Report: SA’s Early-Stage Entrepreneurs Are Growing

South Africa is one of the toughest countries in the world to be an entrepreneur but as the country emerges from the economic shocks of the Covid-19 pandemic, there are encouraging signs of increased entrepreneurial activity and of more small businesses making it beyond the startup stage.

The latest Global Entrepreneurship Monitor South Africa (GEM SA) report released, found that while South Africa’s supportive environment for entrepreneurship is rated lower than global averages, there are positive signals in increased early-stage entrepreneurial activity and rising entrepreneurship rates among women and young people.

The GEM SA 2021/2022 report by Stellenbosch Business School in partnership with the Global Entrepreneurship Monitor (GEM) and the Small Enterprise Development Agency (Seda) found that early-stage entrepreneurial activity, the percentage of adults who were starting or running a new business, rose to 17.5% in 2021, up from 10.8% in 2019. Those owning or managing an established business, in operation for at least 3.5 years, were at 5.2%, up from 3.5%.

Although South Africa ranked 45th out of 50 countries in the GEM National Entrepreneurial Context Index, a measure of the favourability of the environment for entrepreneurship and new business creation, GEM SA lead author Angus Bowmaker-Falconer, research fellow at Stellenbosch Business School, said the uptick in the established business rate was particularly encouraging.

“Having survived the startup phase, these businesses would now have a real possibility of contributing to the country’s economy. It means more early-stage entrepreneurs made it to the established business stage between 2019 and 2021 despite the constraints on business due to Covid-19, and if these rates can continue this upward path, it should lead to a greater depth of established businesses in South Africa.”

“Given the generally high failure rate of startups, the overall positive entrepreneurial activity in 2021 is to be welcomed. However, there were also mixed signals around the confidence of entrepreneurs, fear of failure, business exits, and adoption of digital technology.”

“This tells us that there is still much to be done to strengthen the enabling environment and ease of doing business so that we can truly unlock the potential of entrepreneurs to contribute to economic growth and job creation,” Bowmaker-Falconer said.

The researchers identified key priorities to strengthen a South African “entrepreneurial ecosystem” that enables business startup, growth and sustainability, supporting entrepreneurs to “move from startup to scaleup”.

“All of the conditions of the entrepreneurial framework, those factors that either support or hinder business startup and growth, need strengthening. Some require a medium- to long-term view, such as policy change, deepening a culture of entrepreneurship, and improving the physical infrastructure of logistics, utilities and communications that enable investment.

“Others can be addressed and vitalized over a shorter timeline, including improvement in coordination of government support programmes, entrepreneurship education in schools, and financial and market access,” Bowmaker-Falconer said.

The GEM SA report is considered the most authoritative annual survey of the global state of entrepreneurship, measuring entrepreneurial activity levels and attitudes, the contribution of entrepreneurship to national economies, and the quality of the enabling environment.

Titled Fostering entrepreneurial ecosystem vitality, the GEM SA report was authored by Bowmaker-Falconer with Natanya Meyer, associate professor in the SARChI Chair for Entrepreneurship Education at the University of Johannesburg.

Stellenbosch Business School is the leader of the GEM study team for South Africa, as part of a large-scale international research collaboration. The South African leg of the study included a survey sample of 3 300 people and the input of 36 national experts in diverse fields, while the global report covers 50 countries across geographic regions and different income levels.

The full report can be downloaded from the Stellenbosch Business School website.