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Without skills, access to finance and digital resources for entrepreneurs, it’s difficult to avoid the creation of a double economy and create more growth opportunities, say the SAB Foundation and the Allan Gray Orbis Foundation in a report on entrepreneurship in South Africa.
A double economy is the situation in countries where two economies develop, one aimed at world markets and the other at subsistence activities or local markets.
According to the report, South Africa can continue to build on work that aims to make things easier for entrepreneurs.
That includes better education and training and scrapping regulations that makes it difficult to begin new businesses.
The expansion of mobile banking services and crowd-funding can help remove the stumbling block that obtaining financing represents for many entrepreneurs.
The recommendations follow on various structural factors were identified in the South Africa entrepreneurial landscape. These included:
• The recent recession and slow economic growth;
• Bureaucracy and red tape, which are worsened by the fact that certain big established state-owned enterprises prevent new businesses from competing in certain sectors;
• Big firms that dominate the South African economy. (a McKinsey-report shows that 90% of the South African market is dominated by big business.)
• A double economy that excludes a third of the working population from the formal economy;
• Defective energy infrastructure; and
• A defective education system.
The report states that because school does not prepare children for entrepreneurship, many entrepreneurs fail because the lack knowledge and mentorship.
Limited access to business opportunities, which is influenced by structural inequality in South Africa, also makes life harder for entrepreneurs.
Many start-ups do not have support structures because entrepreneurship is not viewed as an appropriate career choice in many families and in certain cultures.
Entrepreneurship can get a big boost if digital technology, broadband internet access and smart phones are made available to everyone.
In this regard, the report refer to Britain’s digital inclusion strategy which stipulates that broader social issues are resolved, economic growth is supported and inequalities are addressed when more people have access to the internet.
South Africa should work with non-profit and public organisations to expand broadband services to rural areas and should advance digital literacy as part of skills development.
The report warns that scores of disheartened entrepreneurs resort to microlenders, sell personal assets or exploit suppliers financially in a desperate attempt to obtain financing.
In interviews with various entrepreneurs, access to finance was identified as one of the top five issues they struggle with.
Entrepreneurs say the criteria financial institution use to decide about financing count against entrepreneurs because they are high risk.
Additional security, red tape and some entrepreneurs’ weak credit profile makes it even more difficult to obtain financing.
According to the report South Africa should be the country in Africa where it’s easiest to start a business, given its good infrastructure network.
But the country is in 131st place in the World Bank’s list of how easy it is to start a nation and 111th for how difficult it is to get an electricity connection.
