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What it will take to get entrepreneurship moving

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What it will take to get entrepreneurship moving

14th September 2020

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In a recent weekly newsletter, President Cyril Ramaphosa called on young South Africans, especially those in the townships, ‘to take advantage of the opportunities on offer to guide them along the path towards entrepreneurship’.

Reflecting on the disaster that the last few months have been for South Africa, he identified a sliver of optimism in those young people who were trying to make an independent living. And well he should have, since entrepreneurship is the internal motor of a robust economy. To identify a need and to do something worthwhile and economically valuable to satisfy the needs of others is to benefit all involved. Under the right conditions, it is a major contributor to individual and society prosperity.

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But it’s a meagre sliver of optimism. The inspirational stories – and they are that – shared by the president are anecdotes, and probably not illustrative of the kind of entrepreneurial wave we need. The Global Entrepreneurship Monitor shows that around 10.8% of South African adults are involved in what it terms Total Early State Entrepreneurship – those setting up or running young businesses, often in the informal sector. This is respectable in global terms. However, the proportion of adults running ‘established’ businesses – those older than three and half years – sits at a concerning 3.5%.

Prospective South Africans entrepreneurs are not by and large taking business ventures to maturity and positioning them for growth. This is despite a strongly positive view of entrepreneurship and even of the opportunities available.

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Perhaps business ventures are seen as a means of survival while something better is sought? Perhaps the realities of running a business defeat many of those who try?

One answer is that entrepreneurship is hard and often thankless, and much of the headwinds arise from the environment in which South African entrepreneurs operate. In the GEM’s National Entrepreneurship Context Index, a measure of the overall state of this environment, South Africa scores 3.63 out of a possible 10, ranking 49th of the 54 countries studied. It falls below the global average on every measure used to compile the Index, and behind many other comparable countries.

Revealingly, its weakest score among the components of this index is ‘government policies: taxes and bureaucracy’, in which South Africa scores a paltry 2.71 out of 10 and ranks 46th in the world. In apparent reference to this, the GEMs report comments, ‘there is significant over-regulation of small businesses with unnecessary bureaucratic burdens; and various labour market rigidities remain’.

And this is despite a (supposed) commitment to entrepreneurship that goes back decades. ‘I am of the opinion that there are too many rules and regulations in our country serving as stumbling blocks in the way of entrepreneurs. These stumbling blocks must be removed. We are already seriously attending to this problem.’ This was then State President PW Botha in 1985.

And from President Ramaphosa in 2020: ‘It is our duty as government, business and society as a whole to lend our full support to them on their journey towards self-sufficiency and financial sustainability – both to protect the jobs we have and to replace those we have lost.’

That substantively the same point can be made across three decades and an ideological chasm indicates that neither of the presidents (nor those in between) was prepared to take the necessary steps to create that enterprise-breeding environment. President Ramaphosa might take pride in the various initiatives to fund and otherwise support entrepreneurs. He is also correct to point at such issues as economic concentration and spatial injustices. But this is doesn’t do the matter justice.

Aspiring entrepreneurs in South Africa have no shortage of challenges, and many of them are government-imposed.

Research on this is convincing. It includes complex and changing regulations overseen by unhelpful and indifferent civil servants. Labour legislation makes the decision to hire a potentially damaging liability. Inefficiencies at SARS have been a major problem, cutting firms out of opportunities for lack of the necessary compliance documentation.

Failures at Eskom, the Post Office, neglected infrastructure, the dire state of many of South Africa’s municipalities and so on all ramp up costs and inconvenience.

Empowerment policy is a prime disincentive, in light of the administrative compliance burdens and the prospect of having to give up equity to meet its demands. Many small businesses actively keep themselves small – that is, their turnovers below the R10 m threshold – to limit their exposure to BEE. And there is little evidence that small black entrepreneurs are drawing much substantive benefit from it.

The president and his predecessors are correct in recognising the value of entrepreneurship and small business. But this counts for little if the environment over which they have presided is a hostile one. It is rather as if successive governments have sought a thriving entrepreneurial community, but on an impossible set of policy conditions – and to the extent that choices are made, the priority is clearly to retain the latter.

This must be turned around.

If entrepreneurship is to be allowed (an accurate word, here) to flourish, it requires in the first instance that government choose to allow it to do so. The first step is to remove those restraints in policy and law that hold it back. This must be accompanied by government actually governing – to do the pedestrian work of public administration cleanly and effectively. It is only under these conditions that dedicated support programmes will be the effective multipliers that they are supposed to be.

Until then, entrepreneurs might have to content themselves with exhortations – and the rest of the country with squandered opportunities.

Terence Corrigan is a project manager at the Institute of Race Relations (IRR), a liberal think tank that promotes economic and political freedom. Go to https://irr.org.za/

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