21 years of entrepreneurial growth in South Africa

Freedom represents the liberty to follow the path one chooses, which includes an individual’s career path. Entrepreneurship is one such path, and since the first democratic election in 1994, South Africa has witnessed the rise of small businesses.

This is according to Christo Botes, spokesperson of the 2015 Sanlam / Business Partners Entrepreneur of the Year® competition, who says that economic activity in the country has experienced positive growth since 1994, with the country’s GDP almost tripling from $143.8bn in 1996 to $404.3bn1 in 2011, thereby improving opportunities available to entrepreneurs and small business.

Whilst unpacking South Africa’s entrepreneurial journey over the last 21 years, he points to the recently released Global Entrepreneurship Monitor (GEM) 2014 South Africa report2, which echoes this statement. “In 2001, 19.7% of the adult population perceived that there were opportunities available in South Africa to start a business. This figure has since increased to 37% in 2014. Over the years, small and medium enterprises (SMEs) have increasingly been recognised as the drivers of economic growth. Proof of the country’s commitment to small business is the establishment of the Department for Small Business Development, which reinforces Government’s commitment to the sector.”

Botes adds that given the economic environment South Africa finds itself in – with the International Monetary Fund (IMF) recently lowering the country’s growth forecast from 2.3% to 2% for 2015 – new entrepreneurial opportunities are limited. “If the market isn’t growing, it becomes tougher to penetrate due to limited opportunities.”

With that being said, more entrepreneurs are entering the market compared to 10 years ago, says Botes. “Entrepreneurial spirit in the country is on the rise due to positive shifts in societal attitudes. This has had a significant impact on how individuals view entrepreneurship, and has resulted in an increasing number of South African adults viewing it as a career choice. The GEM report2 reveals that 69.6% of respondents viewed entrepreneurship as a career choice in 2014, up from 48% in 2003, albeit down from 74% in 2013.”

Botes mentions that a growing stronger middle class is aiding consumer spend in South Africa. “The black community in particular is steadily moving from the lower to middle and upper income brackets, and driving consumer spending.”

Sectors which have seen the most significant growth in terms of opportunities include the services industry, especially beauty and health, due to consumers becoming more health conscious. Botes says that other sectors worth mentioning is the vehicle manufacturing industry, which includes motor vehicle components that are produced locally, as well as the telecommunications industry, which is doing significantly better compared to 10 years ago.

“There are however sectors that are facing challenges compared to a decade or two ago, such as manufacturing, which is not growing rapidly enough due to slowed economic growth. The sector, however, remains positive. Although the textile industry is making a recovery, this growth is artificial as Chinese and Indian products are still cheaper than locally-produced items.”

Remarking on the availability of financing for small businesses, Botes says there has been a shift towards the positive, as more players are availing financing for entrepreneurs. “Although the 2008 recession made financial institutions more conservative, they are starting to relax lending criteria. Government agencies have also improved and the Department of Trade and Industry (DTI) has been instrumental in driving entrepreneurship in the country. Notably, National Treasury, through its Jobs Funds, has created jobs by supporting initiatives that generate employment in innovative ways.”

Botes adds that while access to finance has improved, Government red tape and bureaucracy remain an issue. “Red tape has increased in the past few years as more acts are passed, therefore affecting the ease of doing business. Public sector employment has also grown significantly, thereby putting more pressure on governmental resources.

“The general perception is that the environment is more favourable to entrepreneurship than 10 years ago, and with entrepreneurs possessing a can-do attitude, entrepreneurship will continue to thrive in the country,” concludes Botes.