The percentage of adult South Africans involved in starting a business has plunged by 34%, a new report shows.
The Global Entrepreneur Monitor (Gem) global report for 2014 reveals that the percentage of adults involved in a business less than three-and-a-half years old (the TEA rate) fell to 6.97% last year from a 13-year high of 10.6% in 2013.
This, while the percentage of South African adults running established businesses (those of older than three and a half years) has also slipped - from 2.9% to 2.68%.
The 2014 report surveyed over 206,000 individuals and 3,936 national experts on entrepreneurship across 73 economies.
South Africa is not alone in its decline. The rate of adults starting new businesses also fell dramatically in India (along with its established business rate) and Colombia, and slipped slightly in Russia and Malaysia.
South Africa continues to perform below similar, efficiency driven economies (see graph below), where the average early-stage entrepreneurial activity (TEA) rate rate is 14% of adults, while that of established businesses is 4.5%.
Below par performance
“When one looks at the TEA rates of different countries and compares these to the GDP per capita in the country, a “line of best fit” shows that South Africa should have a TEA 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,” says Gem executive director Mike Herrington, (pictured right) in the report.
Herrington adds that it’s difficult to show where Gem has influenced policymaking in South Africa except that over the years Gem results are being quoted by businesses and government departments to a greater extent than when Gem first started tracking South Africa in 2001.
High failure rate
While there is evidence that South African firms are failing less than in previous years (with the discontinuance rate fell falling from 4.9% to 3.89%) an analysis by Small Business Insight of Gem data for 2014 shows that South Africa still has one of the high failure rates (those running established companies as a ratio of the sum of both established and early-stage entrepreneurial activity).
Of a group of eight emerging economies (Brazil, Chile, Colombia, Malaysia, India, Russia, Georgia and South Africa) South Africa, with the exception of Chile and Colombia, has the highest business failure rate.
But what makes South Africa's case concerning is the country's low number of adults involved in start-up activity (see graph) and in running established firms.
Of the group of eight, Malaysia is ranked as having the most favourable entrepreneurial eco-system – with good access to finance and good policies and government programmes, among other things. Last year it eco-system was judged as more favourable than in 2013.
The biggest gain was made by India, possibly driven by prime minister Narendra Modi and his mooted reforms. Local experts there rated the country more favourably than in 2013, particularly in government policies as well as programmes and finance and cultural norms.
The rating of South Africa’s entrepreneurial eco-system slipped (as did those of Colombia and Chile). The African country is weighed down by poor ratings on government programmes and primary education.
Brazil continues to trail at the bottom of the rankings, bogged down by its low rating by local experts on regulations and poor primary education.
Four types of nations
Of the eight emerging economies analysed by Small Business Insight, four types of countries emerge:
Timm is the author of Trade and Industrial Policy Strategies (TIPS) 2012 report ‘How the state and private sector can partner to boost support to SMEs: Lessons from Chile & Malaysia. Click here to view the report. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a