PERSPECTIVES
CHAPTER 4: RURAL ENTREPRENEURSHIP AND LOCAL ECONOMIC DEVELOPMENT IN A SOUTH AFRICAN CONTEXT
4.2 ENTREPRENEURSHIP IN SOUTH AFRICA
4.2.3 Entrepreneurial Challenges in Rural South Africa
While more effort from both the government and private sector has been put in motion to create a more conducive ecosystem for entrepreneurs to thrive, unfortunately, many entrepreneurs in rural areas remain challenged by a plethora of barriers and obstacles. Kirabira (2015) identified limited access to financing and lack of sufficient funding (both for start-ups and expanding enterprises), low skills base of rural areas, lack of facilities or infrastructure, excessive regulations and formalities, market-related and human resource issues as key constraints in the development and growth of rural enterprises. Mugobo and Ukpere (2012) found that access to finance, lack of technical skills, remoteness and poor infrastructure, lack of exposure, competition, small and fragmented markets, and unavailability of business premises as main challenges and constraints facing rural entrepreneurs in the Western Cape Province. Fiseha and Oyelana (2019) also found that rural entrepreneurs in the Eastern Cape faced numerous challenges such as lack of finance, poor market access, inadequate infrastructure, inflation, lack of skill labour and insecurity. According to Madzivhandila and Musara (2020), limited access to finance, inadequate skills, limited access to markets, lack of infrastructure and lack of access to information, advice and business services subdue the growth of rural entrepreneurship. These challenges inhibit the efforts of rural entrepreneurs and their enterprises to thrive and flourish, thereby affecting the growth of local economies.
4.2.3.1 Lack of Access to Finance
Lack of access to finance and funding remain the major factor and frustration for the majority of rural entrepreneurs. Access to finance is one of the key important issues in the South African entrepreneurship ecosystem. The Banking Association South Africa (2018) argues that access to finance remains a definite challenge particularly for new enterprises in the country. According to
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Chimucheka and Rungani (2013); Fatoki and Garwe (2010); Herrington et al. (2009); Cassar (2004), lack of access to finance is one of the most contributors associated with low new enterprise creation and their demise, making it the major constraint to the growth and success of enterprises in the country. Debeila (2018); Mutezo (2005); Naude and Havenga (2004);
Nieuwenhuizen and Groenewald (2004) all agree that most entrepreneurs struggle with accessing finance from banks and other financial institutions in South Africa. According to Chimucheka and Rungani (2013), only 2% of new enterprises are able to access bank loans in South Africa, while over 75% of applications for bank credit by new enterprises are rejected. Without a doubt, inaccessibility of finance is a major hindrance for entrepreneurial growth and development in the country.
Lack of access to finance by entrepreneurs is associated with various factors. According to Chimucheka and Rungani (2013); Mutezo (2005); Naude and Havenga (2004), excessive red tape, administrative burden and exhaustive labour laws are some of the issues hampering access to finance making South Africa a hostile environment for entrepreneurs. Other contributing factors include lack of readily available credit information, the perceived riskiness, criteria used, their bureaucracy and lack of knowledge or understanding (Chimucheka & Rungani, 2013). The Banking Association South Africa (2018) stated that the entrepreneurs struggle to access finance form banks and financial institutions because of their unviable business proposals, lack of financial management knowledge and discipline, and seeking the wrong type of funding, particularly start-ups and smaller businesses. Banks and financial institutions are cautious to give financing for new projects and current small businesses due to the aforementioned issues.
Clearly, without access to funding, entrepreneurs struggle to survive and thrive, hampering the country's entrepreneurial growth and development. As a result, enhancing entrepreneur access to capital can help South Africa's entrepreneurial performance (Mutezo, 2005).
4.2.3.2 Lack of Skills or Capacity
Most rural areas in the country are characterised by high proportions of unskilled labour, making it difficult for rural entrepreneurship growth and development. Skills constitute the most important resource for those individuals aspiring to start and run an enterprise. Mugobo and
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Ukpere (2012) found that shortage of skills is another major challenge facing rural entrepreneurs in the Western Cape, South Africa. Fiseha and Oyelana (2019); Sarpong (2012); Agupusi (2007) identified lack of skills as a common problem for rural entrepreneurs in the Eastern Cape, South Africa. Lack of skills in a particular rural area makes it difficult for enterprises to employ skilled labour, ultimately inhibiting their growth. Agbenyegah (2018) is of the opinion that entrepreneurial activities and businesses in South Africa are constrained by lack of skills such as technical, managerial and business skills. Potential entrepreneurs lack the basic skills required to run and operate a business, such as management skills and financial knowledge. This is according to a 2017 research report by the Department of Planning, Monitoring and Evaluation (DPME) on the limited success of entrepreneurial activity by locals in townships and rural areas (DPME, 2017).
According to the survey, some entrepreneurs even establish businesses in industries where they have no knowledge or experience, resulting in the failure of their businesses (DPME, 2017).
Lekhanya and Visser (2016) maintain that the performance of enterprises is characterised by lack of managerial skills. Agbenyegah (2013) argues that the reasons for the country’s poor entrepreneurial performance was due to lack of skills training. The inability of enterprises to find suitable employees in specialist sectors supresses entrepreneurship and growth (DPME, 2017).
As alluded in the previous chapter, this suggests that an entrepreneur should possess a set of skills such as managerial, leadership, technical, financial, networking, innovation and risk-taking to be able to run and operate an enterprise effectively and efficiently. Thus, lack of skills can constitute a serious hindrance for entrepreneurs to run their businesses successfully and putting their dreams into action in the rural areas of South Africa.
4.2.3.3 Limited Access to Markets
Access to markets is another most frequently mentioned factor and greatest challenge holding back rural entrepreneurs. Most of these entrepreneurs do not have access to markets because large and well-established firms dominate the entrepreneurial space. Most rural entrepreneurs find access to markets as one of the greatest challenges to their entrepreneurial growth
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(Masumbe, 2018; Malebana & Swanepoel, 2015; Delalić, 2014). Ngorora and Mago (2018) argues that the growth of rural firms is limited by a wide range of factors, including poor access to markets. Fiseha and Oyelana (2019) also stated lack of markets among the barriers to entrepreneurship growth and development in rural areas in South Africa. It widely emphasised that entrepreneurs, particularly in rural areas, are unable to succeed in their ventures because more often there is no market for their business. This makes lack of access to markets one of the barriers to South Africa’s attempt to promote and encourage entrepreneurship development. A 2017 research report acknowledged lack of access to markets as one of the factors affecting enterprise development in South Africa (DPME, 2017). The report also acknowledged access to market (local, regional and global) as crucial to enterprise growth and development in the country.
Mugobo and Ukpere (2012) found that lack of access to markets in the Western Cape is further exacerbated by the fact that the rural market is largely small and fragmented. According to Mugobo and Ukpere (2012), the rural market still lacks the necessary demand and purchasing power to sustain rural enterprises, and that the markets are widely dispersed. According to Lebambo and Shambare (2020), most entrepreneurs find it difficult to enter new markets in South Africa. They also contend that, despite more than two decades of political transformation, many black entrepreneurs in South Africa, the bulk of whom are located in rural areas, continue to face economic isolation. Inability to access markets stifles new business formation and jeopardizes the long-term viability of current businesses (DPME, 2017).
4.2.3.4 Government Regulations
Deakins, Bensemann and Battisti (2016); McElwee and Smith (2012) identified regulations as one of the barriers to entrepreneurship and expansion of rural enterprises. Rural entrepreneurs face multifaceted and wide range of regulatory requirements and burdens from government or local authorities. The legislation and regulations often are associated with the failure of most SMMEs in South Africa (DPME, 2017). According to Lekhanya and Visser (2016), strict government policies affect the expansion and growth of rural businesses in Kwa-Zulu Natal. For instance, restrictive labour regulations in South Africa are considered the key factor constraining
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entrepreneurial development, especially businesses that rely on labour force (Herrington & Kew, 2016). Regulations play a crucial role in creating enabling environment conducive for starting and maintaining a business.
4.2.3.5 Lack of Infrastructure
For the promotion and expansion of rural entrepreneurship, infrastructure such as roads, electricity, water and sanitation, telecommunications, and company premises are critical.
Investments in infrastructure, according to Makhathini and Mpanza (2020), encourage economic growth and development. In the Eastern Cape Province, Fiseha and Oyelana (2019) discovered that a lack of infrastructure makes entrepreneurship difficult to flourish, and that entrepreneurs work in locations with limited access to essential amenities such as water, electricity, roads, and communications. One of the entrepreneurial challenges facing the small company sector in South Africa, according to Agbenyegah (2013), is a lack of basic infrastructure. The majority of towns in the country are recognized for having limited access to infrastructure, which entrepreneurs can use to expand their businesses. Mugobo and Ukpere (2012) also found that poor infrastructure such as poor road networks, unreliable telecommunication and postal services are among the major constraints for rural entrepreneurs in the Western Cape Province. According to Lebambo (2019), challenges such as lack of infrastructure undermine business prospects and viability in rural areas. Rural areas are under persistent threats of severe shortages of basic infrastructure, which is a setback for rural entrepreneurship (Agbenyegah & Dlamini, 2018; Werlen, 2007;
Diochon, 2003). Thus, lack of adequate and appropriate infrastructure can inhibit entrepreneurial activities in the rural areas. Rural areas need proper infrastructure in place to initiate rural entrepreneurial activities.
4.2.3.6 Lack of Access to Information
A lack of information is one of the most significant hurdles to the creation and expansion of rural entrepreneurship in rural areas (Fiseha & Oyelana, 2019). Furthermore, a lack of access to entrepreneurial support, as well as sufficient information and comprehension of essential
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entrepreneurial remedies, exacerbates the problem (Masumbe, 2018). Mugobo and Ukpere (2012) discovered that rural entrepreneurs in the Western Cape Province have limited access to information. Rural entrepreneurs should have access to information on various types of business support and services. According to Lekhanya and Visser (2016), rural businesses in South Africa have limited access to relevant market data. Limited access to information is also one of the factors that limit the success rate of many SMMEs in the country, according to a 2017 research report by the Department of Planning, Monitoring, and Evaluation (DPME) (DPME, 2017). Most rural entrepreneurs have difficulties in accessing to information on available support services, regulatory requirements and economic opportunities, which contributes towards low growth and development of rural enterprises.