New small businesses drop 30%

Published May 29, 2016

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Nicolette Dirk

SOUTH Africans have lost interest in starting their own businesses, according to an annual international study.

Since 2013 there has been a 30% drop in the number of people starting a small business, according to the latest Global Entrepreneurship Monitor (Gem) report.

The report also showed that entrepreneurial intentions in the country have dropped from 15.4% to 10.9% compared to 2013.

The report shows that entrepreneurial intentions in South Africa are also significantly lower when compared to neighbouring countries.

Executive director of Gem and co-author of the South Africa report, Mike Herrington, said since South Africa had participated in the survey in 2001, it had always fared worse than other African countries.

Herrington said the new data was cause for alarm.

“If news last week that Egypt has overtaken South Africa as Africa’s second largest economy was not enough to sound the alarm that it has never been more important or urgent for South Africa’s policymakers to make a strong commitment to growing the economy, then this latest data should,” said Herrington.

Herrington said the Department of Small Business Development had not made it easier for people to start their own businesses.

World Bank data shows that it takes 46 days to start a business in South Africa.

Herrington said in some African countries it took 30 minutes.

“Our labour laws also make it also especially difficult for small business owners. While it is easy to employ staff, it is very difficult to fire someone,” said Herrington.

For a business owner with three employees, where two aren’t pulling their weight, this causes a financial setback.

Herrington added that compared to other countries on the continent with better education systems, South Africa fell short because many people didn’t understand the procedures involved in starting a business.

“Entrepreneurship must be introduced to people on a long-term basis and it should start at schools,” he said.

“There is a huge appetite in the country of people wanting to start their own business, but it must be made easier for them.

“A key priority is to introduce reforms aimed at fostering a more enabling business environment, particularly for the small- and medium-sized enterprises that contribute so much to employment.”

Experts interviewed as part of the research cited three main areas as critical constraints to entrepreneurship in South Africa. They included government policy (61%), access to finance (44%), and education and training (42%).

Gem co-author Penny Kew said these three areas had been highlighted as critical factors since South Africa first participated in the survey in 2001.

“The fact that government policies are rated as a critical constraint by almost two-thirds of the experts is particularly disappointing in the light of the fact that the government has repeatedly identified the SMME sector as an important vehicle for addressing the challenges of job creation, economic growth, and committed itself to helping to create an environment in which businesses can get on with their job,” said Kew.

The Department of Small Business Development did not respond to queries, despite being given numerous opportunities.

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