Voices

SA’s economic woes are here to stay for a while – but there is hope

2018-11-28 00:05

There is light: Entrepreneurial activity has been proved to have a significant and far-reaching effect on a country’s economy, writes Tanya van Lill

South Africa’s economic woes look as if they’re here to stay – for a while, at least.

Ratings downgrades are again threatening the economy, the rand is expected to weaken against the dollar and inflation is set to rise – all factors adding to the already cumbersome economic pressure being felt by businesses and consumers alike.

Add to that a record-high unemployment rate, which is predicted to worsen next year, and I think we can all agree that the economic outlook, as it stands, is fairly grim.

That being said, it’s definitely not too late to turn this ship around, but it’s going to take a renewed level of commitment and cooperation from all sectors and economic stakeholders.

From the perspective of the public sector, President Cyril Ramaphosa has highlighted his administration’s commitment to address unemployment, with the focus of the national agenda this year being on job creation – particularly for the nation’s youth.

With the unemployment rate rising to 27.5% in the third quarter of this year, there couldn’t be a better time to focus on job creation.

In April Ramaphosa expressed his hopes to persuade investors to contribute to his goal of attracting $100 billion into South Africa’s flailing economy within the next five years.

Ramaphosa reiterated this point in his opening address at the SA Investment Conference in October, saying: “We are here to declare that we are determined to build a country that is driven by enterprise and innovation‚ to develop an economy that is diverse and resilient and prosperous and to create companies that achieve sustained returns not only for their shareholders but also for the workers that drive them and the communities that support them.”

Government has long been aware of the important role that entrepreneurs play in growing the economy.

Although self-employment may have shown a decline between 2008 and last year, with the number of employers or self-employed entrepreneurs in the country dropping to 340 000 from 390 000, entrepreneurship is on the rise again.

In fact, entrepreneurial activity is at its highest level since 2013, according to the latest report on South Africa by the global entrepreneurship monitor (GEM), which revealed that total early-stage entrepreneurial activity and entrepreneurial intentions are both on the rise.

Despite this improvement, South Africa’s entrepreneurial activity is still relatively low on a global scale, with the country ranking at 27 out of the 54 countries surveyed for the 2017/18 GEM report.

This signals that there is still much room for improvement in this regard.

However, if necessity is indeed the mother of invention, then it is in the face of challenging times like these that we hope to see entrepreneurs rise up and emerge stronger than before.

Entrepreneurial activity has proved to have a significant and far-reaching influence on a country’s economy – from creating employment to upskilling new entrants into the job market and socioeconomic development.

It is for this reason that the National Development Plan predicts that by 2030, small, medium and micro enterprises (SMMEs) will generate 90% of the intended 11 million new jobs.

But South African SMMEs do not appear to be on track to reach this goal.

Contributing only an estimated 36% to GDP, the country’s SMMEs – and the entrepreneurs behind them – continue to face a multitude of challenges.

Among these challenges, access to funding is arguably one of the most critical barriers to success.

A recent report by the Seed Academy on the state of entrepreneurship in South Africa reveals that entrepreneurs are largely self-funding and are not applying for funding because they don’t know where to go or how to do it.

Although 73% of entrepreneurs require funds to grow their businesses, 28% require less than R10 000 and 30% need less than R50 000.

This is where private equity and venture capital investors could add a lot of value.

Aside from the vital benefit of a capital injection that these asset classes can provide, investee companies also gain access to a wealth of experience, financial acumen and strategic foresight – all of which contribute to their success and the level of economic effect that they are able to achieve.

This, in turn, supports and proliferates the effect that South African entrepreneurs are able to have on the economy because, as these SMMEs formalise their operations, they create meaningful employment opportunities for their fellow citizens and contribute to the national tax base, thereby increasing government’s ability to invest in infrastructure and social development.

Of course, true entrepreneurial spirit – characterised by a strategic vision, self-motivation, and sheer grit – remains the main driving factor behind any successful SMME.

Entrepreneurs are, by their nature, job creators and starting a business can produce a cascading effect on the economy.

The stimulation of related products and services that support a new venture compound over time to create further economic development.

This can be seen in infrastructure, new markets, new wealth and job creation on a broader scale, thus improving the national income and GDP and making entrepreneurship one of the most sustainable ways to usher in much-needed economic growth.

Although not every new business is able to make a socioeconomic impact immediately, it is important to remember that many SMMEs are developed out of necessity, thereby having a direct effect on the people they serve.

These micro-size businesses also encourage other potential entrepreneurs to step up to the plate, which is exactly what we need.

It is this essence of entrepreneurship that we, as South Africans, need to demonstrate to step away from the precipice and achieve the ambitious growth and developmental goals that have been identified by our president.

  • Van Lill is the CEO of the SA Venture Capital and Private Equity Association

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December 9 2018