Tag: National Treasury

What is driving SA’s drastic decrease in entrepreneurial activity?

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Entrepreneurial intentions among South Africans has dropped by almost 30% in 2015 when compared to 2013, and almost halved when compared to 2010, yet the perceived entrepreneurial opportunities has increased over the same period, according to the recently release Global Entrepreneurship Monitor South African Report 2015/16.

According to Kobus Engelbrecht, spokesperson for the Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS – SA’s leading entrepreneurial platform, there are many aspects at play when analysing these figures. 

The report shows that the perceptions about entrepreneurship in South Africa has increased since 2009, with 40.9% of South African adults in 2015 perceiving good entrepreneurial opportunities (up from 37.8% and 25.4% in 2013 and 2009 respectively). Perceived entrepreneurial capabilities – those South Africans that believe they have the necessary skills, knowledge and experience to start a business – also increased to 45.4%, up from 42.7% in 2013 and 35.5% in 2009.

“Despite these positive indicators, these figures haven’t translated into higher entrepreneurial intention figures, which sharply declined from 19.6% in 2010 to just 10.9% in 2015. This ultimately means that 1 in 10 South African adults currently have entrepreneurial intentions.”

So what has changed in the past five years, since 2010, for South Africa to reach such entrepreneurial lows? Engelbrecht says the declining economy has played a role. The local economy has slowed its growth from 3.1% in 2010 to 1.3% in 2015, and recent reports suggest the economy will only grow by 0.4% in 2016. The prolonged fear of a ratings downgrade has also a negative impact on the economy.

“The 2010 FIFA World Cup, and the build-up to the event, created many business opportunities for both existing and aspiring entrepreneurs to capitalise on, from tourism to infrastructure development, thus stimulating entrepreneurial activity in the country. The ensuing years have failed to present a similar excitement around entrepreneurship despite public and private initiatives to support entrepreneurs, including black economic empowerment policies and enterprise development programmes,” adds Engelbrecht.

He adds: “While the 2010 FIFA World Cup may have cushioned the country against the 2008 global financial crisis, the effects post the financial crisis continue to cast an economic shadow. Banks and other financiers have seemingly become more cautious in their approval processes thus making access to business finance more difficult for aspiring entrepreneurs. However, the long-term effects created by the restructuring of institutions to stimulate youth entrepreneurial activity – such as the Umsobomvu Youth Fund which had been established to finance young entrepreneurs – cannot be underestimated.”

But Engelbrecht stresses that despite this sluggish growth, entrepreneurship should be promoted as an answer to revive the country’s current flagging economy.

Engelbrecht points to a case study in Brazil – an efficiency-driven economy, like South Africa, which was also measured in the report. “Despite entering a recession in 2015, Brazil implemented a small business tax bill called Simples Nacional which offered select small and micro firms a reduced tax rate, and under this bill, tax collected increased by almost 7% year-on-year in the first half of 2015. During the same period, the number of business registrations in the country also increased by 5% year-on-year. These small and micro businesses also created an additional 116 500 jobs between January and May in 2015, despite the economy shrinking during the same period.”

He continues, “Entrepreneurs and small business are widely recognised and praised for their contribution to the local economy and the country’s job creation, yet we aren’t fully supporting these individuals enough to truly maximise their potential.”

Engelbrecht points to the report again which states that the three main constraints limiting entrepreneurial activity is Government policy (61%), access to finance (44%), and education and training (42%). “South Africa’s established business rate is also lower than the average for efficiency-driven economics, which, at 8%, is more than double South Africa’s rate of 3.4%. The country also has the lowest established business rate of all economies that participated in GEM 2014, and was ranked 53 out of 60 economies.”

In terms of policy, he says that it is encouraging that the South African Government has set aside 30% of its procurement spend for SMEs. He adds that this, coupled with the introduction of a central procurement database and eTender system by the National Treasury, if implemented without any undue influence, should serve to stimulate entrepreneurship as it did in the Republic of South Korea (ROK). In the ROK, the government introduced an award-winning e-procurement portal which made government procurement more transparent and led to an increase in contracts awarded to SMEs from 55% to 75% between 2003 and 2012. This system has also reduced the time it takes to pay suppliers from 14 days to 4 hours which goes a long way in boosting the sustainability of SMEs. 

Engelbrecht says, “The public and private sectors need to pull together to improve our entrepreneurial ecosystem and ensure that the required support such as business advice, mentorship and access to finance is available to all entrepreneurs. We also need to make entrepreneurship part of the South African culture, and find ways of sharing knowledge between South African and immigrant entrepreneurs.

“These changes coupled with improvements in entrepreneurship education at school and a renewed commitment to review and eliminate policies that negatively impact entrepreneurs, will ensure that South Africa’s entrepreneurial activity begins an upward trajectory,” concludes Engelbrecht.

21 years of entrepreneurial growth in SA

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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.

21 years of entrepreneurial growth in South Africa

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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.

Bosses must support retirement planning

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With 51% of surveyed pensioners not making ends meet and 62% of job changers still not preserving their retirement savings, South Africa’s employers and business owners have a vital role to play in solving the country’s retirement savings shortfall.

This is the conclusion drawn by Sanlam after analysing the results of its 2013 Sanlam Benchmark Survey. Dawie de Villiers, CEO of Sanlam Employee Benefits (SEB), says National Treasury is keen to address the issue, but proposed measures will likely only take hold in 2015. This is why Sanlam believes its research points to the need for employers to step into the breach.

“According to the principal officers of stand-alone retirement funds, 47% of retirement fund members turn to human resources (HR) for retirement queries throughout their working lives and 32% ask HR for advice at retirement,” says De Villiers. But only 52% of employer funds have formalised strategies to advise active members. And the fact that only 26% have a built-in preservation strategy as a default option ends up perpetuating the trend for employees to spend their savings before retirement when they resign or are retrenched, adds De Villiers.

“An employee’s retirement journey starts on day one of employment and continues for the rest of their life,” says De Villiers.

Taking into consideration that employees would have contributed to some form of retirement vehicle for an average 28 years by the time they retire, it is disconcerting to think that nearly three decades of saving would not be enough to secure a comfortable retirement. De Villiers feels this is enough hard evidence for employers to step in and nudge their staff towards making informed decisions about their retirement financial planning.

Since the shift from defined benefit to defined contribution benefit structures, the risk and responsibility for retirement provision has rested largely with the employee. De Villiers does not advocate a return to the “paternalistic era” of the 1980s, but believes current results are unsatisfactory.

Most employees do not seem to care very much about retirement planning, with only 10% bothering to review the retirement benefit option they selected when they joined the fund. “They consider retirement as a very distant event and are not interested in the detail around it. In fact our research shows that people only seek financial advice on average 12 years before retirement,” says De Villiers. “If the employer or business owner works with every employee to develop a retirement strategy that fits into their overall financial plan and also helps them to understand the consequences of certain actions or inaction during their employable years, we would see a marked improvement in retirement statistics in this country.”

Happily, three out of four pension funds surveyed do offer pre-retirement counselling, but only 41% have a stated target pension. Retirement industry stakeholders such as trustee boards and benefit and asset consultants should make a real effort to ensure that the fund structure can support a successful retirement for each individual member, says De Villiers. Retirement funds need to gently nudge their members towards making decisions that would benefit them in retirement, without being prescriptive or taking away member choice, says De Villiers. And to make this a reality, many more employers need to put in place counselling strategies and ensure skilled resources are allocated to ensure their successful implementation, adds De Villiers.

“Over the past number of years our research has consistently pointed to a need for regulatory change in the retirement industry and we are extremely pleased that the wheels have been put in motion with Treasury,” says De Villiers. But until these proposals become reality, employers can do much to aid matters, concludes De Villiers.

Sanlam Employee Benefits is a leading provider of group life and disability benefits, institutional investments, risk services, fund administration, derivative based structured solutions to institutions and retirement funds through a number of specialist divisions. For more information visit the Sanlam Employee Benefits webpage or call 0860 100 539.