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The South African entrepreneurship ecosystem

The South African entrepreneurship ecosystem

Opinion by: Dr Cobus Oosthuizen, Dean, Milpark Business School


South Africa’s total early-stage entrepreneurial activity (TEA) rate is still well below the average of comparable economies around the world (Herrington, Kew, Simrie & Turton, 2011:4). This is a matter of concern when considering the country’s economic and social health, and requires closer investigation into the entrepreneurship ecosystem that impact on entrepreneurial activity in South Africa.

Against this backdrop, an exploratory study was undertaken to evaluate the state of South Africa’s entrepreneurship ecosystem on a macro level. The entrepreneurship ecosystem consists of a set of six individual elements, namely (1) enabling policies and leadership, (2) availability of and access to appropriate finance, (3) an encouraging culture, (4) a variety of institutional and infrastructural supports, (5) quality human capital, and (6) venture-friendly markets for products (Isenberg, 2011). In isolation, each is contributing to entrepreneurship but insufficient to sustain it (Isenberg 2010:3). As an integrated holistic system, these elements drive venture creation and growth; when symbiosis occurs and they interact, the ecosystem spawns entrepreneurial activity.

The aim of the study was therefore to determine what each of the six imperatives look like, and whether there is healthy interaction between them. The study utilised a combination of theoretical frameworks and quantitative techniques to assess the state of the six elements in the South African context.

Of the six domains of the South African entrepreneurship ecosystem (based on a Liker scale of 1 to 5) respondents rated support the highest ( = 3,38) indicating an average variety of institutional and infrastructural supports, and policy the lowest ( = 2,03) indicating a lack of enabling policies and leadership. Respondents rated the remaining four domains as follows: Human Capital ( = 3,24); Culture ( = 3,03); Markets ( = 2,78); and, Finance ( = 2,68). Collectively, the South African entrepreneurship ecosystem therefore appears not to ideally favourable to optimally stimulate entrepreneurial activity.  

Statistical significant as well as practical significant bivariate correlations of respondents were calculated between only finance and support (r = 0,555), finance and markets (r = 0,525), culture and markets (r = 0,571), and support and markets (r = 0,545).

This study confirmed the findings of other scholars such as Seghers et al. (2012:63); Isenberg (2010:49); Zheng (2010:154); Wyld et al. (2009:7, 9, 11, 12); Bloom and Dees (2008:51); Stam and Elfring (2008:107);Cohen (2006:4); Neck et al. (2004:199), amongst others, that highlighted the importance of availability of and access to appropriate finance, institutional and infrastructural support, an encouraging culture, and venture-friendly markets for products

Indisputably, the six domains of an entrepreneurship ecosystem are present and active in the South African context. However, the contradicting low levels of entrepreneurial activity in comparison with other developing countries, highlights the possibility of neglect in some domains as well as insufficient integration between the elements. What should be done to create an integrated holistic system? Who should be involved, and who should take responsibility for stimulating South Africa’s entrepreneurship ecosystem.

It is important that all entrepreneurship ecosystem stakeholders acknowledge their important role in contributing to entrepreneurial activity; hence the imperative of enhancing the integration of the domains. In isolation, each is conducive to entrepreneurship but insufficient to sustain it. Although the study is still work in progress, the following practical recommendations are suggested in the interim:

  •          A starting point could be open and frank dialogue between government and the private sector in relation to reducing structural barriers and formulating entrepreneur-friendly policies and programmes. Government alone cannot be expected to develop South Africa’s ecosystem. The private sector has the proclivity and orientation to develop self-sustaining, profit driven markets, and can contribute significantly in finding creative ways of stimulating the ecosystem. To initiate this dialogue, business schools can play an important role in originating discussion forums in their respective geographic locations.
  •          Because the right legal and regulatory frameworks are critical to thriving entrepreneurship, government should take the legal, bureaucratic, and regulatory frameworks under urgent review and initiate reform of onerous, cumbersome and stifling regulations. The legal process for creating a small business, for example, could be simplified, and other disincentives eliminated.
  •          As a collective, South Africa should fervently pursue cultural change in relation to entrepreneurship. Although changing a deeply ingrained culture is extremely difficult, it has been demonstrated by countries such as Ireland and Chile that it is possible to alter societal norms about entrepreneurship in less than a generation. In this respect the media can play an important role in changing attitudes. In addition, South Africa’s educational institutions – from primary through to tertiary – can also serve as catalysts through which awareness of entrepreneurship and development of entrepreneurial skills could be facilitated.
  •          Priority should be given to ventures with high potential. In South Africa, most government programmes spread scares resources among large numbers of bottom-of-the pyramid ventures, and however noble the intent, it is not wise to do so to the exclusion of high-potential ventures. The social economics of high-potential ventures and small-scale employment alternatives are significantly different. Thus programmes should attempt to focus firstly on ambitious, growth oriented entrepreneurs who address large potential markets.
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