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Starting a business in SA is just not an option

South Africa needs a wakeup call – UCT prof, following GEM 2012 report.

JOHANNESBURG – The entrepreneurial climate in South Africa is dire, with fewer locals taking the risk of starting a business, or even thinking about doing so. Early stage entrepreneurial activity took a 20% knock in one year, dropping to 7.3% in 2012.

The Global Entrepreneurship Monitor (GEM) 2012 annual survey highlights that entrepreneurship levels in the country are the lowest they have been in three years.

Released on Monday, the report said the after effects of the World Cup have all but blown over as entrepreneurial activity is at its lowest levels since the build-up to the 2010 spectacle. In 2010 South Africa recorded total early stage entrepreneurial activity (TEA) of 8.9% which rose to 9.1% the following year.

Looking at the prevalence of business start-ups within the population and using TEA as an indicator of early-stage entrepreneurial activity, the GEM paints a bleak picture for South Africa.

Less that 14% of South Africans plan to start a business in the following three years. This is 13% below the global average of efficiency-driven economies category that South Africa falls into. Other countries that fall into the category include Malaysia, Argentina, Mexico and South Africa’s BRICS partners Russia and Brazil.

Dr Mike Herrington from the Centre for Innovation and Entrepreneurship at the University of Cape Town’s Graduate School of Business, states that a number of issues are linked to the low levels of entrepreneurial activity. The centre conducts the local GEM study. Poor educational levels, onerous labour laws, crime, corruption and a weak health system all create an unfavourable entrepreneurial environment.

Young people in South Africa are also falling behind. Compared with ten other sub-Saharan countries, including Ghana, Nigeria and Angola, only 39% of South African youth feel that there are entrepreneurial opportunities. This is opposed to 70% of the other African countries. Young people also scored low on their perceived capabilities to start a business. The pool of South African youth entrepreneurs is also 40% lower that the Sub-Saharan average of 60%.

Herrington adds that South Africa needs a wakeup call. He says that there are long- and short-term initiatives that can be put in place to address the current situation. Short-term solutions include decreasing the bureaucratic hurdles for stating a business and labour reforms. Other suggestions include encouraging sector competition and growing business support.

An improved health care system, reducing rampant corruption and crime all form part of the long-term solution. However, Herrington says that overhauling the education system will be fundamental to improving the entrepreneurial climate locally.

Recently the World economic Forum’s Global Information Technology Report 2013 ranked South Africa second last in the world with regards to its maths and science standards. This affects entrepreneurship negatively says Herrington.



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