Over the course of the past few decades, entrepreneurship has acquired an increasingly negative connotation, which Business Unity South Africa (Busa) Small-, Medium- and Microenterprises task team chairperson John Dludlu said has only been further exacerbated by the Covid-19 pandemic.

During the course of the pandemic, he bemoaned, “unscrupulous fraudsters” had taken the health and economic emergency as an opportunity to steal from the poor using criminal schemes in the name of entrepreneurship.

This, he added during a Busa-hosted webinar on August 20, has led to the South African government, in particular, “spending tens of millions of rands trying to figure out exactly what happened”.

Looking through a qualitative lens at what constituted entrepreneurship, Dludlu observed that one must promote and build an enabling environment for entrepreneurship, before its challenges could be properly addressed.

This is all the more so because the challenges are numerous, and entrepreneurs, unlike business executives, often use their life savings or borrow money from friends and family to start their businesses.

The overall lack of commercial funding for start-up businesses contributes to this and is exacerbated by South Africa not having its own developed venture capital industry to support entrepreneurship.

“It’s not hard to work out why commercial banks and traditional funders tend to shy away from funding start-ups, but they’ve been a part of the problem, as these institutions are run by the managerial class, which follows very strict criteria and few of the lending bodies are run by entrepreneurs themselves,” Dludlu explained.

He noted that the picture would be “vastly different” if lending bodies were managed by entrepreneurs.

In South Africa, the new business failure rate is as high as 70% within the first three years, Dludlu lamented, citing information from the Department of Trade, Industry and Competition.

“That is frighteningly high and enough to discourage anyone thinking about starting their own business.”

While these numbers did not differentiate on a racial basis, Dludlu noted that “it’s fair to assume” that, in a country with a history fraught with racial inequalities, the failure rate is “higher among black people”.

The other problem is that there are just too many people who venture into business for the wrong reasons, such as a lack of employment opportunities, he stated.

With millions of South Africans having lost their jobs during the second quarter of 2020 – at the height of South Africa’s hard lockdown – Dludlu said it was concerning that some people would, by default, be using their pension payouts to hastily start their own businesses in a bid to support their families and loved ones.

Taking this into account, he suggested that, in a bid to support an entrepreneurial culture in South Africa, the best intervention would be to ensure a proper and mutually reinforcing ecosystem to support entrepreneurship.

“Part of what the system needs to do is to ensure that it sifts through true entrepreneurs from chancers. As matters stand right now, there are way too many accidental entrepreneurs, [who are generally] people who get into business for the wrong reasons, such as the lack of a job.”

Additionally, State procurement, which sees government spending hundreds of billions of rands in services and goods from the private sector, is partly to blame for these "accidental entrepreneurs", Dludlu said.

ADDRESSING THE CHALLENGES

An effective and efficient ecosystem should, therefore, start with the education system in the country, where Dludlu suggested entrepreneurship should farm part of the basic education curriculum so that children were informed, from an early age, about it.

Further down the education channel, he suggested that tertiary education systems should be in a position to provide students with more in-depth knowledge of entrepreneurship.

He lamented that only a few local universities offered courses on entrepreneurship at present.

“A level of formal education on entrepreneurship will most likely reduce, but not eliminate, the failure rate of start-ups in our economy,” Dludlu commented.

Further, the importance of assessing risks by non-traditional funders of businesses should also be re-evaluated, he added. “Unlike banks, the nontraditional finance players are more flexible and imaginative in their approach to assessing risks of new businesses.”

Fragmentation, working in silos and unnecessary rivalries – the “three-headed monster” – also inhibit progress.

“The private and public sectors need to work together in providing financial and non-financial support to entrepreneurs. Currently, the potential impact of State and non-State agencies is constrained by a lack of coordination between various players,” Dludlu lamented.

Even in the private sector, for example, there is “unnecessary competition” among various companies.

Opportunities for collaboration should, therefore, be explored from an industry perspective, as well as form a geographic point of view.

“A key part of this collaboration has to be the scrapping of exclusive agreements by major corporations, as such agreements are not only anticompetitive, but also seriously constrain [small business’] ability to grow,” Dludlu concluded.