Global Entrepreneurship Monitor (GEM) executive director Mike Herrington says he and his team are looking into the accuracy of various data in its annual global report.
This, after the GEM team discovered that several of the 54 countries surveyed in the year's report - released in January - had seen significant changes in the rate of entrepreneurship for adults that the report tracks.
In Malaysia the total early stage entrepreneurial activity (TEA) rate rose by a massive 16.9% from 2016 to 2017 – from 4.7% to 21.6%. The rate measures the number of adults between 18 and 64 involved in starting or running a business that is less than 3.5 years old.
This is even more strange when one considers that since 2009, the country's TEA rate has never exceeded 6.6%.
Much of the increase in the latest report has come from a supposed rise in nascent entrepreneurship - which the report defines as the percentage of the adults that have started a business that is less than four months old and that has not paid salaries or wages.
The rate in Malaysia stands at 15% - now the third highest of its kind among GEM countries surveyed in 2017/18. In 2016/17 it stood at a mere 2%.
“We are not sure what is happening in some of the countries,” Herrington (pictured above) admitted in a phone call with Small Business Insight earlier this week.
'Malaysia not concerned'
“Malaysia don’t seem to be concerned about it (the significant increase),” said Herrington. He said he had written to the teams of various countries including Malaysia, Mexico and Argentina, and was waiting for their urgent response.
Those countries that saw significant rises or falls in their TEA rate between 2016 and 2017 also include (see map):
He said with changes such as the move by more people to use cellphones over landlines, sampling is becoming a problem. He questioned whether enough youth or older persons were captured by the report, as it's common practice that many don't answer calls from unknown numbers, which survey companies might choose to use.
Curiously, this year’s report fails to point out this rather strange occurrence in the data. Herrington said the global report was written so quickly that an analysis could not be done on this finding.
While the strange data occurs just two years after an election in Argentina which saw left-wing Kirchnerists replaced and months ahead of a critical poll in Malaysia, Herrington said he was “100% certain” that there was no political interference in the findings.
Research community divided
The question over the findings comes amid growing divisions over entrepreneurship research – with the emergence several years ago of the Global Entrepreneurship Development Index (GEDI).
The index, first run in 2011, uses GEM data along with other indicators and is an attempt to create a policy tool by including a range of additional measures which influence entrepreneurship in a country.
The index was conceived by George Mason University’s Zoltan J. Acs and László Szerb, both formerly members of GEM Hungary.
The publication of the index has caused confusion in the research community, over the entrepreneurial rate and measure of support for entrepreneurs in each country.
For example, while GEM ranks Ecuador as the most entrepreneurial among 54 countries surveyed in 2017/18, GEDI in 2018 ranks the US as the country with the best entrepreneurial support.
In the latest GEDI, Acs and co-authors Ainsley Lloyd and Szerb note that: "Good policy can only be generated through focusing the discussion on innovative, growth-oriented entrepreneurship, not the self-employment captured by GEM’s TEA rate".
The team goes onto say that GEDI's definition of entrepreneurship is driven not by necessity entrepreneurship but by opportunity.
Says GEDI in the same report: "While many think of the output of ecosystems as (producing) more start-ups, like GEM, this is wrong and misleading. The dual service created by entrepreneurial ecosystems is (1) resource allocation towards productive uses and (2) the innovative, high-growth ventures that drive this process."
'Can't rely on GEDI index'
GEM no longer includes Hungary among the countries it covers. Herrington said GEM had asked them a few years ago to leave as (Acs) "had tried to use GEM data for GEDI”.
"A number of organisations say they don't want to use a composite index and can't rely on GEDI's (index)," he said,
However he admitted that GEM's new Entrepreneurial spirit measure is the first attempt to form a composite measure. The measure is based on a combination of a country's degree of entrepreneurial awareness, opportunity perception, and entrepreneurial self-efficacy.
Saudi Arabia is ranked number one on the index (ranked as only the 25th most entrepreneurial country by GEM). When Small Business Insight pointed out that this was rather strange, Herrington defended the country's place at the head of the index.
Commenting on the strange GEM data, Acs said he had “no idea what has caused this strange development in the GEM data”. “One reason can be a change in vendor that does things differently but I have no real idea,” he said.
The cat fight between these two groups means researchers and policymakers will be none the wiser on what is really happening in their country. The strange data at GEM now only adds to the confusion. In the end entrepreneurs could lose out.
Correction: The initial version of this post had it that the GEM team had approached the University of Michigan to get assistance in assessing the report's sampling methodology - when in fact GEM still intends to do so. We regret the error.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.Herrington said he and his team are looking at the report's sampling methodology and that they would be approaching the University of Michigan to get assistance in assessing this, as this may have affected the results in some of these countries.
Six equity crowdfunding platforms in Malaysia have concluded over 30 deals since authorities there gave it the green light just over two year ago.
This comes after equity crowdfunding platform pitchIN revealed earlier this month that SalesCandy, a sales performance and lead management customer relationship management provider, raised 1.50 million ringgits ($350,000) from 54 investors this month.
The deal is the 10th this year for the platform, which has raised more than 12m ($2.8m) ringgits for companies so far.
In June 2015 six platforms were approved by Malaysia’s security commission chairman Ranjit Ajit Singh (pictured above) to carry out equity crowdfunding in the country.
In all 31 deals in 2016, 2017
To-date, the local equity crowdfunding industry has concluded 17 deals this year, according to Malaysian newspaper The Star. It’s not clear how much funding these raised. A total of 14 deals were concluded last year, raising 10m ringgits ($2.4m).
Other deals concluded so far include a health and wellness online community portal that raised over 1.8m ringgits from 117 investors, a houseware chain store which raised almost 3m ringgits from 89 investors and a halal speed dating service which raised 90,000 euros from 44 investors.
Malaysia was one of the first emerging economies to regulate equity crowdfunding. Crowdfunding rules allow private companies with paid-up capital of not more than 5m ringgits ($120,000) to raise no more than 5m ringgits or no more than 3m ringgits ($71,000) a year for small firms.
Retail investors are allowed to invest up to 5,000 ringgits ($1,200) per company and 50,000 ringgits ($12,000) a year. Investors are eligible for Malaysia’s angel tax incentive.
Anyone found guilty of fraud under Section 179 of the Capital Markets and Services Act can go to jail for up to 10 years.
To ensure quality deal flow, at least one platform – Crowdplus Asia - uses qualifying merchant investors to identify deals and help and mentor investee firms. The platform claims it has 100 such lead investors.
The platform is also backed by a ventures group, Netrove which offers mentoring to companies investors invest in.
If a UK report is anything to go by things look good for those countries that allow equity crowdfunding (Brazil in July became one of the latest to do so - see this post).
In the UK equity crowdfunding now makes up 15% of all early-stage entrepreneurial finance there. In the seven years since its inception, the sector had by June 2017 provided equity funds of almost £500 million ($660m) for 1,538 entrepreneurial pitches.
Using interviews with investors and investees in the UK, the report by the London School of Economics in September revealed that in the UK equity crowdfunding provides real additionality to the sources of entrepreneurial finance while not bringing major new risks for investors.
Equity crowdfunding therefore has the potential to become an alternative vehicle to unlock millions of dollars of funding for fast growing small businesses.
More emerging markets should step up and craft rules that permit investors to take part in equity crowdfunding.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
The Department of Small Business Development is considering creating a SME master plan, South Africa's Small Business Minister Lindiwe Zulu has revealed.
It follows Malaysia which in 2012 put in place a detailed SME Masterplan, containing a number of targets, including to increase the contribution of small businesses to jobs, gross domestic product (GDP) and exports by 2020 (see this post).
Delivering her department’s budget vote on Thursday, Zulu said a task team in her department made the proposal at the National SMME Policy Colloquium in October.
The colloquium is a partnership between the department and the Small Business Development Institute (SBDI) set up by former Black Business Council chief executive Xolani Qubeka.
In her budget vote Zulu said her department would by 2019 ensure the contribution of small businesses increased from 42% to 45% of gross domestic product (GDP).
In addition the department wants the number of small firms to increase from 2.15 million to 2.56 million and the number of jobs created by small business to grow from 7.33 million to 9.09 million.
Zulu said the contribution of small, micro and medium enterprises was still small - the sector contributed 40% of the R2.3 trillion ($174bn) generated by the private sector in the fourth quarter of 2016, according to Statistics SA's Quarterly Financial Statistics report.
She said if government departments and state entities heeded President Jacob Zuma’s directive to set aside at least 30% of government procurement budget of around R600bn towards small businesses and co-operatives, the contribution of the sector would rise.
However she said the contribution by small businesses continued to increase in terms of five tax categories between the last financial year and the year before:
In her budget vote Zulu highlighted a number of plans that the department aimed to roll out in the next financial year. These include:
In her budget vote speech Zulu also outlined a number of support initiatives that her department carried out in the last financial year (2016/17). These include:
For the 2017/18 year the department received an allocation of R1.2bn from the Treasury, of which 52% or R743m will go to Seda.
A third of its allocation or R484m, will go to four programmes: the BBSDP (R256m), CIS (R78m), Enterprise Incubation Programme (R49m) and the National Informal Business Upliftment Scheme (R99m).
Compensation of employees is allocated 9.5% or R139m, while Sefa’s total budget for the current financial year is R223.8m.
Zulu said despite teething problems experienced by her department since it was set up in May 2014, support for the small business sector remains “firmly on track”.
But DA MP Toby Chance said by the department’s account it had helped about 80,000 businesses in the last financial year – or about three percent of the about three million small businesses in the country.
He said while the department regularly complains that its fiscal allocation is too small, it under spent its budget from the last financial year by seven percent.
Declining entrepreneurial pipeline
The department will again have its work cut out. The latest Gem South Africa report – for 2015/17 - again paints a worrying picture of South Africa’s declining levels of entrepreneurship.
The percentage of adults involved in starting and running firms less than 3.5 years old fell from 9.2 in 2015, to 6.9% (about the same level it was in 2014).
The established business rate (adults running firms older than 3.5 years) remains one of the lowest in the world, at 2.5% (falling from 3.4% in 2015).
Most concerning is that the number of South Africans who intend to start their own business within the next three years has fallen by more than a third compared to 2013, and almost halved since 2010.
Just 10.1% of the adult population between the ages of 18 and 64 now intends to open a new business –down from 15.4% four years ago, and 19.6% in 2010.
The figure is less than half of the 26.0% of people in similarly structured (efficiency-driven) economies around the world who plan to open their own firms
Gem data (which Zulu refers to as "an opposing view) suggests much more needs to be done by the department.
The department must not only improve the quality and co-ordination of the state's existing support for small businesses - but it must do a lot more to get more adults interested in starting businesses and then staying in business.
A masterplan might help improve co-ordination, but more must be done to improve the quality of support as well. This will prove likely the hardest for Zulu to address.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
More business support, loans and set-asides will be directed at ethnic Malays, with the launch this week by Malaysian Prime Minister Najib Razak (pictured above) of the second Bumiputera Economic Transformation Roadmap.
The five-year roadmap aims to more than double the average income of ethnic Malays (or bumiputeras as they are commonly known) who make up over two thirds of the population. The plan has among its five pillars the aim of strengthening entrepreneurship.
Released by Teraju, Malaysia’s state agency set up in 2011 to assist bumiputeras, the new roadmap plans to prioritise SME-friendly policies through among other things procurement policies which favour the unbundling of large turnkey contracts.
'Biased procurement criteria'
“At best, the smaller but capable bumiputera firms – especially in professional services (engineering, quantity surveyor), have to bid to become subcontractors, which put them at the mercy of the procurement practices of the turnkey contractor,” says the roadmap.
In addition it says procurement criteria are often biased towards more established companies, adding that greater consideration therefore needs to be paid to companies that demonstrate a strong line up of experienced bumiputera professionals.
Under the first roadmap, which ran from 2011 to 2016, 10.6 billion ringgits ($2.4bn) - or 50% of the total value of selected turnkey projects - were set aside for 372 bumiputera firms.
The set-aside requires turnkey contractors to carve out part of a project to be put out to tender to bumiputera firms.
In addition a number of other bumiputera companies were assisted, these include:
Too many micro firms
Bumiputera companies make up 38% or 247,000 of registered Malaysian SMEs.
However the roadmap notes that the bumiputera entrepreneurs still tend to run mainly micro-enterprises (making up 88% of SMEs), concentrated in highly competitive sectors like retail, restaurant and consumer services which cater to the domestic markets.
To help develop bumiputera firms Teraju has started a sector-by-sector baselining exercise to adopt a value chain driven approach in bumiputera entrepreneurship development.
“There shall also be greater emphasis on encouraging mid-career professionals who have extensive sector experience to venture into businesses aligned to their area of expertise,” the roadmap says.
It says to encourage innovation intensive business activities, the government will also promote small-firm friendly policies.
“The role of tertiary institutions in influencing entrepreneurship should be emphasised by encouraging these institutions to inculcate an entrepreneurial mindset and skills among bumiputera at an early stage,” it added.
The plan also hopes to get entrepreneur development organisations to play a bigger role in encouraging bumiputera companies to scale up.
In addition Teraju will further develop Terajuxchange, a central database of bumiputera entrepreneurs to assist the government in making a comprehensive impact assessment of the support provided, while avoiding overlap in financial assistance.
Razak said this week that the support for Malays would not be at the expense of Chinese and Indian Malaysians. Yet it comes at a time when the prime minister is struggling with a corruption allegations and growing opposition to his rule.
A bigger problem is that few adults start up new firms in Malaysia (see this earlier post). Getting this right will be harder than simply dolling out more ethnically-aligned support.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a