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Beyond the World Cup: A Diamond for Growth

Jonathan Ortmans, President, Public Forum Institute

Spain’s victory yesterday in the World Cup in Johannesburg marks the conclusion to an exciting competition. However, with the media pointing to some of the dashed economic expectations among South Africans these past few weeks, I decided to inquire a little more into the entrepreneurial part of South Africa’s economic development equation which led me to uncover some important trends and opportunities suggesting that the country might be well on its way to achieving the goal set forth by the country’s new president, Jacob Zuma, to create 4 million new jobs by 2014.

According the Gallup World Poll, 29% of South Africans are planning to start a business in the next 12 months. This is below the median of 41% for Africa, but on the positive side, we know from local witnesses that many of those plans are increasingly materializing. Nontokozo Hlangweni from Endeavor South Africa explained to us that the scarcity of jobs has helped push a sort of entrepreneurial energy that drives young people to become their own employers. Not surprisingly, Small and Medium enterprises (SMEs) are recognized as vital in the development of the South African economy. According to South African reserve bank findings, the total economic output of SMEs is more or less 50% of the country’s GDP. The SME sector also employs more than60% of the total labor force. The task at hand is to continue building an environment that supports new business creation and to foster, through policies and programs, businesses with high-growth potential. The key to a true entrepreneurial-growth strategy is to enable young firms to grow.

Luckily, South Africa has an entrepreneurial environment that is relatively supportive of newventures. Last year’s Gallup poll revealed that 80% of South African respondents said that their city or region is a good place for entrepreneurs forming a new business. The country is ranked 32nd among 183 economies studied by the IFC’sDoing Business project. Not bad, but the challenges for South Africa are still many. For example, one of the most severe problems associated with entrepreneurialism in South Africa is the regulatory red tape caused by high costs of compliance. For example, although it takes only 22 days to register a new business in this country compared to 45.6 days in Sub-Saharan Africa, it falls behind industrialized countries where the time an entrepreneur has to invest in this initial step is 13 days on average, according to World Bankdata. In most places, simplifying business registration procedures, tax regulations and other regulations for start- up entrepreneurs can go a long way since they influence a company’s ownership structure, job creation, financing structure, and of course, the very decision to start a business. Policymakers should minimize anti-entrepreneurial incentives and barriers that could potentially block the emergence and growth of new companies. Information-sharing- tools can also go a long way. As Nontokozo suggested to us, entrepreneurs could benefit a lot from greater access to updated information even if it is through something as simple as a more constructive website that compiles up-to-date information on requirements and opportunities for networking and funding.

The challenge for South Africa doesn’t end there. Even the most enabling environment can fail to generate interested risk-takers. South Africa’s other significant entrepreneurial bottleneck is inadequate education. Companies cannot form if the youth don’t have the skill set to become their own bosses and cannot adequately grow if they cannot hire skilled employees. For instance, South African brothers Justin and David Letschert, who received South Africa's 2008 Emerging Entrepreneur Award from the Ernst & Young World Entrepreneur Awards Program for leading a skincare exporting company called Union-Swiss, attributed much of their success to their ability to attract South Africa’s most talented young professionals. I encourage you to read about the current finalists for 2009 and the SouthAfrica Fast Growth 100 list – they are all innovative and dynamic companiesthat rely on a talented workforce.

Recognizing its weaknesses in education in general, the South African government has made stipends available to foster training within organizations. However, entrepreneurs cannot bear this burden alone. The public sector must invest time, energy and resources into developing the human capital of young South Africans in order to keep their economy growing and to spurinnovation in the country. Leaders could learn from organizations like Junior Achievement South Africa, which was selected to represent the country at the Global Entrepreneurship Congress in Dubai this spring due to its work in advancing the spirit of entrepreneurship by teaching entrepreneurial skills and increasing the business capacity of young people.

Such investment in education can help the South African government “recruit” entrepreneurs to overcome many other challenges, such as the lack of an adequate infrastructure. In many countries, promoting more private sector entrepreneurs in infrastructure systems has yielded significant opportunities for long-term economic and social benefits, as well as for immediate job creation. Think of the growth of the Internet in the U.S., for example, which has been fueled largely by competing cable and telecom providers seeking to meet consumer demands for access, speed and reliability.

South Africa’s leaders have already started looking for an entrepreneurial path to growth. Last November, South Africa’s the State of Entrepreneurship Summit during Global Entrepreneurship Week brought together leaders in the fields of government, education, and big and small business to discuss accessing capital, incubator support of start-ups, and the overall culture of high growth entrepreneurship. Important opportunities were discussed, such as the migrant movement into the country and the ways to turn entrepreneurship from a “necessity phenomenon” to entrepreneurship as way to introduce disruptive ideas.

I encourage South Africans to continue these discussions and to find concrete ways to build a start-up culture. Their reward will be an economy driven by job creators and innovators who can contribute with their experience, talent and innovation to address many of the country’s other pressing challenges, such as the AIDS epidemic and food security. While South Africa faces great challenges in order for it to fully tap into the entrepreneurial energy of its young, the country is ripe for entrepreneurial growth.

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Jonathan Ortmans is president of the Public Forum Institute, a non-partisanorganization dedicated to fostering dialogue on important policy issues. Inthis capacity, he leads the Policy Dialogue on Entrepreneurship, focused onpublic policies to promote entrepreneurship in the U.S. and around the world.In addition, he serves as a senior fellow at the Kauffman Foundation.

The author would like to thank Nontokozo Hlangweni from Endeavor South Africa for the insights provided.

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