Global Entrepreneurship Monitor

Transcription

1 Global Entrepreneurship Monitor South Africa Mike Herrington, Jacqui Kew, Miranda Simrie and Natasha Turton

2 The UCT Centre for Innovation and Entrepreneurship Contents LIST OF FIGURES...2 LIST OF TABLES...3 EXECUTIVE SUMMARY...4 ACKNOWLEDGEMENTS...5 THE UCT CENTRE FOR INNOVATION AND ENTREPRENEURSHIP...6 ABOUT THE AUTHORS...7 CHAPTER 1: THE GEM MODEL The GEM research project The GEM conceptual model How GEM measures entrepreneurship GEM methodology BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Tsiba...13 CHAPTER 2: THE STATE OF ENTREPRENEURSHIP IN SOUTH AFRICA The state of South Africa s business environment The state of entrepreneurship in South Africa in Entrepreneurial activity Established business ownership Discontinuance South Africa s entrepreneurship profile Gender Age Brics Introduction TEA and established business ownership rates Gender Age Necessity- and opportunity-driven motives Education Attitudes and perceptions Perceived opportunity Perceived capabilities Fear of failure Entrepreneurial intentions Societal attitudes Conclusion BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Business Bridge...36 CHAPTER 3: THE SOUTH AFRICAN ENTREPRENEURSHIP ENVIRONMENT The entrepreneurial framework conditions An assessment of the entrepreneurship environment Constraints to entrepreneurial activity >

3 3.4 Factors that foster entrepreneurial activity Experts recommendations...47 BEST PRACTICE IN ENTREPRENEURSHIP DEVELOPMENT: Raymond Ackerman Academy of Entrepreneurial Development...50 CHAPTER 4: SPECIAL FOCUS 2011: ENTREPRENEURIAL EMPLOYEE ACTIVITY Introduction Entrepreneurial employee activity rates Education Employer support The national experts survey Conclusion CHAPTER 5: POLICY RECOMMENDATIONS AND CONCLUSIONS Concluding remarks...67 REFERENCES APPENDIX A: NATIONAL EXPERT SURVEY 2011 PARTICIPANTS...70 List of figures Figure 1.1: The entrepreneurship process... 9 Figure 1.2: The GEM model Figure 1.3: The 12 pillars of competitiveness and their relation to economic development stage Figure 2.1: TEA rates for participating countries in 2011, by phase of economic development Figure 2.2: TEA and GDP across GEM countries, Figure 2.3: South Africa s TEA rates over the period Figure 2.4: 2011 TEA rates in efficiency-driven economies Figure 2.5: Relative contributions to TEA of start-up and new firm activity in South Africa, Figure 2.6: Comparison of established business ownership and TEA rates across GEM countries in Figure 2.7: Comparison of female and male TEA rates across GEM countries, organized by female TEA rate Figure 2.8: Early-stage entrepreneurial activity rates by age groups, across the three economic development phases Figure 3.1: Model of entrepreneurial processes affecting national economic growth Figure 3.2: South Africa s entrepreneurship institution profile Figure 4.1: Entrepreneurship process and GEM operational definitions, including entrepreneurial employee activity Figure 4.2: Prevalence rates of current entrepreneurial employee activity (EEA) in the population Figure 4.3: Prevalence of EEA in a leading role, currently active, in the adult population of eight economies Figure 4.4: EEA and TEA rates by type of development: Innovation-driven (ID), efficiency-driven (ED) and factor-driven nations (FD) Figure 4.5: Percentage of employed population between years involved in entrepreneurial activities for main employer in the past eight years based on level of education attained Figure 4.6: Percentage of adult population between years based on level of education attained Figure 4.7: Experts perceptions in three efficiency-driven economies of the four categories influencing EEA Global Entrepreneurship Monitor 2011 South Africa

4 List of tables Table 2.1: Relative ranking Table 2.2: Prevalence rates (%) of entrepreneurial activity across GEM countries in Table 2.3: South African early-stage entrepreneurs motivations for engaging in entrepreneurship by gender, Table 2.4: Age breakdown of early-stage entrepreneurs in South Africa and efficiency-driven economies, Table 2.5: Involvement in TEA by age in South Africa, Table 2.6: Total early-stage entrepreneurial activity and established business ownership rates across the BRICS countries Table 2.7: Percentage of males and females involved in early-stage entrepreneurial activity across the BRICS countries Table 2.8: Percentage of population involved in early-stage entrepreneurial activity by age across the BRICS countries Table 2.9: Percentage of early-stage entrepreneurs (TEA) motivated by necessity and opportunity across the BRICS countries Table 2.10: Percentage of population involved in early-stage entrepreneurial activity by education across the BRICS countries Table 2.11: Entrepreneurial perceptions, intentions and societal attitudes across the BRICS countries (2006) Table 2.12: Entrepreneurial perceptions, intentions and societal attitudes across the BRICS countries (2011) Table 3.1: GEM s Entrepreneurial Framework Conditions Table 3.2: Summary of experts assessments of the entrepreneurial environment, 2010 and Table 3.3: Experts views of key factors constraining entrepreneurship in South Africa Table 3.4: Experts views of key factors that foster entrepreneurship in South Africa Table 3.5: Key recommendations from South African national experts, Table 4.1: Prevalence of EEA in a leading role in both the adult and employed populations Table 4.2: Rankings of four efficiency-driven and four innovation-driven economies for the two pillars of global competitiveness concerning education Table 4.3: Comparison of the levels of employer support between efficiency-driven economies Table 4.4: Questions asked of South Africa s national experts specifically linked to entrepreneurial behaviour by employees Table 4.5: Questions asked of South Africa s national experts specifically linked to the conditions that foster entrepreneurship Table 4.6: Comparison of experts perceptions in three efficiency-driven and three innovation-driven economies Table 5.1: Policy recommendations for improving South Africa s entrepreneurial environment >

5 The UCT Centre for Innovation and Entrepreneurship Executive Summary Academics, business leaders and government decision makers are largely in agreement that entrepreneurship plays a critical role in an economy s wellbeing and its ability to compete on a global scale. In South Africa, the topic of entrepreneurship is a particularly important one, given the state of the country s economic and social health. The GEM project is now widely recognized as the most comprehensive and authoritative study of entrepreneurship around the world. South Africa has been participating in this prestigious study since 2001, and has over the years gained much insight into the country s entrepreneurial context as compared to other similar economies. GEM s primary measure of total early-stage entrepreneurial activity (TEA) shows that South Africa s rate in 2011 (9.1%) has remained constant (8.9% in 2010). However, South Africa s TEA rate is, again, far below the average of comparable economies around the world. This therefore remains a matter of grave concern, and presents an opportunity for closer investigation and debate around the factors that impact on entrepreneurial activity in South Africa. South Africa s nascent entrepreneurship rate of 5.2% and new firm activity rate of 4.0% are constant with 2010 s nascent entrepreneurship rate of 5.1% and new firm activity rate of 3.9%. Of greater concern and as was the case in 2010, the prevalence rates for established business ownermanagers remain extremely low with South Africa showing a rate of 2.3% in 2011 versus 2.1% in The 2011 South African GEM report includes a comparison of entrepreneurial activity between the BRICS countries (Brazil, Russia, India, China and South Africa), for the years 2006 (before the global economic crisis) and It shows that Brazil s TEA rate increased by 28.0% between 2006 and Reasons for this include well-managed government programmes to stimulate and support the development and growth of small businesses, as well as numerous business reforms that have focused on making it easier to start businesses. Improvements in Brazil s societal attitudes towards entrepreneurship were seen. Its rate of entrepreneurial intentions increased significantly by 63.0% and its fear of failure rate decreased. These have all contributed to the increase in Brazil s TEA rate. Russia s TEA rate remained low between 2006 and 2011 (4.8% and 4.6% respectively). Russia has the lowest TEA rate of all the BRICS economies and one of the lowest of all the efficiency-driven economies. Its government programmes and investments to stimulate small business development have been judged largely ineffective. Other notable reasons for Russia s low TEA rate include a high fear of failure rate, plus low rates of entrepreneurial intentions, perceived capabilities and societal attitudes, some of which are also the lowest of the BRICS economies. An interesting finding is that the rate of female owners of established businesses in Russia outnumber the rate of male owners in China experienced the highest increase (48,0%) in TEA rate of the BRICS economies between 2006 and 2011, and has the highest TEA rate of all the BRICS economies. The rapid expansion of the Chinese economy has resulted in more opportunities for entrepreneurial activity, particularly in the big cities. China also experienced the highest growth in female involvement in early-stage entrepreneurial activity (62%). China s rate of established businesses is also the highest of the BRICS economies, with the business reforms introduced in China since 2007 being cited as some of the key contributing factors. With respect to South Africa, female involvement in earlystage entrepreneurship increased between 2006 and 2011, but by a much smaller percentage than the increase for male involvement. South Africa s rates of TEA in the years and years age brackets are the second lowest of the BRICS economies, which is a cause for concern when one considers the youth unemployment rate of 48.2%. In most other efficiency-driven economies, the years age bracket drives TEA. Given that South Africa has a very low established business rate (the lowest of the BRICS economies and one of the lowest across all GEM countries), indicates that relatively few jobs are available for youth and that small business development aimed at youth should be one of South Africa s most pressing priorities. 4 Global Entrepreneurship Monitor 2011 South Africa

6 Executive Summary South Africa experienced marginally increased rates in perceived opportunities and societal attitudes towards entrepreneurship. However, these positive indicators have still not impacted South Africa s rate of entrepreneurial intentions sufficiently. While South Africa s rate of entrepreneurial intentions increased between 2006 and 2011, it is still very low (second lowest of the BRICS economies). Given South Africa s very high unemployment rate, improving policies and schemes that increase the number of individuals that pursue entrepreneurship as a positive employment choice are vital. India did not participate in the GEM 2011 survey. It was found that India s rates in most categories in 2006 were average relative to the BRICS economies, but had the highest rates of perceived opportunities and perceived capabilities. All five of the BRICS countries will be participating in the GEM survey in In assessing the South African entrepreneurial environment, national experts participating in the 2011 study appear to agree with experts interviewed in 2010 on the positive and negative factors influencing entrepreneurship in the country. As was the case in 2010, most experts rate the country s physical infrastructure highest in terms of stimulating entrepreneurial activity. In 2011, government entrepreneurship programmes score lowest, with much criticism levelled at the fact that a proliferation of government agencies with significant funding has failed to address the needs of entrepreneurs. Within this context, this report features three examples of current best practice in the area of entrepreneurship education and development. The Business Bridge, Raymond Ackerman Academy of Entrepreneurial Development and the Tertiary School in Business Administration (TSiBA) all demonstrate a track record of success in teaching entrepreneurial skills and developing entrepreneurs. The special inserts on these institutions provide insight into their different models, the factors driving their success, and their recommendations for other initiatives that share their objective of entrepreneurship development. The 2011 South African GEM report includes a chapter focusing on special interest issues. Chapter 4 focuses on individual employees who play a leading role in the creation and development of new business activities for the organisation in which they work. These individuals are referred to as employees involved in entrepreneurial employee activity (EEA), in which the EEA rate is the percentage of the population who are currently involved in entrepreneurial activities within the organisation in which they work. The findings show that South Africa s EEA rate is the lowest of all the efficiency-driven economies. A poor education system, low levels of employer support and the domination of top-down decision-making in South Africa are some of the primary contributing factors to the country s low EEA rate. The report concludes with policy recommendations for consideration by government in its efforts to stimulate entrepreneurship and in so doing develop the economy. A key overarching theme in these recommendations is the need for active engagement with all relevant stakeholders to ensure that an enabling environment for entrepreneurship can be created so that the needs of current and future entrepreneurs will addressed. Acknowledgements The South African GEM team wishes to express its gratitude to the following contributors and partners without whom this project would not have been possible: Our sponsors the Swiss South African Co-operation Initiative (SSACI), South African Breweries (SAB), and the Small Enterprise Development Agency (SEDA). Thank you for your financial support, without which this research would not have been possible; The 38 national experts who willingly gave their time and shared their insights into the state of entrepreneurship in South Africa; Nielsen South Africa, who conducted the Adult Population Survey on our behalf; Rothko Marketing & Design for designing and printing the report; and Penny Kew for editing assistance. The success of the GEM project is dependent on the enormous efforts of the GEM global team at London Business School and Babson College. The South African team acknowledges the significant role they played in the project, and thanks them for their invaluable contribution. We wish to express our sincere gratitude to Alicia Coduras from the GEM Global team, for her patience as well as generosity of her time. Her assistance enabled us to focus more on the interpretation of our findings and contributed enormously to helping us to meet our targets. Most importantly, we acknowledge the South African entrepreneurs without whom this study would have no meaning, and wish them well in their endeavours >

7 The UCT Centre for Innovation and Entrepreneurship the uct Centre for Innovation and Entrepreneurship The Graduate School of Business at the University of Cape Town (UCT) established the UCT Centre for Innovation and Entrepreneurship (CIE) in 2001, with financial assistance from Liberty Life, the World Bank Group and the Gatsby Charitable Foundation. The ambition was bold to make the Graduate School of Business Africa s leading tertiary institution in entrepreneurship teaching and research, and to become internationally recognised as an authority in this field in developing economies. The Centre, built on initiatives started in the mid- 1990s, was organised around three distinct and mutually reinforcing sets of activities: teaching and materials development, research and public policy, and business creation and growth. The core focus of the Centre is on the delivery of quality entrepreneurship education at academic and all other levels of society. The Graduate School of Business s philosophy of entrepreneurship education is that, to be effective, it must be practical. Our students therefore have meaningful interactions with entrepreneurs, are involved in actual entrepreneurial projects, work in multi-disciplinary project teams, and are evaluated by entrepreneurs and investors as well as by academic staff. The entrepreneurship courses delivered by the CIE are closely integrated with new venture activity in the local business and investment communities. The intention is not to compete with incubators or other business promotion projects, but to seek partnership with the most successful of these for mutual benefit. The CIE s core activity of quality entrepreneurship education has significantly enhanced its ability to establish such partnerships. The CIE is involved both in high-value-added and high-potential new ventures, and in township and other community-based enterprises. Since its establishment, the CIE has assisted over 450 township enterprises by providing practical business advice and access to finance and training, with the objective of enabling them to become independent, sustainable businesses with greater potential for expansion. A variety of short courses have been designed to teach entrepreneurs basic financial and administrative skills, marketing, strategy and a number of other disciplines all with the objective of encouraging self-sufficiency and reducing the risk of business failure. During 2011 the CIE was involved in a number of activities including: research that aims to develop a better understanding of the capacities and needs of all the different categories of entrepreneurs in South Africa so that advisory services and finance can be more precisely targeted; advising academics, primarily those actively involved in research, on the commercialisation of their intellectual property; 6 Global Entrepreneurship Monitor 2011 South Africa

8 The UCT Centre for Innovation and Entrepreneurship assembling a group of high-profile entrepreneurs in the Western Cape in order to finance and assist high-growth business ventures; offering coaching and mentoring services to entrepreneurs; assisting large companies in nurturing innovative and entrepreneurial behaviour in their organisations; developing a micro-franchising network targeted at small business entrepreneurs from disadvantaged and/or rural communities; and providing a five-month full-time programme for young (18 26 year old) school leavers from poor, disadvantaged communities through the Raymond Ackerman Academy of Entrepreneurial Development. The programme, which operates in Cape Town and at the Soweto campus of the University of Johannesburg, assists selected delegates who graduate to obtain meaningful employment, to pursue further tertiary education, or to start their own businesses. The CIE is proud to be a longstanding participant in the international GEM project. We believe that the research spearheaded by GEM is essential for the development of global entrepreneurial activity and we are committed to that purpose in South Africa. About the authors: Miranda Simrie Miranda Simrie has an MBA from the UCT Graduate School of Business. She has been involved in the areas of SMME support and enterprise development for a number of years, having worked in these fields in both the public and private sector. Dr Mike Herrington Mike Herrington is the Director of the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business. He is a recognised entrepreneur, having started four businesses one in New Zealand and three in South Africa. He was responsible for starting the CIE and is keenly interested in entrepreneurship and all levels of business creation. His major interests are in the areas of entrepreneurship, business planning, venture capital and the internationalisation of business. Mike has been leader of the GEM South Africa team since In 2010, he was appointed one of four country representatives on GEM s eight-member international board, and subsequently appointed (in July 2011) as the Executive Director of GEM worldwide. Jacqui Kew Jacqui Kew is a senior lecturer in the College of Accounting at the University of Cape Town. She has been involved at the UCT Centre for Innovation and Entrepreneurship at the Graduate School of Business on a consultancy-basis since She has contributed to various GEM reports and has been part of the GEM South Africa team for a number of years. She is active in various small business development programmes and is also involved in executive education short courses at the Graduate School of Business where she specialises in finance for non-financial managers in both corporate and small businesses. Natasha Turton Natasha Turton works as a freelance consultant and researcher. Most of her projects involve entrepreneurship and small business development. She completed an MBA at the University of Cape Town s Graduate School of Business in Her thesis examined challenges and successes surrounding MSME development in Zambia. Prior to completing her MBA, Natasha spent five years in Mozambique in strategy, marketing and supply chain management in the private sector >

9 chapter 1 The Global Entrepreneurship Monitor (GEM) research programme was initiated in 1997 as a joint venture between academics at London Business School and Babson College in the United States. THE GEM model 1.1 The GEM research project Its purpose was to explore and assess the role of entrepreneurship in national economic growth. GEM defines entrepreneurship as any attempt at new business or new venture creation, such as self-employment, a new business organisation, or the expansion of an existing business, by an individual, a team of individuals, or an established business (Bosma, Wennekers & Amorós, 2012, p.9). Though GEM s definition of entrepreneurship as new business activity is rather narrow, it must be noted that it takes a broad view of what it deems (new) business activity to be i.e. rather than focus on official records of new business registrations as an indicator of entrepreneurial activity, GEM adopts a behavioural approach (for example, by considering individuals contributions to entrepreneurial ventures irrespective of whether they own the enterprise). Traditional analyses of economic development and growth tend to focus primarily on the contribution of large corporations, on the assumption that these firms are the main drivers of economic growth in modern economies. GEM, on the other hand, recognises and takes into account the role played by new and small businesses in the economy. In its attempt to facilitate understanding of the relationship between entrepreneurial activity and economic growth, GEM has the following objectives: to allow for comparison of levels of entrepreneurial activity among countries; to determine the extent to which entrepreneurial activity influences economic growth within individual countries; to identify factors which encourage and/or hinder entrepreneurial activity; and to guide the formulation of effective and targeted policies aimed at stimulating entrepreneurship. The first GEM study, comprising only ten developed economies, was conducted and reported on in Over the course of the subsequent 12 years, GEM has grown to include over 80 economies, and is now widely regarded as one of the most authoritative longitudinal studies of entrepreneurship in the world. In 2011, more than people in 54 countries representing all the regions of the world, as well as varying levels of economic development, participated in the study. Based on this survey, it was estimated that 388 million entrepreneurs were actively pursuing starting a new enterprise or involved in running a new business in According to Kelley, Singer and Herrington (2012, p. 4), this finding included an estimated: 163 million women early-stage entrepreneurs; 165 million young early-stage entrepreneurs between the ages of 18 and 35 years; 8 Global Entrepreneurship Monitor 2011 South Africa

10 The GEM Model 141 million early-stage entrepreneurs who anticipated creating at least five new jobs over the next five years; 65 million early-stage entrepreneurs who anticipated creating 20 or more new jobs over the next five years; 69 million early-stage entrepreneurs who supply innovative products and services that are new to customers and have few competitors; and 18 million early-stage entrepreneurs who sell at least 25% of their products and services internationally. In addition to the data it usually gathers, the 2011 GEM project focused on entrepreneurial employee activity (or intrapreneurship) as a special topic. 52 countries (out of the total of 54) participated in this special topic survey, and from the data obtained GEM estimates that 46 million employees were actively engaged in entrepreneurial activities within their existing organisations (Kelley, et al 2012). South Africa participated in this aspect of the 2011 GEM study, obtaining an Entrepreneurial Employee Activity (EEA) rate of 0.3% which is significantly lower than the average of 1.8% for efficiencydriven economies. The findings suggest, therefore, that the formal South African employment environment exhibits very low levels of entrepreneurship. GEM provides a comprehensive view of entrepreneurship across the globe by measuring the attitudes of a population, and seeking to understand the activities and characteristics of individuals involved in various phases and different types of entrepreneurial activity. To this end, each country s GEM team conducts an annual survey of at least 2,000 adults, complemented by in-depth inputs from selected national experts on the factors that impact on the nature and level of entrepreneurship in each country. South Africa joined the GEM project in 2001, and has participated in all subsequent studies. This year therefore sees the eleventh anniversary of South Africa s participation in GEM. 1.2 The GEM conceptual model Entrepreneurial activity is considered to be an important catalyst for economic growth and development through job creation, innovation and its welfare effect. This realisation has led to a growing policy interest in entrepreneurship at an international level. The GEM project recognises that entrepreneurship is a process that comprises different phases, from intending to start, to just starting, to running new or established enterprises and even discontinuing these. Because the contexts and conditions that affect entrepreneurship in different countries are diverse and complex, it is not possible to conclude that one phase inevitably leads to the next. For example, a country may have a large number of potential entrepreneurs but this may not necessarily translate into a high rate of entrepreneurial activity. Therefore, the arrows that connect the different phases are not straight lines, suggesting the tentative nature of the relationship between the different phases. The entrepreneurship process and GEM s operational definitions are illustrated in Figure 1.1. The phases of entrepreneurship The GEM approach to understanding the entrepreneurship process as one that consists of different phases is useful for assessing the state of entrepreneurship in each phase. The entrepreneurship process starts with potential entrepreneurs those individuals who believe that they possess the capabilities to start businesses and who would not be dissuaded from pursuing the idea of starting a business by fear of failing. For some potential entrepreneurs, their intention to start a business is underpinned by the perceptions society holds of entrepreneurs, the status these individuals enjoy in their society, and whether the media positively represents entrepreneurs. Entrepreneurship Phases Total early-stage Entrepreneurial Activity (TEA) Discontinuance Potential Entrepreneurs: Beliefs and Attitudes Intentions Nascent New Established Source: GEM Global Report, 2011 Figure 1.1: The entrepreneurship process >

11 chapter 1 For those individuals whose intent to start a business is strong enough, the next phase is nascent entrepreneurial activity i.e. the first three months of running a new enterprise. Given the challenges associated with starting a new business, many fledgling businesses fail in the first few months, hence not all nascent entrepreneurs progress to the next stage. New business owners are defined as those former nascent entrepreneurs who have been in business for more than three months, but less than three and a half years. Nascent and new business owners together account for the total early-stage entrepreneurial activity (TEA) measured by GEM. Established businesses are those older than three and a half years. It is important to consider both established business owners as well as entrepreneurs who have discontinued businesses or exited businesses as these two categories represent a key resource for other entrepreneurs (for example, through providing financing, mentorship, advice or other types of support). The GEM model, shown in Figure 1.2 below, illustrates the institutional environment and the effect it has on entrepreneurship. Two sets of conditions, namely basic requirements and efficiency enhancers, impact on societies as well as entrepreneurial activity within societies. Furthermore, Figure 1.2 also indicates nine entrepreneurship framework conditions deemed to influence individuals decisions to pursue entrepreneurial initiatives and thus influence the rate and profile of entrepreneurship in different economies. The GEM model suggests that, at a national level, the framework conditions that apply to established business activity differ from those that apply to entrepreneurial activity. The performance of larger established firms is influenced by general business conditions, which influence firms ability to compete effectively, to start new or ancillary businesses and to create jobs (Von Broembsen, Wood & Herrington, 2005). Both the national and the entrepreneurial framework conditions are dependent on the social, political and economic context in which they exist. These contexts are influential in creating unique business and entrepreneurial environments, and should therefore be taken into account when analysing cross-national differences and national developments over time. GEM classifies the economies that participate in the study as factor-driven, efficiency-driven, or innovation-driven. These categories are based on the World Economic Forum s (WEF) Global Competitiveness Report, which identifies three phases of economic development based on GDP per capita and the share of exports comprising primary goods. The Global Competitiveness Index is determined by measuring different components, each focusing on a different aspect of competitiveness. These components are clustered into 12 pillars of competitiveness, namely: institutions infrastructure macroeconomic environment health and primary education higher education and training goods market efficiency labour market efficiency financial market development technological readiness market size business sophistication innovation. According to the WEF classification, the factor-driven phase is dominated by subsistence agriculture and extraction businesses, with a heavy reliance on (unskilled) labour and natural resources. Companies compete on the basis of price and trade in basic products or commodities, with low productivity evident in low wages. In this stage of development, competitiveness is primarily related to well-functioning public and private institutions (pillar 1), established infrastructure (pillar 2), a stable macroeconomic environment (pillar 3) and a healthy workforce that has at least benefited from basic education (pillar 4). In the efficiency-driven phase, a country has become more competitive with further development accompanied by industrialisation and an increased reliance on economies of scale, with capital-intensive large organisations more dominant. Because of higher wages which are not necessarily coupled with an increase in prices, more efficient production processes and improved product quality are required. At this point, competitiveness is increasingly fuelled by education and training (pillar 5), efficient goods markets (pillar 6), effective labour markets (pillar 7), developed financial markets (pillar 8), the ability to exploit the advantages of existing technologies (pillar 9), and a large domestic or foreign market (pillar 10). As development advances into the innovation-driven phase, businesses are more knowledge-intensive, and the service sector expands. Wages have increased so that they are able to sustain the associated increase in the standard of living. At this stage, companies must compete by introducing and producing new and unique goods using the most advanced production processes (pillar 11) and by innovating new processes and products (pillar 12). Figure 1.3 provides a graphical representation of the 12 pillars and their relation to the three stages of economic development. The basic requirements sub-index clusters those pillars that are most critical for countries in the factor-driven stage. The 10 Global Entrepreneurship Monitor 2011 South Africa

12 The GEM Model From other available sources Social, cultural, political context From GEM National Expert Surveys Basic requirements Institutions Infrastructure Macroeconomic stability Health and primary education Efficiency enhancers Higher education and training Goods market efficiency Labour market efficiency Financial market sophistication Technological readiness Market size Innovation and entrepreneurship Entrepreneurial finance Government policies Government entrepreneurship programs Entrepreneurship education R&D transfer Commercial, legal infrastructure for entrepreneurship Internal market openness Physical infrastructure for entrepreneurship Cultural and social norms Established firms Entrepreneurship Profile (Employee Entrepreneurship Activity) Attitudes: Perceived opportunities and capabilities; fear of failure; Status of entrepreneurship Activity: Opportunity/Necessity driven, Early stage; Inclusiveness; Industry; Exits Aspirations: Growth, Innovation International orientation Social value creation From GEM 2011 Adult Population Surveys (APS) From GEM Adult Population Surveys (APS) Social Economic Development (Jobs, Innovation, Social value) Source: GEM Global Report, 2011 Figure 1.2: The GEM model Basic requirements Institutions Intrastructure Macroeconomic environment Health and primary education Key for factor-driven economies Efficiency enhancers Higher education and training Goods market efficiency Labor market efficiency Financial market development Technological readiness Market size Key for efficiency-driven economies Innovation and sophistication factors Business sophistication Innovation Key for innovation-driven economies Source: Global Competitiveness Report Figure 1.3: The 12 pillars of competitiveness and their relation to economic development stage >

13 chapter GEM methodology One of the key objectives of GEM is to provide reliable data on entrepreneurship that will be useful in making meaningful comparisons both internally and between different countries over time. For this reason, all participating countries make use of standard research instruments. The GEM data is gathered annually and is derived from two main sources, namely: Adult Population Survey (APS) efficiency enhancers sub-index groups those pillars that are essential for countries in the efficiency-driven stage, while the innovation and sophistication factors sub-index includes the pillars that are crucial for countries in the innovation-driven stage. 1.3 How GEM measures entrepreneurship GEM takes a comprehensive snapshot of entrepreneurs around the world, measuring the attitudes of a population and the activities and attributes of individuals participating in various phases of entrepreneurship. The study also considers the aspirations of these entrepreneurs regarding their businesses, along with other key features of their ventures. This orientation to the examination of entrepreneurship sets GEM apart from other research which is heavily focused on the number of official new firm registrations as an indicator of entrepreneurial activity. GEM considers both those formally registering their businesses and those running informal ones. These unregistered businesses can, in fact, comprise as much as 80% of economic activity in developing countries (GEM 2010 Global Report). Furthermore, GEM views entrepreneurship as a process, and takes into account the role played by individuals in new business creation in measuring national entrepreneurship levels. The primary measure of entrepreneurship used by GEM is the Total Early-stage Entrepreneurial Activity (TEA) Index, which gauges the level of dynamic entrepreneurial activity in a country by considering the incidence of start-up businesses (nascent entrepreneurs) and new firms (up to 3.5 years old) among the adult population (i.e. individuals aged years). Another important distinguishing feature of GEM is the distinction it makes between different types of entrepreneurship and how these contribute to economic growth and job creation. Individuals who start businesses in response to a lack of other options for earning an income are deemed to be necessity entrepreneurs, while those who start businesses with the intention to exploit an opportunity are identified as opportunity entrepreneurs. The latter may include individuals who aim to maintain or improve their income, or to enhance their independence. Each participating country conducts a survey of a random representative sample of at least adults (aged years). The surveys are conducted at the same time of year (generally between April and June) using a standardised questionnaire provided by the GEM consortium. The APS is generally conducted by an independent research vendor, chosen by each country s GEM team based on the evaluation of the vendor s research proposal. The raw data is sent directly to the GEM data team for checking and uniform statistical calculations before being made available to the participating countries. National Experts Survey (NES) The NES provides insights into the entrepreneurial startup environment in each country with regards to nine entrepreneurial framework conditions, namely: financing governmental policies governmental programmes education and training research and development transfer commercial infrastructure internal market openness physical infrastructure cultural and social norms. The NES sample is comprised of a minimum of 36 respondents, with four experts drawn from each of the entrepreneurial framework condition categories. Out of this sample, a minimum of 25% must be entrepreneurs or business owners, and 50% must be professionals. Additional aspects such as geographical distribution, gender, the public versus private sector, and level of experience are also taken into account in selecting the sample. In addition to the APS and NES, the GEM Report also makes use of standardised national data from international data sources such as the World Bank, the International Monetary Fund and the United Nations. This information is used to add context to the report, and to explain the relationship between entrepreneurial activity and national economic growth. 12 Global Entrepreneurship Monitor 2011 South Africa

14 CASE STUDY #1 BEST PRACTICE ENTREPRENEURSHOP DEVELOPMENT: TSiBA Please tell us about your organisation/ programme s objectives and the reasons it was established. TSiBA s aim is to provide high quality business education for people with a social conscience who have the desire and the skills to build our nation. Access to tertiary education is hampered by many factors including the quality of secondary education and financial hurdles. For this reason we offer full tuition scholarships to study our Higher Certificate in Business Administration that acts as a bridge into our degree programme. This foundation curriculum is structured so that additional learner support is fully integrated. Further scholarships are awarded to pursue our accredited Bachelor of Business Administration degree in Entrepreneurial Leadership. TSiBA s unique focus on Attitude, Skills and Knowledge effectively enables talented and ambitious South Africans to jump the gap between rich and poor. Indeed, we do more than offer a bridge to becoming economically active: TSiBA develops leaders, entrepreneurs and change agents who utilise the business knowledge and skills that they gain for the purpose of the fundamental transformation of our society i.e. not only jumping the divides, but closing them too. At TSiBA, we call this Paying it Forward. What, in your opinion, are the factors that have contributed to the success of the programme thus far? Our specific focus on grassroots entrepreneurs/bottom-of-the-pyramid folk has forced us to really get to know our target market and understand their challenges and, therefore, amend our approach to meet their needs. Mentorship is the glue that holds the model together without that nothing works. The road map, contract etc tidies up the relationships between the entrepreneurs/beneficiaries and TSiBA: This leads to greater commitment and an understanding that what we provide is not simply up for grabs but needs to be earned. Entrepreneurial successes mostly happen not because of out inputs but because of the dedication and determination of the entrepreneurs and their willingness to apply what they learn. What do you perceive to be the key ingredients of a successful entrepreneurship development programme? Encouraging innovative thinking, an intrapreneurial attitude, uncovering individuals leadership and self-development potential in a supportive environment which is augmented by our mentorship programme. Exposing students to real business challenges in our courses and fostering an understanding of social entrepreneurship. Grounding the course in generic business knowledge. Strengthening the basics in our Certificate year: numeracy, communication and IT. The Tertiary School in Business Administration (TSiBA) provides an innovative and comprehensive solution to addressing inequality in a sustainable manner. TSiBA (which means to leap in Xhosa) is a unique private not-for-profit higher education institution that offers emerging leaders an opportunity to study an enriched degree that is focused on developing entrepreneurship and leadership. TSiBA was founded in 2004 with a vision to Ignite Opportunity. TSiBA opened their doors to their first 80 students in 2005 and currently serve 330 full-time students at their urban campus in Pinelands, Cape Town and their rural campus, TSIBA Eden, in the town of Karatara, near Knysna. We asked Leigh Meinert, Director of TSiBA, to tell us more about this unique initiative. What highlights/successes stand out for you over the course of your involvement with the programme? Although we are still graduating small numbers, our throughput rate is excellent (24% compared to national average of 11%) and TSiBA graduates are doing incredibly well in both the work environment and post-graduate studies. 83% of our graduates are employed full time and 15% are enrolled in post graduate studies. We have produced four Mandela Rhodes Scholars (that s 8.5% of all our graduates). Feedback from employers attests to the problem-solving ability of our graduates, their confidence and adaptability. What are your recommendations for other initiatives aiming to achieve the same/ similar objectives? Understand the market and focus on developing support models that work for a particular segment. A single intervention is of little sustained assistance: long-term, help over time works but that requires sustained operational and financial investment. It s about people not business. Work with partners and donors who understand this >

15 chapter 2 The South African economy has historically been dominated by large corporations and the public sector. THE STATE OF ENTREPRENEURSHIP in South Before the advent of democracy in 1994, the economic landscape was characterised by a conspicuous absence of small enterprises in the dominant sectors of the economy a situation which was exacerbated by prohibitive laws which prevented small businesses, particularly non-white businesses, from developing. Following the country s first democratic elections, the formal sector underwent major restructuring, prompting massive job losses and a resultant increase in informal economic activity. While this led to growth in the informal sector and an increase in the number of small businesses, this change was brought about by necessity rather than opportunity. Over the last decade, the country s economic, social and political challenges have increased clearly evidenced in the growing unemployment, service delivery protests and mounting concerns about corruption, crime and governance. Despite the many strides South Africa has made over the last 10 years, the country s poverty levels remain unacceptably high particularly when compared with other emerging economies. 2.1 the state of South Africa s business environment The Doing Business 2012 Report ranks different countries according to the ease of doing business in each country, as defined by its performance in ten aspects: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. In 2012, South Africa is ranked 35 th out of 183 countries, a noteworthy achievement within the context of the SADC regional average rank of 114 out of 183. Significantly, South Africa is credited with the best regional performance in the following areas: the cost of starting a business, dealing with construction permits, getting credit, and protecting investors. The report also notes the following salient findings with regards to starting a business in South Africa: It takes approximately six procedures and 19 days to start a business. The process of starting a business has been made easier with the implementation of the new company law, which removed the requirement to reserve a company name and simplified the incorporation documents. The Global Competitiveness Report (GCR), an annual publication of the World Economic Forum, provides 14 Global Entrepreneurship Monitor 2011 South Africa

16 The state of entrepreneurship in South Africa comprehensive assessments of the productive potential of countries across the world. The Global Competitiveness Index (GCI) is a comprehensive tool that measures the microeconomic and macroeconomic foundations of national competitiveness. The GCI defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country (GCR, ). The level of productivity, in turn, determines the level of wealth that can be created by an economy. The GCR has seen South Africa moving up by four places to 50th position (out of 142 countries), remaining the highest-ranked country in sub-saharan Africa and the second-placed among the BRICS economies (with China at 26th position). The country benefits from the large size of its economy, particularly by regional standards (it is ranked 25th in the market size pillar). South Africa also performs well in measures of the quality of institutions and factor allocation, such as intellectual property protection (30th), property rights (30th), the accountability of its private institutions (3rd), and its goods market efficiency (32nd). Notably, the country ranked 4th for financial market development, indicating high confidence in South Africa s financial markets at a time when trust is returning slowly in many other economies. South Africa also performed reasonably well in more complex areas such as business sophistication (38th) and innovation (41st), benefiting from solid scientific research institutions (30th) and strong collaboration between universities and the business sector in innovation (26th). This combination of positive attributes makes South Africa the most competitive economy in the SADC region. However, in order to further improve its competitiveness the country will need to address some key concerns. Prominent amongst these is South Africa s labour market efficiency (95th), which is characterised by rigid hiring and firing practices (139th), inflexibility in wage determination by companies (138th), and significant tensions in relations between employers and the workforce (138th). While progress has been made in increasing basic literacy rates, the quality of South Africa s education system (ranked 131st for primary education and 73rd for higher education) remains a major concern, with concerted efforts needed to improve the quality of mathematics and science education (138th). A recently conducted diagnostic on the state of the country found that, after four years of training, the average score of teachers taking tests in mathematics (of the same level that they themselves teach) was a shockingly poor at 33% (National Planning Commission, 2011). In addition to the need to address teacher performance and school leadership (as indicated in the NPC diagnostic), efforts must also be made to increase the university enrollment rate of only 15%, which places the country 97th overall, in order to enhance its innovation potential. In addition, South Africa s infrastructure, although good by regional standards, requires upgrading (62nd). The poor security situation remains another important obstacle to doing business in South Africa. The business costs of crime and violence (136th) and the sense that the police are unable to provide protection from crime (95th) do not contribute to an environment that fosters competitiveness. Another major concern remains the health of the workforce, which is ranked 129th out of 142 economies the result of high rates of communicable diseases and poor health indicators generally >

17 chapter 2 Percentage of adult population between years 30% 25% 20% 15% 10% 5% 0% Pakistan Algeria Bangladesh Jamaica Iran Venezuela Guatemala Russia Malaysia Hungary Croatia Bosnia and Herzegovina Poland South Africa Mexico Romania Lithuania Latvia Turkey Barbados Slovakia Brazil Uruguay Thailand Argentina Panama Colombia Trinidad & Tobago Peru Chile China Slovenia Denmark Japan Germany Belgium France Sweden Spain United Arab Emirates Finland Switzerland Singapore Norway Ireland United Kingdom Portugal Czech Republic Korea Taiwan Greece Netherlands Australia United States Factor-driven economies Efficiency-driven economies Innovative-driven economies Source: GEM Global Report 2011 Figure 2.1: TEA rates for participating countries in 2011, by phase of economic development 2.2. the state of entrepreneurship in South Africa in Entrepreneurial activity Since its inception, GEM has used the Total Early-stage Entrepreneurial Activity (TEA) index as the principal measure of entrepreneurial activity in participating countries. The TEA index provides a benchmark for comparisons across different countries, as well as longitudinal in-country comparisons. It measures the participation of individuals in early-stage entrepreneurial activity and conveys the percentage of the adult population between the ages of 18 and 64 years that is in the process of starting a business or has recently done so. In 2011 the GEM project investigated the extent of entrepreneurial activity in 54 participating economies. As can be seen from Figure 2.1, South Africa remains one of the more poorly-performing countries with regards to entrepreneurial activity despite the fact that the country exhibits the factors which are conducive to entrepreneurial ventures, including government policies and programmes aimed at stimulating entrepreneurship. Figure 2.2 plots the TEA rates of the 54 countries against their GDP per capita levels. South Africa clearly falls way below the line of best fit reinforcing the fact that the country s TEA rate is lower than expected given its GDP per capita. Previous GEM research has shown that TEA rates (in general) tend to decline with increasing levels of GDP per capita. The decline can be ascribed to increasing availability of job opportunities as economies grow. According to Bosma et al (2012), the relationship between TEA and GDP per capita is less evident for economies in the innovation- driven stage. With the hosting of the FIFA Soccer World Cup in 2010, the South African economy received a boost both in terms of the financial returns it gained, as well as the increase in entrepreneurial energy that surged as many new small businesses emerged and entrepreneurial aspirations flourished in anticipation of the opportunities that this major international event signaled. According to Herrington et al (2010), startups or nascent entrepreneurship increased from 3.6% (per 100 of the adult population aged between 18 and 64 years) in 2009 to 5.1% in 2010, while the rate 16 Global Entrepreneurship Monitor 2011 South Africa

18 The state of entrepreneurship in South Africa Percentage of population involved in early-stage entrepreneurial activity BD PK GT BA DZ CN PE TH JM RO CO ZA IR LV BR MY MX VE TR PA CL AR HU HR PL RU UY LT TT PT Algeria DZ Argentina AR Australia AU Bangladesh BO Barbados bb Belgium BE Bosnia & Herz BA Brazil BR Chile CL China CN chroatia hr czech republic CZ Denmark DK BB SK CZ GR ES SI KR Finland FI France FR germany de Greece GR Guatemala GT Hungary HU Iran IR Ireland IE Jamaica JM Japan JP Korea KR Latvia LV Lithuania LT FI AU UK FR IE TW DE BE JP DK NL Malaysia MY Mexico MX Netherlands NL Nigeria NG Norway NO Pakistan PK Panama PA Peru PE poland pl Portugal PT Romana RO Russia RU Singapore SG SE SW AE US Slovakia SK Slovenia SI South Africa ZA Spain ES Sweden SE SW Switzerland Taiwan TW Thailand TH Trinidad and Tobago TT Turkey TR United Arab Emir AE United Kingdom UK United States US Uruguay UY venezuala ve NO SG R 2 = GDP per capita in purchasing power parities ($), in thousands Source: GEM Global Report 2011 Figure 2.2: TEA and GDP across GEM countries, 2011 of new businesses increased from 2.5% to 3.9% a fact that the authors say could be credited to South Africa s hosting of the 2010 FIFA World Cup. The TEA rate therefore increased from 5.9% in 2009 (during the global recession) to 8.9% in 2010 (just before the World Cup started) as can be seen in Figure 2.3. According to the 2010 Finscope Small Business Survey, there were 5,979,510 small businesses in South Africa during 2010, a marked increase from the last recorded figure of approximately 2.2 million in 2006 ( South Africa s TEA rate increased by 62% to 8.9% from 2009 to 2010, and remained fairly constant in 2011 (Figure 2.3). South Africa s absolute rate of 9.1% in 2011 is not a significant increase over 2010 if one takes into account the spread in standard deviation. Early-stage entrepreneurial activity Percentage of year old population TEA 10% 9% 8% 7% 6% 5% 4% 3% Changes in SA TEA rates 2% 1% 0% Figure 2.3: South Africa s TEA rates over the period >

19 chapter 2 TEA rates in 2011 Early-stage entrepreneurial activity Percentage of year old population 30,00% 25,00% 20,00% 15,00% 10,00% 5,00% 0,00% Russia Malaysia Hungary Croatia Bosnia and Herzegovinia Poland South Africa Mexico Romania Lithuania Latvia Turkey Barbados Slovakia Brazil Uruguay Thailand Efficiency-driven economies Argentina Panama Colombia Trinidad & Tobago Peru Chile China Figure 2.4: 2011 TEA rates in efficiency-driven economies As Figure 2.4 shows, South Africa s TEA rate is below average when compared to other participating efficiencydriven economies. Table 2.1 below shows that South Africa s overall ranking in the last decade of participating in GEM has shown negligible improvement. This is a significant finding, especially within the context of the country s stature on the continent, as well as the progress it has made over the last decade with regard to economic policy and programmes aimed at stimulating economic growth. When viewed within the context of the rates of entrepreneurial activity in comparable economies around the world, South Africa s performance with regard to TEA appears even more dismal. As illustrated in Table 2.2, the Table 2.1: Relative ranking Year SA s TEA rate SA s TEA ranking Median % % % % % % % % % Number of positions above/below median 20th out of 37 countries 19 1 below 22nd out of 31 countries 16 6 below 20th out of 34 countries 17 3 below 25th out of 34 countries 17 8 below 30th out of 42 countries 21 9 below 23rd out of 43 countries 22 1 below 35th out of 54 countries 27 8 below 27th out of 59 countries 30 3 above 29th out of 54 countries 27 2 below 18 Global Entrepreneurship Monitor 2011 South Africa

20 The state of entrepreneurship in South Africa Table 2.2: Prevalence rates (%) of entrepreneurial activity across GEM countries in 2011 Nascent entrepreneurship rate New business ownership rate Early-stage entrepreneurial activity (TEA) Established business ownership rate Discontinuation of businesses Necessity-driven (% of TEA) Improvementdriven opportunity (% of TEA) Factor-driven economies Algeria Bangladesh Guatemala Iran Jamaica Pakistan Venezuela average (unweighted) Efficiency-driven economies Argentina Barbados Bosnia and Herzegovina Brazil Chile China Colombia Croatia Hungary Latvia Lithuania Malaysia Mexico Panama Peru Poland Romania Russia Slovakia South Africa Thailand Trinidad & Tobago Turkey Uruguay average (unweighted) Innovation-driven economies Australia Belgium Source: GEM Global Report >