Some highs and lows of South Africa’s rankings in the Global Entrepreneurship Monitor report

Delegates at the recent Entrepreneurship Development in Higher Education (EDHE) Lekgotla 2022 were treated to a sneak preview of the Global Entrepreneurship Monitor (GEM) South Africa 2021-2022 report, a day ahead of its release.

GEM, regarded as the world’s most authoritative study of entrepreneurship, provides measurements of entrepreneurial activity and the factors that either support or hinder it. It is also the world’s longest-running study. Over the past 22 years GEM has surveyed over three million people in 120 countries. The latest report covered 50 countries; the South African leg, which surveyed 3 300 people, included input from 36 national experts in diverse fields.

Professor Meyer said some criticise the study because it was not peer-reviewed. However, she also mentioned that more than 1000 peer-reviewed articles had been published in journals based on its data, and that the GEM data was useful for comparison with other economic variables and for time series analysis.

Professor Meyer invited everyone in the house to give EDHE a round of applause regarding one of GEM’s findings.

“And why am I saying this? That orange line,” she said, referring to a graphic from the report on her PowerPoint presentation, “is your market, the age group between 18 and 24, and have a look at what happened to that orange line over the years.”

Referring to Dr Norah Clarke who heads EDHE, Meyer said: “I don’t want to say that it’s only Norah and her team but what they have been doing for the last six years is beginning to show.

“There is always a lag, and yes, globally there has been an upward trend, but this is the first year that the young age category group surpassed all the other age groups. So the youth, and specifically the youth who are in the higher education age category, are seeing entrepreneurship as a potential avenue for the future. Hopefully, this trend can continue,” said Professor Meyer.

Specifically, her orange line reference from the GEM report showed that involvement in South African business startups in the group aged 18 to 24 had improved from 3.4% in 2001 to over 19% in 2021.

GEM views entrepreneurial activity as a continuous process, rather than as individual events. It refers to this process as the entrepreneurial pipeline, which measures people’s participation in phases such as potential entrepreneurship, entrepreneurial intentions, nascent and new business activity, progression into established business ownership, and business discontinuance.

“What EDHE is doing is important because it is at the foundation of this pipeline. EDHE is producing a platform and environment for students to think about entrepreneurship as a career path. This intention is the first step in the pipeline because, without intent, the rest won’t happen,” said Professor Meyer.

She said she was very proud that the larger community’s intention to become entrepreneurial had increased from 11.9% to 20%. “This is almost double. So, intention for people in all categories – of age, gender and race –  has increased. But are they wanting to start businesses out of necessity because maybe they lost a job and there wasn’t another alternative? Or are they going into business because of opportunity? If it’s mostly necessity, then we won’t see the economic impact in the long term that we want to see. If it’s because of innovation or spotting opportunities, then they are normally businesses that are more successful over the long term,” she said.

Unsurprisingly, the pandemic reduced household income, with 62.2% of those surveyed in South Africa reporting this. But only about half (52%) of those in the entrepreneurship start-up stage planned to use digital technology to sell their goods and services, which was the lowest rate among developing economies.
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“The pandemic has reduced the level of entrepreneurial activity in some areas. And then again, it has heightened entrepreneurial activity in some sectors,” said Meyer of the GEM SA finding that 48.9% of the respondents said they pursued new opportunities due to the pandemic.

A GEM SA finding, which Professor Meyer believes can be attributed to the CoViD-19 pandemic, is that fear of failure has increased.

“And if people fear failure, they are less inclined to take risks. And if you are less inclined to take risks, even if you have this brilliant idea, and you have this intention to start, you just don’t get past that intention to actually do it because you are fearing failure. Unfortunately, that has increased. And that’s most negative,” she said.

She referred to fear of failure as “the big spider in the room. People have this brilliant idea, but how many times have you heard, ‘I’m so scared someone steals my idea, so I’m just keeping it in my diary next to my bed’. It’s not going to do anything in your diary next to your bed. You need to go out there and start. So that is something we can work on.”

SA’s business discontinuance rate has increased from 4.9 to 13.9%. “This has almost tripled,” said Professor Meyer. “We are the third worst country for this,” she said.

Although CoViD-19 led to many small businesses closing, she said: “We need to look at which factors are not giving businesses the correct environment to grow and stay in business. How are we going to get people to take the risk, go put themselves out there, and stay in business and not discontinue after three or four years?” she said.

Established business ownerships, that is, those running for more than three and a half years which is the period when most fail, has almost doubled. But with so many ventures being discontinued, “just imagine if this trend continues,” she said. “In 20 years, there will be no businesses anymore, because the ones closing are more than the ones opening . We need to turn this around very urgently,” she said.

Another challenge in the GEM SA report is that only 37.6% of the sample said they know someone in business. “We all teach our students: you need to have a network, you need to have a role model. It seems that people feel that that is not established enough. If a young person who has the intention to start a business has a role model, that intention might lead to action. So we need to work on that more,” said Professor Meyer.

These included:

• new business ownership rate almost doubled, from 3.7% to 7.3%, showing that people took the risk and started new businesses;
• total early career entrepreneurs increased from 10.8% to 17.5%;
• South Africans’ attitudes to entrepreneurship have continued on an upward trend since 2003, with more than 80% viewing entrepreneurship as a good career choice and one with high status. These are higher than the GEM global averages and the rates in other developing economies; and
• 81.4% of people are in business to make a difference, which Professor Meyer said was “so true of South Africa” as could be seen in the recent Mandela Day community activities.

Gem classifies participating countries into three levels, with Level A being the more developed, richer counties. South Africa falls into the Level C category, alongside the likes of Brazil, Columbia, India, Iran, Jamaica, Mexico, Morocco and Sudan, which all have a gross domestic product (GDP) per capita income of less than $20,000.

The GEM Global report stated that South Africa “clearly faces a myriad of challenges with infrastructure investment, including ensuring reliable energy supply, rail freight network optimisation, rebuilding public sector transport systems, and service delivery at local government level”.

“Unfortunately, South Africa is fifth last,” said Professor Meyer of GEM’s National Entrepreneurial Context Index, a measure of the favourability of the environment for entrepreneurship and new business creation.

“So there’s definitely room for improvement,” said Professor Meyer. “I think our people have the right energy and the right attitude to do this. But we have this environment that just makes it very difficult. If we can get that sorted out, even just slightly, the success of small entrepreneurs is just going to bloom”.

Read the GEM SA 2021-2022 report, Fostering entrepreneurial ecosystem vitality, here.
Read the GEM Global 2021-2022 report, Opportunity amid Disruption, here.

Gillian Anstey is a contract writer for Universities South Africa