PERSPECTIVES
CHAPTER 4: RURAL ENTREPRENEURSHIP AND LOCAL ECONOMIC DEVELOPMENT IN A SOUTH AFRICAN CONTEXT
4.2 ENTREPRENEURSHIP IN SOUTH AFRICA
4.2.1 South Africa’s Entrepreneurship Ecosystem
Entrepreneurship has been seen as one of the important instruments for fighting the scourge of poverty currently ravaging poor communities in South Africa. However, it is worth noting that the entrepreneurship development endeavours are mainly concentrated in urban areas (Madzivhandila & Musara, 2020). The country faces a wide range of economic, political and social challenges particularly in the rural communities. Despite having one of the strongest economies on the African continent, the country’s unemployment and poverty remain serious challenges for the majority of inhabitants (Cassim, Soni & Karodia, 2014). According to the Organisation for Economic Co-operation and Development’s (OECD, 2017) Economic Outlook Survey, South Africa’s unemployment rate increased to 27 percent from 25 percent due to economic slowdown, whereas income disparities between the rich and the poor remain wide, with youth unemployment at 53 percent (Francke & Alexander, 2019). In 2015, approximately 3.6 million young individuals (between 35 and 37 percent) were unemployed and actively seeking work, a figure that rose to 5.2 million in the first quarter of 2016 (Manyaka-Boshielo, 2017). As a result of these circumstances, the government has made entrepreneurship and small company promotion a priority as one of the country's core development policy areas (Cassim et al., 2014). Since then, the government has taken a variety of steps to encourage entrepreneurship in the country in order to drastically reduce poverty and unemployment (Fiseha & Oyelana, 2019).
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Cassim et al. (2014) suggests that the current socio-economic challenges facing most communities in the country require robust economic transformation and emancipation. As a result, entrepreneurial activity is seen as a vital tool for economic development due to job creation, innovation, and the welfare effect it has, leading to an increase in national policy interest in entrepreneurship promotion (Herrington, Kew & Kew, 2009). Despite this recognition, South Africa’s entrepreneurial rate is low in comparison to other emerging countries, which might be increased with government policies backed by financial and non- financial support (Francke & Alexander, 2019). Herrington et al. (2009) reported that there are over 2.4 million registered companies in the country, 2.2 million of which are small and medium enterprises (SMEs). However, Fiseha and Oyelana (2019) argue that most of the small businesses in the country fail at the early stage or short period of operation. Additionally, according to Herrington et al. (2009), South Africa had early-stage entrepreneurial rate of 7.8%
in 2008, which is significantly lower compared to the average of 13% for middle to low-income countries. This low entrepreneurial early-stage rate indicates that the country lags behind in comparison with other developing countries. As a result, compared to other developing countries, entrepreneurial activity in South Africa has gradually reduced over time. South Africa's low early-stage entrepreneurial rate, according to Herrington et al. (2009), is due to a number of issues, including a lack of entrepreneurial education, access to capital, a tough regulatory environment, and a lack of entrepreneurship culture.
Despite some good signals of economic growth attributable to entrepreneurship, Agbenyegah (2013) stated that the absence of an entrepreneurial spirit among South Africans is increasing. As a result of the low ratings of government programmes in 2014, South Africa’s entrepreneurial environment shrank (Crampton, 2016). In 2015, the total entrepreneurial activity (TEA) rate for South Africa was the lowest at 9.2% compared to some sub-Saharan African countries like Zambia, Nigeria and Botswana with 41%, 35% and 28% respectively (Manyaka-Boshielo, 2017;
Ayankoya, 2016; Global Entrepreneurship Monitor (GEM), 2012). The average TEA rate for efficiency-driven economies such as South Africa is 14.1% (Agbenyegah, 2013; GEM, 2011).
The average TEA rate therefore suggests that the South Africa’s entrepreneurial activity is very poor compared to other developing countries despite efforts by government to stimulate
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entrepreneurship (Agbenyegah, 2013). However, according to Herrington and Kew (2018), the GEM 2017/2018 report highlighted that South Africa’s TEA rate has increased substantially by 59.4% from 6.9% in 2016 to 11% in 2017. Furthermore, over 75% of all the early-stage entrepreneurs in the country in 2017 were opportunity-driven which is higher than in other countries in Africa (Herrington & Kew, 2018). This observation was encouraging as it indicated that more South Africans are starting businesses after identifying an opportunity rather than doing so out of absolute necessity. Brand South Africa (2017) reported that more than half of the South Africans who run their own businesses are mainly youth, while 47% of the overall entrepreneurs are female, which shows the narrowing gap between male and female entrepreneurs.
The higher the country’s TEA rate, the more entrepreneurial a country is. This assumption suggests that South Africa is less entrepreneurial as compared to other developing countries in sub-Saharan Africa. Thus, the current entrepreneurship development in the country is very poor compared to some developing countries. Despite this revelation, it is important to remember that the TEA rating is not a real measure of a country’s entrepreneurial quality (Agbenyegah, 2013).
In the country, entrepreneurship is seen to be efficiency-driven if it is at least somewhat competitive, is backed by some degree of industrialization, and has a big capital base (Ayankoya, 2016; GEM, 2012). According to Ayankoya (2016), a South Africa with a higher TEA rate and expanding economic activity would create more job possibilities, enhance family livelihoods, and address many social issues, all of which would boost the country's global competitiveness.
South Africa’s inability to fulfil the rising demand for jobs is attributable to a continuing lack of entrepreneurial culture across the country, as well as the informal economy's inability to expand as planned to generate employment possibilities (Agbenyegah, 2013). Despite some of the most important obstacles to entrepreneurship growth, tremendous progress has been made (Agbenyegah, 2013; GEM, 2011). Thus, regardless of the multiple efforts by the national government to stimulate entrepreneurship, the study above paints a grim image of South Africa having the lowest entrepreneurship rate and early-stage entrepreneurial activity among developing countries. As a result, the government still has a long way to go in terms of
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promoting entrepreneurship as a key engine of economic growth and job creation, particularly in the rural areas.