FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS MANAGEMENT

ASSIGNMENT 1
STUDENT NAME PRECIOUS MARUBA L0151294X
UTSILISITSOE MUDAUNI SEBATA L0150606F
ORPAH NCUBE L0151157E
ELIOT BIRIYADI L0201458N

STUDENT NUMBER L 0150606 F

PROGRAMME MASTER OF BUSINESS LEADERSHIP
COURSE ENTREPRENEURSHIP
COURSE CODE COBL 6103
LECTURER DR. T. NDOFIREPI
YEAR 2021
Search on the internet for entrepreneurship development policy documents relating to
Zimbabwe and South Africa and study them so that you get an appreciation of the state of
entrepreneurship in the two countries. In addition study Isenberg (2011), entrepreneurial
ecosystem model and use it to respond to the questions below:

1. Use the entrepreneurial ecosystem model to illustrate the character of the

entrepreneurship environments in the countries mentioned above (50) marks

The entrepreneurship ecosystem consists of a set of individual elements—such as leadership,

culture, capital markets, and open-minded customers—that combine in complex ways. In
isolation, each is conducive to entrepreneurship but insufficient to sustain it.

Mason and Brown, (2013) noted that entrepreneurial ecosystem development draws up rich
intellectual inquiry from Economic geography. Economics and other disciplines mainly because
it seeks to understand and explain why firms cluster together in geographical space and benefits
that arise from such clusters They went on to synthesis a definition of entrepreneurial ecosystem
as “a set of interconnected entrepreneurial actors (both potential and existing), entrepreneurial
organizations, institutions and entrepreneurial processes which formally and informally coalesce
to connect, mediate and govern the performance within the local entrepreneurial environment”
(Mason and Brown 2013, pg5). Moore, 1993 in Mason and Brown, (2013) realized that James
Moore was amongst the first to coin the term ecosystem in relation to entrepreneurship, in his
influential article in Harvard Business Review in the 1990’s he pointed out that businesses do not
evolve in vacuum but rather in a relational nature of interactions between suppliers, customers
and financiers.

There is need to also define the term “ecosystem”, a term originating from ecology. Defined
succinctly by Sir Authur Tansley in 1935 as “a biotic community or assemblage and its
associated physical environment in a specific place” According to Pickett and Cadenasso (2002,
pg2). An ecosystem can be of any size as long as interactions are possible within its boundaries,
another characteristics is that it is far from been in a state of equilibrium hence it is constantly
changing in composition, content or the processes. Ursula Backhaus, (2002) concurred these can
be related to Schumpeter’s third general principle of economic development which states that
“economic development is not an organic entity that forms a whole, it rather consists of
relatively separate partial developments that follow one upon the other”
1. Stop Emulating Silicon Valley: While Silicon Valley is a successful entrepreneurial
ecosystem it is unique for its region and unlikely to be replicated in other areas.

2. Shape the Ecosystem around Local Conditions: Look for locally based industries with
growth potential and existing capacity and build upon these foundations.

3. Engage the Private Sector from the Start: Entrepreneurial ecosystems must be led by the
private sector and the role of government is to facilitate not try to lead or control.

4. Favour the ‘High Potentials’: While there must be room for all types of business attention
should be given to fostering the growth of firms with the capacity for innovation and global
market engagement.

5. Get a Big Win on Board: Success stimulates and motivates others to have a go and where
there are successful firms they should be showcased and used as case examples for others.

6. Tackle Challenges Head-On: Entrepreneurial activity in some areas may be stifled by an

entrenched culture that is risk averse or conservative, this should be challenged by active
communication and education programs.

7. Stress the Roots: Entrepreneurial growth oriented firms should not be flooded with ‘easy
money’ through grants or venture capital flows. Firms must be profitable and sustainable with
good financial management.

8. Don’t over Engineer Clusters; Help Them Grow Organically: Government enthusiasm for
building industry clusters needs to be tempered by a realization that they emerge organically
from existing industries and not from attempts to ‘pick winners’ or building green fields science
parks.

9. Reform Legal, Bureaucratic, and Regulatory Frameworks: A key role for government is
to address legal, bureaucratic and regulatory issues such as taxation, licensing and compliance so
that there are no unnecessary impediments to entrepreneurship and small business growth.

According to the World Bank Group (2018), Zimbabwe will need to overcome several structural
challenges so as to improve on its entrepreneurial ecosystem. The group identified many of
these, including (1) complex fiscal and macroeconomic challenges that stem in part from
unsustainable expenditures and a growing fiscal deficit; (2) challenges of both vertical and
horizontal development, with limited avenues for social mobility, poverty reduction, and formal
employment; (3) multidimensional poverty, with a high concentration of the rural population in
isolated regions, which contributes to entrenched poverty; (4) human development challenges,
wherein despite its high literacy rate, repeated outbreaks of cholera and typhoid in major cities
underscore the deterioration of Zimbabwe’s basic service delivery and social infrastructure; and
(5) challenges related to the centralized and top-down system of governance, which has resulted
in the public sector accounting for approximately 50 percent of gross domestic product, while the
lack of transparency in Zimbabwe’s productive sectors has implications for governance and the
economy more broadly. Despite the multiple factors of fragility that the country faces, the
population has demonstrated tremendous resilience and has relied on coping strategies that have
helped it avoid broad-based violent conflict in spite of severe economic and social stresses.

Isenberg (2010:P 8-9) argues that the success of entrepreneurship does not depend on one factor.
He claims that providing financial support only may be useful at the startup of the firm but
strategic guidance, leadership development and business mentoring are required to ensure the
sustainability of the entrepreneurial activities. He goes on to indicate that this kind of interactive
and experiential learning is more of a value to improving the growth of entrepreneurship
phenomenon.

At this juncture it is important to note that small to medium enterprises are in most African
countries viewed as informal traders, mainly due to their reluctance to formalize operations due
to a variety of factors and these are prevalent in Zimbabwe. The idea is usually to evade paying
tax. Dewar (2005) has it that the development of informal traders, as they are regularly known
has been controversial with some arguing that it is a symptom of backwardness which needs to
be addressed while others indicated that it is a positive development which allows members of
the community who would have failed to make it into formal employment to gain a foothold in
the urban economies.

Ndoro (2012) has it that in Zimbabwe, SMEs contribute approximately 90% of the economic
growth of the country (Goriwondo 2011). In Zimbabwe, the commissioning of the Ministry of
Small and Medium Enterprise and Corporative Development and the Small Enterprises
Development Corporation reveals a great deal of commitment on the part of the government on
the establishment and development of SMEs. However, it is regrettable to realize that the
mentioned Ministry is not considered a major Ministry, thus it is perennially underfunded. The
government is reluctant to adequately fund the Ministry of Small and Medium Enterprise and
Corporative Development probably because it considers its beneficiaries to be informal traders.
In addition, it has been noted that the government has traditionally left out SMEs from its
incentive structures and this has caused the sector to avoid paying taxes, thus the government is
losing a lot on potential contribution to the fiscus (Tanyanyiwa).

In contrast South Africa is an entrepreneurial leader in sub-Saharan Africa. The country has
made significant progress to overcome structural factors and produce some of the most
innovative and successful enterprises on the continent. The country provides the institutional
support necessary for high-growth businesses to emerge and thrive, while government policies
work to close historical gaps. With the addition of targeted, coordinated policies to address
remaining bottlenecks, the country is poised to achieve greater growth through entrepreneurship.

Factors that impact the South African entrepreneurial ecosystem:

• The current recession. The South African economy has been growing slowly with 0.1%
growth in 2016. Unemployment is almost 27.1% and incomes are falling. The major cause of this
recession is the rebalancing of the Chinese economy, which is reducing the demand for South
Africa’s raw material exports.

• Bureaucracy and red tape. In combination with these two, the existence of large and well-
established state-owned enterprises prevents private sector enterprises from entering key sectors
dominated by these SOEs.

• Large firm dominance. In addition to state-owned enterprises, the South African economy is
dominated by large companies that prefer doing businesses with trusted suppliers they have built
a long-term relationship with over doing business with startups that are new to the market. Large
firms account for more than 90 percent of the South African market.

• The dual economy. One-third of the working population is effectively excluded from the
formal economy. A majority of entrepreneurs from disadvantaged communities tend to suffer
from lack of resources due to their communities being underserved. The current market structure
is not conducive to new market entrants, as there are structural barriers to market access for new
entrants and small businesses, which contribute to their failure.
• Infrastructure. While South Africa leads sub-Saharan Africa in terms of infrastructure across
categories, the economy struggles with energy constraints.

• The education system. “Eighteen years into democracy, South Africa remains a highly
unequal society where too many people live in poverty and too few work. The quality of school
education for most black learners is poor.” Appropriately, government action in the education
sector is focused first on reducing inequality in education. In addition to inequality, the structure
of the education system doesn’t allow for creativity and innovation, which impacts the level of
innovative entrepreneurship activity which is needed for growth.

Strengths of the South African entrepreneurial ecosystem

• In contrast to the weak showing of the sub-Saharan African region on average, the South
African entrepreneurial ecosystem outperforms the region in the most growth-oriented
components. South Africa performs better where it counts: in entrepreneurial aspirations,
innovation, high growth, internationalization and risk capital are the pillars that lead to economic
growth.

• South Africa is also very strong on the depth of its capital markets, performing in the top 20
percent of countries. It also performs in the top 20 percent of countries for new products and new
technologies and is a leading economy in terms of risk perception and competitiveness and
regulation. The pillars that hold back overall performance are largely a factor of the dual
economy – South Africa has the right institutional environment for high-growth firms to thrive,
and efforts to address attitudes and abilities across the population will further strengthen this
environment.

2. Use a combination of indicators to assess the performance of the entrepreneurial

ecosystem of the two countries (20).

The OECD provides a framework for measuring the effectiveness of entrepreneurial ecosystems
thus;

Elements of Assessing Entrepreneurial Ecosystems.

Entrepreneurship determinants refers to the various factors that affect entrepreneurship, which is
the primary focus of the seven ecosystem mapping tools reviewed in this paper. Despite the
varied sources for these evaluative approaches, they are relatively consistent in terms of broad
themes and actors that would be considered determinants of entrepreneurship, such as specific
policies, amount of venture capital financing deployed, and the availability of business
development services.

2. Entrepreneurial performance refers to the specific activities that entrepreneurs perform that
will ultimately deliver the impacts. Indicators such as the total number of formal businesses in an
economy, the number of high-growth firms (gazelles), employment figures, and enterprise
survival and death rates are all considered measures of entrepreneurial performance.

3. Impact refers to the value created by entrepreneurs, and entrepreneurship, which may be
measured in terms of macroeconomic variables, such as GDP growth, employment, Gini
coefficients (to measure income distributions), or the size of the formal sector vs. the informal
sector. The authors of the OECD framework note that most of these indicators are used
extensively for economic research, and are comparable across countries.

The Indicators the writer would use are; economic growth, poverty reduction and Job creation.
The difference between the Zimbabwean economy and South Africa lies in the fact that The
Zimbabwean SME’s are largely informal whereas the South African SME’s are formal. The
Zimbabwe informal sector employs employ 90 percent of the workers. They avoid paying taxes
hence the introduction of the US$30 mandatory tax imposed by the Finance Minister in his 2020
Budget. Whilst the informal SME’s contribute to the reduction of poverty, the extent of poverty
reduction is limited because these business do not formally contribute to the mainstream of the
economy as they do not pay relevant taxes. The government cannot fully account for their
contribution as these businesses suffer from growth. Informal businesses do not have access to
capital. They are not registered hence security on finance is questionable.

Their contribution to Job creation is also questionable as employees are not protected from
labour disputes. Employees do not pay contributions such as NASSA, and PAYE. Employees are
also not pensionable. Large businesses do not find it conducive to do business with unregistered
business hence these small businesses rely on individual clients who are reluctant to pay for
services rendered to then hence the growth of these businesses is suffocated.
Most SMEs are predominantly sole proprietorship, bank authorities view them with caution.
O’Connor and Kelly (2017) identified access to finance, lack of marketing strategies, lack of
skilled manpower, and poor customer service as barriers to the growth of SMEs. SMEs
contribute to economic growth. Seo and Chae (2016) believed that the major challenge affecting
the growth of SMEs include how to improve their performance through innovation management
in the long term. The death of the owner of most SME’s result in discontinuity of their operations
as there are usually no succession plans in place. The lack of potential continuity for most SMEs
after the demise of the owner raises

Where South African SME’s are formally registered. They contribute well to economic growth
and they do business with large enterprises which eventually support their growth. Their
employees will also be formally employed and benefit from pension contributions.

1. The major problem we observe is due to the demographic structure of the country with
almost 50% of the population under 24, youth unemployment close to 50% and
unemployment of 25%. A young population could be an advantage for a country. Even a
large advantage. Young people are more energetic, more ambitious, and should be better-
educated than the older population. However, a young population also poses challenges
for a country. Human development and education are crucial for a young population if
they are to achieve their dreams and if a country is to benefit from their vitality. In other
words a young population needs to be educated and be able to find employment to
contribute to economic growth.

2. Second, South Africa, despite a real effort to improve the state of small business policy and
the entrepreneurship ecosystem over the last decade, has not made much progress in improving
the overall entrepreneurial ecosystem.

3. South Africa, however, is a lot different from other countries at similar levels of development
in Africa. It has a much better-developed ecosystem than other African countries like Nigeria,
Egypt or Ghana. While the South African entrepreneurial ecosystem is underdeveloped and
unbalanced South Africa is stronger than most of its peer countries in competition, product and
process innovation. For example, it is more like China than Russia and Brazil with weak
innovation. This is the good news. However, it is like Russia and Brazil in technology absorption
and human capital, the skills needed to close the distance to frontier gap. The distance to the
frontier is the difference between countries that are using the best technologies and those that are
not. That difference is the distance to the frontier that needs to be overcome.

4. The results of the analysis using the Global Entrepreneurship Index to gauge weaknesses in
the South African entrepreneurial ecosystem are confirmed by the survey results. The
weaknesses are, startup skills, risk capital, technology absorption, human capital and social
capital.

3. For each of the two countries, suggest some innovative intervention measures to
improve the performance of their respective entrepreneurial ecosystems (30)

Tinarwo, (2016) noted that in the developing economies, such as in Zimbabwe, the owners of
SMEs play pivotal roles in re-engineering the socio-economic landscape of the country. The
owners of SMEs use formal and informal training and they become better by using their
knowledge and intensive service activities. Mapeto et al. (2015) discussed the significant roles of
SMEs in Zimbabwe which include employment creation, utilization of scarce resources, limit the
challenges associated with rural-urban migration, critical breeding space and nurturing grounds
for local entrepreneurial capacities, and improve the technical skills of the local population.
Muzamwese (2016) revealed that the owners of SMEs contribute to the economic and social
development through aiding technological innovativeness and managerial competencies, revenue
generation interventions,

The owners of SMEs provide opportunities for developing local skills and technology acquisition
through adaptation. Lekhanya (2015) revealed that the SME sector is widely recognized as a
major driver of developing socio-economic activities. In developing economies where there are
limited number of large-scale companies, SMEs are the major source of GDP and employment.
Karadag (2016) emphasized that the economic growth and developing of the SME sector are
closely associated in both the developed and the developing countries. The rapid growth of
SMEs depends on the economic environment, the low economic environment helps the SMEs to
grow while the high inflation environment provides challenges to the businesses.

Both countries can benefit from the following recommendations in improving the entrepreneurial
ecosystems.

Improving startup skills:

• Education: A country that has the demographic structure of South Africa should make
education the number-one priority for all of South Africans. Zimbabwe boast of high literacy
rates and hence can continue to maintain the standard of education.

• Starting a business: South Africa should be the easiest country in Africa to start a business on
account of its well-developed infrastructure - not the hardest. South Africa ranks 131st on the
ease of starting a business index. It ranks 111th in getting electricity services connected. South
Africa should engage in a massive deregulation of the startup ecosystem process for all sectors of
the population. Currently the new entrants mainly range from people who are unemployed,
retrenched or retirees who realised they cannot survive on their pension. They are then forced to
start their own business, but are not equipped to handle the rigors, do not have the financial
support or knowledge. But this has not stopped new entrepreneurs from entering the market, 63%
of small businesses fail.

• Employment training: An ecosystem-centric unemployment/re-employment training program

that prioritizes training of individuals without current employment options into new or existing
firms or industries. For example, the United States offers an online service that matches the
unemployed with training for jobs with new or existing firms.

• Informal to formal: Legitimize a pathway to formal entrepreneurship in the informal sector. It

is important for enterprises to be able to become a part of the formal economy in order to grow
the businesses and ensure that firms pay taxes. However, entering the formal economy should
not and cannot be a burden on SMEs.

• Wage subsidies can be used to address structural inequality: A randomized control trial
(RCT) of a wage subsidy voucher “led to a higher employment one year after receiving the
voucher. Wage subsidies provided to SMEs could be particularly impactful in terms of both
unemployment and the affordability of skilled labor.

Banking and finance for all:

• Mobile banking: While South Africa has a very well-developed banking system, it has a
weakness that is easy to address. First, most of the country does not have access to formal
banking while other African countries made a serious effort to introduce mobile banking.

• Crowd funding: The second modern approach to entrepreneurial finance is crowd funding.
However, this depends not only on banking but also on being connected to the internet. While
this report will not go into the details for crowd funding South Africa should take the lead of the
United Kingdom and adopt a hands-off regulatory approach to all crowd-funding donation, debt,
equity. Once the system is up and running regulation can always be introduced afterwards.

• Reduce lending risk among SME borrowers: Evidence from India shows that “SME
borrowers, who are regularly called either by a single assigned relationship manager, or by one
manager randomly selected from a small team of managers, show much better repayment
behaviour and greater satisfaction with the bank services than borrowers who either receive no
follow up or only receive follow up calls from the bank when they are delinquent.”

• The use of credit scores can reduce lending friction for SMEs: This could be particularly
important in reducing structural inequality through removing some subjectivity from lending
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economy policy: principles for cultivating entrepreneurship, Babson College, Babson
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