21 years of entrepreneurial growth in SA

Christo Botes, spokesperson of the 2015 Sanlam / Business Partners Entrepreneur of the Year® competition, provides insight into how entrepreneurial activity has evolved over the last two decades in South Africa.

South Africa celebrates 21 years of democracy on 27 May 2015 – Freedom Day – which represents the liberty for individuals to follow the path he or she chooses. Entrepreneurship is one such path, and since the first democratic election in 1994, South Africa has witnessed the rise of small business in the country.

Economic activity in the country has experienced positive growth since 1994, and the GDP has almost tripled from $143.8bn in 1996 to $404.3bn in 2011. This in turn has improved the opportunities available to entrepreneurs and small business.

According to the recently released Global Entrepreneurship Monitor (GEM) 2014 South Africa report2, 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, and proof of the Government’s commitment to the sector was the establishment of the Ministry for Small Business Development – which was developed to review regulations, thereby easing the burden on small business.

Given the current 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, as when 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 and 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 report 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.

Whilst economic growth may be slowing slightly, rising consumer spending is driving growth in select sectors. A growing stronger middle class – particularly in the black community steadily moving from the lower to middle and upper income brackets – is supporting this 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. 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 in comparison to 10 years ago.

There are however certain 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.

When looking at the availability of financing for small businesses, 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, financiers are starting to relax lending criteria. Government agencies have also improved and the Department of Trade and Industry (the dti) has been instrumental in driving entrepreneurship in the country. Notably, the National Treasury, through its Jobs Funds, has created jobs by supporting initiatives that generate employment in innovative ways.

Sadly, while access to finance has improved, Government red tape and bureaucracy remain an issue as this has increased in the past few years as more acts are passed, therefore affecting the ease of doing business.

When taking all of the above into consideration, 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.