This article was contributed by Conor Godfrey, SAIBL Associate
Over the last month dozens of entrepreneurial South African grandmothers have made thousands of rand selling scarves to under prepared foreign tourists. If only more South Africans shared gogo’s entrepreneurial zeal. According to the annual Global Entrepreneurship Monitor (GEM), South Africa ranks poorly among its peer group of developing countries. Only 5.9 % of South Africans (between 25-64 years of age) are involved in micro-entrepreneurial activity. Compare this to Nigeria where 75% of Nigeria’s labor force works in micro-enterprises
The business environment in South African and Nigeria share some broad similarities; it takes approximately the same number of days to start a business (SA 32, Nig. 31), and both countries have large informal economies and inadequate rural infrastructure.
The similarities stop there. Across all other categories on the World Bank’s Doing Business Index Nigeria lags significantly behind South Africa. (Source)
Despite Nigeria’s low marks on registering property, paying taxes, obtaining construction permits, etc.., a recent Gallup poll on Nigerian’s attitudes toward entrepreneurship reveals an intense national predilection toward entrepreneurial activity.
According to this survey of 1000 Nigerian adults, 67% of Nigerians have considered starting a business, and 44% plan on starting a business within 12 months. Nigerians are also confident that the government will respect potential entrepreneurs’ assets. 60% of respondents believed their assets would be secure, and 58% said the government would allow entrepreneurs to make “a lot of money”. (Source)
These statistics remained consistent for men and women, and across socio-economic groups. However, Nigerians with jobs viewed entrepreneurship more favorably than their unemployed peers. This is significant. In South Africa the vast majority of entrepreneurs are necessity entrepreneurs-- people who start their own business because they can not make a living any other way. These entrepreneurs usually have few professional skills, and tend to start one-person businesses in the informal economy.
These poll results suggest that Nigerians with professional skills see entrepreneurship as a way to increase their income and quality of life. If true, the Nigerian informal economy would benefit from a nucleolus of entrepreneurs with professional skills, networks, and start-up capital saved from their previous job.
This could be South Africa.
South Africa has higher adult literacy and primary school enrollment, better infrastructure, and a generally healthier population than Nigeria. Unfortunately, in some ways South Africa is a victim of its own success.
The demand for professional skills in South Africa outstrips the supply by tens of thousands of positions in almost every field; engineering, IT, aviation, project management, etc… This skills deficit is especially acute among historically disadvantaged (HD) groups. In these conditions professionals from HD groups can expect long, financially rewarding careers in their sector—why would they throw it all away to take a chance on a new business?
This dynamic stymies the most productive type of entrepreneurship; when someone leaves a job in a specific sector to start their own business in that sector, bringing skills and a professional network that dramatically increase the chance of success.
Rest assured that South Africa is not doomed to entrepreneurial failure. The same skills shortages that pull professional South Africans into corporate jobs, also indicate lucrative entrepreneurial opportunities. E.g. Shortage of IT professionals = availability of IT jobs and/or need for additional service providers.
The government must change the incentive scheme so that South African professionals feel comfortable choosing either path.
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I'd like to know more about your last line here: "The government must change the incentive scheme...." How so and with what motivation? It seems that creating the skilled labor is the key and that, from there, it is the choice of this labor whether to seek a structured path or take greater risks starting their own business. In either case it is a net positive for the country I imagine. I hope you'll dive deeper into this in a future piece.
ReplyDeleteAs with all things South Africa, recent history cannot be ignored. Is this a case where more patience is needed, or a structural issue? You seem to imply structural primarily whereas I might argue for more patience. That being said, patience is not as satisfying or actionable an explanation...
ReplyDeleteVery thoughtful questions! The debate over how to best spur entrepreneurship rages from Singapore to Tel Aviv, and from Silicon Valley to Cape Town. Everyone wants to create an “Einstein Alley”, or “Research Triangle”, to spur the next high tech revolution.
ReplyDeleteAn article in Forbes recently crystallized the debate over whether the government should invest in individual firms/industries, or try and create a financial system that encourages entrepreneurial activity. The author believes that the government should not try and “pick winners”; the market should do that. Instead, the government should ensure healthy competition in the financial market so that financiers compete to finance the most successful entrepreneurs and ideas.
There are also easy-to-understand commonalities shared by most strong entrepreneurial environments. These include; strong bankruptcy laws that allow banks to quickly recover their money in the case of default, simple and transparent mechanisms for registering a business, low electricity costs, and sufficient ICT and business infrastructure. All these things lower financial barriers to entry and democratize the entrepreneurial process.
The South African government is actively working on many of these problems, but progress is slow. Perhaps the most important thing the government can do is market the idea of entrepreneurship. They should celebrate famous South African entrepreneurs, facilitate cooperation between academics and businessmen and women, push for entrepreneurial skills to be a part of the high school and/or university curriculum, and continue to publicize entrepreneurship by hosting summits and organizing youth conferences on that theme.