Entrepreneurship as a potential driver of South Africa economic growth
South Africa is missing out on a critical lever of growth that is entrepreneurship. Mahadea (2012) says: “It is entrepreneurial action that gives rise to growth and employment.” (p. 16). Further, the Hessels and van Stel (2011) research examined the relationship between a country’s incidence for new entrepreneurial venture formation activity and its economic growth rate, in light of the entrepreneurial ventures’ export orientation. This study revealed a positive relationship between entrepreneurial activity and the growth of an economy. The impact is felt mostly at export-oriented, early stage entrepreneurship for higher-income countries. Müller (2008) supports this view when suggesting that entrepreneurship provides the benefits of competitive advantage, increased innovation, positive economic wealth and applied creativity to the economy.
In the South African context, as a country which desires to transition the economy to developed-economy status, entrepreneurship can be the primary driver to a higher per capita gross domestic product (Luthans & Ibrayeva, 2006).
The State of Entrepreneurship in South Africa
The South African official unemployment rate is at 25,2% (up 1,1% quarter on quarter) and the expanded unemployment rate is 35,1% (up by 1,1% quarter on quarter) (Masiteng, 2014). The social security indicator for South Africa shows the percentage of individuals receiving grants has increased from 13% (2003) to 30% (2013). In the same period (2003 to 2013), the percentage of households which received grants increased from 30% to 45%. This data on South African households shows the limited number of people who are economically active who support an even larger base of largely unemployed and rural based population. The opportunity to use entrepreneurship to reduce unemployment and grow the economy is evident. A better understanding of how to develop entrepreneurs takes one on the right path.
The South African formal sector in the last 20 years has been unable to provide sufficient jobs for employment seekers despite positive economic growth rates, bar the short recession in the 2008/9 fiscal year. There is temporary employment in the formal sector which fluctuates based on annual seasonality (Mahadea, 2012). The full time employment sector has been shedding labour recently. To date, there have been minimal results from government’s many initiatives to stimulate job creation and reduce the unemployment rate. The South African rate of unemployment, especially among the youth, remains above 60% and is the most critically challenged. It is strongly suggested that entrepreneurship can reduce the level of unemployment and grow the economy of South Africa. However, this depends on the following: the type of entrepreneurial venture; the level of the entrepreneur’s capacity and the operating context of the South African economy (Mahadea, 2012). The type of entrepreneurial venture is about whether the activities of the venture are labour intensive or not. The level of the entrepreneur’s capacity is the ability to propel the venture into a high growth trajectory which increases employment. The operating context talks to the macro- economic conditions prevailing at the time which could limit the high growth trajectory.
The White Paper on the “National Strategy for the Development and Promotion of Small Business in South Africa” (Manuel, 1995) was developed to address economic growth and the goals of the national policy framework. The three pillars relating to small, medium and micro enterprises (SMME’s) were to facilitate a supportive environment for small enterprises to grow, then form and strengthen networks between small enterprises, and provide an equal environment between large and small businesses. To reduce unemployment, the paper provided for reducing inequality and increasing economic opportunities, creating of long-term employment and stimulating the growth of the South African economy (Manuel, 1995).
Mahadea (2012) contends that since 1995 the government has initiated numerous developmental agencies to change the deficit of job creation. Despite all that, Brundin et al. (2008) supports the view which says that the national frameworks have during the last 20 years failed to create an environment that contributes to entrepreneurship, high growth enterprises and development. On the contrary, the research shows that, in general, no meaningful change in the SMME sector had occurred in this timeframe (Kelley, Singer, & Herrington, 2012).
Kelley, Singer and Herrington (2012) in the Global Entrepreneurship Monitor report say South Africa has the lowest rate of total entrepreneurship activity (10.6%) of any comparator country measured (Brazil 17%, China 14% and Chile 24%). This means that entrepreneurial activity as measured across a number of dimensions is extremely low in South Africa. The dimensions talk to the entrepreneurship process (Kelly et al., 2012). There are a number of steps in the entrepreneurship process. The first is the opportunity recognition for venture formation. Individuals must also, simultaneously, hold the belief that they have the requisite capabilities to profitably start a business. In the South African context, even if they identify the opportunity (37.9%), and have the belief they possess the skill set necessary for entrepreneurship (42.7%), they might not start a business for fear of failure (27.3%) (Amorós & Bosma, 2013).
It is possible that opportunity and skills perceptions may reflect different businesses intentions (Kelly et al., 2012). One can see this where necessity (32%) motives versus opportunity (40%) motives and the resulting growth orientation is low. Growth orientation reduces from 4.5% of people intending to create 0-05 jobs, dropping precipitously to 1.4% intending to create 5 – 19 jobs and just 1% at more than 20 jobs. A key impediment is South Africans’ inherent fear of failure (31%). It tends to counteract the motivation to found an entrepreneurial venture, even when the expected benefits from entrepreneurship have a higher probability of success than the next best opportunity. The last stage in the Kelley, Singer, and Herrington (2012) venture development process is the stated intention to develop a new venture in the near term.
The South African evidence shows low intent to start a business, although there might be favourable opinions that venture opportunities (12%). They found a large difference between intent and actual venture starts (nascent 4%, new business 3% and established business 2%).