up businesses) to new business
ownership rate (i.e. the proportion of new firms), as well
as the prevalence of established businesses. Start-up or nascent entrepreneurs are actively engaged in setting up a business they will own or co-own, and have not paid
wages or salaries for more than three months. New firms
have survived the start-up phase and have paid salaries and wages for more than three months but less than three and a half years. Established businesses are those that have been in existence for more than three and a half years.
Table 2.2 summarises the prevalence rates of nascent
entrepreneurship, new business ownership, established business ownership and discontinuation of businesses. South Africa’s start-up business rate of 5.2% is notably higher than its new business rate of 4.0%, indicating that
start-up firms dominate the country’s total early-stage
entrepreneurial activity. However, South Africa scores
lower than the average for participating efficiency-driven
economies on both of these measures. Similarly, South Africa’s established business ownership rate of 2.3% is substantially lower than the average of 7.2% for all
participating efficiency-driven countries. This finding, which does not represent a statistically significant improvement
on the 2.1% recorded in 2010, remains particularly disconcerting. In terms of established business activity South Africa ranked 52ndout of 54 countries, faring only slightly better than Hungary (at 2.0%) and Venezuela (at 1.6%).
Figure 2.5 illustrates the relative contributions of start-up and new businesses to South Africa’s TEA rates over the period 2002–2011. While the 2011 GEM South Africa Adult Population Survey recorded a slight increase on the previous year’s new business rate of 3.1% (up to 4,0% in 2011), the nascent entrepreneurship rate declined from
5.9% in 2010 to 5.2% in 2011. This finding indicates an
increase in businesses that have survived beyond the start-up phase – a positive indicator of economic development
in the country. The decline in the rate of start-up firms
(i.e. in the number of people starting businesses) is not out of line with the general consensus that South Africa’s hosting of the 2010 FIFA World Cup created a temporary boom in economic activity as people took advantage of
the opportunity to start businesses that would benefit from the influx of foreign visitors.
2.2.2 Established business ownership
While the importance of early-stage entrepreneurs in infusing vitality and innovation into economies cannot be overstated, it is also important to acknowledge the crucial role played by established businesses in a country’s economic development. Businesses that have survived the early stages provide essential opportunities for employment as well as a resource of
knowledge and experience that can benefit early-stage
entrepreneurs. Kelley et al (2012) report that, while TEA rates are highest in factor-driven economies, established business ownership rates show a slight increase from the factor-driven to innovation-driven stage of economic development. According to these authors,
“…factor-driven economies have significantly more early-stage
entrepreneurs than established business owners – more than two and a half times as many” (Kelley et al, 2012, p. 13). As countries achieve greater economic development, TEA rates decline, particularly as necessity-driven entrepreneurial activity declines.
100 90 80 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2008 2009 2010 2011 P ro p o rt io n of s ta rt -u p a nd n ew f ir m a ct iv it y %
Contribution of new firms to tEA Contribution of start-up firms to tEA
Figure 2.5:
Relative contributions to TEA of
start-up and new firm activity in South
Source: GEM Global Report 2011
Figure 2.6:
Comparison of established business ownership and TEA rates across GEM countries in 2011
Figure 2.6 shows a comparison of established business
rates and TEA rates across the 54 countries that participated in the 2011 GEM study. As is evident from
Figure 2.6, the factor-driven economies exhibit generally
low established business ownership rates relative to TEA rates. With the exception of two countries (Malaysia and
Thailand), all the participating efficiency-driven economies show significantly higher TEA rates relative to established
business ownership.
Notably, South Africa’s established business ownership rate is a mere 2.3% compared to its 9.1% TEA rate in 2011.
2.2.3 Discontinuance
Kelley et al (2012) observe that the rate of business discontinuance generally declines as economic development level increases. Business discontinuation is more pronounced during the early stages of economic development as more businesses are started during these stages. Given the risks associated with starting businesses, it is not surprising that many fail during the initial start-up period.
GEM 2011 reports that lack of profitability and problems securing financing account for more than half the business discontinuances in the factor-driven and
efficiency-driven economies. The data obtained from South African
participants echo this pattern, with 32.6% of respondents who have exited businesses in the past year citing lack
of profitability as the reason for exiting, and a further 24% noting problems with access to finance. Kelley et al (2012, p.14) note that in innovation-driven economies “
[t]hese reasons, particularly “trouble obtaining finance” are
less frequently noted…entrepreneurs in those economies exhibit a higher likelihood of exit due to retirement, sale or another opportunity”.
2.3 South Africa’s Entrepreneurship Profile
One of the distinguishing features of the GEM project is the fact that it goes beyond a mere quantitative approach to understanding entrepreneurship in different economies, and
places value on examining the profile of entrepreneurs to gain
a deeper understanding of the intricacies and complexities that comprise this important subset of the population.
2.3.1 Gender
Previous GEM studies have shown that the ratio of male to female participation in early-stage entrepreneurial activity varies considerably across different countries, possibly
reflecting differences in culture and customs regarding
women’s participation in the economy. Over the years, one
finding that has remained consistent is that men are more
likely than women to be involved in entrepreneurial ventures.
Ve ne zu e la G ua te m al a A lg e ri a P ak is ta n Ja m ai ca Iran B an g la d e sh h un g ar y S o ut h A fr ic a R us si a M ex ic o B ar b ad o s C ro at ia R o m an ia P o la nd B o sn ia a nd h e rz e g ov in a M al ay si a La tv ia P e ru u ru g ua y P an am a Li th ua ni a tr in id ad & t o b ag o C hi le C o lo m b ia tu rk ey S lo va ki a A rg e nt in a B ra zi l C hi na th ai la nd Fr an ce u ni te d A ra b E m ir at e s S in g ap o re S lo ve ni a D e nm ar k C ze ck R e p ub lic G e rm an y P o rt ug al ta iw an N o rw ay B e lg iu m S w e d e n u ni te d K in g d o m Ir e la nd Ja p an N et he rl an d s Fi nl an d S p ai n u ni te d S ta te s A us tr al ia S w it ze rl an d Ko re a R e p . G re e ce P e rc e nt ag e of a d ul t p o p ul at io n b et w e e n 18 – 64 y e ar s 30% 25% 20% 15% 10% 5% 0% Factor-driven
economies Efficiency-driven economies Innovative-driven economies
total early-stage Entrepreneurial Activity Owners-Managers in Established Firms