South Africa’s early-stage entrepreneurial activity (TEA) has declined to below pre-pandemic levels, according to the latest 2023 Global Entrepreneurship Monitor South Africa (GEM SA) report released yesterday.
GEM SA lead author Angus Bowmaker-Falconer, a research fellow at Stellenbosch Business School, said South Africa lagged both global and African levels of entrepreneurial activity and the effectiveness of its support for entrepreneurial ecosystem development.
“Overall, we are not seeing resilience and recovery of entrepreneurial activity to pre-pandemic levels in South Africa compared to global and African perceptions, although these also are not optimistic,” Bowmaker-Falconer said.
This was reflective of the country’s poorly performing economy, the impact of the energy crisis and deteriorating transport, logistics and other public infrastructure and service delivery, and the lack of a favourable enabling environment to support business start-up, growth and sustainability.
Worryingly, the report shows that even fewer people than ever before are considering starting new businesses.
Natanya Meyer, an associate professor in the SARChI Chair for Entrepreneurship Education at the University of Johannesburg and co-author of the report, said a particular concern was the low intentions to start a new business, ownership of new businesses (in existence between 3 months and 3.5 years) and established businesses (more than 3.5 years) seen as South Africa emerged from the Covid-19 pandemic.
All had declined to pre-pandemic levels, and below, in the latest survey. “The percentage of adults aged 16-64 intending to start a new business in the next three years declined to 10% in 2023, the lowest in 20 years, after reaching an all-time high of 20% in 2021/22,” Meyer said.
The report highlighted concerns that the country’s weak economy and an insufficient enabling environment for business were hampering the potential of entrepreneurship to contribute to economic growth, job creation, innovation and technology advancement and social cohesion.
Although South Africa effectively rose five places (46/50 countries in 2021 to 40/51 countries in 2022) on the GEM National Entrepreneurial Context Index (NECI), a measure of the favourability of the environment for entrepreneurship and starting a new business, it was one of only three countries where all 13 of the enabling conditions for entrepreneurship were rated as insufficient.
Total Entrepreneurial Activity (TEA), consisting of active businesses less than 3 months old and new businesses up to 3.5 years old, declined from a pandemic high of 17.5% to 8.5% in 2022/23, below the 2019 level of 11%.
Established business ownership (more than 3.5 years) almost halved, from 3.5% in 2019 to 1.8% in 2022/23, after an encouraging peak of 5.2% in the pandemic years.
However, the report also noted that entrepreneurs had low, and declining, expectations of their businesses being able to create jobs.
In 2019, three in 10 new business owners expected to employ an additional 6 people or more in the next five years, but this fell to just two in 10 in 2022-reflecting the generally weak economic conditions and enabling environment, Bowmaker-Falconer said.
The GEM report tracked 13 enabling framework conditions for entrepreneurship, including availability and ease of access to funding for start-ups, supportive government policies and programmes, taxes and red-tape burdens, levels of entrepreneurial education, infrastructure and services, market dynamics and regulations, and a culture that encourages and celebrates entrepreneurship.
South Africa showed year-on-year improvement in 10 of the 13 framework conditions, including those directly dependent on the government as well as the levels of and access to finance, leading to the country improving its global ranking by five places.
The lead author said, however, all 13 conditions remained ranked as insufficient, scoring less than five out of 10.
“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 views, such as policy change, deepening a culture of entrepreneurship, and improving the physical infrastructure of logistics, utilities and communications that enable investment.”