The percentage of early-stage entrepreneurs in South Africa who expect to create no jobs at all within the next five years has risen nearly four times since 2013, a new report says.
The 2015/16 Global Entrepreneurship Monitor (Gem) report for South Africa, presented yesterday by Gem executive director Mike Herrington in Cape Town reveals that in 2013 8.2% of adults starting a business of less than three and a half years old expected they wouldn't create any jobs over the next five years. In 2015 this climbed to 29.8%.
Those that believe that they will create between one and five jobs over five years, has also fallen - from 57.1% to 44.5% over the same period.
"Entrepreneurs in 2015 are almost four times more likely to anticipate making no contribution to job creation besides self-employment for the entrepreneurs themselves," reveals report.
It surmises that the decline in job-growth aspirations may be linked to the increase in the number of firms started out of necessity (up 18% over 2014), as well as environmental factors such as South Africa’s rigid labour regulations and poor availability of skilled labour.
But it says despite this a quarter of entrepreneurs still anticipate generating six or more jobs – higher than the average of 21% for all efficiency-driven economies.
Gem says it's these entrepreneurs that says South Africa should focus more on supporting.
It may offer a glimmer of light, particularly as while South Africa’s early-stage entrepreneurial activity (TEA) rate regained some ground (up from 7% to 9.2%), it is still below the average TEA for the efficiency-driven economies of 15%.
Target high-growth firms
Small businesses and high-growth firms have different finance requirements, notes the report.
While small businesses needing better access to grants, subsidies and soft loans, policies that promote R&D and innovation grants, business angel finance and venture finance would be more beneficial in promoting high-growth entrepreneurs, it says.
It adds that reducing red tape, as well as offering targeted financial support is important in developing an environment that allows high growth businesses to flourish.
Another window of hope for South Africa is that despite lower job expectations, positivity around entrepreneurship continues to grow (see this earlier post). The percentage of adults who perceive there to be good opportunities grew from 37% to 41%, while the percentage that perceive that they have the skills, increased from 38 % to 45%.
“Opportunity perceptions have more than doubled since 2001 – to the extent that this indicator measures positive impressions about starting businesses in the current environment, as well as greater awareness about entrepreneurship, this may signal a promising trend for South Africa,” stresses the report.
Yet pulling against this is the downward trend in recent years in the percentage of adults that have entrepreneurial intentions. The rate has declined to 10.9% in 2015 to about the level it was in 2005 and down from 19.6% in 2010.
In addition most new businesses in South Africa are in line with other countries - started by those aged 25 to 44 years. But the report says with South Africa's high unemployment rate (it climbed to almost 27% in the first quarter) those between 18 and 24 should be playing a bigger role in opening businesses.
What needs to be done
A lot more therefore needs to be done to harness South Africa's positive perceptions of entrepreneurship and turn this into a job-creating force.
In this more can be done to target high-growth businesses. An announcement by the head of insurance company Discovery of the setting up of a R1.6-billion fund that will provide venture capital to high-growth firms is a good start. The Deputy President Cyril Ramaphosa said the government would match this amount.
Yet few black African entrepreneurs run high-growth businesses. While more must be done to nurture such firms (and its imminent Gazelles programme could help here - see this post), trade-offs might have to be made between South Africa's transformation targets and it's need to create jobs on mass.
The government could also do more to cut red tape which has escalated recently according to the World Bank (see this post) and adopt measures using in other countries.
Speaking yesterday at the Western Cape Funding Fair held at the Cape Town International Conference Centre (CTICC) Herrington said it was it was wrong that South Africa can’t learn from others. He singled out Chile’s recent initiative to offer business registration within one day, which the country had adopted from New Zealand (see this earlier post).
While Gem last year put out a series of policy profiles (see here) there are a number of initiatives from emerging economies that policymakers could explore (click on highlighted words to open link):
Timm is a South African who writes on small business. Click here to download the 2015/16 Gem report for SA. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a