New research indicates that the 2010 FIFA World Cup had a positive impact on South African entrepreneurship – but unless drastic action is taken at policy level these gains may be short-lived.
According to the South African Global Entrepreneurship (GEM) report, while there was a significant surge in the numbers of new businesses being started in South Africa in 2010, the number of established businesses, which have been around for more than three years, continues to sit significantly below the world average.
Start-ups or nascent entrepreneurship jumped from 3,6% (per 100 of the adult population aged between 18 and 64) in 2009 to 5,1% in 2010 and the rate of new businesses from 2,5 to 3,9% – a fact that the research says could be attributed to South Africa’s hosting of the 2010 FIFA World Cup. The 2010 GEM data was collected in May and June of that year. However, in terms of established business activity, South Africa ranked second last out of 59 countries in 2010 with an established business rate of just 2,1%.
Overall, South Africa’s total entrepreneurship rates are 8,9%, which is below the average (11,9%) of all participating countries and is two or three times lower than the entrepreneurial activity rate that would be expected, given its per capital income. South Africa ranks 27th overall out of the 59 participating countries.
Mike Herrington, lead researcher on GEM and director of the Centre for Innovation and Entrepreneurship at the UCT Graduate School of Business, says that, while the gains attributed to World Cup are positive, government needs to be looking at how to hold on to these.
“It is likely that the businesses started in 2010, which we hypothesise are likely to have been started in order to take advantage of the FIFA World Cup, will not be around in three years time,” says Herrington. “This is because not enough is being done to support and nurture entrepreneurs through the critical first three years of business. This means that large numbers of start-ups in this country fail to make it to maturity.
“This is something we have seen consistently over 10 years of GEM research in South Africa.”
Herrington explains that the problem is that jobs are mostly created by businesses that are older than three years. The GEM 2005 research showed that less than 4% of firms in the start-up phase take on any employees. This means that for every 100 nascent businesses, on average only 10 additional jobs will be created.
In more mature businesses the mean number of jobs created is 3,2 or at least 32 times greater than for nascent firms.
“South Africa’s low prevalence of established businesses thus paints a bleak picture of the SMME sector’s potential to contribute meaningfully to job creation, economic growth and more equal income distribution,” says Herrington.
“If the government is serious about job creation then they need to focus on taking steps to ensure that businesses survive beyond the first three years,” adds Herrington. “Too often support offered to small businesses begins and ends with the provision of a generic business plan where, in fact, policy intervention should be aimed at supporting and mentoring starts-ups through the difficult process of firm birth.”
Factors inhibiting entrepreneurship in South Africa range from negative attitudes towards starting and running a business to lack of education and training opportunities. Government policies and programmes and entrepreneurial capacity have been among the most frequently cited limiting factors identified by GEM since 2001. Research and development transfer has been ranked since 2006. However, the 2010 report shows that the dearth of primary and secondary level entrepreneurship education is currently ranked as the most limiting factor.
“These findings suggest that a lack of human capacity is one of the key obstacles to increasing entrepreneurial activity in South Africa,” says Jacqui Kew, a co-author of the GEM report. “In addition, without a more enabling environment that encourages individuals to see entrepreneurship as a viable career option and then supports them in the starting and growing of their own businesses, it is debatable whether SA will experience a significant increase in entrepreneurial activity.”