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Poverty and unemployment are two challenges that are disproportionately affecting Sub-Saharan Africa. Although the poverty rate – the percentage of the population living on $1.90 a day or less – globally was 10.9% in 2013, it was 42.3% in sub-Saharan Africa and 18.9% in South Africa (2014). This is according to a World Bank report on poverty.
Sub-Saharan Africa is one of the most highly affected regions by unemployment. According to the International Labour Organisation, the global unemployment rate was expected to reach 5.6%, the rate in sub-Saharan Africa would remain at 7.2%. The South African unemployment rate is far worse than the global and sub-Saharan average; it went from 23.2% in 2008 to 27.7% in 2017, with those without a high school diploma making up the bulk of unemployed. There is a significant positive correlation between the national level of entrepreneurial activity and national economic growth as well as job growth.
South Africa’s level of entrepreneurship
The Global Entrepreneurship Monitor report (2017) found that, in South Africa, total early-stage entrepreneurial activity is at 11%, compared with an average of 14.9% for other countries at a similar economic level and 13.7% in Africa. Total early-stage entrepreneurial activity is defined as the number of adults (18-64-year olds) either in the process of starting a venture or already running a new business less than three and half years old as a percentage of the adult) population.
Additionally, the Established Business Ownership Rate in South Africa is at the extremely low rate of 2.2%, compared to 8.9% in other similar economies and 11.9% in Africa. The established business ownership rate is the percentage of the adult population aged 18 to 64 years who are currently owner-managers of an established business, i.e. owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than 42 months.
This shows that despite a total early-stage entrepreneurial activity rate of 11%, few early stage entrepreneurs survive in the long for longer than 42 months. This reflects the dire statistics on the survival rates of start-ups: In 2015, Fortune (2015) estimated that nine of ten start-ups will fail and in 2016, Huffington Post estimated it was 95%. In South Africa the statistics range from 70% to 80% of start-ups failing.
Why are start-ups failing?
There are many reasons cited by South African business owners for discontinuing running their business of which; business profitability and problems with finance.
The importance of promoting the growth of businesses has been acknowledged by the South African government, with the establishment of the ministry of small business development in 2014.
In addition, legislation, particularly the draft Preferential Procurement Policy, has been tabled that would require government entities to source at least 30% of their procurement spend from small, medium and micro-enterprises.
Although government’s efforts are welcome, its performance in helping small businesses start and grow has been mixed. For instance, South Africa is ranked 131st out 190 countries in the 2017 World Bank Starting a Business Rating.
Overall, according to statistics from the South African Bureau of Economic Research, there was a decline in the number of formal small businesses from 707 000 in 2008 to 670 000 in 2015. In the same period, the number of informal small businesses remained unchanged at 1.5 million businesses. These figures show that the growth in the number of small businesses is stagnating.
What we can do:
If you are an employee, particularly one with expertise in business model validation, sales, or cash flow and financial management, you can support early-stage entrepreneurs by sharing your expertise or experience with them. You can do so directly, by finding an early-stage entrepreneur and mentoring them, or you can go through organisations that assist early-stage entrepreneurs. Organisations like Shanduka Black Umbrellas and Branson Centre for Entrepreneurship all accept volunteer mentors to assist their entrepreneurs.
• If you run an established business or organisation, you can seek out opportunities to foster the growth of local small businesses, by providing them with support, particularly in the areas of business model validation, sales and cash flow or financial management. Examples include fostering new distributors and suppliers in your business. This may also help you improve your BBBEE score.
• If you are an early-stage entrepreneur yourself, you should seek help, particularly with business model validation, sales and cash-flow/financial management. There are multiple types of help you can get, including business coaches, mastermind groups and external advisers or consultants. Seek help from people who have expertise in the field you need assistance with, who come recommended for their skill and integrity and who you have synergy with.
In conclusion, we all need to work together to create and support more start-ups to help address our levels of poverty and unemployment.
• Patrick Ache, is a business coach and adviser and an alumnus of the Gordon Institute of Business Science, the University of Warwick and is a member of IBASA and IMCSA. He writes in his own capacity.
